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The British Influence Scorecard 2014


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The British Influence Scorecard 2014

Source: British Influence

Date: 01.2014.

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The British Influence Scorecard 2014

  1. 1. The British Influence Scorecard 2014 What influence does Britain have in the EU? Report of an independent panel chaired by Lord Hannay of Chiswick
  2. 2. The British Influence Scorecard 2014 What influence does Britain have in the EU? About British Influence British Influence is the umbrella campaign to keep Britain in Europe and to push for British-led reform of the EU. We are a cross-party organisation who believes that Britain is better off in a better Europe. An independent and not-forprofit organisation, we are an independent receive any funding from any panel chaired government, political party or by Lord Hannay EU institution. 2 Report of not affiliated with, nor do we of Chiswick
  3. 3. Copyright of this publication is held by British Influence. You Contents may not copy, reproduce, republish or circulate in any way the content from this publication except for your own personal and non-commercial use. Any other use requires the prior written permission of British Influence. January 2014 FOREWORD BY PETER WILDING..................................................................................... 7 The Scorecard rating system explained...................................................10 INTRODUCTION BY Lord Hannay of Chiswick..........................................11 Part I: The Single Market & Economic Affairs British Influence 83 Victoria Street London SW1H 0HW Chapter 1: Single Market................................................................................ 17 Chapter 2: Economic Affairs......................................................................... 25 Part II: Energy, Environment & Food Chapter 3: Energy & the Environment..................................................... 35 Chapter 4: Agriculture & Fisheries.............................................................. 41 Part III: External Relations Chapter 5: External Relations....................................................................... 47 Part IV: Crime, Justice & Society Chapter 6: Justice & Home Affairs............................................................. 49 Chapter 7: Culture, Society & Regions.................................................... 61 Part V: Institutions & Accountability Chapter 8: The EU Institutions..................................................................... 69 Chapter 9: Subsidiarity & Proportionality................................................ 75 BIOGRAPHIES OF PANEL MEMBERS..........................................................................81 ACKNOWLEDGEMENTS ...................................................................................................84
  4. 4. FOREWoRD BY PETER WILDING Britain: Leader or Loser in Europe Today, on its first anniversary, British Influence, the campaign to keep Britain in a reformed Europe, publishes the assessment of an independent panel on whether the UK is a leader or a loser in the EU. The report shows that, contrary to all received wisdom, Britain can achieve its aims in the EU, especially when it works closely with allies. But the report also shows that if there was a clear vision of Britain’s place in the EU and the will to pursue that vision, we could achieve so much more. In a world of rule-making power blocs, which could pit Europe and America against China and Russia in a battle to keep trade flowing and markets open to ensure global growth, the UK has a real chance to be a critical player in the EU. By pulling the available European levers of power Britain could increase our prosperity by leading political and economic reform and increase our power by leading Europe’s diplomatic outreach. Berlin supports completing the single market and Paris supports cooperation in defence. London should be a vital player in this world and it could be. The EU is not perfect but it is the best available mechanism for Britain to achieve its goals. But, far from being a leader, is Britain, in fact, a loser? This vision is a superficially attractive blend of the isolationist and globalist. It depends on pretending at the same time that the UK counts for nothing in the EU but counts for something in the world. The isolationists lament the loss of power in a country that has helped bring democracy, freedom and the rule of law to the entire continent of Europe since 1945. In their view the UK is now the runt of the European pack, forever powerless against Brussels’ meddling and hostile states while others lament the loss of ambition in a country that is, in fact, the cock of the European heap and, freed from the purported shackles of EU restraint, could rule the global roost again. 7
  5. 5. A people adrift a view supported by numerous partners like Japan4 and Australia5 and numerous global Given the consequences of these fundamental choices on the next generations’ prosperity, companies like Ford6 and Nissan7. it is a scandal that they are completely lost on the British public. Time and again we hear that the public has no idea where the country was heading in the world or what the country did in Europe and why. People could be proud to be part of Britain as a leader in Europe but, as far as they are concerned, Britain is a loser.  This lack of clear leadership from the political elite and the lack of any balance from the media leave a sad picture of a patriotic public more uncertain and hostile to the forces of globalisation whilst at the same time eager to channel their pride into practice. This report reveals that we therefore face a political as well as a moral crisis. The failure to lead and inform the public of their country’s place in the world as Churchill, Thatcher and Blair sought to do has left an existential vacuum filled by a new poujadism. It needs to be filled by a new patriotism where the people are guided by their leaders and informed by Surrounded by a confused people, bewildered allies and discomforted businesses, Britain is facing a third curtain call ending our power in Europe. Allies, recently offended by the UK’s strident tone, have said: “We need reform, especially if the UK, previously central Europe’s spiritual brother in the EU, departs to an unknown geopolitical destination, significantly weakening its influence within the EU.”8 If it was true that the UK had no influence in the councils of Europe this would be a reasonable step. As our report today shows Britain often leads in Europe and could do so more often. Leaving seems like a suicidal indulgence. Peter Wilding Director, British Influence their press that Britain is a big player in Europe, often wins its battles and keeps its friends. As Janan Ganesh of the Financial Times said recently, in a sideswipe at a country adrift, “Britain has delusions not of grandeur but of weakness.” 1 …in search of a role As Lord Hannay says in his memoirs, Britain’s Quest for a Role, Britain must assert a positive, pro-membership policy, now more than ever. This report is the first of an annual assessment of how well Britain sets this agenda in Europe and how it could do better. This is a work in progress. Like a global grande dame, the UK has had two historic curtain calls since victory in the war. The Suez crisis ended the Empire in 1956, and joining the European Communities in 1973 showed that we recognised that our future wealth and position in the world could not come from the Commonwealth. The choice was made for Europe. Who could deny British influence has yielded massive results? As Radek Sikorski, the Polish Foreign Minister, said, “Europe is now an English-speaking power”2. Its key achievements have been British led: the creation of the single market and the successive enlargements to bring in the former dictatorships of southern Europe, the great Scandinavian democracies and the former Communist states of Eastern Europe. Today many Member States support the UK in its efforts for political and economic reform in the EU and diplomatic power projection in the European area. The USA wants “a strong Britain in a strong Europe”3, 1  The Financial Times, Britain suffers delusions of weakness not grandeur, December 2012: 2  Radek Sikorski, Speech in Oxford, September 2012: britain_to_spoke_out_in_favour_of_europe 3  Reuters, Obama tells Cameron wants Britain in “strong European Union”, January 2013: article/2013/01/17/us-britain-eu-obama-idUSBRE90G1CT20130117 8 4  BBC News, Japan suggests UK jobs would be lost on EU exit, July 2013, 5  The Daily Telegraph, EU review: Don’t quit Europe, Australia tells UK, July 2013, worldnews/europe/10197815/EU-review-Dont-quit-Europe-Australia-tells-UK.html 6  The Daily Telegraph, Ford warns it would reassess UK presence if country left EU, January 2014: http://www. 7  BBC News,Nissan boss warns UK over possible EU exit, November 2013: business-24859486 8  Central European Policy Institute and demos Europa, Central Europe fit for the future, January 2014, http://www. 9
  6. 6. The Scorecard rating system explained Both business and non-commercial organisations commonly use a system of key performance indicators to denote whether important objectives have been reached. In this report the Panel has used the following guidelines to determine which indicator to adopt for a particular strand of policy: INTRODUCTION Does Britain exercise any influence? The perceptions of Britain’s influence on policy-making and outcomes in the European Union are frequently polarised between two extremes. The first asserts that Britain has little or no influence and is subjected against its will to decisions taken by others which are not in its own interest. The second is that, from the outset of its membership in 1973, Britain has exercised significant influence over Europe’s policy-making and has done much to propel the European Union towards a genuine Single Market, towards enlargement to The scorecard rating: the south and the east and towards freer and fairer world trade, all of which have been in Britain’s own national interest as well as that of Europe as a whole. As the national debate successful the UK has succeeded in meeting at least some of its objectives over Britain’s future in the European Union quickens it is surely time to subject these two incompatible theses to critical scrutiny. That is the rationale which has led British Influence to compile this first of an annual series of British Influence Scorecards, looking at Europe’s policies sector by sector and seeking to assess the degree of British influence in each and also to test whether that influence is the UK has either partially succeeded at risk in reaching its objectives or there is a danger that it will not do so waxing or waning. With that kind of an evidence base for assessing British influence on a continuing basis it should be possible to have a better-informed national debate and also for the government of the day in particular to take remedial action. To help compile the first of these scorecards British Influence has called on the experience of a Panel of five which included a senior politician from each of the three main parties (the Panel’s membership consists of Sir Menzies Campbell MP (Liberal Democrats), Charles Grant (Director of the Centre for European Reform), Lord Hannay of Chiswick (Chair), Baroness Quin (Labour) and deficient the UK has failed to reach its objectives or is in danger of not doing so Sir Malcolm Rifkind MP (Conservative)). So far as the sectoral analysis of the policy-making is concerned the Panel decided for simplicity’s sake and for ease of reference to follow the Government’s own sub-divisions as set out in its Balance of Competences Review, but we have grouped them thematically for reasons of clarity and space. In addition, a separate analysis has also been made of the degree of British influence in the main policy-making institutions of the European Union: the Commission, the Council and the Parliament. For value judgements the Panel has relied on a system similar to that applied by many businesses in the form of key performance indicators, with a green, amber, red traffic light categorisation to indicate whether the degree of British influence was considered to be generally successful, at risk or deficient. 10 11
