40th Report - United Kingdom Parliament

HC 86-xxxix

House of Commons

European Scrutiny Committee

Fortieth Report of Session 2012–13 Documents considered by the Committee on 24 April 2012, including the following recommendations for debate:

Adjustment of direct farm payments for 2013 Enhanced cooperation and financial transaction tax 2013 General Budget

HC 86-xxxix Published on 2 May 2013

by authority of the House of Commons London: The Stationery Office Limited

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House of Commons

European Scrutiny Committee

Fortieth Report of Session 2012–13 Documents considered by the Committee on 24 April 2013, including the following recommendations for debate:

Adjustment of direct farm payments for 2013 Enhanced cooperation and financial transaction tax 2013 General Budget

Report, together with formal minutes

Ordered by The House of Commons to be printed 24 April 2013

Notes

Numbering of documents

Three separate numbering systems are used in this Report for European Union documents:

Numbers in brackets are the Committee’s own reference numbers.

Numbers in the form “5467/05” are Council of Ministers reference numbers. This system is also used by

UK Government Departments, by the House of Commons Vote Office and for proceedings in the House.

Numbers preceded by the letters COM or SEC or JOIN are Commission reference numbers.

Where only a Committee number is given, this usually indicates that no official text is available and the

Government has submitted an “unnumbered Explanatory Memorandum” discussing what is likely to be included

in the document or covering an unofficial text.

Abbreviations used in the headnotes and footnotes

EC (in “Legal base”) Treaty establishing the European Community

EM Explanatory Memorandum (submitted by the Government to the Committee)*

EP European Parliament

EU (in “Legal base”) Treaty on European Union

GAERC General Affairs and External Relations Council

JHA Justice and Home Affairs

OJ Official Journal of the European Communities

QMV Qualified majority voting

RIA Regulatory Impact Assessment

SEM Supplementary Explanatory Memorandum

TEU Treaty on European Union

TFEU Treaty on the Functioning of the European Union

Euros

Where figures in euros have been converted to pounds sterling, this is normally at the market rate for the last

working day of the previous month.

Further information

Documents recommended by the Committee for debate, together with the times of forthcoming debates (where

known), are listed in the European Union Documents list, which is published in the House of Commons Vote

Bundle each Monday, and is also available on the parliamentary website. Documents awaiting consideration by

the Committee are listed in “Remaining Business”: www.parliament.uk/escom. The website also contains the

Committee’s Reports.

*Explanatory Memoranda (EMs) can be downloaded from the Cabinet Office website:

http://europeanmemoranda.cabinetoffice.gov.uk/.

Letters sent by Ministers to the Committee relating to European documents are available for the public to

inspect; anyone wishing to do so should contact the staff of the Committee (“Contacts” below).

Staff

The staff of the Committee are Sarah Davies (Clerk), David Griffiths (Clerk Adviser), Terry Byrne (Clerk Adviser),

Leigh Gibson (Clerk Adviser), Peter Harborne (Clerk Adviser), Paul Hardy (Legal Adviser) (Counsel for European

Legislation), Joanne Dee (Assistant Legal Adviser) (Assistant Counsel for European Legislation), Hannah Finer

(Assistant to the Clerk), Julie Evans (Senior Committee Assistant), Jane Lauder (Committee Assistant), Alex Hunter

(Committee Assistant), Daniel Möller (Committee Assistant), and Paula Saunderson (Office Support Assistant).

Contacts

All correspondence should be addressed to the Clerk of the European Scrutiny Committee, House of Commons, 7

Millbank, London SW1P 3JA. The telephone number for general enquiries is (020) 7219 3292/5465. The

Committee’s email address is [email protected]

European Scrutiny Committee, 40th Report, Session 2012–13 1

Contents

Report Page

Documents for debate

1 DEFRA (34803) Adjustment of direct farm payments for 2013 3

2 HMT (34372) (34692) Enhanced cooperation and financial transaction tax 5

3 HMT (34805) 2013 General Budget 9

Documents not cleared

4 BIS (34685) Network Information Security across the EU 12

5 DEFRA (34769) Maritime spatial planning and integrated coastal management 19

6 DH (33736) (34781) Transparent pricing of medicines 23

7 DH (34128) Regulating clinical trials 27

8 FCO (34846) (34847) Restrictive measures against Zimbabwe 30

9 HMT (33576) (34042) Financial management 37

10 HO (34793) Trafficking in firearms 40

Documents cleared

11 FCO (34774) (34841) Restrictive measures against the Democratic People’s Republic of Korea 44

12 FCO (34839) (34840) EU restrictive measures and Libya 53

Documents not raising questions of sufficient legal or political importance to warrant a substantive report to the House

13 List of documents 58

Formal minutes 60

Standing Order and membership 61


1 Adjustment of direct farm payments for 2013

(34803) 7935/13 COM(13) 159

Draft Regulation on fixing an adjustment rate to direct payments provided for in Regulation (EC) No 73/2009 in respect of calendar year 2013.

Legal base Article 43(2) TFEU; co-decision; QMV Document originated 25 March 2013 Deposited in Parliament 3 April 2013 Department Environment, Food and Rural Affairs Basis of consideration EM of 15 April 2013 Previous Committee Report None Discussion in Council See para 1.5 below Committee’s assessment Politically important Committee’s decision For debate in European Committee A

Background

1.1 According to the Commission, it is a fundamental rule of the Treaty on the Functioning of the European Union (TFEU) that the Union’s annual budget must comply with the Multiannual Financial Framework, and, in order to ensure that this principle is observed as regards the financing of the Common Agricultural Policy (CAP), Council Regulation (EC) No 73/2009 provides for an adjustment to be made to market related expenditure and direct farm payments when expenditure forecasts indicate the relevant annual sub-ceiling will be exceeded.

The current proposal

1.2 The Commission says that, in drawing up the draft budget for 2014, the first estimates indicate that expenditure in this area is likely to exceed the financial ceiling agreed by the European Council in February 2013 as part of the Multiannual Financial Framework for 2014–20, and that consequently the direct farm payments for the 2013 calendar year (for which the payment window runs from 1 December 2013 to 30 June 2014, and thus falls under the EU financial year for 2014) should be reduced. It has therefore proposed a reduction of 4.98%, which would apply to all direct payments1 in excess of €5,000.

The Government’s view

1.3 In his Explanatory Memorandum of 15 April 2013, the Minister of State for Agriculture and Food (David Heath) says that the Government recognises the need for financial discipline in 2013 to prevent overspending on the CAP, but that the proposed exemption for any payment below €5,000 is nevertheless a cause for concern, as it believes there should be an equal proportional reduction for all such payments. In particular, it fears that

1 Except in Romania and Bulgaria, which are still in the process of phasing in direct payments, and Croatia.

4 European Scrutiny Committee, 40th Report, Session 2012–13

such an exemption for payments would create an incentive for some Member States to call for increased expenditure in the knowledge that a large proportion of their own farms would not be affected, and that it would create an additional and unnecessary complexity for paying agencies. It will therefore support like-minded Member States in calling for the removal of the exemption, which the Minister says could also have implications for the CAP reform negotiations, where there is an ongoing debate in the Council about how financial discipline should apply from 2014 onwards.

1.4 The Minister says that the Commission estimates the total reduction resulting from the application of financial discipline will amount to €1471.4 million, although this figure will need to be finalised once the Multiannual Financial Framework for 2014–20 is agreed with the European Parliament. So far as the UK is concerned, he estimates that the proposal would result in a cut of around €150 million out of a direct payment budget for the UK of around €3.3 billion, this likely percentage reduction being slightly larger than in most other Member States as the UK having a higher than average proportion of payments above €5,000.

1.5 Finally, the Minister points out that the adjustment set by this proposal will need to be adopted by the European Parliament and the Council by 30 June 2013, failing which the Commission has the power to make the decision. If appropriate, the Commission can propose an adaptation of the rate set by this proposal on the basis of new information in its possession and the Council then has until 1 December 2013, which marks the opening of the 2013 payment window for direct payments, to adapt the adjustment rate.

Conclusion

1.6 Whilst it is clearly right that the Commission should seek to prevent overspending under the Common Agricultural Policy, we note the Government’s concerns that an exemption has been proposed for payments under €5,000, which will bear disproportionately on Member States like the UK with larger than average farm holdings. Consequently, although the Government has said that it will try to persuade the Commission and other Member States that the exemption should be removed, we believe the proposal raises issues which the House should consider further, not least in terms of the precedent it could set for the future application of financial discipline in this area. We are therefore recommending it for debate in European Committee A.


2 Enhanced cooperation and financial transaction tax

(a) (34372) 15390/12 COM(12) 631 (b) (34692) 6442/13 + ADDs 1–2 COM(13) 71

Draft Council Decision authorising enhanced cooperation in the area of financial transaction tax Draft Council Directive implementing enhanced cooperation in the area of financial transaction tax

Legal base (a) Article 329(1) TFEU; consent; QMV

(b) Article 113 TFEU; consultation; unanimity (amongst the Member States participating in enhanced cooperation)

Department HM Treasury Basis of consideration Minister’s letter of 18 April 2013 Previous Committee Reports (a) HC 86–xxii (2012–13), chapter 13 (5 December

2012), HC 86–xxvi (2012–13), chapter 5 (9 January 2013), HC 86–xxxiv (2012–13), chapter 1 (6 March 2013) and HC 86–xxxvii (2012–13), chapter 2 (26 March 2013) (b) HC 86–xxxvii (2012–13), chapter 2 (26 March 2013)

Discussion in Council (a) 22 January 2013 (b) Not known

Committee’s assessment Legally and politically important Committee’s decision For debate on the Floor of the House (decision

reported 26 March 2013)

Background

2.1 In September 2011 the Commission proposed a draft Directive to establish an EU financial transaction tax (FTT).2 This was dependent on the unanimous agreement of the Council and it became obvious that such support would not be forthcoming.

2.2 Under Article 20 TEU and in accordance with Articles 326–334 TFEU nine or more Member States may seek Council authorisation to establish enhanced cooperation amongst themselves by exercising non-exclusive competences of the EU. The Council’s authorising Decision is adopted by QMV.

2 (33179) 14942/11 + ADDs 1–20: see HC 428–xxxix (2010–12), chapter 4 (26 October 2011), HC 428–xli (2010–12),

chapter 10 (9 November 2011) and HC 86–xxxvii (2012–13), chapter 2 (26 March 2013).


2.3 With this draft Council Decision, document (a), the Commission proposed the Council’s authorisation of an enhanced cooperation procedure for the introduction of an FTT. The Member States concerned were Austria, Belgium, Estonia, France, Germany, Greece, Italy, Portugal, Slovakia, Slovenia and Spain. The Commission said that the request of the Member States met the conditions for enhanced cooperation and that the proposed FTT would be largely based on the original proposal, in terms of scope and objectives. The draft Decision was adopted by the Council on 22 January.

2.4 The draft Directive to introduce an enhanced cooperation FTT, document (b), is based upon the Commission’s original proposal for an EU wide FTT. Key features of the proposal include the following:

• the FTT would have a wide base as well as provisions to prevent the relocation of financial activity outside of the FTT zone;

• as in the original proposal a ‘residence principle’ would apply, meaning that the tax would be due if any party to the transaction were established in a participating Member State, regardless of where the transaction took place;

• this would be the case both if a financial institution engaged in the transaction were, itself, established in the FTT zone, or if it were acting on behalf of a party established in that jurisdiction;

• an FTT zone financial institution’s branches worldwide would therefore be subject to the FTT on all relevant transactions — for example, French and German banks’ London and New York branches would be fully subject to the FTT on all their securities and derivatives businesses;

• equally non-FTT zone financial institutions (for example, those in London, Dublin, Luxembourg, New York and Asia) would be taxed whenever they transacted with parties in the FTT zone and whenever they dealt in securities issued by an entity established in the FTT zone or on behalf of such an entity;

• in order to mitigate the risk of relocation, reliance is put on the residence principle to ensure that if any party to the transaction were established in the FTT zone, the transaction would be taxed, regardless of where in the world it took place — financial operators would only be able to avoid the FTT if they were prepared to relocate and relinquish their clients and business in the eleven participating Member States and the Commission hopes that the relatively low headline rates would deter such relocation;

• as “a further safeguard against avoidance of the tax”, the proposal also adds an ‘issuance principle’, meaning that financial instruments issued in the FTT zone would also be taxed when traded, even if those trading them are not established within the FTT zone; and

• in general only equities and bonds would be subject to this issuance principle, however there might be scenarios where other products, such as derivatives traded on organised trade platforms, would also be affected.


2.5 When we considered the draft Directive last month we heard that:

• the UK will not participate in the enhanced cooperation FTT;

• the Government has concerns that introducing an FTT through enhanced cooperation does not meet the conditions of subsidiarity;

• at the January ECOFIN Council the Government abstained on the draft Decision, document (b), to allow enhanced cooperation, given that it was not assured that the proposal would enhance the single market and respect the competences of non-participating Member States;

• the Government will exercise its right under the TFEU to fully and proactively participate in discussions on the design of the enhanced cooperation FTT;

• the Government regards the Commission’s impact assessment as inadequate, particularly in relation to the economic impacts for non-participating Member States — an issue that the Government will proactively raise in future discussions; and

• the Government will continue to raise its concerns over other key issues including compliance with EU law and the single market, whether the extra-territorial effects would prejudice non-participating Member States and potential problems over double taxation and enforceability.

2.6 We recommended that the draft Directive, document (b), be debated on the Floor of the House, together with document (a), concerning the Council’s consent to enhanced cooperation in this field, which we had recommended previously for debate. We suggested that in the debate Members might like particularly to explore five points and asked, to facilitate that examination, to have as soon as possible the Government’s answers to these points.3

The Minister’s letter

2.7 The Financial Secretary to the Treasury (Greg Clark), writes now to tell us that on 18 April the Government made an application to the Court of Justice for the annulment of the Council Decision of 22 January, authorising enhanced cooperation in the area of FTT. He explains the Government has taken this step following legal advice that there is a risk that, in the event that it needs to challenge the Directive that would implement the FTT, currently under negotiation, the case could be rejected by the Court as being too late. He says the Government therefore concluded that it had no alternative but to challenge the authorising Decision now.

2.8 The Minister, noting that the Government’s application focuses on the extraterritorial elements of the tax, says that:

3 See headnote.


• in the Government’s view, if the FTT Directive were adopted in its current draft form, the tax would infringe the rights and competences of non-participating Member States and would depart from accepted international tax norms;

• specifically, the Government has concerns about the proposed “deemed establishment rule” under which financial institutions in non-participating Member States would be deemed to be established in the FTT zone (and hence liable for the tax) when dealing with counterparties based in the FTT zone; and

• it considers this is likely to breach Article 327 TFEU (concerning respect for the competences of Member States not engaged in enhanced cooperation) and to be in conflict with international tax law and customary international law.

2.9 The Minister adds that:

• the tax in the form proposed by the Commission could oblige UK tax authorities to collect the FTT under existing EU agreements on mutual assistance;

• this, however, raises fundamental concerns, as Article 332 TFEU provides that expenditure resulting from implementation of enhanced cooperation shall be borne by the participating Member States; and

• as a result, the Government is also challenging the Directive on this ground.

