Select Committee on European Union Forty-Fourth Report


30. Following a report published in 1996, Sub-Committee E revisited the proposed EU Takeovers Directive. This proposal, which was defeated at the conciliation stage in 1996, aims to set EU-wide rules for the conduct of corporate takeovers, which would be a change from the UK's current non-statutory regime. The Committee concluded that, whilst the Directive had little benefit from a narrow, domestic viewpoint, it would increase shareholder protection and open up markets in other Member States for UK companies. The Committee recommended a number of improvements to the Directive.

Financial Services Action Plan

31. Sub-Committee B, in considering the efforts to create a single market in financial services, took evidence on the progress of the Commission's Financial Services Action Plan (FSAP). A report is due to be published early in the new parliamentary session. In this report, the Committee will examine the FSAP as it nears the deadline for the adoption of outstanding Directives - April 2004 - and the machinery set up under the Lamfalussy Process to hasten the implementation of legislation.

32. The Sub-Committee concluded that it was more important to get the legislation right than to meet the deadline; that it was too early to judge the success of the Lamfalussy Process; and that all EU proposals to create and regulate a single market for financial services should be measured against the global context. The EU is not an island and the markets could move elsewhere if EU regulation proved to be too onerous. The Sub-Committee expressed sympathy for the views of UK witnesses who feared that the implementation of the FSAP might erode London's competitive position as the largest wholesale capital market in Europe but concluded that the FSAP could provide a positive opportunity for the dominant player.

Foreign Affairs, Security and Defence


33. ESDP became operational in January 2003 with a mission in Bosnia. Then, as a result of the Berlin Plus agreement (December 2002), the EU took over a mission in FYROM (Former Yugoslav Republic of Macedonia) from NATO using existing command and control structures. The mission to the Democratic Republic of Congo in June was the first EU mission to be conducted by the EU outside Europe.

34. Sub-Committee C has inquired into ESDP twice in the past[14]. Several aspects of European Security and Defence Policy (ESDP) are classified as non-military[15]. These civilian crisis management capabilities are: policing; the administration of justice (rule of law); civilian administration; and civil protection. Their combined goal is to allow the EU to provide assistance to countries in crisis. The first mission of 'civilian ESDP' began with the police mission to Bosnia (EUPM) in January 2003. The Committee found that preparations for the EUPM were highly successful. The Committee considers the EU's civilian role in crises to be valuable. The greatest surprise of the inquiry was that both Member States and media have so far shown little interest in the subject.

35. The Committee's main conclusions are that the EU should:

  • Clarify the scope and goals of civilian ESDP;
  • Ensure that the EU works to fill the gaps in the existing crisis management provision rather than duplicate the work of organisations already active in this arena;
  • Streamline the chain of command and control; and
  • Set in place workable, long-term financing arrangements.

Foreign affairs

36. Sub-Committee C asked the Minister for Europe, Dr Denis MacShane MP, to give evidence on the most recent developments in European Foreign Policy. Key topics in the evidence were: Wider Europe; EU mission to the Democratic Republic of Congo; NATO; Bosnia SFOR; France, Germany, Belgium and Luxembourg Summit; Intergovernmental Conference; and the Middle East.

37. The Iraq crisis and eventual war was the most significant foreign affairs event of the past year. The period was especially difficult for EU relations as Member States were divided on how the Union should respond. Sub-Committee C considered the division within the EU and its effect on relations with the United States. Our report 'A Fractured Partnership?' was published in July 2003. The Committee noted that the European Union's relations with the United States are at their lowest ebb for at least a generation; and asked how did this happen? and what can be done about it?

38. The Committee concluded that the outrage of 11 September 2001 thrust international security to the top of the US agenda, overshadowing the great bulk of transatlantic business that is done quietly and well. EU Member States agree with the US about the key security objectives, but there are serious divergences about how to achieve them. The Iraq crisis highlighted these divergences very sharply.

39. Both sides will be losers if the relationship remains bad. There is a massive agenda on which they need to work together. Both need to put effort into repairing the damage, even if differences about method persist. They should accentuate the positive, look to the future, and not focus on blaming or punishing for the past.

