Select Committee on European Union Minutes of Evidence


Examination of Witnesses (Questions 1 - 10)

MONDAY 3 DECEMBER 2007

Mr Malcolm Harbour

  Q1  Chairman: Good afternoon. Welcome to the Committee, Mr Harbour. Thank you very much for coming to assist us. Would you like to describe your present position in the European Parliament and perhaps make an opening statement?

  Mr Harbour: Thank you very much indeed for the invitation to come and meet your Committee again. We have had a number of very useful exchanges of view over the last few years. I am one of the British Conservative members of the European Parliament and I am a member of the Internal Market and Consumer Protection Committee. I also have the overall responsibility in that Committee, what is called a coordinator for the centre right political fraction of the European Parliament, the European People's Party and European Democrats. Essentially I am responsible for managing the team of EPP-ED members on the Committee which is the largest group in the Parliament—a not insignificant group—for planning our political response to everything that is referred to the Committee, for appointing rapporteurs and shadow rapporteurs; essentially anything that happens on the Committee is basically on my watch so I keep a very close eye on those activities. I have also, in parallel to that, been involved with policy work on the evolution of the Single Market and we submitted to you on behalf of members of the group some written evidence in your review of the Single Market for the 21st Century document so I am very happy to talk about some of those aspects. That is a bit of introduction and if I may now address the prime question that you asked me to come here for, which is around questions surrounding the Treaty and I welcome the opportunity to do that. I think it is fair to say, first of all, that the working committees on the European Parliament in areas like mine on Internal Market have so far had very little engagement with the impact of the Treaty. I think that is primarily because, in terms of the basic Treaty articles that govern the promotion and management of the Internal Market, we do not see any fundamental change of direction emerging from the Treaty; but with one significant danger point which I will refer to a bit later on, the question of competition. We see that the core articles of the Treaty on our main areas of responsibility, which relate to the Internal Market and customs and consumer protection, remain substantially unchanged. We do note that consumer protection has now been specifically singled out as separate area of shared competence between the European Union and the Member States on the same basis as the Internal Market. The creation of our Committee which, for the first time, brought those two areas together from 2004 onwards—previously consumer protection was the responsibility of the Environment and Public Health Committee—I think has already sharpened our work in that direction anyway and I also observe that since January 2006 we have had a dedicated commissioner for the Internal Market, Mrs Meglena Kuneva, who is doing an outstanding job in my opinion and that has significantly raised the profile. I just make those points as observations because I think in a way we have anticipated the additional prominence on consumer protection that will be given to us in the Treaty. I think there are a number of other areas in this Treaty which we observe with interest, if you like, as focussing importance—or more importance—on some of the things we have already been working on, particularly how to make the Internal Market function better. There are some new Treaty provisions in terms of co-decision work where I think there is some new description of our co-legislative role in the Treaty which I have not quite got round to, but let us call it co-decision, where we share responsibility with the Council on freedom of establishment, free movement of services, particularly aspects relating to the freedom of self-employed people to go and offer their services in other parts of the European Union and the removal of obstacles generally to the functioning of the Internal Market and particularly areas like mutual recognition of qualifications. As you will be aware from the evidence you have taken from me twice now on the Single Market for services, these are areas which have been a major preoccupation of this Committee and I think the importance of these provisions in the supply of services, on the whole need to ramp up the service economy in the context of the Single Market and encouraging particularly smaller enterprises to access those markets are well reflected in this Treaty, so that is a part of it that we welcome. The other area which I know your Committee is particularly interested in is this complex and interesting question which, under the somewhat heavy title of Services of General Interest and Services of General Economic Interest (and I think we discussed those in the context of the Services Directive), relate to the relative competences of Commission Member States in the mechanisms that are provided for the delivery of public services in the round, and of course that includes a huge range of services ranging from social services, health and transport right through to energy and electronic communications. The Commission has been under pressure from some political quarters—particularly from the left wing of the Parliament, from socialist groups and