Select Committee on European Union Fortieth Report


TRADE AGREEMENTS IN SERVICES OTHER THAN TRANSPORT (11641/05)

Letter from Ian Pearson MP, Minister for Trade, Investment and Foreign Affairs, Department of Trade and Industry/Foreign and Commonwealth Office to the Chairman

  Thank you for your letter dated 8 November 2005[17] on EM 11641/05. I apologise for the delay in responding to that letter. It appears that our Response Unit did not receive it in November. We noted its existence on the Progress of Scrutiny and have obtained an unsigned copy from your Clerk. It is to this version that we are now responding.

  May I assure you that your Committee's ability to scrutinise this proposal has not in any way been prejudiced, as there has not been any substantive discussion on the proposal within the Article 133 (Services) Committee.

  In your letter, you raised a number of detailed questions that I will endeavour to respond to as best that I can at this stage. Please be assured that as these issues are clarified further during the course of the negotiations my officials and I will keep you informed of developments.

THE SCOPE OF THE PROPOSAL AND THE MEANING OF THE TERM "AGREEMENTS ON TRADE IN SERVICES"

  There has, as yet, been no discussion as to the precise scope of the proposal. The United Kingdom and other Member States consider that a clear determination of the scope of the proposal is fundamental and will press for clarity in the negotiations.

  I can, however, at this stage, tell you that the Commission asserts that the scope of the draft Regulation is set by reference to Article 133(5) of the EC Treaty that refers to `agreements in the field of trade in services'. Furthermore, the Commission, whilst noting that the Regulation cannot prejudge which agreements are "in the field of" trade in services, has commented that:

  There is a definition of "trade in services" in The World Trade Organisation's (WTO) General Agreement on Trade in Services (GATS) at Article 1.2.

  This provision, which is the only multilateral agreement that defines trade in services, distinguishes trade in services by reference to four distinct modes of supply. It defines trade in services as the supply of a service:

    —  From the territory of one [WTO] Member into the territory of any other Member (cross-border supply of a service);

    —  In the territory of one Member to the service consumer of any other Member (consumption abroad);

    —  By a service supplier of one Member, through commercial presence in the territory of any other Member (commercial presence); and

    —  By a service supplier of one Member, through presence of natural persons of a Member in the territory of any other Member (presence of a natural person).

  The term "international agreement" should be interpreted, in the view of the Commission, as being equivalent to "treaty" within the meaning of the Vienna Convention on the Law of Treaties (VCLT). Article 2(1)(a) of the VCLT defines the term "treaty" as meaning:"—

    "—an international agreement concluded between States in written form and governed by international law, whether embodied in a single instrument or in two or more related instruments and whatever its particular designation."

  This would mean that an agreement between a professional body (such as the Law Society) in a Member State and an equivalent body in a third country should not fall within the ambit of the Regulation.

  To the extent that their scope of application includes services sectors, the Regulation would capture, bilateral investment agreements (which could cover agreements relating to foreign direct investment) and mutual recognition agreements in the field of trade in services. Similarly, preferential immigration agreements might be caught if they include provisions on the supply of services through the presence of natural persons as defined in GATS Article 1.2 as further qualified by the GATS Annex on the movement of natural persons. In addition, co-operation agreements with an impact on the supply of services between the parties (for example a co-production agreement) would, in the view of the Commission, fall within the scope of the proposal.

  The Commission has not indicated that it considers the proposed Regulation to include agreements relating to intellectual property. Our initial view is that this should not be the case insofar as it relates to intellectual property rights. Nevertheless, the proposed Regulation would catch an agreement between a Member State and a third country addressing market access rights for patents agents as this would relate to trade in services. Furthermore, we will wish to consider whether we would be prepared to accept that the proposal is capable of capturing bilateral investment treaties or the other types of agreement referred to above. For completeness, I should point out that the proposal does not only capture existing or proposed agreements but will apply also to proposals for amendment of such agreements.

LEGAL BASE

  I note your comment that the proposed legal base requires careful examination. Although the Commission continues to assert that the proposal falls solely within the scope of Article 133 EC Treaty we remain to be persuaded that this is correct.

SUBSIDIARITY

  I note with interest your comments on the application of the principle of subsidiarity to the provisions of Article 133 EC Treaty relating to trade in services. Having carefully considered the points you make in your letter my officials advise me that they agree with your view that subsidiarity is only removed where the Community has exclusive competence and that Article 133 EC Treaty now extends to matters which are not within the exclusive competence of the Community.