40. The EU for its part needs to:

Security strategy

41. In June 2003 the EU unanimously endorsed the draft EU Security Strategy written by Javier Solana. The final version of the Strategy is expected to be agreed by the heads of government at the European Council in December. Sub-Committee C continues to monitor development of the EU Security Strategy.


EU-US Extradition and Mutual Legal Assistance Treaties

42. Sub-Committee E inquired into and produced a report on the EU-US Extradition and Mutual Legal Assistance Treaties. These treaties are intended to supplement the existing bilateral arrangements already in place between each Member State and the US and were a response to the events of 11 September 2001. The Sub-Committee raised a number of human rights questions over the treaties and were anxious that the Government's assurances on these matters were disseminated as widely as possible. The Sub-Committee were concerned about the Council of Ministers' delay in making the documents public and refused to scrutinise the text on a confidential basis. We pressed for the declassification of the Agreements and wrote directly (jointly with the House of Commons' European Scrutiny Committee) to the Greek Presidency of the EU for this purpose.

Other legal affairs issues

43. Sub-Committee E has considered a number of proposals in the area of criminal law, such as a Directive on the compensation payable to crime victims and Framework Decisions on the mutual recognition of financial penalties, the execution of confiscation orders and the application of the "double jeopardy" principle. Other major scrutiny items have related to the enforcement of intellectual property rights, asylum and the definition of refugee status, and combating racism and xenophobia.

Home Affairs


44. Home affairs issues, particularly immigration and asylum, have dominated Sub-Committee F's agenda reflecting the high priority they have been accorded by the European Council, notably at Seville in June 2002. Responding to this priority the Commission has brought forward a large number of Communications on all aspects of immigration and asylum policy, which the Committee has scrutinised closely.

Illegal immigration

45.   The Committee has undertaken detailed inquiries into the most substantial of these proposals, starting with an inquiry into illegal immigration—A Common Policy on Illegal Immigration. The report, which attracted strong media interest, was published on 28 November 2002 and debated on 7 March 2003. It called for a comprehensive approach to tackling illegal immigration in the EU with measures ranging from opening up legal migration routes to meet identified labour shortages to cracking down on illegal working. The Committee also recommended the establishment of special units in all major urban police forces to deal with the serious criminal aspects of illegal immigration (people smuggling and trafficking); and called on the Government to take a more positive line on opting into EU immigration measures, including on the protection of victims of trafficking.

Border controls

46.   This inquiry was followed by an inquiry into the management of the EU's external borders. The Committee's report "Proposals to establish a European Border Guard", which was published on 10 July 2003, strongly endorsed the need for closer co-operation between Member States' border control agencies, but concluded that a centrally managed, multinational European Corps of Border Guards would not be justified. While welcoming the UK's active participation in practical measures to strengthen external border controls, the Committee found that it did not sit easily with the United Kingdom's partial opt-out from Schengen. The Committee also called for existing and proposed new central structures responsible for border control activities to be properly accountable.


47.   The Committee is currently undertaking an inquiry into new approaches to the asylum process.

Other immigration issues

48.   Other significant immigration proposals on which the Committee has put forward its views to the Government include:


49. Sub-Committee F's report Europol's Role in Fighting Crime, which was published on 6 February 2003 and debated on 3 June 2003, examined proposals from the Danish Presidency to extend the remit of Europol (the EU police office). The report's main recommendations were for:

Some of these issues were subsequently picked up in the Convention on the Future of Europe.

50.   Separately the Committee conducted a lengthy correspondence with the Government on the USA/Europol Agreement on transfer of personal data, in which we expressed strong concerns about various aspects of the draft Agreement, including the scope of information exchange (which included data outside Europol's remit), the wide range of US authorities receiving data, including local as well as State and Federal authorities, and the nature of, and safeguards afforded by, the US data protection authorities.

51. The Committee was also concerned about implications of the way the dossier was handled for the scrutiny process more generally. It appeared that the text of the agreement was only deposited after it had been agreed with the US authorities, which meant that there was no realistic chance of any amendments being accepted. In the event the Government overrode the scrutiny reserves of both Houses.