2.10 The Minister tells us that:

• the legal challenge aside, the Government continues to contribute proactively to Council discussions on the FTT and is working hard to ensure that the UK view is fully considered and reflected in the final design of any tax agreed by the participating Member States;

• participating Member States are now focusing more on the possible adverse economic implications of the tax, as well as the operational challenges that remain unresolved;

• the Government remains hopeful, therefore, that these discussions can lead to changes to the design of the tax to address its main concerns and reduce the economic damage of the tax; and

• if negotiations in Council result in a final design which addresses its concerns, the Government will reconsider its legal challenge.

2.11 The Minister also says that the Government’s focus on finalising its legal challenge has delayed its response to the questions for which we have asked answers to facilitate the debate on the Floor of the House and that he plans to let us have a response shortly.

Conclusion

2.12 We are grateful to the Minister for this explanation of the Government’s application to the Court of Justice to annul the Council Decision allowing enhanced cooperation for an FTT, which we support as a sensible precautionary measure.


2.13 As for the answers to the points we posed previously (which we note are touched on by aspects of the Government’s decision to launch a case in the Court of Justice) we look forward to seeing them soon. Equally we look forward to the debate we have already recommended taking place in the near future.

3 2013 General Budget

(34805) 8041/13 COM(13) 183

Draft Amending Budget No. 2 to the General Budget 2013: general statement of revenue: statement of expenditure by section: Section III: Commission

Legal base Articles 314 and 322 TFEU; co-decision; QMV Document originated 27 March 2013 Deposited in Parliament 3 April 2013 Department HM Treasury Basis of consideration EM of 23 April 2013 Previous Committee Report None Discussion in Council Not known Committee’s assessment Politically important Committee’s decision For immediate debate in European Committee B

Background

3.1 During the course of a financial year the Commission presents to the Council and European Parliament Draft Amending Budgets (DABs) proposing increases or reductions for revenue and expenditure in the current EU General Budget — there are about ten DABs each year.

The document

3.2 With this Draft Amending Budget (DAB 2/2013) the Commission asks for a significant increase in payment appropriations and presents a revision to the forecast of revenue for 2013.

Payment appropriations for 2013

3.3 DAB 2/2013 concerns an increase of payments which the Commission claims is necessary to meet legal obligations arising from claims left unpaid at the end of 2012, as well as to absorb pressures which it expects to arise in 2013. It asserts that the increase is necessary to avoid any abnormal carry-over into 2014. In proposing an increase for 2013 of €11.2 billion (£9.5 billion) in payment appropriations, the Commission has not suggested reprioritisation from elsewhere in the General Budget.


3.4 The proposed increase would be allocated amongst all the budget headings, except that for administration, as follows:

• Heading 1a (competitiveness for growth and employment) — €982.6 million (£831 million);

• Heading 1b (cohesion for growth and employment) — €9 billion (£7.6 billion);

• Heading 2 (preservation and management of natural resources) — €608.5 million (£515 million);

• Heading 3a (freedom, security and justice) — €128.4 million (£109 million);

• Heading 3b (citizenship) — €15.2 million (£13 million); and

• Heading 4 (EU as a global player) — €489.5 million (£414 million).

3.5 Adoption of DAB 2/2013 would mean that the level of payment appropriations for 2013 would increase from the adopted General Budget of €132.8 billion (£112.3 billion) to €144.4 billion (£122.1 billion). (This includes the Commission’s DAB 1/2013 proposal.)4 This increase would leave payment appropriations €14.8 million (£12.5 million) below the Multiannual Financial Framework ceiling for 2013.

Forecast of revenue 2013

3.6 The Commission also proposes to increase the forecast of revenue from fines and penalties by €290 million (£245 million) in 2013. Of this, €270 million (£228 million) relates to fines and €20 million (£17 million) to penalty payments imposed on Member States. This increased forecast would reduce the effect of DAB 2/2013 on Member States’ GNI-based contributions.


3.7 The Financial Secretary to the Treasury (Greg Clark), reiterating the familiar statement that the Government has been clear that it wants to see real budgetary restraint in the EU over the coming years, says that:

• reform of EU spending is a long-term project, but recent action taken by the Government, including the European Council agreement on the 2014–2020 Multiannual Financial Framework, delivers important progress; and

• the Government is committed to continue to work hard to limit EU spending, reduce waste and inefficiency and deliver the best possible deal for taxpayers.

3.8 The Minister then comments that:

• this request from the Commission is totally unacceptable at a time when most Member States are taking difficult decisions to reduce public spending;

4 (34778) 7657/13 on which we expect an Explanatory Memorandum shortly.


• the Government will not support any request for additional payment appropriations for the EU Budget and recalls that it voted against the Council position of a 2.79% increase last summer and again against the final 2.9% increase agreed in December 2012;

• the Government will continue to work closely with its like-minded Member State allies to restrain the EU Budget; and

• whilst the Government will vote against any proposed increase, it notes that this proposal is subject to QMV.

3.9 On the financial implications of DAB 2/2013 the Minister says that:

• the UK’s post-abatement financing share of EU expenditure will be approximately 12.5%; and

• it is not possible, however, to calculate the exact amount yet, as the abatement will depend on actual implementation and UK receipts.

3.10 Finally, the Minister tells us that although discussion of DAB 2/2013 in the Council’s Budget Committee has begun it is not yet known when a final Council decision will be taken.

Conclusion

3.11 This proposal is, as the Minister says, unacceptable for the UK. We recommend that the document be debated in European Committee B as soon as possible — clearly Members will want to express their views on the matter before the Council comes to a final conclusion. We suggest that Members might wish to explore how projected expenditure for 2013 might be curtailed in order to meet the apparently unavoidable commitments incurred in 2012.


4 Network Information Security across the EU

(34685) 6342/13 + ADDs 1–2 COM(13) 48

Draft Council Directive to ensure a high common level of network and information security across the European Union

Legal base Article 114 TFEU; ordinary legislative procedure;

QMV Department Business, Innovation and Skills Basis of consideration Minister’s letter of 16 April 2013 Previous Committee Report HC 86–xxxv (2012–13), chapter 6 (13 March 2013) Discussion in Council To be determined Committee’s assessment Legally and politically important Committee’s decision Not cleared; further information requested; relevant to

the debate on Joint Communication on an EU Cybersecurity Strategy

Background

4.1 The context to the proposed Directive is set out in the over-arching Joint Communication 6225/13, “Cybersecurity Strategy of the European Union: An Open, Safe and Secure Cyberspace”, which we also considered at our meeting on 13 March 2013.5

The draft Directive

4.2 The draft Directive is fully summarised in our previous Report.

4.3 In essence, it aims to ensure a high common level of network and information security (NIS): to put in place measures to avert or minimise the risk of a major attack or technical failure of information and communication infrastructures (ICT) in Member States. It includes:

— ensuring that Member States all reach a certain level of network and information security through obliging all Member States to produce a national cyber security strategy and to establish points of contact in each Member State for information sharing and cyber incident handling;

— mandating the establishment of “competent authority” and a Computer Emergency Response Team (CERT) in each Member State;

— mandating information sharing between Member States, as well as establishing a pan-EU cooperation plan and coordinated early warnings and procedure for agreement of EU coordinated response for cyber incidents;

5 See (34680) 6225/13: HC 86–xxxv (2012–13), chapter 3 (13 March 2013).


— promoting the adoption of good risk management practices by the private sector through expanding the requirement currently applying only upon the telecoms sector of obligatory security breach disclosure to the finance, energy, transport and health sectors, as well as to “providers of internet society services”; and

— encouraging the take up of cyber security standards, with possible harmonisation measures being taken by the Commission.

4.4 The Commission argues that: the proposed Directive satisfies the requirements of both subsidiarity and proportionality; it should be empowered to adopt delegated acts in accordance with Article 290 TFEU, in order to supplement or amend certain non-essential elements of the basic act; and in order to ensure uniform conditions for the implementation of the basic act, it should be empowered to adopt implementing acts in accordance with Article 291 TFEU.6 The Commission also seeks to demonstrate that the second of the three options examined via its impact assessment would have the strongest positive impacts.

4.5 The Minister for Universities and Science at the Department for Business, Innovation and Skills (Mr David Willetts), commented in detail in his Explanatory Memorandum of 27 February 2013.

4.6 In sum, he shared the Commission’s desire to improve levels of NIS across the EU, and to ensure that the internal market is a safe place to do business and that Member States know whom to contact in the case of a cyber incident and can work effectively together. He agreed that a certain degree of EU coordination is beneficial in order to ensure that all Member States reached a minimum standard of capability and have measures in place to allow coordinated response where required. But he noted that the Directive would require significant changes to UK law, and expressed a number of concerns. He said that would be seeking to ensure that the legislation did not undermine the progress achieved in this area in the UK, and did not penalise businesses for sharing valuable information, or otherwise discourage them from seeking help.

4.7 In particular, he was concerned that extending security breach notification obligations to sectors beyond telecoms (where it has been in force since 2011 in the UK) could place disproportionate burdens on businesses, potentially including a number of small or currently unregulated businesses (such as “providers of internet society services”), for very little benefit, and lead to a bureaucratic compliance culture instead of the desired full scale behavioural change.

4.8 His officials had voiced his concerns as to whether more regulation was the right course of action, and proposed that the Commission instead examine some of the non-regulatory measures that had been developed with UK businesses and which were

6 On its website, the Commission notes (its emphasis) that:

The Treaty of Lisbon makes several changes to the types of European Union legal acts. “For the sake of clarification and simplification, it firstly reduces the number of legal instruments available to the European institutions. In addition, it enables the Commission to adopt a new category of act: delegated acts. It also strengthens the competence of the Commission to adopt implementing acts. These two changes aim at improving the efficiency of European decision-making and the implementation of these decisions”. See http://europa.eu/legislation_summaries/institutional_affairs/treaties/lisbon_treaty/ai0032_en.htm for full information.


detailed in the UK National Cyber Security Strategy.7 Rather than the Commission’s proposed use of delegated acts, the Minister believed that a more collaborative approach with industry would be more appropriate to set any proposed thresholds, and that each Member State might have its own view on which market operators and sectors were critical to their functioning (c.f. paragraphs 6.09–6.15 of our previous Report).8

Our assessment

4.9 In scrutinising this draft Directive, one of our primary concerns was its compliance with the principle of subsidiarity. As the proposal seeks to regulate the cyber security of the cross-border provision of services key to the Internal Market and reliant on ICT we concluded that EU competence was established. Overall, EU-level action appeared to be justified, as the co-ordination of ICT security measures across Member States could not be better achieved at national level.

4.10 There were, however, some significant concerns about the proportionality of some measures, for example security breach notification obligations and the consequential administrative burdens to be placed on currently unregulated businesses or SMEs; and also the Commission’s proposed use of delegated acts. But such concerns could not be raised within a Reasoned Opinion.

4.11 We therefore concluded that there was not a strong basis for issuing a Reasoned Opinion on any of the provisions in the light of the evidence provided by the Commission (including its Impact Assessment). Instead, we asked the Government to identify for us those provisions where a more proportionate, perhaps, non-regulatory, approach could be adopted and promoted to the Commission.

4.12 As the concerns that had immediately arisen over the first piece of proposed consequential legislation might perhaps be removed during negotiation, we continued to retain it under scrutiny, and asked the Minister to write to us with periodic updates on discussions with the Commission in the relevant Council working group.

4.13 Although encapsulated in the proposed Directive, our and the Minister’s concerns emanated from a wider consideration that was evident in both the proposed Directive and in the Joint Communication on an EU Cybersecurity Strategy: viz., the right balance between the Commission, Member States, the private sector and public authorities in this area. We concluded that this balance did not appear to have been struck by the proposals

7 The UK Cyber Security Strategy (available at https://www.gov.uk/government/publications/cyber-security-strategy)

was published on 25 November 2011. It sets out how the UK will support economic prosperity and protect national security by building a more trusted and resilient digital environment. The Office of Cyber Security and Information Assurance (OCSIA) coordinates the work carried out under the National Cyber Security Programme and works with government departments and agencies such as the Home Office, Ministry of Defence (MoD), Government Communications Headquarters (GCHQ), the Centre for the Protection of National Infrastructure (CPNI), the Foreign and Commonwealth Office and the Department for Business, Innovation and Skills (BIS) to implement the cyber security programme. The Centre for the Protection of National Infrastructure (CPNI) is the government authority that provides physical, personnel and information security advice to the national infrastructure. It funds a range of projects to improve the UK’s ability to protect its interests in cyberspace and to address threats from states, criminals and terrorists. The Minister for the Cabinet Office (Mr Francis Maude), made a written Ministerial statement to Parliament about progress against the objectives of the strategy on 3 December 2012. This is available at https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/83756/WMS_Cyber_Strategy_3-Dec-12_3.pdf).

8 HC 86–xxxv (2012–13), chapter 6 (13 March 2013).


in the draft Directive. Taking this and the Joint Communication together, we felt that the Government should explain at the outset why the Commission was not being resisted in principle, and why — its manifest reservations notwithstanding — it preferred what was essentially negotiated damage limitation, and accordingly recommended that the Joint Communication should be debated in European Committee B.9

4.14 We also considered our previous Report on the proposed Directive relevant to that debate.10

The Minister’s letter of 16 April 2013

4.15 The Minister sets out what he describes as the strategy and activities the Government is leading, as part of the UK National Cyber Security Strategy, to improve cyber security in the UK and seeks to indicate how the Commission “could adopt an alternative approach to the Directive yet still play a role in building on some of these ambitions.” Much of this detail, “and more”, is (the Minister says) set out in the Government’s response to the Commission’s consultation on improving network and information security in the EU.11

4.16 The Minister begins his detailed response by setting out “What the UK is currently doing”, as follows:

“The Government considers cyber security to be a Tier 1 National Security threat and in 2011 published a National Cyber Security Strategy supported by a £650 million programme to address the threat to UK interests. This is primarily delivered through supporting and incentivising businesses and consumers to take action, rather than imposing regulation before businesses have been given the guidance needed and the opportunity to raise their capabilities. Our approach is characterised by far-reaching cooperation and collaboration between government and the private sector.”

4.17 The Minister says that key measures in this programme include:

• “Partnerships with business to raise awareness of threats and mitigation.

“Much work has been done in the UK to reach out to the private sector in order to raise awareness of the threat and to encourage business to embed effective cyber security risk management practices, including through the 10 steps to cyber security guidance for business launched last year. The Government is currently working with several sectors (including Professional Business Services, ISP, Universities, Life Sciences and Retails) to raise awareness on cyber security across the sector base and to support these businesses to communicate effective cyber security messages to their clients.

9 See (34680) 6225/13: HC 86–xxxv (2012–13), chapter 3 (13 March 2013).

10 See headnote: HC 86–xxxv (2012–13), chapter 6 (13 March 2013).

11 Which the Minister attaches, and which can be found at: http://www.bis.gov.uk/assets/BISCore/business-sectors/docs/u/12–1222-uk-response-ec-consultation-network-information-security.pdf.


“The Cyber-security Information Sharing Partnership (‘CISP’), launched on 27 March 2013, brings public and private sector partners together to voluntarily share real time threat information in a trusted environment. It will allow each organisation to build up a richer picture of the threats posed by cyber space. The pilot, Project Auburn, facilitated information sharing between 160 companies, and these companies are now expected to transfer on to CISP. The initiative will gradually be extended to include other sectors through a phased approach, and include SMEs.

• “Ensuring cyber security is part of corporate governance best practice.

