First Report of Session 2022–23

This is a House of Commons Committee report.

Documents considered by the Committee on 11 May 2022

Author: European Scrutiny Committee

Date Published: 17 May 2022

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Contents

1 Carbon Border Adjustment Mechanism1

This EU document is politically important because:

  • the EU is likely to propose that its new Carbon Border Adjustment Mechanism—once adopted—applies to Northern Ireland;
  • it has implications for trade between the EU and the UK, with a potential impact on the UK that is proportionate to the relevant industrial concentration within UK regions and nations; and
  • it may spark a multilateral discussion on carbon pricing and measures to address carbon leakage.

Action

  • Write to the Minister.
  • Draw to the attention of the Business, Energy and Industrial Strategy Committee, the Environmental Audit Committee, the International Trade Committee, the Northern Ireland Affairs Committee and the Treasury Committee.

Overview

1.1 Last summer, the European Commission proposed an EU Carbon Border Adjustment Mechanism (CBAM) to address the risk of carbon leakage—the transfer of production to countries with lower emission reduction ambition or replacement of domestic products with more carbon-intensive imports. The EU CBAM proposal has implications for the UK by virtue of the Northern Ireland Protocol and the application of the Mechanism to third countries.

1.2 We first considered the Commission’s proposal in our Report of 1 December 2021,2 where we summarised the Commission’s proposal and some of the issues around the EU’s draft CBAM as well as CBAMs more generally. We found that the EU’s proposal is relevant to the UK under all scenarios unless the whole of the UK is exempted from it. As drafted, imports from the UK into the EU would be subjected to the Mechanism, and the EU has also signalled its view that the Mechanism falls within the scope of the Protocol on Ireland and Northern Ireland (‘NI Protocol’) annexed to the UK/EU Withdrawal Agreement. If the EU and UK agreed to add the CBAM Regulation to the NI Protocol, imports from Great Britain (GB) into NI would also be subjected to the Mechanism.

1.3 We raised a series of queries with the Minister of State for Energy, Clean Growth and Climate Change (Rt Hon. Greg Hands MP)3 and, following his response of 16 December 2021, we reported a second time4 and wrote5 again on 9 February 2022. He has since responded as set out below. In summary, he confirmed that Treasury officials were continuing to engage with the Commission, particularly on how the EU CBAM would take into account the UK’s Emissions Trading System. The Minister declined to provide any information on discussions that may or may not have taken place in relation to application of EU CBAM under the Northern Ireland Protocol, citing confidentiality.

Letter from the Minister for Energy, Clean Growth and Climate Change (Rt Hon. Greg Hands MP)

1.4 The Minister responded to the Committee on 16 March 2022. Concerning the progress of EU-level negotiations on CBAM, the Minister observed that the negotiations were progressing at pace and that the proposal was likely to evolve further during the legislative process.

1.5 The Government expects, said the Minister, that the EU will take into account the UK’s carbon pricing regime in its implementation of the CBAM, and the Government will continue to engage with the Commission on how this will function in practice.

1.6 Turning to the informal technical discussions between the EU and the UK since the Trade Specialised Committee on Goods in October 2021, the Minister said that Treasury officials met with Commission officials in November 2021 to discuss the details of the EU’s CBAM proposal. This conversation was productive, said the Minister, and focused on bettering the UK’s understanding of the proposed Regulation, including which elements of the CBAM would likely be implemented through delegated legislation later in 2022. The Government would follow further legislative developments closely and continue to engage with the Commission on this point, including the manner in which the UK ETS would be taken into account.

1.7 In response to the Committee’s query concerning EU-UK discussions within the Joint Consultative Working Group (JCWG) on the possible application of the Regulation under the Northern Ireland Protocol, the Minister said that meetings of the JCWG are subject to rules of confidentiality and, as such, he was unable to comment on any ongoing or upcoming discussions.

Our assessment

1.8 Since the Minister prepared his letter, the Council has adopted its position6 on the proposal. Once the European Parliament also has a position—likely in June—the Council and European Parliament will enter into negotiations to arrive at a joint compromise text. For the most part, the Council has remained in line with the Commission’s original proposal but it has proposed to broaden the scope to include additional categories of cement, iron and steel, and aluminium. The provisions on application to third countries remain as proposed by the Commission.

1.9 We accept that the Minister is limited in the amount of additional information that he can provide on contact between the UK and the EU. We will therefore request a further update in the autumn, by which time the progress of negotiations at the EU level ought to be clearer and the Government’s analysis of the implications for the UK may also have developed.

Action

1.10 We have responded to the Minister as set out below.

1.11 We are drawing the document and our letter to the attention of the Business, Energy and Industrial Strategy Committee, the Environmental Audit Committee, the International Trade Committee, the Northern Ireland Affairs Committee and the Treasury Committee.

Letter from the Chair to the Minister of State for Energy, Clean Growth and Climate Change (Rt Hon. Greg Hands MP)

We considered your letter of 16 March 2022 on the above proposal at our meeting of 11 May 2022.

We note that meetings have taken place between UK and EU officials on the implications for the UK of the proposed EU Carbon Border Adjustment Mechanism (CBAM).

