Full Green Paper

ore
eword
d from
m tthe
e Fou
und
derrs of
o tthe
e Fres
sh Sttartt P
Projjec
ct
Fo
Th
he cu
urre
ent criisiss in
n th
he eur
e rozzon
ne h
has
s underline
ed the
t e lim
mitts of
o E
EU intteg
grattion
n and
a d
sh
hou
uld force
e a reappra
aisa
al o
of the
t e fu
uturre d
dire
ecttion
n of th
he EU
U. The dog
d gma of
o ever clo
ose
er
un
nio
on ha
as take
t en the
eE
EU to the
e brin
b nk and
a d Brita
B ain
n sh
hou
uld no
ow be
e arrtic
cula
atin
ng a
an
alterrna
ative visi
v on for th
he futture
e and
a map
ppin
ng outt a fre
esh
h sttartt in
n itss own
n re
elattion
nsh
hip with
th
he E
EU
U.
Whe
W ethe
er eurozzon
ne cou
c unttrie
es dec
d cide
e to
o fullyy in
ntegra
ate po
olitiically an
nd fisc
f callly, or wh
hether
so
ome eve
e entually de
ecid
de to
t llea
ave
e the eur
e ro, change is on
n th
he car
c rdss. We
We be
elie
eve
e th
hat a
ne
ew re
elation
nsh
hip should pro
p otect and
a d dev
d velo
op Briitainss mem
m mbe
ersship
p of
o th
he Sin
nglle M
Ma
arke
et
bu
ut lea
ad to
t the
t re
eturrn o
of pow
p wers in m
ma
anyy otthe
er area
a as wh
herre pol
p icyy wo
ould be
b be
ette
er set
s
by
yo
our ow
wn Pa
arlia
ament.
Att tim
me
es of
o cris
c sis,, th
he ffutu
ure
e be
elo
ongs to those with a p
plan and
a d th
he Fre
F esh
h Starrt Proj
P jecct
aimss to
o deve
elo
op tthe
e de
eta
ailed poli
p icyy thinkking
g to
o prov
p vide the ba
asiss fo
or a fu
utu
ure
re
ene
ego
otia
ation of
o B
Brittain
ns relatiion
nship witth the
t e EU
U. W
We wo
would
d likke to tha
ank
k all th
hosse wh
ho
ha
ave
e conttrib
bute
ed ide
eass so
s ffar an
nd w
would
d welc
w com
me furrthe
er sug
gge
esttion
ns in the
t e mon
m nthss
ah
hea
ad..
And
drea
a Lea
L ads
som
m MP
MP
hris
sH
Hea
ato
on Ha
H rris
s MP
MP Ge
G org
ge Eu
usttice
e MP
M
Ch
Contents
Introduction
Purpose of the Fresh Start Project
Why now?
What can be done?
We would like to hear your views
Trade
The summary
The introduction
The detail
The options for change
Regional Development Policy

The summary
The introduction
The detail
Common Agricultural Policy

The summary
The introduction
The detail
The case study: the cost of the CAP to the UK
Common Fisheries Policy

The summary
The introduction
The detail
5
7
8
16
17
19
21
23
23
38
41
43
45
46
56
63
65
67
68
72
74
81
83
85
86
95
Budget and institutions

The summary
The introduction
The detail
Social and employment law

The summary
The introduction
The detail
The Working Time Directive
The Temporary Agency Workers Directive
Other EU social and employment laws
In an ideal world
What can the UK do?
Financial services
The summary
The introduction
The detail
Appendix - EU financial regulation in the pipeline
Environment
The summary
The introduction
The detail
The case study - Shale Gas
Policing and Criminal Justice

The summary
The introduction
The detail
Appendix - laws under the UK block opt out
Immigration
The summary
The introduction
The detail
Defence
The summary
The introduction
The detail
The case study - Counter Piracy Operations off the Coast of Somalia
Appendices
Appendix 1 - A quick guide to the EU institutions
Appendix 2 - Different types of EU legislation, ECJ rulings, gold-plating and QMV
Appendix 3 - How EU Treaty Change can be achieved
Appendix 4 - Improving Scrutiny in the House of Commons
Acknowledgements
103
105
107
107
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119
121
123
123
123
130
134
135
135
137
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145
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149
154
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253
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268
271
273
274
275
276
279
Introduction
Purpose
The Fresh Start Project was set up to research and propose a new relationship for the UK
within the EU that would better meet the interests and aspirations of the British people. Our
approach has been to carry out a detailed analysis of each key area of EU policy as it stands
today, and to set out proposals on how Britains interests could be better served.
At this crucial time for the eurozone, it is imperative that we give up our traditional British
inclination to be modest about our own needswe must stand up strongly for British interests.
It is a time of existential crisis in the eurozone, and Britain must not stand in the way of those
countries seeking solutions, including fiscal and banking union. But, it is also a crucial period
for Britains economy, and we must seize the chance to get the best deal we can for our
country and our people.
The EU now has a fundamental influence on the UKs social, economic and political landscape,
and yet, since the UK joined the European Economic Community in 1973, it has never shared
the strategic vision of the organisations founder members. Despite that, and the fact that the
UK already has a number of opt-outs from the process of EU integration, Britain has failed to
assert an alternative vision of its place in Europe. The UK has now reached a point where a
reassessment of its position in Europe is essential. Not all Member States are on the same
route to ever closer union, as set out in the EU treaties.
The Fresh Start Project is not about leaving the EU; it is about a fundamental renegotiation of
the UKs relationship with it. We must resist any temptation among civil service negotiators to
limit our focus to just one or two points in a negotiation. We need a substantial renegotiation
and a shopping list of improvements and reforms to the status quo. What are important to us
are matters of principle, not matters of negotiating expediency.
The Project has looked at the impacts on UK across a wide range of interests. Each chapter of
this Green Paper examines an individual policy area, outlining the costs and benefits of the
current situation and the options for reform that the UK could pursue to promote its interests.
The areas covered are: Trade; Regional Development Policy; Common Agricultural Policy;
Common Fisheries Policy; the EU Budget and Institutions; Social and Employment Law;
Financial Services; the Environment; Policing and Criminal Justice; Immigration; and Defence.
Each chapter highlights the main aspects of the current position, and summarises the potential
options for change. We encourage Conservative MPs, Peers and MEPs to read them, refer to
the detail in the Green Paper, and make up their own mind on the key priorities for reform.
The Fresh Start Project would like to hear from you! Please post your comments on
www.eufreshstart.org or contact the office of Andrea Leadsom MP. During the months of
September to December 2012, the Fresh Start Project will be collating the views of
Conservative MPs, Peers and MEPs and by the end of 2012 will have prepared a White Paper
/ draft manifesto for reform of the UKs relationship with the EU.
Once the plan for reform is complete, then begins a significant renegotiation and this must be
followed by a Referendum. The British people must be given their say on whether to remain in
the EU with a reformed relationship that gives powers back to the UK, or whether to withdraw
from the EU to make our own way in the world.
That then is the Fresh Start Project three stage process:
1. Set out a clear agenda for reform,
2. Negotiate these changes through a fundamental renegotiation,
3. Hold a referendum to give the UK population the choice of whether they approve of the
new relationship.
Why Now?
The continuing eurozone crisis, the scepticism with which the EU is regarded by much of the
British population, along with the UKs fragile economic recovery, have changed the political
dynamics of the EU and given fresh impetus to the debate regarding the UKs relationship with
it.
The EU now has an important impact on the UKs social, economic and political landscape, be
it the regulation of working hours or the financial markets, centralised environmental policies,
the development of common laws in areas such as crime and policing, or spending policies
such as the Common Agricultural Policy and regional development funds that are financed via
the EU budget.
Since the UK joined the European Economic Community in 1973, it has never shared the
strategic vision of the organisations founder members. Despite that, and the fact that the UK
already has a number of opt-outs from the process of EU integration, Britain has failed to
assert an alternative strategy of its own in Europe. However, the UK has reached a point where
it cannot avoid a reassessment of its role in a European club that can no longer keep up the
pretence that all of its member nations are on the same route to ever closer union, as set out
in the EU treaties.
The eurozone crisis raises stark choices for the countries that wish to continue sharing a
common currency, but the implications for the UK are no less significant. Irrespective of what
happens to the eurozone project, the UK must stake out an alternative and sustainable future
relationship with its EU partners. It is no longer possible to paper over Europes differences
with one-size-fits-all legislation or institutions.
Britain has the size and clout to make a strong case for a new relationship with its European
neighbours it is one of the EUs Big Three, it presides over a big market and is a major net
contributor to the EU budget.
Public opinion is in favour of reform and renegotiation

According to the European Commissions own polling, throughout the last decade, a larger
share of the British population has consistently said that the UK has not benefitted from its
membership of the EU than have said it has benefitted. In 2011, a majority of 54% felt this way,
with only 35% saying the opposite.1
European Commission, Public opinion in the European Union, Standard Eurobarometer 75, May 2011, p38;
http://ec.europa.eu/public_opinion/archives/eb/eb75/eb75_anx_full_fr.pdf.
Takin
ng e
eve
ery
ything intto con
nsiide
erattion
n, w
wou
uld
d yo
ou say
y th
hatt
tthe
e UK has
h s on
n bala
b anc
ce b
ben
neffite
ed or
o n
nott fro
om
m be
ein
ng a
m mb
mem
ber of the
e Eur
E opean
nU
Unio
on?
?
Be
enefited
20
000
0
20
001
20
002
2
20
003
3
20
004
4
20
005
5
20
006
6
20
007
7
20
008
8
20
009
9
20
010
0
20
011
N beneffited
Not
d
25%
2
29%
%
36
6%
32%
%
3
30%
%
40%
%
42
2%
3%
43
36
6%
34
4%
36
6%
35
5%
0%
%
10
0%
20%
%
D 't kn
Don
now
w
44%
4
%
38%
%
35
5%
44
4%
47
7%
42
2%
44%
%
4%
44
50
0%
5 %
50%
50
0%
54
4%
%
30
0%
40%
%
50%
60%
%
7
70%
31%
3 %
33%
30
0%
%
24%
23%
1 %
18%
14
4%
13
3%
14
4%
16%
%
14
4%
11%
%
80%
9 %
90%
100
0%
So
ourrce: Euro
oba
arom
metter
In Occtoberr 20
011
1, a Guarrdia
an//ICM
M poll
p fou
und
d th
hat 70% of
o vvote
erss wa
antt a refe
r ere
endum
m on
n Brita
ain's
s
Um
mem
mbers
ship
p, w
with
h 49
9% sa
ayin
ng they
t y wou
w uld vot
v te fo
or with
w hdrraw
wal aga
ainst 40%
4 % who
w o wou
w ld
EU
prrefe
er to
o stay
s y in.2
A Yo
ouG
Govv po
oll,3 alsso from Oct
O tob
ber 2011,, asske
ed vote
v ers wh
heth
herr they wo
ould
d eiithe
er Vo
ote tto
re
ema
ain in the
t e EU
Uo
on the
t curre
ent term
t ms (1
15%
%), Vo
ote
e to lea
ave
e th
he EU
E (2
28%
%); Vo
ote to
re
enegottiate th
he terrms
s off the
eU
UK'ss mem
m mbe
ersh
hip (4
47%
%); W
Wou
uld nott vo
ote (4
4%)); or
o D
Don
n't kkno
ow
(7
7%)).
Fu
urth
herr po
oll resu
r ultss indiccate
e th
hat while opinio
onss arre curr
c ren
ntly split abo
a out a full
f witthdraw
wal fro
om
the E
EU,, a ma
ajorrity wo
ould
d su
upp
portt withd
dra
awa
al if ren
neg
gotiiatio
on wa
as not
n po
ossiible
e. A Com
mRe
es/IITV
V
po
oll ffound tha
at whi
w le 37%
3 % agre
a ee and
d3
37%
% diisag
gre
ee with
w h th
he ide
i a of
o E
EU with
w hdrraw
wal (an
nd 2
26%
%
arre n
not sure), 41
1%
% wo
ould vote
v e to
o re
enegottiatte th
he UK
Ks rela
atio
onsship
pw
with the
e EU, rattherr th
han fulll
withd
drawa
al. One
O e in
n three
e, 33%
3 %, wou
w uld not vo
ote forr a ren
neg
gotiiatio
on.
Ho
oweve
er, mo
ore tha
an half off th
he pub
p blic (54
4%
%) agre
ee tha
t t th
heyy wo
ould
d supp
porrt w
withdra
awing fro
om
the E
EU if rene
r ego
otia
ating th
he rela
atio
ons
ship
p with
w the
e orga
anis
satiion wa
as not
n t po
ossible
e. One
O e in
n fivve
(2
20%
%) disa
d agrree witth this
t s se
entime
ent and one
o e in fou
ur (26
( %) rem
ma
ain uns
u sure.4
Th
his illu
ustrrate
es that
t t re
eforrm of tthe
e UK
Ks relationsship with
w h Eu
uro
ope is vita
al iff it is tto rem
main
na
mem
mbe
er of
o th
he EU
E an
nd rre-b
brid
dge
e the d
dem
moccrattic def
d ficitt tha
at has
h s de
eve
elop
ped
d ovverr the
e la
ast twe
entty
to
o thirtyy ye
ears
s.
Gua
G ardia
an, EU
refe
eren
ndu
um: poll sho
owss 49
9% w
wou
uld vvote for UK
K witthdrrawa
al, 24
2 Octo
O obe
er 20
011;
htttp:///www.guarrdian
n.co
o.uk
k/wo
orld//201
11/o
oct/2
24/e
eu-re
eferrend
dum
m-po
oll-uk-w
withd
draw
wal.
3
You
Y Govv, Pollin
P ng in
n Eu
urop
pe, 24 Oct
O obe
er 20
011, htttp:///labss.yo
ougo
ov.c
co.u
uk/newss/20
011//10/2
24/p
polliing--eurrope
e/; re
esults for
f
the
e sp
pecific que
q stio
on are avai
a lable he
ere,, htttp://cdn
n.yougo
ov.co
om//cum
mulu
us_u
uplo
oads
s/do
ocum
men
nt/20
011-10-24//YG
GArrchivves--VotteUkOu
utEU
U-Y
YouG
Gov-241011.pdf; Q
Que
estio
on aske
a ed: The
e Housse calls upo
on the
t Govvern
nme
ent to
t in
ntrod
duce
e
a Bill
B in th
he next
n t sesssio
on of
o Pa
arlia
ame
ent to
t proviide for
f tthe hold
ding
g of a n
natio
onall refferendu
um on
o w
whetherr the
e Unite
ed
Kin
ngd
dom: (a) sh
hould re
ema
ain a me
emb
ber of
o th
he E
Euro
opean Unio
U on on
o the ccurrrent terms; (b)) lea
ave the Eurrope
ean Un
nion;
or (c) ren
nego
otiatte th
he te
erm
ms off its
s me
emb
bership in orde
o er to
o cre
eate
e a new
n w rellatio
onsh
hip b
based on
o ttrade an
nd co-o
c operratio
on.
If a pu
ublicc refere
endu
um werre held tom
morrrow with
h the th
hree
e op
ption
ns se
et o
out in th
he motio
m on, how
w wo
ould
d yo
ou vote?
?
4
Com
C mRe
es, Com
C mRe
es/IT
TV New
N ws poll:
p
Two
o th
hirdss of pub
blic sup
pporrt EU
U re
efere
end
dum on whe
ethe
er U
UK rema
r ains
sam
mem
mbe
er,
Oc
ctob
ber 201
2 1; http:
h ://ww
ww..com
mres
s.co
o.ukk/poll/55
52/ittv-n
newss-indexx.htm
m.
Whe
W en itt co
ome
es to tthe
e Singlle C
Currren
ncyy, th
he B
Brittish
h pu
ublic iss even
e n mor
m re emp
e pha
atic
c. In
n May 20
011,
a fulll 73
3% sa
aid tha
t at th
heyy we
ere
e ag
gain
nst econo
om
mic and
a d mon
m neta
ary union
n an
nd the
t e eu
uro an
nd o
onlyy
21
1% in favvou
ur.5
Ple
eas
se ttelll m
me for
f eac
ch sta
ate
eme
entt
w
whe
eth
her yo
ou a
are
e fo
or itt orr ag
gaiinst itt:
AE
Eurrop
pea
an eco
e onom
micc an
nd mo
one
etarry unio
u on with
w h one
o
sin
ngle
e cu
urre
enccy, the
e eu
uro
o
6%
%
2 %
21%
Fo
or
73
3%
%
Ag
gain
nst
Do
on'tt kn
now
w
So
ourrce: Euro
oba
arom
metter
Th
he eurozzon
ne cris
c sis
s is a gam
g me ch
han
nge
er
w we got
g he
ere
How
Eu
uro
opean econo
omic and
a d mon
m eta
ary union
n ha
as forc
f ced
d to
ogetthe
er disp
d para
ate ec
conom
miess an
nd cultures
ill--suited
d to
o th
he sam
s me exccha
ang
ge rate
r e and mo
one
etarry poli
p cy. It hass alwa
ays be
een
n an
n ellite--driiven
prroje
ect butt it is one
o e th
hat now
w tthre
eate
enss th
he p
poliitica
al and
a d eccon
nom
mic sta
ability of tthe
e en
ntire
e
Co
onttine
ent.. It hass beco
ome pain
p nfullly clea
c ar tha
t at th
he eur
e ro was
w s esstablis
she
ed with
w h in
nheren
nt eco
e nom
mic
c
an
nd politiccal des
d sign
n fla
aw
ws.
he eurro diffe
d erss fro
om oth
herr cu
urre
ency u
unio
onss ass it ma
ainttain
ns in
nde
epe
end
dent fin
nan
nce
e minis
strie
es and
d
Th
fis
sca
al po
oliccies
s, whil
w e in
nte
eres
st ra
ate
es and
a mo
one
etary pol
p icy
y are
e set
s by a ccen
ntral ba
ank
k. U
Unliike the
e
Unite
ed Sta
S ates
s, therre is n
no cen
c ntra
al fe
ede
eral bu
udget to
t abs
a sorb
b asym
mm
metrric eco
ono
omiic sshockss withi
w in
the e
euro
o area
a a. Hist
H torically, the
e on
nly insstan
nce
es of
o com
c mmon centra
al ban
b nkin
ng and
a d fis
sca
al
indep
pen
nde
enc
ce hav
h ve bee
b en ttran
nsittion
nal cu
urre
enccy unio
u ons
s that foll
f ow
wed the
e brea
ak-u
up of em
e pire
es or
fe
ederatiions. Exa
E ample
es in
nclu
ude
e th
he Aus
A stro
o-H
Hungarrian
n mon
m neta
ary un
nion
n (1918-1
19) an
nd the forrme
er
So
ovie
et rou
r ble
e zo
one
e (1992-9
93)..6
dre
eds of billion
ns of
o e
euro
os havve alre
a ead
dy b
bee
en com
c mm
mitte
ed to
t ma
m inta
ain the
e euro
ozone. Th
he bullk
Hund
off the
e fu
und
ding
g has been ple
edg
ged fro
om thrree so
ourccess: th
he e
eurrozone
e-o
onlyy Eu
uro
opean Fin
nan
ncia
al
Sttab
bilityy Fa
acility tem
mp
pora
ary ba
ailou
ut fund
f d, the
t Eu
urop
pea
an Fin
nancia
al Stab
bilityy Mec
M chanissm, wh
hich
h is
s
gu
uarranttee
ed by
b all
a E
EU Me
ember State
es, inc
clud
ding th
he UK
K, vvia the
t e EU
Ub
budgett, a
and the
e IM
MF. Th
he
UK a
also
o co
ontribu
ute
ed to
o Irrela
and
ds bailou
ut via b
bila
aterral loa
ans..
ddittion
n to
o the
ew
well-pu
ublicissed ba
ailou
uts, th
he Eur
E ropean
nC
Cen
ntra
al Bankk (E
ECB) has
s in
ncre
eassing
gly
In ad
intervven
ned
d in eu
urozzon
ne d
deb
bt m
marrkets, witth itts bala
b ancce she
s eet inccrea
asinglly exp
e ose
ed to the
t e crisis
s.
Ho
oweve
er, the
ere are
e polittica
al and eco
ono
omic limits to
t the
t exxten
nt to
o whic
w ch the
t EC
CB can act
a as
Euro
E opea
an Com
C mmissio
on, Pub
P blic opin
o nion
n in the Eurrope
ean
n Un
nion, Sta
and
dard
d Eu
urobarometter 75,
7 May
y 20
011, p6
63;
htttp:///ec.e
euro
opa.eu//pub
blic_
_opinio
on/archiives
s/eb/eb7
75/e
eb75_a
anx_
_fulll_fr.pdf.
6
See
S UB
BS In
nvestm
mentt Re
esea
arch
h, A brie
ef hiistorry of
o brreakk-up
ps, Octo
O ober 20
011.
10
0
lender of last resort for the eurozone, which mean that it is ill-equipped, or simply unable, to
fulfil this role.7
Nevertheless, the extent of the economic problem is far wider than that illustrated by the scale
of the bailout funds already committed or the role that the ECB has played to support the
Single Currency. It is now clear that the eurozone cannot survive in its current form. Whilst
triggered by the level of government debt, the eurozone crisis is fundamentally one of
competitiveness. The current strategy of bailouts, austerity and tighter fiscal rules cannot alone
overcome the chronic differences in economic competitiveness that divide the eurozones core
Northern states, and its mostly Southern states on the periphery.
Fed by a one-size-fits-all interest rate and monetary policy, the countries in the core have built
up current account surpluses which have seen huge sums of euros funnelled to the less
competitive countries on the periphery, with large current account deficits, resulting in financial
institutions loaded with loans destined for default. This fundamental problem is yet to be
properly addressed, or in some cases recognised, by policymakers.
Politically, it is too early to say what the implications of the eurozone crisis will be. The
eurozone must choose between either greater economic and political integration or at least
partial disintegration. The crisis has, however, already had a democratic cost on both sides of
the debtor and creditor divide.
Citizens of the core countries have seen their taxes used to underwrite loans to weaker
countries in the South and are increasingly unlikely to see them returned. Meanwhile, Member
States in receipt of bailouts have been deprived of their ability to set their own tax and
spending priorities. Indeed, there is a growing sense that these countries are no longer being
governed nationally but by or via Brussels. If there is a common theme, it is that, at the ballot
box, voters across the eurozone are offered little alternative to the current orthodoxy. Whether
this is politically sustainable is far from certain.
Eurozone crisis resolution and the potential for caucusing will present challenges and
requires an assertive UK response
As the eurozone looks for solutions to its current crisis, practical short and long term measures
are increasingly likely to be developed in response to eurozone-specific issues, to which British
concerns are regarded as peripheral at best. The practical measures that may be employed
could impact on UK interests and, as the Government itself has pointed out, there is a risk that
the states within the eurozone will start to act and vote as a caucus in areas which do not
directly relate to eurozone governance, including single market legislation, social policy or
financial services regulation. Although there remain differences among the eurozone nations,
particularly between North and South, this could leave Britain consistently outmanoeuvred on
measures with a profound impact on its economy, particularly where matters are decided by
qualified majority voting (QMV).8
Open Europe, The battle for the heart and soul of the ECB, 19 December 2011;
http://www.openeurope.org.uk/Content/Documents/Pdfs/ECBlenderoflastresort.pdf.
8
An early example of the potential for eurozone dominance was the decision leading to the creation of the EUs
European Financial Stabilisation Mechanism (EFSM) bailout fund, used to aid Ireland and Portugal. Unlike the
European Financial Stability Facility, which is guaranteed solely by eurozone states (EFSF), the EFSM is jointly
guaranteed by all 27 EU Member States via the EU budget. The decision, in May 2010, to create this fund was
hugely controversial because it used Article 122 of the EU Treaties, previously reserved for providing financial
assistance only in times of natural disaster, to overrule the Treaties no bailout clause. Although the decision was
formally approved under QMV at a meeting of the EU-27 finance ministers on 9 May 2010, eurozone leaders had
already outlined the creation of the EFSM at their own meeting two days earlier. The statement of the heads of state
or Government of the euro area (7 May 2010) is available here,
http://in.mobile.reuters.com/article/businessNews/idINIndia-48328620100507.
11
For example, influential EU policymakers have suggested that for the eurozone to become
economically sustainable in the long-term its financial sector must be governed by a common
supervisor and backed by a common fiscal authority, also described as a banking union.9 It is
hard to envision how eurobonds or other forms of shared eurozone government borrowing
could work without some sort of banking resolution fund at the eurozone level to underpin the
financial system or potentially even a shared finance minister.
Moves towards such a banking union, as set out by European Council President Herman Van
Rompuy at the European Council on 28-29th June 2012, will continue to raise questions over
whether a more integrated eurozone is compatible with the EUs single market in financial
services for all 27 Member States and that, without safeguards, the UK could be forced to
accept new rules designed for and written by the eurozone countries.
The European Commissions proposal to introduce an EU financial transaction tax, backed by
the major eurozone countries despite its disproportionate impact on the UK, also illustrates the
task at hand.
Crucially, future changes to the QMV rules in the EUs Council of Ministers are likely to
exacerbate the risk of caucusing. Though in practice, ministers rarely actually vote preferring
instead to operate by consensus the voting weight of countries very much determines the
bargaining strength of individual ministers.
Under the current rules the UK can, with difficulty, form a blocking minority with other countries.
However, when new voting rules enshrined in the Lisbon Treaty, and based on population size,
come into force in November 201410, the UK and other non-euro countries will never be able to
form a blocking minority if the current 17 eurozone Member States vote as a caucus.
Below, the chart on the left shows how the eurozone falls short of a qualified majority (255
votes) on its own under the current rules (although it could still push through EU laws with the
help of a few non-eurozone states such as Romania and Bulgaria). The chart on the right
shows that, after 2014, if the eurozone votes as a caucus it reaches the threshold 65% of the
EUs population needed to pass a law, and the non-eurozone states would be unable to block
a law they did not agree with.11
Andr Sapir, an economic advisor to Commission President Jose Manuel Barroso, quoted in the FT, To the
eurozone: advance or risk ruin, 22 November 2011, http://www.ft.com/cms/s/0/4dc988ca-14fd-11e1-a2a600144feabdc0.html#axzz1ed2wQmPQ.
10
Until April 2017 a Member State will be able to request that the old voting rules apply for a particular proposal.
11
Under the current rules, the eurozone has 213 Council votes out of 345 just short of a qualified majority. Under
the Lisbon Treaty rules, the eurozone needs votes from states representing 65% of the EU population to push
through an EU law they currently have 66% on their own, giving them a permanent in-built majority.
12
C ang
Cha
ges
s to
o quallifie
ed ma
ajority
y vo
otin
ng un
nde
er th
he Lis
sbo
on Tre
eaty
he UK
K will nee
n ed to con
c tinu
ue formu
ulating
g respo
onssess to the
ese
e de
eve
elop
pmentts. Howe
everr, th
he UK
K
Th
also needss to
o re
eco
ognise tha
at its inte
eressts will in
ncre
eassing
gly difffer fro
om tho
ose of the
e euro
ozone
co
oun
ntrie
es, and itt mustt be
e as
sse
ertivve in ssettting
g out wha
w at rela
r atio
onsh
hip it ssee
es for
f itse
elf w
with
ha
an EU
E
that is in a sta
ate
e off flu
ux.
Th
he po
olitiics off the
e EU
E h
hav
ve chang
ged
d fund
fu dam
me
enta
ally
y
Mostt im
mpo
orta
antlyy, w
wha
ateverr ha
app
pen
ns n
nex
xt, things ha
ave chang
ged
d, and
a d the UK
U will be
e fa
ace
ed with
w h
the n
nee
ed and
a d/orr the opp
o porttuniity to
t neg
n gotiiate
e fo
or re
efo
orm.
Th
he eurro cris
c sis is the big
gge
est crissis the
e EU h
hass fa
aced
d. The
T e orriginall prrincciple
eo
of e
eve
er clos
c ser
un
nion
n has
h s le
ed dire
d ectly
y to
o fin
nan
ncia
al and
a po
oliticcal turrmo
oil. It ffollo
owss th
hat this is
s no
ow the
e time
e to
state
e cle
earrly and
a d firmlly a
an alte
a erna
ativ
ve p
prin
ncip
ple of Eu
urop
pea
an coo
c ope
erattion
n.
Th
he eurro cris
c sis will
w l ine
evitab
bly fforcce EU
U Mem
mbe
er Stat
S tes to devvelop a m
more var
v riab
ble app
pro
oach to
o
Eu
uro
opean coope
era
ation, b
but thiis pres
p sen
nts opporrtun
nitie
es as we
ell as
a cha
c allenge
es. Th
he ccris
sis iis
alrea
adyy drrivin
ng eur
e ro cou
c untrriess towa
ardss more
m e ce
enttralisation
n in
n th
he form
f m of
o tightter rules on
bu
udg
geta
ary dis
scip
plin
ne, and
d som
s me cou
c untrries
sm
may op
pt fo
or fullyy-fle
edg
ged
d fissca
al un
nion in
n th
he futu
f ure.
No
ow tha
at the
t qu
uesttion
n off th
he U
UKs mem
m mbersship
p off th
he euro
e o iss alll bu
ut ssetttled
d in
n pu
ubliic opin
o nion
n,
the U
UK mu
ust appro
oac
ch itts mem
m mb
bers
ship
p off th
he EU
E in this
s co
onttextt. The
T UK
K can
c no
o lon
nge
er ssim
mply
y
main
ntain itts euro
e oo
opt-outt, whic
w ch has
h s am
mo
ountted
d to se
econd cla
ass me
emberrsh
hip o
of the
t EU
U club
b for
to
oo lo
ong
g, as
a a ho
olding
g po
osittion
n.
13
3
The eurozone may pursue more integration to deal with its crisis, but that is not mutually
exclusive with a redistribution of power in the opposite direction for countries that wish to
remain outside, or leave, the euro. In fact, if the UK is to reconcile itself with EU membership,
this is entirely necessary.
The pursuit of jobs and growth
In addition to the political and practical challenges the UK now faces in Europe as a result of
the eurozone crisis, Britain is currently faced with its own unenviable task of trying to cut a
large budget deficit while stimulating growth and jobs in the private sector.
This highlights two over-arching considerations: first, the short-term impact the EU is having
on the UKs current economic situation. With the option of fiscal policy limited, regulation is one
of the few remaining policy levers at the Governments disposal, and yet much of this is now
decided in Brussels rather than Westminster.
Well-targeted and effective regulation creates the necessary conditions for sustainable
economic growth and employment, providing businesses with a level playing field on which to
compete and create wealth. On the other hand, badly targeted or over-burdensome regulation
does the opposite. In particular, small and medium sized businesses, which, in 2009,
accounted for 99.9% of all enterprises, 59.8% of private sector employment and 49% of private
sector turnover in the UK,12 are often disproportionately affected by regulation.
The opportunities that the EUs single market offers British businesses for trade and growth
remain important to the UKs economic interests. At the same time, there is a growing feeling
among policymakers and MPs that the UK is increasingly constrained by rules locked in at the
EU level. Even if the Government deems EU regulations to be detrimental to jobs and growth,
changing them requires successful negotiations with 26 other Member States, the European
Commission and the European Parliament.
However, perhaps more important is the second consideration: what is the likely relative
importance of the EU to the UK over the long-term?
The need for many countries around the EU to deleverage in the wake of the debt crisis, the
considerable austerity at national level and the poor demographic profile of much of Europe is likely
to reduce the growth opportunities for British firms in European markets, compared to the
opportunities of the past. In particular, the scale of the ongoing economic and eurozone crisis is
likely to have a restrictive effect on growth in the euro area and possibly elsewhere in the EU.
Leaving aside the global recession of 2009, the world as a whole has experienced healthier growth
in contrast to the slow growth in Britain, Europe and the US.
12
Department for Business Innovation and Skills, Small and medium-sized enterprise (SME) statistics for the UK
and regions 2009, statistical press release, 13 October 2010, p1
http://webarchive.nationalarchives.gov.uk/20110218135832/http://stats.berr.gov.uk/ed/sme/Stats_Press_Release_2
009.pdf.
14
GD
DP G
Gro
owtth iin Wo
World, EU, and
a dB
BRIC
C cou
c untrries
s
An
nnu
ual Re
eal
Re
eal GD
DP
Carn
neg
gie14
GDP
P Grow
wth
(a
Grrow
wth 2012
averag
ge a
ann
nua
al
to
o 20
016
6 (W
WEO
O
(IM
MF WE
EO
O
GDP
P Grow
wth,
Se
epttem
mbe
er
Se
epte
ember 20
011
1,
pe
ercentt ch
han
nge,
20
011
1, PPP
P P
13
PP
PP we
eigh
hts))
y//y) 200
2 09--50
we
eightss)
PW
WC
C15
(av
verrage
e
an
nnual rea
r al
gro
owtth in
GD
DP) 20
009
950
0
Wo
orld
d
4.0
0%
%
4.9%
%
EU
U
1.4
4%
%
2.1%
%
Bra
azill
3.6
6%
%
4.2%
%
4..1%
%
4.4
4%
%
Ru
ussiia
Ind
dia
Ch
hina
a
4.1%
%
7.5
5%
%
9.0
0%
%
3.8%
%
8.1%
%
9.5%
%
3..3%
%
5..9%
%
5..6%
%
4.0
0%
%
8.1
1%
%
5.9
9%
%
In 19
990, the EU
E wa
w s 27%
% off wo
orld
d ou
utpu
ut (iin U
US dolllarss, at
a p
purcchasing p
pow
wer parrity)). B
By 200
2 02 the
t
EU
Uw
wass stiill 25%
% off wo
orld
d ou
utpu
ut on
nly a sma
all drop
d p. But
B byy 20
016 the
e EU iss fo
oreccas
st to
o ac
cco
ountt for
jus
st 1
18%
% of world
d ou
utput a dra
ama
atic
c an
nd rap
r id rela
r ative
e de
ecliine.
Eu
uro
opean Un
nion
n and Re
est of the
e Worl
W ld GD
G Pa
at PPP
P P, 19
990
0-2016
6 ($
$ biillio
on)
So
ourcce: Eu
urop
pe E
Eco
ono
omiccs/O
Ope
en Eurrop
pe166
While
W e trrade
e with
w its Europ
pea
an p
parttnerrs iss im
mpo
orta
ant to
t the
t UK
K an
nd will
w rem
main so
s ffor the
t e forrese
eea
able
e
future
e, sec
s urin
ng acc
a cess
s to
o th
he ssing
gle ma
marke
et fo
or Britis
B sh bus
sine
essses sho
ould not
n com
c me at tthe exxpen
nse
e
off Brritains ab
bilityy to comp
pete
e in fasst grow
g wing
ga
and em
merg
ging
gm
markkets else
e where
e. In
n th
he ccurrrentt
cliima
ate, it is th
here
efore vita
v al th
hat tthe
e UK
K th
horo
oug
ghlyy exxam
mine
es tthe
e be
ene
efits of tak
king
g de
ecission
ns tthatt
aff
ffecct th
he fu
uture of
o itts eco
e onom
my at a Euro
E ope
ean
n levvel verrsus
s th
he cos
c st off co
onstraiinin
ng nati
n ona
al a
and loc
cal
de
ecission
n maki
m ing.
13
See
e IM
MF, Worrld Eco
E onom
mic Outtlookk Slo
owin
ng grrow
wth, risin
r ng risks
ri s, Se
epte
emb
ber 201
2 1,
htttp:///www.im
mf.o
org/e
exte
erna
al/pu
ubs//ft/w
weo//201
11/0
02/p
pdf/text..pdff.
14
See
e Urri Da
adu
ush and
a d Be
enne
et Stanccil, The
e Wo
orld
d Ord
rder in 2050
2 0, Carn
C negie Endo
E owm
mentt forr Intternatio
onal Pea
ace
e
po
olicyy outloo
ok, Apri
A l 20
010, http
p://c
carn
negiieen
ndow
wme
ent..org/file
es/W
World
d_O
Orde
er_in
n_2
2050
0.pd
df.
15
See
e Pw
wC, The world
w d in 205
50 Th
he acce
elera
ating
g sh
hift of
o glloba
al ec
conomiic po
owe
er: cchallleng
ges and
d op
pporrtun
nities,
Ja
anua
ary 201
2 1, http:
h ://ww
ww..pwcc.co
om/e
en_
_GX
X/gx//worrld-2
205
50/pd
df/w
world
d-in
n-2050-jjan--201
11.p
pdf.
16
Ope
en Euro
E ope
e, Continen
ntal shifft: ssafegua
ardin
ng the U
UKss fin
nanccial trad
de in a cha
angiing Eurrope
e, Dece
D emb
ber 2
2011,
p2
25; h
http://w
www.ope
eneurope.o
org..uk/C
Con
nten
nt/Docu
uments//Pdffs/co
ontinen
ntalsshiftt.pdf.
15
5
What can be done?