  In support of your view we note that Article 5 EC Treaty expressly provides:

    "...In areas which do not fall within its exclusive competence, the Community shall take action, in accordance with the principle of subsidiarity, only if and insofar as the objectives of the proposed action cannot be sufficiently achieved by the Member States and can therefore, by reason of the scale or effects of the proposed action, be better achieved by the Community."

  Protocol No.30. on Subsidiarity and Proportionality (annexed by the Treaty of Amsterdam to the EC Treaty) states that the criteria referred to in the second paragraph of Article 5 shall relate to areas for which the Community does not have exclusive competence.

  In respect of the draft Regulation it is noteworthy that Recital (9) provides:

    "Since the objectives of this Regulation . . . cannot be sufficiently achieved by the Member States and can, therefore, by the reason of the Community-wide scope of this Regulation, be better achieved at Community level, the Community may adopt measures, in accordance with the principle of subsidiarity, as set out in Article 5 of the Treaty."

  This provides an indication that the Commission shares the view that Article 133 EC Treaty now extends to matters that are not within the exclusive competence of the Treaty. If this were not the case, there would be no need to justify action under this proposal with reference to subsidiarity. Accordingly, we agree with your assessment that the principle of subsidiarity is engaged by the proposed Regulation.

  You ask whether the UK considers whether this proposal complies with the principle of subsidiarity. Our view is that a transparency and information gathering proposal is capable of satisfying the principle of subsidiarity. This is particularly so in the area of the Common Commercial Policy where there is a presumption of exclusive Community competence save in respect of the residual matters reserved for Member States expressly referred to in the text of Article 133 EC Treaty. We accept that it is desirable that there are mechanisms in place to ensure coherence between the Community and Member State actions in the trade field and to avoid potential conflicts arising between the provisions of Community and Member State level agreements with third countries. That said, however, we do not accept that the proposal as drafted, and in particular the standstill provisions in Article 3 thereof, comply with the principle of subsidiarity. In our view, these provisions exceed what is necessary to ensure the pursuit of a coherent policy on trade in services within the EU and are capable of fettering Member States' ability to pursue their policy objectives in areas where no potential conflict with EC law is likely to arise (particularly where the Community has yet to act). Accordingly, we consider this proposal to be disproportionate in its scope.

BREACH OF NOTIFICATION OBLIGATION

  You ask what would be the consequence of entering into an agreement in breach of the notification obligation in the proposed Regulation and what would be the status of the agreement (a) in international law, and (b) in Community law. We will wish to explore this issue with the Commission and other Member States during the course of the negotiations. However our preliminary views on this issue is that, as regards, international law, breach of the notification obligation by a Member State would not prejudice the rights of the other party to rely upon the agreement against that Member State. From a Community law perspective, if a Member State were to proceed to conclude an agreement that it had failed to notify it would be acting in breach of its Community law obligations and liable to infraction proceedings.

11 April 2006

Letter from the Chairman to Ian Pearson MP

  Thank you very much for your letter of 11 April regarding Explanatory Memorandum 11641/05 on agreements on trade in services. This was considered by Sub-Committee A at their meeting on 13 June. The Committee very much appreciated the full nature of your answers and have decided to continue to hold the document under scrutiny.

  On the scope of the Proposal, the Committee noted the Commission's assertions detailed on the second page of your letter. Would you please keep the Committee updated on whether and how these assertions are incorporated into the Draft Regulation.

  On the legal base, the Committee noted that you remain to be persuaded by the Commission's view that the Proposal falls solely within the scope of Article 133 EC Treaty. We would appreciate a fuller exposition of your thinking in this area, together with details of the submissions you will be make to the Commission.

  On the subsidiarity issue, the Committee noted that you conclude that the "provisions exceed what is necessary to ensure the pursuit of a coherent policy on trade in services within the EU" and that the "proposal [is] disproportionate in its scope". As a result of this we would appreciate details of how you will proceed in the negotiations.

  On the consequences of breach of the notification obligation, the Committee appreciated your provisional views and would like to be kept updated on any developments.

14 June 2006

Letter from Rt Hon Ian McCartney MP, Minister for Trade, Investment and Foreign Affairs, Department of Trade and Industry/Foreign and Commonwealth Office to the Chairman

  Thank you for your letter dated 14 June in relation to the above matter.