While we accept that you may not be in a position at this stage to communicate more about any engagement between the UK and EU on this proposal, we encourage you to maintain dialogue and we would welcome an update in the autumn, including any further analysis that you have undertaken on the implications for the UK. By that stage, we hope that the progress of negotiations at the EU level ought to be clearer and you may have a greater sense of when decisions relevant to the UK are likely to be taken, including the delegated legislation to which you referred in your letter. We trust that you may also be able to tell us more about the progress of discussions in relation to the possible application of the Regulation to Northern Ireland under the terms of the Protocol.

2 Northern Ireland Protocol: Plant Health7

This EU document is politically important because:

  • it creates regulatory divergence between Great Britain (GB) on the one hand and the EU and Northern Ireland (NI) on the other; and
  • it increases the control requirements on exports from GB to NI and the EU, thus adding complexity to the trade of the affected plants and wood.

Action

  • Report to the House.
  • Draw to the attention of the Environment, Food and Rural Affairs Committee and the Northern Ireland Affairs Committee.

Overview

2.1 The EU’s Plant Health Regulation (Regulation (EU) 2016/2031) remains applicable in NI under the terms of the NI Protocol. This includes a requirement to apply any implementing rules. Late last year, the EU adopted an Implementing Regulation updating the list of pests, prohibitions and requirements for plants and plant products for the import into, and movement within, the EU. The update will affect the import of plants into the EU and NI from Great Britain (GB) as well as movement into NI from within the EU.

2.2 In his Explanatory Memorandum, the Minister for Biosecurity (Lord Benyon) identified the following changes as particularly relevant to the UK:

  • GB exporters to the EU, and to NI, will need to declare on the phytosanitary certificate of host plants and host wood associated with certain pests that the host plants originate in a country that is free of the pest, a requirement that will particularly affect the export of sawn wood such as oak (2,478 tonnes exported to the EU), as well as other wood products such as wood flooring and veneer;
  • strengthened controls on imports into the EU and NI of plants and wood that host the “Phytophthora ramorum”8 pest, with a phytosanitary certificate needed to declare that the wood is from a pest free area and has been processed in line with the requirements of the Regulation, a requirement that will similarly impact the exports of wood such as oak; and
  • all plants for planting (other than bulbs, corms, rhizomes, seeds, tubers, and plants in tissue culture) exported from GB nurseries to the EU, and to NI, will need to be subject to an inspection prior to export, affecting those growers (private exporters, mail order traders and short notice exporters) not currently conducting inspections.

2.3 Additionally, within the EU, the pest Phytophthora ramorum has been listed as a Regulated Non-Quarantine Pest (‘RNQP’). This pest was previously regulated as a quarantine pest meaning the pest was regulated regardless of the host it was found on. As a RNQP within the EU, the pest will only be regulated on the listed host plants for planting (ornamental plants, fruit plants and certain forest plants, including larch) and therefore the requirements for moving plants will be less stringent. While this will potentially increase the volume of the pest in NI, with consequent implications for GB, the Minister does not see this as a risk given the existing prevalence of the pest in GB.

2.4 While, the Minister said, the changes do significantly affect the requirements for export to the EU, and to NI, he did not consider that they represent a significant risk to the biosecurity or trade of the UK as the Government is confident that traders can alter their behaviour without trade volumes being impacted severely.

2.5 The House of Lords’ Sub-Committee on the Protocol on Ireland/Northern Ireland raised a series of queries with the Minister, who responded on 7 April. The exchange of correspondence is available9 on the Sub-Committee’s website. The Minister confirmed that all of the devolved administrations had been consulted on the Regulation, but concerns had not been raised.

2.6 The Minister re-iterated the new requirements applicable to movements from GB to the EU and NI, but was unable to provide any data on the volume and value of the affected movements to Northern Ireland as HMRC trade data does not cover these movements within the UK.

2.7 Concerning the impact of the inspection requirement, prior to export, for certain plants for planting being imported into the EU and NI, the Minister said in his letter that growers that are not already meeting these requirements under the existing conditions for the UK plant passporting regime, would be charged a minimum of 30 minutes for an inspection. This costs £127.60. After that, the grower would pay £63.80 for every 15 minutes of an inspector’s time spent on carrying out the inspection on site or associated on site activities. Unfortunately, said the Minister, it is not certain how many growers will be affected by this. In addition, some traders (such as private exporters or online sellers) will not have a registered nursery for inspections to be conducted and so will be unable to export to the EU following this new requirement. The Animal and Plant Health Agency (‘APHA’) estimates that this will affect around 30 traders, with a total volume of around 4000 plants.

2.8 On the relaxation of requirements for the internal EU movement of host plants for planting of Phytophthora ramorum (EU isolates), the Minister acknowledged in his letter that this relaxation would enable trade of these plants between Northern Ireland and the EU.

Our assessment

2.9 We understand that this is the first instance of divergence between GB and EU plant health rules. While we note the Minister’s confidence in his EM and in his letter to the House of Lords that the impact of the legislation can largely be mitigated, we also note with some concern the lack of data on trade flows from GB to NI. Without such data, it will not be possible to identify any trade diversion, if it proves easier to import plant products into NI from the EU rather than GB. We urge the Government to monitor the impact of this regulatory divergence closely, seeking additional data where necessary.