from the other left wing groups—to come up with some sort of framework directive which defines the competencies and roles of Single Market legislation in the context of delivery of public services. We have argued from my side of the House very strongly against that proposal and I think that the provisions in the Treaty, in terms of the article plus the protocol, clearly support our position on that. I would also draw the attention of your Committee to the working document that was annexed to the Single Market for the 21st Century paper that you may have seen which further amplifies that position. What the Commission has said is that the whole area about delivery of public services is an area which is extremely complex but, in the round, remains predominantly the responsibility of the Member States. The style, organisation and management of delivery of public services, particularly those that are very close to the citizen like personal services, social services, health, education, must remain the competence of Member States. Where services are funded entirely through public expenditure and the private sector is not involved, these are entirely the responsibility of Member States, although of course it is possible—and probably increasingly now—for there to be a mixed economy in those areas so that a service delivery may include both services delivered through the public purse directly and also private contractors being involved in that. As the Commission points out, tendering for public contracts will come under the provisions of the Single Market legislation on public procurement. Similarly competition issues, free movement of services issues and non-discrimination against service providers from other countries remain in force despite the fact that those public services are contracted out as part of an overall bundle of services, in other words there will be a mixed economy. However, the Commission cautions—quite rightly in my view—against any sort of overarching solution by saying that this is an immensely complex area but the basic provisions of the Internal Market Treaty Articles will apply where private enterprises are involved in contracting and delivering public services. There have been some important test cases recently around this, particularly in Germany, and there is a lot of sensitivity in this area from my German colleagues, so perhaps I will just pass that on to you. I visited Germany earlier this year and I had the opportunity to talk to local authorities and there was a great deal of interest in more consolidation of services between local authorities. For example, you might find adjacent local authorities pooling their service delivery maybe in health, education or transport. The question is that if you then pool that services delivery are you then required to essentially tender out again the whole of that operation or can you actually allow the pooling of the existing consortium to take on that responsibility without the need for external tenders? So far the Court of Justice has found that by and large there should be competitive tendering in those circumstances. This is the sort of difficult area where the Commission has said that it is prepared to provide guidance to contracting parties and public authorities where there are perhaps some more difficult cases in this area about how public service requirements cut across the requirements for open tendering. I think that is an area where I believe the protocol has moved us in the right direction, but I am not convinced that we need further legislation on that topic. I think that covers primarily the articles of the Internal Market aspects of the Treaty. I did want to mention one final point which is a much more fundamental point, which is the change to the base articles in the main Treaty of the European Union. What we have been talking about here is the second Treaty which is the Treaty about the implementation of requirements. I cannot remember what it is called now; I am afraid I am not so familiar with it but as you know there are the two treaties. I want to talk about the article in the foundation Treaty about undistorted competition which is currently I think, in the present Treaty, article 3(1)(g). As you will know that phrase, a provision on an Internal Market on the basis of undistorted competition has now been removed from the opening articles from the new head Treaty. There is a protocol that covers that which I know that your Lordships have read and looked at. I think our concern remains that if you look at the jurisprudence of the Court of Justice and if you look at some of these seminal cases that relate to competition issues in the Single Market and the basis of the Community legislation in ensuring undistorted competition, you will see that there are a number of direct references in some of the key judgments to the current article in the existing Treaty. Our concern remains that if this is now relegated to a mere protocol the basic principles of EU competition law in the round could be significantly undermined when it comes to the first judgments under this new Treaty. This, I think, is one of these areas—and I observed this in a more broader context and other areas which I know your Lordships are interested in, which is how regulation is made and I think it is remarkable that for all the huffing and puffing that goes on in Member States about the need for the European Commission to improve impact assessments and pre-legislative reviews, when