“The UK Government has established strong working relationships with institutional investors and a number of influential professional and training bodies (e.g. risk, audit) and works closely with them to raise awareness and encourage a strategic risk management approach to mitigate cyber risk.

• “Awareness raising with small businesses and individuals

“A public awareness programme is in development targeting individuals and SMEs to adopt safer online behaviours and measurably increase their online confidence and security levels. GetSafeOnline continues to provide an online resource providing cyber security advice and good practice and BIS will publish a version of the “10 Steps to Cyber Security” guidance, tailored to the needs of SMEs in Spring 2013.

• “Encouraging the industry-led development of standards and guidance to enhance — and inform — relative levels of cyber security.

“The Government, through consultation with industry, has launched a call for evidence to select and endorse an organisational standard that best meets the requirements for effective cyber risk management.

• “Creation of a National CERT (Computer Emergency Response Team)

“The Government intend to launch a National Computer Emergency Response Team (CERT) to improve national co-ordination of cyber incidents and act as a focus point for international sharing of technical information on cyber security. We will be seeking to ensure that the Directive is aligned with the UK approach as this work develops.”

4.18 The Minister then outlines his approach to the ongoing negotiations thus:

“Throughout negotiations we will continue to seek to pursue voluntary and cooperative arrangements where possible, and to ensure that we seek alignment between the Directive and the UK national approach on relevant issues, in particular with regard to any new structures (such as the national CERT and Competent Authority) which need to be established . We also continue to remain concerned that the Commission’s proposed breach disclosure requirements will not incentivise good practice in terms of businesses monitoring their networks for unauthorised intrusions and taking steps to prevent and mitigate them. We have promoted the above approaches through many discussions with the Commission over the last year; however it is clear that their preferred option is to take a legislative approach.”


4.19 The Minister then turns to “Where the EU could play a role”, as follows:

“The UK government welcomes the Commission’s desire to seek improvements in the area of network and information security across the EU. The EU does have an important role to play in network and information security, in particular in supporting Member States to raise their capacity and capability, promoting the single market, supporting growth in the cyber security sector and ensuring a more cohesive EU approach to cyber issues. However it remains our position that the case for legislation in these areas has not yet been justified. The Commission should recognise those areas where Member States have competence and where action is best achieved on a national level, as well as ensuring that non regulatory options are considered before any legislation is adopted.”

4.20 The Minister then outlines the areas in which he believes the EU has competence and could play a useful role as follows:

• “Facilitating information sharing and supporting incident response

“The Commission could encourage Member States to share best practice and help them reach an appropriate level of cyber security. The Commission should not however oblige data sharing through legislation — this could have national security considerations and stifle effective information sharing based on trust.

• “Improving capacity building through education and ENISA’s activities

“The European Network and Information Security Agency (ENISA) plays a key role in raising awareness in Member States and helping build capacity. Through engagement with Government, relevant national bodies and the private sector, ENISA can supplement and support the activities of the Member States in a complementary manner, through providing guidance on best practice, with respect for Member State roles and responsibilities, particularly on the operational side.

• “Promoting industry-led cyber security standards

“The Commission could support Member States’ work on cyber security standards by mapping and communicating the existing work done by the Member States, ensuring that best practice and methodology is shared where appropriate and seeking consistency across the EU.

• “Corporate Governance

“The Commission could support Member States to encourage businesses to take adequate consideration of the threats posed by cyber risk at Board level.

• “Set out non-legislative sector specific approaches

“The Commission could set out high level objectives for levels of cyber security in each sector. This would ensure that existing EU measures and regulations appropriate to that sector are taken into account, and that consideration of cyber threats, response and mitigation is fed into to the development of non legislative sector specific initiatives.


• “Building confidence in the digital single market

“The Commission has a key role to play in establishing the digital single market and ensuring it functions fully. In support of the activities of the Member States, the Commission, along with ENISA, can play an important role in ensuring that businesses and customers can protect themselves online, and are confident in conducting online business in a responsible manner.

• “Supporting Research and Development and growing the cyber security sector.

“As part of the Horizon 2020 agenda, the Commission has a vital role to play in making the EU a hub for innovation. Encouraging research and development in the cyber security sector has the potential to increase EU capability, raise awareness and enable innovation in this sector.”

4.21 The Minister then recalls his negotiating position, as set out in his 27 March 2013 Explanatory Memorandum:

“to ensure that the final Directive does not cut across the current UK approach to cyber security, and to encourage the Commission to take positive action in the areas set out above.”

4.22 The Minister concludes by undertaking to update the Committee on any further developments on the negotiations on this dossier.

Conclusion

4.23 When we considered the Joint Communication on an EU Cybersecurity Strategy, we noted that the Commission’s approach appeared to be essentially collaborative — after all, we also noted, it is in all Member States’ interests to devise and adopt appropriate strategies, policies and programmes to tackle a transnational, existential threat to the basis of modern life. Moreover, as the Commission itself said, any successful approach has to recognise the leading role of the private sector. The question thus immediately arose as to the need for EU legislative compulsion embodied in this proposed Directive.

4.24 But the Minister seemed to regard this as unavoidable, notwithstanding competence issues being already of concern and the sustained endeavours of his officials to persuade the Commission to adopt the approach outlined in its own Communication. The Minister’s letter shows ever more clearly the need for these matters to be debated now.

4.25 The Government’s approach is highlighted by words such as “support”, “encourage” and “partnership”. This approach is easily open to the Commission: in the European Agency for Network Information Security (ENISA), it has an established agency whose function is precisely to facilitate such cooperation between Member States, their own stakeholders and the Commission. Other non-legislative options are also open to the Commission. Yet the Commission appears to be deaf to anything other than legislation. The Minister — with an eye no doubt on the QMV basis of the proposal — apparently continues to be resigned to damage limitation. It


would have been helpful to know if other Member States share his concerns, or whether the Government is alone in preferring a collaborative approach. No doubt the debate on the Joint Communication will provide an opportunity to clarify this.

4.26 In the meantime, we consider that this chapter of our Report is also relevant to that debate.

4.27 We are also drawing it to the attention of the Joint Committee on the National Security Strategy, which is taking evidence on national security and the EU; and to the Business, Innovation and Skills Committee.

5 Maritime spatial planning and integrated coastal management

(34769) 7510/13 COM(13) 133

Draft Directive establishing a framework for maritime spatial planning and integrated coastal management

Legal base Articles 43(2), 100((2), 192(1) and 194(2) TFEU; co-

decision; QMV Document originated 12 March 2013 Deposited in Parliament 18 March 2013 Department Environment, Food and Rural Affairs Basis of consideration EM of 26 March 2013 Previous Committee Report None Discussion in Council See para 5.11 below Committee’s assessment Legally and politically important Committee’s decision Not cleared; further information requested

Background

5.1 The Commission says that, although the maritime sectors provide scope for contributing to the EU’s objective of becoming a smart, sustainable and inclusive economy by 2020, this has also put pressure on marine and coastal resources, giving rise to the need for integrated and coherent management. In particular, it highlights the role of maritime spatial planning, which was the subject of a Roadmap in 2008, followed by a Communication in 2010.

The current proposal

5.2 It has now put forward this draft Directive, which would establish a framework for maritime spatial planning and integrated coastal management, with the aim of promoting the sustainable growth of maritime and coastal economies and the sustainable use of their


resources. In particular, it requires each Member State to establish and implement a maritime spatial plan and an integrated coastal management strategy, applying an eco-system based approach to prevent conflicts between competing sector activities, with the aim of contributing to:

• securing the EU’s energy supply by promoting the development of marine energy sources, the development of new and renewable forms of energy, the interconnection of energy networks, and energy efficiency;

• promoting the development of maritime transport and providing efficient and cost-effective shipping routes across Europe, including port accessibility and transport safety;

• fostering the sustainable development and growth of the fisheries and aquaculture sector;

• ensuring the preservation, protection and improvement of the environment, as well as the rational use of natural resources, notably in order to achieve good environmental status, halt the loss of biodiversity and degradation of ecosystem services, and reduce marine pollution risks; and

• ensuring climate resilient coastal and marine areas.

5.3 The Commission says that planning details and the determination of management objectives should be left to Member States, and not involve the EU, and, in particular it states that the proposal will not interfere with the prerogatives of Member States for town and country (terrestrial) planning. However, every plan and strategy would at least need to be mutually coordinated; to ensure effective trans-boundary cooperation between Member States (and between national authorities and stakeholders of relevant sector policies); to identify their trans-boundary effects on the marine waters and costal zones of neighbouring third countries, and to deal with these in cooperation with the competent authorities of those countries. In addition, when establishing marine spatial plans, Member States would have to take into consideration activities such as the extraction of energy, and the production of renewable energy; oil and gas extraction sites and infrastructures; maritime transport routes, submarine cable and pipeline routes; fishing areas; sea farming sites; and nature conservation sites. Similarly, when establishing integrated coastal management strategies, they would have to take into consideration the utilisation of specific natural resources (including energy); the development of infrastructure, energy facilities, transport, ports, maritime works and other structures (including green infrastructure); agriculture and industry; fishing and aquaculture conservation, restoration and management of coastal ecosystems, ecosystem services and nature, coastal landscapes and islands; and mitigation and adaptation to climate change.

5.4 The proposal would also require Member States to enable public participation at an early stage in the development of plans and strategies, and to ensure adequate consultation and access to results; it contains provisions relating to data collection and the exchange of information; requires the carrying out of environmental impact assessments in line with Directive 2001/42/EC; and stresses the need for cross-border cooperation with other Member States and third countries.



5.5 In his Explanatory Memorandum of 26 March 2013, the Minister for Natural Environment and Fisheries at the Department for Environment, Food and Rural Affairs (Mr Richard Benyon) says that the UK strongly supports implementation of maritime spatial planning which will create a framework for more consistent, sustainable and evidence-based decision-making, and so contribute to more effective management of marine activities and sustainable use of resources. He notes that the UK-wide Marine Policy Statement of March 2011 was the first stage in implementing a process designed to help integrate marine planning and management at the coast, and that, whilst the UK administrations are at varying stages in developing their first marine plans, the ongoing work should help form the basis to achieve compliance with both elements of this proposal. He also says the UK already makes every effort to engage at an early stage with neighbouring Member States to ensure effective cross border cooperation.

5.6 However, the Minister adds that, despite this, and the emphasis placed by the Commission on the need to reflect national and local circumstances and existing governance structures, the adoption of the proposal in its current form would be likely to require current UK legislation to be amended. In particular, he suggests that some of the provisions appear to go beyond what is required to ensure effective implementation of the plans and strategies. The Government will therefore seek a number of amendments to the draft Directive in order to reduce the need to modify the UK’s existing arrangements. This includes making it clear that the objectives and minimum requirements for plans and strategies are illustrative rather than mandatory; reinforcing the underlying principle that it is for Member States to decide priorities and how they deliver them; that Member States should only be required to cooperate in order to help ensure maritime spatial planning and integrated coastal management strategies are coherent and coordinated (rather than having to ensure this); and seeking to delete or amend the provision which appears to give the Commission unnecessarily wide implementing powers going beyond those required to help implement existing obligations.

5.7 The Minister also points out that, although the proposal requires plans and strategies to be in place within 36 months of the Directive coming into force, approaches in the UK to marine planning vary due to the size of the area involved, the number and range of activities and interests within that area, the level of detail aimed for, and the number and range of stakeholders. Thus, Scotland and Northern Ireland are preparing National Marine Plans, whilst the UK Government has adopted a phased approach to plan development in England’s inshore and offshore marine area, with the aim of having 10 marine plans covering all the English marine area in place by 2022, thus enabling it not only to prioritise, but also to learn from the development of previous plans. It will therefore be seeking to negotiate changes to extend the time limit before plans and strategies have to be in place.

5.8 The Minister adds that the Commission has long recognised that the UK is at the forefront of implementing policy in this area, and that, although the Government understands the thinking behind the proposal, it has made clear the importance of EU action not undermining its own processes and/or causing confusion or added burdens. He also points out that the UK approach to implementing integrated coastal management is more comprehensive and inclusive of coastal terrestrial processes than that contained in


the proposal, and that, although there is no requirement in UK legislation to create an integrated coastal management strategy as a separate entity, Integrated Coastal Zone Management principles have been incorporated into the UK Marine Policy Statement.

5.9 The Minister does not, however, expect the proposal to have any regulatory or economic impact on business, as the UK has legislation in place and/or under consideration to implement the proposal, and he says that the financial implications are likely to be minimal. However, if it is required to establish all plans and strategies before its own scheduled timescale, it may be necessary to devote more resources to achieve an accelerated deadline (though, at this stage, it is impossible to estimate the costs involved). There may also be future reporting costs attributed to government, but, as the UK already requires reporting under domestic legislation on marine planning, this should be negligible.

5.10 Finally, the Minister notes that the proposal will apply to British Gibraltar Territorial Waters, with HM Government of Gibraltar being responsible for the transposition of the proposed Directive into Gibraltar law. He says that, as Spain does not recognise British Gibraltar Territorial Waters, the definition of the “coastal zone” would cause particular difficulties, and that there will be close consultation with HM Government of Gibraltar. The point will also be pursued with the Commission and in negotiations.

5.11 As regards timing, the Minister anticipates that several other Member States will raise concerns about different aspects of the proposal, and that it is therefore extremely unlikely that it will be submitted to the Council for agreement to a general approach before the end of June 2013. However, he adds that, at this stage, it seems probable that Council negotiations will continue into early 2014, by which time the European Parliament should have voted on it.

Conclusion

5.12 The concepts of maritime spatial planning and integrated coastal management are not of course new, and, insofar as this proposal would seek to develop further an EU framework for such activities, it clearly makes sense, given also the extent to which many of the issues involved require cross-border cooperation. Having said that, we note that the Government has raised concerns over the potential conflict between what is proposed here and the ability of Member States to determine their own priorities and solutions, and that it intends to pursue a number of points during the forthcoming negotiations, and for that reason, we propose to hold the document under scrutiny, pending further information on the progress it makes.

5.13 In the meantime, we have considered the subsidiarity implications of the draft Directive. Overall, we think its provisions address correctly the need for transnational and cross-sectoral common approaches by Member States to the inherently cross-border issues of maritime spatial planning and integrated coastal management, the benefits of an approach at EU level being accepted by the Government. Moreover, although (as we have observed) individual elements within the proposal, most notably the accelerated deadline for the submission of plans and strategies by Member States, may require changes to UK legislation, the concerns raised about these appear to us to give rise to issues of proportionality, rather than subsidiarity.