2.10 We do not require any further information on this particular Regulation but we will monitor with interest any instances of further divergence and how the Government is monitoring the impact of regulatory change.

Action

2.11 We are reporting the document to the House as politically important. We draw it to the attention of the Environment, Food and Rural Affairs Committee and the Northern Ireland Affairs Committee.

3 Northern Ireland Protocol: Organic products10

This EU document is politically important because:

  • it signifies substantial divergence by the EU away from the UK;
  • Northern Ireland must align with the revised EU legislation; and
  • while the impact of divergence is mitigated by the EU and UK’s recognition of their mutual regulation in this area as being equivalent, a review of equivalence is foreseen by the end of 2023.

Action

  • Report to the House.
  • Draw to the attention of the Environment, Food and Rural Affairs Committee and the Northern Ireland Affairs Committee.

Overview

3.1 Both the EU and the UK have legislation in place setting out the rules on organic production and the labelling of organic food to support a high-quality organic market and provide confidence to consumers in the authenticity of such products.

3.2 The UK’s legislation largely replicates the legislation that was in place in the EU until 31 December 2021, but the EU legislation has changed with effect from 1 January 2022. The revised legislation (Regulation (EU) 2018/848) clarifies, and tightens up, the previous legislation (Regulation 834/2007), which has been converted into domestic law in the UK and operates as retained EU law.11 As a consequence, EU legislation has diverged from UK legislation. This is particularly relevant to the UK as Northern Ireland (NI) must now apply the revised EU legislation. The detailed arrangements for implementing Regulation (EU) 2018/848 in the EU and NI have been agreed through a series of delegated and implementing acts as outlined in Annex B of the Explanatory Memorandum (EM) from the Minister of State for Farming, Fisheries and Food (Victoria Prentis MP). Together with the original text, these constitute the consolidated version of Regulation (EU) 2018/848.

3.3 In her EM, the Minister identifies some differences between the rules now in place in Great Britain (GB) on the one hand and in the EU and NI on the other but insists that the divergence is unproblematic because the UK-EU Trade and Cooperation Agreement (TCA) provides that the Parties recognise their respective legislation as equivalent to the other, thus facilitating trade. While equivalence is indeed enshrined in the TCA, it also provides for a review of equivalence by the end of 2023, in view of the application of Regulation (EU) No 2018/848.

3.4 For equivalence to function, the Parties should maintain the same, or similar, objectives while potentially taking different approaches to how those objectives are achieved. It may be unlikely that the ultimate objectives of EU and UK organic products policy will differ, but we nevertheless caution the Government against taking equivalence for granted given its implications for trade between GB and both NI and the EU.

Regulation (EU) 2018/848

3.5 The Minister sets out some of the substantial changes made in Regulation (EU) 2018/848 compared to the Regulation 834/2007. Her summary is based, she says, on material published by the Soil Association.12 Changes identified include:

  • a more restricted list of products permitted for use in cleaning and disinfection of buildings and equipment (with existing products permitted until 31 December 2023);
  • a considerable reduction in the list of permitted non-organic agricultural inputs, although with flexibility until 31 December 2023;
  • new restrictions on the natural flavourings that are permitted; and
  • enhanced requirements for soil management and for livestock production, including poultry.

EU-UK Trade and Cooperation Agreement (TCA)

3.6 Annex 14 of the EU-UK TCA sets out arrangements for the trade of organic products between the EU and UK. In particular, it establishes the principle of ‘equivalence’, whereby different laws, regulations and requirements, as well as inspection and certification systems, are considered capable of meeting the same objectives. On the basis of equivalence, the EU and UK permit the import from the other Party of certain identified organic product categories. Those products must comply with the legislation listed in Appendices 14-C or 14-D and must be accompanied by an inspection certificate issued by a recognised control body.

3.7 The legislation listed in Appendices 14-C and 14-D as the basis of equivalence is Council Regulation (EC) No 834/2007, Commission Regulation (EC) No 889/2008 and Commission Regulation (EC) No 1235/2008 or the equivalent pieces of legislation which are retained EU law in the UK. The relevant body of UK law also includes The Organic Products Regulations 2009.

3.8 Each Party is required to inform the other “without delay” of any changes to the list of laws and regulations set out in Appendices 14-C or 14-D. Importantly, any changes are considered equivalent unless the other Party objects. With specific regard to the impact on equivalence of Regulation (EU) 2018/848, Article 3 of Annex 14 provides that both Parties must reassess equivalence by 31 December 2023.

3.9 The TCA establishes a Working Group on Organic Products to assist with monitoring and reviewing the implementation of Annex 14 and with ensuring the proper functioning of the Annex. In particular, it may facilitate cooperation regarding the laws and regulations covered by the Annex. The Working Group is yet to meet.

Government position

3.10 The Minister confirms that, under the terms of the Northern Ireland Protocol, EU organic regulations continue to apply directly in Northern Ireland. She says that the Northern Ireland Competent Authority (NICA) for organics currently sits as a separate entity within the Department for Environment, Food and Rural Affairs (Defra).

