Select Committee on European Union Fortieth Report


Letter from the Chairman to Gerry Sutcliffe MP, Minister for Employment Relations and Consumer Affairs, Department of Trade and Industry

  Sub-Committee B considered your Explanatory Memorandum on this subject at its meeting on 30 January.

  We noted that the Working Group set up under the Austrian Presidency was to have met on 23 January 2006. Did this meeting go ahead? We are maintaining scrutiny pending the outcome of this Working Group.

1 February 2006

Letter from Gerry Sutcliffe MP to the Chairman

  Thank you for your letter of 1 February.

  You asked about the Council Working Group on 23 January, which did indeed go ahead. The Committee might find it helpful to know, in broad terms, the outcome.

  The Working Group was the first to discuss the Commission proposal of December 2005. The Austrian Presidency sought the views of countries on the proposed repeal of Regulation 4056/86. A clear majority of countries either spoke in favour of repeal or did not object to it. The UK spoke in support of repeal (subject to a scrutiny reserve). Two countries did not have a position to report.

  Many Member States welcomed the Commission's proposal of guidelines, to be finalised by end 2007, covering the maritime sector. Some asked the Commission to produce guidelines in advance of the repeal of 4056/86. The Commission explained that they did not have the legal powers to do this until the repeal of 4056/86, which also amends Regulation 1/2003 to bring the maritime sector within Community competence.

  However, the Commission are also taking the unusual step of offering informal guidance in the tramp shipping sector in advance to try and overcome this problem. The Commission noted that they were meeting the industry at least twice a month at present, discussing the way forward on guidelines and on other matters.

  In response to questions about the impact of repeal on developing countries, the Commission said that they are expecting a positive impact of repeal and that developing countries do not like liner conferences. The UNCTAD code had failed and developing countries no longer had their own shipping lines. African trades are still in the grip of liner conferences and African shippers have told the Commission that they would like to see the end of liner conferences so as to improve their negotiating position. Developing countries are generally exporting low value goods so the cost of their transport is a higher proportion of their costs.

  In response to questions about the views of other countries the Commission said that the US was unconcerned about repeal, the role of liner conferences had diminished to such an extent on US trades that repeal would not be an issue. The Australian Productivity Commission had recommended repeal to the Government. The Japanese system operated differently in that it involves more cooperation between shippers and carriers—discussions with the Japanese Government have identified that possibly such co-operation might be covered by the Consortia block exemption (this is an existing block exemption that allows co-operation but not price fixing or capacity regulation).

  A few Member States questioned Article 83 (competition) as the sole legal base. They argued that both Article 83 and Article 80 (shipping) should be the legal base, as in the original Regulation. The Commission Legal Service explained their reasoning for proposing Article 83 as the legal base, which centres on the point that all other block exemptions (except one from 1968) are based on Article 83 alone, even those in other transport sectors such as cars and air and in particular the Consortia regulation amended only last year. There are also a number of other precedents and cases to take into account. The Council Legal Service will be considering further in the light of recent cases and are likely to report further on this issue at the next Working Group meeting. Our lawyers are of the view that Article 83 is appropriate as the sole legal base.

  The next meeting of the Working Group is scheduled for 23 February. Officials from DTI, DfT and OFT will attend.

16 February 2006

Letter from the Chairman to Gerry Sutcliffe MP

  Thank you for your letter of 16 February 2006, providing a report on the outcome of the Council Working Group on 23 January 2006 which Sub-Committee B considered at its meeting on 6 March 2006.

  Sub-Committee B appreciates the fullness of your report on the Working Group, and is satisfied that progress appears to being made. You mentioned in your letter that the next meeting of the Working Group would take place on 23 February. We would also be grateful for a report on the conclusions of that Working Group, and will maintain the scrutiny reserve pending receipt of that report.

8 March 2006

Letter from Gerry Sutcliffe MP to the Chairman

  Thank you for your letter of 8 March.

  You asked for a report about the Council Working Party meeting on 23 February. As requested, I am writing to inform the Committee of the outcome.

  This Working Party was the second to discuss the Commission proposed Draft Regulation of December 2005. The first took place on 23 January, which was the subject of my letter to you of 16 February. Good progress was made with further discussion of the appropriate legal base for the Regulation. All member states, except one, agreed that Article 83 only is appropriate and removed their reservations on this issue. The Commission announced that the European Competition Network (ECN) would be looking at the content of guidelines for the industry. As a result of this statement, a number of member states pressed for early introduction of the guidelines. However, the Commission said this would not be possible in the timescale.

  On the legal base issue, the view was taken that the proposal is concerned with competition law and does not have any direct effect on transport policy. Therefore the appropriate legal base for the proposal is Article 83 alone and not Article 83 in conjunction with Article 80(2).

  One Member State remains concerned on this issue and said they would consider the implications including in relation to the UNCTAD code, Council Regulation 954/79 (also referred to as the Brussels package) and Article 80. Concern was also expressed about the economic impact on short sea shipping in a relatively short period.

  In response, the Commission said that they were looking at the implications for short sea shipping and were waiting for views from the industry. With regard to the UNCTAD Code, Regulation 954/79 allowed member states to adopt this Treaty. It is anticipated that Regulation 954/79 will be repealed at some point in the future and that this will be under Article 80.

  The Commission responded to questions about the proposed guidelines for the shipping lines. The ECN had set up a sub-group to look at this issue and would carry out some preparatory work for the next working group. A number of Member States wanted to see the guidelines before the regulation was enacted. However the Commission believed it was too early to write them. These had not been done for this sector before and so work with other Member States was needed.