it comes to a fundamental change like that it appears out of the blue, overnight in a summit, without any proper assessment or analysis of its impact and is agreed by the prime ministers. I do not believe this is in any way a satisfactory practice. Generally, we observed more broadly—this is another subject—and have argued very strongly with Council on a number of occasions—and I know you addressed some issues about how Council performs in this area—that Council is conspicuously ignoring the inter-institutional agreement on better regulation by not actually subjecting amendments that it makes to Single Market legislation to a proper impact assessment and review. That is a subject you may want to take up on another occasion. I suspect I have probably spoken for a bit too long but perhaps I can go on for just a couple of minutes on the Commission's recent communication on the Single Market for the 21st Century. I observe as a first point—this is somewhat ironic I think—that we now have new consistency within the treaties on the description of the Internal Market and the Commission is now proposing that we should refer to it from now on as the Single Market; not a terribly coordinated approach one might think. I happen to agree with the Commission, by the way, because I think the Single Market is much more user friendly and a phrase that I think in communicating what we do to our electors is actually a much more apt description of what we are trying to achieve. We have been involved in the evolution of this report for some time; we also submitted evidence to the Commission on this. I think the Single Market for the 21st Century is an important document and I very much welcome the fact that we now have the Single Market put firmly on the agenda as an absolutely central plank of economic reform but also the competitiveness of the European Union in the global economy. I think it is a major advance in this document that it really sets out clearly that if the European Union is going to sustain and develop its competitive position the completion of the Internal Market is a crucial weapon in doing that. Setting the Single Market in the context of open trade is extremely welcome and I think also the clear calls in this document against protectionism in any form are extremely welcome. I think the other strand which is crucial relates to what I said earlier about consumers and consumer protection. I think the Commission has done an important job of setting the Single Market very clearly in the context of delivering benefits for all Europe's consumers. By having a highly competitive market, enhancing choice, innovation, investment, all of those areas we are doing a good job for consumers but we need to articulate that much more than we do because actually we need to sustain much more public support for the Single Market as a concept. That leads me onto the third point because I think that the Commission clearly sets out the importance of the shared work and responsibility in delivering the Single Market that lies between the Community institutions—or I should say now the Union institutions—and the Member States. The Member States on the ground are largely responsible for delivering aspects of the Single Market and, as you will remember from our discussion on the Services Directive, we attach great importance to the role of member governments in promoting the Single Market, providing things like single points of contact which we argued very strongly for in the services directive and which we are considering to follow through to ensure that the Member States do that. Also linked to that are, I think, some imaginative and important ideas about better tools for monitoring the Single Market rather than just relying on the current Single Market scoreboard which I think has become rather a stale instrument in simply recording the transposition of Single Market legislation. We need much better indicators about how competitive markets really are across the European Union so we really can point our finger and see how instruments like public procurement are really working out in the field and on the ground. Again there was an important working document published for the Single Market review which spells out some ideas. My concluding point is that I really welcome the importance attached to small enterprise and the access of small enterprise to the Internal Market. I think there are some very interesting ideas about encompassing those in a so-called Small Business Act which will bring together maybe legislative but other instruments to really encourage SMEs to access the small market and also deal with some of the issues about the excessive legislative burden that is imposed on small enterprises. All of these I think are imaginative and useful and in broad terms I very much welcome the Single Market for the 21st Century document. My absolutely final point to make is just to advise you that the European Parliament will be holding its annual meeting with national parliaments on the Single Market on 11 and 12 February 2008 when this document will be one of the key items on the agenda, as will energy. I was pleased to remind Lord Walpole that I had met him on a previous occasion because he had represented your Lordships probably at the first meeting which was three or four years ago, but we would obviously very much welcome a strong representation from your Lordships' House and maybe from this Committee in discussing these important issues.

