Documents considered by the Committee on 21 February 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:

Brexit implications

Digital Single Market: Free Flow of Data

EU Aviation Safety Agency (EASA)

Emergency oil stocks

Nuclear energy

Nuclear fusion project

Summary

Digital Single Market: Free Flow of Data

The European Commission has proposed a draft Regulation which would prohibit “data localisation requirements”—rules introduced by Member States which require data processors to conduct data processing, and locate associated infrastructure, on national territory—because these requirements impede intra-EU trade and fragment the Single Market, increasing business costs and acting as a barrier to growth. In its previous report, because of a lack of information from the Minister (Matt Hancock MP), the Committee opposed it participating in the agreement of an informal mandate in the Committee of Permanent Representatives (COREPER) and asked the Minister to instruct the UK Permanent Representation to defer the decision, and to press for a general approach to be agreed in Ministerial Council instead. The Minister did not do so, meaning that the Permanent Representation supported the mandate, which does, however, appear to be in line with the UK position. The Bulgarian Presidency hopes to conclude negotiations with the EP in the coming months, and the Regulation will apply six months after its publication, meaning that it is likely to enter into force before the conclusion of Article 50 negotiations, or during the transition period. UK stakeholders will benefit from the proposed Regulation after the UK withdraws from the EU.

Not cleared from scrutiny; further information requested.

Digital Single Market: EU Cybersecurity Agency / European Network and Information Security Agency (ENISA)

The Government has provided a detailed response to our questions about the proposed ENISA Regulation, which would make ENISA’s mandate permanent and grant it the power to develop cybersecurity certification schemes. The Minister (Margot James MP) addresses our concerns about a possible “operational” role for ENISA, concluding that the role that is proposed does not impinge on national competences, but assuring the Committee that the Government will continue to monitor this during negotiations. The Minister also notes that participation of competent authorities of third countries in ENISA is permitted, and that the NIS Directive permits associate membership of the NIS Cooperation Group by third countries, but that there is no equivalent provision for the Computer Security Incident Response Teams (CSIRT) Network. Regarding EU exit, the proposal is likely to become applicable to the UK either before or during any transition period, depending on when negotiations conclude.

Not cleared from scrutiny; further information requested; drawn to the attention of the Digital, Culture, Media and Sport Committee.

EU Aviation Safety Agency (EASA)

The Minister (Baroness Sugg) states that industry values having a single regulatory system for aviation safety in the EU and believes that it would be beneficial to remain part of the EASA system after the UK has left the EU. She states that remaining part of the EASA system will be considered as an option for the exit negotiations with the EU. Industry regards the prospect of an exit from EASA as negative because manufacturers and carriers would incur increased compliance costs, through having to comply with two regimes. The Chief Executive of the UK Civil Aviation Authority has said that the CAA is not preparing for this eventuality as it regards taking over EASA activities as unviable. The UK could continue to participate in EASA under the EASA Basic Regulation, but it would have to negotiate an agreement with the EU under which it undertook to apply Union law in the areas covered by the Regulation and accept the indirect jurisdiction of the CJEU. Precedent suggests that it would also forfeit its voting rights. Although not ideal, industry representatives do not appear to regard these concerns as overly significant: EASA is a technical agency and operates on the basis of consensus, so voting rights are less important than being able to provide input, and the CJEU has never made a ruling in relation to EASA.

Not cleared from scrutiny; further information requested; drawn to the attention of the Exiting the EU and the Transport Committee.

European System of Financial Supervision

The Committee considered a letter from the Treasury about EU proposals for reform of financial supervision of the banking, insurance and securities markets, which include greater centralised supervisory powers at EU-level and a new industry levy for the financial sector. While the Government is seeking substantial changes to the proposals, the Committee remains concerned about the UK’s influence over the process given its EU exit, and the much-reduced level of representation of the Bank of England and the Financial Conduct Authority, as the EU’s most sophisticated financial regulators, within the European Supervisory Authorities during the transitional period.

In autumn 2017 the European Commission proposed to substantially alter the current EU-wide system of supervision of the financial sector, and in particular the powers and responsibilities of the European Supervisory Authorities (ESAs) for the banking, insurance and securities sectors. Although likely to be watered down by the Member States, the regulations as proposed would significantly increase the powers of the European Securities & Markets Authority at the expense of national supervisors; create an industry levy to wean the ESAs off direct support from the EU budget; and make the ESAs more assertive vis-à-vis domestic regulators.