3.11 Defra officials work closely, says the Minister, with their Northern Ireland counterparts on the implementation of Regulation (EU) 2018/848. Officials meet regularly with organic control bodies and port health authorities operating in Northern Ireland to resolve any technical queries and address industry concerns about the new Regulation. UK and Northern Ireland officials are also working with colleagues in the Republic of Ireland to allow a common approach to organic products across the island of Ireland where possible, whilst respecting Northern Ireland’s place in the UK’s internal market and customs territory.

3.12 The Minister confirms that implementation of Regulation 2018/848 creates divergence between Northern Ireland and Great Britain, with operators in Great Britain continuing to follow the retained Council Regulation 834/2007 and Commission Regulations 889/2008 and 1235/2008. This will have no impact on trade flows, says the Minister, due to the Trade and Cooperation Agreement.

3.13 The divergence does, however, mean that Northern Irish operators may face higher production costs in some instances than GB operators. The Minister cites the example of new requirements for poultry which will create “negligible higher” production costs for eggs in Northern Ireland.

3.14 Finally, the Minister recalls that the Government is in negotiations with the EU to resolve concerns over the Protocol’s implementation.

Our assessment

3.15 While attention in the UK has focused on the opportunities for the UK in diverging away from EU law, there has been less attention on the impact of the EU amending its laws and therefore diverging from the UK if the UK simply keeps retained EU law as it stood at the end of the transition period. This Regulation provides a good example of that scenario, particularly as it is an example that not only has an impact on Northern Ireland but also on trade between Great Britain and both the EU and Northern Ireland.

3.16 We are disappointed that the Minister does not recognise the conditionality of the equivalence granted under the EU-UK Trade and Cooperation Agreement. In particular, the TCA is explicit that both the EU and UK should review equivalence in light of Regulation (EU) 2018/848 by the end of December 2023. We assume that the UK may also wish to make its own legislative changes, which would need to be taken into account in any review.

3.17 We appreciate that equivalence is distinct from alignment. Rather than following the same set of rules to pursue a set of objectives, the Parties can choose how they deliver the same, or similar, objectives. We also recognise that, ultimately, neither the EU nor the UK are likely to diverge from a set of objectives based on a high level of protection for human and animal health as well as environmental protection and clear consumer information. That said, we caution the Minister against taking equivalence for granted, noting how disruptive any suspension, or removal, of equivalence would be to trade flows.

Action

3.18 We will monitor developments in this area with interest but we require no further information from the Government at this stage.

3.19 We are drawing the document to the attention of the Environment, Food and Rural Affairs Committee and the Northern Ireland Affairs Committee.

4 Deforestation and Forest Degradation13

This EU document is legally and politically important because:

  • while it is likely to apply, at least in part, to Northern Ireland there is considerable uncertainty about how much of it should apply;
  • separately, the UK is consulting on its own similar, but not identical, system; and
  • any divergence between the EU and UK approaches could prove challenging both within the UK but also internationally given global efforts in this area.

Action

  • Write to the Minister.
  • Draw to the attention of the Business, Energy and Industrial Strategy Committee, the Environmental Audit Committee, the Environment, Food and Rural Affairs Committee, and the Northern Ireland Affairs Committee.

Overview

4.1 Tackling deforestation and forest degradation is a global ambition. In the Glasgow Forest Declaration”‘ leaders from around the world committed to facilitating:

trade and development policies, internationally and domestically, that promote sustainable development, and sustainable commodity production and consumption, that work to countries’ mutual benefit, and that do not drive deforestation and land degradation.14

4.2 Internationally, countries are working together through fora such as the FACT (Forest, Agriculture and Commodity Trade) Dialogue. To deliver on the commitment domestically, the European Commission recently proposed an EU law (‘the draft Regulation’) to curb EU-driven deforestation and forest degradation. The draft Regulation would guarantee that soy, beef, palm oil, wood, cocoa and coffee, and some of their derived products, placed on the EU market do not contribute to global deforestation and forest degradation. It also includes new ‘deforestation-free’ criteria, in addition to requirements for compliance with relevant local laws.

4.3 The draft Regulation is relevant to the UK for two linked reasons. First, the UK is developing its own similar policy with the same objective but a distinct design. Notably, the UK system defines illegal production of commodities by reference to local laws only, rather than any further “deforestation-free” criteria. Any differences between the respective approaches will have an impact on affected third countries.

4.4 Second, the legislation may be applicable in full—or in part—to Northern Ireland under the terms of the Northern Ireland Protocol. The draft Regulation would repeal an existing law, the EU Timber Regulation (EUTR—Regulation (EU) No 995/2010), which has a more limited scope and objective and which must be applied in Northern Ireland under the terms of the Northern Ireland Protocol. As set out below, it is unclear whether the draft Regulation would replace the EUTR and therefore there is uncertainty as to whether the draft Regulation would apply under the Protocol.

4.5 In his Explanatory Memorandum (EM), the Minister of State (Rt Hon. Lord Goldsmith of Richmond Park) identifies some of the differences between the EUTR and the draft Regulation, noting that the Government’s initial analysis of the draft Regulation finds that it is fundamentally different to the existing EUTR. The Government is therefore interrogating the case for it to automatically apply in Northern Ireland and will update the Committee as the Government’s analysis develops.