  Q2  Chairman: Mr Harbour, thank you very much indeed for a very clear, very helpful opening statement. May I just say, before I turn to members of the Committee with some of their questions, because of the pressures of time it may not be sensible to try to get through all the questions which we have sent you, but if you feel moved to send us in writing subsequently any specific comments—we have had a chance, you and I, to discuss these and some of these you feel outside your direct field of competence—anything we can put on the record will be helpful. May I just start by asking a question in relation to Services of General Interest? When the Treaty is finally signed what difference will it make in terms of the powers of the Commission and the relative sharing of responsibilities between the Council and the Commission and indeed parliaments, in relation to Services of General Interest? I put my finger specifically on postal services because the evidence we have already heard is that actually not much has changed; the Commission will try, when it brings forward to justify either further legislation or further action in relation to its competence in relation to certain services that are partly economic, partly paid for by the consumer, partly provided by the private sector, but can you put your finger on specific examples of how the Treaty will make a change?

  Mr Harbour: I am not sure that the Treaty of itself will actually make much change at all because I think this issue was already absolutely in the centre of public debate. Again I draw your attention to the paper that the Commission has issued about the whole interpretation of its role with regard to Services of General Interest and General Economic Interest which was written under the provisions of the existing treaties. I think it will perhaps confirm the view that I have just set out to you, that the Commission does not have a broad interest in introducing any sort of overarching legislation to define roles and responsibilities because this is an immensely complex area which varies significantly from state to state. On the broader question about those areas of Services of General Economic Interest, of Services of General Interest—but it is primarily General Economic Interest—where there is a community framework (like electronic communications, for example) then those are areas which the Member States have decided need a Community framework because of their specific character. That is true, as you know, for both postal services and for energy which really come within those categories. I remark also—since I have been doing a lot of work on electronic communications and the upcoming reform which I hope your Committee will take an interest in—that there are specific provisions in the Directive on Universal Service which essentially provide a consistent mechanism for allowing Member States to support universal service within the framework of the overall legislation but do it in a way which does not discriminate against private sector providers, in other words the universal service provision has to be open to tender from any of the communication service providers that are offering service in that market.

  Q3  Lord James of Blackheath: Asked in a state of ignorance and for better understanding, I am trying to get some examples of what constitutes a service company in this particular context. Is Air France a service company, as an airline, within the definitions you have been giving?

  Mr Harbour: I am not sure, Lord James, whether this is actually a particular issue as far as the Single Market is concerned.

  Q4  Lord James of Blackheath: The reason I ask it is because I am trying to find an example of a service company because the real question that would come behind it is as to what impact all this will have on the rules concerning the non-allowance of financial assistance to a service company.

  Mr Harbour: The provisions on state aids which come under competition law would apply to any company whether it was a service company or a manufacturing company. Since those distinctions are being increasingly blurred these days it seems to me it is actually related to the nature of the activity and the competitive environment which is being delivered. I do not think there is anything here that we have talked about that will make a significant difference. Similarly it relates to my answer on the question about Services of General Interest and essentially they are defined by the Member States concerned. Some of them may well deliver through the public sector and some they may contract out to the private sector, but that will be their responsibility. Water, for example, is clearly a Service of General Interest; in this country it is delivered through private companies under an independent regulator and in other countries it is delivered by national or regional water companies that may well come under the control of the local authorities concerned, so there will be very different ownership models within that structure.

  Q5  Lord James of Blackheath: The thrust of my concern is that I suspect from what I read and hear there is a very arbitrary approach being taken by Europe as to when it allows state aid and when it does not, which sometimes appears to be completely contradictory from one jurisdiction to another, from one national entity to another. Is anything happening which is going to affect or resolve that or make it more consistent?

  Mr Harbour: That is a bit outside my remit but I will give you my personal views. Competition policy is not specifically our area but what I would say is that the state aid rules, as part of European competition policy—at a European level, a Community level—I think that if Mrs Kroes, the Competition Commissioner were here—I am sure she would be delighted to give evidence to you—she would argue quite strongly that they do apply them consistently and also that they have been toughening up the criteria on state aid and in certain conspicuous sectors—transport is an interesting one; my own background is in the motor industry—like the motor industry which has hitherto been subject to quite a lot of competitive bidding by countries in order to attract new car plants that the Commission has dramatically tightened up on that and the criteria for state aid are being quite significantly tightened up and implemented pretty rigidly. I think you would need to ask her about that but I think so far as the Treaty is concerned my main concern would be whether the proposed change around undistorted competition might affect that when it came to a challenge to the Commission's state aid. What will happen is that there will be a Court of Justice decision on a challenge by a company or a government to a community state aid ruling.

  Lord James of Blackheath: My Lord Chairman, I am content with the answer as I have heard it today but I would ask for guidance from the Chair and the secretariat to this Committee as to whether we could have more information on this because I think there is a question there that I have not entirely got to fully, and certainly not to the understanding I would want to have.

  Chairman: Certainly. We will pursue this after the Committee if we may and make sure that correct evidence and advice is offered to the Committee. Can we now turn to some colleagues?

  Q6  Lord Powell of Bayswater: On your point on undistorted competition—we have had some discussion on this already—like you I feel a bit anxious about the way this has got shuffled around. But I was also reading the recent letter from the Director General of the Commission's Legal Service which reminds us all that actually undistorted competition never was an objective in the original Treaty, it was simply a means of achieving objectives, and those means are now safeguarded by the new protocol and therefore there is no substantial difference. To a rational mind that is understandable but nevertheless may not be how a European Court would interpret it. We have seen some strange judgments in the European Court when it comes into this area of competition. Also one has to think about the motives of those who wanted removal of the reference to free and undistorted competition. Do you really see this as a set back to the efforts to have effective competition in Europe? Or do you think actually it is just playing with words and shifting things around it will all come out in the wash and all will be for the best?