6 Transparent pricing of medicines

(a) (33736) 7315/12 + ADDs 1–3 COM(12) 84 (b) (34781) 7452/1/13 COM(13) 168

Draft Directive relating to the transparency of measures regulating the prices of medicinal products for human use and their inclusion in the scope of public health insurance systems Amended draft Directive on the transparency of measures regulating the prices of medicinal products for human use and their inclusion in the scope of public health insurance systems

Legal base (Both) Article 114 TFEU; co-decision; QMV Document originated (a) 1 March 2012

(b) 20 March 2013 Deposited in Parliament (a) 8 March 2012

(b) 22 March 2013 Department Health Basis of consideration (a) EM of 22 March 2012

(b) EM of 16 April 2013 Previous Committee Reports (a) HC 86–iv (2012–13), chapter 11 (14 June 2012)

and HC 428–lvii (2010–12), chapter 3 (18 April 2012)(b) None

Discussion in Council No date set Committee’s assessment Politically important Committee’s decision (a) Cleared

(b) Not cleared; further information requested

Background

6.1 Under existing EU laws, the quality, safety and efficacy of a medicinal product must be demonstrated before it can be placed on the market. Once a product has obtained a marketing authorisation, its prescription and use in each Member State depends to a large extent on national health policies, as Member States are responsible for the organisation, management and delivery of health services and medical care, including the allocation of resources.12

6.2 Since the 1980s, public spending on medicines has grown at a faster rate than total health expenditure and has also outpaced economic growth (measured in GDP terms).13 All Member States are under pressure to contain health expenditure and have adopted a

12 See Article 168(7) of the Treaty on the Functioning of the European Union.

13 See ADD 2, p.5.


variety of mechanisms to regulate the pricing of medicines and to determine whether they qualify for public funding (“reimbursement”) through inclusion in their public health insurance systems. These cost-containment measures not only affect domestic consumption, they can also create barriers to trade by limiting the market for pharmaceutical products.

6.3 The so-called “Transparency Directive”, adopted in 1989, establishes minimum procedural safeguards to ensure that national cost-containment measures on pricing and reimbursement are taken in an open and transparent manner and do not constitute an unwarranted restriction on the free movement of goods. It does so by requiring Member States to take decisions on pricing and reimbursement within specific time limits ranging from 90 to a maximum of 180 days, provide reasons for their decisions which are based on objective and verifiable criteria, and ensure that legal remedies are available in the event of a negative decision.

6.4 Although the Commission considers that the 1989 Directive has helped to create “a basic culture of transparency” in the pricing and reimbursement mechanisms developed by Member States, it argues that it has not kept pace with new challenges arising from the evolution of the pharmaceuticals market over the last two decades. It therefore proposed a new Directive in March 2012 — document (a) — which retained the core principles of the 1989 Directive but sought to introduce some new elements. These included shorter time limits for pricing and reimbursement decisions, intended to give patients quicker access to medicines and to allow innovative pharmaceutical companies to reap the full benefits of market exclusivity for their newly patented medicines, as well as new powers to impose penalties and award damages for exceeding the prescribed time limits for reimbursement decisions determining whether a particular medicine would be funded by a national health insurance scheme. Our Sixty-third Report, agreed on 18 April 2012, and our fourth Report, agreed on 14 June 2012, provide further information on the draft Directive.

6.5 The Government accepted that some changes were needed to update the 1989 Directive but considered that they should be fairly minimal. It suggested that the reduced time limits for reaching decisions on pricing and reimbursement might be insufficient in complex cases and require an increase in administrative resources. Moreover, the Government indicated that the current pricing mechanism for branded medicines (the Pharmaceutical Price Regulation Scheme — PPRS) would be replaced from January 2014 by new pricing arrangements, including Value Based Pricing, and that it was as yet unclear how these new arrangements would mesh with the draft Directive.14

6.6 The Government also expressed a concern — which we shared — that the new remedies procedure proposed by the Commission, and its description of the designated body which would be responsible for administering the procedure, were unduly prescriptive and intrusive. More generally, the Government indicated that there was a need for significant clarification of the scope of the draft Directive and its potential impact

14 Value Based Pricing is intended to ensure that the price the NHS pays for a medicine is based on an assessment of its

value, looking at the benefits for the patient, unmet need, therapeutic innovation and benefit to society as a whole.


on the UK. In February 2013, the Parliamentary Under-Secretary of State for Quality (Earl Howe) wrote to inform us that little progress had been made in negotiations.15

Document (b) — the amended draft Directive

6.7 The Commission’s explanatory memorandum accompanying the amended draft Directive notes that discussions on the original proposal — document (a) — within the Council Working Party on Pharmaceuticals and Medical Devices proved to be “difficult” because of the political sensitivity of the subject matter. The main areas of contention appear to have been the introduction of a new remedies procedure and more extensive reporting, notification and consultation arrangements, as well as the reduction in the time limits for taking decisions on pricing and reimbursement. The amended draft Directive — document (b) — is intended to address these concerns and to take account of changes proposed by the European Parliament at its first reading of the Commission’s original proposal.16

6.8 The main changes in the amended draft Directive are:

• a relaxation of the time limits for pricing and reimbursement decisions which largely reflects current practice under the 1989 Directive;

• the inclusion of a far less prescriptive obligation for Member States to ensure, in accordance with their national laws, that effective and rapid remedies procedures are available for breach of the time limits for reimbursement decisions;

• more extensive requirements to publicise membership of the competent national authorities responsible for taking decisions on pricing and reimbursement (including declarations of interest) and the criteria they apply; and

• removal of the obligation to notify the Commission in advance of any measures proposed for adoption at national level which fall within the scope of the draft Directive.


6.9 The Minister confirms that the Government is on track to introduce new pricing arrangements for branded medicines (Value Based Pricing) in January 2014 and that prices for generic medicines will continue to be set by the market. He says that the amended draft Directive addresses many of the concerns raised by the Government with regard to the Commission’s original proposal and highlights the following improvements:

• longer time limits for pricing and reimbursement decisions;

• revised remedies procedures which remove provisions on penalty payments and damages; and

15 See letter of 21 February 2013 to the Chairman of the European Scrutiny Committee.

16 See p.9 of the Commission’s explanatory memorandum accompanying the amended draft Directive.


• less onerous reporting and consultation arrangements which no longer appear to place additional administrative burden on the UK pricing system or require additional resources to implement.

6.10 On time limits, the Minister adds:

“In practice, in the UK pricing and reimbursement decisions for the vast majority of medicines are made well within the existing time limits. The process by which prices will be set under the new UK pricing arrangements is still undergoing development; our expectation is that the vast majority of pricing and reimbursement decisions would continue to be made within the time limits. Notwithstanding this, the Government will require further clarification on the meaning and purpose of Articles 3, 4, 5 and 7 before it can form a firm position on them.”17

6.11 He says that the Government will also seek to ensure that the draft Directive does not impinge on areas of national competence and, in particular, respects Member States’ responsibility for the organisation of their healthcare systems and management of resources, including measures to manage the consumption of medicines, regulate their prices or establish the conditions for public funding.18

Conclusion

6.12 We note that the Government welcomes the Commission’s amended proposal, subject to further clarification of the provisions establishing procedures and time limits for decisions on pricing and reimbursement. We ask the Minister to explain which of these procedures will apply to the new pricing and cost containment arrangements which the Government intends to introduce in 2014, including Value Based Pricing. We also ask the Minister whether he is content with the revised remedies procedure in Article 8 of the draft Directive and whether he expects it to apply to the UK. Meanwhile, the amended draft Directive remains under scrutiny. As it replaces the Commission’s original proposal — document (a) — we are content to clear the latter from scrutiny.

17 See para 18 of the Minister’s Explanatory Memorandum.



7 Regulating clinical trials

(34128) 12751/12 + ADDs 1–3 COM(12) 369

Draft Regulation on clinical trials on medicinal products for human use, and repealing Directive 2001/20/EC

Legal base Articles 114 and 168(4)(c) TFEU; co-decision; QMV Department Health Basis of consideration Minister’s letter of 5 April 2013 Previous Committee Reports HC 86–xvi (2012–13), chapter 7 (24 October 2012);

HC 86–xi (2012–13), chapter 9 (5 September 2012) Discussion in Council No date set Committee’s assessment Politically important Committee’s decision Not cleared; further information requested

Background and previous scrutiny

7.1 Clinical trials provide essential information on the safety, efficacy and therapeutic benefits of particular drug treatments and increasingly involve participants at different trial sites across a number of Member States. Since 2004, the authorisation and conduct of clinical trials within the EU has been regulated by the Clinical Trials Directive. The Commission believes that the Directive has improved the safety and ethical soundness of clinical trials across the EU, as well as the reliability of the data obtained. However, it also acknowledges that, since its entry into force, the Directive has increased costs and contributed to a decline in clinical trials in the EU, describing it as “arguably the most heavily criticised piece of EU legislation in the area of pharmaceuticals.”19

7.2 The draft Regulation would repeal the Directive, introduce a new and less costly authorisation procedure, and seek to ensure that the rules governing the conduct of trials are differentiated to take account of the degree of risk associated with each trial. An EU portal, linked to a database, would provide a single point of entry for the submission of all the information needed to assess the therapeutic and public health benefits of a proposed clinical trial, as well as potential risks to patients taking part in the trial. The EU portal would be used for all clinical trials. However, for trials involving more than one Member State, a single ‘reporting Member State’ would be responsible for making an initial assessment, taking into account any views communicated by other Member States in which the clinical trial is proposed to take place. This initial clinical assessment would be supplemented by a further assessment, undertaken by each Member State, of those aspects of the draft Regulation which the Commission describes as “intrinsically national, ethical or local” — these include the well-being of those participating in the clinical trial and requirements for obtaining their informed consent, the suitability of the clinical trial site and of those conducting the trial, and compensation arrangements. In order to reduce

19 See p.17 of ADD 2.


delays in the time taken to authorise clinical trials, the draft Regulation would introduce time limits for each stage of the procedure.

7.3 In an attempt to reduce the financial burden associated with clinical trials, the Commission draws a distinction between ‘low intervention’ clinical trials, where the risk to participants only marginally exceeds that already inherent in normal clinical practice, and others where there may be additional risk. For the latter, each Member State would be required to set up a national indemnification mechanism, which would operate on a not-for-profit basis, in order to help non-commercial sponsors, such as academics involved in medical research, to obtain the necessary insurance cover as premiums in the commercial insurance market have (the Commission suggests) become unaffordable. Our Eleventh and Sixteenth Reports, agreed on 5 September and 24 October 2012, provide further information on the content of the draft Regulation and the Government’s position.

7.4 We recognised that there was a broad consensus on the need to change the existing regulatory framework for clinical trials within the EU, but agreed with the Government that there needed to be far greater clarity about the role of the Member State chosen to assess the clinical aspects of a clinical trial (the reporting Member State) and the way in which that assessment would take account of the views expressed by other Member States in which the trial was also intended to take place. We noted the Government’s reservations regarding the proposed introduction of a national indemnification scheme in each Member State to cover claims for damages arising from participation in all but the lowest risk clinical trials, and asked what type of action it thought the Commission should take to tackle the escalating costs for obtaining insurance cover in a sustainable and effective way. We welcomed the Government’s intention to launch a formal consultation on the draft Regulation and asked to be informed of the outcome. We also requested progress reports on the negotiations.


7.5 The Parliamentary Under-Secretary of State for Quality (Earl Howe) tells us that he expects Member States to have concluded their first “read-through” of the draft Regulation by the end of the Irish Presidency with a view to identifying points of consensus and disagreement. He says that 63 stakeholders responded to the public consultation carried out in the UK by the Medicines and Healthcare products Regulatory Agency (MHRA) and adds that most were “very supportive” of both the Commission’s proposal and the Government’s negotiating strategy. Whilst he does not expect the Government to change its policy position as a result of the consultation, he indicates that some “very clear signals” emerged. In particular:

• the time limits for each stage of the authorisation procedure should not be extended considerably beyond those proposed by the Commission if the EU is to remain competitive in a global environment;

• concerns about the practical operation of the new EU portal need to be addressed so that it is fully functional from the date that the draft Regulation takes effect;


• most stakeholders saw some benefit in the national indemnification mechanism proposed by the Commission, although only some had experienced difficulties obtaining insurance; and

• concerns were expressed about the proposed definitions of “clinical trial”, “clinical study” and “low intervention trial”, the possibility of differing interpretations of the draft Regulation by Member States, and the content of the provisions on clinical trials involving incapacitated subjects or taking place in emergency situations.

7.6 The Minister continues:

“These comments clearly support the Government’s agreed negotiating position. The issue around definitions will be discussed further with interested stakeholders. Stakeholder concerns around clinical trials in incapacitated subjects and in emergency situations have already been fed into negotiations in Brussels. The concerns around timelines and the EU portal confirm the Government’s view on these issues.

“The impact of the introduction of a national indemnification scheme requires careful consideration, especially the impact on the NHS and potential financial consequences need to be considered in more detail before the Government can take a position on this.”

7.7 The Minister adds that officials are continuing to work on possible improvements to the authorisation procedure for multi-state clinical trials. This would be based on “a process within the existing timelines that makes the Reporting Member State responsible for an initial assessment which is then commented on by concerned Member States before the Reporting Member State finalises the joint assessment report”.

Conclusion

7.8 We thank the Minister for his letter. Although he indicates that the outcome of the public consultation on the draft Regulation has not raised any issues which would require the Government to change its policy position, we note that most of those consulted saw some benefit in the national indemnification mechanism proposed by the Commission. This would appear to be at odds with the preference expressed by the Government for “a more rational focus on the commercial insurance market itself to solve the problem at its source, without the need for potentially cumbersome and inefficient government intervention.”20 We ask the Minister to explain whether, in light of the consultation, the Government remains opposed to the introduction of a national indemnification mechanism for clinical trials and, if so, what alternative measures it advocates to ensure that the escalating costs for insurance cover are tackled in a sustainable and effective way. We also look forward to receiving further progress reports on the negotiations. Meanwhile, the draft Regulation remains under scrutiny.



8 Restrictive measures against Zimbabwe

(a) (34846) — — (b) (34847) — —

Council Decision 2013/160/CFSP of 27 March 2013 amending Decision 2011/101/CFSP concerning restrictive measures against Zimbabwe

Council Regulation (EC) No.298/2013 of 27 March 2013 amending Regulation (EC) No. 314/2004 concerning restrictive measures against Zimbabwe

Legal base (a) Art 29 TEU; unanimity

(b) Art 215 TFEU; QMV Department Foreign and Commonwealth Office Basis of consideration EM and Minister’s letter of 18 April 2013 Previous Committee Reports None; but see (34105) — : HC 86–xi (2012–13),

chapter 21 (5 September 2012; and (34745) — : HC 86–xxxv (2012–13), chapter 21 (13 March 2013) and HC 86–xxxvi (2012–13), chapter 11(20 March 2013)

Discussion in Council 27 March 2013 Committee’s assessment Politically important Committee’s decision Not cleared; further information requested

Background

8.1 In February 2012, the Committee cleared two Council Decisions incorporating the measures that the EU had taken in response to various “stolen” elections and subsequent internal repression:

• one related to the “appropriate measures” permitted under Article 96 of the Cotonou Agreement when an ACP country is guilty of egregious breaches of its Article 8 “good governance” provisions. It was introduced after the first “stolen” election in 2002, and had been renewed annually: suspension of budgetary support and financial support for all projects except those in direct support of the population, in particular in the social sectors and those in support of the reforms contained in the GPA; not to affect humanitarian support; and to be channelled exclusively through multilateral organisations such as the UN and civil society organisations and not through Government channels;

• the second — the customary EU “travel ban + asset freeze package” — was introduced in 2004, and has likewise been renewed annually.

8.2 The full background is set out in our Report of 22 February 2012.21

21 See (33645) 5820/12 and (33679) —: HC 428–li (2010–12), chapter 12 (22 February 2012).


8.3 As noted there, a power-sharing Inclusive Government was formed in February 2009, underpinned by a General Political Agreement (GPA) signed by President Mugabe, Prime Minister Morgan Tsvangirai (of the Movement for Democratic Change; MDC) and Deputy Prime Minister Arthur Mutambara.