In light of the issues set out above, the UK urgently needs to examine each facet of its
relationship with the EU, prioritising the areas that are most in need of change, whilst balancing
this process against what can be achieved and at what political price.
It is clear that any attempt to renegotiate or repatriate powers will be a significant challenge,
given that in most cases this will require agreement from other national governments and, in
some policy areas, a comprehensive approach will require re-negotiation of the EU treaties or a
new EU budget deal. It is also clear that if a UK Government is successfully to repatriate
powers, it needs to have leverage with its EU partners, be willing to spend a lot of political
capital, and may have to make other concessions in return.
Proposals for deeper fiscal integration of the eurozone countries are likely to require changes
to the EU treaties. This presents the UK with a significant opportunity, both to articulate its
vision and to negotiate the changes to make it a reality.
The EU has developed in a piecemeal fashion and, as a result, the EUs powers over some
policy areas are more developed or have a bigger impact on the UK than others. EU policy
areas also differ in that they are either primarily regulatory (social and employment law,
financial services, environment), budgetary (Common Agricultural Policy, regional development
funding), or, in the cases of criminal justice and defence cooperation, have their own unique
characteristics.
For example, EU social and employment regulation has a big impact on business and the
public sector, but repatriating powers in this area would be a major challenge and require
significant changes to the EU treaties and hence a substantial expense of political capital.
Nevertheless, given its importance to the UK economy, it could be deemed worth the political
effort. In other policy areas, the UK can far more easily act to reduce EU control over national
decision making. For example, the UK can unilaterally repatriate the vast majority of EU crime
and policing law without needing to enter lengthy negotiations with other EU governments.
It will be useful to put the options for reform open to the UK into three broad categories:
Green
Amber
Those measures that can

be achieved domestically or
within the current EU legal
framework.
Those measures that

require negotiated EU treaty
change.
Red
Those steps that the UK
could take unilaterally that
would involve breaking its
treaty obligations.
In practice there is some overlap between these categories, particularly Green and Amber
options. Many Green options that are theoretically possible under the current EU legal
framework would require the political agreement of other Member States and/or the EU
institutions, which would be more or less difficult to achieve in individual cases. The
renegotiation of individual EU Directives usually requires a qualified majority of national
ministers and the agreement of the European Parliament and the European Commission, while
renegotiating the EU budget requires unanimity among Member States.
16
We would like to hear your views

This Green Paper outlines a number of options that the UK could pursue to reform its
relationship with the UK. These range from those the UK could do within current structures (the
Green Options), to those that it would need to negotiate treaty change to achieve (the amber
options), to those that would break its treaty obligations (the red options).
While the UK may have opportunities to negotiate treaty changes in the future, any negotiation
is unlikely to achieve all of the UKs demands. We therefore need to prioritise. Where should
the UK government use its political capital?
The Fresh Start Project would like to hear from you! Please post your comments on
www.eufreshstart.org or contact the office of Andrea Leadsom MP. During the months of
September to December 2012, the Fresh Start Project will be collating the views of
Conservative MPs, Peers and MEPs and by the end of 2012 will have prepared a White Paper
/ draft manifesto for reform of the UKs relationship with the EU.
17
Chapter 1
Trade
The summary
Successive UK Governments have had to weigh up the costs and benefits to the UK of
membership of the EU. Costs are typically seen as contribution to the EU budget (largely to fund
the Common Agricultural Policy and Structural Funds), the cost to business of regulation, and the
loss of sovereignty over a range of policy areas. The benefits are typically described as free
access to the EU market for trade, free movement of people, and increased geopolitical influence.
Successive governments have failed to explain whether the benefits outweigh the costs.
The EU remains the world's largest customs union and the most important market for UK
business. Roughly half of the UK's total exports of goods and services go to the EU, and just
over half of total stock of Foreign Direct Investment in the UK is from EU businesses. However,
estimates put the Rotterdam-Antwerp effectwhere UK goods bound for non-EU markets are
transhipped through Rotterdam or Antwerp, and hence recorded as exports to the EUas high
as 10% of UK goods exports.
Current trends indicate that growth in the EU is slowing, exacerbated by the continuing eurozone
crisis. Long-standing structural weaknesses in European economies are being brutally exposed
by the financial crisis. Many new business opportunities will no longer be within the EU, but
rather will be found in the major emerging economies which are increasingly driving global
economic growth. There is a risk that UK businesses are hampered in competing in these
markets by overregulation at the EU level.
Significant opportunities for growth in trade with the EU remain, particularly in the services sector.
Services account for 71% of EU GDP, but only 3.2% of this is from intra-EU trade. The UK
government continues to push for the completion of the Single Market, especially in services;
however, substantial obstacles remain.
Financial Services is a critical industry for the UK. It accounted for an estimated 11.2% share of
tax receipts in 2009-10, and provided a trade surplus of 31.5 billion in 2010. Pre-financial crisis,
EU regulation had a largely liberalising effect across Europe, but post-crisis, the trend had been
in the other direction. The EU is considering or developing 49 new regulatory proposals that could
affect the industry a great many of which are aimed at constricting rather than enabling the
industry. That is why the Prime Minister used the veto in December.
The EU continues to push for further liberalisation with trading partners around the world.
External trade policy is an exclusive competence of the EU under the umbrella of its Common
Commercial Policy (CCP). As such all external trade negotiations are undertaken on behalf of
the UK and all other Member States by the European Commission.
Currently, the EU is pursuing a number of bilateral FTAs with countries and regions across the
world, including, among others, Canada, Singapore, India, and Mercosur and has recently
concluded deals with South Korea, Columbia and Peru as well as the Central American Region.
The UK must balance the potential benefits of increased clout in negotiating as part of the EU
against the cost of having deals that are not specifically tailored to UK interests.
At some time, a tipping point may be reached when the UK judges that the costs of EU
membership outweigh the benefits. If this were the case, the UK could withdraw from the EU by
invoking Article 50 of the Treaty on European Union. The UK would then negotiate a withdrawal
agreement and framework agreement for the UKs future relationship with the EU. If this were not
concluded within two years, or an extension agreed, the EU treaties would cease to apply, and
the UK would trade with the EU on most favoured nation (MFN) terms of the World Trade
Organisation (WTO).
Analysis indicates that under MFN terms, around half of manufactured exports to the EU would
face an average tariff of over 5%, with some sectors particularly hard hit. UK car exports to the
EU would face tariffs of 10%. This would have a significant effect on UK business, and make the
21
UK a less attractive location for FDI. The UK would also lose its influence on framing EU
regulation, and it is unlikely to be an option that any UK government would seek.
A number of alternative models have been considered:
o
The EEA or "Norwegian Option The UK would be outside the customs union, and
hence subject to complex and costly rules of origin. The UK would still be subject to most
EU regulation, but with little ability to shape them. Access to the single market for goods
and services would be maintained, and the UK would not be subject to CAP, CFP, or
regional policy, and is likely to have a significantly reduced budget contribution.
A Free Trade Agreement or "Swiss Option"Outside the customs union and subject to
rules of origin, but not formally subject to EU social or product regulation. In practice, all
product regulation is likely to be replicated in order to export to the EU. Not subject to
CAP, CFP, or regional policy, and likely to have a significantly reduced budget
contribution. Free trade subject to negotiated agreement.
Part of the Customs Union or "Turkish Option"Member of the customs union, so with
free access to trade for goods services and agricultural products are not covered.
Required to negotiate free trade agreements with any country that the EU opens trade
negotiations with. Outside the EU Treaties and Institutions, so not subject to CAP, CFP, or
regional policy, and not likely to make a significant budget contribution. Not subject to
social regulation, but subject to all product regulation.
All of these options appear to come with major drawbacks, and they are not likely to be
acceptable, either to the UK or to the rest of the EU.
Work within the current system to minimise the costs of membership and maximise the
benefits. Ideas on how to improve the CAP, CFP, Regional Policy and Social Policy have
been covered in other chapters of this Green Paper.
Continue to press the EU to negotiate free-trade agreements between the EU and the rest of
the world.
Continue to develop bilateral relationships to help UK businesses prosper in non-EU
markets.
Negotiate the completion of the single market, particularly in services to increase
opportunities for trade for UK businesses.
The UK government could seek a unilateral brake on EU financial services regulation
through a legally binding protocol attached to the Treaties. This would assert the special
circumstances that are the UKs stake in financial services, requiring the Commission to
reconsider proposals that impact disproportionately on the UK, and would give the UK a right
of appeal for any proposal before it had been agreed by the Council and European
Parliament. This would give the UK a veto, because unanimity applies at the European
Council level.
The UK could negotiate changes to the treaties to allow member-states to pursue their own
bilateral deals on investment.
If the EU bureaucracy and regulation prevents the UK from developing global reach and
makes the intra-EU trade no longer attractive, each of the alternative models described
above would constitute withdrawing from our existing EU treaty obligations.
22
The introduction
Successive UK governments have had to weigh up the costs and benefits to the UK of
membership of the EU. Costs are typically seen as contribution to the EU budget (largely to
fund the Common Agricultural Policy and Structural Funds), the cost to business of
regulation, and the loss of sovereignty over a range of policy areas. The benefits are
typically described as free access to the EU market for trade, free movement of people, and
increased geopolitical influence. Successive governments have failed to explain whether or
not the benefits outweigh the costs.
The detail
External trade policy is an exclusive competence of the European Union (EU) under the
umbrella of its Common Commercial Policy (CCP). Article 207 of the Lisbon Treaty (TFEU)
stipulates that it includes trade in services and goods, intellectual property and foreign direct
investment (FDI). Under the CCP, all EU Member States must apply the same external tariff
with trading partners. The European Commission's Directorate General for Trade (DG
Trade) is responsible for negotiating trade agreements on behalf of all Member States.
As a result of the ratification of the Lisbon Treaty, the European Parliament must now give its
consent to all trade deals negotiated by the Commission - in this respect it enjoys what are
known as powers of "co-decision" with the European Council, the body made up of EU
Member State representatives. However, the Parliament is not responsible for giving the
Commission pre-authorisation to begin negotiations with partners; rather this is the
responsibility of the Council of Ministers acting on a mandate proposed by the Commission.
Nevertheless, this arrangement effectively gives the European Parliament a veto over any
trade package negotiated by the Commission and as a result, it is important that it take the
Parliament's concerns into consideration during the negotiating process.
Therefore, the UK has to conduct its trade policy almost entirely through the mechanisms of
the EU, leaving very little room for manoeuvre on its own. However, as will be mentioned
later, the UK can use its considerable bilateral ties and resources to promote UK companies
abroad and to facilitate imports as well as inward investment towards the UK. The EU is the
world's largest economy and trading bloc. It accounts for almost 29% of global output, 15%
of global trade in goods and 24% of overall global trade. Consequently, the EU is a major
player in world trade talks, and partner countries are generally speaking keen to gain access
to one of the most attractive markets in the world. In this regard, the Commission, on behalf
of the Member States, seeks to leverage said access to the EU market in return for
concessions from trading partners. Its size and importance gives it considerable clout when
negotiating deals on behalf of Member States.
Trends
Europe remains the world's largest customs union and in addition, is the most important
market for UK business. With Europe making up roughly half of the UK's total exports of
goods and services and seven of the UK's ten main export markets, as well accounting for
just over half of total stock of FDI, Europe's importance will remain crucial for the
foreseeable future.
The single market has been an important driver of growth and UK businesses have
benefitted from wider and deeper relations with other EU Member States. In fact, the UK
has been one of the drivers of the single market, realising that it will benefit from increased
liberalisation.
23
About 25% of the UK's trade is with other developed countries world-wide, with the US,
Canada, Australia, Japan, EFTA and New Zealand. Although these markets are relatively
low growth areas, they will remain important, indeed it is estimated that over the last ten
years the UK's trade with the latter has increased by around 50%.
However, current trends indicate that growth in the EU is slowing, exacerbated by the
continuing Eurozone crisis. Long-standing structural weaknesses in European economies
are being brutally exposed by the financial crisis. Many new opportunities will no longer be
within the EU, but rather will be found in the major emerging economies which are
increasingly driving global economic growth.
If the UK is to make the most of its trading relations, two key objectives must therefore be
achieved. Firstly, the UK must work towards further liberalising the Single Market and the
reform of the wider European economy to increase competiveness and growth. Secondly,
the UK must work to ensure that the EU negotiates deals that give UK firms access to global
emerging markets. Should meeting these two objectives become problematic through the
current EU trading framework, other options must be considered.
Liberalisation within the Single Market
The EU single market has long been championed by the UK, which it sees as central to
ensuring the continued success of UK business. Having come into force in 1992 via the
Single European Act (1986), it was designed to eliminate the remaining barriers to trade
under the umbrella of the Customs Union.
The European Commission's 2002 ten year review of the Single Market estimated that EU
GDP would have been 1.8% lower a decade after the treaty's signing than without the
implementation of the single market. In addition, a 2007 report argued that the Single
Market's development had led to a 2.2% increase in EU GDP in 2006 and the creation of
2.75m additional jobs. Furthermore, the single market acts to boost trade between Member
States and in the case of the UK, the Department for Business, Innovation and Skills (BIS)
has estimated that increased trade in Europe since the early 1980s could be responsible for
a 6% increase in British per capita income.
Despite this, and with substantial obstacles still remaining, trade in goods in the current
Single Market has made much more progress than trade in services, a sector of enormous
importance to the UK. Should the UK be able to make a significant push towards
liberalisation of the single market, the benefits could be considerable. BIS has estimated
that it could result in raising EU GDP by 14% over ten years.
24
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26
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2
25
One EU policy area where the UK has led from the front and been very successful is on
enlargement. In face of opposition from countries more hostile to expansion, the UK has
succeeded in convincing other Member States of the need to welcome Eastern European
countries to the "club". This has had the added advantage of increasing the size of the
market open to firms, however, previous decisions concerning immigration have caused
problems in some Member States, particularly the UK. This should not prevent the UK from
continuing to support enlargement as it will allow for increased market access to new
Member States, however, with widespread "enlargement fatigue" across the EU this may
prove difficult in the short-term.
Liberalisation with major trading powers and emerging economies
Firstly, it should be recognised that the size of the EU market makes it an extremely powerful
player globally concerning trade not only at a multilateral level at the WTO, but also in
bilateral relations with other countries. Third countries want access to its market and in
return the EU can demand considerable concessions. The EU can therefore act as a proxy
to ensure that the UK gains access to markets around the world with a degree of success
and penetration far exceeding what smaller, less powerful players would be able to.
In this regard, a trade off between benefitting from the EU's clout despite its constraints and
having a policy tailored specifically to suit the UK is the delicate balancing act that drives the
actions of the UK Government in Brussels. This point is especially important given that the
other major global players, both current and future, such as the USA, China and India are
considerably larger than the UK and it remains an open question whether large trading
partners would be interested in negotiations with the UK and willing to make worthwhile
concessions in the framework of a trade deal.
Currently, the EU is pursuing a number of bilateral FTAs with countries and regions across
the world, including, among others, Canada, Singapore, India, and Mercosur and has
recently concluded deals with South Korea, Columbia and Peru as well as the Central
American Region. This strategy must be encouraged as much as possible by the UK with a
view to ensuring that an agenda of ongoing liberalisation is maintained.
In spite of this, there are difficulties that the UK experiences as a result of the Commission
negotiating on behalf of all 27 EU Member States. Whether or not the UK is able to
overcome these difficulties will be crucial in deciding whether or not continued EU
membership is in its national interest. For example, the EU, like many others, grants high
levels of protection for its agricultural sector and while a serious reform of the measures
distorting trade has been undertaken, much remains to be done. The average Most
Favoured Nation (MFN) tariff is 15% and in some areas such as dairy and fruit/vegetables,
tariffs can be as high as 156% (such as is the case with dairy products). One example of
where agriculture has been a stumbling block preventing market access in areas such as
services is with Mercosur. At the Doha Round, the EU made a considerable concession in
significantly reducing agricultural tariffs, however, other trading blocs and countries were
more reluctant to match these allowances.
One interesting point that should also be considered is that if the business of one specific
Member State is targeted by a trading partner, that is considered to be an attack on all
Member States. For example, should Argentina decide that it would, in contravention of
WTO rules, put in place barriers to the trade of UK companies, the EU considers this
(through its exclusive competence) as an attack on all EU countries. Furthermore, the future
of trade will be increasingly focussed on Non-Tariff Barriers to Trade including Technical
Barriers to Trade. The EU, as a large player will be more able to have a strong influence on
world standards that will be adopted in the future, allowing for a competitive advantage for
EU firms.
26
Given that the trade policy is an exclusive competence of the EU, it would appear at first
examination that the UK Government's bilateral room for manoeuvre is limited. Admittedly,
access to markets will be governed by a framework of EU relations, however, the UK can do
much unilaterally to ensure that its firms receive favourable treatment and are allowed to
penetrate markets successfully. This is particularly relevant where the EU does not have
preferential access to a third country's market.
Although the multilateral trading system is likely to remain the fundamental basis of world
trade, bilateral relations between sovereign countries will continue to be of importance. It is
fundamental to the future success of the UK that we cultivate long-standing relations and
cultivate new ones in parallel to the EU's efforts. In this regard, the UK is especially well
placed, with historical ties to a number of current players as well as potential partners whose
significance will increase in the years to come.
The UK Government can be of assistance to UK firms in a number of ways.
Firstly, the UK must ensure that the country remains an attractive place for trade and
investment, as well as doing all it can to assist UK firms operating in markets abroad. UK
Trade and Investment should continue to work at offering advice and guidance to
businesses of all types on trading internationally, as well as investing in foreign markets.
In addition, British commercial diplomacy could be improved and exporters should receive
enhanced guidance and advice, capitalising on close bilateral ties to help them gain access
to growth markets. In particular, this advice should be aimed at SMEs and should be aimed
both where market presence is already strong, and in fast growing emerging markets that
will provide the best future opportunities. In addition large diaspora populations living in the
UK and their links with their countries of origin could be used to harness trading relations
with partners around the world.
The case study: access to public procurement markets

Proposal for a Regulation of the European Parliament and the European Council on the
access of third country goods and services to the Union's internal market in public
procurement and procedures supporting negotiations on access of Union goods and
services to the public procurement markets of third countries.
What it is?
On the 23rd of March 2012, the European Commission adopted a proposal for a Regulation
in the EU's international procurement policy area. The stated aim of the proposal was to
"improve conditions under which EU businesses can compete for public contracts in third
countries." The Commission's justification for the proposal was that EU suppliers currently
face restrictive procurement practices in many of the EU's main trading partner countries. In
addition, the proposal aimed to confirm "the legal status of bidders, goods and services from
countries that have an international agreement with the EU in the area of public
procurement" while clarifying "the rules applicable to bidders, goods and services not
covered by those agreements."
Commission's Justification
Certainly, the EU maintains a very open policy compared to other trading partners, but with
China only opening a fraction of its potentially enormous market to foreign bidders.
Moreover, the financial crisis has led to many countries enacting protectionist measures to
favour domestic businesses. In total, the Commission has estimated that over half of the
27
world's market is closed, a share that is currently growing. Going by the logic that, given the
rising importance of emerging economies and the absence of a level playing field, the
Commission argues that the EU must act now to gain leverage in international negotiations
with trading partners in order to redress the imbalance and gain substantial market access
commitments for the benefit of EU business.
The battle in Council
The battle developing over the proposal encapsulates the current tensions within the EU
over trade policy. The principle of reciprocity has long been championed by France, with
Nicolas Sarkozy making it a central tenet of his unsuccessful re-election campaign. Tension
exists between countries which wish to see mercantile reciprocity (led by, but not exclusively
comprising the club med) and those, led by the UK and Germany, who see this as a
damaging policy long-term.
Some policy makers have observed that smaller EU member states lack the administrative
capacity to properly analyse the Commission's proposals and their potential effects, and will
be more easily swayed by the immediate appeal of protectionist logic.
With its trade deficit at record levels in 2011, and without significant improvement in sight,
France's fall back on protectionist policies is likely to be a continuing trend, further
exacerbated by the election of Francois Hollande, the Socialist candidate. The UK must
seek to work with other like minded countries to head off a creeping threat from a regulation
that would not be in its interests should it come into force. Current developments are
encouraging, however, future events cannot be foreseen with any certainty.
The battle in the European Parliament
Under the Lisbon Treaty the European Parliament enjoys powers of co-decision over trade
policy. The European Parliament has been vocal in its calls for "reciprocity" in public
procurement policy with emerging economies. On the 23rd of May 2012 it adopted in a
resolution on trade relations with China containing a paragraph calling for reciprocity with all
emerging economies. Furthermore, MEPs have consistently been urging the Commission to
come forward with this instrument. This is clearly not in the UK's interests as to a large
extent, as a more global trading nation than most, it relies on third country market access.
This could be put into question should the EU's partners retaliate against what they see as a
protectionist ploy from a supposed champion of open global markets. However, these
arguments are unlikely to resonate with the majority of MEPs, whose sentiments tend to be
more protectionist than liberal.
Significance
The instrument draws upon the classic EU split when it comes to trade. The southern, more
protectionist countries are lined up against the more liberal nations of the north. To a large
degree, the result could prove indicative of future developments in EU trade policy. Should
the more protectionist bloc triumph, it might augur poorly for the liberal Member States,
however, should the liberal states of the north succeed in rejecting, watering down or
freezing the proposal, it might indicate that the balance within the EU is more positive for the
UK. Watch this space.
28
Other Models of Association with the EU

At some time, a tipping point may be reached when the UK judges that the costs of EU
membership outweigh the benefits. If this were the case, the UK could withdraw from the EU
by invoking Article 50 of the Treaty on European Union, and negotiate a new arrangement.
Article 50(1) TEU states: Any Member State may decide to withdraw from the Union [that is,
the European Union] in accordance with its own constitutional requirements.
If a Member State does decide to withdraw, Article 50 TEU obliges that country to inform the
European Council of its decision. The European Council, acting by consensus though
without the withdrawing states representative, agrees guidelines for a withdrawal agreement
between the withdrawing country and the EU.
Article 50 TEU says that this withdrawal agreement shall set out the arrangements for its
[the withdrawing countrys] withdrawal, taking account of the framework for its future
relationship with the Union.
On a recommendation from the European Commission, the Council will select an EU
negotiator to negotiate with the withdrawing country. When the negotiations between the EU
and the withdrawing nation have come to a settlement, the Council of the EU can conclude
the withdrawal agreement on behalf of the EU by QMV, after obtaining the consent of the
European Parliament. The withdrawing country concludes the withdrawal agreement in
accordance with its own legal procedures.
All the while, the withdrawing state is excluded from the Councils decision-making.
It is possible that the withdrawal agreement could provide for the withdrawing country to
continue participating in certain EU policies. Article 50 TEU clearly requires the framework
for the withdrawing countrys future relationship with the EU to be decided at the same time
as the withdrawal agreement, as this agreement must take that framework into account. In
practice, the broad framework of this future relationship would probably have to be agreed
by all, or the great majority of, EU Member States.
Article 50 TEU provides that the EU treaties as they stand cease to apply to the withdrawing
country when the withdrawal agreement enters force. If an agreement hasnt been
concluded, the EU treaties cease to apply two years after the withdrawing nation told the
European Council it was leaving the EU (though the European Council, acting unanimously
and in agreement with the withdrawing country, can extend this period, for instance if
negotiations remain ongoing).
If no agreement is reached, the withdrawing country would default to trading on Most
Favoured Nation terms with the EU under the framework of the WTO.
As this is likely to be highly disruptive to the UK, and hence not acceptable to UK business, it
is likely that the UK would need to have an agreement, at least in principle, outlined with the
EU for the future relationship before invoking Article 50.
A number of options have been proposed as an alternative to the UKs full membership of
the EU. The principle ones are outlined below.
29
The EEA or "Norwegian Option."