  Mr Harbour: I think it is a potential danger which distinguished lawyers—I am not a lawyer, as you have probably gathered—have pointed to how the absence of that reference to undistorted competition (even as a tool it is not referred to at all now) might affect a key judgment if the judgment, for example, was balancing other issues like employment or the social market side of the economy which is still of course firmly written into the lead articles of the Treaty. I think that is how I would put it. I do not see that it will be an immediate set back but nevertheless we are dealing with an area where community law and community law cases have in many cases have had a very significant effect—the seminal cases have had a significant effect—on how competition law is applied. It remains one of the most important and powerful instruments in the creation of an effective and operating Internal Market.

  Q7  Lord Powell of Bayswater: My worry would be that when free and undistorted competition was originally encapsulated in the text of the Treaty we were in a world which is moving generally in the direction of liberalising and opening up markets. Now we seem to be entering a different world where world trade organisation negotiations are faltering, where countries are now imposing more protectionist measures. I think there is a risk surely that the way these matters are now provided for in the Treaty could actually encourage those who would like to see more protectionism to pursue their course. Perhaps you would agree that this is a move against a true Single Market in which free and undistorted competition is allowed to be the guiding principle.

  Mr Harbour: I agree. I think that is the substance of my argument as well but you put it rather more elegantly than I did.

  Q8  Chairman: Can I ask a question about intellectual property? I know it is not specifically the remit of your Committee in Brussels but this Committee attaches some importance to the Treaty's statement on intellectual property because it does seem to open up the prospect of a single redress by an aggrieved party within Europe. At the present time, although you can register your patent throughout Europe in all Member States that are part of the current agreement, there is no single point at which or to whom you can apply for redress. I think this Committee might be pursuing this matter. Could you just comment about the significance of the particular article in the new Treaty?

  Mr Harbour: I think it is an important step forward in the tortuous route towards trying to get a properly integrated patent system that will cross the whole of the European Union. Indeed, as the Commission points out in the Single Market document, this is absolutely crucial for an innovative economy but, as your Lordships will know because I think you have done previous reports on it, the original concept of a community patent now seems to have foundered completely and we do not detect a great deal of enthusiasm behind that at the moment within the Council, although there are some people who are keen to revive it. I think that the issue around jurisdiction of the patent system which you raised is now the major stumbling block. I think we have now moved to resolve the language difficulty which was a previous stumbling block. I understand, for example, that the French Government has recently signed the London Agreement within the existing European Patent Convention which provides for a much more restrictive range of translations when you apply for a patent and I think that we are now moving towards finding a role for national patent courts within an overall system of jurisdiction and looking at the possibility of mutual recognition of judgments and so on. Insofar as this addition to the Treaty provides a legal base for doing that, I think it will be a major step forward. I rather hope that over the next 12 months we may actually see a rather more focused political priority given to this crucial piece of legislation. It also relates very much to our role in the global economy that I mentioned earlier as well because we know that the US Congress now has a number of bills before it to reform the US system. There are major issues about intellectual property in our relations with China that we do need to resolve and I am pleased that the Commissioner, Peter Mandelson, is now putting intellectual property protection much higher up his negotiating demands with China. I think with other emerging economies the same thing will apply. It seems to me to be helpful in that context.

  Q9  Lord Whitty: I declare an interest as Chair of the National Consumer Council. I apologise that I was not here for the beginning of your remarks, however I was very interested in something you were saying towards the end which related to the role of the Single Market/Internal Market being, at the end of the day, for the benefit of the consumers of Europe and contribution to their well-being. Given that that is so and given that such terms were not perhaps so current when the original treaties were spelt out and in a sense taking a slightly different view from Lord Powell about whether free and undistorted competition is a means or an end, the end of this is to improve the lot of European consumers through competition but also through other measures which may apply when competition is not of itself sufficient; it may be necessary, but not sufficient. Do you regret that the re-drafting of the treaties has not made this rather more explicit in the terms of the Treaty itself, particularly given that there are other initiatives coming out of the Commission which do put the consumer as such more central to their concerns, including the current re-assessment of the consumer acquis and the documents the Commission came out with a couple of weeks ago? You have a very valid point that we have to sell this to the citizens of Europe as something they understand. At the moment much of this is not understood and although words in a treaty or a constitution do not make a huge amount of difference to the man in the supermarket, they do make a bit and we seem to have missed an opportunity here. Would you agree?