  With regard to tramp shipping, the Commission had been informed by the industry itself that they regarded competition rules as already applying. Industry considered that there would be no major changes in the way that it operated, as a result of bringing the sector formally into the competition rules. However industry had identified one potential problem, namely how competition rules would apply to tramp vessel pools. Finally, the Commission had just issued a tender for a study of tramp shipping to help with the guidelines.

  In respect of cabotage, the Commission was waiting for data from the industry. However, the industry did not see a problem with the proposals. It was generally a national issue and there would be very few EU cases.

  EU Member States' views on the proposed regulation were mixed. Some could support the draft regulation, without further comment. Others (including the UK) supported, subject to national Parliamentary scrutiny. One thought the guidelines were important, particularly for tramp shipping. Another wanted to see informal guidelines. Finally, a small number maintained their reservations, as they wanted to see guidelines in advance of any repeal and a review of the timescale.

  The Commission did not set a firm date for the next meeting of the Working Party. However as and when this session takes place, tramp shipping, the European Liner Affairs Association (ELAA) proposal and preparatory work by the ECN sub-group would be discussed.

20 March 2006

Letter from the Chairman to Gerry Sutcliffe MP

  Thank you for your letter of 20 March 2006, replying to my letter of 8 March. Sub Committee B considered your letter at its meeting on 19 April 2006.

  We were grateful for your update on discussions in the Second Working Group and look forward to hearing of any further details of this proposal as they emerge. We will maintain the scrutiny reserve at this stage.

24 April 2006

Letter from Malcolm Wicks MP, Minister for Energy, Department of Trade and Industry to the Chairman

  Thank you for your letter of 24 April, replying to Gerry Sutcliffe's of 20 March.

  You asked to be kept informed of progress on this proposal. In the last few weeks, events have progressed rapidly. The European Parliament has completed its work on its opinion (you will recall that the dossier is not co-decision) and voted in favour of the repeal of the block exemption, subject to the development of guidelines for the sector.

  The Commission has also continued with its regular contact with the shipping lines, trying to help them put together a package of proposals for the exchange of information in the industry that will not breach EU competition rules. The Commission has also sought information from the industry on the operation of the tramp and cabotage sectors as they have not been responsible for the enforcement of competition law in this sector, the Commission have little expertise in the area. In fact, in the UK, the OFT also have little experience of the sector. We have therefore engaged with the UK Chamber of Shipping and the Freight Transport Association to ensure we are able to take account of their views and expertise.

  On 10 July, a group of experts from Member States met for the first time to discuss the issues that would need to be covered in the guidelines. This included both a discussion of the information exchange proposals from the liner shipping sector and on the features of the tramp and cabotage sectors. It is fair to say that we (and OFT) have concerns that some of the proposals put forward in relation to information exchange may breach EU competition law. Others however are broadly acceptable. It was clear from this week's meeting that the Commission and other Member States share this view. Nevertheless, we are content with the Commission's approach which is to continue the dialogue with the shipping lines to help them develop proposals that are both useful for the industry and fall within the relevant laws. The UK officials strongly endorsed this approach at the meeting.

  In relation to the tramp shipping sector, there was a discussion of the information received so far from industry and Member States. Neither the Commission nor other Member States it appears have much experience with the sector (and there is no case law) so we will all be relying on the shipping industry to highlight the key issues. However, the Commission will publish an "issues" paper on the guidelines as a whole in September and we think this will provide a good opportunity for us to engage in a more focused way on the key issues with the UK industry.

  The next steps in the process after publication of the "issues" paper are for the Commission to develop guidelines, taking into account the consultation on the issues paper. We understand that the Commission plan to adopt the draft guidelines by the end of 2007, which will allow them to be finalised before the repeal of the block exemption comes into force towards the end of 2008.

  However, in order for the Commission to issue the guidelines, the proposal repealing the block exemption first needs to be adopted by the Council. This is because the proposal not only repeals the block exemption, but also gives the Commission competence to enforce EU competition law in the tramp and cabotage sectors, which they do not have at the moment.

  The new Finnish Presidency have therefore decided to bring the proposal to Coreper on 19 July and the Council on 24 July to try and gain agreement before the summer recess. This is sooner than we had been expecting. They have also judged that they have the necessary qualified majority among Member States. As you are aware, the Government strongly supports the repeal of the block exemption. We are committed to playing a full part in the development of the necessary guidelines for the industry so that shipping lines and their customers can operate with sufficient legal certainty in a newly competitive market.

  Given the consistent progress being made, I hope that the Committee will be able to consider lifting its scrutiny reserve. I would be happy to continue to keep the Committee informed of developments if it wishes.

12 July 2006

Letter from the Chairman to Malcolm Wicks MP

  Thank you for your letter of 12 July, replying to my letter of 24 April. Sub-Committee B considered your letter at its meeting on 17 July.

  We note the unexpectedly rapid progress made on this dossier. We share the Government's aims of creating "a newly competitive market" with legal certainty for both customers and operators. We are reassured that the repeal of the block exemption for liner conferences will assist this aim. We were however surprised that the group of experts from Member States which you mention did not meet until such a late stage (10 July). Neither are we entirely clear how competition issues would arise in tramp shipping. We would of course be grateful if you kept us informed of any developments in relation to the emerging guidelines from the Commission.

  We are content to lift scrutiny on this proposal ahead of the Council on 24 July.

19 July 2006

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