8.4 The 23 July 2012 Foreign Affairs Council decided to resume full cooperation under the Cotonou Agreement (but with a Country Strategy agreed and funded only on condition of further reform). At that time, the Minister for Europe (Mr David Lidington), said that the following 12 months would be critical for Zimbabwe. His aim was clear: to support the process towards a credible constitutional referendum ahead of free and fair elections in 2013. The right balance needed to be struck between responding to progress and maintaining pressure on the Government of Zimbabwe to continue with reforms; the agreement on Article 96 was consistent with this approach. Looking ahead, the Minister said that the Council had also agreed that, should there be a peaceful and credible Constitutional Referendum, the EU should respond accordingly with suspension of the assets freeze and travel ban on all but a small core of individuals around President Mugabe, particularly those who would most directly influence the potential of violence in the next election.22

8.5 The 18 February 2013 Foreign Affairs Council adopted the following conclusions:

“1. The EU welcomes the agreement reached between the political parties in Zimbabwe on a final draft constitution and the announcement of a referendum. This step forward in the implementation of the Global Political Agreement (GPA) adds further momentum to the reform process and paves the way for the holding of peaceful, transparent and credible elections later this year.

“2. Recognising the significance of these advances the EU has agreed to suspend immediately the travel ban imposed on six Members of the Government of Zimbabwe. The EU has also agreed to delist 21 persons and one entity subject to restrictive measures.

“3. The EU is encouraged by the continued commitment of the South African Facilitation Team and the Southern African Development Community (SADC), as expressed at the recent extraordinary SADC Summits in Dar Es Salaam, in supporting the efforts of the Zimbabwean parties to implement the GPA and the SADC Roadmap.

“4. As demonstrated in July 2012 and the agreement by the Council today the EU, consistent with its incremental approach, stands ready to further adjust its policy to recognise progress as it is made by the Zimbabwean parties along the SADC Roadmap. As stated in the Council Conclusions of July 2012, a peaceful and credible constitutional referendum would represent an important milestone justifying an immediate suspension of the majority of all remaining EU targeted restrictive measures against individuals and entities.

22 See (34105) —: HC 86–xi (2012–13), chapter 21 (5 September 2012) for the full background.


“5. Reaffirming its partnership with the people of Zimbabwe, the EU calls on all political parties to maintain the momentum allowing for the holding of democratic elections later this year and to complete the implementation of the GPA and the SADC Roadmap. The EU reiterates its commitment to political dialogue with the Government of National Unity and to work with any Government formed as the result of a peaceful, transparent and credible electoral process.”23

8.6 In his Explanatory Memorandum of 8 March 2013, the Minister said that Council Decision 2013/89/CFSP (which amended Council Decision 2011/101/CFSP) delisted 21 individuals and one associated entity (Divine Homes PVT Ltd, which had been designated by virtue of association with one of the 21 individuals), and suspended the travel ban on six Zanu PF Ministers. Otherwise, the Minister noted that all other elements of the Restrictive Measures (i.e. the embargoes on arms and internal repression items) — both suspended and active — were rolled over for 12 months. He characterised the Council Decision as “a responsive answer to progress on the ground, whilst maintaining a robust package of restrictions (91 individuals and 10 entities) that puts the onus on the government of Zimbabwe to see through pre-election reforms.” The Measures would “remain flexible in response to developments in Zimbabwe, including crucial milestones such as the conclusion of a credible and peaceful Constitutional Referendum this Spring, and free and fair elections, which are expected later in the year.”

8.7 The Minister also said that the Zimbabwe Mining Development Corporation (ZMDC) would be delisted unless the EU judged that it had been involved in undermining the free and fair conduct of these elections. Although the EU had only made an explicit commitment with regards to ZMDC, the Minister expected all listings to be reviewed based on the conduct of elections.24

The Minister’s letter of 15 March 2013

8.8 The Minister said that, with the Constitutional Referendum due to take place on 16 March, Member States were seeking to agree a Council Decision that would introduce the suspension — but not the lifting — of the majority of the current targeted measures, should this referendum prove peaceful and credible. The Government’s approach would be “mindful of the commitment made in July 2012 to respond positively to this significant benchmark”. During the course of the discussions that led to Council Decision 2013/89/CFSP, he had reiterated to EU partners “that any substantial relaxation of measures must respond to — but not anticipate — a peaceful and credible constitutional referendum”.

8.9 The Minister noted that, contingent on the report of the EU Head of Mission in Harare confirming that the referendum was indeed peaceful and credible, the Government was now prepared to agree that the majority of targeted measures should be suspended. However, he would seek to ensure that targeted measures remained active “on a core group of individuals and entities, including President Mugabe and his key allies within the securocracy [sic].”

23 Available at http://www.consilium.europa.eu/uedocs/cms_data/docs/pressdata/EN/foraff/135531.pdf.

24 For the Minister’s full views, see (34745) —: HC 86–xxxv (2012–13), chapter 21 (13 March 2013).


8.10 The Minister also recalled that:

“As agreed in July 2012, any suspension of targeted measures would need to be renewed every three months. This renewal must be agreed unanimously by Member States in order to prevent the restrictive measures being automatically re-activated. These conditions ensure a safeguard by which any Member States could trigger the re-imposing of EU targeted restrictions should the situation in Zimbabwe deteriorate, notably in the period before and immediately after elections.”

8.11 The Minister then explained that Member States judged it important that such a Decision be adopted shortly after a referendum, as it was vital that such a substantial relaxation of measures was clearly linked to the achievement of this significant reform benchmark. A prolonged delay may be interpreted by our partners in SADC, as well as by the parties in Zimbabwe, as a lack of good faith in UK engagement and, ultimately, as further support for the perception that the Government was operating a “regime change” agenda. The aim remained to support the process to free and fair elections, which were expected to take place in the summer (and by law must take place by 29 October). The timely suspension of measures would provide the best chance to favourably influence this objective, and respond to the strong calls from reformers to show flexibility in the restrictive measures in order to support the facilitation process. A post-referendum suspension would send an important signal to SADC and to ZANU-PF that the EU was serious about responding to progress, whilst allowing the flexibility to respond should the situation deteriorate in coming months: “This places the onus on the Government of Zimbabwe to live up to their commitments.”

Our assessment

8.12 We thanked the Minister for his letter, which was consistent with his commendable response to our general request to be kept informed of prospective developments in EU sanctions regimes, given that (as in this instance) they are more often than not driven by timing considerations that conflict with compliance with the Scrutiny Reserve Resolution.

8.13 When submitting his Explanatory Memorandum on the Council Decision in due course, we asked the Minister not only to explain what changes had been agreed, but also to say whether any of the individuals or entities who had been de-listed were involved in or in any way linked to the financing, mining and sale of raw materials.

8.14 In the meantime, we drew his letter to the attention of the House in advance of the adoption of these changes in view of the widespread interest in developments in Zimbabwe.25

The Council Decision and the Council Implementing Regulation

8.15 In his Explanatory Memorandum of 18 April 2013, the Minister says that the amendments introduced by Council Decision 2013/160/CFSP suspend restrictive measures

25 See headnote: HC 86–xxxvi (2012–13), chapter 11(20 March 2013).


on the majority of individuals and entities designated under Council Decision 2011/101/CFSP.

8.16 The Minister explains that EU Heads of Mission concurred with the Southern African Development Community (SADC) and civil society organisations that the constitutional referendum held on 16 March 2013 was well-managed and peaceful; and that, in line with the commitment made in July 2012, EU Member States therefore agreed to suspend (but not lift) restrictive measures against 81 individuals and eight entities. Restrictive measures against ten persons and two entities remain active.

8.17 He then says:

“The ten individuals whose listings were not suspended comprise Robert Mugabe, Grace Mugabe, and a core group of senior Zanu-PF officials who play key roles in the operation of the security sector. The two entities whose listings were not suspended are the Zimbabwe Mining Development Corporation (whose listing member states agreed in February 2013 should be lifted after the completion of free and fair elections) and Zimbabwe Defence Industries.”

8.18 The Minister notes that the suspension shall be subject to a review by the Council every three months in light of the situation on the ground, and continues thus:

“In an unpublished Council Declaration annexed to the Decision, the Council committed to terminate the suspension at the three-monthly review unless the situation on the ground justifies it being maintained. The structure of this three-monthly review was discussed at the EU Political and Security Committee on 22 March. The Conclusions of that meeting note that the commitment to terminate suspensions at the three-monthly review will not apply only where there is unanimous agreement among Member States that the suspension should continue.

8.19 He then says:

“The suspension of financial restrictions (comprising an asset freeze and ban on making funds or economic resources available) with regard to 81 individuals and eight entities introduced by Council Decision 2013/160/CFSP must be implemented in EU legislation. Council Regulation (EC) No.298/2013 therefore suspends the financial restrictions against 81 individuals and eight entities. The Regulation also states that the suspension shall be reviewed every three months, in line with the review requirements set out in Council Decision 2013/160/CFSP.”


8.20 The Minister comments as follows:

“With successful completion of the constitutional referendum on 16 March 2013, the process of democratic reform in Zimbabwe reached a significant milestone, one that represents an important achievement for political cooperation between the parties to Zimbabwe’s inclusive government. In order to maintain sanctions as an effective foreign policy tool, a legally robust package of targeted measures must be employed flexibly and responsively in relation to the situation on the ground. By


adopting Council Decision 2013/160/CFSP soon after on 27 March, EU Member States demonstrated their ongoing commitment to respond positively to progress and to meet the commitments made in July 2012.”

8.21 The Minister then says that the next benchmark in the reform process will be presidential and parliamentary elections, which are constitutionally due to take place by October 2013:

“Targeted measures against 10 individuals and two entities judged to have heightened influence over the conduct of these elections remain active. This core group includes Robert Mugabe, Grace Mugabe, certain senior members of Zanu PF and the security sector, and the government-owned entities ZMDC and ZDI. By targeting active designations strategically in this manner, the restrictive measures will best support regional efforts to ensure peaceful and democratic elections.”

8.22 Finally, the Minister elaborates further upon the sanctions regime, as follows:

“The majority suspension introduced by Decision 2013/160/CFSP is valid in the first instance until 20 February 2014 (the date by which the restrictive measures themselves are due for renewal). However, it will be subject to review every three months. As Decision 2013/160/CFSP does not expire at the three month mark, the suspension will not require renewal through the adoption of a new Council Decision. Instead, a new Council Decision would be required to revoke the suspensions and reactive measures (if this is sought before February 2014). However, the Council Declaration annexed to the Decision, and the Conclusions of the Political and Security Committee of 22 March 2013, commit Member States to the adoption of a Decision revoking the suspension at the three-monthly review unless there is unanimous agreement that the suspension should continue. Any Member State will therefore be able to collapse the suspension and re-activate targeted measures in a minority of one every three months. This safeguard enables UK officials to ensure an appropriate response should the situation on the ground deteriorate.

“Should the suspension be collapsed in this way and a new Decision adopted amending Decision 2011/101/CFSP in order to revoke the amendments introduced by Decision 2013/160/CFSP, a new Regulation will be proposed amending Regulation No.314/2004 in order to revoke the suspension of financial restrictions introduced by Council Regulation (EC) No.298/2013.”

Conclusion

8.23 The changes appear to reflect the approach foreshadowed in the Minister’s letter of 15 March. However, we note that the Minister does not provide the assurance that we asked for in our response, namely whether any delisted individual or entity is involved in or in any way linked to the financing, mining and sale of raw materials. As is widely acknowledged, those who remain on the list have benefitted from a longstanding and widespread apparatus for not only enriching themselves but also ensuring that their supporters are able to intimidate their opponents, particularly in the run-up to and during elections. Some press reports suggest that present


circumstances may be such that unorthodox sources of electoral finance are at a premium; viz., The Times of Friday 19 April:

“After 33 years of plundering the national treasury to secure his grip on power, President Mugabe has had to ask his friends in South Africa to finance his next election campaign.”26

8.24 It also cites the Minister of Finance as saying: “It is self-evident that the treasury has no capacity to fund elections”.27

8.25 We would accordingly like the Minister to provide the confirmation that we sought in our previous Report, and his comments on such reports. In the meantime, we shall retain the documents under scrutiny.

8.26 So far as the scrutiny process is concerned, as we have noted elsewhere, we are unhappy with unpublished Council Declarations (and in this case also the Conclusions of the Political and Security Committee) being prayed in aid. In essence, the House is being asked to take the Minister’s word for it that all is as it should be. This is inconsistent with the proper scrutiny of CFSP activity. We ask the Minister to explain why this provision could not have been attached to the Council Decision itself, or otherwise made public.

26 Available at http://www.thetimes.co.uk/tto/news/world/africa/article3743335.ece

27 Ibid.


9 Financial management

(a) (33576) 18940/11 + ADDs 1–2 COM(11) 914 (b) (34042) 11765/12 —

Draft Regulation on the Hercule III programme to promote activities in the field of the protection of the European Union’s financial interests European Court of Auditors Opinion No 3/2012 on a draft Regulation on the Hercule III programme to promote activities in the field of the protection of the European Union’s financial interests

Legal base (a) Article 325(4) TFEU; co-decision; QMV

(b) — Department HM Treasury Basis of consideration Minister’s letter of 19 April 2013 Previous Committee Reports (a) HC 428–xlix (2010–12), chapter 10 (1 February

2012) and HC 86–x (2012–13), chapter 3 (17 July 2012) (b) HC 86–x (2012–13), chapter 3 (17 July 2012)

Discussion in Council Not known Committee’s assessment Politically important Committee’s decision Not cleared; further information requested

Background

9.1 The Hercule programme was established by Council Decision No. 804/2004/EC as an instrument dedicated to fighting fraud, corruption and any other illegal activities affecting the financial instruments of the EU. It brings together three activities (technical assistance, anti-fraud training and assistance for the European Lawyers’ Association) into one structured programme and is administered by the European Anti-Fraud Office (OLAF) from the French, Office Européen de Lutte Antifraude. In 2007 the programme was extended to cover the period 2007–13 (as Hercule II). In 2011, the Commission and OLAF carried out an informal consultation with stakeholders, especially in Member States’ operational services and Commission services and EU bodies, to evaluate the implementation of the Hercule II programme and to provide ideas for future objectives. The feedback was positive and stakeholders made suggestions for future activities, technical matters and simplification, which the Commission took into consideration in its impact assessment on whether to continue with the programme or not.