What is it?
Norway is currently a member of the European Free Trade Area (EFTA) and, through a Free
Trade Agreement (FTA) with the EU, the European Economic Area (EEA). However, it is
not a member of the EU and therefore not a member of the customs union. The EEA is an
accord between three EFTA members and the EU (the Swiss opting to stay out). This path
would allow for the UK to enjoy tariff free access to the European market while
simultaneously allowing for the UK to largely decide upon its external trade policy with other
global partners independently.
Furthermore, the EEA allows for an extension of four fundamental pillars of the EU single
market, the movement of people, capital, goods and services, however, these would remain
subject to many regulations being decided by the EU, covering, among others, social
security for migrants, in addition to related legislation covering employment. For example,
EEA states are obliged to adopt provisions such as the controversial EU Working Time
Directive.
While there can be consultation over certain measures, this option would therefore require
the UK to continue to follow measures over which it would by and large have no voting
influence in the decision making procedure. Currently, input from Norway and other EEA
members takes the shape of limited participation by appointed experts in Commission and
European Council committees, however, rather like the current consultation procedure within
the European institutions, there is no real legally binding mechanism that allows for their
interests to be taken into account.
Moreover, these formal arrangements do not provide a role for EEA members to deal with
the growing influence of the European Parliament, an institution which has seen its role and
authority grow in recent years, and whose powers may well increase in years to come both
as a result of formal transfers and, more crucially, as a result of its institutional ability to
exercise those competences with increased effectiveness.
In theory, the CAP and CFP, criminal justice and asylum policy, Schengen, foreign policy
and defence and external trade are all excluded from the EEA Agreement. However, this
has not precluded EEA countries from striking certain sectoral deals with the EU.
By way of example, Norway cooperates with the EU beyond the EEA framework in the
following ways:
Schengen
Norway is a signatory of the Schengen Agreement and as a result, has adopted many of the
rules and laws regarding police cooperation.
Justice and Home Affairs
Norway has agreed to a series of provisions, including joining a number of EU agencies.
Defence
Norway is a member of the European Defence Agency, an agency which oversees
cooperation both in defence procurement and EU military operations, such as the currently
ongoing one in relation to Somali Piracy.
30
Norway therefore enjoys close relations with the EU across a number of fields.
Benefits
Access to the single market would be maintained, however exports would be subject to
Rules of Origin. Rules of origin apply to specify the conditions under which a good becomes
eligible for zero tariffs within the free trade area and that there is no backdoor. ROO can be
relatively simple for products wholly produced and assembled in one country. However,
when a product involves complex supply chains, determining origin can be a very complex,
sometimes subjective, and time-consuming process.
The UK's net contribution to the EU budget would be reduced as it would no longer be
obliged to fund the CAP, the CFP as well as the EU's regional policy. However, it should be
noted that EEA states still provide support to the EU's less affluent member states through
the EEA fund, and the UK would most likely be required to contribute sums commensurate
with the size of its economy. However, the specific amounts are difficult to estimate.
The UK would enjoy control over non-EU trade policy. EFTA states have developed a large
network of bilateral deals, 24 FTAs with 33 countries and are in the process of negotiations
with others. Certainly, the UK would be keen to seek FTAs with other countries around the
globe.
Procedurally, it could be foreseen, owing to the small size of EFTA, that deals could be
concluded more quickly than they might be within the EU. This would allow for
advantageous situations where UK firms could enjoy new market access ahead of European
competitors (EFTA's deal with South Korea came into force on 1 September 2006, whereas
the EU's only did so on the 1st July 2011), provided of course that they were to secure
similar levels of access as they would otherwise have been able to negotiate as part of the
EU bloc.
A brief examination of the EFTA partnership reveals highly divergent interests. Switzerland
and Norway, the two main members, frequently clash over key tenets of trade policy with
third countries, both as a result of their geographic peculiarities, individual political and
economic interests. For example, Norway wishes to see the inclusion of binding human
rights clauses into trade agreements whereas Switzerland remains less concerned.
Switzerland's key interests in services and pharmaceuticals are not shared with Norway.
One might counter this argument by pointing to an ability to tailor deals more specifically to
EFTA countries, which enjoy less competing interests than the EU counts among its member
states.
Costs
In light of the UK's large trade volumes with other EU Member States, it is vital that the UK
retain influence of the rules by which the game is played, as well as the body responsible for
refereeing those rules. Both these exigencies would become problematic if the UK were to
join the EEA.
Norway, as an EEA member, is required to abide by EU regulations relating to the Single
Market, regulations covering product standards, in addition to EU social and employment
laws. However, the UK would retain no voting rights in the EU decision-making process.
This lack of influence would be felt in all three institutions as the UK would no longer send a
Commissioner to serve in the European Commission, would no longer send ministers to the
European Council and no longer send MEPs to the European Parliament as there is no
directly elected representation for non-EU countries.
31
As a consequence, a scenario could be foreseen in which the UK loses its ability to shape
laws covering financial as well as employment and social regulation to its advantage. These
laws are of less importance to Norway owing to its small financial services industry and high
social costs, which are greater than those imposed by the EU.
Moreover, the UK would of course be obliged to adapt to a new set of technical rules (which
owing to the unique composition of Norwegian exports do not apply to the same extent as
would be the case for the UK) under the EEA agreement that would be tedious, costly and
disruptive to trade.
The prospect of loss of unfettered free movement of goods would probably be unacceptable
to a number of important and largely foreign-owned UK manufacturing sectors such as
vehicles, chemicals and processed foods. And it would certainly be unpopular with most
continental exporters to the UK.
Conclusions
Firstly, it is not clear whether or not the EEA states would accept a new member as large as
the UK. The UK's accession would fundamentally alter the composition of the association
and the legal requirements necessitated by such a change would be complex and require
difficult negotiation.
The Norwegian Government has itself drawn up a report which states, "In the United
Kingdom the EEA Agreement has also attracted a certain degree of attention at times...
However, the EEA has not been subjected to a systematic analysis, and it is unclear whether
it is seen as a realistic alternative.
An in-depth analysis on what such a move would mean for the UK has yet to be modelled.
A Free Trade Agreement or "Swiss Option"
What is it?
The UK would seek to conclude a new bilateral treaty with the EU in the form of a Free
Trade Agreement (FTA). It would not be a member of the EEA, indeed this option would be
a step further away from the "Norwegian option", similar to Switzerland's current relationship
with the EU.
It is worth noting from the outset that the Switzerland-EU FTA is a particularly idiosyncratic
model, driven by the particularities of the Swiss economy and Switzerland's relationship with
EU Member States. Therefore, when considering this option it is not clear what shape or
form a potential UK-EU FTA would take, as the Swiss model is so unique, and
consequently, it is instructive mainly in form, rather than in content.
Current EU-Switzerland relations consist of three elements: the original 1972 Free Trade
Agreement, and pacts subsequently updated in 1999 and 2004 known as "Bilaterals I" and
"Bilaterals II". The package allows Swiss companies tariff and duty free access to the EU's
Single Market in the areas covered.
The deals cover a variety of areas, including the free movement of persons, access to the
EU procurement market, certain technical barriers to trade including NTBs, customs
facilitation, as well as mutual certification which allows for the testing and admission of Swiss
products to the EU under the supervision of a single regulatory authority.
32
In addition, some Swiss agricultural products enjoy tariff reductions and Swiss researchers
are granted access to some EU research programmes. Switzerland also partakes in the
Schengen agreement and cooperates across a range of justice and home affairs issues,
including immigration and policing. Crucially, negotiations covering services liberalisation
were suspended following nine months of negotiations.
Benefits
One reason frequently adduced in favour of the Swiss model concerns its democratic
legitimacy and accountability. Swiss politics is defined by its direct link with Swiss citizens,
with frequent referenda across a number of issues, with EU trade being no exception. The
"Bilaterals I" and "Bilaterals II" packages were both put to voters, albeit in different forms,
with the former achieving the approval of 67.2% of Swiss voters while the Schengen
component of the latter attained 54.6%.
Similarly to Norway and other EFTA countries, Switzerland is also exempt from EU policies
such as the CAP, CFP (not so important in this case) as well as regional policy. However,
Switzerland does contribute to regional development in the newest Member States of the EU
on a voluntary basis. Moreover, Switzerland does not, unlike EEA members, have to
implement EU internal market legislation relating to social and employment law, including the
Working Time Directive and the Agency Workers Directive, however, Switzerland does
implement some EU equivalent legislation in the framework of its bilateral deals with the EU.
Importantly, and unlike the EEA, Switzerland's accords with the EU do not involve explicit
transfers of legal or decision making powers to Brussels or any supranational authority.
Therefore, on paper, the Swiss retain the ability to refuse implementation of provisions which
would trigger new negotiations between the two sides.
Costs
Firstly, Switzerland enjoys very little influence and no formal say in the EU decision making
process. Unlike EEA members, the Swiss have no observer rights or participation status,
they must use various formal and informal outside channels to influence and debate
legislation within the EU institutions.
Additionally, many of the extant agreements are based on either equivalent EU legislation or
on simple adoption of existing EU law, such as is the case with product standards and
access to procurement markets, as well as the rules governing the Schengen Agreement.
These are laws which were introduced following EU debate in EU legislative forums, to
which the Swiss are not party.
A major bureaucratic challenge is also presented by the administrative arrangements
covering bilateral agreements. The mechanisms employed to oversee the accords foresee
amendments only in case of mutual agreement and are not subject to a principle of
automaticity. In practice this means that, particularly in areas of equivalence such as
technical barriers to trade, the standards require constant updates under unanimity for
Switzerland to enjoy access to the Single Market. This situation is further complicated by a
lack of a court or surveillance authority enforcement and dispute settlement mechanisms.
This absence of dynamic and flexible relations creates additional inconveniences. For
example, if the EU adopts new legislation in areas where the two parties do not enjoy a
bilateral agreement, Swiss firms can find themselves having to deal with market access
issues as a result of new barriers to trade. The REACH Regulation had a significant impact
on the Swiss pharmaceutical industry which conducts a large part of its trade with the EU
market.
33
The requirements of REACH, which stipulates that manufacturers register certain

information relating to their products with the European Chemicals Agency, has resulted in
significant and complex certification issues. Having considered the parallel creation of an
agency in Switzerland, the Swiss authorities have concluded that this would lead to
extensive duplication. As a result, Switzerland is now exploring the possibility of a new
agreement with the EU in this sector.
One area of particular relevance for UK concerns Switzerland's service sectors, especially
financial services, and this should be considered at length. Negotiations for a bilateral deal
on services floundered in 2003. EU legislation does not apply to Switzerland as it is not part
of the EEA and although there is an agreement covering financial services, it is not greatly
used as most large Swiss providers have set up subsidiaries in the EU. However, the
smaller Swiss firms that are not able to establish subsidiaries are significantly impacted. So
the status quo, by which movement on services is covered by the existing agreements, only
allows for selective coverage under a range of different instruments for companies based in
Switzerland. For example, Switzerland has the right to provide services for a period not
exceeding 90 working days per calendar year. This represents a significant missed
opportunity for Swiss firms; indeed, some studies indicate that if the Swiss were to
implement the EU's Services Directive, the gains achieved would be significant.
Since the financial crisis, the EU has been in the process of significantly reforming the
regulatory framework for financial services. This includes provisions to force financial
institutions "on shore" resulting in Swiss banks having to weigh up by means of new costbenefit analyses whether or not the cross-border side of their business is still viable and
should be maintained. In this regard, the Swiss authorities noted in 2009 (before most EU
legislation had been drafted or is now due to be implemented) that "the existing barriers to
market access place Switzerland at an economic disadvantage."
The Swiss Federal Council has also noted that, "Switzerland loses out in terms of jobs, value
creation and tax receipts. This also makes it difficult to obtain economies of scale and thus a
more cost-effective handing of financial services." The large costs of opening EU-based
subsidiaries effectively leads to a situation where many SMEs cannot afford access to the
EU market. This situation is not likely to improve in the face of the new drive towards a new
regulatory regime in the EU.
Switzerland's authorities are not helpless in the face of this reality, however. The Swiss
government is actively exploring a number of options to improve the current situation:
1. Mutual recognition of equivalence and regulation to ensure that Switzerland's
regulatory framework meets EU requirements. In this regard, a formal process has
already been agreed between the European Commission and Switzerland with the
objective of the EU recognising equivalence on Swiss law, which will seek to mirror
the Solvency II Directive.
2. Voluntary alignment of Swiss national law to EU law as such has already taken place
with the MiFID Directive whereby Swiss banks have adopted its requirements.
However, this applies only in so far as the EU is willing to recognise Swiss provisions
as equivalent to their EU variant.
3. A new financial services agreement with the EU, building on progress made before
talks broke down in 2003. This must be done to take account of barriers existing at
an EU level and within EU Member States.
With regard to direct financial contributions to the EU, although Switzerland does not
contribute to the EU budget in the manner of Member States, and is exempt from the CAP
and regional policy, it contributes financially in other ways. These indirect contributions
34
result from both Swiss acceptance of a need to ensure good relations with EU Member
States and the direct demands of the EU with regards to transport infrastructure.
Switzerland contributes by means of a "Memorandum of Understanding" to support the EU's
cohesion policy objective following the last round of enlargement. Currently, Switzerland
contributes CHF1.3bn a year to develop new EU Member States and the Swiss authorities
spent 15bn on the Alps Transit project or transalpine railway network (NEAT), a project of
little direct benefit to Switzerland other than to satisfy EU demands for access through its
territory.
Conclusions
One important consideration which must be borne in mind is the uncertain future faced by
EU-Swiss trade relations. Since 2008, Switzerland-EU bilateral deals have come under
increasing pressure from Brussels. Both the Council and the Commission are keen to
generate a paradigm, with a more comprehensive arrangement under consideration. The
European Council has explicitly called for a more comprehensive approach, including
stepping up enforcement and dispute settlement mechanisms to provide for increased
compatibility of Swiss and EU law, and importantly, for decisions to be made by the
European Court of Justice (ECJ).
The Council concluded that, "while the present system of bilateral agreements has worked
well in the past, the challenge of the coming years will be to go beyond this complex system,
which is creating legal uncertainty, has become unwieldy to manage and has clearly reached
its limits." Furthermore, the Swiss government has itself committed to, "looking at the
possibility of dynamically adjusting the agreements to comply with new EU legislation, how
to ensure the coherent application and consistent interpretation of future agreement and the
development of an effective dispute procedure."
Nevertheless, the Integration Office of Switzerland has declared that, "Any solution must
respect the sovereignty of both parties and the efficient operation of their institutions." The
future is far from clear, and what shape future EU-Switzerland relations will take remains to
be seen, allowing an element of uncertainty and demonstrating the implicit tensions within
trading relations. What is clear is that the current system is seen as unsustainable by EU
Member States.
The Turkish Option, member of the customs union outside the EU Treaties and
Institutions
What is it?
As is the case with the use of the "Swiss example", it is useful to bear in mind that the
Turkey-EU customs union, while setting a useful precedent, is the product of a unique set of
geo-political circumstances which were and are themselves designed in the context of a
supranational transition towards full EU membership. Despite the current difficulties in the
relations between Turkey and the EU, the Turkish government remains fully committed to
Turkey's entry into the EU .
If the UK were to remain within the customs union, it would continue to enjoy the free
circulation of goods
Benefits
As both the "Norwegian option" and the "Swiss option", a relationship with the EU modelled
on Turkey's would mean the UK would not contribute to the CAP, CFP or regional policy.
35
However, it could be foreseen that the UK would be obliged to provide funding in one way or
another as we have seen with the EEA states and the Swiss. Furthermore, Turkey does not
subsidise the EU budget; in fact, it is a major recipient of EU pre-accession funding.
Moreover, the UK would not be obliged to implement EU labour and social laws, leaving it
more room for manoeuvre and flexibility when deciding its domestic legislation. It would also
gain the ability to negotiate on behalf of its domestic services sector with third countries
independent of the EU, however, the UK's access to the EU's services market would be
governed by a new agreement, possibly along the lines of the agreements that Switzerland
currently shares with the EU. This would entail the market access problems that have
already been outlined in the analysis of the ''Swiss option''.
This option, of remaining in the customs union, would have the benefit of enjoying the free
movement of goods, without hindrance. In addition, the UK could also cooperate with the
EU through its own seat at the WTO in Geneva. As already pointed out, this new
arrangement would not necessarily preclude the UK from striking deals with other trade
partners in the field of services that would go further on services liberalisation than the EU's.
It could be argued that neither GATT Article XXIV nor the GATS Article V contain specific
provisions that would prevent the UK from imposing, on average, lower barriers to third
market imports, than existed previously on an individual country basis.
Costs
An examination of Turkey's customs union agreement with the EU quickly illustrates one of
the main problems that Turkey faces. The agreement foresees that Turkey must adopt the
EU Acquis' provisions on technical barriers to trade in addition to product regulations, rules
on competition and state aid. In the customs union the EU would have the power to adopt
Acts through a decision making process in which the UK would have no formal political
power.
This is not such an issue for Turkey, which as a candidate country, is required to adopt the
EU Acquis prior to accession; however, the UK would not be negotiating to join the EU,
rather it would be going in the opposite direction. This peculiarity would create significant
problems for the UK given that the EU's uniform product regulations would apply to goods in
the Great Britain's domestic market, regardless of whether or not they were to be exported to
the EU.
Coupled with this, the UK would to a large extent be losing its ability to influence future
possible internal liberalisation of the single market. The Single Market would not have taken
the shape it has today it not been championed by Baroness Thatcher and it is hard to
imagine that the EU would become more liberal if the main proponent of free trade both
within and without the bloc were to leave.
It could be foreseen that a consequence of the weakening of the free trade lobby within the
EU could lead to a situation whereby any deal struck with the EU on services (for such a
deal would be necessary) would entail less market access than that currently enjoyed by the
UK as part of the EU. Furthermore, the difficulties encountered by Switzerland in negotiating
a deal in services demonstrate the potential obstacles faced by the UK.
There would also be limited room for manoeuvre in negotiating external trade agreements on
trade in goods. Article 16 of the Turkey-EU custom union agreement requires that Turkey
align its own commercial policy with that of the EU so that a common external tariff on goods
can be maintained. If the UK were to be a member of the customs union, it would be
required to do likewise.
36
However, in order to align its commercial policy, the UK would be obliged to conclude FTAs
with any third country with which the EU has signed one with and on the same terms. This
would create critical difficulties, as not only would the UK be left out of negotiations, but the
EU could sign FTAs without any real consultation with the UK. This could lead to a situation
whereby the UK might in some instances be forced to sign deals with countries from which it
might not gain significant concessions.
It remains an open question as to whether third countries would be willing to negotiate deals
with the UK, or at least would negotiate at a snail's pace. A preferential deal with the EU
means that third countries can export indirectly without tariffs, via the EU, whilst needing only
to grant access to EU, and not Turkish goods. The EU now includes a "Turkish Clause" in
its bilateral trade deals, which asks trading partners to negotiate a similar agreement with
Turkey. Despite this, Turkey remains dependant on EU enforcement of this article.
Another problem is that the EU's FTA negotiations result in trade-offs between issues of
importance to third countries and the EU Member States, priorities which may differ to those
of Turkey or which are not even covered by its customs union agreement with the EU. This
includes an emphasis on high-end goods and agreements on services and intellectual
property. However, as one report has noted (See 54) this leads to an asymmetrical and
unsustainable relationship that can only be maintained over the longer term if concrete
progress is made towards Turkey's full membership of the EU.
Conclusions
This model's attractiveness depends entirely on how the UK could influence the EU, and
how appealing its market would be to third countries. The Turkish relationship is largely
based on its candidacy status. The UK could seek to negotiate an agreement with the EU,
based on a customs union with free movement of goods and rights of access to the EU for
UK services businesses. Other sections could be negotiated to cover intellectual property,
investment, public procurement and competition. While maintaining access to the market
and remaining within the customs unions, the UK would see its trade policy largely directed
by the EU, an obligation that would considerably limit its sovereignty regarding trade policy.
WTO Option
What is it?
The UK could leave the EU and fall back upon the current multilateral trading system in
place, that of the WTO. Most favoured nation tariffs would apply to UK exports while the UK
would use the WTO framework to establish its own trading regime with trading partners.
This break with the EU would have to be done in the context of Article 50 TFEU; this would
give the UK the right to withdraw unilaterally if a mutually agreed basis for it doing so could
not be negotiated within two years of the UKs original notification to the European Council of
its intention.
Benefits
This option would return full sovereignty and the UK would be free to negotiate trade deals
with willing partners, it would maintain the right to negotiate these deals specifically within
WTO rules to best suit specific trading interests.
Moreover, the UK would no longer be obliged to take part in the CAP, CFP or the EU's
structural and cohesion funds and would not contribute to the EU budget.
37
Costs
If this action were to be taken then the UK would no longer be party to FTAs negotiated by
the EU on its behalf. In the absence of preferential trade agreements with the EU and other
countries the UK would have to pay MFN rates on all exchanges until new regimes could be
put in place, a process that could take many years, and could cause permanent damage to
the UK economy.
This would be extremely damaging and destabilising for UK business, which would be forced
to adapt to a radically different trading regime, unless the UK can assign some of the
existing EU arrangements to a bilateral agreement.
Manufactured exports could be particularly badly hit, and exports to the EU could face the
same tariffs as countries like the USA, China and Japan which all have no preferential
regime in place with the EU. According to one expert, "World Trade Organization (WTO)
statistics give the weighted average of such tariffs as 2.7%, which may sound low. But over
half such imports enter the EU duty-free. That suggests that around half the UKs
manufactured exports to the EU would face an average tariff of over 5%, a decisive
handicap in many price sensitive markets. UK car exports to the EU would be particularly
hard hit as the EU tariff on completely built units is 10%.27" Of course, the UK Government
could make efforts to mitigate the damage.
The potential loss of competitiveness of UK business could result in pressure on the
Government to introduce protectionist measures to ensure the short term survival of UK
companies. Foreign firms might see the UK as a less attractive location for their outward
investment as the UK would no longer remain within the world's largest market. In addition,
the UK would lose its influence within the Single Market, allowing for continental rivals to
negotiate the rules of the EU in their favour, giving preferential treatment to domestic
producers.
The Options for change

The colour-coding used below for possible UK action follows the categorisation for all the
Fresh Start Projects Green Paper chapters. Green are those measures that can be
achieved within the current EU legal framework; Amber are those measures that require
negotiated EU treaty change; Red are those steps that the UK could take unilaterally that
would involve breaking its treaty obligations.
A number of options exist for the UK to minimise the costs of membership of the EU.
Specific ideas on how to improve the CAP, CFP, Regional Policy and Social Policy have
been covered in other chapters of this Green Paper.
Further, the UK has a number of options to maximise the benefits of full EU membership.
It can continue to press for the EU to negotiate free-trade agreements with countries and
trading blocs throughout the rest of the world. The EU is currently pursuing a number of
bilateral FTAs with Canada, Singapore, India, and Mercosur. The UK could push for the EU
to add more resource to its efforts to expand free trade through bilateral deals, and through
27
Vacuity of UKIP's flagship policy, Ronald Stewart-Brown, Conservative Home, April 11, 2010.
38
the WTO.
The UK also has a number of options to enhance the ability of UK businesses to compete in
the wider world. The government can continue to develop bilateral relationships to help UK
businesses prosper in non-EU markets. In many respects, the UK is well placed to access
these markets through historical ties, and through the Commonwealth.
The UK could continue to negotiate the completion of the single market, particularly in
services to increase opportunities for trade for UK businesses.
The UK could place greater emphasis on trying to secure an economic portfolio, such as the
Trade Directorate, in the next European Commission.
The UK government could seek a unilateral brake on EU financial services regulation

through a legally binding protocol attached to the Treaties. This would assert the special
reconsider proposals that impact disproportionately on the UK, and would give the UK a right
of appeal for any proposal before it had been agreed by the Council and European
Parliament. This would give the UK a veto, because unanimity applies at the European
Council level.
The UK could negotiate changes to the treaties to allow member-states to pursue their own
bilateral deals on investment.
If the EU bureaucracy and regulation prevents the UK from developing global reach and
makes the intra-EU trade no longer attractive, each of the alternative models described
above would constitute withdrawing from our existing EU treaty obligations.
39
A clean break:
the WTO
option
WTO only
A stripped back
customs union
with the EU: the
Turkish option
Turkey
A free trade
agreement a
tailored bilateral
deal: the Swiss
option
Switzerland
The EEA
nearly but not
quite an EU
member: the
Norwegian
option
EEA
Full EU
membership
EU
Conducted under the

EUs Common
Commercial Policy
CCP) and EU FTAs.
Full access via the

customs union. Additional
four freedoms: labour,
capital, goods and
services.
Full access via EEA
agreement subject to
rules of origin (ROO).
Four freedoms.
Subject to the EU's

CCP for industrial
goods and
processed
agricultural products
but not agricultural
produce. Required to
start FTA
negotiations with any
country that signs a
EU FTA.
MFN, trade
conducted by UK
acting alone at WTO.
Full access for goods.

Agricultural products and
services are not covered
by the customs union, as
customs unions only
cover physical goods.
All trade conducted under

Most Favoured Nation
(MFN), with tariffs applied
on EU trade subject to
any Free Trade
Agreement (FTA)
negotiated.
Conducted under
EFTAs FTAs or
separate bilateral
agreements.
Access in most areas

subject to ROO. Limited
access in services. Free
movement of labour,
capital and goods.
Conducted under
EFTAs FTAs or
separate bilateral
agreements.
Non EU trade
Access to Single
Market
40
None
None
None
All
All
Social +
Employment
legislation
EU
regulations
only for
exports to
the EU
All
All
(voluntarily)
All
All
Product
regulations
No
Contribution for
areas of
participation on
a % GDP basis.
+ Voluntary
contribution to
EEA grants fund
Voluntary
contribution to
Swiss
development
fund and EU
infrastructure
No
Yes
EU budget
contributions
No
No
No
No
Yes
CAP, CFP
and
regional
policy
Full
sovereignty,
but no
influence on
EU.
Product
regulations
apply. Limited
scope to
influence CCP
in goods.
Bilateral
adoption of
regulations
Limited
influence and
no votes.
Regulations
legally
enforceable.
Ability to
influence and
vote (or be
outvoted).
Sovereignty
Chapter 2
Regional Development Policy
The summary
For many years the EU has run its own regional policy across all Member States. All EU
regions in every Member State are given money under this policy, from the EU budget.
This regional policy is implemented primarily through the Structural Funds the European
Regional Development Fund (ERDF) and the European Social Fund (ESF).
Over the period 2007-2013, provision for EU spending on the Structural Funds amounts to
around 280 billion almost 30% of the total EU budget.
It is estimated that the UK will be making a net contribution to the Structural Funds (and to a
much smaller EU Cohesion Fund that only gives money to the poorer Member States) of
around 21 billion over 2007-2013. This is the UKs contribution after the money it receives
from the Structural Funds is taken into account.
The Structural Funds have serious flaws. These include:
o
Allocation of special support is based on EU regions that are too large missing pockets of
relative poverty and high unemployment.
Planning of spending is often based on EU regions that do not fit local economic and
political realities.
They have a top-down structure; all spending plans require the approval of the European
Commission and should comply with EU guidelines. This can frustrate local innovation.
The EU will only provide some of the money for Structural Fund projects, with the
remainder having to be found in the Member State in question. This can divert money from
better-tailored national and local projects so as to unlock cash from the EU.
There are no rigorous performance criteria linking disbursement of funds to clear results.
Indeed, think-tank Open Europe found no conclusive evidence that the Structural Funds
have had a positive overall impact on growth, jobs and regional convergence in the EU.
There are excessively bureaucratic rules on how the Funds must be administered.
For wealthier Member States especially, the Funds irrationally recycle large amounts of
money, via Brussels, not only within the same country, but also within the same regions.
Negotiations among Member States and the EU institutions are now taking place over the
shape and size of the Structural Funds for the period 2014-2020. New EU legislation on the
Funds will be required:
o
The European Commissions proposals would retain most of the current shortcomings of
the Structural Funds, and in some cases would exacerbate them. In particular, the Funds
would continue to spend money in all Member States. This would continue the large-scale
recycling of money from richer Member States to Brussels and back again.
43

Negotiate significant reform of the Structural Funds, while accepting their continued coverage
of richer Member States.
Reforms could include: limiting the size of the Funds and concentrating more of their resources
on the poorer Member States; reducing top-down control of spending plans; and linking
disbursement of money to the achievement of rigorous performance targets.
It should be possible to find broad support for this at EU level, though much would depend on
the detail. It would mean that EU regional spending, based on EU regions and overseen by the
European Commission, would continue to exist in the UK.
Negotiate the repatriation of regional spending in richer Member States, focusing the Structural
Funds solely on the poorer EU countries, which would reduce the total EU budget by around
15% (based on figures for the 2007-2013 period).
As richer Member States are capable of funding their own regional policy, this should be
determined at national rather than EU level in these countries, bringing decision-making closer
to the people it affects and stopping needless recycling of money.
Open Europe estimates that if this approach had been followed over 2007-2013, all but 5
Member States would have seen a net saving ie. a saving after taking into account any removal
of Structural Fund receipts. The UK would have made a net saving of up to 4.2 billion over the
period. France and Germany would also have derived significant net savings. Spain, Italy and
Greece would have seen significant net losses.
The most likely way of achieving and cementing such reform under the EU treaties may be
to win round those Member States that would lose out, by offering them a strictly time-limited
transitional fund.
Negotiate to abolish the Structural (and Cohesion) Funds, taking development aid to poorer EU
countries out of the EUs hands.
This would require amendment of the EU treaties, which would need the approval of all
Member States. Some poorer EU countries would probably be fiercely opposed, though the UK
could offer bilateral development aid to them instead of trying to support them through the EU
budget.
Refuse to pay the relevant contributions to the EU budget until adequate reform of the
Structural Funds is achieved, should initial attempts at change fail.
This would be a breach of the UKs EU treaty obligations, in international law. Other Member
States might take countermeasures under international law. However, this action might help
force a meaningful negotiation if other Member States had previously refused to take the UK
seriously.
44
The introduction
Particularly since the late 1980s, the EU has run its own regional policy that extends across all
EU Member States. This policy is implemented primarily through what are called the Structural
Funds the European Regional Development Fund (ERDF) and the European Social Fund
(ESF).28
The existence and very broad objectives of the Structural Funds are provided for in the EU
treaties, which say:
The European Regional Development Fund is intended to help to redress the main
regional imbalances in the Union [EU] through participation in the development and
structural adjustment of regions whose development is lagging behind and in the
conversion of declining industrial regions.29
The European Social Fund shall aim to render the employment of workers easier and to
increase their geographical and occupational mobility within the Union, and to facilitate their
adaptation to industrial changes and to changes in production systems, in particular through
vocational training and retraining.30
Since 1994, the EU has also had the Cohesion Fund (CF). The EU treaties say this Fund shall
provide a financial contribution to projects in the fields of environment and trans-European
networks in the area of transport infrastructure.31 In fact, the Cohesion Fund has always been
focused on Member States who have a per capita economic size below 90% of the average for
EU countries. It is therefore not based upon regions, but the position of Member States as a
unit. The UK has never qualified for support from the CF.
The EU treaties then allow for the adoption of EU legislation that elaborates the tasks, priorities
and organisation of the Structural Funds and Cohesion Fund.
The Structural and Cohesion Funds are spent as part of the annual EU budget (which the UK
cannot veto under EU procedures). However, the annual EU budget must respect the ceilings
on expenditure laid down in the EUs multiannual financial framework (MFF). This framework
sets ceilings on EU spending in broad policy areas for several years ahead (so far, it has
always covered seven years at a time). The MFF is adopted by unanimity among Member
States.
The current MFF runs 2007-2013 inclusive, and sets the limit on financial provision for the
Structural and Cohesion Funds for that period. This amounts to almost 350 billion around
35% of the total EU budget.32
28
: Article 174 TFEU also identifies what is now the European Agricultural Fund for Rural Development
(EAFRD) as one of the Structural Funds. However, EU legislation on the EAFRD does not class it as a
Structural Fund it is the so-called Pillar 2 of the Common Agricultural Policy (CAP). The CAP is
covered by another chapter in this Green Paper.
29
: Article 176 of the Treaty on the Functioning of the European Union (TFEU, one of the EU treaties).
30
: Article 162 TFEU.
31
: Article 177 TFEU.
32
: http://ec.europa.eu/budget/figures/fin_fwk0713/fwk0713_en.cfm#cf07_13.
45
The detail
Given their inherent connection with the MFF, the EU legislation currently governing the
Structural and Cohesion Funds33 is also written to cover the period 2007-2013.
This legislation breaks down the Funds resources on an EU-wide basis:
81.5% of the circa 350 billion (around 284 billion) goes towards the convergence
objective. This objective is defined as speeding up the convergence [with the other
Member States and regions of the EU] of the least-developed Member States and regions.
Within this, around 70 billion is earmarked for the Cohesion Fund. The convergence
objective is financed by both of the Structural Funds and the Cohesion Fund.
16% (around 56 billion) goes towards the regional competitiveness and employment
objective. This will, outside the least-developed regions, be aimed at strengthening
regions competitiveness and attractiveness as well as employment. This objective is
financed by both of the Structural Funds, but not the Cohesion Fund.
2.5% (around 8.7 billion) goes towards the European territorial cooperation objective.
This is aimed primarily at strengthening cross-border cooperation through joint local and
regional initiatives.34 This objective is funded only by the European Regional Development
Fund. Given the comparatively small amount of money dedicated to this objective, this
chapter will focus on the other two objectives described above.
The Member States regarded as least developed for the purposes of the convergence
objective are those eligible for finance from the Cohesion Fund. These are Member States with
a per capita Gross National Income (GNI) that is less than 90% of the average for the EU-25
(all EU countries apart from Bulgaria and Romania).35
The regions regarded as least developed are, in the main, those with a Gross Domestic
Product (GDP) less than 75% of the average in the EU-25.
All regions in the EU that are not eligible for money under the convergence objective are
eligible for funding under the regional competitiveness and employment objective. This means
that all regions in the richer EU countries receive some money from the Structural Funds.
In the UK, there are two EU regions that currently qualify for convergence objective money on
the grounds that their GDP per capita is less than 75% of the EU-25 average West Wales
and The Valleys and Cornwall and Isles of Scilly. The remainder of EU regions in the UK, with
one exception, receive money under the regional competitiveness and employment objective.36
33
: Council Regulation 1083/2006; Regulation 1080/2006; Regulation 1081/2006; Regulation 1082/2006;

