Finance

9.1.  We identified certain financial provisions of the Treaty of Lisbon which warranted investigation, and took evidence from Angela Eagle MP, Exchequer Secretary to the Treasury, on these. The principal items are the multi-annual Financial Framework[233] and annual budget, contributions to the Common Foreign and Security Policy Start-Up Fund, the Protocol on the Eurogroup, and the sharing of the financial implications of migration flows.

THE EU BUDGET

9.2.  The Minister said that the Lisbon Treaty would not "introduce changes to the means by which the European Union is funded or the size of the UK's contributions" (Q A3). She confirmed that changes to the Own Resources Decision would require ratification by a vote in both Houses of Parliament[234].

9.3.  The size of the Budget is not changed by the Treaty. But the concept of compulsory expenditure[235] has been removed in Article 314 TFEU. As a consequence, the European Parliament has a stronger role in the annual Budget process as it will no longer be excluded from examination of budget areas that hitherto formed part of the compulsory expenditure. For discussion of the significance of this, see Chapter 10. The Minister welcomed the fact that all of the institutions would be able to scrutinise all parts of the Budget (Q A21).

9.4.  The Minister informed us that the UK Government had also "argued quite strongly" for the inclusion of Article 312 TFEU, which provides the Treaty basis for the multi-annual Financial Framework (Q A19). The Government were content that the formalisation of the Framework would not preclude adjustments to budget ceilings if such a change was necessary due to unexpected budget items.

OTHER EXPENDITURE

9.5.  We have examined the provisions within the Lisbon Treaty for expenditure outside the normal budget process. Article 41 TEU introduces a "Start-Up Fund" for Member State contributions to the Common Foreign and Security Policy[236]. We noted concerns that the amounts paid to the Fund will be decided by QMV (as opposed to unanimity as at present) although the establishment of the Fund itself will be subject to unanimity. The Minister stated that the Government did not expect a "huge financial drain" from this Article and that any contributions would be discussed, agreed and budgeted for well in advance of the use of the Fund (Q A7). The Minister also stated that the Start-Up Fund would not be used instead of funding from the Foreign Policy lines in the main EU Budget.

9.6.  We are concerned that the Government do not expect monies paid into the CFSP Start-Up Fund to be audited as a matter of course (Q A8). We would support the Government if it were to argue for prior agreement on financial management and audit procedures for the Start-Up Fund (QQ A12-14).

9.7.  The amendments made to Article 78(3) TFEU remove the six-month limit on measures introduced to benefit a Member State suffering from an emergency situation due to a sudden inflow of nationals of third countries. The Minister explained that as the Article referred to "provisional" measures, these would be legally required to be time-limited (QQ A15-17). The Minister confirmed that the UK had an opt-out from Article 80 TFEU, which requires Member States to share financial implications of actions taken under the Chapter on Border Checks, Asylum and Immigration[237] (Q A18).

9.8.  Article 213 TFEU gives the Council power to grant urgent financial assistance to a third country without consulting the European Parliament. This is existing practice which has taken place until now under Article 308 TEU.

TRADE POLICY

9.9.  Trade Policy is expanded in the new Article 207 TFEU and, in a reflection of current practice, international negotiations on trade in services, intellectual property and foreign direct investment are included in the Community competence. The Treaty, however, makes clear that unanimity will still apply when the Council considers the negotiation and conclusion of agreements on these matters. There is also a new requirement upon the Commission to report to the European Parliament on the progress of negotiations.

THE EUROGROUP

9.10.  The Protocol on the Eurogroup grants recognition to the meetings of Finance Ministers of Eurozone Member States usually held informally before meetings of ECOFIN. The Minister noted that the Protocol described the Eurogroup as an "informal grouping" and that it narrowed the Group's scope for "mission creep"; she did not see the grouping as a threat to ECOFIN now or in the future (QQ A22-25, A33-34).

OTHER MEASURES

9.11.  We also note changes to the Articles relating to the Broad Economic Policy Guidelines and the Stability and Growth Pact and the formal inclusion, for the first time, of the Union's institutions, offices, bodies and agencies in anti-fraud provisions. We do not expect the changes to have any significant impact on the operation of these policies. Other minor changes to the budget procedure largely reflect current practice and consequently we do not expect them to have significant impact[238].

CONCLUSION

9.12.  The formalisation of the Eurogroup has historical significance but no impact on the operation of ECOFIN. We are content that the Lisbon Treaty has no significant impact in the area of financial affairs or trade policy[239].