  7. 7. What is influence? The fact that so much, but by no means all, European policy-making is subject to qualified Any country has objectives it wishes to achieve in international relations – the promotion majority voting (QMV) has increased the need for the effective deployment of influence. of certain values, the expansion of economic opportunities for its businesses and the While a requirement for unanimity can, in theory at least, enable any Member State, acting protection of its security are all obvious examples. To achieve those objectives it must have on its own, to block a proposal, that power is largely a negative one. Thus in the period influence over those countries or organisations that have the power to enable a country before the Single European Act increased majority voting for Single Market legislation, to reach its objectives. For example, the UK joined the EU at the end of a process that virtually no national technical barriers in trade were removed. The prevalence of majority began with the Macmillan Government concluding in 1961 that the UK was losing influence voting and the co-decision process (that is, the agreement of both the Council of Ministers in the world. The alliance with the US was essential, but British influence with the US was and the European Parliament) have opened up more scope for the exercise of influence declining; the Commonwealth was valuable but not a basis for British influence in the world: but have also increased the risk for those who may fail to put it to effective use. In addition and the EEC was clearly going to become increasingly important with or without Britain in to the need to recruit allies in order to influence EU legislation made under QMV, the trade, economic and eventually political terms. Its members were outperforming the UK reluctance of Ministers to put issues to a vote and their preference for reaching agreement economically and the British government could only see this situation worsening because of by consensus means that it is important to exercise influence at an early stage before the its lack of authority over the direction of policy-making in the EEC. consensus takes final shape. While all countries have objectives, or interests, which they seek to achieve, the amount of Challenges to influence influence they have to enable them to reach these varies considerably. Influence is partly Recent moves towards greater integration in the eurozone have raised the spectre of the related to economic weight, to population, to military capacity, to geographic location and “ins” ganging up against the “outs” in other but related aspects of EU policy, particularly to other factors; but it is also related to the extent to which a country works effectively with Single Market matters. This concern, while understandable, wrongly presumes that the allies to achieve shared goals. Power in the twenty-first century is not just a consequence eurozone states are a homogenous group likely to be in agreement on major Single Market of size, it is also critically about alliance building; the EU is arguably the most successful legislation. Experience does not suggest that that is the correct assessment; eurozone example in the world today of countries working together to maximise the achievements member countries take a variety of positions on Single Market measures and are likely to of their countries and their global impact. While influence does not guarantee success continue to do so. With a constructive attitude and agile diplomacy the UK can overcome in negotiations, it increases the chances. It is also true that a country’s influence waxes this obstacle. It is in any case not a purely UK problem; there are nine other Member States and wanes over time. [Although a country’s effective exercise of its influence undoubtedly outside the eurozone and that number is not likely to fall quickly because of the reluctance makes a big difference, there are occasions when a country might achieve a key objective of the eurozone to accept new members easily after the difficulties of recent years. The UK anyway because it is in the interest of others]. In this Scorecard Report, the emphasis is on will however need to work closely with the Commission and the Parliament to protect its identifying areas where British influence has (or has not) made a difference and where it will interests and those of the European Union as a whole. be essential to make a difference in the future. As one of the group of larger Member States Britain has, almost by definition, the potential Influence is not easily measured; but it is real. The grand alliance in the mid-1980s between to exercise a significant degree of influence in European policy-making right across the the British government of Margaret Thatcher, the Commission duo of Jacques Delors and board; and its interests are affected by almost every decision taken at European level. In a Arthur Cockfield, together with Francois Mitterrand and Helmut Kohl and trade liberalising number of cases, such as the Single Market, trade policy, enlargement and the foundation supporters in the European Parliament, paved the way for the negotiation of the Single of a Common Foreign and Security Policy, it has in the past played a leading role and European Act of 1986 and the creation of a Single Market which, for all its imperfections, has managed to build a European consensus around the policies it has supported. The has brought major benefits to the citizens of a much enlarged European Union. Similarly, in purpose of this first Scorecard is to gauge the extent to which this continues to be the case a less dramatic way, British influence is important across the whole range of daily European and, if not, what steps are needed to remedy that. policy-making. While the complexity of the European legislative and executive processes often conceals the reality of how influence is exercised, it does not abolish them. 12 Lord Hannay of Chiswick 13
  8. 8. Part I The Single Market & Economic Affairs 14 15
  9. 9. Chapter 1 Single Market Overview Being in the Single Market is one of the main benefits of EU membership. Access to a free-market of 500 million consumers, across 28 countries and £12 trillion in GDP is vital to British business, enabling companies based in the UK to sell goods and services in an economy larger than that of the USA and Russia combined.1 Being able to shape the rules of that market is an essential form of influence for Britain, which countries inside the Single Market but outside the EU, like Norway, do not have. The Single Market also ensures adequate supplies of goods and services for British companies and British citizens, increases choice for UK consumers (companies as well as individuals), and enables business to access skilled labour and citizens to access employment. Britain’s major objectives in the EU at the present time include extending the Single Market more deeply into areas such as services and energy and creating a level playing field in the digital area, as these would be of great benefit to the UK. For example, the establishment of a Digital Single Market by 2020 would highly advantage the UK, which is Europe’s largest and most advanced e-commerce market and, in addition, would increase the EU’s GDP by 4 per cent.2 Free movement of goods Free movement of goods means that the UK can import from or export to another Member State easily and with low costs, as trade barriers and border controls have been abolished, through the ending of customs tariffs and the emergence of common regulations that ensure high quality standards. Goods exports to other EU Member States accounted for 50.65 per cent of UK’s total exports, and imports from the EU accounted for 50.85 per 1  The UK and the Single Market’, Trade and Investment Analytical Papers – Topic 4 of 18, Department for Business, Innovation & Skills and Department for International Development (2011), p.3 & IMF, World Economic Outlook, October 2012 2  Figures from the British Government, Review of the Balance of Competences between the United Kingdom and the European Union: the Single Market, July 2013, p. 55. 16 17
  10. 10. cent of its total imports in 2012.3 The UK’s economy relies heavily on trade (whether in Free movement of persons goods or services), and it is ranked among the top fifteen importers and exporters of goods The free movement of persons means that any citizen of the EU is allowed to circulate freely according to the World Trade Organisation in 2012.4 between Member States to work, study or retire and has the right to establish a business, In 2012/13 the UK was seeking to complete the work on the creation of a Europeanwide patent as that would be of particular value to our economy. British applications to the European Patent Office and the Office of Harmonisation for the Internal Market, as a proportion of all EU applications, range from 3 per cent in trademarks, to 10 per cent in with certain safeguards relating particularly to social security claims. These rights, which are reciprocal for British citizens living elsewhere in the EU, are supported by the Equal Treatment Directive, which sets out a general framework for equal treatment in employment and occupation of EU nationals living in another Member State.9 registered designs and 16 per cent in patents.5 Given the UK’s disproportionate share of EU migrants account for 3.7 per cent of UK residents but they are outnumbered by non- patents in the EU, the idea of a single patent law to ensure uniform protection of intellectual EU migrants, who represent 3.9 per cent of UK residents.10 A number of EU Member property rights across the Single Market (and a sharp reduction in costs as a patent would States have a higher proportion of EU migrants in their population than the UK, including only need to be registered in one place rather than in 28 individual Member States) has Luxembourg (37.9 per cent), Cyprus (12.6 per cent), Ireland (8.5 per cent), Belgium (7 per been strongly supported by recent British Governments. cent), Spain (5.1 per cent), and Austria (4.5 per cent).11 An agreement on the “Patent Package” was reached in November 2012 and formally Nonetheless, the presence of EU migrants in the UK has been of concern since the adopted by the UK and other Member States in February 2013, using the enhanced enlargement of the EU in 2004 and the accession of Romania and Bulgaria