52.   The Committee has also examined a series of other agreements between Europol and third countries on the transmission of personal data, which raised data protection issues, although not to the same extent as the agreement with the United States.

Social Affairs, Employment and Education

53.   Probably the most controversial dossier in the employment area has been the draft Directive on Working conditions for temporary workers, which would give temporary workers, subject to certain limitations, equal status with permanent workers. In May 2003 the Presidency made a big push—eventually unsuccessful—to secure political agreement in the Council on a compromise proposal.

54.   The Commission brought forward several substantial Communications on education issues using the Lisbon objective of making the EU "the most competitive, and dynamic knowledge-based economy in the world". These included proposals for European benchmarks in education and training and a consultation paper on the role of universities.

Agriculture and Environment

Mid-term review of the common agricultural policy: external implications

55. Sub-Committee D has continued to play close attention to reform of the CAP. The European Union is committed to a mid-term review of the Common Agricultural Policy (CAP) in 2003. Proposals made by the Commission in June 2002 for reforming an increasingly unsustainable CAP, although diluted by recent Council decisions, need to be implemented urgently.

56. Imminent enlargement of the EU and forthcoming World Trade Organisation negotiations have increased the urgency of reaching agreement on the proposals.

57. The principal features of the reform package are:

58. The Committee's latest Report comments on the proposals under four headings.

  • EU enlargement: The proposals on decoupling are essential, to avoid compounding overproduction and market distortions in the enlarged Community, and should be reinforced by progressive abolition of market intervention and export subsidisation, particularly in the sugar and dairy sectors. Modulation (i.e. transfers from direct subsidies into structural measures) should be at a higher rate than proposed and possibly higher still for new Member States.
  • Implications for the World Trade Organisation Doha Round: Decoupling is also essential to a credible EU negotiating position in the WTO, as are urgent reforms to the sugar and dairy regimes.
  • Impact on Less Developed Countries: The CAP has for long had damaging effects on the economies of less developed countries, although the impact has varied from one country to another. In the worst cases it has led to impoverishment and the collapse of rural industries. The EU must abandon its direct subsidisation of exports and scale down its import tariffs.
  • Sustainability: Cross-compliance and higher levels of modulation are the key to environmental improvement and to reducing pressures for intensification. The Commission's proposals for a new farm advisory system should be used to promote best practice.

Progress of reform of the common fisheries policy

59. The Common Fisheries Policy (CFP), after years of failure to achieve sustainable management of European fisheries, was due for substantial overhaul by December 2002. A promising package of proposals adopted by the Commission in May 2002 was seriously compromised by decisions taken by the Council in December 2002, as a result of special pleading by Member States.

60. Sub-Committee D examined the proposals. Our conclusion was that the Committee has no confidence that the new basic CFP Regulation agreed at that meeting, despite some positive features, will meet the objectives of sustainable fisheries and prevent irreversible decline in important stocks unless it is substantially improved.

61. In particular, the Committee deplores the fact that:

62. The Committee urges the Government to press hard for adoption by the Council of the following measures:

  • Introduction of effort controls, to work alongside TACs and quotas as appropriate;
  • Significant reductions in fishing fleet capacity, over and above those necessary to neutralise "technology creep";
  • Early progress towards the establishment of a Community Fisheries Control Agency;
  • Urgent establishment of Regional Advisory Councils;
  • Comprehensive gathering of economic data as well as scientific data, as a basis for objective long-term planning.

63. The Committee concludes that economic intervention in fisheries management is vital. We emphasise the importance of giving fishermen a genuine stake in the long-term financial management of fisheries and argues that transitional financial aid, linked to stock recovery plans, is needed to enable fishing communities to adjust to change.

64. The Committee urges the Government to promote diversification of coastal economies and the development of alternative employment opportunities. We strongly support the Commission's proposal to explore the possibility of decoupling FIFG resources from fishing activity in favour of investment in coastal communities.

11th Report 2001-02, HL Paper 71; 15th Report 1999-00, HL Paper 101. Back

15   This year we inquired into ESDP civilian operations the report was entitled 'EU-Effective in a Crisis?'. Back

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