Internal Market and Competition

BACKGROUND

9.13.  Unlike the current TEC, the TFEU would not include a commitment to undistorted competition in its principles or objectives. During the negotiations it was decided that the words "free and undistorted competition", which had been part of the Constitutional Treaty, should be removed from the draft text of the Treaty. It was agreed to include a reference to "ensuring that competition is not distorted" in a Protocol on the internal market and competition.

9.14.  The rules on competition contained in previous treaties would be unchanged by the Lisbon Treaty. Articles 101-103 of the TFEU are the same as Articles 81-83 of the TEC. They give the EU power to legislate to combat practices "which have as their object or effect the prevention, restriction or distortion of competition".

DISTORTED COMPETITION?

9.15.  Some of our witnesses expressed concern about the implications of the commitment to free competition being moved to a Protocol. Lord Leach of Fairford described the move to the Protocol as a "symbolic downgrading" which he feared may open "new avenues for legislation" (Q S47). Malcolm Harbour MEP raised a concern that this potential downgrading might be reflected in future European Court judgments (Q B6).

9.16.  Other witnesses stated that moving the commitment to undistorted competition to the Protocol was of no significance. The Commission argued that the recasting of the legal format "does not change anything", and that the Commission's competition powers would not be affected (Q B51). Lord Brittan of Spennithorne made a similar point (Q S381). The Government supported that sentiment. They stated that the Protocol, which has the same legal status as the Treaties, would not result in a change to UK or EU competition policy (p B22).

9.17.  Sir Stephen Wall, in response to the question of why the commitment to undistorted competition had been moved, said, "Whether there was a more nefarious intent behind it, I do not know. But if there was, then I think it has been negated by the Protocol" (Q S232).

CONCLUSIONS

9.18.  We would be concerned if any possible symbolic downgrading were translated into efforts to depart from the principles of free competition that have formed the cornerstone of the internal market. However, Article 51 of the TEU gives equal weight to the Treaty Articles and Protocols and Articles 81-83 of the TEC will remain the same as Articles 101-103 of the TFEU. Therefore, the change does not appear to be significant.

Intellectual Property

BACKGROUND

9.19.  The Treaty of Lisbon contains some specific provisions on intellectual property (IP). Most significantly it adds a new Article 118 to the TFEU which provides for the creation of EU IP rights under the ordinary legislative procedure.

9.20.  The history of European IP rights is a long and complex one. Currently there exist a number of European (although not necessarily EU) rights. Community trade marks and Community design rights already exist. There is also a system allowing a "basket" of national patents to be acquired through a single application to the European Patent Office in Munich. This system centralises the process for acquiring patents in several European countries but does not provide a single European patent. This is a crucial difference when a patent is challenged as each national patent can be challenged individually before the relevant national court. It has been argued for some time that a Community patent with a single or coordinated point of redress would be beneficial to the Single Market but this has yet to be achieved. This report does not look in detail at these issues but simply at what impact the Treaty of Lisbon might have on them.

NEW LEGAL BASE

9.21.  Witnesses have argued that although the new Article 118 provides a specific mandate for the creation of IP rights, it is simply restating the existing situation. Legislation on Community trade marks and design rights was created under Article 308 of the TEC. Professor Chalmers stated that "This is another area where there is codification. Since 1997, there has been legislation on intellectual property rights and the court has interpreted those. It did that under a single market jurisdiction" (Q S29). In addition, Article 229A of the current TEC states that the EU will have the power to "confer jurisdiction, to the extent that it shall determine, on the Court of Justice in disputes relating to the application of acts adopted on the basis of this Treaty which create Community industrial property rights"[240].

9.22.  Malcolm Harbour MEP suggested that the inclusion of this new article was more significant than simply a recasting of existing powers. It was a "major step forward" as "over the next 12 months we may actually see a rather more focused political priority given to this crucial piece of legislation" (Q B8). Kevin Mooney of Simmons & Simmons noted that the creation of a Community patent had already been made a priority in the Lisbon Agenda[241] (Q B44) but this had not resulted in a draft regulation for a Community patent being agreed.

QMV AND LANGUAGE ISSUES

9.23.  One aspect of the new Article 118 is that it would move measures to create IP rights into ordinary legislative procedure, whereas Article 308 of the TEC required unanimity. Although at face value this would appear to be a potentially significant alteration of powers, Kevin Mooney argued that in practice it would have no effect in the context of the proposed Community patent. The issue on which previous Community patent negotiations have failed is language arrangements, i.e. which claims of the Community patent need to be translated into which official languages and the legal effect of such translations. Article 118 would keep these arrangements subject to unanimity. Mr Mooney went on to say that even if language arrangements were subject to QMV, in practice unanimity would still be required on these issues (Q B40).