in 2007. But co-operation procedure under the Treaties.6 This new single patent system will reduce the research shows that, for example, British health care spending on non-active EU citizens costs for obtaining patent protection in the EU by up to 80 per cent.7 UK Government (that is, those who are not in work because they are students, are still in school, are retired estimates suggest that this Single Patent System will lead to direct benefits for businesses or are supported by a working spouse) vary from 0.7 to 1.1 per cent, according to the of £40 million per year; and a new European patent court in London for estimates.12 In other words, the proportion of non-active EU citizens benefiting from the pharmaceutical and life sciences will bring at least £200 million to the UK NHS is at least three times smaller than the actual proportion of EU citizens established in economy each year.8 This was an important step forward in an area of great the UK. In addition, EU migrants are very unlikely to be unemployed; their unemployment importance to the UK achieved by working with like-minded Member States rate is only 1.2per cent.13 Furthermore, in the decade up to 2011, migrants from the EU and using the device of enhanced co-operation to enable the 24 Member contributed 34 per cent more than they took out in benefits and services; over the same States who wanted to go ahead with the unified patent to do so, with other period the native UK population contributed 89 per cent of what it received (i.e. a deficit).14 Member States able to join later. On 1st January 2014, following the end of the transitional period set out in the Accession The Single Market is one of the policy areas for which British support is generally high. The extension both joined the EU in 2007. The British Government recently “acknowledged the positive approval of a unified Patent System that will signify important scale savings in the near future. contribution that most Romanians in the UK make to the UK economy”, and considers that 3  Figures from the Department for Business, Innovation and Skills, Review of the Internal Market: Free Movement of Goods, including the EU Customs Union and Intellectual Property Rights, p.2. 4 5  Figures from the Department for Business, Innovation and Skills, Review of the Internal Market: Free Movement of Goods, including the EU Customs Union and Intellectual Property Rights, p. 16. 6  European Commission, Unitary Patent – Ratification Progress: 7  European Commission, EU Unitary Patent: European Parliament and Council Give Green Light, November 2012. 8  Press release from the Department for Business, Innovation and Skills New Bill Proposes Reformed Intellectual Property Laws in the UK, May 2013. 18 Treaties, the UK lifted working restrictions on workers from Romania and Bulgaria, which of European economic activity to services has been to the benefit of the UK and 2013 saw the 9  Council Directive 2000/78/EC of 27 November 2000 establishing a general framework for equal treatment in employment and occupation. 10  Figures from the European Commission: EU Employment and Social Situation, March 2013, p. 19. 11  Ibid. p. 19 12  Ibid. p 19 13  Figures from the European Commission: A fact finding analysis on the impact on the Member States’ social security systems of the entitlements of non-active intra-EU migrants to special non-contributory cash benefits and healthcare granted on the basis of residence, October 2013, p. 29. migration.pdf 14  Centre for Research and Analysis of Migration, The Fiscal Effects of Immigration to the UK, November 2013, p.27. 19
  11. 11. the free movement of workers within the EU drives growth, competitiveness and jobs.15 Free movement of services However, reflecting concerns in a number of Member States that free movement of persons Services represent 70 per cent of the Single Market’s economic activity. Making cross border rules can be abused, the UK Government has an objective of agreeing a tightening of the trade in services easier has major potential to boost the EU economy.18 Services are even more EU’s social security benefit rules to deter such abuses. In April 2013 the UK, Germany, crucial to the UK as they account for about 80 per cent of its output and employment, spanning a the Netherlands and Austria signed a joint letter to the President of the Justice and Home wide range of activities including financial and business services, transport and communications, Affairs Council about preventing free movement abuses. After the Council in June, Home health, education, social care, retail, hotels, tourism and catering.19The UK has had a trade surplus Secretary Theresa May said: “Ministers have today acknowledged that free movement in services with the EU in every year since 2005: it exported €85.6 billion (around 5 per cent of abuse is a problem for a number of Member States and we have secured a commitment to GDP) of services to the EU27 in 2012, and imported €71.3 billion (approximately 4.2 per cent of find EU-wide solutions to this problem”.16 GDP), giving an overall trade surplus in services of €14.3billion.20 The UK’s share is around 11 per In an article for the Financial Times at the end of November last year, David Cameron cent of intra-EU services exports and 9 per cent of intra-EU services imports in 2012.21 outlined plans for reforming the rules on free movement.17 His agenda was in two parts: But the current system for the regulation of general services (financial services are regulated a series of measures to address immediate public concerns about the end of transitional separately, see below) is not working as well as it should and many barriers remain to a full controls on Bulgarians and Romanian migrants; and a longer-term set of ideas about free single market in services: whereas services account for 70 per cent of the EU’s economy, movement that would be considered as part of any future enlargement of the EU. it only represents 28 per cent of intra-EU trade.22 Remaining barriers have a negative effect The short-term measures seek to prevent EU migrants from gaining access to welfare benefits within their first three months resident in the UK. This includes restricting access to housing benefits and jobseekers’ allowance, as well as putting a six-month time-limit on the period migrants are able to claim unemployment benefits without proving they have a genuine prospect of employment. In addition, the Prime Minister announced the changing of the rules relating to deporting EU migrants found sleeping rough or begging, who will be barred from re-entry for twelve months. In the longer-term, the Prime Minister has suggested that the free movement of people might be restricted in a number of different ways. One such way would be, in the context of future acceding countries (Montenegro, Serbia, Macedonia, Turkey), the UK could insist that the transitional period could be longer than the recent practice of seven years. More ambitiously an attempt could be made to restrict the ability to work in another Member State until average income levels are similar. However, to achieve such a change in the basic free movement rules, the UK will have to win allies across the EU. Although a number of other Member States share the UK’s concerns about benefit claims by EU migrants (notably Germany and the Netherlands) the UK will need support from a wider group of Member States, including some in Central and Eastern Europe, if it is to alter the rules in significant ways. 15  Press release from the British government: UK and Romania Renew Strategic Partnership, October 2013. 16  AOL Money: May to Tackle ‘Benefit Tourists’, June 2013. 17 20 on the cost and quality of services, and especially harm SMEs, which cannot access crossborder opportunities because of complex administrative and legal requirements. Whereas they represent the majority of service-providing firms, only 8 per cent of SMEs engage in cross-border activities in part because of such difficulties.23Also, different regulatory regimes make it harder for qualified professionals, such as lawyers, accountants, architects or retailers, to gain access to job vacancies in other Member States. The UK’s ambition is to open up the market in services much further, building on the principles of freedom of establishment and free movement of services in the Treaties and through the important Services Directive of 2006, which sought to unburden Europe’s booming services markets.24 It has been estimated that the removal of the remaining unjustified restrictions on trade in services would create an economic gain of up to 2.6% per cent of EU GDP in 5-10 years, with considerable benefits for the UK.25 18  Figures from the European Commission, A Single Market for Services: 19  The Daily Telegraph, ‘UK Economy: It’s Rebalancing, but Not as We Know It’, November 2013: 20  Department for Business, Innovation and Skills 2013, op cit, p. 6. 21  Ibid. p. 6. 22  Ibid. p. 6. 23  Figures from the European Commission, A Single Market for Services: 24  Directive 2006/123/EC of the European Parliament and of the Council of 12 December 2006 on services in the internal market: 25  European Parliament: Report on the Internal Market for Services: State of Play and Next Steps, July 2013, p. 5. 21
  12. 12. There was progress in 2013 on access to the professions: the European Germany.33 The UK is now the world’s largest centre for cross-border borrowing, with 258 Commission launched a review to evaluate national regulations on access to foreign banks operating in the UK in 2012, which is more than in any other EU country.34 professions and the European Council agreed that there should be an annual report on Member States’ implementation of the Services Directive by the Commission. 