Council Regulation 1084/2006.
34
: This mainly involves EU regions on either side of national borders within the EU (including maritime
borders, where, as a general rule, the regions are separated by a maximum of 150km of sea).
35
: The Member States that fall into this category are the 12 countries that have joined the EU since
2004, plus Greece and Portugal. In addition, Spain is given access to the CF, on the basis that it has a
GNI per capita less than 90% of the average of the 15 countries that were the EUs members before EU
enlargement into Central and Eastern Europe in 2004.
36
: The exception is the Highlands and Islands region in Scotland. This receives money under the
convergence objective, on the basis that it has a GDP below 75% of the average of the 15 countries that
made up the EU before EU enlargement in 2004.
46
The EUs NUTS regions

EU legislation37 divides each Member State up into certain regions under the so-called NUTS
system.38 This is primarily for the purpose of gathering and analysing statistics, but the
Structural Funds regime also draws heavily on NUTS regions. There are three levels of NUTS
regions layered on top of each other, with the largest (in terms of population) being NUTS 1
regions, decreasing to NUTS 2, and then the smallest NUTS 3.39
The EU legislation governing the Structural Funds provides that convergence objective money
from these Funds is only allocated to NUTS 2 regions. West Wales and The Valleys40 and
Cornwall and Isles of Scilly41 are both NUTS 2 regions.
It seems that money under the regional competitiveness and employment objective is not tied
so closely to particular geographical areas but a Member States allocation is still determined
with reference to NUTS regions.42
Moreover, Structural Fund money is only actually disbursed through operational programmes.
These are documents drawn up in the Member State in question, and which set out priorities
for action over the period 2007-2013 and how they will be financed by the relevant Structural
Fund (there must be separate programmes for the ESF and ERDF). The operational
programmes also set out the national authorities that will manage programme delivery and
select projects for funding.
Under EU rules, operational programmes for regions receiving ERDF money under the regional
competitiveness objective must be drawn up at the level of NUTS 1 or NUTS 2 regions, unless
the European Commission agrees otherwise.
There is no clear restriction on the geographical area that must be covered by ESF operational
programmes under the regional competitiveness objective.
Operational programmes for both the ERDF and ESF under the convergence objective must at
least cover the eligible NUTS 2 regions i.e. they cannot cut across those regions.
Operational programmes in the UK
Given the period involved, the UKs current operational programmes were first drawn up under
the previous Labour Government.
Regional development, including the delivery of the Structural Funds, is also a devolved matter
in Scotland, Wales and Northern Ireland.
37
: Regulation 1059/2003.
: NUTS is a French acronym for Nomenclature of territorial units for statistics.
39
: In the UK, Scotland, Wales and Northern Ireland are each a NUTS 1 region. England is divided into
nine NUTS 1 regions, which correspond to the areas that were covered by the now-defunct Government
Offices for the Regions: North East, North West, Yorkshire and The Humber, East Midlands, West
Midlands, East of England, London, South East and South West. NUTS 2 regions typically consist of
groups of county councils/unitary local authorities. NUTS 3 regions usually cover a single county
council/unitary local authority or a group of two or three unitary authorities.
40
: Comprising the unitary local authorities of the Isle of Anglesey, Gwynedd, Conwy, Denbighshire,
Carmarthenshire, Ceredigion, Pembrokeshire, Merthyr Tydfil, Rhondda Cynon Taff, Blaenau Gwent,
Caerphilly, Torfaen, Swansea, Bridgend and Neath Port Talbot.
41
: Comprising the unitary local authorities of Cornwall and the Isles of Scilly.
42
: There is an exception for a couple of regions in the UK, Merseyside and South Yorkshire, which
qualify for particular transitional funding under the regional competitiveness objective, which is only
allocated to specific NUTS 2 regions (of which they are cases).
38
47
In Scotland, there are ERDF and ESF programmes for the NUTS 2 Highlands and Islands
region, which under the EU legislation has ring-fenced funding under the convergence
objective. There is then an ERDF and an ESF programme for an area termed Lowlands and
Uplands Scotland which covers the three other NUTS 2 regions in Scotland, which receive
money under the regional competitiveness objective.
In Wales, there are ERDF and ESF programmes for the NUTS 2 region West Wales and The
Valleys, which gets dedicated funding under the convergence objective. There is then an
ERDF and an ESF programme for the other NUTS 2 region covering the rest of Wales, East
Wales, which receives money under the regional competitiveness objective.
Northern Ireland is classed as both a NUTS 1 and NUTS 2 region, and has two operational
programmes, one for the ERDF and one for the ESF.
In England, there is a single operational programme for the ESF. This includes the ring-fenced
allocations for Cornwall and Isles of Scilly under the convergence objective and for
Merseyside and South Yorkshire under the regional competitiveness objective. It also
includes allocations determined by the UK Government for the nine NUTS 1 regions of England
(excluding those areas just mentioned with EU-determined allocations).
For the ERDF, there are ten operational programmes in England one each for the nine NUTS
1 regions, while Cornwall and Isles of Scilly has its own, separate from the rest of the South
West. Merseyside and South Yorkshire receive their ring-fenced allocations within the ERDF
programmes for the North West and Yorkshire and The Humber respectively.
All in all, the UK is receiving around 10.6 billion (about 8.7 billion) of EU Structural Funds
through its operational programmes, over the period 2007-2013.43
Shortcomings of the Structural Funds
Very ineffective EU-level redistribution
Under the EUs principle of subsidiarity, the EU shall act only if and in so far as the objectives
of the proposed action cannot be sufficiently achieved by the Member States, either at central
level or at regional and local level, but can rather, by reason of the scale or effects of the
proposed action, be better achieved at Union [EU] level.44
Clearly, any redistribution of resources within a Member State could easily be done by that
Member State, without EU involvement. This would allow the redistribution to take place at a
lower level and would be consistent with the principle of subsidiarity.
However, with the Structural Funds, and especially the ERDF and areas receiving special
funding under the ESF, Member States pay into the EUs coffers, only to receive money back
for particular regions in their territory, with EU rules attached.
This is particularly irrational in the case of the wealthier Member States, who should be able to
afford their own regional policy without external assistance.
Open Europe has estimated that the UK will be making a net contribution to the Structural and
Cohesion Funds over 2007-2013 of 25.3 billion (almost 21 billion).45
43
: European Commission, European Cohesion Policy in the United Kingdom, 2009, p.2; Open Europe,
Off target: The case for bringing regional policy back home, January 2012, p.9.
44
: Article 5(3) of the Treaty on European Union (TEU, one of the EU treaties).
45
: Open Europe, op. cit., p.9.
48
They also calculate that all the EU-15 (the 15 Member States before the EUs enlargements
from 2004) are net contributors to these Funds, apart from Spain, Portugal and Greece. All the
EU Member States that have joined the organisation since 2004 are net recipients.46
Focusing in on the Structural Funds alone, Open Europe calculate that not only do these entail
a huge amount of recycling of money, via Brussels, within the same country, but also within the
same region.
For the UK, while 70% of its Structural Fund flows go to other countries, 25% are taken from,
and then given back to, the same region. Only 5% are redistributed across regions within the
UK.47
Poorly targeted by location within countries
The EUs method of allocating the Structural Funds is based on regions that are simply too
large. As described above, eligibility for special support from the Funds is only calculated with
reference to NUTS 2 regions. This misses pockets of relative poverty and high unemployment,
the condition of which can be masked when they are viewed as part of larger regions. The
larger the regions, the worse this effect.
For example, Tower Hamlets in east London has high relative poverty, but it sits within the
NUTS 2 region of Inner London, which also includes Kensington and Chelsea and the City of
London. Hence, Inner London does not qualify for any special Structural Fund status.
At the same time, the Structural Funds allocation of significant amounts of scarce resources to
comparatively rich areas seems irrational, assuming the goal is convergence between regions.
Such spending only serves to reinforce disparities. Moreover, it runs the risk of crowding out
private investment that would have happened anyway (and probably more efficiently), given
that richer regions tend to find it easier to attract such investment.48
Top-down and not tailored to local needs
As well as misallocating resources, relying on EU-standardised NUTS regions can hinder
bottom-up, local planning of economic development, led by those who know the needs of their
area best. This is because NUTS regions, and plans based upon them, may not correspond to
local economic and political realities.
In England, the Coalition Government has abolished the Government Offices for the Regions,
and is scrapping the Regional Development Agencies that covered the same areas, largely on
the grounds that these were too remote from local communities. Instead, it has encouraged the
formation of Local Enterprise Partnerships (LEPs) between local authorities and local
businesses, to lead economic development in their respective areas. LEPs bring together
certain local authority areas; the great majority are far smaller than the Government Office
NUTS 1 regions, and many are smaller than NUTS 2 regions. There are LEPs that straddle
NUTS region boundaries; the Heart of the South West LEP takes in areas from two NUTS 2
regions, while the South East Midlands and Sheffield City Region LEPs also cross NUTS 1
region boundaries.49
46

: Ibid, p.14.
48
: Ibid, p.17.
49
: http://www.bis.gov.uk/policies/economic-development/leps/statistics.
47
49
As described above, however, in England there is a single ERDF operational programme for
each NUTS 1 region.50 These programmes set out broad priorities for the use of ERDF money
in their region, and allocate finance to each priority. The priorities do not stipulate in detail the
precise activities that will be funded, allowing some flexibility over this. However, all ERDF
activity in the relevant NUTS 1 region must accord with that regions programme. Given that the
ERDF has a particularly clear geographical focus, requiring it to be programmed on the basis of
regions that are artificially large or otherwise incongruous with facts on the ground seems
highly undesirable.
Another important aspect of the Structural Funds is that they will not provide all the finance for
operational programmes. In most areas of the UK, EU legislation limits the Structural Fund
contribution to 50% of programme costs, with the UK having to find the remaining finance, from
either public or private sources. This is called co-financing.
In general, the co-financing rule can divert money away from better-tailored national and local
projects, as if finance is not found for Structural Fund projects the EU money cannot be
accessed at all.
Furthermore, the co-financing requirement can make the Structural Funds economically procyclical in countries facing financial difficulties ie. the less money of its own a country has to
spend, the less it can get out of the EU Funds.51
Another indicator of the top-down nature of the EUs regional policy is the fact that, under the
EU Structural Funds legislation, operational programmes are supposed to be compatible with
Community strategic guidelines on cohesion, drawn up at EU level and adopted by the
Council by qualified majority voting (QMV).
Furthermore, all operational programmes must be approved by the European Commission.
Indeed, any alterations to the programmes to reflect changed priorities or practical
considerations must also receive the Commissions approval.
In addition, there are more specific restrictions and requirements imposed by EU legislation on
the use of Structural Fund money. For example, there are limits on the proportion of ERDF
money that can be spent on land purchases in usual circumstances, and on energy efficiency
measures in existing housing stock. This could restrict the best use of money for local needs.
Lack of focus
Overall, the Structural Funds lack focus on achieving their aims of boosting economic growth
and employment.
The Community strategic guidelines for cohesion include the following as one of the three
overarching objectives for the Structural and Cohesion Funds: improving the attractiveness of
Member States, regions and cities by improving accessibility, ensuring adequate quality and
level of services, and preserving the environment. They then go on to describe a wide range of
environmental objectives that the Funds can be used for, including investing in infrastructure to
meet the requirements of EU environmental legislation in the fields of water, waste, air, nature
and species protection and bio-diversity.
50
51
: With the exception of Cornwall and Isles of Scilly, which has its own operational programme.
50
The Structural Funds also lack rigorous performance criteria, whereby disbursement of the
Funds is linked to achievement of clear results in terms of economic development and
increased employment.52 As the European Commission has itself said, ...implementation has
focused more on successfully spending and managing funds and complying with control rules
than on how effective interventions are.53
Similarly, the Funds do not contain robust allocation criteria linked to a recipient areas socalled absorption capacity ie. the amount of money that can actually be put to productive
use.54 Particularly in the poorer Member States, absorption capacity is often held back by
administrative weakness, in that public authorities do not have the organisational strength to
administer the Funds. This can lead to significant disparities between the amount budgeted for
the Funds at EU level and the actual payments made.55
Think-tank Open Europe conducted an extensive review of literature that has examined
whether or not the Structural Funds have had a positive overall impact on growth, jobs and
regional convergence in the EU. They found no conclusive evidence that the Funds have had
such an impact. It seems quite clear that there are individual examples of the Funds leading to
improvements. The example usually cited is that of the Republic of Ireland, which received a
very large amount of money from the EU Structural and Cohesion Funds in the 1990s. Between
1987 and 2000, the countrys Gross National Product expanded by 140%, and between 1989
and 1999 its GDP rose from 72% to 111% of the EU average.56
Even in the Republic of Ireland, though, it is not clear how much of this economic turnaround
was down to the Structural and Cohesion Funds. One study has concluded that the EUs single
market and national Irish policies also played a significant role, while a World Bank paper
argued that the contribution of the Structural and Cohesion Funds was limited. Unsurprisingly, it
also seems that the use the Republic of Ireland put the Funds to was important it directed
quite a lot of money into developing its human capital, rather than hard infrastructure, and it
used the Funds to complement national structural reforms that liberalised the economy.57
The European Commission has itself said: Past experience suggests the funds in some
instances have not delivered expected outcomes due to unsound macroeconomic framework
conditions.58 The record of the Southern Mediterranean Member States, which also received a
lot of finance from the Structural and Cohesion Funds in the 1990s, is much more mixed than
that of the Republic of Ireland. It is still too early for a robust analysis of whether the Structural
and Cohesion Funds have contributed to economic improvement in the Member States that
have joined the EU since 2004.59
52

: European Commission, Impact assessment accompanying the document: Proposal for a Regulation
of the European Parliament and of the Council laying down common provisions on the European
Regional Development Fund, the European Social Fund, the Cohesion Fund, the European Agricultural
Fund for Rural Development and the European Maritime and Fisheries Fund covered by the Common
Strategic Framework and laying down general provisions on the European Regional Development Fund,
the European Social Fund and the Cohesion Fund and repealing Regulation (EC) No 1083/2006,
October 2011, p.14.
54
55
: Ibid, p.9.
56
: Ibid, p.10.
57
: Ibid, p.11.
58
: European Commission, Impact assessment on Proposal for a Regulation laying down common
provisions on the European Regional Development Fund, the European Social Fund, the Cohesion
Fund, the European Agricultural Fund for Rural Development and the European Maritime and Fisheries
Fund covered by the Common Strategic Framework and laying down general provisions on the
European Regional Development Fund, the European Social Fund and the Cohesion Fund, p.15.
59
53
51
Excessive bureaucracy
The European Commission has admitted: Both ex-post evaluations and feedback from
stakeholders reveal that day-to-day management of cohesion policy [Structural and Cohesion
Fund] programmes is perceived to be overly-complex...evidence indicates that the heaviest
costs are linked to the processes of applying for funding, everyday reporting by beneficiaries
[those receiving the money] and storage of documents.60
An evaluation for the Commission showed that administration costs for national authorities
dealing with the ERDF and Cohesion Fund was between 3% and 4% of the total money
allocated.61
One example of unnecessary rules is the detailed and intrusive requirements regarding
information and publicity, in the EU legislation governing the Structural Funds. Among other
things, these require each managing authority to hold at least one major information activity a
year, presenting the achievements of the operational programme(s) for which it is responsible.
These authorities are also required to fly the EU flag for a week starting 9 May each year (9
May being designated Europe Day). Those receiving Structural Fund money for many types of
infrastructure or construction operations are obliged to erect a billboard displaying the EU
emblem while the work is going on, and after it is completed to put up a permanent
explanatory plaque...of significant size including the EU symbol.62
The Commissions proposals for 2014-2020
As noted, the current EU multiannual financial framework (MFF) and Structural and Cohesion
Fund legislation covers the period 2007-2013.
Under the EU treaties, the European Commission makes the proposal for a new MFF and fresh
legislation on the Structural and Cohesion Funds. The Commission submitted such proposals
in 2011, aimed at covering the period 2014-2020. EU negotiations have therefore already
started on the shape and size of the Structural and Cohesion Funds from 2014.
Looking at the Commissions proposals, it seems most of the current shortcomings of the
Structural Funds would remain, and in some cases could be exacerbated:
Unnecessary EU redistribution within richer Member States: The Structural Funds

would continue to disperse money to all regions in the EU, including in the richer Member
States. This will continue the system whereby much money from richer countries, such as
the UK, will be sent out to Brussels only to be recycled back again.
To fund this, the Commission has proposed a Structural Fund budget of just over 255
billion (around 213 billion)63, for the period 2014-2020. This is in 2011 prices, and would be
uprated by 2% a year. Using Open Europes estimate of the UK contribution to the
Structural and Cohesion Funds over 2007-2013, the UKs gross contribution to this 255
billion would be around 26 billion (22 billion). The UK would receive some Structural
Fund money back, but would almost certainly be a major net contributor, as in the current
60
: European Commission, Impact assessment on Proposal for a Regulation laying down common
61
: Ibid.
62
: Cf. Commission Regulation 1828/2006.
63
: Not including money for the successor European territorial co-operation objective (which would
remain a small fraction of total resources).
52
spending period.
The Commission has, in addition, proposed almost 69 billion (around 57 billion) for the
Cohesion Fund over 2014-2020. The CF would continue to be aimed solely at poorer
Member States, which had a GNI per capita that was below 90% of the average for all 27
EU countries.
The total budget the Commission has proposed for the Structural and Cohesion Funds over
2014-2020, in 2011 prices, is 336 billion. If the UK made the same proportional net
contribution that Open Europe estimates it will do over 2007-2013, the UKs net contribution
to this figure over 2014-2020 would be around 24 billion (20 billion). This does not take
account of the annual uprating of the 336 billion figure that would occur.
In response, the UK Government has said the budget in this area should fall
significantly.64
Allocation based on regions that are too large: All allocations would be based on NUTS
2 regions representing no improvement on the current situation.
Operational programmes based on incongruous EU regions: Spending would still take

place through operational programmes, and these would have to be at least at NUTS 2
level (not below) for both the ERDF and the ESF, unless the European Commission agreed
otherwise. This would actually be a worse situation than at present, given there is currently
no detailed stipulation regarding the geographical coverage of ESF operational
programmes in better-off areas. The Commissions proposals include possibilities for
organising projects across operational programmes or at a sub-programme level, but these
would all have to be within the provisions of the relevant programme(s).
Top-down EU approach: The Structural Funds would have to support a set of 11 thematic
objectives set out in EU legislation. The European Commission would adopt a Common
Strategic Framework at EU level that would set key actions to be supported by the
Funds. There would be a list of ex ante conditionalities, covering national policies ranging
from transport to education, that each Member State would have to fulfil or the Commission
would be entitled to withhold Structural Fund money from them. There would also be
macroeconomic conditionalities, empowering the Commission to suspend Structural Fund
payments to a Member State if that country had not responded satisfactorily to a
Commission request to amend its Structural Fund programmes, so as to help implement
EU recommendations on that countrys economic, employment or fiscal policies.
All operational programmes, and any amendments to them, would still require the approval
of the Commission. Indeed, programmes would have to be drafted according to a model
adopted by the Commission. Co-financing would also still apply, meaning national money
would have to be found for projects before any EU money could be accessed. Much as
now, for most regions in the UK the EU would, as a rule, provide no more than 50% of the
cost of each broad priority in each operational programme.
Lack of focus on growth, jobs and convergence: The 11 thematic objectives the
Structural Funds would have to support are very wide-ranging and not entirely focused on
economic development; they include protecting the environment and promoting climate
change adaptation, risk prevention and management. The ERDF, for instance, would
continue to fund projects aimed at achieving compliance with EU environmental legislation
on water and waste, as well as activities that seek to protect and develop cultural heritage.
64
: HM Treasury, Explanatory Memorandum on European Union legislation: Proposal for a Council

Regulation laying down the multiannual financial framework for the years 2014-2020 [and other
documents], July 2011, para 56.
53
Some of the thematic objectives seem questionable as ends in their own right, such as
enhancing access to, and use and quality of, information and communication
technologies.
Weak link between payments and performance: The Commissions proposals appear to
make some efforts to improve the Funds in this respect. However, they still fall short of the
rigour required.
Operational programmes would have to establish milestones for each of their priorities, for
2016 and 2018. Only the milestones in 2018, though, would need to include, where
appropriate, result indicators ie. indicators that measured actual improvements.
Furthermore, while milestones would have to be relevant, transparent, verifiable and
consistent, there would be no requirement for them to be rigorous/demanding.
In 2017 and 2019, the Commission would conduct a performance review of each Member
States operational programmes. The Commission would be empowered to suspend
payments to a programme priority where there had been a failure to achieve that prioritys
milestones. Furthermore, 5% of resources allocated to each Fund and Member State would
be put into a performance reserve. This would only be distributed to operational
programmes that were found to have attained their milestones in the 2019 review. The
Commission would also be able to claw back money after 2020 if it found a serious failure
to achieve programme targets.
As the UK Government has commented on the Commissions proposed performance
reserve: ...the reserve will be confirmed only after review in 2019, and, while extra money
will rightly not be given to programmes that have performed badly, it is difficult to see how it
can be redistributed at such a late stage and still be spent effectively on projects, even in
well-run programmes.65 There is also the fact, of course, that only 5% of the Funds would
be involved in this performance reserve.
The European Court of Auditors (ECA)66 has said of the main piece of Structural Fund
legislation proposed by the Commission: The method for the performance review...shows
that this review will still mainly focus on financial implementation (financial indicators), on
outputs and only in a limited way on results (outcomes, impacts)...The added-value of a
performance reserve will be considerably reduced if very low and easy to achieve targets
will be set or if performance disbursements will in the end be mainly based on absorption
grounds as the Court noted for the period 2000-06 [when a similar performance reserve
existed for the Structural Funds, with limited success].67
65
: Department for Business, Innovation and Skills, Explanatory Memorandum on a European Union
document: Proposal for a Regulation of the European Parliament and of the Council laying down
common provisions on the European Regional Development Fund, the European Social Fund, the
Cohesion Fund, the European Agricultural Fund for Rural Development and the European Maritime and
Fisheries Fund covered by the Common Strategic Framework and laying down general provisions on the
European Regional Development Fund, the European Social Fund and the Cohesion Fund and repealing
Regulation (EC) No 1083/2006, November 2011, para 34.
66
: The European Court of Auditors is an independent EU institution, the primary task of which is to audit
the EUs budget. The ECA can also issue non-binding opinions on particular matters if requested by
another EU institution.
67
: European Court of Auditors, Opinion 7/2011 on the proposal for a Regulation of the European
Parliament and of the Council laying down common provisions on the European Regional Development
Fund, the European Social Fund, the Cohesion Fund, the European Agricultural Fund for Rural
Development and the European Maritime and Fisheries Fund covered by the Common Strategic
Framework and laying down general provisions on the European Regional Development Fund, the
European Social Fund and the Cohesion Fund and repealing Regulation (EC) No 1083/2006, December
2011, para 18.
54
The ECA also said of the proposal more generally: The Commission...indicates...that focus
on results will be one of the major hallmarks of the next set of programmes. In practice...the
proposed future...scheme falls short of this aspiration and remains fundamentally inputbased.68
Little account of absorption capacity: The Commission proposes that no Member State
would receive a Structural and Cohesion Fund allocation equivalent to more than 2.5% of
its GDP. This is intended to prevent any Member State (mainly the poorer ones) being
inundated with a quantity of EU money they could not handle. However, this seems a rather
crude tool for ensuring that a Member State can effectively absorb the Structural and
Cohesion Fund money allocated to it. It also does not tackle allocations to particular
regions, which might lack administrative capacity.
Other than this cap on allocations, the Commissions proposals include generally-worded
requirements for national assessment of administrative capacity before operational
programmes are adopted, with an option for the Commission to withhold funds if necessary
improvements are not made. Whether this would work in practice would remain to be seen.
Excessive bureaucracy: The Commission claims that its proposals would streamline
administrative requirements.
However, the Commission also admits that some of its proposals would increase the
administrative burden. This includes the proposed new requirement for national
governments to accredit and supervise all operational programme management and control
bodies, on the basis of criteria set down by the Commission.
The European Court of Auditors had the following to say about bureaucracy under the
Commissions main proposal: The arrangements for Cohesion spending are complex.
There are six layers of rules (common provisions, general provisions, Fund-specific
provisions, delegated acts, implementing acts, Commissions guidelines). National
legislation will, in some cases, constitute an additional layer. The Court notes the positive
efforts to reduce beneficiaries [those who receive the money for undertaking projects]
administrative burden...However, the burden for EU and national administrations remains
high, and will even possibly become higher than is currently the case.69
The Commission proposals retain extremely similar requirements for information and
publicity on the EUs involvement in Structural Fund projects as currently apply. Under the
new proposals, though, operational programme managing authorities would be obliged to
display the EU flag all year round.
68
69
: European Court of Auditors, op. cit., para 10.

: Ibid, para 5.
55

The colour-coding used below for possible UK action follows the categorisation for all the Fresh
Start Projects Green Paper chapters. Green are those measures that can be achieved within
the current EU legal framework; Amber are those measures that require negotiated EU treaty
change; Red are those steps that the UK could take unilaterally that would involve breaking its
treaty obligations.
Negotiate repatriation of regional policy in richer Member States
The UK could push for a major revision of the Commissions proposals for 2014-2020, which
ended EU regional policy in richer Member States. The same principle that governs the
Cohesion Fund could be applied to the Structural Funds that only Member States with GNI
per capita less than 90% of the EU average would be eligible for support.
The fundamental rationale for this would be that richer Member States are capable of funding
their own regional policy, which should therefore be determined at national rather than EU level
in these countries. This would respect the principle of subsidiarity, and facilitate localism. Any
genuinely valuable cross-border EU regional programmes could be retained under the smallscale European territorial co-operation objective though in fact, such programmes could
probably be agreed directly between the relevant countries where desired, without involving the
centralised EU process.
Indeed, it could be argued that even if the EU helps fund regional policy in the poorer Member
States, those countries are still better placed to determine the nature of support for their
regions. On the other hand, the countries that fund the EU will want assurance that their money
is not being wasted. This will entail some central EU control of spending.
The idea of concentrating the Structural Funds on the poorer Member States was actually
espoused by the previous Labour Government, in the run-up to negotiations on the 2007-2013
MFF.
A policy paper put forward by that Government said: Regional assistance in the more
prosperous Member Stateswould be funded domesticallyLess prosperous Member States
would continue to receive Community support which would, as now with the Cohesion Fund, be
determined in proportion to national prosperity.70 The previous Administration failed to achieve
this reform, however.
Such reform should be possible without amendment of the EU treaty provisions on the
Structural Funds.71
Open Europe has estimated the financial impact that limiting the Structural Funds to Member
States with a GNI per capita less than 90% of the EU average would have had in the 20072013 spending period.72
70
: HM Treasury, Department for Trade and Industry and Office of the Deputy Prime Minister, A modern
regional policy for the United Kingdom, March 2003, para 4.13.
71
: When the Commission considered, as part of its impact assessment, the idea of limiting Structural
Fund coverage to the poorer Member States, it did not raise the treaties as a barrier to this approach:
European Commission, Impact assessment on Proposal for a Regulation laying down common
56
All but five Member States would have seen a net saving ie. a saving after taking into account
any removal of Structural Fund receipts. The UK would have reaped a net saving of more than
5 billion (almost 4.2 billion) over the period.73 France and Germany would also have derived
a significant net saving. All the Member States that have joined the EU since 2004, apart from
Cyprus and Slovenia (which have a GNI per capita above 90% of the EU average), would have
enjoyed a net saving.74
This saving for most Member States comes mainly from the fact that they would not have been
paying into the Structural Funds for EU spending in richer Member States. Overall, the EU
budget for the Structural and Cohesion Funds would have been reduced by around 45%, being
focused solely on the EUs poorer countries.75 This would have reduced the total EU budget by
roughly 15%.
According to Open Europes estimates, Spain, Italy and Greece (all with GNI per capita above
90% of the EU average) would have seen significant net losses from this approach Spain 21
billion, Greece 16.9 billion and Italy 7.9 billion over the period.76
Of course, these figures can only be illustrative of what the financial impact would be of limiting
the Structural Funds to the poorer Member States over 2014-2020 this would depend, among
other things, on the total budget and new GNI figures. However, they give a good indication of
the potential benefits of such reform to the UK and most other Member States. Open Europe
believe, for instance, that even if Greece, with its current economic woes, fell below the 90%
threshold and qualified for EU support, the UK would still have seen a net saving over 20072013.77
With its net saving position, the UK could afford to commit at least as much money to its
regional development as is given out through the Structural Funds.
Open Europe estimate that all NUTS 2 regions in the UK, with the exception of West Wales and
The Valleys and Cornwall and Isles of Scilly, are net contributors to the Structural Funds under
the existing 2007-2013 framework.78 If the UK was to commit further resources to its regional
policy, using the saving from repatriation of this policy area in richer Member States, Open
Europe calculate that all NUTS 2 regions in the UK could see their receipts increase by almost
50%. Many would turn from net contributors to net recipients.79 Furthermore, the money could
be better tailored to the needs of local areas, given the absence of EU rules.
Of course, the precise level and nature of regional spending would have to be considered as
part of national democratic decision-making, so that it was tailored to the needs and interests of
the people of the UK. The need for funding stability for local areas would have to be taken into
72
: Open Europe also took Spain out of its transitional provision from the Cohesion Fund, on the grounds
that it has a GNI per capita above 90% of the EU average.
73
: Though this figure would probably be affected to some extent by increased concentration of EU
spending on non-agricultural market spending in Member States that have joined the EU since 2004,
which is an area of spending that does not fall under the UKs budget rebate. See Open Europe, op. cit.,
p.26 and Annex III.
74
: Open Europe, op. cit., p.22. Slovenia has a GNI per capita above 90% of the EU average but a GDP
per capita below 90% of the EU mean (the only Member State where the choice of indicator affects
whether or not it is above the threshold). If the threshold was based on GNI per capita, some form of
special assistance might be provided to Slovenia.
75
76
: Ibid, p.22.
77
: Ibid, p.25.
78
: Ibid, p.16.
79
: Ibid, p.27.
57
account as part of this.