9.2 As the legal base for Hercule II will expire at the end of 2013, the Commission considers that a replacement should ensure the continuity of EU support for the various activities to gather better information, carry out studies and provide training or technical and scientific assistance in the fight against fraud. So in December 2011 it presented this


draft Regulation, document (a), to extend the programme (as Hercule III) to cover the period from 2014–20, accompanied by the conclusions of OLAF’s report on the implementation of the Hercule II programme and an impact assessment. The new programme would continue to place specific emphasis on the fight against cigarette smuggling and counterfeiting to reflect the Commission’s legal obligations stemming from agreements with four international tobacco manufacturers.28

9.3 When we considered this document, in February 2012, we said that whilst, like the Government, we thought effective preventive action against fraud was important, we understood the Government’s hesitancy about the proposed Hercule III, particularly in the light of the need to avoid an excessive Multiannual Financial Framework (MFF) for 2014–20. So before considering the draft Regulation further we asked to hear about the Government’s progress in securing a European Court of Auditors (ECA) Special Report on the effectiveness of these sorts of programmes, a reduction in the proposed administrative costs for the programme and compensatory reductions elsewhere in the MFF.29

9.4 The ECA must be consulted for its formal Opinion prior to the adoption of financial management Regulations and anti-fraud legislation. Document (b) is the ECA’s Opinion on the draft Regulation. It is based not only on the proposal itself but also on an “intermediate” review of the achievements of the Hercule II programme and the Commission’s impact assessment. When we considered this document, in July 2012, we heard that:

• the Government strongly welcomed this report;

• in particular the Government agreed that future evaluation reports require improvements and that the Commission should take care to avoid overlaps between its anti-fraud tools;

• the Government noted that the ECA rightly points to the need for performance indicators to be refined in order to demonstrate better the impact of these programmes and also to the need for evaluation reports to focus on results achieved against planned objectives; and

• the Government was encouraged that the ECA shares its position on the co-financing rate for the proposed Hercule programme and agrees that extra co-financing in future is not appropriate.

9.5 We asked for confirmation that the ECA’s Opinion would be taken into account in negotiation of the draft Regulation. We asked also whether the Government regards this Opinion as an adequate substitute for the Special Report we had been told previously it was pressing for. We reminded the Government that we awaited an account of its progress in securing a reduction in the proposed administrative costs for the programme and compensatory reductions elsewhere in the MFF.30

28 Philip Morris International, Japan Tobacco International, Imperial Tobacco Limited and British American Tobacco.

29 See headnote.

30 Ibid.


The Minister’s letter

9.6 The Financial Secretary to the Treasury (Greg Clark) writes now both about ECA advice and progress on negotiating the draft Regulation. The Minister says first that:

• the Government sees the ECA Opinion as a useful input into any decision on the future of the Hercule III programme;

• the Presidency has now confirmed that the Commission has committed to providing an independent evaluation of the full impact of the programme by the end of 2014;

• the Government looks forward to seeing this report, which it hopes goes some way to providing the comprehensive evaluation it previously called for; and

• the Government still believes that an ECA Special Report on the effectiveness of programmes such as the Hercule may well be a useful supplement to the existing reports, although this will need to be re-assessed once it has evaluated the Commission’s report, in order to avoid unnecessary duplication.

9.7 Turning to the financial implications of a renewed Hercule programme, the Minister, reminding us that the Government has been clear that its top priority in negotiations on to the next Multi-Annual Financial Framework (MFF) is budgetary restraint and that it has secured a Council position on the MFF that delivers this for total EU spending in 2014–20, says that:

• the Commission has suggested that the reorganisation of OLAF will establish synergies that should result in cuts to administrative costs, which the Government would welcome;

• on the issue of compensatory reductions elsewhere in the MFF, the Council’s agreement on the MFF now requires the European Parliament’s consent and the Government is waiting for the Commission to give an updated view on individual programme spending, so further detail is not available at this stage;

• in relation to the proposed increase in the maximum co-financing rate for grants for technical support from 50% to 80% (and 90% in exceptional and duly justified cases), the Government is particularly pleased that the ECA, in its Opinion, suggested that the rate should be 50% to reflect the provisions of the legal base of the programme, which requires joint Member State and EU responsibility;

• this should ensure that EU and national interests are evenly balanced;

• in the ECA’s view, 80% should be the maximum rate only in exceptional cases;

• in the Council’s official-level discussions, the Government was successful in building a blocking minority of like-minded allies (Denmark, Austria, France, Germany, the Netherlands, Finland and Sweden) against the proposed co-financing rate for the programme and has asked that discussion on the rate should be considered in light of the ECA’s Opinion; and


• the Government understands that the Presidency will issue a compromise text with a further, more in-depth discussion anticipated at the next working group meeting.

Conclusion

9.8 We are grateful to the Minister for his account of where matters stand on the draft Regulation and look forward to a further report of developments, particularly in relation to the matter of compensatory reductions. Meanwhile the documents remain under scrutiny.

10 Trafficking in firearms

(34793) 7933/13 COM(13) 154

Draft Council Decision on the conclusion, on behalf of the European Union, of the Protocol against the Illicit Manufacturing of and Trafficking in Firearms, their Parts and Components and Ammunition, supplementing the United Nations Convention against Transnational Organised Crime

Legal base Articles 114, 207 and 218(6)(a) TFEU; qualified

majority; EP consent Document originated 22 March 2013 Deposited in Parliament 28 March 2013 Department Home Office Basis of consideration EM of 16 April 2013 Previous Committee Report None Discussion in Council No date set Committee’s assessment Legally important Committee’s decision Not cleared; further information requested

Background

10.1 The United Nations Convention against Transnational Organised Crime establishes a comprehensive international framework to promote cooperation in preventing and combating transnational organised crime and is supplemented by three Protocols on human trafficking, the smuggling of migrants, and the illicit manufacturing of and trafficking in firearms (“the Firearms Protocol”). The European Union has ratified the Convention and the first two Protocols on human trafficking and on the smuggling of migrants, as has the UK. The purpose of the draft Council Decision is to authorise the European Union to approve (ratify) the Firearms Protocol.

10.2 The Firearms Protocol entered into force in July 2005 and seeks to promote cooperation between State Parties to prevent, combat and eradicate the illicit manufacturing of and trafficking in firearms, including their component parts and


ammunition. Part I of the Protocol requires each State Party to criminalise the illicit manufacturing of, or trafficking in, firearms and the intentional falsification, removal or altering of markings which help to identify and trace each firearm. Part II of the Protocol sets out a variety of prevention measures covering record-keeping, the marking of firearms, licensing systems governing the import and export of firearms, security measures to prevent the theft, loss or diversion of firearms (particularly when crossing borders), the exchange of information between competent national authorities, and brokering activities. Part III makes provision for regional economic integration organisations, such as the European Union, to ratify the Protocol provided that at least one of its Members has already done so. It stipulates that the instrument of ratification or approval deposited by the European Union must “declare the extent of its competence with respect to the matters governed by this Protocol.”31

10.3 In 1991, in anticipation of the lifting of internal border controls on 1 January 1993, the then European Community adopted the so-called Weapons Directive which established a set of minimum harmonised rules on the acquisition and possession of firearms.32 It was amended in 2008 to bring the Directive into line with the requirements of the Firearms Protocol by, for example, strengthening the rules on record keeping, the marking and registration of weapons (to improve traceability), and including provision for regulating the activities of brokers.33 A further Directive, adopted in 2009, establishes harmonised rules and procedures for the transfer between Member States of defence-related products (including firearms and ammunition). Finally, a 2012 Regulation implements Article 10 of the Firearms Protocol by establishing harmonised rules on procedures for authorising the export of firearms to third (non-EU) countries.34 All of these measures, as well as a 2001 Council Decision authorising the then European Community to sign the Firearms Protocol, cite a combination of internal market and/or common commercial policy legal bases. The Commission considers that the adoption of these measures ensures that the EU’s legislative framework is fully compliant with those elements of the Protocol falling within EU competence.

The draft Council Decision

10.4 The draft Council Decision authorises the European Union to approve (and thus be bound by) the Firearms Protocol. It is accompanied by a declaration of competence which sets out the scope of EU competence with regard to those matters covered by the Protocol in the following terms:

“The European Union has exclusive competence over commercial policy. It also has shared competence over rules for the achievement of the internal market, and exclusive competence as regards provisions of the agreement which may affect or alter the scope of common rules adopted by the European Union. The Union has adopted rules as regards notably the fight against illicit manufacturing of and trafficking in firearms, regulating standards and procedures on commercial policy

31 See Article 17(3) of the Protocol.

32 See Council Directive 91/477/EEC, OJ No. L 256, 13.09.1991.

33 See Directive 2008/51/EC, OJ No. L 179, 08.07.2008.

34 See Regulation 258/2012, OJ No. L 94, 30.03.2012.


of the Member States concerning in particular record keeping, marking of forearms, deactivation of firearms, requirements for exports, import and transit licensing authorisation systems, strengthening of controls at export points and brokering activities.”35

10.5 The draft Decision cites Articles 114 and 207 of the Treaty on the Functioning of the European Union (the first concerning the internal market, the second the common commercial policy) as its substantive legal bases. Recital 6 of the draft Decision makes clear that the authorisation given to the EU to approve the Firearms Protocol extends only to those elements of the Protocol which are within the scope of the competences conferred on the EU by the EU Treaties.


10.6 The Minister for Policing and Criminal Justice (Damian Green) explains that the Commission, acting on a mandate from the Council, was an active participant in the negotiations establishing the Firearms Protocol, responsible for negotiating Articles 7–11 and 15 in Part II of the Protocol (covering the areas described in the declaration of competence cited above in paragraph 10.4). He adds that the Commission had no mandate to negotiate those elements of the Protocol requiring State Parties to criminalise certain activities or conduct. He continues:

“The conclusion of the Protocol by the European Union is broadly welcome and is consistent with current EU policies on measures to counter transnational crimes, to strengthen the fight against illicit trafficking in firearms, including their export controls and tracing, and to reduce the proliferation and spread of small arms around the world.”36

10.7 Turning to the legal base for the draft Council Decision, the Minister observes:

“Although the Protocol to which the Decision relates does pursue internal market and common commercial policy objectives, it also covers other matters within the competence of Member States. The Government therefore wishes to clarify whether the Decision should cite a Title V legal base which would attract a decision on the need to opt in.”37

10.8 He adds:

“[t]he UK already has comprehensive firearms controls governing the issues negotiated by the Commission. If, as appears to be the case, conclusion of the Protocol by the EU means that the UK will be subject to all of its provisions, rather than those negotiated by the Commission, a number of changes would be needed to current legislation to secure compliance. Once we have resolved the issues of competence we will consider the extent to which further changes to the

35 Annex 1 of the draft Council Decision.




law are required in addition to those already made as a result of the changes to the Weapons Directive.”38

Conclusion

10.9 We understand that the UK has signed but not yet ratified the Firearms Protocol to the United Nations Convention against Transnational Organised Crime. The recitals to the draft Council Decision and the accompanying declaration of competence appear to make clear that the authorisation given by the Council for the European Union to approve the Protocol only extends to those areas (principally in Part II) which are within EU competence. We ask the Minister to explain why he considers that “conclusion of the Protocol by the EU means that the UK will be subject to all of its provisions.”

10.10 We note that Article 83(1) TFEU confers competence on the EU to establish minimum rules concerning the definition of serious criminal offences and sanctions where there is a cross-border dimension, including in the area of illicit arms trafficking. We are not aware that it has yet done so, nor does the Firearms Protocol appear to require the EU, rather than individual State Parties, to do so. We therefore ask the Minister to:

• explain whether he believes that the draft Council Decision would establish obligations in the Justice and Home Affairs field for the EU, as opposed to Member States;

• identify which, if any, Title V legal bases should be cited; and

• confirm whether or not the UK’s Title V opt-in applies.

10.11 We think that the scope of the declaration of competence annexed to the draft Decision could be made clearer by including specific references to those Articles of the Firearms Protocol which fall within the competence of the European Union (as does the declaration of competence accompanying the EU’s ratification of the parent Convention).39 We would welcome the Minister’s view. We would also welcome further information on the reasons why the UK has not yet ratified the Firearms Protocol, and whether it intends to do so. Meanwhile, the draft Decision remains under scrutiny.


39 See Annex II of Council Decision 2004/579/EC, OJ No. L 261, 06.08.2004.


11 Restrictive measures against the Democratic People’s Republic of Korea

(a) (34774) — (b) (34841) —

Council Decision 2013/88/CFSP of 18 February 2013 amending Decision 2010/800/CFSP concerning restrictive measures against the Democratic People’s Republic of Korea

Council Regulation (EU) No.296/2013 of 26 March 2013 amending Regulation (EC) No.329/2007 concerning restrictive measures against the Democratic People’s Republic of Korea

Legal base (a) Article 29 TEU; unanimity

(b) Article 215 TFEU; QMV Document originated (a) 18 February 2013

(b) 8 March 2013 Deposited in Parliament (a) 18 March 2013

(b) 13 March 2013 Department Foreign and Commonwealth Office Basis of consideration EMs of 18 March 2013 and 17 April 2013 and

Minister’s letter of 17 April 2013 Previous Committee Report None Discussion in Council (a) 18 February 2013

(b) 12 March 2013 Committee’s assessment Politically important Committee’s decision Cleared

Background

11.1 Common Position 2006/795/CFSP implemented United Nations Security Council Resolution (UNSCR) 1718 (2006) in response to the testing of a nuclear device in contravention of the Democratic People’s Republic of Korea (DPRK)’s international obligations.

11.2 On 12 June 2009 the UN Security Council passed Resolution 1874 imposing further sanctions measures on the DPRK. It clamped down further on DPRK’s proliferation activities and extended the arms ban to cover the supply of almost all arms to DPRK. It also banned the export of all arms from DPRK (one of the means of funding its nuclear and Weapons of Mass Destruction (WMD) programmes). To hinder attempts at contravention, UN member states are obliged under the Resolution to act when they suspected that cargo was being exported to or imported from DPRK that might contribute to their nuclear or missile programme. It also banned the provision of international finance to DPRK, except for humanitarian and development work, again cutting off a source of funding for the nuclear and WMD programmes.


11.3 On 27 July 2009, Council Common Position 2009/573/CFSP was agreed by written procedure; the Council Regulation implementing the decisions made in the Common Position was then negotiated and brought into law in the autumn of that year.

11.4 Council Common Position 2009/573/CFSP paved the way for further EU-wide asset freezes and travel bans. The measures within Community competence agreed in the Common Position were likewise implemented through a Regulation.

Council Decision 2010/800/CFSP

11.5 In December 2010, the Committee considered a further Council Decision, which in effect updated the measures on DPRK at the technical level and in so doing repealed Common Position 2006/795/CFSP. The Council carried out a complete review of the EU autonomous lists of persons and entities, as set out in Annexes II and III to that Common Position, and concluded that the persons and entities concerned should continue to be subject to restrictive measures. The Decision did not provide for any change to the effect of the existing measures in force, but incorporated post-Lisbon Treaty language, and brought the instrument into line with recent best practice developments.

11.6 Where sanctions fall within Community Competence (i.e. financial sanctions) they are implemented by means of a European Community Regulation, which is directly applicable in the UK. The travel ban on the individuals listed was to be implemented by the Home Office under the Immigration (Designation of Travel Bans) Order 2000, which is made under Section 8B of the Immigration Act 1971.

11.7 The procedures for designating individuals are fully compliant with fundamental rights: individuals may only be listed where evidence existed that they were engaged in the activities or meet the criteria listed under Articles 3 and 4 of Common Position 2006/795/CFSP; persons or entities may challenge their listing under the regime in the Community courts. The UNSCRs, on which the EU legal texts are based, provide for the termination of the measures if DPRK suspends its nuclear and ballistic programmes.

11.8 The Minister for Europe (Mr David Lidington), provided some background on recent “headline” developments — the sinking of a South Korean warship in March 2010, the firing by DPRK forces on the South Korean island of Yeonpyeong and US reports that showed that the DPRK had built a 2000 centrifuge uranium enrichment facility and was in the process of building a Light Water Reactor (both in contravention of UNSCRs).