26 While both of these decisions were modest steps forward, they fell short of the UK’s ambition of opening up the services market more radically. Ensuring that the Commission now adopts a rigorous approach to the scrutiny of Member States’ implementation of the Services Directive to remove unnecessary barriers to trade will be an important objective for the UK in 2014, as will the extension of the scope Therefore, free movement of capital, which enables integrated, open, competitive and efficient European financial markets and services, is a major asset for the UK. As a whole UK financial and insurance services trade surplus also constitutes 63 per cent of the UK’s total trade surplus in services; and the EU is the largest destination for UK exports of financial services (around a third of the UK’s trade surplus in financial and insurance services in 2012).35However, financial services only account for 8 per cent of intra-EU trade in services.36 of the Services Directive and the creation of a level playing field for the digital economy. The global financial crisis has had a dramatic effect on financial services in the UK and Financial Services and the Free Movement of Capital the wider EU, as well as more widely across the world. Cross-border investment and Financial services are of vital concern to the UK because of the size and economic impact of the sector in the country. Financial and related professional services contributed £195 billion to the UK economy in 2011, representing 14.5 per cent of UK GDP27, which is one of the highest shares of GDP in the OECD.28 Financial services are highly profitable and important to the whole economy, not least because of the sector’s contribution to UK employment (around 3.6 per cent).29 According to the Bank of England, in the decade before the financial crisis, the financial services sector grew at more than double the rate of the UK economy as a whole.30 The Government has acknowledged that: “The financial services sector is critical for the UK. It plays a key role in providing essential services to individuals and businesses and in its contributions to growth, trade, tax revenues and employment”.31 According to the IMF, the UK is the largest net exporter of financial services, insurance and pensions in the world, with a trade surplus that is around three times that of any other country.32 In 2012, UK net exports in financial services were $67 billion, compared to $23 billion in the US, $21 billion in Luxembourg, $19 billion in Switzerland and $9 billion in financial integration, for example, have fallen dramatically since the 2007 peak, although they are now growing again slowly.37 The EU’s approach to financial services regulation has changed, as has that of the USA and other financial service markets, including the UK, reflecting different international priorities since the crisis: namely the need to ensure that such a crisis does not occur again. The EU debate about financial services regulation after the crisis has been complicated by the fact that, while the majority of EU Member States are also in the eurozone, 11 Member States, including the UK, are not. The EU has had to balance the need to stabilise the eurozone through and beyond its period of crisis alongside the global agenda to reform and modernise financial regulation which affects all EU Member States. The UK has found this period of intense EU regulatory activity difficult, as UK politicians, regulators and businesses have wrestled with the often highly complex but economically significant issues involved. For example, the UK has felt that the EU has arguably under-implemented some new international standards, such as the definition of “regulatory capital”, and gone beyond those standards in others, such as the regulation of banker’s bonuses.38 The UK Government’s objective of seeking proportionate regulation has led it to challenge some of the measures that have emerged since the crisis. It is now challenging the 26  European Council Conclusions October 2013, para. 19: 27  Economia, Right on the money, July 2013: 28  HM Treasury 2013, Single Market: Financial Services and the Free Movement of Capital, p. 7. proof4.pdf 29  House of Commons Library Briefing Paper, Financial services: contribution to the UK economy, August 2012, p. 1. 30  Bank of England: Measuring financial sector output and its contribution to UK GDP, 2011, p. 245. 31  HM Treasury 2013, op cit. p. 6. proof4.pdf 32  HM Treasury 2013, op cit. p. 8. 22 33  HM Treasury 2013, op cit. p. 8. 34 CfE_proof4.pdf p.14 35  HM Treasury 2013, op cit. p. 8. 36  Figures from the Department for Business, Innovation and Skills: Government’s Review of the Balance of Competences between the United Kingdom and the European Union: Call for Evidence: Single Market, Free Movement of Services Review, October 2013, p. 7. 37  European Commission: A Single Market for growth and jobs: an analysis of progress made and remaining obstacles in the Member States, November 2013, p. 2. 38  HM Treasury 2013, op cit. p. 22. 23
  13. 13. bankers’ bonuses regulation and the Financial Transactions Tax in the European Court of Justice (although the latter is unlikely to proceed in its original form regardless).39 The UK did however achieve some of its objectives in 2013. EU Finance Ministers agreed in June on the Bank Recovery and Resolution Mechanism, establishing a framework for the recovery and resolution of credit institutions and investment firms.40 The Financial Secretary to the Treasury, Greg Clark, claimed that: “The agreement represents a big success for the UK”.41 The directive is aimed at providing national authorities with common powers and instruments to pre-empt bank crises and to resolve any financial institution in an orderly manner in the event of failure, whilst preserving essential bank operations and minimising Chapter 2 Economic Affairs taxpayers’ exposure to losses. There was also an important agreement connected to one of the EU’s supervisory bodies for the financial services sector, the European Banking Authority (EBA). There had been concern that, without special arrangements to protect the interests of non-eurozone countries, the board of the EBA could adopt measures by qualified majority that would disadvantage the ‘outs’. This would be of increasing importance as the eurozone countries adopt banking union measures, bringing their bank regulatory mechanisms under one central supervisor. A double-majority system of voting on the EBA board will ensure that the interests of non-eurozone countries cannot be easily overridden and in October 2013 the Finance Ministers agreed that this arrangement would remain until such time as there were only four Member States not participating in the eurozone and would then be reviewed.42 Competition & Consumer Protection In 2012 the Commission launched a package of measures with the intention of modernising the State Aid rules. Maintaining an effective EU regime to regulate Overview EU policy in economic affairs is of great importance to the UK, not least because of its regulation of financial services and because of its role in leading trade negotiations on behalf of Member States with third countries. The UK has had great success since 1973 in influencing EU economic policy, particularly in these areas of trade and in financial services. There were a number of major policy developments in economic affairs in the EU in 2013 where the UK Government had set out explicit goals. These included reducing the EU’s budget over the next financial period from 2014, starting talks with the United States on an EU-US trade agreement and blocking the passage of the financial transactions tax. The EU Budget Background The EU Budget finances six main areas of activity. Its size is determined jointly by the Commission, who first proposes the budget, the Council of Ministers and the Parliament. and, if necessary, prohibit State Aid is a long-standing UK objective. In July A Multiannual Financial Framework (MFF), decided by consensus within the European 2013 the Council of Ministers adopted, with UK support, two regulations as Council, sets the size of the budget for a given seven year period. Working within this part of the modernisation process; these made provisions for a greater number framework, annual budgets are then agreed, with these subject to qualified majority of exempt areas (“block exemptions”), including innovation, sport and natural voting (QMV). disasters, where State Aid can be given, provided certain conditions are met. The second regulation is intended to speed up the scrutiny process.43 39  HM Treasury 2013, op cit. See box on p.23 for list of current challenges. proof4.pdf 40  Council of the European Union, Council agrees position on bank resolution, June 2013. 41  The Guardian, ‘EU agrees banks’ bail-in deal’, June 2013. 42  Declaration at the ECOFIN Meeting 15.10.13: 43 24 The EU has no power to deficit finance its operations (unlike the Member States) so each year it must ensure that income and expenditure balance. Given the number of capital projects the EU funds (through development aid or cohesion funds) this can cause difficulties as payments are irregular. As a result, it expresses its budget in two figures: “commitments”, meaning an undertaking by the EU to pay over several years (e.g. to a development project); and “payments”, meaning the actual amount paid in a particular year. The budget is financed by a combination of revenue derived from customs tariffs and a share of the VAT income of Member States, referred to as “own resources”. 25
  14. 14. The last MFF ran from 2007-13, meaning the budget for 2014-20 was recently up for When reporting this to the House of Commons, Prime Minister David Cameron declared: negotiation. “By working with like-minded allies, we delivered a real terms cut in what Brussels can The six main areas of EU expenditure are: 1. ompetitiveness and cohesion – increasing competitiveness for growth and jobs within c the EU and supporting economic development through the cohesion funds; 2. atural resources – including the Common Agricultural Policy (CAP), the environment, n rural development and fisheries; spend for the first time in history.”45 The previous MFF for 2007-13 saw an agreed budget of €943bn, which represented just under one per cent of the EU’s gross national income (GNI).46 However, the MFF for 2014-20 will see the payments limit cut to €908.4bn, a figure representing 0.95 per cent of the EU’s GNI.47 In addition, there have been key changes in areas desired by the British Government. CAP spending will drop by 13 per cent, while sustainable growth funding – 3. citizenship, freedom, security and justice; which will go towards increasing competitiveness for growth and jobs – will increase 37 per 4. he EU as a global player – the Common Foreign and Security Policy Development t cent. But no decrease was agreed in administrative costs; instead these will be 8 per cent Cooperation Instrument and European Neighbourhood Policy; higher than in the 2007-13 MFF.48 5. administration – financing of the EU institutions; 6. temporary payments to new Member States. With the effect of the financial crisis forcing Member States across the EU to cut public spending in recent years – in the cases of Greece, Portugal, Ireland, Spain and Italy austerity measures imposed have been drastic - there were widespread calls for the Real terms fall in next MFF – achieved: Focus spending on jobs and growth: EU’s budget to be cut.44 Furthermore, there have been many calls for the budget to be reformed, with particular criticism of the amount spent on the CAP. In its first proposal for the 2007-13 MFF, however, the European Commission was 2013 budget On the separate question of the annual budget for 2013 (the last of the previous seven- proposing to increase the budget. As a result, tensions were high between the year period), this saw total expenditure initially authorised at €150. 9bn (1.7 per cent higher Commission and several Member States. than in 2012), and payment appropriations agreed at €132.8bn (2.15 per cent lower than UK Objectives in 2012). The level of own resources needed to finance the budget dropped below one per — The UK’s main goals for the EU budget were to: cent of GNI to 0.98 per cent.49 — limit spending and secure a real terms cut in the size of the 2014-20 MFF; While this drop may have reflected Britain’s interests, the only area of expenditure to — focus spending on jobs and growth; increase was administration, which saw a 1.8 per cent rise from 2012. Spending on — decrease spending on the CAP and on EU administration. 2014-20 MFF Following the failure to agree on the Multiannual Financial Framework for 2014-20 at a sustainable growth, meanwhile, dropped by just under 2 per cent.50 Frustratingly for Britain, several amended budgets were agreed which increased the size of the 2013 budget. For example, in May, the UK was outvoted in the Council as an extra European Council meeting in November 2012, discussions were finally concluded at a special meeting in February 2013. The outcome of this saw a 3 per cent cut in the EU’s budget – the first ever time a multi-year budget had seen spending go down compared to the previous period. 44  See for instance, Government of the Netherlands, ‘Coalition Agreement: The Netherlands and the European Union’, 26 45  Prime Minister David Cameron statement on the EU budget (11 February 2013), speeches/prime-minister-david-cameron-statement-on-the-eu-budget 46  Council of the European Union Conclusions (19 December 2005), p.33, cms_Data/docs/pressData/en/misc/87677.pdf 47  Council of the European Union Conclusions (8 February 2013), p.47, cms_data/docs/pressdata/en/ec/135344.pdf 48 49, p.1. 50  Ibid, p.2. 27