The current Government has said of its negotiating position: The Government believes that the
key objective of European cohesion policy is to address regional disparities particularly in the
poorer Member States, as these countries lack the capacity to fund their own regional
policy...In the long term, the Governments goal would be for richer Member States to finance
their own regional policy, but it recognises the need for transitional arrangements to manage
the change. For this financial period [2014-2020], it therefore accepts that all regions should
receive funding, but with the focus of funding on poorer Member States and regions and with
the burden of reductions falling on richer ones.80
Under the EU treaties, the new legislation that will be required on the Structural Funds from
2014 is decided by qualified majority voting (QMV) in the Council, and must also be agreed by
the European Parliament. The new multiannual financial framework (MFF) setting the Funds
financial envelope must be agreed by unanimity in the Council, and must receive approval from
the European Parliament.
This means the UK wields a veto over the next MFF. By the same token, all other Member
States and the European Parliament must agree to the next framework.
If a new MFF was not adopted for the years after 2013, the ceiling for 2013 expenditure in the
current MFF81 would continue to apply, being uprated annually by 2%. This would more or less
represent a real terms freeze compared to 2013.
However, the current MFF allows any of the European Parliament, the Commission or the
Council to terminate the framework after 2013.82 If this was done by, say, the Commission, it
would only leave the so-called Own Resources83 ceiling on EU expenditure, which is higher
than the MFF cap proposed by the Commission for 2014-2020.
On the other hand, the new legislation on the Structural Funds can set the shape and size of
those Funds from 2014. Given the large number of Member States that would appear to benefit
financially if the Funds were focused on the poorer EU members, the UK could try to establish
an alliance, at least constituting a qualified majority, to amend the Commissions proposed
legislation to achieve this reform. If all those Member States who would have made net savings
in the 2007-2013 period supported this change, that would comprise a qualified majority under
EU rules.
However, under the EU treaties, if the Council wishes to amend a Commission proposal without
the Commissions agreement it can usually only do so by acting unanimously. If the
Commission dug its heels in against limiting the Structural Funds to the poorer Member States,
this would give the likes of Spain and Italy a veto over such change.
Even if the Council could agree this reform through QMV, the European Parliament would also
have to give its approval. It is not clear what the EPs position would be. MEPs from those
Member States that would be net losers would no doubt put up resistance. However, they
80
: Department for Business, Innovation and Skills, Explanatory Memorandum on a European Union
document: Proposal for a Regulation of the European Parliament and of the Council laying down
common provisions on the European Regional Development Fund, the European Social Fund, the
Cohesion Fund, the European Agricultural Fund for Rural Development and the European Maritime and
Fisheries Fund covered by the Common Strategic Framework and laying down general provisions on the
European Regional Development Fund, the European Social Fund and the Cohesion Fund, para 25.
81
: Contained in the Interinstitutional Agreement of 17 May 2006 between the European Parliament, the
Council and the Commission on budgetary discipline and sound financial management.
82
: See Point 30 of the Interinstitutional Agreement.
83
: The Own Resources system establishes how revenue is provided to the EU to fund its expenditure.
58
would be a minority in the EP. On the other hand, the EP may instinctively dislike the reduction
in scope of the EUs regional policy, given it has a track record of supporting EU intervention,
as a supranational institution whose raison dtre depends upon the EU.
An alternative approach would be to try and win round those Member States that would lose
out financially from limiting the Structural Funds to poorer EU members.
Firstly, it should be noted that Spain and Italy stand to lose quite a lot of their EU funds from
2014 even under the Commissions proposals. This is partly because eligibility for funding
would be calculated with reference to the average for all EU countries, now including the
relatively poor Romania and Bulgaria.
Spain would lose its current transitional funding from the Cohesion Fund, and whereas at
present it has six regions eligible for money under the convergence objective, the
Commissions impact assessment indicates that only one Spanish region would be in the
equivalent less developed category from 2014.84 In Italy, there would be four regions in the
less developed category, compared to five currently under the convergence objective.85
Secondly, Spain, Italy, Greece and Cyprus all pay significant amounts (relative to their size)
into the EU Structural Funds, though they also get large amounts back. They would all make a
gross saving (before receipts from the Structural Funds were taken into account) if the
Structural Funds were targeted purely at the poorer Member States, given the overall budget
for the Funds would be much smaller and demand less revenue.
Importantly, they could tailor this money to their own needs much better than with EU strings
attached. Indeed, they would probably have more incentive to spend the money wisely, given it
would be their money rather than a gift from the EU. Furthermore, the requirement for cofinancing would not apply, so they could definitely make use of all of this money, rather than
being unable to access EU funds due to a lack of national co-finance.86
To sweeten the proposition, some form of new transitional fund might be offered to the
countries that would lose in net terms from restricting the Structural Funds to the poorer
Member States. This funding would be strictly limited to the 2014-2020 period. Of course, any
such funding from the EU budget would reduce the savings to the UK.
Even if these Member States were won round, the European Parliament would still have to
agree to this radical alteration of the Structural Funds.
It might be argued that remoulding the Structural Funds in this way through the EU legislative
process was not technically repatriation of this policy area in the richer Member States. This is
because the EU would retain the power, under the EU treaties, to reintroduce a regional
84
: European Commission, European Cohesion Policy in Spain, p.1; European Commission, Impact
assessment on Proposal for a Regulation laying down common provisions on the European Regional
Development Fund, the European Social Fund, the Cohesion Fund, the European Agricultural Fund for
Rural Development and the European Maritime and Fisheries Fund covered by the Common Strategic
European Social Fund and the Cohesion Fund, p.45.
85
: European Commission, European Cohesion Policy in Italy, p.1; European Commission, Impact
assessment on Proposal for a Regulation laying down common provisions on the European Regional
Development Fund, the European Social Fund, the Cohesion Fund, the European Agricultural Fund for
Rural Development and the European Maritime and Fisheries Fund covered by the Common Strategic
European Social Fund and the Cohesion Fund, p.45.
86
: The net cost figures for these countries given above are based on EU allocations rather than actual
payments; the countries concerned may not have been able to access all of those allocations anyway.
59
spending policy in the richer countries. This is particularly relevant if the reduction in the scope
of the Structural Funds was not reflected in the new MFF the alteration of which the UK could
veto in the future. However, if agreement on limiting the Funds through the next MFF could not
be obtained, it seems very doubtful that the agreement of all Member States could be gained
for an EU treaty change that had the same effect.
Negotiate to limit the size of the Structural Funds budget, increase local flexibility and
introduce greater rigour
As noted, the Governments current negotiating position is that it will seek a reduction in the
Structural Funds budget, with the Funds focused more on the poorer Member States, though it
concedes that the Funds will still cover all regions in the EU. The Government has also said
that it will be looking to modify some of the more prescriptive and bureaucratic provisions in the
Commissions proposals.
This approach could be maintained, with as much ambition as possible. Instead of the
proposed plethora of objectives, there could be a single objective for the Funds economic
convergence. This should automatically focus more resources on the poorest areas, and could
be combined with downward pressure on the overall budget.
A common EU regional policy will require common EU regions. However, allocations could be
based on the smaller NUTS 3 regions rather than NUTS 2 areas, to take better account of local
variations. Using NUTS 3 regions could also facilitate more bottom-up planning of spending, as
these smaller areas are less likely to cut across the local economic and political situation.
The Funds also need to be far more focused on achieving results. Local areas should be
required to include rigorous, outcome-based performance targets in their spending plans. Such
plans would probably still need to be signed off by the Commission, as the ultimate custodian of
the EU budget. Actual disbursement of EU funds could then wait until targets had been
achieved. This may build in a longer delay before national authorities are reimbursed for
spending. However, robust performance criteria could replace the requirement for national cofinancing of projects. They could also replace the need for EU-imposed conditionality across a
broad range of national policies.
In addition, allocation of Structural Funds could be tied to an honest assessment of the relevant
areas absorption capacity. A small amount of funding might be provided to help areas in
poorer Member States improve their administrative capacity, if this was clearly lacking.
Excessively bureaucratic rules regarding the administration of the Funds should be removed, to
improve the Funds efficiency and manageability.
Of course, the need for many of these reforms applies equally to the Cohesion Fund. Moreover,
it would apply to the Structural Funds even if they were limited solely to the poorer Member
States.
While these reforms would not elicit as much opposition from those Member States that would
be big net losers from limiting the Structural Funds to the poorer EU countries, in some
respects they may be harder to achieve than the latter change. This is because the Structural
Funds would continue to apply to richer Member States, who may be reluctant to impose
rigorous performance criteria on what they regard (quite rightly, in most cases) as their money
in the first place. On the other hand, given that a lot of money would be going to the poorer EU
countries, the richer nations may see their interest in making sure that money was not wasted.
In addition, sound performance criteria could allow the removal of the awkward co-financing
requirement.
60
Negotiate to abolish the Structural and Cohesion Funds

The UK might feel that the EUs track record in supporting economic development through the
Structural and Cohesion Funds is so unimpressive that it should have this area of responsibility
taken away from it.
Simply abolishing the Structural and Cohesion Funds would deliver very large fiscal savings to
the UK and other net contributors to the EU budget.
The UK might seek this reform with the intention of establishing its own bilateral development
aid policy with the poorer countries of the EU.
Given that the Structural and Cohesion Funds are mandated by the EU treaties, those treaties
would have to be amended to remove this policy area from the EUs competence.
Such treaty amendment would require the agreement of all EU Member States (first from their
governments, then through national ratification). It would not require the agreement of the
European Parliament, however.
It is highly likely that at least some of the poorer Member States would be fiercely opposed to
this idea. While the UK might put forward an alternative aid policy not routed through the EU,
the poorer EU members might see this as a far less certain supply of resources into the future,
compared with the EU-mandated system.
Refuse to pay until adequate reform is achieved

If the UK was unable to achieve the reform it wanted through EU procedures, it could refuse to
pay its contributions to the EU budget, or at least the rough amount that was demanded by the
EU to help pay for the Cohesion and/or Structural Funds. Under UK law, this course of action
would probably need authorisation by an Act of Parliament. To try and maintain relations with
the poorer Member States, the UK might offer them bilateral aid in parallel.
This would be a breach of the UKs EU treaty obligations in international law. While, ultimately,
the EU cannot enforce its treaties against the UK, under general international law the other
Member States might be able to suspend obligations they owe to the UK internationally,
including but not limited to EU treaty obligations.
In short, such unilateral action would not provide a sustainable long-term solution. It could,
though, help force a meaningful negotiation if other Member States had previously refused to
take the UK seriously. The suitability of this approach is likely to depend on the UKs priorities
and its bottom line regarding its future relationship with the EU.
61
Chapter 3
Common Agricultural Policy
The summary
The Common Agricultural Policy (CAP) accounts for around 40% of the EU budget and costs
around 45 billion per year. Despite recent reforms which have begun to move the CAP
towards a more market facing policy, it remains a hugely bureaucratic and costly policy, and
one to which the UK makes a net contribution of around 1 billion per year.
The CAP is split into two parts. Pillar 1 which includes the Single Farm Payment (SFP) and
all other market management tools and Pillar 2 which focuses on rural development and is
co-financed by member states. Pillar 1 accounts for around 80% of the total CAP budget. In
addition further protection is provided to EU farmers through a range of tariffs applied to the
import of agricultural goods.
Apart from the budgetary costs to the UK treasury, UK farming is also penalised by the CAP
as the policy is not commonly implemented across the EU. UK farmers receive less money
in both Pillar 1 and Pillar 2 than their counterparts in most other EU countries. The cost of
administering the CAP is also burdensome on administrations and farmers. Market
management support systems also tend to increase the price of food for consumers.
The European Commission has proposed a reformed CAP after 2013. This includes 30%
"greening" of direct payments and new schemes for young and small farmers. It also
proposes to cap payments to large farms and for more equal distribution of payments to
member states in Pillar 1. However, it does not propose a reduction in the overall CAP
budget.
The CAP is constantly evolving, however current proposals do not address the key
challenge for the future of farming which is how to feed a growing and more affluent global
population. Estimates suggest that the world will need to produce 70% more food in the next
forty years to meet global population growth.
The CAP is a "common" European policy, meaning that there is no chance to withdraw from
certain elements of it without being in breach of the Treaty. However, the CAP is revisited
substantially approximately every seven years and this presents an opportunity for reform.
The options for change:
Work within the current architecture of the CAP to reject the greening proposals, to reduce
the agricultural budget and to work with like minded EU countries to complete the 2003
reforms. This would include a full decoupling of all Pillar 1 subsidies, a greater transfer of
funds to Pillar 2 and a focus on tailoring all agricultural subsidies towards preparing the
industry towards one which in the longer term did not need subsidising.
The UK could use budget negotiations, and the need for a smaller EU budget as a tool to
force a reduction in agricultural spending.
The UK could be more active behind the scenes and in Council negotiations and could
propose a new focus on environmentally focused agricultural subsidies within the existing
architecture. This could have some success in time, but would be a long term project.
The UK could propose that the EU unilaterally carried out the import tariff reductions
proposed by the EU, but never implemented at the WTO Doha Round negotiations.
65
This is a long term approach, and unlikely to succeed without expending political capital due
to the importance placed on agriculture by other EU member states. The UK could therefore
propose a radical reform which would fundamentally change the architecture of the policy
and significantly reduce CAP expenditure.
Obtain the removal of Pillar 1 subsidies after an appropriate phase out period, with
accompanying reform of Pillar 2 to focus on the delivery of "public goods".
Pillar 1 subsidies would be phased out, initially through a national co-financing requirement,
and with a focus on short term payments designed specifically to gear farmers towards the
market.
Accompanying measures would include country of origin labelling, a focus on the marketing
of quality products which meet high standards and steps to improve the bargaining position
of farmers in the food chain.
Pillar 2 would focus primarily on agri-environment schemes with the possibility of tradeable
environmental payments, which farmers could pass onto other farmers if they did not wish to
carry out the environmental measures.
This would be a radical change to the CAP, and would need the UK to expend significant
political capital in order to be obtained. The UK would have to prioritise CAP reform above
other issues and would probably have to be prepared to give up the rebate to achieve the
benefits of reform.
Unilaterally withdraw from the CAP and its budgetary implications in an attempt to force
change.
This would be a clear breach of the UKs EU treaty obligations and any agreement on the
EU's multiannual financial framework in force at the time. In addition, as the UK
contributions to the CAP can not easily be differentiated from its contributions to other parts
of the EU budget, such a move is unlikely to be possible without withdrawing from all
elements of the EU budget.
Farmers, who would face losing all their payments in the short term, could also be
temporarily excluded from the internal market in agricultural products.
In short, this unilateral action would not provide a sustainable long-term solution. It could,
though, be used as a negotiating tactic during negotiations over the multiannual financial
framework.
66
The introduction
The Common Agricultural Policy (CAP) was created in 1962 by the founding six member
states of the European Community. Today, along with the Common Fisheries Policy (CFP) it
is one of only two truly common EU policies and accounts for 41% of the total EU budget.
In recent years the pressure for reform of the CAP has been building due to a number of
factors, namely World Trade Organisation (WTO) negotiations; concern from European
taxpayers as to whether spending 55 billion a year is good value for money and from
budgetary constraint as a result of both the Eurozone crisis and the aspirations of treasury
ministers around the EU who would like to spend more on other policies.
Initially designed at the insistence of France and because all six founding countries already
subsidised their agriculture, the CAP was founded on five main objectives:
1. To increase productivity, by promoting technical progress and ensuring the optimum
use of the factors of production, in particular labour.
2. To ensure a fair standard of living for the agricultural community.
3. To stabilise markets.
4. To secure availability of supplies.
5. To provide consumers with food at reasonable prices.
To these ends a common market in agricultural goods was created, along with a common
set of rules consisting of import tariffs, internal price supports, export subsidies and direct
income support to farmers.
Initially the CAP was immensely successful in its aim of producing food, to such an extent
that very quickly European nations were producing far too much. The European Commission
therefore had to buy up excess food and store it in an attempt to keep the prices in Europe
high enough to ensure a fair standard of living for farmers.
These intervention stocks quickly became known as food mountains or wine lakes and
the reputation of the CAP was further damaged when much of this food was dumped on
markets in the developing world, thus making farmers there uncompetitive.
Partly in response to political pressure and to the opening up of global trade through the
WTO, the CAP has recently undergone a series of reforms in an attempt to modernise the
CAP, to make it fairer and to make it better value for money for the taxpayer.
In 1992, the MacSharry reforms marked the first, tentative attempt to liberalise the CAP with
a focus on trying to limit production by introducing measures such as set aside (where
farmers are paid not to produce on certain land) and reducing levels of support for certain
sectors.
The Agenda 2000 reform established the current Two-Pillar structure of the CAP with all
market support structures residing in Pillar 1, and Rural Development measures, including
agri-environmental schemes making up Pillar 2.
The Fischler reforms of 2003 were arguably the most significant reforms and included the
historic move of decoupling payments from production and the introduction of the Single
Farm Payment (SFP). The level of direct payments to farmers was also reduced through a
compulsory transfer of funding from Pillar 1 to Pillar 2.
67
In 2008, the Fischer Boel Health Check furthered the Fischler reforms, reconfirming the end
of milk quotas in 2014 and increasing the amount of money transferred from Pillar 1 to Pillar
2. However, despite the Health Check being the price Prime Minister Tony Blair demanded
for giving up part of the UK rebate in 2005, it fell a long way short of real reform.
The detail
The CAP is currently built around a two Pillar structure. Pillar 1 focuses on market
management and income support and is wholly managed and funded at EU level. It
accounts for nearly 80% of the total CAP budget. Pillar 2 concentrates on rural development,
is co-financed by EU countries and whilst the overall framework is decided at EU level, EU
countries have significant flexibility to create a policy tailored to their needs.
Pillar 1 payments are made up of:Single Farm Payment (SFP) This is the basic direct payment which is payable on every
hectare of eligible land. In order to receive the payment the land must be kept in good
agricultural and environmental condition (GAEC) by meeting the various cross compliance
requirements. The payment is decoupled from production and therefore is not directly market
distorting. It incorporates previous, historical payments and differs substantially throughout
Europe as a result. When initially brought in as part of the 2003 reforms, the SFP was
intended to eventually become an area based payment (i.e. each hectare of eligible land
would be worth a certain amount of money). However, as part of the transition process it was
permitted for the payment to contain an historical element i.e. the payment that a farmer
used to get when he/she was paid a direct production subsidy.
Each EU country was able to decide for itself whether to move towards a full area based
payment. To date, only Germany, Finland and England have moved to a full area payment,
all other member states, as well as Scotland, Wales and Northern Ireland retain an historical
element to the payment.
The SFP is the biggest single expenditure in the CAP, accounting for over 70% of the Pillar 1
budget.
Single Area Payment Scheme (SAPS) In the new member states (those that joined since
2004), the SAPS scheme is used and is a simpler version of the SFP based on an area
basis.
Coupled subsidy payments In some sectors, notably cotton, flax, hemp and suckler
cows, a coupled payment based on production levels is still paid.
Intervention In the wheat, barley, maize, paddy rice, beef, veal and dairy sectors, the
European Commission is permitted to buy up food if the market price falls below a specific
trigger price. This tool is used if prices fall to a level which may threaten the economic
viability of farms. The Commission stores the food and sells it back into the market when
prices rise. In the past, trigger prices were set at a high level, leading to food mountains and
significant expenditure for the European taxpayer. However in recent years, as a result of
extreme price swings, the European Commission has actually made money from using
intervention tools.
Private Storage Aid (PSA) The Commission also pays for the private storage of the
following commodities: white sugar, olive oil, flax fibre, beef, butter, skimmed milk powder,
pig, sheep and goat meat.
68
Quotas Quotas remain in the milk and sugar sector and through the regime of planting
rights in the wine sector. They serve to impose a maximum limit on the amount of the
commodity that can be produced.
Export Refunds In some areas an export subsidy is paid to producers when they export
their products. These are highly market distorting. The EU has substantially reduced its
export subsidies in recent years and has pledged to abolish them altogether, although to
date there is no concrete proposal in place to do this.
Social schemes The CAP includes a number of social schemes within Pillar 1. These
include the food for deprived persons, the school milk and the school fruit schemes.
Article 68 Under this provision, an EU country is able to use up to 5% of its total budget in
Pillar 1 to re-couple payments to a certain agricultural sector.
Pillar 2 in detail :The Rural Development Pillar of the CAP is broken down into several components:
Axis 1: Improving competitiveness through farm modernisation.

Axis 2: Improving the environment and countryside through agri-environment
schemes.
Axis 3: Diversification of rural economic activities.
Leader schemes (community led initiatives).
Each member state must use a minimum of 10% of its rural development allocation on
schemes in Axis 1 and Axis 3, 25% in Axis 2 and 5% in Leader schemes. However countries
are free to develop their own schemes within these guidelines. The UK has very successfully
developed a number of environmental stewardship schemes which fit into Axis 2.
Schemes supporting Less Favoured Areas (LFAs) are funded through Pillar 2 funding.
To fund Pillar 2, 5% of all direct payments are modulated (transferred on a compulsory basis
from Pillar 1 to Pillar 2). However countries are able to voluntarily move up to a further 20%
from Pillar 1 to Pillar 2 if they so wish. The UK is the only country which uses this option.
General Overview
EU countries receive very different amounts of funding based on a number of factors but
most critically based on historical production levels. As a result average payments to
farmers per hectare differ substantially across the member states. The average farmer in
Belgium or the Netherlands receives 460 per hectare whilst his counterpart in Latvia
receives only 100 per hectare. For the UK this figure is around 220, which is below the EU
wide average.
69
Net ceilings per member state for Pillar 187

EUR/ben.
Malta
Belgium
Netherlands
Italy
Greece
Cyprus
Denmark
Slovenia
Germany
France
EU-15
Luxembourg
EU-27
Ireland
Austria
Hungary
Czech Republic
Spain
Finland
Sweden
United Kingdom
Bulgaria
Poland
EU-12
Slovakia
Romania
Portugal
Lithuania
Estonia
Latvia
EUR/ha
800
700
600
500
400
300
200
100
0
DP net ceilings f ully phased-in (EUR/ha)

EU-27 average (EUR/ha)
In Pillar 2 the differences are even greater as the amount each country receives is based on
the amount they spent on national schemes prior to the introduction of Pillar 2. As a result
the UK does very badly out of Pillar 2, receiving around 3% of EU spending as opposed to
the 12% it should be entitled to if it was based on the amount of agricultural land the UK has.
Per hectare value of P2 payments by MS

Malta not included in this chart
300.00
Euro per hectare
250.00
200.00
150.00
100.00
50.00
Slovenia
Portugal
Austria
Greece
Cyprus
Slovakia
Hungary
Bulgaria
Finland
Estonia
Poland
Czech Republic
Italy
Luxembourg
Romania
Lithuania
Sweden
Ireland
Total
Latvia
Germany
Belgium
Spain
Netherlands
France
Denmark
United Kingdom
0.00
P2 per ha (2012 RDP budget/UAA)

88
87
Data supplied by the NFU.
70
The CAP has been fundamentally reformed over the past ten years. It is nowhere near as
market distorting as it was previously. The worst excesses of the previous policy have been
substantially reduced and farmers are now far freer to react to market signals than they were
previously. However, the CAP still accounts for 41% of EU spending, costs around 55
billion a year, and is still the most generous farm support structure in the world. In addition,
in most EU countries, including the UK, up to 70% of farm income comes from the Single
Farm Payment.
International Trade and its effect on the CAP, the WTO and the role of tariffs
Tariffs
In addition to the internal market support mechanisms and direct payments to farmers, the
EU employs a wide range of tariffs to protect the agricultural industry from global
competition. Under WTO rules tariffs are set at maximum levels although the EU has freed
up access substantially to countries of the Africa/Caribbean/Pacific region (ACP). However
despite this, tariffs on imports from non ACP countries remain high. The average tariff on
agricultural imports from Most Favoured Nation countries (MFN) is 15.4% and in some areas
such as dairy products and fruit and vegetables can reach as high as 156%, effectively
keeping much produce out of the EU and protecting domestic farmers from competition.
When products are imported into the EU, costs are raised substantially for consumers.
In the highest tariff product group including animal products, dairy, sugars and confectionary,
in which imports account for nearly 21% of the EU market, the average tariff is above 20% 89
At the Doha WTO round of negotiations, the EU made a substantial offer to significantly
reduce agricultural tariffs. In this case it was the reticence of other trading blocs and
countries to agree to the deal rather than opposition from the EU.
As a result of the failure of the Doha round, the EU is in the process of completing or
negotiating Free Trade Agreements (FTA) with a number of countries, including South
Korea, the countries of Central America and the Andean countries. Negotiations are ongoing
with India and Mercosur. The potential Mercosur deal is the most controversial within the EU
because of the huge potential agricultural capacity of Brazil and Argentina. Although an
eventual deal is probably unlikely, such an agreement would allow enhanced access to the
EU agricultural markets and would pose a competitiveness challenge in the short term to EU
livestock producers in particular.
Market distorting effect of CAP policies
According to the OECD the EU has reduced its agricultural support to 22% of total farm
income, although because of the prevalence of small farms, for many farmers support still
accounts for up to 70% of a given farm's income.
The EU figure is still above the OECD average but remains well below the level of support
given to farmers in Korea (47%) Iceland (48%) Japan (49%) Switzerland (56%) and Norway
(60%). In Russia support exceeds the OECD average and in China it is fast approaching the
average.
88
Data supplied by the NFU.
89
Trade Policy Research Centre Research Paper - EU Agricultural Protection : Felix Bungay and Ronald
Stewart-Brown pg10-12.
71
In contrast New Zealand has the lowest level of government support to agriculture in the
OECD at 1% of farm income, Australia (3%) Chile (4%) and the US is at (9%)90
The reforms of 2003 specifically tried to move the majority of EU support into less market
distorting areas and the EU has moved a long way in this regard. However, EU farmers are
still very well subsidised in comparison to most other developed countries.
The case study: the cost of the CAP to the UK

According to research by Open Europe, the UK will contribute a net total of 7.1 Billion to the
CAP over the 2007-2013 financial framework, or just over 1 billion a year, however, this is
balanced out somewhat by the rebate, which is designed to partly reimburse the UK for its
net contributions to the CAP and totalled 2.7 billion in 2010-2011.91
Over the 2007-2013 period the UK receives a total of 26.6bn in Pillar 1 and 3.8bn in Pillar
2.
However, British farming is also penalised because the CAP is anything but a common
policy. Farmers in many other EU member states still receive historical payments based on
what they were producing nearly ten years ago. Many countries make use of Article 68 to
recouple payments and no other EU member state employs voluntary modulation, which
reduces the payments to British farmers even further.
In addition, the UK receives far less funding for rural development than it should under any
objective criteria and this threatens the ability of the British Government to develop and run
environmental schemes within the second pillar. As a result of this, the UK Government has
been forced to use voluntary modulation to plug this funding gap.
European environmental, animal welfare and cross compliance legislation also impose costs
on British farmers. Whilst much of this is outside the CAP, the UK Government is often guilty
of gold plating EU legislation applied to farms as well as being overzealous in its
enforcement. For example, UK farmers have been fined in the past for bringing cattle to
market with only one ear tag, after the second, identical tag has fallen off in transit. Despite
confirmation from the European Commission that such a situation is not automatically an
infringement of the cross compliance regulations, the UK has often issued fines for such
infringements.
The UK also sees costs as a result enforcing European legislation while other countries do
not. New animal transport requirements as well as the ban on battery cages are examples of
where the UK has fully enforced EU legislation but other countries have not, putting British
farmers at a disadvantage in the single market.
Equally difficult to quantify is the cost to consumers of the CAP as its current structures allow
many small farms to stay in operation when they would ordinarily go out of business or be
subsumed by larger farms. As a result this may cause prices to be higher than they would be
under a more liberalised system.
The system of tariffs imposed on imports into the EU also drives up the price of food to
consumers. According to the University of Dublin, tariffs on agricultural imports to the EU
90
Information from the OECD website

http://www.oecd.org/document/32/0,3746,en_2649_37401_48625184_1_1_1_37401,00.html.
91
OBR Fiscal Supplementary tables to 2012 UK budget.
72
from countries without most favoured nation status range between 18% and 28%, much
higher than the average 3% paid on manufactured goods.
It is therefore difficult to quantify the cumulative cost to consumers of the current market
management tools employed by the CAP and by EU trade policies or of the effects of the
lack of a level playing field for British farmers within the internal market.
Global food security and challenges to agriculture

The most pressing issue for agriculture is food security. It is estimated that because of global
population growth and due to the rise in incomes in China and India, food demand is likely to
grow by 70% between now and 2050.92 However, increasingly agricultural land is being lost
to agriculture through climatic changes, both through droughts in some parts of the world
and flooding in others. This coupled with concerns over the impact of intensive agriculture on
the environment mean that this food will need to be grown using less land, less water,
fertilisers and pesticides. The main challenge facing policymakers is therefore to devise an
agricultural policy which will increase food production without damaging environmental
sustainability.
The EU has an important role to play because not only does she possess a beneficial
climate and some of the best land to produce food, but also because she is both the world's
largest exporter of food and the largest importer. The EU imports food which needs the
landmass of Germany to produce every year.
CAP reform proposals from the European Commission
The European Commission has made a comprehensive proposal for reform of the CAP post
2013 to coincide with the proposals for the EUs multiannual budget for 2014-2020. The key
tenets of the proposal are:
Greening of Pillar 1 - 30% of the SFP will be contingent on farmers doing three
environmental measures:
o 7% of land in an Ecological Focus Area (EFA) or set aside.
o At least three crops must be grown on arable land greater in size than 2 hectares.
o At least 5% of the land must be kept as permanent grassland.
A new small farmer payment.
A new young farmer payment.
The end of milk and sugar quotas.
Capping payments to large farmers.
Limiting payments only to active farmers.
Increased scope for countries to use Article 68, allowing for more coupled payments.
The greening proposals have been made primarily to justify the Commissions wish to
maintain funding for agriculture at roughly current levels and therefore the Commission has
sought to provide a new justification for the payment of direct subsidies to farmers. They
term this as the delivery of public goods.
92
The Future of Food and Farming. Government office for Science Foresight Report pg67
http://www.bis.gov.uk/assets/bispartners/foresight/docs/food-and-farming/11-546-future-of-food-and-farmingreport.
73
These proposals are misguided as they reverse the direction of recent reforms. Instead of
making EU farmers more efficient and competitive, they will instead increase costs for
producers and consumers, are likely to reduce the amount of food produced in the EU and
will entrench a system of direct payments to farmers based on supposed environmental
benefits, which will be much more difficult to challenge.
It is estimated that the set aside proposal would take 5.74m hectares of land out of food
production.