The Committee first considered the proposals back in December, and expressed concern about the scope of the changes proposed; in particular the centralisation of supervisory powers at EU-level. Moreover, it asked the Government how it would ensure that the Bank of England and the Financial Conduct Authority—which currently play a major role in the decision-making structures of the ESAs as the competent authorities of the EU’s largest financial sector—could continue to exercise influence within the Authorities’ governance structures during the post-Brexit transition. The EU has said, repeatedly and categorically, that UK public bodies will have no formal representation in EU organisations during the transitional period, much less a vote. A letter from the Economic Secretary to the Treasury to the Committee offered no reassurance on this point, noting only that UK representation during the transition remained a matter for negotiation. As such, the Committee retained the proposals under scrutiny.

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

Economic and Monetary Union

The European Commission’s recent package of measures for the ‘completion of the Economic and Monetary Union’ within the Eurozone includes the transformation of the European Stability Mechanism into a European Monetary Fund, and the incorporation of the intergovernmental Fiscal Compact—which former Prime Minister David Cameron unsuccessfully tried to block in December 2011—into the EU legal framework. None of the proposals impacts directly on the UK, given its opt-out from the single currency and decision to leave the EU. Nevertheless, given the importance of a stable Eurozone to the UK economy, we consider the package politically important.

Proposal for a Regulation establishing a European Monetary Fund not cleared from scrutiny; further information requested.

EU-US commercial data transfers: Annual Review of Privacy Shield

This Commission report is the first annual review of the EU-US Privacy Shield. Privacy Shield is a Commission adequacy decision: in other words, a Commission implementing act (EU tertiary legislation) which approves the transfer of personal data for commercial purposes between the EU and the US. Privacy Shield replaced the “Safe Harbor” adequacy decision after it was invalidated by the CJEU in Schrems.

The Commission is satisfied overall with Privacy Shield but has recommended improvements. Privacy Shield is important for UK companies trading with the US so in our last Report we asked the Government how the UK will continue to exchange personal data after Brexit and during an implementation period with third countries who have EU adequacy decisions. We also asked for an update on legal challenges to Privacy Shield.

The Government now responds, rehearsing statements about the importance of the unhindered flow of data post Brexit and referring to its Future Partnership paper on data. It mentions an implementation period without indicating how data-sharing will continue during that time when the UK is a third country. It does, at least, confirm that the Digital Rights Ireland challenge against Privacy Shield has been struck out by the CJEU.

Given that this document is non-legislative and the Government has provided answers to most of our specific questions on the document itself, we now clear it from scrutiny. We will continue to press the Government on how data-sharing will work generally during transition as part of our ongoing scrutiny of the Commission’s Communication on “Exchanging and Protecting Data in a Globalised World”.

Cleared from scrutiny; further information requested; drawn to the attention of Exiting the EU Committee, the Science and Technology Committee, and the Digital, Culture, Media and Sport Committee.

Access to EU Environmental Justice at EU and Member State Level: (a) Proposed Council Decision (b) Commission Guidance

These two documents concern obligations in the Aarhus Convention on signatories to provide access to environmental justice. Both the EU and Member States (in their own right) have ratified the Convention. Document (a) concerns adopting a collective EU position in relation to a finding by the Aarhus Compliance Committee that the EU is in breach of its obligations. Document (b) is a Commission summary of CJEU and national court case law on access to environmental justice, aimed at improving compliance with the Convention at Member State level.

When we considered these documents in November, we asked with respect to document (a) whether the UK’s support for the EU to reject the Compliance Committee’s findings was rooted in the UK’s own difficulties in complying with the Convention. Specifically, relating to the obligation to provide access to environmental justice which is not “prohibitively expensive” (Article 9(2) paragraph 4 of the Convention). On document (b) we asked about Brexit implications: whether the UK will need to take additional steps to comply with the Convention in the absence of EU enforcement mechanisms, including any plans for a national environmental enforcement body.

Based on the Government’s responses now received, we clear both documents from scrutiny. This is because document (a) was adopted in July 2017 and the question of the compliance complaint against the EU has now been deferred to 2021 and document (b) is simply non-legislative guidance. The Government has also made a reasonable effort to address our specific questions on how the UK will take forward its own compliance with the Convention post Brexit/transition. For instance, it confirms that there are no current plans to use delegated powers under the European Union (Withdrawal) Bill once enacted to change “EU retained law” relating to the Convention; and it is consulting on a new independent statutory body to challenge government and other public bodies on environmental legislation and enforce standards.

However, we ask the Government for one further response about recent developments concerning a Complaint to the Aarhus Compliance Committee against the UK alleging a lack of public consultation on the EU (Withdrawal Bill); and a partially successful Judicial Review last September affecting UK law on the capping of the costs of legal challenges relevant to the environment.