  15. 15. €7.3bn was agreed.51 The result of this and subsequent amendments was a rise in the USA. In terms of trade volumes and GDP growth, this agreement could have considerable UK’s contributions to the EU for the year. benefits for the UK. A study for the UK Government suggested that the increase in national Rating Future objectives To work with other Member States more effectively to ensure that in-year amending budgets do not undermine the MFF. income would be in the range of £4-£10 billion a year, depending on how comprehensive the FTA is, or more than £380 for every British household.54 The UK also wanted other trade talks with potential FTA countries to get under way in 2013, notably Japan (the third largest economy in the world) and Thailand (a fast growing emerging economy with which the UK has strong ties). Finally, the UK was keen for the EU to conclude a successful trade agreement with Canada, Securing a real terms cut for the 2014-20 MFF was a substantial achievement and followed the gaining of the support of like-minded, influential Member States, including Germany and the Netherlands. Shifting a greater percentage of the EU budget towards generating jobs and growth is in line with the Government’s own domestic priorities. However, for the British Government, which wants to cut bureaucracy, the EU’s administrative costs are still seen as too high. While they do represent just below 6.5 per cent of total commitment appropriations and reflect the high cost of providing language services for EU institutions, it is difficult to justify an increase in that area given that Member States have been making large cuts to their own administrative budgets. Despite payments from the 2013 annual budget decreasing, being outvoted on increases [see above in budget 2013] implemented through amending budgets was a source of frustration and not in line with the Government’s objectives. External trade and investment Background a Commonwealth country. The UK is Canada’s largest trading partner in the EU. EU Trade Policy in 2013 Although there were concerns about agreeing the negotiating mandate with other Member States, the Prime Minister was able to announce the start of the negotiations for what is now known as the Transatlantic Trade Investment Partnership (TTIP) in June, at the G8 summit in Lough Erne, Northern Ireland. He described it as a “once-in-a-generation opportunity” to increase trade between the two largest economies in the world. In October Prime Minister Harper of Canada and President Barroso of the European Commission signed the outline EU-Canada FTA, worth an estimated £2.3 billion a year to the UK as a result of the 29 per cent increase in exports that could flow from the final agreement. 55 The agreement still has to be finalised but both sides welcomed the provisional agreement as being of considerable benefit to both economies. Increasing exports from the UK has been one of the four main planks of Government economic policy since 2011.52 Expanding trade and investment opportunities through EU free trade agreements, where the EU negotiates with third countries to open up markets, lower tariff barriers and harmonise standards with countries outside the EU is one way of achieving the UK Government’s objectives. In 2012, the first year after the EU concluded a free trade agreement Provisional Opening of EUUS trade talks: agreement of EUCanada FTA: (FTA) with Korea, UK exports of goods and services there rose by 57 per cent.53 UK Objectives The UK’s objectives in this field for 2013 were firstly for the EU to start talks with the United States about a comprehensive trade and investment agreement between the EU and the The UK achieved its key objectives for EU external trade in 2013 with the opening of the TTIP talks, the launch of talks with Japan and with Thailand, and with the signing of the outline EU-Canada FTA in October. But the start of the TTIP talks is the beginning of a long process not guaranteed to result in an agreement. Although EU trade deals are negotiated by the Trade Commissioner and his officials, Member States representatives participate through their 51  Council of the European Union, Economic and Financial Affairs, Press Release (14 May 2013), p.9, http://www. 52  Budget 2011: 53  British Embassy Seoul report 28 54 55 29
  16. 16. membership of the EU’s trade policy committee. It will be important for the UK to continue to Transport use this forum to encourage the TTIP talks to progress at a reasonable pace. There were two major issues in the field of transport in 2013 that particularly concerned the Taxation The UK’s objectives in the field of taxation were: to take forward the Government’s agenda to reduce international tax evasion within the EU (a key objective of the UK’s G8 presidency UK. The first was the tightening of the regulations on aircrew flying times, which reduced the amount of night flying aircrew can do and changed the maximum time aircrew can be on duty from 26 hours to 16. The UK strongly supported these changes.58 in 2013); and to complete the passage of the Savings Taxation Directive, which aims to The second major development was that the European Commission published reduce tax evasion and fraud. its proposals for further changes to the regulatory framework for rail services in The UK was fundamentally opposed to an EU-wide Financial Transaction Tax, an idea which has now been dropped. However, other Member States are proposing to proceed with such a tax under the “enhanced cooperation” provision in the Treaty. The British Government is challenging this proposal in the Court of Justice because it believes that the tax could have damaging implications for those EU Member States that are not part of the eurozone. the EU. This is the fourth set of such deregulatory measures designed to increase competition on the railways in both freight and passenger services. These particular proposals seek to clarify the rules on the separation of responsibility for tracks from train operation and on the inter-operability of rolling stock. The package is still under negotiation but while the UK is broadly supportive, having pioneered railway deregulation in the 1990s, it has some concerns about the detail of these proposals. These include whether they would prohibit experiments in joint operation of track and trains, such as those operated by Network Rail and South West Trains at present. Economic Monetary Union (EMU) The UK has a permanent opt-out from the euro under the Treaties so its major concerns about EMU are the impact that it has on the UK economy and the possibility of the UK being disadvantaged by developments within the eurozone. The UK Government has been concerned that, as one of the 11 non-members of the euro who are inside the EU, we might find ourselves isolated on crucial Single Market issues as a result of caucusing by eurozone countries. The key UK objective for 2013 was to secure voting arrangements on the board of the European Banking Authority (EBA) to prevent that kind of development occurring in an important regulatory body for the City.56 On 19th March 2013 agreement was reached in Council on a voting system for the EBA so that decisions that affect the non-euro states will require a double-majority, that is, both a majority of non-euro states as well as a majority of euro states.57 While the UK successfully protected its interests in the EBA, this was only the first such issue to arise from greater eurozone integration; the UK Government has to remain vigilant in this area; for this reason this policy area is rated amber. 56  The issue was discussed in the House of Lords EU Select Committee report, European Banking Union: Key Issues Challenges, HL Paper 88 2012/13 57 30 58  UKREP briefing note cited by Phil Bennion MEP: 31
  17. 17. Part II Energy, Environment Food
  18. 18. Chapter 3 Energy the Environment Environment EU environmental policy has developed over 30 years as a response to the problem that pollution and other threats to our environment are not limited by national boundaries. The two main developments in 2013 were the adoption of the EU’s seventh Environment Action Programme (EAP) and proposals from the European Commission for fresh legislation to deal with the threat posed by invasive species. Environmental protection and biodiversity The seventh EAP was signed into law in 2013.59 Headline goals for the EAP, which has nine objectives leading up to 2020, include strengthening ecological resilience, fostering resource-efficient, low carbon growth and protecting biodiversity. The British Government welcomed the revised EAP, but was insistent that it be consistent with the Commission’s commitments to smart regulation. The UK was particularly enthusiastic about plans to promote sustainable growth, so long as procedural burdens on industry were alleviated. However, there were concerns over EU surveillance of Member States’ implementation of EU environmental policy, raising the question of whether the subsidiarity principle had been appropriately applied. Further progress was made to combat the economic and ecological problems posed by invasive species, with over 12,000 non-native species now resident in Europe.60 The Government recognises the threat posed by invasive alien species, both to economic prosperity and biodiversity; the economic cost to the UK alone is thought to be around £1.8 billion per year, but could be much higher61. The Government welcomed action at the EU level, acknowledging that the threat is pan-European and should be addressed across borders. In particular, the introduction of an early warning and rapid response mechanism should improve 59 60 61 34 35