The CAP is an immensely complex policy and therefore a large number of opinions exist as
to what is the best way to support agriculture and whether agriculture should be supported at
all at EU level. This leaves several potential options available for the UK, which include both
trying to reform within the existing structures of a common policy, favoured by many in the
industry as it guarantees some sort of level playing field with competitors in the rest of the
EU, to unilateral withdrawal from elements of or all of the CAP.
Fresh Start Projects Green Paper chapters. Please see the Introductory Chapter to the
Green Paper.
Try to reform the existing structures of the CAP towards a gradual liberalisation
The template for this already exists. The 2003 Fischler reforms created the Single Farm
Payment which ultimately envisaged a single area based payment. Once this had been
achieved, over time that payment would have been vulnerable to substantial reduction as a
result of budgetary constraint, increased focus on Pillar 2 rural development, future WTO
agreements and gradual restructuring of the agricultural industry into larger and more
efficient units which would have gradually become more market focused and less reliant on
subsidy, particularly against a background of increasing global food shortages.
The current Commission proposals seek to close the door on this option, instead imposing
new means for justifying the long term continuation of direct payments to farmers and
backtracking on the need for full decoupling of payments and for this reason the proposals
should be vigorously opposed by the UK Government.
The UK could mount a determined effort to persuade other member states and the EU
institutions to complete the 2003 reforms to their full conclusion. This would include full
decoupling of payments in all EU countries, full abolishment of all quotas, reduction in trigger
prices for intervention and private storage aid. The UK should demand a specific focus on
increasing competitiveness and further transfer of funding throughout Europe from Pillar 1 to
Pillar 2 and a fairer distribution of funding to the UK in Pillar 2.
The UK approach to CAP reform in the past has been criticised because the UK has often
gone into negotiations with no vision for reform of Pillar 1, because such a vision would
entail support for continuation of direct subsidies and as a result the UK has frequently been
sidelined during negotiations which usually focus only on Pillar 1.
This approach is likely to bring some success in the long term, as the growing
demand for food, the vulnerability of the CAP budget, the existence of an alternative
in Pillar 2 and increased pressure from global trading partners means that the CAP is
under pressure from all sides. In addition, the UK currently finds itself in the unusual
position of having allies in CAP reform negotiations. Very few other EU countries
support the Commission proposals and many would like to see further, small scale
74
reform within the confines of the existing framework of the CAP.
Britain could also seek a much more active behind the scenes negotiating position
within the relevant Commission departments (DGs) and bodies of the European
institutions. The French were successfully able to ensure that the 2008 Health Check
took place during their EU Presidency and often place key staff in key positions
within the institutions at the time of major agricultural reforms. Britain should also
seek to place the debate on agricultural spending more within the remit of finance
ministers to ensure that it focuses more on the cost benefit analysis of funding
agriculture ahead of other priorities. Downward pressure exercised because of a
freeze in the overall EU budget could mean significant real reductions in agriculture
spending over the medium term.
The UK could also put pressure on the EU to focus strongly on either a WTO Doha
round deal, or if this proves impossible, on bi-lateral Free Trade Agreements with
third countries which will expose EU agriculture to more competition and may well
once again necessitate the need for further reform of the CAP. In addition, the EU
has already made a significant proposal to reduce tariffs on agricultural goods as part
of the Doha Round. The UK could additionally put pressure on the EU to unilaterally
carry out these proposed tariff reductions despite the absence of a deal at WTO
level. This may undermine the EU negotiating position at future WTO negotiations
but would show a commitment to the liberalisation of global agricultural markets.
Whilst it is possible that this collective approach will gradually move the EU towards a more
open and less expensive agricultural policy, this is a long term approach which will take a
significant amount of time and some political capital to achieve fundamental reform of the
system and to avoid the previous reforms from being reversed. Such an approach also
means that the many remaining criticisms of the existing CAP would not be formally
addressed, at least in the short term.
In addition, the CAP is an area of vital strategic importance to France and it is extremely
unlikely that any French government would allow a fundamental restructuring of the existing
CAP without significant concessions elsewhere. It should also be noted that several other
large EU members see the CAP as of vital strategic importance, including Poland, Germany,
Spain and Italy.
Other Pillar 1 options
If a priority was to ensure that some element of public support remained in Pillar 1 there are
a number of other CAP reform options that the UK could put forward whilst keeping the
overall architecture of the current CAP.
The idea of a type of bond scheme has been advanced93 as a lower cost alternative
to subsidy support. This would involve either the government or the EU paying a
guaranteed sum to farmers for a fixed amount of time based on the farmer's activities
at the time of the introduction of the bond. A farmer would then be free to retain or
sell the bond and would receive it for the fixed amount of time is valid. The revenue
from the bond could be reduced over time in a scenario of gradual phasing out of
support. Alternatively, it could be used as a payment to compensate for "income
forgone" as a result of meeting the EU's high animal welfare and environmental
93
Sometimes referred to as the Tangermann Bond or Marsh Bond and advocated by Alan Swinbank of Reading
University http://alanswinbank.website.orange.co.uk/.
75
requirements, if it was deemed necessary to retain some sort of basic payment.

Cross compliance would no longer be necessary but this would mean that there
would be no requirement to keep the land in good agricultural and environmental
condition (GAEC). A bond scheme would also allow farmers better access to bank
credit which is one of the concerns of completely phasing out support in Pillar 1.
However, such an entitlement would retain some of the criticisms of the current SFP
in that farmers could receive income from the bond without actually farming. A
market in bond sales would also develop, possibly meaning that non farmers or
investors could buy up the bonds in order to receive the income.
The idea of subsidising farming only when times are bad has frequently been
advanced as a better way of providing a safety net for farmers and for saving
taxpayer's money. However, different types of deficiency payments which set a target
commodity price and pay farmers when the price falls below that level have been
tried many times before, including in the UK which had a type of deficiency payment
before the UK joined the EU. In general such payments do not fit within the WTO
Green box and tend to be market distorting. However a type of insurance scheme,
whereby farmers could take out insurance against a drop in commodity prices below
a certain price could be investigated. Such a scheme would involve a financial
contribution from farmers in addition to a financial commitment from either the EU or
the national government. However, such a scheme would ultimately involve either the
EU or the national government underwriting the scheme, thereby potentially making
them open to large losses in the event of widespread market failure. It would also
effectively amount to a subsidy to insurance providers.
Neither of these two options is therefore likely to solve the underlying criticisms of the
existing CAP, nor are they likely to lead to its widespread liberalisation. Whilst the UK would
expend political capital in trying to move these options forward, they are unlikely to be
successful.
A further option could be a complete "greening" of Pillar 1. The European

Commission has proposed that 30% of Pillar 1 payments should be linked to
greening measures, recognising that environmental public goods can be used as a
justification to make payments to farmers. Open Europe, in its report of February
2012, proposed a system of tradable, environmental entitlements that could replace
100% of the existing Pillar 1. Within this proposal, an agri-environmental points
scheme would allow farmers to be compensated for the "public goods" they provide.
Productive farms could forego their payment and exempt themselves from the
scheme, instead transferring their payments to farms where a payment could provide
more environmental benefit.94
Such a system would retain the overarching architecture of the CAP and would allow
farmers to be compensated for the environmental benefits that they provide to society. It
would also be substantially cheaper and would allow a market in transferable environmental
entitlements to develop, possibly allowing the subsidy to eventually settle on those farms
that most need it. However, as it is very similar to the architecture of existing agrienvironment schemes in Pillar 2, it could be better placed within the rural development
section of the CAP.
94
Open Europe More for Less: Making the EU's farm policy work for growth and environment pp25-27.
76
Seek fundamental and far reaching reform of the CAP, including repatriation
As the CAP is a common EU policy, it is very difficult for the UK to seek unilateral
repatriation of elements of the policy. However, certain elements have been gradually
repatriated over the past ten years. Voluntary modulation, Article 68 and rural development
policies have all started the process of gradual repatriation of the CAP.
The UK could seek far reaching pan EU reform by proposing a completely new system
which would either better target payments to farmers that need them and who provide
environmental "public goods", or which would provide some new form of basic market
support to farmers through either a "bond scheme" or through "insurance" schemes. Any
such reform would start with the complete abolishment of direct subsidy payments under the
existing Pillar 1.
Abolish existing direct payments
However to achieve such an outcome, the UK would need to set out a clear path which
would enable other EU countries to buy into the UK vision and which would allow farmers a
sufficient amount of time to restructure their farms to the eventual phasing out of the Single
Farm Payment. With such a large percentage of farm income still reliant on the SFP it could
not be withdrawn overnight, and a transition period of five to ten years or even longer could
be proposed. During this transition process existing payments in the SFP should be geared
specifically to competitiveness and to preparing farmers for a liberalised system.
To do this, the UK could initially propose national co-financing in Pillar 1, under similar rules
to those that the Fresh Start project will propose as an option for structural funds. For
example those member states whose GDP is less than 90% of the EU average could
continue to receive Pillar 1 funding from the EU, whilst countries above the 90% threshold,
could be obliged to co-finance payments at national level. This would make countries that
receive money from the CAP, such as France, pay for their own CAP whilst allowing the EU
to fully subsidise the agriculture in poorer EU member states. It would also highlight the cost
to national taxpayers of CAP subsidies and would force EU countries to make decisions
about the cost-benefit of subsidising farmers over spending the money in other areas. It
would likely provoke a reduction in the total SFP payments whilst freeing parts of the EU
budget for other priorities.
In conjunction with national co-financing, all CAP payments could be redesigned to focus on
building farm business competitiveness rather than solely on a land payment. All possibilities
for member states to re-couple payments to production should be stopped.
Over the transition period, the overall budget for the SFP could be progressively reduced to
zero by the end of the period. This would free up around 70% of the CAP budget. A certain
proportion of this could be modulated to Pillar 2 to fund enhanced schemes there, whilst the
remainder could return to the EU budget or to the member states. Other market distorting
measures including quotas and export refunds could be abolished and trigger prices for
intervention and private storage aid progressively lowered. Social policies such as the food
distribution for deprived persons and the school milk and fruit schemes should be completely
repatriated to the member states.
Such actions would probably need to be accompanied by measures designed to improve the
position of farmers in the food chain, at least in the short term, particularly through
strengthened roles for national food ombudsmen and binding codes of conduct for retailers
and processors.
77
In addition, as EU rules on animal welfare and environmental protection would remain in

place, farmers in the EU would be at a competitive disadvantage vis-a-vis imports from third
countries which do not always meet the same standards. To ensure that EU farmers remain
competitive, an increased focus should be given to the marketing of quality products and for
UK and EU farmers to communicate their higher standards to consumers. Full country of
origin labelling and information on farming methods should therefore be mandatory labelling
requirements.
Pillar 2 reform
In conjunction with the phasing out of Pillar 1 support, the role of Pillar 2 could be
strengthened to focus on providing environmental support and compensation for the delivery
of "public goods" such as increased environmental and animal welfare standards. Such
environmental justifications for subsidising farming are generally seen as more acceptable
than subsidies directly for production.
This would necessitate a fundamental reform of Pillar 2 of the CAP although the existing
principles of rural development funding could remain the same. It could continue to be cofinanced by national governments which would have the freedom and flexibility to develop
schemes that best suit their own circumstances under a common framework of EU rules to
stop countries using this system to attempt to recouple payments.
The Open Europe report of February 2012 which was described in the previous section
could be better placed within a Pillar 2 context. Open Europe proposed a system of tradable
entitlements within an agri-environmental points scheme where farmers could be
compensated for the "public goods" they provide and where productive farms could transfer
their payments to farms where a payment could provide more environmental benefit.95 This
approach could be applied within a Pillar 2 setting and could be extended to provide the
main environmental and farm support payment within the CAP in a similar way to how
current UK environmental schemes work or current LFA funding is. In addition, a basic
payment could be offered to farms meeting enhanced animal welfare criteria
This would necessitate a significant increase in Pillar 2 CAP funding which would be more
than compensated for by the reduction of expenditure in Pillar 1. However, these schemes,
by focusing firstly on environmental and competitiveness rather than on market support and
because they would be co-financed by the member states, would be significantly cheaper,
less market distorting and more national focused than the existing system.
This type of reform to eliminate Pillar 1 and to place more national focus on Pillar 2 would be
truly radical as it involves a deconstruction of the many layers of market management that
have existed for over 50 years. The phasing out of the CAP in such a way is also an
existential question for many in the EU as the CAP is the only real embodiment of a common
European policy. The UK would therefore face severe opposition and it is unlikely to initially
gain any support from other EU member states. Many would be radically opposed to this
option, even if in the long term external pressures may force the EU to eventually move
towards such a system.
Such a reform proposal could only be offered if the UK put all options on the table, including
the rebate and used all available political capital, prioritising such a CAP reform over
changes in the UK-EU relationship in other areas. An important question is whether such a
fundamental reform of the CAP should be a priority when external pressures, including
95
Open Europe More for Less: Making the EU's farm policy work for growth and environment pp25-27.
78
budgetary constraint, trade agreements (both bilateral and WTO) and increasing market
returns for farmers may force the EU into fundamental reforms in the medium term anyway.
Take unilateral action to prompt a negotiation

It is possible that the UK would not be able to move forward the CAP reform agenda using
the existing EU procedures. It is equally possible that recent reforms could be reversed and
the EU slips back into the more protected and protectionist agricultural policy that existed
prior to the reforms of the early 2000s.
In this scenario, the UK could theoretically take unilateral action and withdraw both from the
common agricultural policy and from its budgetary implications in an attempt to force
fundamental change.
It could do this by refusing to make contributions to Brussels up to the estimated amount of
the British contribution to the CAP. At the same time the British government would no longer
receive payments from Brussels for the reimbursement of monies paid to British farmers.
This would however be a clear breach of the EU's treaty obligations and any previous
agreement on the EU's multiannual financial framework in force at the time. In addition
because the UK contributions to the CAP budget can not easily be differentiated from its
contributions to other parts of the EU budget, it would likely cause a severe breakdown in the
UK's relationship with the EU, loss of EU funding for British projects in other areas, including
structural funding and consequences for all other elements of the EU's budget.
This course of action would threaten the British rebate, which is in part compensation for the
net contribution the UK makes to the CAP budget. It would also mean that British farmers,
who would face losing all their payments in the short term, may also temporarily excluded
from the internal market in agricultural products.
Such unilateral action would not provide a sustainable long-term solution and in the short
term may lead to a substantial loss for the UK Treasury, as CAP monies already paid out
would not be refunded by Brussels. In addition, as the debate over CAP funding is an
intrinsic part of the overall EU budget and impacts on all other spending areas, such a move
is unlikely to be possible without withdrawing from all aspects of the EU budget.
Therefore the best possibility for the UK to take such action would probably be as a
negotiating tactic during the negotiations over the multiannual financial framework. The
negotiations for the 2014-2020 are likely to continue well into 2013, however this would also
require prioritising reform to the CAP budget ahead of reform to other parts of the EU
budget. As such the suitability of this approach is likely to depend on the UK's priorities and
its bottom line regarding its future relationship with the EU.
79
Chapter 4
Common Fisheries Policy
The summary
The EUs Common Fisheries Policy (CFP) is a highly centralised way of managing fisheries
resources in Europe. In fact, all the key decisions are taken by national fisheries ministers in
Brussels, based on proposals from the European Commission.
CFP reform takes place every ten years. The European Commission put forward its latest
proposals in July 2011, and aims to have the reformed CFP in place in 2013. The on-going
negotiations therefore present the UK with a unique window of opportunity to push for
comprehensive reform.
The CFP has so far failed to ensure the sustainability of fisheries in Europe. On the contrary,
the existing system of fixed fishing quotas, which is based on the quantity of fish that is
landed, not on how much fish is actually caught, has encouraged the practice of discards
unwanted fish being caught and then thrown overboard, dead or alive.
According to the European Commission, it is estimated that in European fisheries 1.7 million
tonnes of fish are discarded every year i.e. 23% of total catches. In 2010, UK vessels
discarded an estimated 51,697 tonnes of fish.
EU fishing rules also force the UK to grant foreign vessels access to part of its territorial
waters, putting small fishermen and therefore smaller coastal communities at a particular
disadvantage.
The Commissions plans for CFP reform are a step in the right direction. However, there are
several areas in which the UK can either push for greater clarity in the Commissions
proposal and others where more fundamental reform could be pursued that go well beyond
the current proposal.
Crucially, the Commissions proposal for regionalisation of the CFP only deals with
devolution of powers to individual member states, but fails to lay down a formal mechanism
for regional groupings of member states to work together. As it stands, the proposal creates
legal uncertainty and could ultimately lead to the Commission gaining more powers.
The Commissions plans for CFP reform are subject to negotiations between EU member
states and MEPs, and will be adopted under QMV meaning that the UK will have no veto
over the outcome.
The UK needs to remain ambitious on the sensitive issue of discards, or else face the risk of
the current negotiations ending up with nothing meaningful being achieved.
The UK could push for a shift from the current system of landing quotas to a new system of
catch quotas under which fishermen would be obliged to count all the fish that they catch
against their quotas, not just the fish they land. Evidence from pilots in the UK and in other
member states, such as Denmark, suggests that catch quotas can be an effective way to
reduce discards.
In the absence of more comprehensive regionalisation of the CFP, the UK could push the
Commission to set down in more detail how member states are expected to work together
under its proposal.
83
The UK could seek to negotiate repatriation of its territorial waters (the six to twelve nautical
mile limit), allowing the UK to reserve greater access to these waters for the small-scale
fleet. In order to achieve this while respecting the UKs EU commitments, the UK could seek
an EU agreement to denounce the 1964 European Fisheries Convention.
The UK could support measures to promote less popular fish or increase the publics
awareness of the benefits of eating fish.
The UK could call for EU funding to be better targeted towards scientific advice and data
collection on fish stocks.
It is vital that the UK speaks with a single voice in Brussels. Greater coordination between
central government and the devolved administrations could certainly increase the UKs
negotiating strength on CFP reform.
The UK could push for genuine regionalisation of the CFP. Under this scenario, the
Commission would still set out a number of framework objectives, while day-to-day
management would be handled by regional groupings of member states surrounding a
specific sea basin. Contrary to what the House of Commons EFRA Committee recently
argued, the European Commission has stated this would require a Treaty change.
Fishing quotas would also be managed at a sea basin level. In theory, the Commission
could propose long-term targets for fish mortality over a period of ten years. Regional
groupings of member states would then fix and adjust annual quotas by unanimity. The
Commission could be given the power to intervene if a group of EU member states fails to
strike a deal.
Should the UK be unable to achieve satisfactory reform of the CFP through negotiations, it
could ultimately opt for unilateral repatriation of fisheries management by withdrawing from
the CFP altogether.
As the UK would no longer take part in the CFP, the Government could potentially negotiate
an additional rebate from the EU budget, equivalent to the UKs annual contribution to the
CFP.
However, this option would be both very difficult to achieve politically and hard to put into
practice. The UK could only withdraw from the CFP by violating the EU Treaties.
84
The introduction
The Common Fisheries Policy (CFP) is a highly centralised system for the common
management of fisheries resources in the waters of EU member states. It is based on the
principle that EU member states should have equal access to each others fishing grounds.
The CFP was formally launched in 1983, although its origins date back to the early 1970s,
when fisheries were part of the Common Agricultural Policy (CAP). Fisheries management is
established as one of the exclusive competences of the EU.96
The CFPs stated areas of action include:
Laying down common rules to safeguard the sustainability of Europes fisheries

resources and prevent damage to the marine environment;
Providing national authorities with the necessary tools to enforce EU rules on
fisheries;
Monitoring the size of the European fishing fleet (i.e. the total number of EU member
states commercial fishing vessels) and preventing it from expanding further;
Providing funding for initiatives aimed at making Europes fishing industry more
sustainable via the European Fisheries Fund (EFF);97
Negotiating international fisheries agreements on behalf of EU member states.98
The first significant overhaul of the CFP took place in 2002. The main outcomes of the 2002
reform included the introduction of long-term management plans for a number of fish stocks
and a requirement that EU member states adjust the capacity of their national fleets in line
with their fishing quotas.99
In July 2011, the European Commission put forward proposals for a second round of reform
of the CFP, due to concerns that widespread overfishing is exhausting several fish stocks.
The Commission aims to have the reformed CFP in place in 2013, although the proposals
are currently being negotiated between EU member states and the European Parliament.
The negotiations therefore present member states with a unique window of opportunity to
push for more comprehensive reform.
Prior to the CFP, the fishing rights of nation states were set out by means of international
agreements, such as the 1882 North Sea Fisheries Convention of which the UK was a
signatory along with seven other countries or the 1964 European Fisheries Convention. In
general, nation states negotiated their fishing rights on a case-by-case basis and with a
number of different partners. Such a fragmented system was not immune to international
disputes, especially following the development of distant-water fishing by large-scale vessels
in the nineteenth century.
96
See the European Commissions Green Paper, Reform of the Common Fisheries Policy, 22 April 2009, p6,
eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=COM:2009:0163:FIN:EN:PDF.
97
The EFF has a budget of 4.3 billion for 2007-2013, http://ec.europa.eu/fisheries/cfp/eff/index_en.htm.

See the CFPs official website, http://ec.europa.eu/fisheries/cfp/index_en.htm.
99
See House of Commons, Environment, Food and Rural Affairs Committee, EU proposals for reform of the
Common Fisheries Policy, Twelfth Report of Session 2010-12, February 2012, p8,
http://www.publications.parliament.uk/pa/cm201012/cmselect/cmenvfru/1563/156302.htm.
98
85
The detail
International law of the sea: the existing framework
Outside of the CFP, the centrepiece of international maritime law is the 1982 United Nations
Law of the Sea Convention.100 The Convention identifies three broad maritime zones:
The territorial sea, which extends up to twelve nautical miles from a countrys
maritime baseline.101 States have full sovereignty over their territorial waters;
The so-called Exclusive Economic Zone (EEZ), which extends up to 200 nautical
miles from a countrys maritime baseline.102 States have sovereign rights to explore,
exploit and manage natural resources within their EEZ, provided that they take into
due account the rights and freedoms of other countries;
The High Seas zone, which includes all waters beyond the limits of national EEZs
and is open to all states, including those that are land-locked.
The management of European fisheries under the CFP

The CFPs common rules concerning the management of fisheries can be divided into three
broad categories:
Catch limits, restricting the quantity of fish that can be landed every year;
Fishing effort limitations, restricting both the number of fishing vessels that set to
the sea and the amount of time that they can spend fishing;
Technical measures, regulating how and where fishermen can fish. These include,
for example, measures to protect young fish.
Governance
The CFP is a highly centralised way of managing fisheries resources in Europe. In fact, all
the key decisions are taken by national fisheries ministers in Brussels, based on proposals
from the European Commission. Ministers have to reach agreement between themselves
and with the European Parliament, although MEPs are not involved in the allocation of
fishing quotas (see below).
As part of the previous reform of the CFP in 2002, Regional Advisory Councils of fishermen,
scientific experts and other stakeholders were established across Europe. However,
Regional Advisory Councils are consultative bodies that can only submit recommendations
and suggestions, but have no legislative role within the existing CFP framework.
Catch limits
The key element of the CFP is the establishment of fishing quotas also known as Total
Allowable Catches (TACs) specifying the quantity of fish that can be landed each year for
particular fish stocks. Quotas are allocated for particular species and particular geographical
areas. TACs cover all the fish stocks which are considered commercially significant, and
are updated every year.103
100
Available here, http://www.un.org/depts/los/convention_agreements/texts/unclos/unclos_e.pdf.

Article 5 of the UN Convention defines the normal baseline as the low-water line along the coast of a state.
102
Or up to an imaginary median line equidistant from the maritime baselines of the coastal states, when they are
less than 400 nautical miles apart from each other.
103
Every two years for deep sea species, see http://ec.europa.eu/fisheries/cfp/fishing_rules/tacs/index_en.htm.
101
86
TACs are then broken down into national quotas and allocated to EU member states. Under
the so-called principle of relative stability, national quotas are based on EU member states
historical fishing activities and the proportion of these national quotas remain constant
relative to each other, regardless of whether the total quantity of fish that can be caught
changes. The member states are free to choose how they want to distribute their national
quotas among individual vessels flying their national flag.
The allocation of fishing quotas is the only aspect of the CFP which is not subject to codecision with the European Parliament, meaning that MEPs are not involved in the process.
Member states can adopt the Commissions proposal by qualified majority.104 However, if the
ministers want to amend the proposal, for example by substantially increasing quotas, they
must do so by unanimity which often leads to horse-trading and side deals among member
states desperate to get the most fish for their fishermen.105
Under EU rules, national governments are allowed to swap fishing quotas amongst
themselves. Based on the number of swap notifications received by the European
Commission, EU member states have exchanged, on average, over 10% of their quotas
every year over the period 2005-2008.106 Non-EU countries are also assigned national
quotas that their vessels cannot exceed while fishing in the territorial waters of EU member
states. Fishing rights for non-EU countries are negotiated by the European Commission.
The Commissions proposals for TACs are based on but do not necessarily reflect advice
from the Scientific, Technical and Economic Committee for Fisheries (STECF).107 However,
EU member states tend to agree on higher catch limits than those proposed by the
Commission. A briefing published by the Green Group in the European Parliament last April
showed that, for 2011, EU member states decided to adopt higher TACs for almost 44% of
all fish stocks with a large majority of the increases ranging between 10% and 20% in
excess of the quotas proposed by the Commission.
Council Decision adopting TACs for 2011 % of all TACS
(compared to Commission proposal)
for 2011
Increase of 0.1% to 4.9%
3.6
Increase of 5% to 9.9%
5.7
30
1.4
Increase of over 40%
2.9
Total
43.6
Source: The Greens/European Free Alliance in the European Parliament108
These findings illustrate that, within the CFP framework, environmental concerns are often
incompatible with the political imperative to secure a good deal even if it means ignoring
scientific advice.
104
See Article 20 of Council Regulation (EC) No 2371/2002 (aka the Basic Regulation on the CFP), http://eurlex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:L:2002:358:0059:0080:EN:PDF .
105
See Articles 43(3) and 293 TFEU.
106
European Commission, Impact assessment accompanying the Commission proposal for a Regulation of the
European Parliament and the Council on the Common Fisheries Policy [repealing Regulation (EC) No
2371/2002], p12.
107
See the European Commissions website,
http://ec.europa.eu/fisheries/cfp/fishing_rules/scientific_advice/index_en.htm. The Commission is also advised by
the International Council for the Exploration of the Sea (ICES), an independent body founded in 1902,
http://www.ices.dk/indexfla.asp.
108
See The Greens/European Free Alliance in the European Parliament, The politics of fishing How Council
sets TACs, 28 April 2011, http://www.cfp-reformwatch.eu/wpcontent/uploads/2011/05/The_Politics_of_Fishing_2011_final.pdf.
87
Following the first major reform of the CFP in 2002, some fisheries are now covered by longterm management plans. Among other things, long-term plans are designed to cap the yearon-year variations in fishing quotas for those stocks. However, despite the widespread
support for the long-term management of fisheries, multiannual management plans currently
exist for only 22 stocks that is, about 25% of all EU commercially important stocks.109
As former UK Fisheries Minister Lord Deben put it,
If you are a fisheries minister you sit around the table arguing about fishermen not
about fish. Youre there to represent your fishermen. You're there to ensure that if
there are ten fish you get your share and if possible a bit more. The arguments arent
about conservation, unless of course you are arguing about another country.110
It is worth mentioning that Mediterranean fisheries are managed differently. The aim is to
limit overfishing by means of closed areas and seasons, in combination with other technical
measures and no TACs are set (except for Bluefin tuna). Furthermore, under the
Mediterranean Fisheries Regulation, the EUs Mediterranean member states are required to
draw up their own National Management Plans for the fisheries in their territorial waters.
The UK divides its share of EU quotas amongst the fleet using a system of Fixed Quota
Allocation (FQA), which was introduced in 1999. The FQA system broadly mirrors the
principle of relative stability currently in use at the EU level, and is based on historical
landings of UK vessels between 1994 and 1996. The majority of FQA is allocated to
Producer Organisations (POs) on behalf of their member vessels. The UKs small-scale fleet
(vessels under 10 metres in length) does not hold its own quota, since it fishes against
collective pools of quota held by the Marine Management Organisation (MMO).111
A problem with the current UK system is that, at the time it was introduced, small-scale
vessels did not have to record their landings, meaning that they were allocated their
proportion of quota based on DEFRA estimates. These proved to be underestimates when
small-scale vessels began to complete and submit sales notes following the entry into force
of the Registration of Fish Buyers and Sellers Regulations in 2005. In practice, small-scale
fishermen received a lower share of quota than they would have been entitled to, had their
real catches been known.
The Government has been exploring several ways to strike a fairer balance,112 but, since the
UK fishing quota is fixed at the EU level, giving small fishermen the opportunity to catch
more fish would inevitably mean that large-scale vessels would be allowed to catch less
fish.113
109
Common Fisheries Policy, p32.
110
As quoted in House of Commons, Environment, Food and Rural Affairs Committee, EU proposals for reform
of the Common Fisheries Policy, p9.
111
According to the European Commissions definition, the small-scale fleet includes vessels under twelve
metres in length, while the UK designates vessels under ten metres in length as small-scale.
112
Proposals include a one-off reallocation of 3% of English quota from the large-scale to the small-scale fleet, or
the transfer to the small-scale fleet of the quota which has been consistently under-fished by the large-scale fleet
over the past years.
113
For a broader discussion, including the issue of slipper skippers, see House of Commons, Environment,
Food and Rural Affairs Committee, Implementation of the Common Fisheries Policy: Domestic fisheries
management, 2 June 2011,
http://www.publications.parliament.uk/pa/cm201012/cmselect/cmenvfru/858/85802.htm; see also DEFRA, Rules
for the management of the UKs fisheries quotas in areas I, II, IV, VI and VII (and associated areas) and Faroese
waters (Vb) for 2012, February 2012,
http://marinemanagement.org.uk/fisheries/management/documents/quotas/rules2012.pdf.
88
Fishing effort limitations