Our assessment

11.9 No questions arose. Important as such developments in North Korea were, the adoption of this Council Decision was not related to this activity, but had come about coincidentally because of the provision in Common Position 2006/795/CFSP requiring it to carry out the review of persons and entities. We concluded that it therefore did not, in and of itself, warrant a substantive report to the House, and cleared it accordingly.40

40 See (32326) —: HC 428–xi (2010–12), chapter 22 (15 December 2010).


11.10 On 22 December 2010, it was adopted as Council Decision 2010/800/CFSP.41

UN Security Council resolution 2087 (2013)

11.11 On 22 January 2013, the UN Security Council, condemning the launch by the DPRK on 12 December 2012, which used ballistic missile technology in violation of the sanctions imposed on it, demanded that the country not proceed with any further such activities and expressed its “determination to take significant action” in the event it did so. In that connection, the Council demanded, through the unanimous adoption of resolution 2087 (2013), immediate compliance by the DPRK with its obligations under resolutions 1718 (2006) and 1874 (2009), including that it abandon all nuclear weapons and nuclear programmes completely, verifiably and irreversibly. It deplored the country’s violations of the measures imposed on it in 2006, and strengthened in 2009, including the use of bulk cash to evade sanctions, and underscored its concern over the supply, sale or transfer to or from that country or through States’ territories of any item that could contribute to the activities banned by those resolutions. The Council recalled that States may seize and dispose of items consistent with its previous resolutions, and clarified that the methods for disposal included, but were not limited to, destruction, rendering inoperable, storage or transferring to another States other than the originating or destination States for disposal. It further clarified that the sanctions banned the transfer of any items if a State involved in the transaction has reasonable grounds to believe that a designated individual or entity, under the previous resolutions, is the originator, intended recipient or facilitator of the item’s transfer.

11.12 In a related provision, the Council called for enhanced vigilance by Member States and directed the relevant Sanctions Committee to issue an Implementation Assistance Notice in the event a vessel refused to allow an inspection authorized by its Flag State or if any vessel flagged by the DPRK refused to be inspected, in line with its obligations.

11.13 Reaffirming its support for the six-party talks, the Council called for their resumption and urged all participants to intensify efforts to fully and expeditiously implement the 19 September 2005 Joint Statement issued by China.42

UN Security Council resolution 2094 (2013)

11.14 On 12 February 2013, the Security Council passed unanimously a resolution strengthening and expanding the scope of UN sanctions against the DPRK by targeting the illicit activities of diplomatic personnel, transfers of bulk cash, and the country’s banking relationships, in response to that country’s third nuclear test on 12 February. The Council strongly condemned the test and maintained the sanctions it first imposed in 2006 under resolution 1718, deciding that some of those, along with additional restrictions, would apply to the individuals and entities listed in two annexes of resolution 2094. In that connection, a travel ban and asset freeze were imposed on the Chief and Deputy Chief of a mining trading company it deemed “the primary arms dealer and main exporter of goods

41 For the full version of Council Decision 2010/800/CFSP, see http://eur-

lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:L:2010:341:0032:0044:EN:PDF.

42 See http://www.un.org/News/Press/docs/2013/sc10891.doc.htm.


and equipment related to ballistic missiles and conventional weapons”, as well as on an official of a company designated by the Sanctions Committee to be the main financial entity for sales of conventional arms, ballistic missiles and goods related to assembly and manufacture. The Council also froze the assets of a national-level organization responsible for the research and development of advanced weapons systems, and a conglomerate, designated by the Sanctions Committee in 2009, to be specializing in acquisition for the country’s defence industries and support to related sales. It added to the list of prohibited equipment and technologies, and included a list of luxury goods that cannot be imported. Member States are directed to enhance their vigilance over the DPRK’s diplomatic personnel. Member States are also to prevent the provision of financial services or the transfer of any financial or other assets or resources, including “bulk cash”, which might be used to evade the sanctions. They are also called on to prohibit in their territories the opening of new branches or offices of “DPRK” banks and to prohibit such banks from establishing new joint ventures.

11.15 Moreover, in the effort to prevent the direct or indirect supply, sale or transfer to or from the DPRK or its nationals of any banned items, States are authorized to inspect all cargo within or transiting through their territory that has originated in the DPRK or that is destined for that country. They are to deny permission to any aircraft to take off from, land in or overfly their territory, if they have reasonable grounds to believe the aircraft contains prohibited items.

11.16 States were also asked to supply any information on non-compliance and to report to the Council within 90 days, and thereafter, at the Committee’s request, on measures they have taken to implement the text. The Sanctions Committee is directed to respond to violations and authorized to add to the list. The expert panel, under the Committee’s auspices, was extended until 7 April 2014.

11.17 The Security Council promised to keep the situation under continuous review and stated it was “prepared to strengthen, modify, suspend or lift the measures as may be needed in light of the DPRK’s compliance”, or to “take further significant measures in the event of a further DPRK launch or nuclear test”.43

The EU response

11.18 On 18 February 2013, the Council announced that it had strengthened EU restrictive measures against DPRK:

“In view of the recent nuclear test and ballistic missile test on 12 December, this is the EU’s first step in defence of the international non-proliferation regime. Today’s decisions implement sanctions approved by the UN in January, but also include autonomous EU measures.

“The decision gives effect to measures provided for in UN Security Council resolution 2087. As this includes notably a number of additional designations, this will bring the total number of persons subject to a travel ban and an asset freeze to 26

43 See http://www.un.org/News/Press/docs/2013/sc10934.doc.htm.


while the total number of entities targeted by an asset freeze now amounts to 33. Besides, the Council agreed EU autonomous sanctions: It banned the export and import key components for ballistic missiles with the DPRK, such as certain types of aluminium used in ballistic missile-related systems. The precise scope of that provision will be defined in implementing legislation that is yet to be adopted.

“The Council also prohibited trade in new public bonds from the DPRK. It outlawed trade in gold, precious metals and diamonds with North Korean public bodies and stopped the delivery of new DPRK denominated banknotes and coinage to the central bank of the DPRK. North Korean banks will no more be allowed to open new branches in the Union nor establish joint ventures with European financial institutions. Nor will European banks be permitted to establish offices and subsidiaries in the DPRK.

“Finally, the Council took steps enabling future restrictions against persons and entities involved in trade with the DPRK in conventional arms or nuclear and ballistic components.

“The Council expressed its political determination to consider further restrictive measures in consultation with key partners.”44

Council Decision 2013/88/CFSP of 18 February 2013

11.19 This Council Decision amends Council Decision 2010/800/CFSP. In his Explanatory Memorandum of 18 March 2013, the Minister confirms that the Council Decision 2013/88/CFSP includes the following measures:

— new criteria that will allow the EU to sanction individuals involved in the supply to or from the DPRK of conventional arms and dual-use goods;

— a ban on the transfer of key components of the ballistic-missile sector including related financial and technical assistance;

— a ban on the sale, purchase, transportation or brokering of gold, diamonds and precious metals;

— a ban on the delivery of newly printed or minted DPRK denominated banknotes or coins;

— a ban on the sale, purchase or brokering of new DPRK public or public-guaranteed bonds;

— a ban on the opening of new branches or offices of DPRK banks or forming new joint ventures with those banks in the EU;

— an express prohibition of insurance and reinsurance in cases where the EU has proposed the prohibition of financial services;

44 See http://www.consilium.europa.eu/uedocs/cms_Data/docs/pressdata/EN/foraff/135535.pdf. The full Council

Conclusions are available at http://www.consilium.europa.eu/uedocs/cms_data/docs/pressdata/EN/foraff/135534.pdf.


— implementation of the UN measure to increase vigilance and restraint when allowing the entry of individuals working on behalf of sanctioned individuals or entities;

— implementation of the list of new sanctioned individuals and entities agreed by the UN


11.20 The Minister notes that the relevant UN resolutions are “calibrated to constrain the DPRK’s nuclear and ballistic missile programmes and the proliferation of sensitive goods and technology to and from the DPRK”, and also “send clear signal to the DPRK that continued disregard for its international obligations will not be tolerated.” He describes the unanimous adoption of UNSCR 2087 as showing “that the international community is united in its condemnation of the DPRK’s continued disregard for its international obligations”. The overall aim of the sanctions is “to disrupt its nuclear ballistic missile and other weapons programmes”.

11.21 He also notes that the Common Positions and subsequent Regulations adopted by the EU in relation to the situation in the DPRK implement UNSCR 1718, UNSCR 1874 and UNSCR 2087 across the EU and add EU autonomous sanctions over and above those the EU is obliged to implement by the relevant UN Security Council resolutions.

11.22 With regard to the Fundamental Rights considerations, the Minister says:

“The procedures for designating individuals are compliant with fundamental rights. Provision is made for competent authorities of Member States to authorise the release of frozen funds where necessary in certain circumstances, for example, to satisfy the basic needs of listed persons or their dependents and where necessary for extraordinary expenses. Decisions by competent authorities of Member States in this regard would be subject to challenge in Member State’s courts. Prohibitions on the transfer of funds and financial services are exempted where necessary for humanitarian purposes, or where necessary for supply of foodstuffs, medical equipment or provision of health care. Provision is also made for exemptions to the travel ban on grounds of urgent humanitarian need.

“The principal Decision respects the fundamental rights and observes the principles recognised in particular by the Charter of Fundamental Rights of the European Union and notably the right to an effective remedy and to a fair trial and the right to the protection of personal data.

“The principal Decision provides that the Council shall provide designated persons and entities with an opportunity to present observations on the reasons for their listing. Where observations are submitted, the Council will review its decision in the light of those observations and inform the person or entity concerned accordingly. In addition, the measures will be kept under review.”


Council Regulation (EU) No.296/2013 of 26 March 2013

11.23 In his Explanatory Memorandum of 17 April 2013, the Minister says that this Regulation implements the measures authorised by Council Decision 2013/88/CFSP and has no additional policy implications.


11.24 Nonetheless, the Minister says, the Regulation supports — as did the Council Decision — overall UK policy towards North Korea, by constraining the DPRK’s nuclear and ballistic missile programmes proliferation of sensitive goods and technology to and from the DPRK and “sending a clear signal to the DPRK that continued disregard for its international obligations will not be tolerated.”

11.25 Since the adoption of UNSCR 2094 on 7 March 2013, the Minister notes that the DPRK has “issued aggressive rhetoric and threats” and says:

“The UK and other international partners, including the US, EU and the Republic of Korea, have made very clear to the DPRK that it has a choice between constructive engagement with the international community, or further international action and isolation. We will continue to use our bilateral links with the DPRK to deliver this message and will be encouraging others to do the same.”

11.26 The Minister notes that the Common Positions45 and subsequent Regulations adopted by the EU in relation to the situation in the DPRK implement UNSCR 1718, UNSCR 1874 and UNSCR 2087 across the EU and add EU autonomous sanctions over and above those the EU is obliged to implement by the relevant UN Security Council Resolutions.


11.27 The Minister begins by underlining the importance of implementing these measures quickly, so as to ensure that the EU acts consistently with the provisions of UN Security Council Resolution 2087, there is a minimal gap in the legal basis for implementing measures and the EU is seen to respond to the satellite launch and nuclear test in a timely fashion.

11.28 The Minister apologises for the delays in submitting his Explanatory Memorandum covering the Council Decision. He notes that events on this issue have been fast moving: but also that he has spoken to FCO officials “to ensure we avoid a similar situation in the future.”

11.29 The Minister also regrets that, due to the Easter recess, he found himself having to agree to the adoption of the Council Regulation before the Committee had an opportunity to scrutinise it.

11.30 The Minister also provides the following update on the situation in DPRK:

45 The pre-Lisbon Treaty term of art.


“We are concerned by North Korea’s development of nuclear weapons and missile technology, and more recently by its frenetic and bellicose rhetoric. We are also concerned by the danger of miscalculation by the DPRK regime. The international response to this must be clear, united and calm.

“UN Security Council Resolution 2094, adopted on 7 March in response to the nuclear test on 12 February, was agreed by consensus. This is a strong signal of the international community’s unity and resolve. The measures in this Resolution provide the international community with the enhanced means to tackle the DPRK’s illicit proliferation. In addition, the Resolution makes clear that the UN Security Council would take “further significant measures” in the event of another launch or nuclear test by the DPRK.

“G8 Foreign Ministers also discussed the international response to the DPRK at our meeting last week. This resulted in a clear joint statement that included condemnation in the strongest possible terms of the DPRK’s continued development of its nuclear and ballistic programmes, and we urged the DPRK to engage in credible and authentic multilateral talks on denuclearisation. Foreign Ministers all agreed that the DPRK must address these and other issues and cooperate fully with all relevant UN mechanisms. They made clear our support to the UNSCR commitment to take further significant measures in the event of a further launch or nuclear test by the DPRK.

“The statement of the G8 Foreign Ministers also expressed concern over the systematic and widespread human rights violations in the DPRK. This echoed the agreement in the UN Human Rights Council on 21 March to establish a Commission of Inquiry on human rights abuses in the DPRK. The fact that this Inquiry was agreed without a vote again demonstrates the strong international consensus that the DPRK cannot and should not continue on its current course.

“We are working to ensure all states fully implement the latest UN Security Council Resolution and have been speaking to international partners about the importance of this. The UK is not a member of the Six Party Talks, but we will remain in close touch with the US, Republic of Korea (RoK), China, Russia and Japan on their approach towards the DPRK. The Foreign Secretary has also spoken to the RoK Foreign Minister Yun Byun-se, where he welcomed the RoK’s measured approach to the situation and confirmed that the UK will continue to support our allies in the region.

“In this call the Foreign Secretary stressed the importance of not responding to North Korean rhetoric. Our assessment remains that there has been no immediate increased risk or danger to those living in or travelling to either the DPRK or the RoK. We judge there is no immediate need to either change the level of our travel advice or draw down Embassy staff, although we are keeping this under constant review and making regular factual updates to our travel advice.

“The UK played a leading role in work to agree a co-ordinated and unified response by EU Member States to the 10 April deadline set by the DPRK for embassies to notify them of what assistance they would require should they wish to be evacuated


from the DPRK. We made sure that the EU took this opportunity to remind the DPRK of its international obligations on proliferation. From our discussions with other governments we do not believe any foreign embassy in Pyongyang is currently planning to close.

“Our message to the DPRK is clear. It has a choice, between constructive engagement with the international community, or further international action and isolation. The choice it is taking now will lead it to be a broken country, isolated from the rest of the world.”

Conclusion

11.31 North Korea has a long history of confrontation with the outside world over its weapons’ programmes. In the past, China was played off against the Soviet Union. Since the 1990s, however, it has employed a survival strategy that involves threats and limited military action to divide its neighbours and what it characterises as its enemies and extract concessions from them. The new DPRK leadership has thus opened a familiar playbook. But an unprecedented level of rhetoric has created great uncertainty over how a new leader plans to use it, and fuelled the present crisis.

11.32 The EU’s measures are of undoubted importance. On the face of it, the international community is united in condemnation of DPRK actions. However, as always, China’s actions will be crucial, both in terms of defusing the present crisis and obliging the DPRK to change its ways.

11.33 We now clear the documents (and do not object to the Minister for having agreed to their adoption prior to scrutiny on this occasion and in these circumstances).