  19. 19. communication across Member States, helping to combat the threat. But the Government The failure of the ETS to result in significant emissions reductions represents was keen to stress that measures should remain proportionate to the problem and a real stalling in this policy area. However, agreement to structural reform of questioned whether national sensitivities had been sufficiently taken into account. the ETS is a positive step in line with UK policy objectives. The amber rating recognises the progress that has been made from a UK perspective in saving Clean air and water The Commission has outlined plans for new air quality laws to reduce the current level of pollutants by 20 per cent ahead of 2030. A revision of the the ETS but recognises that much more needs to be done to secure its longterm future. National Emission Ceilings Directive, which imposes more stringent emissions 2030 Targets ceilings for the main pollutants, as well as a new Clean Air Programme for The UK Government’s push for a single, binding target to cut greenhouse gas emissions by Europe, seeks to ensure long term air pollutions targets are met up to 2030.62 2030 would provide more flexibility in how Member States are able to cut emissions than is These proposals have yet to be agreed by the Council and the Parliament; they currently provided for under the 2020 goals, which separate targets into three categories; will be debated later in 2014. renewable energy, energy efficiency and carbon dioxide emissions. The EU’s 2008 strategy, aptly named ’20-20-20’, aimed to secure a 20 per cent emissions cut from 1990 levels, a Climate Change Emissions Trading Scheme (ETS) 20 per cent increase in energy efficiency and ensure that 20 per cent of Europe’s energy The ETS was initially heralded as one of the most progressive carbon taxation systems in the world. However, serious problems with the ETS’ efficacy were exposed this year, with a substantial oversupply of carbon permits serving to cancel out efforts to reduce emissions and render many of the Scheme’s benefits null and void. This was a consequence of the 2008 financial crisis, which led to a significant fall in output, which in turn reduced carbon emissions. In turn, Europe’s market is now oversaturated with carbon permits and thus failing to facilitate a real terms reduction in emissions, as the ETS was intended to. The Commission initially proposed to backload the issuing of new permits over two years ago to alleviate the problems associated with a fixed supply system through rebalancing supply and demand. This would also serve to reduce price volatility. However, plans were stalled over concerns about the precedent set by the Commission interfering in a market mechanism. Tension was high over the uncertainty of the proposals; had the plans failed, the ETS would have collapsed. A last-minute agreement in December 2013 by Member States means that 400 million carbon permits will be withdrawn this year and 900 million over the next three years (a third of all new permits scheduled).63 While welcome, forecasts indicate that this will provide a much-needed boost to carbon prices in the short-term but was sourced by renewables by 2020. Though the energy efficiency target was always nonbinding, under the new 2030 strategy only the emissions target will remain binding65. The efficiency target is not expected to change as the EU is already falling far short of its 2020 ambitions in this area. However, good progress with the other two targets means that the goals should be met well before 2020. Significantly, renewables targets to have a 30 per cent share by 2030 are going to be voluntary. This is a particularly pleasing result for the UK that leaves Britain able to pursue an increase in nuclear power, as the Government is keen to do, without compromising EU targets on renewable energy. The only binding extension is likely to be an emissions target, anticipated to be a reduction of 40 per cent down from 1990 levels by 2030.66 The UK, together with an alliance including Germany, France and Italy, supported a domestic EU greenhouse gas emission reduction target of at least 40 per cent by 2030, up from the 20 per cent reduction set for 2020. The UK supports such targets to drive forward low carbon innovation and foster “green jobs” through harnessing green technology. This represents a highly ambitious and commendable goal that would put the EU in excellent stead ahead of UN global climate change negotiations in Paris next year. in the longer term prices are still too low to incentivise companies to invest in low carbon The full strategy will not be adopted until after this report has gone to print but technologies: prices have fallen to below €5 per tonne, more than a sixth under the €30 early indications suggest that the UK has succeeded in winning over its allies price tag analysts say is necessary for the ETS to effectively curb emissions. to secure a non-binding renewable energy target for 2030. With this in mind, 64 negotiations received a green rating as the UK’s goals look set to be met in 2013. 62 63 64 36 65 66  37
  20. 20. Single Energy Market UK Objectives The EU’s climate change goals are a further factor influencing energy policy (see above). By 2020, the EU has committed itself to reducing its emissions to 20 per cent below 1990 The most significant aspect of the UK’s goals for the EU’s energy policy is the desire to levels, with the UK leading calls for a 40 per cent reduction target by 2030.72 To achieve complete the single energy market. Indeed, this was one of the three areas of single market this, it will be necessary to shift the power generation mix away from being so fossil fuel reform Prime Minister David Cameron included in his speech on European policy in January 2013; based and increase the amount of energy produced from renewable sources; in 2012 38 he described energy, services and the digital economy as “the engines of a modern economy”. per cent of electricity generated in the UK was from coal, with just 11 per cent coming 67 from renewable sources.73 With the cost of renewable, low-carbon technology being high, A joint policy note published by the Foreign and Commonwealth Office, Department for establishing a single market would provide “the scale necessary for accelerating the uptake Business, Innovation and Skills and HM Treasury went into further detail, stating: of new and young low carbon technologies.”74 “The EU needs a single market in energy that is integrated, efficient and flexible in order Rating to make the transition to a low-carbon economy and maintain secure supplies at the lowest cost. Without major changes, the EU will be faced with a less reliable and more costly energy system, and declining EU competitiveness and wealth. Investment in our energy infrastructure is a key economic opportunity for the UK and is a critical part of the Government’s economic strategy. We believe that the same principles apply to Europe.”68 Background Energy is one of the few remaining sectors where the EU market is fragmented, a legacy of Establishing a single energy market is seen to be a big move towards to achieving these myriad goals. The UK was an important influence in steering the EU towards this course for two reasons. Firstly, its pioneering policy of de-nationalising its power sector demonstrated the benefits a market-based approach to energy had for consumers and for investment in energy infrastructure. Another key UK interest, however, was its switch from being a net energy exporter to a net energy importer in 2004. For the previous quarter century Britain had mostly been a net exporter, yet a decline in North Sea oil reserves has seen this trend reverse.75 the former nationalised industries based on a one-country supply chain. The broken market In February 2011, at the European Council, the Heads of State moved towards achieving is also emphasised by the lack of energy interconnectors within the EU, meaning power this goal. There, they agreed that the EU needed a “fully functioning, interconnected is infrequently shared between Member States. For instance, there are just four inter- and integrated internal energy market with swift and full implementation of legislation by connectors between Britain and EU members (these connect Britain with France, Ireland, Member States with the energy internal market completed by 2014.”76 Heads of State also Netherlands and Northern Ireland).69 agreed on the importance of modernising and expanding energy infrastructure, including Bolstering Europe’s energy security is critical. Currently the EU, which is a net importer of improving the cross-border interconnectors between energy networks.77 energy with a dependence on imports from Russia and the politically volatile Middle East, In November 2012, the European Commission sought to give further impetus to this goal, is geopolitically vulnerable.70 This was demonstrated in January 2009 when a dispute issuing a report which highlighted the benefits an internal energy market would have. Here, led to Russia cutting off gas supplies to Ukraine, which in turn stopped supplies to 16 the Commission argued “achieving the full integration of Europe’s energy networks and EU Member States.71 Over-dependence on a limited source of supply therefore not only systems and opening up energy markets further are essential in making the transition to a dampens competition, but also has political consequences, and can be seen to have had low-carbon economy and maintaining secure supplies at the lowest possible cost.”78 an influence on the EU’s timid response to Russian aggression in Georgia in 2008 out of fears Russia could cut off its gas supply. By the May 2013 European Council, although commitments were again made to implement an internal energy market, it was evident that progress towards this goal had slowed down. 67  David Cameron, ‘EU speech at Bloomberg’, 23 January 2013. 68  Department for Business, Innovation Skills, Foreign Commonwealth Office and HM Treasury, ‘Making the single market more effective’ (31 October 2012): 69 70  Eurostat, ‘Main origin of primary energy imports, EU-27, 2002-2010’: explained/index.php?title=File:Main_origin_of_primary_energy_imports,_EU-27,_2002-2010_%28%25_of_extra_EU27_imports%29.pngfiletimestamp=20121012131852 71  Oxford Institute for Energy Studies, ‘The Russo-Ukrainian gas dispute of January 2009: a comprehensive assessment’ (February 2009), p.19.The 1973 oil shock and its aftermath is a less contemporary, albeit similarly pertinent example of the negative impact that an over-reliance on energy supplies from a limited source of supply can have. 38 72  73  74  75  76  77  78  Department of Energy and Climate Change, ‘A 2030 framework for climate and energy policies’, July 2013, pp.2-4 Department of Energy and Climate Change, ‘Energy Consumption in the UK’, 2013, p.3. Monti, M. ‘A new strategy for the single market’, May 2010, p.48. House of Commons Library, ‘Energy imports and exports’, 30 August 2013, pp.1-5. European Council, ‘Conclusions’, 4 February 2011, pp.1-2. Ibid. pp.2-4. European Commission, ‘Making the internal energy market work’, (November 2012, p.2. 39