Fishing effort limits can be applied in addition to TACs and cover both the number of vessels
that set to the sea and the amount of time that they can spend fishing. Under EU law, fishing
effort is defined as the product of fishing capacity multiplied by activity.
Fishing capacity is measured in terms of the size of the vessels (so-called Gross Tonnage,
GT) or the power of their engines (expressed in kW). Activity is commonly measured in
terms of the number of days vessels spend at sea. Therefore, within the CFP framework
fishing effort limitations can be set either as GT/days or kW/days.
Technical measures
The CFP also empowers the Commission to set down a number of technical measures,
which regulate how and where fishermen can fish. These measures primarily aim to protect
small/juvenile fish. They include:
Minimum Landing Sizes (MLS), establishing the smallest size at which it is legal to
land and sell a fish;
Minimum mesh sizes for nets;
Closed areas and seasons;
Limits on the catches of unwanted fish species (so-called by-catches), along with
requirements to use more selective fishing gear as a way to reduce unwanted
catches;
Measures to prevent damages to the marine environment.
Due to the differences between various fisheries in the waters surrounding Europe,
establishing technical measures centrally from Brussels is an extremely complicated and
time-consuming exercise, as the Commission itself has acknowledged. The centrepiece of
EU legislation on technical measures is a Council Regulation adopted in 1998, which has
been amended 41 times since its entry into force. In addition, three separate Regulations
cover technical measures for the Mediterranean, the Baltic Sea and the North-East Atlantic
(including the North Sea) respectively.
Whats wrong with the CFP?
EU quotas encourage fish discards
EU fishing quotas have come under increasing criticism for encouraging the practice of
discards unwanted fish being caught and then thrown overboard, dead or alive. The
current quotas are based on the quantity of fish that is landed, not on how much fish is
actually caught. In other words, under the current system, a discarded fish is the same as a
fish which has never been caught. Therefore, in order to avoid exceeding their assigned
quota, fishers may decide to throw unwanted fish back into the sea before landing their
catches.
According to the European Commission, it is estimated that in European fisheries 1.7 million
tonnes of fish are discarded every year that is, 23% of total catches.114 In 2010, UK
vessels discarded an estimated 51,697 tonnes of fish.115
114
Based on Eurostat figures, see European Commission, Impact assessment accompanying the Commission
proposal for a Regulation of the European Parliament and the Council on the Common Fisheries Policy
[repealing Regulation (EC) No 2371/2002], 13 July 2011, p11,
http://www.europarl.europa.eu/registre/docs_autres_institutions/commission_europeenne/sec/2011/0891/COM_S
EC%282011%290891_EN.pdf.
89
Fisheries Minister Richard Benyon has described discards as disgraceful waste.116 This is
true for at least two reasons. First, thousands of tonnes of perfectly edible fish are thrown
back into the sea, in most cases dead or dying. Second, discards can also have a seriously
negative environmental impact, not least because fish stock estimates are based on landed
fish only. This means that, in reality, the size of certain stocks could be smaller than thought
if discarded fish were accounted for which in turn risks undermining the quality of scientific
advice.
Discards are not only attributable to fishing quotas, however. In fact, over-quota discards
are estimated to account for less than a quarter (22%) of English and Welsh discards. In
some cases, fish is discarded because it is under the legal Minimum Landing Size (MLS).
The MLS is one of the technical measures decided at the EU level, and is designed to
protect young fish from being targeted by fishermen. MLSs are thought to account for
around 24% of total discards. Fish that are less likely to sell or smaller, less valuable fish are
also often discarded so-called high-grading whereby fishermen seek to maximise the
value of their catches.117
The European Commission has proposed introducing a blanket ban on discards by 2016
(see below). The proposal has received a mixed welcome from EU member states. Ahead of
the 2012 March Fisheries Council, the UK media leaked a draft joint declaration from a
group of member states, led by France and Spain, rejecting the Commissions proposed ban
on discards as unrealistic and too prescriptive.118 In the end, the group decided to drop the
declaration which the UK had not signed up to but the Fisheries Council still concluded
that the Commissions proposed timing for the ban was overambitious.119
At a later Fisheries Council in June 2012, the ministers agreed on the introduction of a ban
on discards, but suggested pushing back the deadline for ending discards of so-called
Whitefish fisheries (e.g. cod, haddock and hake) to 1 January 2018.
In principle, the UK is strongly in favour of doing more to curb discards. Mr Benyon has on
several occasions voiced his support for replacing the current landing quota system with a
catch quota system, where fishermen are incentivised to pay more attention to what they
are fishing, because they know that all the fish they catch and not just the fish they land
will have to be counted against their quotas. Moving to a catch quota system would also
improve the accuracy of documenting fish stocks because all fish caught must be recorded
(see below in the options).
EU rules limit the UKs control of its coastal fisheries
Under international maritime law, the territorial waters of a country extend to a maximum of
twelve nautical miles from its coast. Under EU rules, the UK can restrict access to its
territorial waters, but must grant access to vessels from other member states that have
acquired historical fishing rights in areas between six and twelve nautical miles from the UK
coast.
115
The total figure does not include estimates for Northern Ireland, which are not available, see Hansard, 11
January 2012: Column 369W,
http://www.publications.parliament.uk/pa/cm201212/cmhansrd/cm120111/text/120111w0004.htm.
116
Quoted in the Guardian, Government attacks EU fishing rules, 1 March 2011,
http://www.guardian.co.uk/environment/2011/mar/01/government-attacks-eu-fishing-rules.
117
Although the UK theoretically operates a European high-grading ban in seas around the UK, for further
details, see DEFRAs website, http://www.defra.gov.uk/environment/marine/cfp/discards/.
118
See, for instance, the Guardian, Plans to ban fishing discards threatened by EU member states, 15 March
2012, http://www.guardian.co.uk/environment/2012/mar/15/ban-fish-discards-eu.
119
See the press statement released after the 19-20 March 2012 Fisheries Council, p7,
http://www.consilium.europa.eu/uedocs/cms_data/docs/pressdata/en/agricult/129107.pdf.
90
These arrangements date back to the 1964 European Fisheries Convention, and the UK
gets a comparatively poor deal. For example, French vessels have the right to access no
less than 15 different geographical areas within the UKs coastal waters. In contrast, the UK
can only access one geographical area within Frances coastal waters.120
EU member states allowed to fish in UKs coastal waters
Country
Number of geographical areas
France
15
Ireland
2
Germany
6
The Netherlands
3
Belgium
5
Source: Council Regulation (EC) No 2371/2002
EU member states whose coastal waters UK is allowed to fish in

Country
Number of geographical areas
France
1
Ireland
2
Germany
1
The Netherlands
1
Source: Council Regulation (EC) No 2371/2002
In practice, these rights to fish in the UKs territorial waters put small fishermen, and
therefore smaller coastal communities, at a particular disadvantage, since they tend to fish
closer to the coast than large-scale vessels. These rights were granted to vessels, which in
many cases will no longer be fishing, and have since been passed on to new vessels. In
addition, the fishers from the new member states are ineligible for these rights. Therefore,
there is a strong case for revisiting these arrangements.
Not all EU member states have tough control mechanisms in place
Another problem with the CFP is that member states do not all conform to the same
standards when enforcing EU rules. The case of Spain, Europes biggest fishing nation and
the largest recipient of CFP subsidies (see below), is particularly illustrative. A recent
Greenpeace report claimed,
The Spanish government has tolerated, even promoted, overfishing and the expansion
of its bloated fleet at the expense of sustainability. The process of the CFP has become
perverted via the apparent maladministration of the lax Spanish authorities who are
neither controlling criminality nor illegality of the type outlined here.121
In 2007, the European Court of Auditors also noted that in Spain none of the catches by
vessels under ten metres in length were being recorded, despite such vessels accounting for
67% of the Spanish fleet.122
120
See Council Regulation (EC) No 2371/2002, Annex I, http://eurlex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:L:2002:358:0059:0080:EN:PDF Fishing rights in the different
areas are usually restricted to only one species, although in some cases they cover all species.
121
Greenpeace, Wide open to abuse: The Common Fisheries Policy, October 2011, p3,
http://www.greenpeace.org.uk/blog/oceans/exposed-organised-crime-sea-20111002.
122
See European Court of Auditors, Special report No 7/2007 on the control, inspection and sanction systems
relating to the rules on conservation of Community fisheries resources, 2007, p9,
http://eca.europa.eu/portal/pls/portal/docs/1/673627.PDF. For reasons of completeness, it must be said that the
Court expressed reservations on data collection and quota monitoring in several other EU member states,
including the UK .
91
Spain has already faced sanctions from the European Commission. In 2012, for instance,
Spanish quotas for horse mackerel, blue whiting and monkfish were cut due to overfishing in
Spains Northern Galicia region. In 2011, Spains mackerel quota was cut after the
Commission found Spanish fishermen had landed almost twice as much mackerel from the
Cantabrian Sea as they were allowed.
The European Fisheries Fund: Paying fishermen not to fish
Under the CFP, EU member states can apply for funding from the European Fisheries Fund
(EFF). The EFF has a budget of 4.3 billion for 2007-2013.123 Spain is by far the largest
recipient of EFF subsidies, with 1.1 billion allocated over the seven-year period more than
a quarter of the total. The UKs allocation for 2007-2013 is around 138 million.
Allocations of EFF subsidies from 1 January 2007 to 31 December 2013 ( million)
EU member state
Spain
France
Italy
Greece
Poland
Portugal
Denmark
Sweden
Finland
UK
Convergence
946
34
318
177
734
224
0
0
0
43
Non convergence
186
182
106
31
0
22
134
55
39
95
Total
1,132
216
424
208
734
246
134
55
39
138
Source: European Commission
Funding under the EFF is divided into five priority areas. Crucially, one of these areas (socalled Axis 1) is designed to support adjustments of the fleet by EU member states
primarily subsidising fishermen who agree to stop fishing, either temporarily or permanently.
In total, EU funding under Axis 1 accounts for 27% of the EFFs budget for 2007-2013.124
However, the Commission itself has acknowledged that offering money to scrap fishing
vessels (so-called de-commissioning) has not proved an effective tool in tackling the
problem of over-capacity of the European fleet. In fact, between 1994 and 2013, 2.73
billion will have been spent on such subsidies, but the overall fishing capacity of the
European fleet is still increasing by around 3% every year.
De-commissioning subsidies were also criticised by the European Court of Auditors in a
2011 report.125 In particular, the Court warned that often subsidies are paid to owners of very
old vessels, which were already likely to cease activity. Furthermore, EFF subsidies are also
available to fund a number of technical upgrades to boats. According to the Court, some of
123
In current prices, original allocation was 3.8 billion over the seven-year period, see European Commission,
Fact sheet on European Fisheries Fund,
http://ec.europa.eu/fisheries/documentation/publications/cfp_factsheets/european_fisheries_fund_en.pdf.
124
See European Commission, Impact assessment accompanying the Commission proposal for a Regulation of
the European Parliament and the Council on the Common Fisheries Policy [repealing Regulation (EC) No
2371/2002].
125
European Court of Auditors, Have EU measures contributed to adapting the capacity of the fishing fleets to
available fishing opportunities?, Special Report No 12/2011,
http://eca.europa.eu/portal/pls/portal/docs/1/10952727.PDF.
92
these improvements can help increase the boats ability to catch fish which effectively
counteracts the subsidies used to scrap vessels and reduce capacity.
In light of the failure to reduce fleet capacity, de-commissioning subsidies represent poor
value for taxpayers money. In its recent report on CFP reform, the House of Commons
EFRA Committee recommended that DEFRA should ensure that measures to increase
vessels capacity or to de-commission vessels are not eligible for funding under the next EU
long-term budget, due to run from 2014.126
European Commissions CFP reform proposals
In July 2011, the European Commission put forward its proposals for a second large-scale
overhaul of EU fishing rules, after acknowledging that the CFP is still failing to achieve its
key objectives. In particular, the Commission has noted, 82% of Mediterranean stocks and
63% of Atlantic stocks are currently overfished, and efforts to reduce the size of EU member
states fleets have not been successful.
The Commissions proposals for CFP reform are subject to negotiations between EU
member states and MEPs, and will be adopted under QMV meaning that the UK will have
no veto over the outcome.
The key aspects of the Commissions proposals include:
A ban on discards. Discards would be phased out starting from 2014, with a full ban
from 2016. Fishermen would be forced to land all the fish that they catch and count it
against their quota.127 At their meeting in June 2012, EU fisheries ministers have
agreed that for Whitefish fisheries the ban should be delayed until 1 January 2018.
The deadlines are still subject to negotiations with the European Commission and
MEPs.
Bringing all fish stocks to their Maximum Sustainable Yield. All fish stocks would
be brought to their Maximum Sustainable Yield (MSY) by 2015, in line with the EUs
international commitments. The MSY is the largest catch that can be taken from a
fish stock over an indefinite period without harming it.128 This would mainly be
achieved through a larger use of multi-annual management plans. As a general rule,
the existing multi-annual plans usually limit the year-on-year variation in fishing
quotas to a maximum of 15% in either direction, unless certain stocks face an
imminent risk of collapsing. However, EU fisheries ministers have recently agreed
that the deadline for achieving MSY should be 2015 where possible (e.g. when
scientific advice on the stocks is already available) and 2020 at the latest.129
Transferable Fishing Concessions to reduce fleet overcapacity. Subsidies to

fishermen who agree to stop fishing (temporarily or permanently) would be scrapped.
They would be replaced with a new system of Transferable Fishing Concessions
(TFCs), which would represent a fixed percentage of the national quota for a specific
fish stock. Allowing fishing TFCs, and therefore the right to quotas, to be transferred
126
Common Fisheries Policy, p35.
127
Fish with known high survival rates could be released alive back into the sea. For more details, see the
European Commissions website, http://ec.europa.eu/fisheries/reform/docs/discards_en.pdf.
128
See the European Commissions website, http://ec.europa.eu/fisheries/reform/docs/msy_en.pdf.
129
See the Council of Ministers press release, 12 June 2012, p6,
93
among fishermen should lead to the consolidation of fishing fleets as the sale of
TFCs can fund the sellers exit from the industry.130
Under the Commissions initial proposal, TFCs would become mandatory for largescale vessels and small-scale vessels fishing with towed gear, while EU member
states would be free to choose whether to extend TFCs to the rest of their smallscale fleets. Once assigned, TFCs could be leased or transferred to and from other
EU member states, but the principle of relative stability would have to be respected
in any case. However, at the Fisheries Council meeting in June 2012, ministers
agreed that the TFCs system should be entirely voluntary.131
In principle, TFCs could encourage more flexible domestic management of fishing
quotas. However, if their use were to be extended to the entirety of a countrys smallscale fleet without appropriate safeguards in place, the risk of bigger operators
buying up TFCs from smaller fishermen and putting them out of business could arise.
Regionalisation. Under its plans for regionalisation of the CFP, the European
Commission is proposing to give EU member states more flexibility in the adoption of
implementing measures at the national level, in line with the broader targets set out
in the multi-annual management plans.
Although the European Commission says it is in favour of a sea basin approach, the
draft CFP Regulation only deals with devolution of powers to individual member
states, but fails to lay down a formal mechanism for regional groupings of member
states to work together. In other words, EU member states surrounding the same sea
basin could meet and agree on a set of common measures at an informal level, but
would have to enact these measures nationally.
As it stands, the proposal creates legal uncertainty and could ultimately lead to the
Commission gaining more powers. In fact, the draft Regulation envisages that, every
time member states struggle to strike a deal and fail to adopt the requested
measures in due time, the Commission can step in and impose these measures by
means of delegated acts a power which it does not have at the moment.132
In evidence to the House of Commons EFRA Committee, EU Fisheries
Commissioner Maria Damanaki seemed to suggest that in future, once the multiannual plans are agreed at the EU level, regional groupings of member states would
be allowed to take measures to implement the plans. However, although member
states would be empowered to agree some measures, annual fishing quotas will
continue to be fixed by the Council of Ministers.133
Technical measures. The Commission has proposed replacing the existing complex
system with a single Framework Regulation which would lay down broader, less
detailed technical measures. According to the Commission, this in turn would allow
130
National governments can limit the validity of the concessions, although not for a period less than 15 years,
see Article 28 of the draft of the new CFP Basic Regulation.
131
See the Council of Ministers press release, 12 June 2012, p7,
132
See European Commission, Proposal for a Regulation of the European Parliament and the Council on the
Common Fisheries Policy, 13 July 2011, p30-32, http://eurlex.europa.eu/LexUriServ/LexUriServ.do?uri=COM:2011:0425:FIN:EN:PDF.
133
Mrs Damanaki rectified her answer to one of the questions from MPs, to make clear that member states in
the Council have to decide about the TACs according to the [multi-annual] plan, see House of Commons,
Environment, Food and Rural Affairs Committee, EU proposals for reform of the Common Fisheries Policy,
Volume II, Ev29 (Q141).
94
EU member states greater room for manoeuvre to enforce more specific rules at the
national level, ideally after consultations with fishermen and other stakeholders.
Increased fisheries budget. From 2014, the EFF is to be replaced by the European
Maritime and Fisheries Fund (EMFF), with a proposed budget of almost 6.6 billion
over seven years, an increase of over 50%.134 A large chunk of the EMFF budget
(over 4.5 billion) would go towards the sustainable development of fisheries,
aquaculture and fisheries areas,135 including support for fishermen who want to
invest in more selective gears, and measures designed to add commercial value to
fish that would otherwise be seen as unwanted catches by fishermen. This would
mark an improvement from the current EFF, in light of the abolition of decommissioning subsidies.
The reaction to the Commission proposals from UK ministers has been mixed. Mr Benyon
welcomed the Commissions proposals as a vital first step, but admitted that they were only
the start of lengthy negotiations.136 Scottish Fisheries Secretary Richard Lochhead was
more critical, as he argued:
I welcome the fact the EU has put forward long-awaited proposals for change.
However, they need to be a lot more radical if Brussels is not to repeat the many
mistakes that have caused so much damage in recent decades.137

The Commissions proposal is a step in the right direction. However, there are several areas
in which the UK can either push for greater clarity in the Commissions proposal and others
where more fundamental reform could be pursued that go well-beyond the current proposal.
Governance
The centrepiece of the Commissions proposal is regionalisation. However, the
Commissions proposals do not envisage a formal system to manage fisheries at a sea basin
level. In other words, while the proposal would delegate certain implementing powers to
individual member states, there are no formal mechanisms for regional groupings of member
states to work together, which could cause legal uncertainty and could actually end up
increasing the Commissions power through its ability to set down measures using delegated
acts if member states cannot agree.
134
European Maritime and Fisheries Fund, 2 December 2011, p10,
http://ec.europa.eu/fisheries/reform/com_2011_804_en.pdf.
135
European Maritime and Fisheries Fund, p18.
136
See DEFRA, Richard Benyon responds to Common Fisheries Policy reform proposals, 13 July 2011,
http://www.defra.gov.uk/news/2011/07/13/cfp-reform/ .
137
Scottish Government press release, EU fisheries policy, 13 July 2011,
http://www.scotland.gov.uk/News/Releases/2011/07/13112758.
95
The Commission argues that this arrangement is necessary given that fisheries
management is laid down as an exclusive competence in the EU Treaties, and that Treaty
change is, in the words of EU Fisheries Commissioner Maria Damanaki, absolutely out of
the question.138
In the absence of more comprehensive regionalisation (see below in amber), the UK should
push the Commission to set down in more detail and codify how member states are
expected to work together. In the event that member states around a sea basin cannot agree
based on this framework, it is reasonable that the Commission then makes a proposal to be
voted on by the Council.
In addition, more power should be given to the Regional Advisory Councils. At the moment,
the Commission only envisages the possibility for them to make suggestions and
recommendations. However, any increase would likely have to stop short of giving Regional
Advisory Councils the power to initiate legislation on issues of local interest, as this could
further complicate the decision-making process and would require changes to the EU
Treaties.139
The CFP should recognise the importance of the small-scale fleet and its socio-economic
importance to coastal communities. Boosting the small-scale fleets presence on Regional
Advisory Councils would ensure them better representation and a voice in decision-making.
The Commissions proposed target of bringing all fish stocks to their Maximum Sustainable
Yield (MSY) by 2015 may not be the most appropriate, not least because of the lack of
scientific advice on how the target would be achieved for many stocks. The UK could
therefore call for more realistic targets. In this regard, the objective of a Good Environmental
Status in Europes seas by 2020 set out in the EUs Marine Strategy Framework Directive
looks more achievable, and is in line with the compromise reached at the EU Fisheries
Council in June 2012.140
An area where the UK could seek to change the quota system is in the territorial waters
between six and twelve nautical miles from the UKs coastline. Current CFP rules force the
UK to grant fishing rights to vessels from other EU member states that have historical rights
to fish in these areas.
As noted above, the UK has to grant wide access to its territorial waters to several other
member states, while it receives far more limited access in return. The UK could seek full
repatriation of its territorial waters to the twelve nautical mile limit. One possible way to
achieve this could be to denounce the 1964 European Fisheries Convention something
that the UK could do unilaterally, provided that it gives two years notice in writing to the
other governments that are parties to the Convention.141
In order to achieve this while respecting the UKs EU commitments, the UK could seek an
EU agreement to denounce the 1964 European Fisheries Convention and update the EUs
138
See Mrs Damanakis evidence to the House of Commons EFRA Committee, 27 October 2011,
http://www.publications.parliament.uk/pa/cm201012/cmselect/cmenvfru/1563/1563ii.pdf .
139
In evidence to the House of Commons EFRA Committee, Mrs Damanaki suggested that giving RACs the
power to initiate legislation would be forbidden by the EU Treaties.
140
Directive 2008/56/EC, see DEFRAs website, http://www.defra.gov.uk/environment/marine/msfd/.
141
Article 15 of the European Fisheries Convention reads, The present Convention shall be of unlimited
duration. However, at any time after the expiration of twenty years from the initial entry into force of the present
Convention, any Contracting Party may denounce the Convention by giving two years notice in writing to the
Government of the United Kingdom of Great Britain and Northern Ireland. The latter shall notify the denunciation
to the Contracting Parties, see http://www.dipublico.com.ar/english/european-fisheries-convention/ (emphasis
added).
96
basic CFP Regulation accordingly.