  Before addressing your specific query on the proposed legal base of the draft Council Regulation, I would like to update you on where matters currently stand on this proposal.

  The proposal was last considered at the Article 133 (Services) Committee held on 10 May 2006. At that meeting the overwhelming majority of Member States, including the UK, commented that the Commission had failed to demonstrate that there were shortcomings in existing procedures that needed to be addressed. Accordingly, Member States remain to be persuaded that there is a need for this proposal. The Austrian Presidency concluded the discussion at 10 May meeting by noting that, in light of the views expressed by Member States and the heavy workload currently before the 133 (Services) Committee, it did not propose to take this matterfurther during its term in office. It would hand the brief over to the Finnish Presidency to take forward. We anticipate that the Finnish Presidency, faced with the considerable task of progressing the GATS services negotiations as well as several on-going EU bilateral negotiations, will not accord priority to this matter. Hence, for the moment further negotiations on this proposal remain in abeyance.

  The UK remains opposed to this proposal in its present form. In addition to our concerns about the proposed legal base, we consider that the Commission has failed to clarify the scope of the Regulation with sufficient precision and clarity. Furthermore, we consider that the Commission has proposed a burdensome and restrictive mechanism that it has failed to justify is needed to address real shortcomings in existing procedures.

  You have asked for further information on why the Government considers that this proposal does not fall solely within the scope of Article 133 EC Treaty. The Court of Justice in Opinion 1/94 (15 November 1994, ECR 1994, p. 1-5267) held that whilst Article 133 EC Treaty could cover the cross-border supply of services (so called GATES Mode I services), it did not cover the other three modes of supply of services covered by the WTO Agreement on Trade in Services (GCATS). Although the Nice Treaty amended the text of Article 133 by adding in specific provisions on trade in services, the Government notes that these provisions are expressly limited to the negotiation and conclusion of agreements in the field of trade in services. Therefore, in the Government's view the text of Article 133 EC Treaty, does not provide the Community with competence to bring forward proposals for autonomous/internal measures related to trades in services that cover all modes of supply such as the present proposal. Accordingly, in the view of the UK government, the use of Article 133 is an insufficient legal base for this proposal.

  We note that the Council has already adopted a Decision (74/393/EEC) [OJ L208, 30.7.1974] establishing a consultation procedure for co-operation agreements between Member States and third countries on the basis of Articles 133 (ex Article 113) and 308 (ex Article 235) of the EC Treaty. That Decision established a consultation procedure under which Member States inform the Commission and the other Member States of agreements relating to the economic and industrial co-operation measures they are planning to negotiate or renew with third countries. The Decision has also set up a consultation procedure within a committee comprising representatives from each Member State and from the Commission. The procedure is similar to the one set out in the current Commission proposal. We understand that, at the time of its adoption, Article 133 EC Treaty was not considered to be a sufficient legal base for the above Decision and that Article 308 EC Treaty was added to cover aspects falling outside the scope of Article 133 EC Treaty. Subject to our overall reservations about the desirability and need for the current proposal the Government considers that a similar combination of Article 133 and Article 308 EC Treaty would be a more appropriate legal base for the current proposal than Article 133 alone.

30 June 2006

Letter from the Chairman to Rt Hon Ian McCartney MP

  Thank you very much for your letter dated 30 June regarding Explanatory Memorandum 11641/05 on agreements on trade in services. This was considered by Sub-Committee A at their meeting on 25 July. In the light of this consideration the Committee have decided to maintain the scrutiny reserve pending more information.

  The Committee were thankful for your detailed analysis of the proposed use of Article 133 as the sole legal base. We agree with your conclusion that a combination of Article 133 and Article 308 would be appropriate.

  The Committee also noted that the Government, together with other Member States, registered an objection to the Proposal on the basis that the Commission has failed to demonstrate that it is necessary to update the existing regulations. Given the concerns we have raised with you over the scope of the Proposal we are pleased to hear of these objections and assume that you will continue with this line.

  As noted in my previous letter to Ian Pearson of 14 June, we await further information on how the scope of the Proposal is defined during negotiations; together with details of negotiations on the breach of notification provisions.

25 July 2006



17   Correspondence with Ministers, 45th Report of Session 2005-06, HL Paper 243, pp 80-81. Back


 
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