12 EU restrictive measures and Libya

(a) (34839) — — (b) (34840) — —

Council Decision amending Decision 2011/137/CFSP concerning restrictive measures in view of the situation in Libya Council Implementing Regulation implementing Article 16(2) of Regulation (EU) 204/2011 concerning restrictive measures in view of the situation in Libya

Legal base (a) Article 31(1) TEU; unanimity

(b) Article 215 TFEU; QMV Department Foreign and Commonwealth Office Basis of consideration EM and Minister’s letter of 17 April 2013 Previous Committee Report None; but see (33323) — and (33324) —: HC 428–

xlii (2010–12), chapter 28 (23 November 2011); (33171) 14581/11, (33189) — and (33190) —: HC 428–xxxvii (2010–12), chapter 23 (12 October 2011); (33104–5) —: HC 428–xxxv (2010–12), chapter 20 (7 September 2011); (32817–19) —: HC 428–xxix (2010–11), chapter 11 (8 June 2011); (32626) —: HC 428–xxii (2010–11), chapter 10 (30 March 2011); (32606) — and (32610) —: HC 428–xxi (2010–11), chapter 9 (23 March 2011) and (32546) — and (32549) —: HC 428–xviii (2010–11), chapter 12 (2 March 2011)

Discussion in Council 22 April 2013 Politically important Committee’s decision Cleared

Background

12.1 On 26 February 2011, the UN Security Council adopted UNSCR 1970 (2011). This requested immediate measures to stop the then violence in Libya, ensure accountability and facilitate humanitarian aid, imposed an arms embargo, asset freeze and travel ban on six individuals, and a travel ban on 10 additional individuals, and established a Sanctions Committee.46

12.2 On 2 March 2011, the Committee considered Council Decision 2011/137/CFSP (which had by then already been adopted because of the need for immediate

46 Full details of UN Security Council resolution 1970 (2011) are available at

http://www.un.org/News/Press/docs/2011/sc10187.doc.htm.


implementation in line with UNSCR 1970 (2011)). In addition to an embargo on arms and other equipment that could be used for internal repression, the EU implemented a visa ban on 16 persons, including Muammar Qadhafi, parts of his family closely associated with the then regime and other persons responsible for the violent crackdown on the civilian population in the month of February 2011; a freeze of the assets of Qadhafi and five members of his family; a visa ban on an additional 10 individuals; and an asset freeze on a further 20 individuals responsible for the violent crackdown.47

12.3 The Committee’s other Reports under reference deal with the more important of the EU’s responses to the remainder, conclusion and aftermath of the Libya crisis. These include:

— the following suit by the EU of the adoption on 17 March 2011 of Resolution UNSCR 1973 (2011), which imposed a ban on all flights in the country’s airspace — a No-Fly Zone — and tightened sanctions on the Qadhafi regime and its supporters;

— measures that first tightened pressure on the Qadafi regime (adding more individuals and entities, listing six ports in western Libya then under its control) and then, as the Opposition forces prevailed, beginning the process of unwinding them; and

— measures formally ending the No-Fly Zone.

12.4 The last of these responded to UNSCR 2016 (2011), which was adopted unanimously on 27 October. Welcoming positive developments in Libya and taking note of the Declaration of Liberation following the death of Muammar al-Qadhafi, the UN Security Council ended the authorization under which NATO had conducted an air campaign with the mandated aim of protecting civilians, as of 31 October 2011. At the same time, NATO duly concluded its Operation Unified Protector.

UN Security Council Resolution 2095 of 14 March 2013

12.5 On 14 March the UN Security Council extended for 12 months the mandate of the United Nations Support Mission in Libya (UNSMIL) to assist the authorities in defining national needs and priorities and match those with offers of strategic and technical advice, and modified the ban on arms imports “to boost the country’s security and disarmament efforts.”

12.6 The Council also lifted the requirement that the UN Sanctions Committee approve supplies of non-lethal military equipment and assistance for humanitarian or protective use. It also removed the need for notification to the Committee of non-lethal military equipment being supplied to the Libyan Government for security or disarmament assistance, and urged the Government of Libya to improve the monitoring of arms supplied to it, including through the issuance of end-user certificates.

12.7 The Council kept in place the asset freeze and extended for 13 months the expert panel assisting the Sanctions Committee in monitoring implementation of the remaining sanctions (the panel’s mandate includes assisting the Sanctions Committee in carrying out

47 For the full background, see (32546) — and (32549) —: HC 428–xviii (2010–11), chapter 12 (2 March 2011).


its functions; analysing information from States and relevant bodies; and expediting investigations of non-compliance.)48

The Council Decision and the Council Implementing Regulation

12.8 The Draft Council Decision amending Decision 2011/137/CFSP seeks to implement the changes to the UN arms embargo on Libya by removing the notification requirements to the UN Sanctions Committee for the provision of non lethal military equipment and related assistance intended solely for humanitarian or protective use, and non lethal military equipment and all types of assistance intended solely for security or disarmament assistance to the Libyan authorities.

12.9 The Draft Council Decision and Draft Council Implementing Regulation both seek to delist an individual subject to an EU-autonomous asset-freeze and travel ban.

12.10 In his Explanatory Memorandum of 17 April 2013, Minister for Europe (Mr David Lidington), explains that the February report to the Sanctions Committee by the UN Panel of Experts for Libya recommended removing the notification requirements for certain types of security assistance on the basis that this would both facilitate the provision of necessary security assistance to the Libyan authorities, and allow the Committee to focus its attention on weapons and ammunition, which carry the highest risk of misuse and diversion.

12.11 Regarding the de-listing of Mr Al-Barrani Ashkal proposed by the Decision and Implementing Regulation (one of the individuals designated under the EU’s autonomous asset freeze and travel ban in March 2011), the Minister says that he was designated by virtue of his position as the Deputy Director of Military Intelligence under the Qadhafi regime, and that now:

“The delisting of Ashkal was proposed by Libya to the Mashrek/Maghreb working group49 (MaMa) on 8 April 2013, on the basis that there are no longer grounds to maintain the listing. The UK did not oppose the delisting of Ashkal at the MaMa meeting on 11 April 2013, as FCO investigations conducted in London and Tripoli regarding his recent activities found no evidence to support maintaining the listing. No other member state objected to the delisting.”


12.12 With regard to the amendments to the requirements for notifying the UN Sanctions Committee, the Minister says:

“Given the current security situation in Libya, it is desirable and in line with UK policy to waive the notification requirement for the non-lethal goods and training

48 For full background and the text of the Resolution, see http://www.un.org/News/Press/docs/2013/sc10939.doc.htm.

49 The Mashreq/Maghreb Working Party (also known as COMAG) is the group of senior Member State officials that deals with EU Common Foreign and Security Policy (CFSP) and Community competence with regard to Algeria, Egypt, Israel, Jordan, Lebanon, Libya, Morocco, the Western Sahara conflict, the Palestinian Authority, Syria and Tunisia. It also deals with EU cooperation with countries in North Africa and the Middle East, also known as the Union for the Mediterranean.


referred to in the Council Decision. The benefit of providing such goods and training to humanitarian organisations and government security forces will greatly assist these entities in their work to improve public security in Libya, at a time when the country has a critical need for forces which are better equipped and trained to enable them to secure borders and to address ongoing internal security issues.

“In recent months, the UK has been asked by civil security companies to grant a number of licences for Libya, which will facilitate the government’s efforts to build effective military and border security forces. Removing the notification requirements as set out will both enable security companies to more easily provide assistance to the Libyan security sector and reassure the Libyan government of UK support, thereby strengthening bilateral relationships.

“The Libyan Foreign Minister has told us that the Libyan government’s prime concern is that the Sanctions Committee responds positively to its requests to build its defence capability. The proposed changes to the arms embargo will send a positive signal to the government that the Sanctions Committee, and the UK as the Committee’s penholder, are supportive of its efforts to improve its security forces.”

12.13 With regard to the de-listing of Mr Al-Barrani Ashkal, the Minister says:

“The delisting of Al-Barrani Ashkal is in line with the UK’s Smarter Sanctions Policy, according to which delisting should take place when the statement of reasons for a listing no longer applies and cannot successfully be updated. This helps to ensure that designations remain legally robust. The UK continues to work with international partners to assess the appropriateness of listings.”


12.14 The Minister says that although UNSCR 2095 was adopted on 14 March 2013, despite his officials’ best efforts the Decision implementing its changes was not agreed by the RELEX working Group until Monday 15 April 2013 — too late to be considered by the Committee ahead of the Foreign Affairs Council on 22 April 2013, which presents the next opportunity for the text to be adopted. He goes on to explain that, now that these particular notification requirements no longer apply, the UK, along with other EU countries, cannot licence the export of the specified non-lethal goods or provide certain types of assistance until the adoption of the amending Council Decision and Regulation; and that, as there has already been a time lapse of over one month since the UNSCR was adopted, a backlog of export licences has accrued. These considerations, he says, make their adoption essential at the first possible opportunity, and an override of scrutiny regrettably unavoidable.

12.15 The Minister also notes that a draft Regulation implementing the assistance-related aspects of the Council Decision will be available on 22 April 2013, and is scheduled to be adopted at the first possible opportunity thereafter; and undertakes to provide an update on this “as necessary.”


Conclusion

12.16 We do not object to the Minister having agreed to the adoption of the Council Decision and Council Implementing Regulation ahead of scrutiny on this occasion and in these circumstances.

12.17 However, we would wish him to provide an Explanatory Memorandum on the further Council Implementing Regulation to which he refers, together with details of the sort of equipment that is now likely to be authorised for export, as well as of the nature of the assistance that is likely to be provided.

12.18 In the meantime, we now clear these documents.


13 Documents not raising questions of sufficient legal or political importance to warrant a substantive report to the House

Department for Business, Innovation and Skills

Anti-Dumping Measures

(34820) 7119/13 COM(13) 117

Draft Council Implementing Regulation terminating the partial reopening of anti-dumping investigation concerning imports of ethanolamines originating in the United States of America and terminating the expiry review pursuant to Article 11(2) and the partial interim review pursuant to Article 11(3) of Regulation (EC) 1225/2009.

(34823) 7384/13 COM(13) 110

Draft Council Implementing Regulation extending the definitive anti-dumping duty imposed by Council Implementing Regulation (EU) No 467/2010 on imports of silicon originating in the People’s Republic of China to imports of silicon consigned from Taiwan, whether declared as originating in Taiwan or not.

Other

(34808) 8068/13 + ADDs 1–10 COM(13) 149

Commission Communication: State of the Innovation Union 2012 — Accelerating change.

(34811) 6505/13 —

Commission Report: Impact Assessment Board Report for 2012.

Department of Energy and Climate Change

(34790) 7735/13 COM(13) 153

Draft Regulation concerning the notification to the Commission of investment projects in energy infrastructure within the European Union and replacing Council Regulation (EU, Euratom) No 617/2010.

Department for Environment, Food and Rural Affairs

(34810) 8300/13 COM(13) 111

Commission Report on progress in implementing Regulation (EC) 166/2006 concerning the establishment of a European Pollutant Release and Transfer Register (E-PRTR).


Department for International Development

(34770) 7521/13 COM(13) 141

Commission Communication: Enhancing Maternal and Child Nutrition in External Assistance: an EU Policy Framework.

Department for Work and Pensions

(34744) 7036/13 COM(13) 102

Draft Directive amending Council Directives 92/58/EEC, 92/85/EEC, 94/33/EC, 98/24/EC and Directive 2004/37/EC, in order to align them to Regulation (EC) No. 1272/2008 on classification, labelling and packaging of substances and mixtures.

HM Revenue and Customs

(34831) 8355/13 COM(13) 193

Draft Regulation amending Regulation (EC) No 450/2008 laying down the Community Customs Code (Modernised Customs Code) as regards the date of its application.

HM Treasury

(34783) 7677/13 + ADD 1 COM(13) 114

Commission Report towards implementing harmonised public sector accounting standards in Member States: The suitability of IPSAS for the Member States.

Office for National Statistics

(34826) 8225/13 COM(13) 155

Draft Regulation amending Council Regulation (EC) No 577/98 on the organisation of a labour force sample survey in the Community.


Formal minutes

Wednesday 24 April 2013

Members present:

Mr William Cash, in the Chair

Nia Griffith Kelvin Hopkins Chris Kelly Penny Mordaunt

Stephen PhillipsJacob Rees-Mogg Henry Smith

The Committee deliberated.

Draft Report, proposed by the Chair, brought up and read.

Ordered, That the draft Report be read a second time, paragraph by paragraph.

Paragraphs 1.1 to 1.5 read and agreed to.

Paragraph 1.6 read, amended and agreed to.

Paragraphs 2.1 to 13 read and agreed to.

Resolved, That the Report be the Fortieth Report of the Committee to the House.

Ordered, That the Chair make the Report to the House.

****

[Adjourned till Wednesday 8 May at 4.00 p.m.


Standing Order and membership

The European Scrutiny Committee is appointed under Standing Order No.143 to examine European Union

documents and—

a) to report its opinion on the legal and political importance of each such document and, where it considers

appropriate, to report also on the reasons for its opinion and on any matters of principle, policy or law which

may be affected;

b) to make recommendations for the further consideration of any such document pursuant to Standing Order

No. 119 (European Committees); and

c) to consider any issue arising upon any such document or group of documents, or related matters.

The expression “European Union document” covers —

i) any proposal under the Community Treaties for legislation by the Council or the Council acting jointly with

the European Parliament;

ii) any document which is published for submission to the European Council, the Council or the European

Central Bank;

iii) any proposal for a common strategy, a joint action or a common position under Title V of the Treaty on

European Union which is prepared for submission to the Council or to the European Council;

iv) any proposal for a common position, framework decision, decision or a convention under Title VI of the

Treaty on European Union which is prepared for submission to the Council;

v) any document (not falling within (ii), (iii) or (iv) above) which is published by one Union institution for or

with a view to submission to another Union institution and which does not relate exclusively to consideration

of any proposal for legislation;

vi) any other document relating to European Union matters deposited in the House by a Minister of the Crown.

The Committee’s powers are set out in Standing Order No. 143.

The scrutiny reserve resolution, passed by the House, provides that Ministers should not give agreement to EU

proposals which have not been cleared by the European Scrutiny Committee, or on which, when they have been

recommended by the Committee for debate, the House has not yet agreed a resolution. The scrutiny reserve

resolution is printed with the House’s Standing Orders, which are available at www.parliament.uk.

Current membership

Mr William Cash MP (Conservative, Stone) (Chair)

Mr James Clappison MP (Conservative, Hertsmere)

Michael Connarty MP (Labour, Linlithgow and East Falkirk)

Jim Dobbin MP (Labour/Co-op, Heywood and Middleton)

Julie Elliott MP (Labour, Sunderland Central)

Tim Farron MP (Liberal Democrat, Westmorland and Lonsdale)

Nia Griffith MP (Labour, Llanelli)

Chris Heaton-Harris MP (Conservative, Daventry)

Kelvin Hopkins MP (Labour, Luton North)

Chris Kelly MP (Conservative, Dudley South)

Penny Mordaunt MP (Conservative, Portsmouth North)

Stephen Phillips MP (Conservative, Sleaford and North Hykeham)

Jacob Rees-Mogg MP (Conservative, North East Somerset)

Mrs Linda Riordan MP (Labour/Cooperative, Halifax)

Henry Smith MP (Conservative, Crawley)

Ian Swales MP (Liberal Democrat, Redcar) The following member was also a member of the committee during the parliament: Sandra Osborne MP (Labour, Ayr, Carrick and Cumnock)

Date post:	26-Mar-2022
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