CONCLUSIONS

9.24.  The new Article 118 of the TFEU is a restatement of existing powers. Although the Treaty of Lisbon would not confer addition IP powers on the EU, it marks a statement of political intent and a commitment to achieving the Community patent. The move to QMV, in itself, is not significant.

Energy

BACKGROUND

9.25.  The Treaty of Lisbon gives the EU a clearer and more explicit competence in energy policy. Article 4 of the TFEU notes that energy policy is a shared competence.

9.26.  The addition of a new Title on energy, which includes a new Article 194 TFEU, places energy within the context of the internal market and of protecting the environment. It also moves energy policy into the ordinary legislative procedure. The aims of the EU energy policy are to be to:

• ensure the functioning of the energy market;
• ensure security of energy supply in the Union;
• promote energy efficiency and energy saving and the development of new and renewable forms of energy; and
• promote the interconnection of energy networks.

NEW COMPETENCES?

9.29.  Witnesses argued that the EU had had influence on energy policies for some time through single energy market and environmental legislation (AEP p B18, Professor Chalmers QQ S42-43, BERR p B25). The Commission had brought forward proposals in all these areas, even without a specific legal basis in respect of energy, by using other provisions in the TEC. Similarly, it was argued that the inclusion of energy in the list of shared competences "does not significantly change the balance" between Member States and the EU (BERR p B25).

SOLIDARITY

9.30.  The new Article 122(1) of the TFEU states that "without prejudice to any other procedures provided for in the Treaties, the Council, on a proposal from the Commission, may decide, in a spirit of solidarity between member states, upon the measures appropriate to the economic situation, in particular if severe difficulties arise in the supply of certain products, notably in the area of energy". Apart from the specific reference to energy, this reflects the current Article 100(1) of the TEC. Article 2 of the TEC also already includes the task of promoting solidarity between Member States.

9.31.  The Association of Electricity Producers argued that this new clause "reflects concern … about energy dependency on external suppliers" (p B20). We also received evidence that thanks to the solidarity clause the EU would be better configured to send a strong message when Member States' energy supply was threatened (Business for New Europe p B21). The Government stated, however, that it was not yet clear what difference the solidarity clause would make in practice (p B25).

A POLITICAL GESTURE?

9.32.  BERR argued that rather than being an attempt to increase the powers of the EU in this area, the amended articles represented a recognition of "the growing importance of energy as a political and economic issue in the EU and of the connected policy areas of climate change, sustainability and the environment" (p B25).

CONCLUSIONS

9.33.  The new provisions in the Lisbon Treaty may raise the profile of the issue of energy but they do not constitute a major innovation. However the extension of QMV may be seen as significant.

9.34.  The insertion of Article 194(2) is important as it helps to define the boundaries between EU and Member States' competence by making clear that Member States retain sovereignty over national energy resources and have the right to determine their energy mix and the structure of their energy supply.

Services of General Interest

BACKGROUND

9.35.  The issue of how and by whom Services of General Interest (SGIs) should be provided has been the subject of much discussion. The Services Directive makes a distinction between Services of General Economic Interest (SGEIs) and Non-Economic SGIs. SGEIs are services which fulfil the criteria of being of general interest and subject to public service obligations but which are also offered on the market. The provision of energy is an example of such a service. Non-Economic SGIs are services provided or commissioned by the state which may not be available on the market in the same way as SGEIs, such as education. Under the Services Directive SGEIs are subject to competition rules whereas Non-Economic SGIs are exempt. What the Services Directive does not do is lay out in detail which services should be considered of economic interest and which are non-economic. This ambiguity has caused an ongoing debate about whether a clarifying framework should be set out or whether the precise distinction should evolve on a case by case basis.

9.36.  The Treaty of Lisbon makes reference to SGIs in two principal areas. Article 14 TFEU describes the role of the EU in ensuring that such services are provided and enables the EU to legislate to establish the principles and conditions that should regulate their provision; and the Protocol on Services of General Interest emphasises "the essential role and the wide discretion of national, regional and local authorities" in the provision of SGIs.

SGEIS AND NON-ECONOMIC SGIS

9.37.  The provisions of the TFEU and the Protocol reflect the existing ambiguity between SGEIs and Non-Economic SGIs. Professor Michael Waterson of Warwick University stated that "with Services of Non-Economic General Interest I think the position is quite clear, that is left up to the individual states. It is where we come to Services of General Economic Interest that matters become more complex … Some nations within the Community take the view that particular services should be provided through a market mechanism, others would be rather antipathetic to that" (Q B13, see also Harbour Q B1).

