Further to my letter of 26 July,[12] I am writing to update you further on the position regarding negotiations for the proposed amendment to Regulation 515/97. This proposal has not yet cleared scrutiny by your Committee, but is likely to move rapidly towards adoption.

STAGE REACHED IN DECISION-MAKING PROCESS

  Discussions in the Council's Customs Union Group were concluded on 12 December, and the text of a revised proposal is expected to be tabled on the Coreper agenda for 10 January. I am enclosing a copy of the latest version, DS 7121/6/07 Rev 6 for your information. This Regulation is subject to the co-decision procedure with the European Parliament, but I understand that the Parliament is likely to accept amendments made by the Council working group, and agree the text without a second reading. Progress might therefore be rapid in early 2008.

OPPOSITION TO CONTINUED INCLUSION OF FISCAL MATTERS

  You will recall my concerns about the proposed inclusion of fiscal matters in this Regulation, which is subject to qualified majority voting. The current text of the proposed amendment no longer contains any reference to fiscal matters in the definition of "customs legislation". However, a new paragraph 2a is included, which includes a list of information which may be shared between Member States and with the Commission. Sub-paragraph 2a(f) specifies "information whether the VAT identification number and/or excise duties identification number is in use".

  Whereas the VAT and excise identification numbers are in the public domain, the information needed to establish whether the numbers are "in use" draws on non-public fiscal data. Though the current text represents a great improvement on the Commission's original proposal and the reference to fiscal matters is no longer stated explicitly, the Government guards its tax red line carefully and I am not satisfied that our position on this is·fully protected if 2a(f) is included. For this reason, the UK did not support the proposal at the 12 December official level Customs Union Group meeting. Ireland and Lithuania also opposed the text for similar reasons, with Germany opposing for different reasons. The Government intends to vote against the proposal in Council.

  There is no prospect of a blocking minority against the proposal emerging between now and Coreper and Council meetings.

OTHER ASPECTS OF THE PROPOSED AMENDMENT

  Despite the UK's intention to vote against this proposal, it is important for me to place on record the importance which we place on efficient and effective customs co-operation between Member States and with the Commission. Indeed, the updating of data protection provisions and the provision of a legal base allowing modernisation of the IT systems used to support customs co-operation is very welcome. We agree with the Commission that the Regulation needs to be amended, and our objection is on a point of principle.

  Regarding more general concerns raised in the Explanatory Memorandum, positive progress has been made during negotiations and I can report as follows:

  Data Protection:  The Office of the Information Commissioner and the Ministry of Justice have been consulted and can accept the current text, which is line with the provisions existing Data Protection Directives, transposed into UK law. The proposed Article 34 confirms the over-arching data protection provisions for the Regulation. Most of the proposed amendment relates to exchange of information, but the following Recitals and Articles are of particular interest from a Data Protection standpoint: Recitals 7, 12a, 17, 17a, 18 and 22; and Articles 2(1), 18a, 25, 27, 35, 37 and 41d.

  Setting up a European Data Directory:  This is covered in Recitals 14 to 16 and Article 18a, and will allow the Commission to negotiate access to databases of freight movement information around the world, making the information available to all Member States. The initiative will be fully funded from the Commission budget. Officials have received assurances from the Commission that though they will produce value-adding reports which Member States may use, there is no intention to use these outputs to task national customs services. The text at Article 18a now includes the phrase "Without prejudice to the competences of the Member States".

  Officials have also been reassured to learn that national liaison officers will not need to be posted to Brussels. Those with the necessary accreditation will be provided with secure electronic access.

  Participation in the Data Directory will be optional, and Member States will be free to negotiate their own, additional, information arrangements on freight movements from the same or different suppliers. Though HM Revenue and Customs already has some successful arrangements of its own in place, it is possible that additional information from the Data Directory may prove useful. There is also the argument that the Customs Union as a whole should benefit from less well resourced Member States' use of facilities previously unavailable to them.

  Giving prior consent to forward information to a third country:  Recital 17a and Article 19 apply. We are satisfied that changes to the text of Article 19 should ensure appropriate safeguards. There is provision for prior agreement from Member States where appropriate. The text now also includes a phrase to ensure that third countries offer safeguards equivalent to those in the EU, "In all cases, it shall be ensured that the third country concerned offers a degree of protection equivalent to that laid down in Articles 45(1) and (2)".

  Using data on the Customs Information System for analysis purposes:  Article 2(1) is of most relevance here. The Commission has assured Member States that their activities in analysing data held across the various functions of the Customs Information System are without prejudice to the competence of Member States; and they will not attempt to direct Member States' customs resources in response to analytical findings. The Commission is best placed to analyse Community-wide data, and—especially if the anticipated IT upgrades increase Member States' usage levels—their outputs could be useful. Given the Commission's reassurances, we are satisfied that the analytical role is appropriate.

  Creating a customs investigations database ("FIDE"):  Title Va will establish this database with the objective of flagging up matches in customs services' nominal data (e.g. names, car number plates) on current and past investigations. This should highlight links between Member States' enquiries, enabling appropriate information-sharing and wider co-operation. In principle, the idea is a good one. Concerns about being obliged to share sensitive data have been allayed as the text now clarifies that participation in the initiative is voluntary—Article 41b states that "The competent authorities may enter data from investigation file in the FIDE…" We are not completely sure that at the margins, all risks of duplication have been removed. However, we are assured that steps are being taken to avoid Member States needing to enter data to competing systems operated by different parts of the Commission in future.

FINANCIAL IMPLICATIONS

  We do not believe that significant additional costs will accrue to Member States as a direct result of the amendment, and it is hoped that the new generation of IT systems permitted by this legislative change might alleviate problems that HM Revenue and Customs have had implementing upgrades with previous generations of systems.

  I trust that the information in this letter will assist the Committee in completing its scrutiny of the proposed amendment to Regulation 515.

19 December 2007