  21. 21. Most notably, the commitment to complete the energy market by 2014 was replaced by a commitment to report on implementation in early 2014.79 Failure to get this right could seriously damage Europe’s ability to maintain its competitive edge over the next 30 years. Although the UK’s influence in pushing for the completion of the internal energy market can be seen to be bearing fruit and despite 2014 remaining the target date for completion of the internal energy market, progress towards its completion has seemingly slowed. But the UK is not absolved of responsibility for this situation. In January 2013, the European Commission threatened Britain with daily fines for failing to transpose EU electricity and gas directives that formed a part of the Third Energy Package, by March 2011, and which would have helped towards completing the internal energy market.80 Nonetheless, Britain has without doubt been a leader in this policy area, and was one of the first countries within the EU to have fully liberalised its energy market.81 Chapter 4 Agriculture Fisheries Animal Health Welfare Article 13 of the Lisbon Treaty put animal welfare into the EU Treaties for the first time. This reflected long-standing British concerns that animal welfare should be properly recognised within the EU and taken into account in its policies. Animal welfare is of concern to large numbers of people in Britain who feel strongly on the issue. But there is tension between calls for high levels of animal welfare and the need to avoid placing an expensive burden on British food producers, particularly because of the danger that their competitors overseas will not be required by their governments to adopt as high animal welfare standards. The UK has therefore seen having animal welfare standards set out at EU level as an advantage to the UK because it creates an enforceable set of obligations applying to all EU food producers that does not give other countries’ producers a competitive advantage. The UK has already succeeded in getting the EU to adopt the UK standards for sow stalls and tethers which were previously higher than those in other Member States.82 The major development in 2013 was the publication by the European Commission of its proposed new Animal Health Law, designed to replace the current web of 37 different EU laws that provide legal protections for animals.83 The new law is largely a consolidation measure rather than a major reform. The key question is whether a new regulation will meet UK objectives of proportional regulation and not impose excessive costs on producers.84 Despite this, the overall rating for this area of policy reflects Britain’s success in persuading our EU partners to agree to high standards of animal health and welfare as part of EU policy. 79  European Council, ‘Conclusions’, 22 May 2013, p.2. 80  The Independent, ‘UK may be fined over failure to honour single market agreement’, 24 January 2013 81  HM Government, ‘Looking forward – what more is there to achieve through strengthening the Single Market?’ in Twenty Years On: The UK and the Future of the Single Market, Centre for Economic Policy Research, 2012, p.37. 40 82  Senior European Experts group evidence to Balance of Competences review: 83  Referred to in Commission communication on the REFIT regulatory reduction proposals: 84 41
  22. 22. Food Safety challenges posed by food security, sustainability and climate change. Germany, EU food safety policy is intended to ensure the safety of food across the Single Market. It Austria and France remain firmly opposed to lifting the ban, though the covers a wide field of activity, from animal and plant diseases to the contamination of food reasoning appears to be largely emotive rather than scientific.89 Before Britain and genetically modified (GM) food. The UK objective is to ensure that EU regulation is can convince other big Member States to support innovation in GM technology proportional, effective and scientifically based. there is little chance to develop Britain’s interests in this area. This is an area The major event of 2013 was the horse meat scare, in which traces of horse DNA were found by the Irish Food Safety Authority in beef burgers sold in the UK and Ireland.85 Initially this was where the UK needs to build alliances with EU partners if it is to achieve its desired goal. thought to be an issue for the UK and the Republic of Ireland alone but inquiries quickly found Common Agricultural Policy a trail across Europe of meat being sold and then re-sold before being used by producers. In The reform of the Common Agricultural Policy (CAP) to reduce its market-distorting effects, all, traces of horsemeat were found in products in 13 European countries (but around 99 per to cut the costs of farming subsidies and to increase farming efficiency in the EU has long cent of products tested subsequently in the UK were found to have no horsemeat DNA).86 been a British goal. Successive waves of reform since the MacSharry reforms of the 1980s This scandal was primarily not about food safety but about labelling as horse meat is not have partially achieved that goal; the CAP’s share of the EU budget has fallen from around harmful to humans. The offence under EU legislation was one of fraud because consumers 90 per cent in the mid-1980s to around 40 per cent today.90 had been led to believe that they were consuming another meat product. Following agreement on the EU’s budget for the period 2014-20, a new CAP package was New EU food labelling regulations come into force in 2014. These will require, for example, needed. Political agreement was reached in the Council of Ministers in June 2013 on the that the country of origin of fresh meat be shown on product labels. The relevance of this main elements of the legislation. to the horsemeat scandal is unclear as the horsemeat identified in 2013 was undeclared; the UK Government believes that any new labelling requirements going beyond those in the new regulations must be compliant with World Trade Organisation rules and proportionate in terms of their regulatory impact.87 It is as yet unclear what the long-term outcome will be of the 2013 horsemeat scandal. The UK Government will continue to need to work with other Member States and the Commission to ensure that the EU’s response is proportionate and effective. Against the backdrop of public support for an increasingly transparent and easily understandable supply chain, free from harmful or unknown products, previous momentum The UK’s ambitions for this round of negotiations were set out very clearly by the Environment Secretary Owen Patterson MP: “My key aims for the negotiations remain to reduce CAP expenditure and increase wherever possible its value for money by: — ncreasing the resilience, market orientation and international competitiveness of EU I agriculture; — Improving the CAP’s capacity to deliver environmental outcomes; — Simplifying the CAP for farmers and authorities”.91 to revisit the EU’s GM policy has weakened. The potential benefits of taking advantage of Ministers acknowledged that the outcome of the political agreement reached in June and the new innovation in biotechnology to agricultural production are profound. Making use of GM subsequent negotiations between the Parliament and the Council did not match their hopes: technology has the support of the British government, as well as 61 per cent of UK farmers.88 The EU’s ban on GM technology takes an outdated view of the food chain that fails to embrace crucial developments in biotechnology and to come to terms with the 85 86  See press release issued by testing company SGS in Geneva: and p.51 of Balance of Competences report [below]. 87  Discussed briefly in the Balance of Competences report on food safety, para. 3.33: 88 42 “Overall, the CAP deal was an acceptable outcome for the UK, even though it is not the genuine reform we had hoped for. We have fought hard to secure a CAP package that is an improvement on the original proposals. The UK has also worked closely with its allies to stop a whole raft of regressive proposals from being adopted that would harm UK farmers”.92 89 90 91  Letter from the Secretary of State to the House of Lords EU Scrutiny Committee, 07.03.13 reprinted in: 92  Ibid. Letter dated 09.07.13. 43
  23. 23. The more radical proposals for linking farm payments to better environmental policies In June 2013 the Council of Ministers agreed on a new draft regulation for the CFP which were watered down after objections from the Parliament and from some Member includes substantial policy changes which the UK Government argues meet their key States that payments will continue to tobacco farmers. But proposals from the objectives.98 Under the proposals, expected to be adopted by the end of 2013, there will Parliament to extend sugar production quotas until 2020 were defeated (they will end be a ban on discarding in ‘Pelagic’ fisheries (that is, mackerel and herring) beginning on 1st in 2017).93 The long-term decline of the CAP budget as a share of EU expenditure will January 2015 with a further ban on discards in other fisheries starting from 1st January 2016. continue (albeit with a slight temporary rise in 2014); the European Parliament estimates a fall of 13 per cent in the part of the CAP budget covering direct payments (known as “Pillar 1”) and of 18 per cent for other rural support (“Pillar 2”). 94 The Common Fisheries Policy Background For the first time in EU law there will be a legally binding commitment to fish sustainably, achieved if possible by 2015 and by 2020 at the latest. This change means that the annual fishing quotas for different stocks will have to be scientifically based rather than the result of a political decision in the Council. The Common Fisheries Policy (CFP) was agreed in the early 1970s just before the UK joined the European Community. The issue of fisheries was discussed during the UK’s accession negotiations but it has long been accepted that the UK under-performed in this area during those talks.95 Subsequently the UK also failed to exercise its influence The EU legislation will set a framework for the reformed CFP with the delegation of many decisions to the Member States. Regional groups of Member States will agree the approach to be taken in their fisheries, with the Commission having a backstop role rather than being the director of policy. effectively as the CFP evolved. The British Government believes that the CFP has failed in its aim of creating an economically and environmentally sustainable fishing industry in the EU. 96 Consequently it has been negotiating with EU partners to reform the CFP since the European Commission published its green paper on the future of the CFP in 2009.97 Do away with discards: Legally binding stock limits: Decentralisation of decisions: UK Objectives The UK’s goals in any reform of the CFP were to: — o away with discards; d After a long period during which the UK had been deeply uncomfortable with several aspects of the CFP, and had been unable to persuade other Member States of the need for change, it has been at the heart of a successful exercise to influence first the Commission — ake the limits on fishing for particular stocks legally binding; m and then other Member States that reforming the CFP was essential. As a result, — e-centralise the decision-making about what is permitted in particular fisheries from the d substantial progress has been made in the current round of reforms. The phasing out of Commission to Member States. The Commission’s green paper and subsequent proposals for legislation recognised the discards leaves room for some difficulties to emerge but overall the UK has been successful in exercising its influence. shift in opinion, not just in the UK, but more widely on the acceptability of some elements of the CFP, particularly the requirement to discard fish surplus to quotas or from the wrong species. The failure to halt the decline in fish stocks in certain EU fisheries also raised questions about the efficacy of the CFP. 93 94  Discussed at: 95  See the official account of our entry negotiations: Britain’s Entry into the European Communities: Report on the negotiations of 1970-72 by Sir Con O’Neill, Whitehall History Publishing, 2000, pp.250 et seq. 96 97  Commission green paper at: 44 98  Richard Benyon MP, Minister for Fisheries, Hansard 17.06.13, col. 637 45
  24. 24. Part III External Relations