  Mr Harbour: I am not sure I would because I think that consumer protection is now ranked on an equal basis with the Internal Market in the treaties. I think that is an important step forward in actually highlighting consumer protection as being one of those elements. Just looking through the provisions of this Treaty I do not detect the fact that the Commission, in working with us in co-decision with the Council, lacks powers under the treaties to be able to implement or initiate and implement consumer protection instruments. Certainly the Commission has not suggested that it has any lack of powers in those areas. I am very familiar with the work you talked about because that is squarely within the remit of our Committee. I think the work that we are now doing and is now underway to provide a common basis and a common set of rights for consumers in key areas across the European Union so that consumers feel more comfortable with shopping cross-border and exercising their rights in the Single Market and companies also know that they have one set of requirements to deal with, for example in terms of dealing with unfair commercial practices and contract terms (we will get the contract terms legislation next year), those are important advances which have basically been developed within the existing treaties. I think I am content with the fact that consumer protection is now much more clearly identified there and it may well be, as there have been if you look at some of the jurisprudence of the Court of Justice where consumers have been cited also in competition cases, where it has been averred that action needs to be taken or supported because lack of competition is bad for consumers. I also note that the Competition Directorate in the Commission, as one of Mrs Kroes's initiatives, has actually taken on consumer policy specialists, particularly in dealing with merger cases. Mrs Kroes has started coming to our Committee as well; this is a new initiative that we have taken to invite her to come and talk to our Committee because she believes that much of their work is very central to consumers' interests.

  Q10  Chairman: Some of us will shortly be going to take evidence from Commissioner McCreevy. Your Committee has produced a report on the Commission's internal review ahead of us. Bearing that in mind and bearing what has happened recently in terms of statements by the commissioners responsible for energy, telecommunications and financial services, are there any particular issues that you think we should take up with the Commissioner?

  Mr Harbour: I think there is quite a long list so I will try to be fairly brief. To set the context, our Committee has not yet actually done a report on the Single Market in the 21st Century. What we did do was to produce our own strategy report in the summer which my colleague Jacques Toubon was a rapporteur for which was actually voted on by us in September (I am sure you had a copy) which set out our views about what should be in a Single Market for the 21st Century communication. I think we have been gratified that quite a lot of our ideas have already found their way in there. The second point that I would make is that one of the really important things about the Single Market of the 21st Century document is that it is not exclusively a document produced by Mr McCreevy or the Directors-General for the Internal Market. The Single Market of the 21st Century document has actually been produced by the Secretary General of the Commission reporting to the President, Jose Manuel Barroso, because it is an all-embracing document. Essentially the Single Market operates in so many areas and this is a true integrating document showing the importance of market and competitive activity across the whole spread of activities. In relation to Charlie McCreevy's areas I think some of the things I talked about; about the tools for monitoring the Internal Market which he is responsible for managing; his view about progress in implementing the Services Directive and how that is proceeding; issues relating to public procurement instruments where we are awaiting some additional provisions to clarify some issues, particularly around concessions in certain areas, concession instruments, public/private partnerships and his view about the enforcement of those; our mutual recognition of professional qualifications where our reform of that is now being implemented and I think this is going to become more and more important; also patents and intellectual property for which he is directly responsible. I think you have probably got a reasonable agenda there. If I were really daring I would suggest you also raise with him the issue about gambling in the Internal Market because, as the Irish Commissioner he is very interested in that but I know that he regards this as somewhat of a delicate and sensitive area but I think if you were ambitious you might also mention that as well.

  Chairman: We will try our Irish luck. Mr Harbour, thank you very much indeed. This part of the evidence session is now closed and we will move almost directly to the second part. Thank you very much.






 
previous page contents

House of Lords home page Parliament home page House of Commons home page search page enquiries index

© Parliamentary copyright 2008