Cleared from scrutiny; further information requested; drawn to the attention of the Environmental Audit Committee and the Environment, Food and Rural Affairs Committee.

Mandatory Transparency Register for EU Lobbying: A proposed Inter-Institutional Agreement (IIA) and a Council Decision

These two proposals concern the creation of a new mandatory register for lobbyists of the EU institutions to replace the existing voluntary system of registration. Historically, both we and our predecessors have been interested in the transparency of decision-making in the EU in respect of the Council and COREPER and during trilogues.

We have already told the Government that transparency in relation to lobbying will be important during a possible transition/implementation period, assuming a loss of UK influence and voting rights in the institutions during that time. We have also questioned how the register might operate for UK lobbyists after Brexit and transition and whether it could assist transparency during the Brexit negotiations, if adopted in time.

We now report on the Government’s responses to those questions and its update on progress. Both the Council and EP have adopted their positions on the proposed IIA. The Council has also proposed a Council Decision to narrow the condition of pre-registration of lobbyists in relation to Council and COREPER activities. The Government apologises for some scrutiny oversights but has responded promptly to our request, at officials’ level, to deposit the proposed Decision and has made a good effort to answer questions. We therefore simply ask the Government to keep us updated.

Not cleared from scrutiny; further information requested.

Rule of Law in the EU and Poland: Proposed Article 7(1) TEU Council Decision

This proposed Council Decision means that for the first time in the EU’s history the Article 7(1) TEU “preventive mechanism” has been launched. It follows a long-running dispute between the EU and the Polish Government since 2015 concerning whether reforms of the Polish judiciary, Constitutional Court and the press/media breach the rule of law. If adopted, the Council Decision would amount to an assessment that there is a clear risk of a serious breach of the rule of law in Poland.

However, further steps would need to be taken for Poland to be sanctioned, for instance by losing voting rights in the Council. This would involve a separate triggering of the two stage sanctions mechanism set out in Articles 7(2) and (3) TEU. Also, the current proposal may not be progressed to a vote in Council if the Commission considers that Poland has complied with a 3-month deadline with the Fourth Rule of Law Recommendation which it issued at the same time. Voting thresholds in both the Council/EP and political sensitivities mean that it is far from certain that there will be a negative outcome for Poland as result of the current proposal under scrutiny.

The Government provides us with a neutral view of the proposal. It considers that Member States should respect the rule of law, but that constitutional arrangements are a matter for national governments. It also notes the positive relationship the UK enjoys with Poland and asserts the UK’s own “rule of law” credentials. Not unreasonably, the Government also says that it does not want to pre-empt the Article 7(1) process which affords Poland the right to make representations to the other Member States before the matter is put to a vote in Council.

We understand that there might be a discussion on the situation in the Foreign Affairs Council on 27 February. There is no vote currently planned and it is more likely that any vote would take place in March or April. This would make sense as Poland has until 20 March to comply with the latest Rule of Law Recommendation. So we ask the Government to give us sufficient notice of any imminent votes and to indicate their voting intentions, together with underlying reasoning. We also flag wider issues which arise from the assessment of EU institutions and Member States that another Member State or third country is in breach of the rule of law or human rights.

Not cleared from scrutiny; further information requested; drawn to the attention of the Foreign Affairs Committee, the Joint Committee on Human Rights and the Justice Committee.

Emergency oil stocks

The Commission’s paper proposes some minor changes to the EU’s system of guaranteeing security of supply of crude oil and petroleum products. As just under half of the UK’s emergency oil reserves are held in other EU Member States and this arrangement is covered by EU legislation, the Committee presses the Government about post-Brexit arrangements for the UK’s security of supply.

Not cleared; further information requested; drawn to the attention of the Business, Energy and Industrial Strategy Committee.

Euratom: nuclear research programme

The proposed extension of the Euratom nuclear research programme for both fusion and fission energy until the end of 2020 is important for the UK as it will form the legal basis for any European funding to the Joint European Torus (JET) fusion energy project in Oxfordshire after 2018. The JET, a leading fusion energy project, is owned by the EU and the European Commission has cast doubt over continued EU funding for the site as a consequence of Brexit. There are also broader implications of the UK’s EU exit for its participation in European nuclear energy research projects, including ITER.

In parallel to its general research funding programme (Horizon 2020), the EU also operates a supplementary research programme for fusion and fission energy under the auspices of Euratom. Under the Treaties, that nuclear programme can only run for a maximum of five years at a time; as the last cycle began in 2014, the European Commission has proposed a two-year extension so that funding will remain available until the end of 2020.