4.6 We had already written15 to the Minister for Europe (Rt Hon. James Cleverly MP) about the Commission’s proposal and so we take this opportunity to repeat our points, with an additional query as to how any differences between the EU and UK approaches may affect international efforts in this area.

The Commission’s proposal

4.7 The draft Regulation revokes the EUTR, which prohibits the placing of illegally harvested timber products on the EU and Northern Ireland markets, requiring those first placing such products on the market to exercise due diligence, thereby enabling timber and timber products to be traced.

4.8 In place of the EUTR, the draft Regulation lays down rules regarding the placing and making available on the EU market, as well as the export from the EU market, of cattle, cocoa, coffee, oil palm, soya and wood and certain products that have been fed with or have been made using those commodities. It therefore still includes timber but expands the scope of the legislation considerably. The desired purpose is to minimise the EU’s contribution to deforestation and forest degradation worldwide and reduce greenhouse gas emissions and global biodiversity loss and so it targets commodities associated with deforestation and forest degradation.

4.9 The draft Regulation aims to minimise the EU’s consumption of products from supply chains associated with deforestation and forest degradation and to increase the EU’s trade in legal and ‘deforestation free’ commodities and products. As such, products must have been produced in compliance with the laws of the country of production and with the deforestation-free definition. ‘Deforestation free’ refers to commodities and products that were produced on land that has not been subject to deforestation or forest degradation after 31 December 2020. The Commission explains that this additional deforestation-free definition is required because, as found by a recent report,16 around 30% of ongoing deforestation is legal according to the laws of the country of production.

4.10 Importers and exporters will be required to apply due diligence involving collection of information, risk assessment and risk mitigation. The draft Regulation outlines which companies/organisations will be in scope, distinguishing between large traders and those which are small or medium enterprises (SMEs). The requirements for due diligence are different depending on the size of the organisation.

4.11 The proposal includes details of how the competent enforcement bodies should operate, the role of penalties, and market surveillance measures. The draft Regulation proposes enforcement by border checks whereby operators will need to complete a due diligence statement before placing products on the market and provide that statement at the border. Under the EUTR, compliance checks are carried out away from the border.

4.12 The draft Regulation includes new information systems and bench marking systems for countries. This will include a list of “high risk countries” where enhanced scrutiny measures are proposed. Forest Partnership Agreements will be put in place to assist countries in meeting the requirements of the Regulation.

4.13 The draft Regulation will apply as soon as it enters into force, but the majority of the provisions have a transition period of 12—24 months depending on the size of the operator. A review process is proposed with the Regulation initially being reviewed within two years after entry into force.

The Northern Ireland Protocol

4.14 Under the terms of the Northern Ireland Protocol, most of the rules of the EU’s internal market for goods apply to Northern Ireland to avoid the need for physical customs and regulatory checks or controls at the border between Northern Ireland and the Republic of Ireland. The list of laws that Northern Ireland is obliged to apply is set out in the Protocol’s Annex 2.

4.15 Where the laws listed in Annex 2 are amended or replaced, Northern Ireland should apply the revised rules. Subject to agreement in the Joint Committee, comprising representatives of the EU and the UK, new EU laws within the scope of the Protocol may also be added to the list of legislation with which Northern Ireland must comply. If the EU identifies an EU law that it thinks should be added to Annex 2, but the Joint Committee fails to agree, the Parties should “examine all further possibilities to maintain the good functioning of the Protocol and take any decision necessary to this effect.” If the situation remains unresolved, the EU may take remedial measures once the EU law in question is implemented in the EU.

4.16 We wrote to the Minister for Europe on 16 March 2022, outlining our view that the draft Regulation falls within the scope of the Protocol. We considered that, if Northern Ireland did not apply the new EU rules, there would be a risk that non-compliant commodities or products would be placed on the EU market for goods. That could only be avoided by applying controls at the border on the island of Ireland, which the Protocol expressly seeks to avoid.

4.17 We noted ambiguity as to whether the proposal ‘replaces’ the EUTR—and thus automatically applies to Northern Ireland—or whether its scope is so much broader that it amounts to a ‘new’ EU law that would only apply to Northern Ireland if both the EU and UK so agree in the Withdrawal Agreement Joint Committee.

4.18 The Minister for Europe responded on 3 May, explaining that the Government had not yet completed its analysis.

Environment Act 2021

4.19 Section 116 of the Environment Act 2021 makes provision for Ministers to make regulations concerning the use of forest risk commodities in commercial activities, including a system of due diligence. A Government consultation17 on the nature of a UK system recently closed. While most of the details of the UK’s system are yet to be defined, Schedule 17 of the Act contains some important parameters:

  • the scope of the UK’s scheme, for example, should exclude timber or timber products, within the meaning of the EU Timber Regulation;
  • illegal production is defined with reference to only compliance with local laws;
  • both the identified commodities and products deriving from those products are covered; and
  • businesses of a certain size that use a forest risk commodity or derivative product in their UK commercial activities must establish and implement a due diligence system, involving the collection of information, risk assessment and risk mitigation.

