TRADE AGREEMENTS IN SERVICES OTHER THAN
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
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.
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
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
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.
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.
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
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.
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
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
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
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
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
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