The Euratom research programme is strongly supported by the Government, among other things because it is the main source of funding for the Joint European Torus (JET), an EU-owned, Oxfordshire-based fusion energy project that was located in the UK by decision of the then-EEC Member States in the 1970s. The UK’s exit from the EU and Euratom has put this funding stream at risk, with the European Commission—which makes financial decisions—having refused to confirm whether it will extend the current grant agreement for the JET (which expires this year) until the end of 2020. A final decision will be taken when the formal proposal to extend the Euratom research programme is endorsed by the Council, which is likely to happen in mid-March.

Separately, as we noted in our recent report on Euratom, the UK’s exit from the EU also throws into doubt its participation in ITER. This is an international fusion energy research project established by the EU, US, India, China, Japan, South Korea and Russia. The UK’s involvement—which the Government strongly supports and wants to maintain after Brexit—is currently legally dependent on membership of Euratom. Following Brexit, the Government will either have to seek ‘association’ as a non-voting country within Euratom (as Switzerland has done), or negotiate independent membership of the ITER agreement (requiring national ratification of an international treaty by all 7 current signatories).

Cleared from scrutiny; further information requested; drawn to the attention of the Business, Energy and Industrial Strategy and Science and Technology Committees.

Nuclear energy

The Commission had set out in its original document the investment needs of the EU’s nuclear industry until 2050. Responding to the Committee’s queries about continued UK engagement in the European Atomic Energy Community (Euratom), the Minister confirms the Government’s desire to maintain close and effective cooperation with Euratom and that any post-Brexit transition arrangement would cover Euratom. We note that outstanding issues remain in relation to: the nature of the future relationship with Euratom; access to relevant networks; applicability to the UK, during transition, of Euratom Nuclear Cooperation Agreements with third countries; and access during transition to the Council’s Working Parties. These will be pursued through our wider work on transition and future relationship.

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

ITER (Nuclear fusion project)

The Government has responded to our queries about future UK engagement in ITER (an international nuclear fusion project). Explaining the benefits of UK participation in ITER, the Minister points to substantial construction contracts that have already been won and notes that further contracts are being targeted. ITER also supports UK science excellence, encouraging investment from industry and the creation of high-skill jobs. Non-participation, says the Minister, would place those benefits at risk and undermine the UK’s “world leading” nuclear fusion research capability. We take forward outstanding issues in our related chapter on the Euratom Research and Training Programme.

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

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: Euratom Research and Training Programme [(a) Commission Report (C), (b) Proposed Regulation (C)]; Status and outlook for investment in nuclear energy in the EU [Commission Communication (C)]; EU Contribution to a reformed ITER project [Commission Communication (C)]; Linkage of EU and Swiss Emissions Trading Systems [(a) and (b) Proposed Decisions (C)]

Digital, Culture, Media and Sport Committee: Digital Single Market: ENISA/EU Cybersecurity Agency Regulation [(a) Proposed Regulation (NC), (b) Commission Communication (C), (c) Commission Report (C), (d) Joint Report (C)]; EU-US commercial data transfers: review of Privacy Shield [Commission Report (C)]

Environmental Audit Committee: Linkage of EU and Swiss Emissions Trading Systems [(a) and (b) Proposed Decisions (C)]; Access to EU environmental justice at EU and Member State level [(a) Proposed Decision (C), (b) Commission Notice (C)]

Environment, Food and Rural Affairs Committee: Access to EU environmental justice at EU and Member State level [(a) Proposed Decision (C), (b) Commission Notice (C)]

Committee on Exiting the European Union: EU-US commercial data transfers: review of Privacy Shield [Commission Report (C)]; EU Aviation Safety Agency (EASA) [Proposed Regulation (C)]

Foreign Affairs Committee: Rule of law in the EU and Poland [Proposed Decision (NC)]

Home Affairs Committee: EU-US commercial data transfers: review of Privacy Shield [Commission Report (C)]

Joint Committee on Human Rights: Rule of law in the EU and Poland [Proposed Decision (NC)]

Justice Committee: Rule of law in the EU and Poland [Proposed Decision (NC)]

Science and Technology Committee: Euratom Research and Training Programme [(a) Commission Report (C), (b) Proposed Regulation (C)]; EU-US commercial data transfers: review of Privacy Shield [Commission Report (C)]

Transport Committee: EU Aviation Safety Agency (EASA) [Proposed Regulation (C)]

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





23 February 2018