The Government’s position

4.20 In his Explanatory Memorandum (EM), the Minister of State (Rt Hon. Lord Goldsmith of Richmond Park), says that the Government’s initial analysis of the EU’s new proposed regulation finds that it is fundamentally different to the existing EUTR and therefore the Government is interrogating the case for it to automatically apply in Northern Ireland. The draft Regulation, for example, will apply to both importers and exporters, whereas due diligence obligations under the EUTR only apply to importers. It increases the scope from one commodity (wood) to six, and their derived products, and it includes additional risk management obligations. It also includes new ‘deforestation-free’ criteria, in addition to requirements for compliance with relevant local laws.

4.21 The Government expects this to be subject to further consideration and engagement with the EU through formal bilateral structures as needed. The Government will keep the Committee updated as this consideration develops.

Our assessment

4.22 We consider this an important proposal in several contexts:

  • implementation of the NI Protocol;
  • the UK’s ability to legislate freely, particularly under the terms of its Environment Act; and
  • the achievement of international goals as established at the Glasgow Climate Change Conference.

4.23 Underpinning all of the contexts is the question of how distinct the UK and EU approaches are. A helpful analysis comparing the EU, UK and US approaches has been published.18 Clearly, there are strong similarities between the UK’s direction of travel and that of the EU but there are important distinctions which—if left unresolved—may well cause problems for the UK internal market and may undermine international efforts in this area. In particular, we struggle to see how partner countries can work with different definitions of illegality.

4.24 In the Press Release19 launching the consultation on the UK’s approach, the Minister (Rt Hon. Lord Goldsmith of Richmond Park) described the measures envisaged by the UK as “world-leading”. We expect the UK to take a leading role in developing innovative environmental measures that can drive change globally. In this particular instance, we can see that there is a lot to be gained through consensus and much to be lost through division. Ultimately, the more consensus there is on how to tackle deforestation and forest degradation, the more effective respective unilateral measures are likely to be. We shall therefore ask for detail from the Minister as to how the UK is engaging internationally, including how the UK is engaging with partners such as the EU and US which are developing similar, but slightly divergent, approaches. We shall ask for the Minister’s analysis of how effective unilateral measures in this area can be if not underpinned by a strong degree of consensus.

4.25 As noted above, we wrote to the Minister for Europe setting out our view that the draft Regulation is in scope of the NI Protocol. In our letter, we asked the Minister for the following information:

  • whether, within the Joint Consultative Working Group, the EU has informed the UK of the draft Regulation as a planned EU act within the scope of the Protocol;
  • whether the Government considers the draft Regulation to fall—in full or in part—within the scope of the Protocol;
  • whether the Government considers that the draft Regulation replaces the EUTR or would be a new EU law to be added to the Protocol through a decision of the Withdrawal Agreement Joint Committee;
  • how the Government is working to resolve any uncertainty over the interaction of this proposal with the NI Protocol; and
  • the degree to which Northern Ireland’s application of the Regulation in full or in part would affect the UK’s preparation of regulations under the Environment Act.

4.26 While we accept that the Government’s analysis of these issues is ongoing, we will signal our continued interest in these matters and re-iterate them in our response. Subject to any changes that are made to the functioning of the Protocol, application of this draft Regulation to Northern Ireland could, ultimately, create significant challenges for the UK internal market if the UK’s approach is not very close to that of the EU.

Action

4.27 We have written to the Minister as set out below.

4.28 We are drawing this letter to the attention of the Business, Energy and Industrial Strategy Committee, the Environmental Audit Committee, Environment, Food and Rural Affairs Committee, and the Northern Ireland Affairs Committee.

Letter from the Chair to the Minister of State (Rt Hon. Lord Goldsmith of Richmond Park)

We considered your Explanatory Memorandum (EM) on the above document at our meeting of 11 May 2022, along with the recent letter from your colleague, the Minister for Europe (Rt Hon. James Cleverly MP) responding to our letter to him dated 16 March.

4.29 Your EM was helpful in setting out where you see the important differences to be between the draft Regulation and the existing EU Timber Regulation, an assessment which is directly relevant to the consideration of how the draft Regulation interacts with the Northern Ireland Protocol. We appreciate that the Government’s analysis concerning that interaction is ongoing. We look forward to an update on the Government’s analysis and remain interested in the areas that we raised in our letter to the Minister for Europe, where we requested the following information:

  • whether, within the Joint Consultative Working Group, the EU has informed the UK of the draft Regulation as a planned EU act within the scope of the Protocol;
  • whether the Government considers the draft Regulation to fall—in full or in part—within the scope of the Protocol;
  • whether the Government considers that the draft Regulation replaces the EU Timber Regulation or would be a new EU law to be added to the Protocol through a decision of the Withdrawal Agreement Joint Committee;
  • how the Government is working to resolve any uncertainty over the interaction of this proposal with the NI Protocol; and
  • the degree to which Northern Ireland’s application of the Regulation in full or in part would affect the UK’s preparation of regulations under the Environment Act.

We are aware that there is also an interaction between the draft EU Regulation and international efforts in this area, following the ‘Glasgow Forest Declaration’. Considering the provisions in the Environment Act and those in the draft Regulation, it strikes us that the UK and EU approaches are similar, and very much in line with international ambition, but that there are important differences which could combine to hinder their success. We would therefore also welcome the following information:

  • how the UK is engaging with international partners as a follow-up to the Glasgow Forest Declaration;
  • what risks the Government sees of divergent approaches being adopted to tackling deforestation through supply chain measures, including the apparent differing approaches to illegality; and
  • whether the Government has had any discussions with the EU and others to reach consensus on the design of supply chain measures designed to tackle deforestation and forest degradation.