THE TREATY AND THE PROTOCOL

9.38.  We have considered why provisions relating to SGIs have been split across the TFEU and the Protocol. BERR said that "No particular significance should be attached to the references to SGEIs being split between the Treaty itself and the Protocol … Article 14 gives the EU greater powers to put in place EU-level legislation on SGEIs, however it is balanced by the Protocol, which underlines the primary role of Member States in organising SGEIs on their territory" (p B23).

NEW COMPETENCES?

9.39.  One thing that witnesses all agreed on was that, because the TFEU maintains the ambiguity about which services are SGEIs and which are non-economic, there is no "fundamental change of direction emerging from the Treaty" (Harbour Q B1).

CONCLUSIONS

9.40.  The impact of the Treaty of Lisbon on Services of General Interest is not significant.

9.41.  Given that Article 51 of the TEU, as amended by the Treaty of Lisbon, gives Protocols and Annexes equal weight to the Treaty Articles, the split between Article 14 and the Protocol on Services of General Interest is not one of significance.

Tourism

WHAT THE TREATY DOES

9.42.  The Lisbon Treaty introduces a new Article 195 TFEU enabling the Union to complement the action of the Member States in the tourism sector, in particular by promoting the competitiveness of the businesses involved. In the current Treaty, "measures in the sphere of tourism" are foreseen (Article 3(1)(u) TEC), as provided in the Treaty, but there is no further reference.

EVIDENCE

9.43.  The DCMS suggested that the recent Commission Communication, "Agenda for a sustainable and competitive European Tourism"[242] provided some pointers as to what measures the EU might choose to adopt on the basis of the new explicit legal base (pp G23-24). In that Communication, the Commission indicated that its role might include mobilising relevant financial instruments and incorporating tourism considerations into applicable Union policies.

9.44.  The Government explained that the Communication recognised "the importance of the development of a competitive economic activity and the need to balance this with environmental and social aims". Furthermore, the Communication recognised the decentralised nature of tourism in many countries and the importance of taking a bottom-up approach that respected the principle of subsidiarity (pp G23-24).

9.45.  When considering the Communication, we expressed the view that the tourism industry is "an area of commercial enterprise in which individual Member States need to establish, to the degree that suits their own circumstances, the extent to which the activities of the industry are supported by government intervention or are constrained by the social and environmental aims of the Member State" (pp G17-18).

9.46.  In response, the DCMS agreed and emphasised the Commission's recognition of the voluntary nature of stakeholders' engagement with the process (pp G17-18). The DCMS also expressed the view that "there is no need for a [Treaty] competence in the field of tourism" but that, having taken further legal advice, "we are confident that the new competence within the Reform Treaty excludes any harmonisation of national laws".

9.47.  The Minister for Europe further explained that "the EU's competence is limited to supporting, coordinating or supplementing the action of Member States. EU support can complement national action, for example on upgrading skills in the tourism sector and building links between national or regional tourism initiatives" (Q 1, p S79).

CONCLUSIONS

9.48.  The Treaty amendment in the area of tourism represents a small but significant expansion of competence. We see the tourism industry as an area of commercial enterprise in which individual Member States need to establish, to the degree that suits their own circumstances, the extent to which the activities of the industry are supported by government intervention.

9.49.  The Treaty excludes the power to harmonise national laws in this area but we nevertheless urge the European institutions to ensure that the principle of subsidiarity is fully respected when drawing up any policy framework in relation to tourism.

General conclusion

9.50.  The impact of the Treaty of Lisbon on the Single Market will be limited.

234   The Own Resources Decision is the agreement between Member States which sets the size and nature of the contributions to the EU Budget. The change to the Decision, agreed at the European Council in June 2007, was given effect by the European Communities (Finance) Act 2008. Back

235   Expenditure whereby the underlying principle and the amount are legally determined by the treaties, secondary legislation, conventions, international treaties or private contracts. Back

236   The Policy is examined in detail in Chapter 8. The start-up fund will be for preparatory activities for tasks as referred to in Articles 27(1) and 28 TEU, and will vary in size for each action it is used for. Back

237   The UK will be required to contribute "small administration costs" (Q A18). Back

238   The changes are a revision of Article 273 TFEU setting out the procedure if the budget has not been agreed by the start of the financial year, and changes to Article 284 TFEU which now notes the shared role of the Commission and Member States (who previously were not mentioned) in the discharge of the Union budget. Back

239   The impact on employment law is considered in Chapter 8. Back

240   Industrial and intellectual property rights are synonymous (Q B49). Back

241   An EU agenda for economic growth and employment, not to be confused with the Lisbon Treaty. Back

242   COM (2007) 621 19.10.2007. Back