  25. 25. Chapter 5 External Relations Overview The leadership and management of external relations policy within the EU has undergone substantial change since the Lisbon Treaty of 2009. External relations policy is now led by the Vice President of the Commission for external affairs, who is also the High Representative of the EU for the Common Foreign Security Policy (usually abbreviated to HR/VP). The current holder of these two positions is Baroness Ashton, the British member of the European Commission. The HR/VP is supported in their role by the Commission in respect of trade, development aid and humanitarian assistance and by the European External Action Service for foreign and security policy matters as these latter questions are the exclusive responsibility of the EU Council of Ministers. This chapter looks at foreign and security policy, and development aid and humanitarian assistance (trade was covered in Chapter 2). The Common Foreign and Security Policy (CFSP) The Foreign Commonwealth Office (FCO) lists Britain’s foreign policy objectives as including: — safeguarding Britain’s national security by countering terrorism and “ weapons proliferation, and working to reduce conflict; — uilding Britain’s prosperity by increasing exports and investment, opening b markets, ensuring access to resources, and promoting sustainable global growth; — upporting British nationals around the world through modern and efficient s consular services”.99 99 48 49
  26. 26. More specifically, the FCO highlighted the following priorities for 2012/13: — promoting the British economy and lobbying for British business overseas and inward “ investment into the UK; — mproving the global economic environment and advancing UK interests through trade i agreements, an effective G20 and international development; — laying a central role in international efforts to prevent the proliferation of weapons of p mass destruction in Iran and elsewhere.” 100 In addition to the EU providing humanitarian support (see below), Britain and France believed that the EU arms embargo against all sides in Syria needed to be lifted as it was preventing the supply of non-lethal military equipment to the rebels. This was achieved at a meeting of EU foreign ministers on the 28th May. Following reports of chemical weapons attacks on civilians by Assad’s forces the UK Government’s proposal that direct military action in Syria by the UK and others should be a policy option was rejected by the House of Commons on 29th August.101 The absence of agreement on military action in the Commons was mirrored in the EU but there was The first two of these priorities are largely pursued through other aspects of EU policy, universal condemnation of the use of chemical weapons. The EU High Representative notably trade and economic policy co-operation. Preventing the proliferation of weapons of called for the allegations of the use of chemical weapons to be, “immediately and mass destruction (WMD) is however very much part of the EU’s current foreign policy work. thoroughly investigated,” by the UN.102 The Government’s priorities are focused on other aspects of the EU’s foreign and security policy work too: notably, combatting terrorism and the threat it poses to British citizens at home and abroad; preventing conflict in fragile states (such as Somalia and South Sudan); and promoting stability in Afghanistan (including a better relationship with its neighbour Pakistan). Working for peace in the Middle East has been a long-term EU, as well as UK, objective but the aftermath of the Arab awakening has meant a new emphasis on not just bringing a peaceful end to the Israel-Palestine dispute but also to bringing peace, stability, and the rule of law to the wider region and to North Africa. The situation was changed by the brokering by the USA and Russia of an agreement for Syria to admit it possessed chemical weapons, to allow them to be destroyed under international supervision, and for Syria to accede to the Chemical Weapons Convention. This agreement was a major step forward for the international community’s efforts, including those of the EU, to reduce the proliferation of WMD. Iran The international community has been seeking for more than a decade to reach The EU’s actions in 2013 played an important role in several of these policy areas, agreement with Iran on its nuclear programmes, believing that Iran has been trying to contributing to UK policy objectives being wholly or partly met. acquire a nuclear weapons capability (something it denies).103UN sanctions prevent the export to Iran of various goods (such as material for its nuclear research and weapons). Syria In addition, the EU has sanctions against Iran, which have, since the beginning of 2012, The Syrian civil war divided the EU as some Member States felt that the scale of slaughter included a ban on the import of Iranian oil by EU Member States. The EU has been co- perpetrated by the Assad regime was such that it could not be ignored (they were led ordinating the work of the international contact group (made up of three EU members, by Britain and France) but others were more wary of Western involvement. There was the UK, France and Germany together with China, Russia and the USA) to negotiate a concern that, after the Iraq invasion of 2003, any intervention by Western countries could solution to the nuclear issue. Lady Ashton has been leading on behalf of the contact be misunderstood in the region and the wider Muslim world and that it would in any case group in several bilateral meetings with the Iranians. not be possible to support the anti-Assad forces without the risk of weapons falling into the hands of Islamic fundamentalists. The governments of Britain and France subsequently The election of President Hassan Rouhani in August 2013, in Iranian political terms a stopped the supply of arms by fear of this. moderate, raised hopes that the stalemate between Iran and the international community Germany was particularly reluctant to support military action, believing that such sanctions against Iran, which have led to a disastrous devaluation of its currency, triggering intervention required an international mandate. The British and French view was more in return sharp price increases in recent years.104 could be broken. The new President was keen to bring to an end at least some of the nuanced; they preferred a UN mandate but believed that in certain, limited, circumstances unilateral action may be justified, particularly where lives are being lost. 100 50 101  102  103  104 Details described in Arms Control Association briefing: 51
  27. 27. The pressure from sanctions, and the desire of much of the rest of the international Common Security Defence Policy (CSDP) community to avoid the unpredictable consequences of a possible airstrike by Israel on Defence policy questions in the EU are discussed through the medium of the Iranian nuclear facilities, encouraged all sides towards an agreement in Geneva in November. Common Security and Defence Policy. Its military arrangements, including force Although it is an interim agreement for six months only (with a possible extension for another generation, parallel NATO’s, so there is no more question of a “European army” than six months), this jointly agreed plan marks real progress towards a diplomatic solution.105 there is of a “NATO army”. Its operation, which requires unanimous agreement, suits the UK as it is able to act as an effective support for collective EU foreign policy while The Geneva agreement was a personal triumph for Baroness Ashton and a reward for not undermining NATO as the main basis of the UK’s collective defence. years of persistent negotiation by the EU and the three Member States most involved, including the UK. It meets a key UK foreign policy objective of tackling nuclear proliferation The EU’s Security Strategy was adopted a decade ago and the European Council reviewed and it demonstrates the value of the UK working with EU allies in a joint approach which it at their meeting in December 2013.107 The British Government’s objective was that enhances British security as well as that of the region. defence cooperation at the EU level should continue to be on a voluntary and case-by-case Mali Following the outbreak of violence in Mali, where an Islamist guerrilla force took over part of basis.108 The Council agreed to increase the “effectiveness, visibility and impact of CSDP”, the review acknowledged the role of NATO and opted to foster existing relationships.109 the north of the country in late 2012 and threatened to seize control of the whole of it, the Development Co-operation and Humanitarian Aid EU has played an important part in helping to stabilise the country with the backing of the The EU has taken important steps to provide for the refugees from the conflict in Syria. The UN. A French military force intervened at the request of the Malian Government, with the Humanitarian Aid and Civil Protection department of the European Commission (ECHO) UK Government providing logistic support. estimates that the number of people affected by the crisis who are in need of humanitarian The EU, which already had a programme of humanitarian and development aid for Mali, provided emergency funding to deal with the consequences of the fighting; the EU has also earmarked a further €1.25bn in aid to Mali, making it Mali’s biggest donor.106 assistance was 9.3 million as of the 7th November 2013.110 The UK has provided £500 million and leads the EU countries in the amount of aid it is sending.111 ECHO is in regular and frequent contact with the main humanitarian players (UN agencies, ICRC, NGO’s) in both the field and in Brussels and the Commission is providing Member States with information In addition, the EU played a key role in fostering political dialogue between all parties, and advice about the humanitarian situation on the ground. The UK is taking the lead in the supporting the political process by the developing a “roadmap” to recovery that was agreed aid response and will hopefully urge other countries to increase their own contributions. at an international conference hosted by the EU in May. Most recently, election observers Neighbourhood Policy Enlargement Neighbourhood Policy expressed their satisfaction both with the Presidential election and with the second round of voting in Mali’s parliamentary elections on 15th December. On the security side, the EU sent troops to assist with the UN-African Union mandated mission. The UK has supported this process with the deployment in March of British military trainers alongside personnel from other EU countries to help restructure the national army (EUTM Mali). Four years since its launch in May 2009, the Eastern Partnership Programme, intended to bring countries on the EU’s eastern borders in to a closer relationship with the EU, has been beset by tensions with Russia. The EU had hoped to sign an Association Agreement with Ukraine and to initial agreements with Moldova, Georgia and Armenia at a Summit in Vilnius at the end of November 2013. However changes of heart by the Ukrainian and Armenian Governments under heavy pressure from Russia (in the case of Ukraine possible limitations The EU’s response provided both emergency assistance and support to develop a on gas supply) frustrated this plan. The agreements with Moldova and Georgia were sustainable strategy in response to Mali’s crisis. Providing a combination of development aid, however initialled as planned and are due to be signed and enter into force in 2014. military training and policy forums, the EU was able to showcase its ability to act swiftly in the face of crisis and provide unrivalled funds and expertise to provide on the ground support. 105  Details ibid. 106 52 107  108  109  110  111 53