We would welcome a response to our letter within eight weeks, updating us on progress with your analysis and responding to our points to the extent that you are able at that time.

5 Documents not raising questions of sufficient legal or political importance to warrant a substantive report to the House

Department for Business, Energy and Industrial Strategy

(42044)

C(2022) 1708

Commission Implementing Decision (EU) 2022/498 as regards harmonised standards for certain types of radio equipment.

(42048)

C(2022) 1890

Communication from the Commission: Temporary Crisis Framework for State Aid measures to support the economy following the aggression against Ukraine by Russia.

Department for Environment, Food and Rural Affairs

(42045)

6087/22

C(2022) 577

Commission Delegated Regulation (EU) …/... of 4.2.2022 supplementing Regulation (EU) 2017/625 of the European Parliament and of the Council as regards specific rules on official controls performed by the competent authorities on animals, products of animal origin and germinal products, follow-up action to be taken by the competent authority in case of non-compliance with identification and registration rules for bovine, ovine and caprine animals or of non-compliance during transit through the Union of certain bovine animals, and repealing Commission Regulation (EC) No 494/98.

Department for Health and Social Care

(42018)

5443/22

C(2022) 99

Commission Delegated Regulation (EU) 2022/519 of 14.1.2022 amending Delegated Regulation (EU) 2016/127 as regards the protein requirements for infant and follow-on formula manufactured from protein hydrolysates.

HM Revenue and Customs

(42032)

6158/22

COM(22) 39

Proposal for a Council Directive amending Directive 2006/112/EC as regards the extension of the application period of the optional reverse charge mechanism in relation to supplies of certain goods and services susceptible to fraud and of the quick reaction mechanism against VAT fraud.

Annex

Documents drawn to the attention of select committees:

(‘SNC’ indicates that scrutiny (of the document) is not completed’; ‘SC’ indicates that scrutiny of the document is completed)

Business, Energy and Industrial Strategy Committee: Carbon Border Adjustment Mechanism [Proposed Regulation][SNC]; Deforestation and Forest Degradation [Proposed Regulation][SNC]

Environmental Audit Committee: Carbon Border Adjustment Mechanism [Proposed Regulation][SNC]; Deforestation and Forest Degradation [Proposed Regulation][SNC]

Environment, Food and Rural Affairs Committee: Deforestation and Forest Degradation [Proposed Regulation][SNC]; Northern Ireland Protocol: Organic products [Proposed Regulation][SC]; Northern Ireland Protocol: Plant Health [Commission Implementing Regulation][SC]

International Trade Committee: Carbon Border Adjustment Mechanism [Proposed Regulation][SNC]

Northern Ireland Affairs Committee: Carbon Border Adjustment Mechanism [Proposed Regulation][SNC]; Deforestation and Forest Degradation [Proposed Regulation][SNC]; Northern Ireland Protocol: Organic products [Proposed Regulation][SC]; Northern Ireland Protocol: Plant Health [Commission Implementing Regulation][SC]

Treasury Committee: Carbon Border Adjustment Mechanism [Proposed Regulation][SNC]

Formal Minutes

Wednesday 11 May 2022

Members present:

Sir William Cash, in the Chair

Jon Cruddas

Margaret Ferrier

Mr Marcus Fysh

Mr David Jones

Craig Mackinlay

Anne Marie Morris

Greg Smith

Document scrutiny

Draft Report, proposed by the Chair, brought up and read.

Ordered, That the draft Report be read a second time, paragraph by paragraph.

Paragraphs 1.1 to 5 agreed to.

Resolved, That the Report be the First Report of the Committee to the House.

Ordered, That the Chair make the Report to the House.

Adjournment

Adjourned till Wednesday 18 May 2022 at 1.45 pm

Standing Order and membership

The European Scrutiny Committee is appointed under Standing Order No.143 to examine European Union documents and—

a) to report its opinion on the legal and political importance of each such document and, where it considers appropriate, to report also on the reasons for its opinion and on any matters of principle, policy or law which may be affected;

b) to make recommendations for the further consideration of any such document pursuant to Standing Order No. 119 (European Committees); and

c) to consider any issue arising upon any such document or group of documents, or related matters.

The expression “European Union document” covers—

i) any proposal under the Community Treaties for legislation by the Council or the Council acting jointly with the European Parliament;

ii) any document which is published for submission to the European Council, the Council or the European Central Bank;

iii) any proposal for a common strategy, a joint action or a common position under Title V of the Treaty on European Union which is prepared for submission to the Council or to the European Council;

iv) any proposal for a common position, framework decision, decision or a convention under Title VI of the Treaty on European Union which is prepared for submission to the Council;

v) any document (not falling within (ii), (iii) or (iv) above) which is published by one Union institution for or with a view to submission to another Union institution and which does not relate exclusively to consideration of any proposal for legislation;

vi) any other document relating to European Union matters deposited in the House by a Minister of the Crown.

The Committee’s powers are set out in Standing Order No. 143.

The scrutiny reserve resolution, passed by the House, provides that Ministers should not give agreement to EU proposals which have not been cleared by the European Scrutiny Committee, or on which, when they have been recommended by the Committee for debate, the House has not yet agreed a resolution. The scrutiny reserve resolution is printed with the House’s Standing Orders, which are available at www.parliament.uk.

Current membership

Sir William Cash MP (Conservative, Stone) (Chair)

Tahir Ali MP (Labour, Birmingham, Hall Green)

Jon Cruddas MP (Labour, Dagenham and Rainham)

Allan Dorans MP (Scottish National Party, Ayr Carrick and Cumnock)

Richard Drax MP (Conservative, South Dorset)

Margaret Ferrier MP (Independent, Rutherglen and Hamilton West)

Mr Marcus Fysh MP (Conservative, Yeovil)

Dame Margaret Hodge MP (Labour, Barking)

Mrs Andrea Jenkyns MP (Conservative, Morley and Outwood)

Mr David Jones MP (Conservative, Clwyd West)

Stephen Kinnock MP (Labour, Aberavon)

Mr David Lammy MP (Labour, Tottenham)

Marco Longhi MP (Conservative, Dudley North)

Craig Mackinley MP (Conservative, South Thanet)

Ann Marie Morris MP (Independent, Newton Abbot)

Greg Smith MP (Conservative, Buckingham)


Footnotes

1 Proposal for a Regulation establishing a carbon border adjustment mechanism; Council and COM number: 10871/21 + ADDs 1–6, COM(21) 564; Legal base: Article 192(1) TFEU, QMV, ordinary legislative procedure; Department: Business, Energy and Industrial Strategy; Devolved Administrations: Consulted; ESC number: 41916.

2 Thirteenth Report HC 121–xii (2021–22), chapter 2 (1 December 2021).

3 Letter from Sir William Cash MP to the Minister of State for Energy, Clean Growth and Climate Change (Rt Hon. Greg Hands MP), dated 1 December 2021.

4 Seventeenth Report HC 121–xvi (2021–22), chapter 2 (9 February 2022).

5 Letter from Sir William Cash MP to the Minister of State for Energy, Clean Growth and Climate Change (Rt Hon. Greg Hands MP), dated 9 February 2022.

6 Council of the European Union, Draft regulation of the European Parliament and of the Council establishing a carbon border adjustment mechanism—General approach, 7226/22, 15 March 2022.

7 Commission Implementing Regulation (EU) 2021/2285 of 14 December 2021 amending Implementing Regulation (EU) 2019/2072 as regards the listing of pests, prohibitions and requirements for the introduction into, and movement within, the Union of plants, plant products and other objects, and repealing Decisions 98/109/EC and 2002/757/EC and Implementing Regulations (EU) 2020/885 and (EU) 2020/1292; C(2021)8982; Legal base: Regulation (EU) 2021/2285; Department: Environment, Food and Rural Affairs; Devolved Administrations: Consulted; ESC number. 41997

8 Phytophthora ramorum is a highly destructive pest which can cause extensive damage and death to more than 150 plant species, including some forest species. In the UK, it is particularly prevalent in larch trees (see UK Forest Research, Ramorum disease (Phytophthora ramorum)

9 House of Lords Protocol on Ireland/Northern Ireland Sub-Committee, Correspondence with Ministers.

10 Consolidated text of Regulation (EU) 2018/848 of the European Parliament and of the Council of 30 May 2018 on organic production and labelling of organic products and repealing Council Regulation (EC) No 834/2007; Legal base: Article 43(2) TFEU, Ordinary legislative procedure, QMV; Department: Environment, Food and Rural Affairs; Devolved Administrations: Consulted; ESC number: 42021.

11 At the end of the transition period, the UK converted most EU legislation into UK law. This body of law is known as “retained EU law”.

12 Soil Association, Organic Standards for Northern Ireland, 23 December 2021.

13 Proposal for a Regulation on the making available on the Union market as well as export from the Union of certain commodities and products associated with deforestation and forest degradation and repealing Regulation (EU) No 995/2010; 14151/21, COM(2021) 706; Legal base: Article 191(2) TFEU, QMV, Ordinary Legislative Procedure; Department: Environment, Food and Rural Affairs; Devolved Administrations: Consulted; ESC number: 42035.

14 UN Climate Change Conference UK 2021, ‘GLASGOW LEADERS’ DECLARATION ON FORESTS AND LAND USE‘ (2 November 2021).

15 Letter from Sir William Cash MP to Rt Hon. James Cleverly MP, dated 16 March 2022.

16 Forest Trends, ‘ILLICIT HARVEST, COMPLICIT GOODS: THE STATE OF ILLEGAL DEFORESTATION FOR AGRICULTURE‘ (May 2021)

17 HM Government, ‘Government sets out plans to clean up the UK’s supply chains to help protect forests‘ (3 December 2021)

18 Steptoe & Johnson LLP, Global Trade Policy Blog, ‘Comparing Recent Deforestation Measures of the United States, European Union, and United Kingdom‘ (31 January 2022)

19 HM Government, ‘Government sets out plans to clean up the UK’s supply chains to help protect forests‘ (3 December 2021)