This would bring the management of these waters under national control, potentially allowing
the UK to reserve greater access to these waters for the small-scale fleet. However, full
repatriation of the twelve-mile area could have repercussions on the UKs relations with the
other signatories of the Convention, not least because some of them notably France do
particularly well under the current arrangements.
Lastly, it is vital that the UK speaks with a single voice on CFP reform in Brussels. In fact,
greater coordination between central government and the devolved administrations could
certainly improve the UKs negotiating strength on EU fishing policy.
Discards
While it is imperative that measures are taken to reduce discards, the risks of rushing
towards a discard ban without first engaging properly with fishermen and other stakeholders
have also been pointed out. Anne McIntosh MP, Chair of the House of Commons EFRA
Committee, has warned:
We are concerned that a knee-jerk reaction to the public outcry will do more harm
than good. The last thing that we want to see is unwanted fish in the sea becoming
unwanted fish in landfill.142
In its recent report on CFP reform, EFRA recommended that the discard ban be delayed
until 2020 to give time to do the groundwork for its successful implementation.
Other EU member states (notably France and Spain) have been more reluctant over the
introduction of a discard ban at the EU level. Therefore, the UK needs to remain ambitious
on this sensitive issue, or else face the risk of the current negotiations ending up with
nothing meaningful being achieved. Indeed, the compromise reached at the June 2012
Fisheries Council is encouraging (see above).
A discard ban is only as effective as the control mechanisms and monitoring systems that
are in force. In addition, the mixed nature of fisheries in the waters surrounding the EU
compared to these countries adds complexity.
Evidence from pilots in the UK and in other member states such as Denmark suggests that
moving to a system of catch quotas rather than the current landing quotas is an effective
way to reduce discards.143 The UK could therefore push for catch quotas to be adopted
across European fisheries.
Under a catch quota system, fishermen could be required to fully document their catches
and count all the fish that they catch against their quotas including fish which is too small
142
As quoted in the Guardian, Fish discarding ban shunned by MPs, 24 February 2012,
http://www.guardian.co.uk/environment/2012/feb/24/fish-discarding-ban-shunned-mps.
143
Trials conducted by the MMO last year gave very good results, as the analysis of CCTV footage showed that
only 0.2% of total catches across all species under trial were discarded. See Marine Management Organisation,
Catch quota trials 2011 Final report, April 2012,
http://www.marinemanagement.org.uk/fisheries/management/documents/quotas/cqt_final.pdf. In Denmark, 90%
of the Danish-landed fisheries value in 2007 was derived from Catch Share Programmes, see C. Alexander and
C.J. Alexander, Sustainable fisheries development, March 2011,
http://constantine.typepad.com/files/sustainable-fisheries-development-5.pdf.
97
to be landed under EU rules. CCTV linked to a Remote Electronic Monitoring (REM) system
and electronic log books could be used to make sure that all fish caught is accounted for.144
Vessels would have to stop fishing and return to port once they have run out of quotas.
The pilots suggested that using a catch quota system motivated fishermen to plan and make
greater use of selective gear in order to optimise their catch. In addition, electronic
documentation can replace a large number of the CFPs bureaucratic and detailed control
rules. Another benefit of the catch quota system is that quotas can be set to a higher level,
which takes into account some of the catch that is currently not registered or discarded
under the current landing quota system.
In Denmark, this system has been combined with the use of flexible rights based
management,145 similar to the Commissions proposed TFCs, whereby quotas can be
transferred among fishermen in real-time. Thanks to the mediation of private bodies or
cooperatives (so-called Fishpools) fishermen can conduct short-term or annual transfers of
quotas.146
The Fishpools use an online system to conduct trades and, in practice, this means that
Danish fishermen who catch more fish than their quota can lease or swap extra quota
through while returning or upon return to port. Alternatively, they can purchase additional
quotas so they can continue to fish, provided that their Fishpool still has quota for that
particular fishery. This has resulted in a substantial reduction in discards.
TFCs could be extended to the small-scale fleet, provided there are safeguards to ensure
that quotas are not consolidated in the hands of the major fishers (see below). Moving to a
catch quota system, combined with the ability to trade and swap quotas, gives fishermen
greater responsibility for and ownership of their fishing rights. This sense of ownership is
likely to increase long-term interest in the development of stocks.
In addition, EU-level action on discards should be combined with measures to boost the
marketability of certain types of fish both at the UK and the EU level. It is worth bearing in
mind that, in 2008, an estimated 54% of discards in England and Wales happened because
some varieties of fish were seen as harder to sell on fish markets.147
A practical way of doing this could be to launch public campaigns to explain the benefits of
eating fish ideally with a view to influencing the eating habits the British public. These
campaigns could, for instance, aim to bust a number of myths surrounding fish (e.g. the fact
that fish is harder and/or more time-consuming to cook than meat). Previous campaigns by
celebrity chefs have been instrumental in raising awareness of the issue of discards, for
example.
The Commissions target to increase the number of fisheries managed under multi-annual
plans will devolve greater power to member states. However, the Commission is yet to set
down concrete quantitative targets. The UK could argue for a timeframe for the
144
Trials in Canada give a strong indication that electronic recording of catches is a realistic goal. See Danish
Ministry of Food, Agriculture and Fisheries, Report on a new European fisheries policy, December 2008, p36.
145
Under the Danish rules, transferable quotas can only be held by fishermen who derive more than 60% of their
income from fishing. This helps ensure that quotas remain in the hands of active fishermen.
146
This is different from the system operating in the UK, where coastal fishermen do not hold their own quota. In
fact, they fish against a pool of quota held on their behalf by the MMO meaning that they are not allowed to
trade quotas among themselves, unlike large-scale vessels. For further details, see House of Commons,
Environment, Food and Rural Affairs Committee, Implementation of the Common Fisheries Policy: Domestic
fisheries management , Sixth Report of Session 2010-2012, 18 May 2011,
http://www.publications.parliament.uk/pa/cm201012/cmselect/cmenvfru/858/85802.htm .
147
See DEFRAs website, http://www.defra.gov.uk/environment/marine/cfp/discards/ .
98
establishment of multi-annual plans but also a speedy mechanism to amend these plans in
light of new scientific evidence and advice.
Transferable Fishing Concessions (TFCs)
Evidence from other member states, such as Denmark,148 suggests that the use of rightsbased fisheries management is far more effective than de-commissioning subsidies in
tackling fleet over-capacity. Therefore, the Commissions idea of introducing Transferable
Fishing Concessions (TFCs) as a market-based mechanism to tackle the problem of
overcapacity has some interesting aspects the UK and other member states could work on.
TFCs could potentially work as a substitute for de-commissioning subsidies, since the
revenue from their sale would become the compensation for fishermen who decide to cease
their activity.
Experience in Demark suggests that TFCs can be implemented for the small-scale fleet
provided that safeguards are put in place, such prohibiting coastal fishermen selling their
quotas outside of the coastal fishery while they would be allowed to purchase additional
quota from the non-coastal fishery sector. This would mean that, while the quota handled by
coastal fishermen could increase, it could never fall below a fixed amount.
Nevertheless, the UK could point out that it should not be for the European Commission to
decide how member states manage their fishing quota, whether it is by using TFCs or any
other method, as this is not in the Commissions remit a view which is shared by other
member states, as shown by the compromise reached at the Fisheries Council in June 2012.
As regards EU subsidies to the fishing sector, the UK could seek to ensure that, from 2014,
no more taxpayers money is spent on decommissioning of vessels or on technical upgrades
that can increase the vessels capacity and/or their ability to fish. Instead, EU funds could be
used to provide incentives for fishers to purchase and develop more selective gear, which is
also likely to reduce discarding.
The UK could also support the Commissions proposals to increase funding for scientific
advice and data collection on fish stocks. This could include UK support for the withdrawal of
subsidies from member states that fail to meet their obligations under the CFP.
As stated above, the Commissions proposals for regionalisation are limited not only in their
legal clarity but also in their scope. According to the Commission, this is a result of the limits
set down in the EU Treaties, which state that the CFP is as an exclusive competence of the
EU and that this limits the extent to which powers can be devolved to member states.
The House of Commons EFRA Committee noted in their 2012 report that the Treaties limit
the EUs exclusive competence to the conservation of marine biological resources under
the Common Fisheries Policy.149 Therefore, the UK Government could try to persuade other
member states that amending the CFPs Basic Regulation would allow for genuine
148
From 1989 to 2006, 1,272 vessels were removed in Denmark at a total cost to Danish taxpayers of 1.4 billion
Danish Kroner without any clear benefit to the rehabilitation of marine habitats or fish stocks. Between 2003
and 2007, the Danish government launched two Individual Transferable Quotas (ITQs) programmes for pelagic
and demersal fisheries. Preliminary data showed that, following the introduction of ITQs, the capacity of the
Danish fleet has been reduced by 25% without the use of public funds for de-commissioning. For a broader
discussion of the Danish case, see Danish Ministry of Food, Agriculture and Fisheries, Report on a new
European fisheries policy, 12 December 2008; see also C. Alexander and Dr C.J. Alexander, Sustainable
fisheries development, March 2011, http://constantine.typepad.com/files/sustainable-fisheries-development-5.pdf
149
See Articles 3(1d) and 4(2d) TFEU, emphasis added.
99
decentralisation without the need for Treaty change. Although this would be decided by
QMV, it would be a major and radical reform and finding sufficient allies would be a
challenge, particularly among MEPs.
However, it should be noted that the European Commission the guardian of the EU
Treaties has stated that devolving more powers to regional groupings of member states
than those set out under its proposals would not be possible without a change to the EU
Treaties.150
Beyond the legal aspects, there can be no doubt that genuine regionalisation would grant
member states, and groups of member states, far more flexibility in and responsibility for
setting fisheries policies. Under this scenario, the Commission would still set out a number of
framework objectives, ideally making broader use of multi-annual management plans, while
day-to-day management would be handled by regional groupings of member states.
The regionalisation of some conservation measures and technical measures would not be
particularly controversial as this is already provided for by the Commissions proposal.151
Regional management of fishing quotas would be more complicated. In theory, the
Commission could propose long-term targets for fish mortality over a period of ten years,
agreed by the Council with all 27 member states. Once these framework quotas were
adopted, regional groupings of member states surrounding particular sea basins would then
fix and adjust annual quotas, and adopt technical measures among themselves in order to
reach these targets. Vessels from member states that are not geographically adjacent to the
sea basin in question but have the right to fish in those waters would be required to follow
the same rules.
A potential obstacle would be the fact that EU member states can have substantial quotas in
sea basins to which they are not adjacent and, as a consequence, their fishermen would be
subject to rules and catch limits on which its ministers had not decided.152 However, the
rights of all member states with fishing rights would be protected by the retention of the
principle of relative stability, whereby the distribution of quotas remains constant, whether
the overall allowable catch goes up or down.153
At a regional level, quotas could be agreed on by unanimity amongst the relevant member
states, and the Commission could be given the power to intervene if a group of EU member
150
In evidence to the House of Commons EFRA Committee, Mrs Damanaki said, We have to respect the
TreatiesThe Treaty has already provided, in very clear wording, that fisheries is an exclusive competence of
the European Union, so we cannot change that unless there is a change in the Treaties. It should also be noted
that Article 38 TFEU, which was not mentioned in the EFRA report, states that the Union shall define and
implement a common agriculture and fisheries policy.
151
These include, among others, the temporary closure of certain fishing areas, the temporary suspension of
fishing of certain stocks, restrictions to the type of equipment that can be used to fish in certain areas, etc. See,
for instance, Council Regulation (EC) No 1288/2009 establishing transitional technical measures from 1 January
2010 to 30 June 2011, http://eurlex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:L:2009:347:0006:0008:EN:PDF.
152
In 2011, for instance, France and Spain together held over 50% of the TAC for skates and rays in the NorthEast Atlantic waters off the Scottish coast; Spain and Portugal were also allocated quotas, albeit relatively small,
for horse mackerel in the North Sea, see Council Regulation (EC) No 57/2011, p55 and p65, http://eurlex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:L:2011:024:0001:0125:EN:PDF.
153
The alternative would be to extend decision-making to all EU member states holding a quota in a specific sea
basin. However, there are currently situations where, within the same fishing zone, different member states have
quotas for different species. This would possibly require that quota decisions be taken on a fish-by-fish basis,
meaning that the groups of member states allowed a vote would change continuously and be subject to the
political horse-trading that occurs under the current system.
100
states fails to strike a deal. This supervisory power would ultimately work as an incentive for
national governments to reach agreement.154
Overall, the benefits of this approach would be that decisions were taken closer to the
fishermen and communities that are affected by them. This would allow greater participation
of the industry and reduce the number of member states involved in decision making.
Maintaining the principle of relative stability would mean that the quotas for UK fishermen
would remain at similar levels to today. Re-opening the relative stability principle for
negotiation could lead to losses as well as gains for the UK, as other member states are
likely to seek extra quotas and the final decision would be taken by QMV, under which the
UK could be outvoted.
Should the UK be unable to achieve satisfactory reform of the CFP through negotiations, it
could ultimately opt for unilateral repatriation of fisheries management by withdrawing from
the CFP altogether. This option would see the UK regain control over its Exclusive Economic
Zone (EEZ), which according to international maritime law stretches to 200 nautical miles
from a countrys coastline.155
This would not necessarily mean that the UK would stop cooperating with the EU institutions
and other EU member states altogether. In particular, the UK could continue to respect the
historical rights of its neighbours to fish in its waters, provided that UK fishermen are granted
the same rights. However, the UK would retain its right to modify or withdraw these rights
altogether, meaning that non-UK fishermen would be allowed to fish in UK waters only with
permission.
Indeed, if the UK were to re-instate its sovereignty over its EEZ, it would be free to go ahead
with a radical overhaul of fisheries management. Firstly, it could scrap fixed fishing quotas
altogether and replace them with a system based on the number of days at sea. This would
significantly reduce red tape, as some fishermen are currently subject to both fishing quotas
and effort limitations based on days at sea. However, on the other hand, small fishermen
could be penalised by a system based on days at sea not least because of the bigger
impact that adverse weather conditions have on their fishing activities. Days at sea could be
allocated by devolved authorities.
The UK could be more responsive and order the temporary closure of fisheries in a much
timelier way. Full sovereignty over its EEZ would also allow the UK to implement a number
of measures to prevent overfishing and tackle illegal fishing, such as prohibiting state
subsidies for the building or refitting of vessels or keeping a register of vessels and skippers
which are allowed to fish in UK waters.
As the UK would no longer take part in the CFP, the Government could potentially negotiate
an additional rebate from the EU budget, equivalent to the UKs annual contribution to the
CFP.
154
The Commissions intervention could be envisaged as a two-stage process. First, the Commission could
propose the quotas and set a deadline for the group of member states to agree on them (e.g. 30 days from when
they are notified the proposal). Failing this, the Commission could assign the quotas directly by means of
delegated acts but only as a last resort.
155
This is the option proposed by Owen Paterson MP as Shadow Fisheries Minister, see Consultation on a
national policy on fisheries management in UK waters A Conservative Party Green Paper, January 2005,
http://www.conservatives.com/pdf/fishinggreenpaper.pdf.
101
However, this option would be both very difficult to achieve politically and hard to put into
practice. On the one hand, the UK could only withdraw from the CFP by violating the EU
Treaties. This would imply the UK being taken to the ECJ and fines being imposed. On the
other hand, this option would create many practical problems. To give an example, other EU
member states may continue to receive quotas to fish within the UKs EEZ under the CFP,
and the UK would therefore have to re-negotiate these fishing rights with neighbouring
countries and potentially lose its rights to fish in other EU waters.
102
Chapter 5
Budget and institutions
The summary
The EU Budget is negotiated both in a multi-annual financial framework (MFF), which covers
a seven year period, and annually within that framework.
In April 2012, the Commission tabled its proposal for the 2013 annual budget, asking for a 6.8%
increase in payments. The UK Government, with France, Germany and others proposed a
freeze at 2012 levels.
Negotiations have started over the next MFF, which will cover the annual budgets from 2014 to
2020. The European Commissions total proposed budget for this period is around 1 trillion
(1,025bn in commitments (funds promised) and 972bn in payments (funds actually paid
out)). The Commission is asking for approximately a 5% increase based on the current MFF, or
3.2% in real terms.
This money comes from Member States in three main ways:

o
o
o
A direct payment from national governments based on each countrys Gross National
Income.
A levy on national governments taking a slice of each countrys VAT income.
Customs duties on various imports from outside the EU, and levies on sugar production.
This accounts for about 99% of the budgeted income, with the remainder coming from
contributions from non-EU countries to certain programmes, as well as fines (normally on
companies that break EU law).
The UKs gross contribution to the EU Budget in 2010 was 14.66bn and it received 6.75bn,
equating to a net contribution of 7.91bn. It is the second-largest net contributor after Germany
(11.95bn), and ahead of France (6.48bn) and Italy (5.84bn). The largest net recipients were
Poland (8.17bn), Greece (3.44bn) and Spain (3.10bn).
Member state payments to the budget are described as own resources, but the European
Commission has long sought direct EU-wide taxes to provide budget revenue. In the past it has
floated an EU Income Tax and has now proposed that the budget be funded from a Europeanwide financial transaction tax and a new system of EU-wide VAT. This is being resisted by the
UK Government and others.
There can be additional costs to the UK in converting its contributions from sterling to euro and
then back to sterling. Converting the contributions from euro to sterling is complicated and
exchange rate fluctuations can work for or against the UK.
The Commissions budget expenditure is divided into five headings. Sustainable Growth
(mainly the EUs Structural Funds) and Preservation and Management of Natural Resources
(agriculture and the environment) are the biggest items and will account for 87% of EU
spending in 2012. Citizenship, Freedom, Security and Justice (social policy, crime and policing)
and the EU as a Global Player (foreign policy) are the smaller items. The Administration
heading finances the staff of the European Commission and other institutional expenditure such
as that of the European Parliament, the Committee of the Regions, the Economic and Social
Committee and various EU agencies and quangos.
Each year the European Court of Auditors checks on the legality of EU spending and for the
last 17 years has refused to give EU spending a positive statement of assurance or sign it
off.
105
We do have the power to veto the MFF, but doing this comes with risks attached. Indeed, in the
absence of new ceilings being set under a new MFF, this could result in the 2013 budget being
used as a basis for future budgets with each years budget from 2014 being decided by QMV.
The European Parliament also has a veto over a new MFF and has consistently argued for
more spending at the EU level. Given the Commissions agenda-setting powers and the
Parliaments veto powers, the EU institutions themselves are an obstacle to reforming the
budget.
Other obstacles to reform come in the form of Member States who are net recipients of EU
monies. Whilst more Member States are actually net contributors following the 2004 accession
of ten extra countries to the EU, this net recipients bloc includes Greece, Portugal and the
new Central and Eastern EU Member States.
Other blocs also exist that are reluctant to accept reform. For example the vast majority of
Member States form a bloc that protects the Common Agricultural Policy from any major
changes. With all these vested interests, reform of the EU budget is much easier said than
done.
The UK could use its rebate to negotiate a reduction in the budget overall.
Currently the UK Governments position is a non-combative one, building consensus around a
budget freeze (although allowing for inflation). The UK could be more ambitious and push for
more radical reforms.
There are a number of important factors that should give the UK cards to play in these
negotiations: We are one of the largest net contributors to the EU budget, even after the rebate
is taken into account; the EU accounts have not been signed off for 17 years; and we could
veto any proposals for the 2014-2020 multi-annual financial framework.
Other Fresh Start Paper Green Chapters have suggested ways in which individual sectors of
the EU budget can be reformed. If suggested Fresh Start reforms were bought in for just the
Common Agricultural Policy and Structural Funds segments of the budget, the UK could
roughly reduce by half the fiscal cost of our membership of the EU.
The UK could negotiate changes to rid the budget of funds for NGOs, pressure groups and
taxpayer funded lobbying.
The UK could negotiate to stop using the Strasbourg seat of the European Parliament or to
remove a number of quangos, such as the Committee of the Regions and the Economic and
Social Committee.
The UK could repatriate EU international development monies to DFID.
The UK could refuse to pay any contributions until significant progress towards reform is
achieved.
106
The introduction
In June 2011, the Commission tabled its proposal for the shape and size of the 2014 2020
long-term EU budget. Overall, this represents a 5% increase, or 3.2% in real terms.156
In April 2012, the Commission tabled its proposal for the 2013 annual EU budget, which will
increase payments by 6.8% compared to 2012. This is at a time when some UK departmental
budgets are facing cuts of up to 20%.
The negotiations over both are due to be completed later this year, although in the absence of an
agreement, those concerning the long-term EU budget could drag into next year. Whatever
happens, there is not much time for the UK and other reform-minded Member States to push
through an alternative to the status quo.
Each year the European Court of Auditors checks the legality of EU spending, and for the last
17 years has refused to give it a positive statement of assurance or sign it off.
The detail
The EU budget finances the EU institutions and provides funding for the execution of EU
policies across a range of areas, from foreign policy to farming. The budget is primarily funded
through what is called own resources. These funds from Member States can be broken down
into three sources: payments from national governments based roughly on each Member
States Gross National Income (GNI); a levy on national governments on their income from
VAT; and customs duties on imports from outside the EU, as well as levies on sugar
production. These account for around 99% of EU budget revenue. Contributions from non-EU
states to certain programmes, and fines on companies for breaching EU law, account for the
rest.
Each annual EU budget is based on spending rules which apply across a seven year
framework period, known as a multi-annual financial framework (MFF). The budget is divided
into commitments and payments; commitments are funds earmarked in the relevant year for
certain purposes, while payments are funds actually meant to be paid out that year.
The budget is broadly divided up into five headings:
Sustainable Growth (mainly the EUs Structural Funds) and Preservation and Management of
Natural Resources (agriculture and the environment) are the big two areas of spending.
Citizenship, Freedom, Security and Justice (social policy, crime and policing), EU as a Global
Player (foreign policy) and Administration are smaller areas of spending.
These are then split across a range of more specific budget lines and/or policy objectives such
as research and development, education, media, culture, and transport.
Between them, the Sustainable Growth and Preservation and management of natural
resources account for the overwhelming bulk of EU spending - 87% in 2012.
Throughout this year, the EU will be negotiating both the annual budget for 2013 and, more
importantly, the next seven-year financial framework, which will run from 2014 to 2020 and will
essentially dictate the funding ceiling over this period.
156
When additional spending the Commission has moved outside the MFF is included, total EU spending is set to
increase by just over 5% in real terms. HM Treasury has suggested that the Commissions proposal amounts to an
increase of over 10% if 2011s annual budget is taken as a reference year. See UK Government position on the
Commissions financial perspective proposal, Letter from Justine Greening MP to the Chairman of the House of
Lords European Union Select Committee, 25 July 2011; http://www.parliament.uk/documents/lords-committees/euselect/cwm/CwMSelectJun11-Nov11.pdf.
107
T
The
e EU bud
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und
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W
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IIn Jun
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IIn Apr
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on tab
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C nvertin
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k for or ag
gainstt the UK
U beccau
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n mon
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on a fixxed
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e re
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eiptts are
a paid in euro
e o at irrreg
gula
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inte
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t a mar
m kett exxchang
ge rate. T
The
e Gov
G vern
nme
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oes
s no
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h e a ce
entrral
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exc
cha
ange
e ra
ate
e rissk m
mitigattion
nm
mecchanism, but Gov
G ern
nme
entt de
epa
artm
men
nts and
da
agencies ma
ay
m
make ind
divid
dua
al arra
a ang
gem
men
nts to mit
m iga
ate thiss rissk.157
T
The
e ne
ego
otia
atio
ons over botth are
a du
ue to b
be com
c mplete
ed late
er th
his year, altthough
h in
n th
he a
abs
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a
agrreem
me
ent, tho
ose
e co
onc
cern
ning th
he MF
FF ccou
uld dra
ag into
o nextt ye
ear.. Wha
W atevver happe
enss, th
herre is not
n
m
much tim
me for
f the
e UK and
a d otther re
eforrm--minde
ed Me
emb
berr Sttate
es to
t pus
p h th
hro
ough an
a a
alte
erna
ativve to
t
tthe sta
atus quo
q .
1
157
See
S Ma
ark Hob
H ban MPs Writte
W en Parl
P iam
menttary Ans
swe
er, 14 June
e 20
012, Ha
ansa
ard Colu
C umn
n 55
58W
W;
h
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10
08
Currently the UK Government has three stated objectives for the 2014-2020 MFF:
Protecting the UK rebate from further reduction,
Freezing the overall size of the budget,
Achieving reform through downward pressure. The argument goes that with less money
available, the cash raised must be spent better and show better value for money.
There are signs that this strategy is producing some positive results, as other net contributors
have joined the UK in calling for an inflation-linked freeze to the EUs long-term budget.
However, the Coalition Government has softened the UK position compared to its predecessor. It
has backtracked on Labours pledge to focus the Structural Funds exclusively on the EUs
poorest Member States, and it appears to have abandoned ambitions of reforming the Common
Agricultural Policy, in favour of the objectives listed above.
Previous unsuccessful attempts at change may have given rise to reform fatigue. However, the
danger is that the current narrow focus of the UKs negotiating team will squander a unique
opportunity for EU budgetary reform.
What If Nothing Is Agreed?
According to the EU treaties, if no agreement on the next MFF has been reached by the end of
the current long-term budgetary period (in this case, by the end of 2013), the ceilings and other
provisions corresponding to the last year of [the current] framework shall be extended until such
time as [the next framework] is adopted. This means that the spending limits agreed for 2013
would continue to apply in 2014, albeit with an adjustment to maintain constant prices, which
amounts to a fixed 2% increase every year, as set out in an agreement between the
Commission, the Council and the European Parliament (EP).
Interestingly, this agreement also states that the current MFF can be expressly terminated by
either the Council, the EP or the Commission, meaning it would no longer be carried forward in
the absence of a new framework being agreed. Instead, the Commission would propose annual
budgets as now, but without the ceilings imposed by the MFF. These budgets would be
decided according to the annual budget procedure that is, by Qualified Majority Voting (QMV)
in the Council and by majority vote in the EP.
This obviously has massive implications for the negotiations, since it effectively decides how
much leverage a reform-minded country has through the threat of vetoing a budget deal, as it
means that a country might veto negotiations on the MFF, only to find a more expensive path is
taken via annual budgets.
The exact procedure for terminating the current MFF is uncertain; indeed, this would be
completely new territory for all involved and it would be a huge, possibly reckless, political
gamble on the part of the European Parliament, the Commission or other Member States.
Given that the vast majority of Member States would not welcome such a scenario, it is not
something that should be perceived as an obstacle to the UK adopting a robust negotiating
position. Thus, there is a great opportunity for the UK in these negotiations.
As QMV applies to the adoption of annual budgets, proposals for such budgets can be halted if
a blocking minority of Member States is opposed. Different Member States have different
voting weights under QMV158, but numerous Member States are usually required to form a
blocking minority. If a proposed annual budget is blocked and a new budget for the relevant
year is not adopted, the EU treaties provide that the EU can spend the same amount that year
as was permitted under the previous years budget. In other words, there would be a cash
freeze, but EU spending would continue.
158
The system of QMV will alter from November 2014. Currently it is only loosely based on population size; from
November 2014, it will be based predominantly on each Member States population.
109
If the 2013 annual budget is not agreed, the 2012 budget is divided by twelve and as each
month goes past without agreement, a twelfth of the 2012 amount is paid to the Commission.
Savings To Be Made
As the Fresh Start Green Paper has already suggested various ways of reforming the budgets
for the bigger ticket items of the Common Agricultural Policy and Structural Funds, they will not
be repeated here.
Other areas of spending which could be reformed include the amount of money spent on the
EU institutions and within general administration. These areas have a budget in 2012 of 11bn
and include:
The EU Commission / General Administration (Total EU Spending in 2012: 5.78bn)
By far the biggest of the EU institutions is the European Commission, the EUs executive, which
puts forward legislative proposals for consideration by the Council and EP. Its other
responsibilities include implementing policies, managing the day-to-day running of the EU, and
representing the EU abroad (along with the European External Action Service). For this reason,
the Commissions activities carry a heavy administrative burden.
The Commission employs over 33,000 staff in total. In light of the economic climate, the
Commission has announced it will cut 5% of its staff over five years, but following Croatias
accession to the EU, its overall cut proposed for 2013 amounts to just 0.5%, or 121 posts. This
is despite the fact that Member States are making considerable reductions in public sector
posts. Greece is removing a total of 150,000 public sector jobs over the next three years, and
according to figures from the ONS, between March 2010 and March 2011 UK civil service
employment fell by 6%, or 29,051 posts.
European Commission staff enjoy high salaries and generous pension schemes. The starting
salary for a permanent Commission official is 31,850, reaching 220,450 for the highest paid
officials. New employees are entitled to a 16% share of their annual salary to account for the
costs of moving to Brussels. Between 2005 and 2012, spending on salaries rose from 1.7bn to
2.1bn, a 17.5% increase. Although overall spending fell in 2010, this is most likely due to the
disbanding of the Commissions DG for External Relations in order to set up the European
External Action Service, which is accounted for as a separate institution.
Commission staff are eligible to receive their pensions, which are capped at 70% of final salary,
from the age of 63. Officials contribute 1.9% of their salary to their pension scheme every year.
Commission spending on pensions increased by 33% over the past six years, and currently
totals 1.3bn.
In 2012 the European Commission is set to spend 169m on so-called European Schools, a
network of 14 institutions teaching around 22,500 children, mostly those of EU employees.
Access for non-EU employee children is conditional on paying average annual fees of 13,045,
and sufficient availability of school places. EU officials, who receive household and child
allowances, do not pay fees.
The Commission spending cuts should at least reflect the savings that are taking place in the
UK and government departments across Europe. Allowances and benefits should be scaled
back. For example, EU staff wishing to send their children to European schools should be
made to pay at least 50% of the fees, which it is estimated could save over 235m.
European Parliament (Total EU Spending in 2012: 1.7bn)
Directly elected by citizens of the Member States, the European Parliaments 754 MEPs have
the right to amend, pass or veto legislative proposals (together with the Council) in areas where
110
so-called co-decision applies. The EPs powers and competencies have steadily grown, and
since the Lisbon Treaty, which entered force in 2009, it has powers of co-decision in most EU
policy areas, including the budget. This means that both MEPs and national ministers must
reach an agreement before a proposal from the Commission can become law. This applies in
crucial areas such as social policy, and environmental and financial regulation.
The EP conducts its operations in three different cities; it has seats in both Brussels and
Strasbourg, and a separate office in Luxembourg which houses its Secretariat, responsible for
handling its administrative and legal affairs. The majority of MEPs time is spent in Brussels,
with a monthly commute to the EP building in Strasbourg, which in 2012 will stand empty for a
total of 317 days.
The annual cost of maintaining the additional Strasbourg seat is estimated at around 180m. In
2011, the Parliament issued tenders with a combined value of over 62.4m related to the
maintenance and upkeep of its Strasbourg base.
MEPs themselves recently voted in favour of a single seat in Brussels by 429 votes to 184.
Alas, as the Strasbourg seat is enshrined in the EU treaties, scrapping it would require
amendment of those treaties, which would in turn need the unanimous agreement of Member
States, which is currently being blocked by France.
Reforms of the EP should include scrapping the second seat in Strasbourg in favour of a single
seat in Brussels, and cutting all MEPs salaries and allowances, bringing them more in line with
the salaries of German and UK MPs. In addition, there would be greater oversight of MEP
expenses, with the production of receipts for all expenses becoming mandatory, which is
currently the system used by most UK MEPs.
It is a little known fact, but European Political Parties, such as the federalist European
Peoples Party, are funded by the EU taxpayer. If this funding was cut by just 15% it would save
13.2m. At the same time there is funding for political foundations, which should be scrapped
altogether. The funding rules for parties should also be amended; at present, parties vie for
common funds, meaning there is no incentive to cut back on spending, as any left-over money
will go to political opponents. Under an individual allocation scheme, parties would not lose out
if they chose to refuse some share of taxpayers money.
Finally, the European Parliament should eliminate expenditure completely unrelated to the
performance of its duties, such as the House of European History, a new museum and
exhibition centre designed to show post-WWII European history and promote awareness of
European identity, which is reported to be costing over 100m.
Quangos and Agencies (Total EU Spending in 2012: 2.48bn, 2.38bn of which from the EU
budget)
EU agencies are distinct from the main EU institutions, and handle specific tasks given to them.
They operate across a range of policy areas, from the single market, crime and policing, to
areas of scientific research, and their tasks range from information gathering to making key
decisions over how EU law should be implemented. There are currently 52 EU quangos. Prior
to 1990, there were only three.
The total cost of the whole EU quangos system to European taxpayers now stands at 2.64bn,
up a massive 33.2% on 2010. Over 90% (2.48bn) of this comes from EU Member States, the
remainder coming from non-EU countries such as Norway. This year, the UK will pay around
362m, Germany 490m and France 386m.
Some agencies help to facilitate trade in the single market or pool expertise. However, many
agencies add little or no value, and duplicate the work of each other, of the core EU institutions,
111
and of national organisations and civil society. For example, there are currently two EU
agencies specifically dedicated to human rights, in addition to similar bodies in Member States,
the Council of Europe, a specific EU Commissioner for fundamental rights and a range of
NGOs.
Others have no impact on policy whatsoever. For example, there is no evidence that the 129m
a year Economic and Social Committee, an advisory body that has existed since the 1950s,
has actually altered the outcome of a single EU proposal in recent years.
As an evaluation for the European Commission concluded, the system of EU agencies also
creates an indirect but powerful incentive to spend taxpayers cash. As a result, much of this
money is wasted, a great deal on self-promotion activities.
There are a number of agencies which serve no unique purpose and/or duplicate the work of
other organisations and institutions at both the EU and Member State level. These could be
abolished with virtually no adverse impact on the overall functioning of the EU. These include:
The Economic and Social Committee and the Committee of the Regions159, saving 215.3m,
The two human rights agencies, saving 27.9m,
The four agencies involved with workplace and employment issues, saving 72.5m,
The European Food Safety Agency, saving 78.1m, and
The Education, Audiovisual and Culture Executive Agency, saving 46.7m
Other agencies should have strict efficiency requirements placed upon them to ensure money
is saved.
Other Institutions (Total EU Spending in 2012: 1bn)
In addition to the European Parliament, the Commission and its quangos, the EU also has a
number of other institutions. The most significant of these is the European Council, which
comprises the heads of state or government of Member States and is chaired by an internally
appointed President (currently Herman Van Rompuy), and the Council, which consists of
Member State ministers and which plays an important role in the EU legislative process. Other
notable institutions are the Court of Justice of the EU (ECJ), which rules on EU law, and the
European Court of Auditors (ECA), which scrutinises EU expenditure.
The cost of running the office of European Council President Herman Van Rompuy in 2010
amounted to around 6m, including staff, travel expenses and salary. The European Councils
budget overwhelmingly goes towards staff and back office functions.
Under the 2010 Comprehensive Spending Review, the UK Governments Cabinet Office, which
is responsible for supporting the Prime Minister and the Cabinet, had its budget cut by 35% in
real terms, while support for the office of the PM was slashed by 25%. Savings included
reducing use of consultants and other external support a significant rationalisation of its
estate and back office serviceswider renegotiation of major contracts with leading suppliers
to Governmentreducing travel costs through the use of more scheduled flights where
possible rather than chartersenergy efficiency and wider efficiencies. This efficiency drive
proved hugely successful. Cabinet Office Minister Francis Maude announced that his
department had managed to find 3.75 billion of cash savings in just ten months, between May
2010 and March 2011.
Applying just a 25% efficiency target in 2012 to the European Council and all other remaining
EU institutions (with the exception of the ECA) would save just under 225m per year.
159
Though this would require EU treaty change.
112
The European External Action Service (EEAS) (Total EU Spending in 2012: 489m)
The EEAS is the EUs diplomatic body, set up under the Lisbon Treaty to coordinate the EUs
foreign policy. It is headed by Baroness Ashton, the EUs High Representative for Foreign
Affairs and Security Policy. Under the auspices of the EEAS, there are currently 140 EU
delegations around the world, in addition to another six permanent delegations to other
international organisations such as the UN in New York and the Council of Europe in
Strasbourg. Many of these delegations were formed out of delegations the European
Commission had itself set up over the years. In the words of the EEAS, the role of these
delegations has been to work as the eyes, ears and mouthpiece of the European Commission
vis--vis the authorities and population in their host countries.
The EEAS currently has 3,611 staff, of which 1,551 work in Brussels and 2,060 across the
global delegations.
When the EEAS was set up it was supposed to be budget neutral, meaning it would be
funded by money taken from other areas of the EU budget. However, in 2010, the EEAS was
allocated an extra 9.4m, while another 34.4m was proposed in the first draft of the 2011
budget, although this was later rejected by Member States.
For 2012, the EEAS will be given an extra 26.9m (22m), although the money has come from
the Commissions administrative budget, making it budget neutral. In the Commissions
proposed budget for 2013, the budget of the EEAS would increase by 5.7% (28m).
The EEAS was set up under the assumption that a new institution could override the strongly
divergent foreign policies of Member States. The record of the EEAS has in fact been patchy
and its impact on foreign policy issues where hard power is required, such as Libya, has been
minimal. In foreign policy, the EEAS is limited to action on which all EU leaders can agree.
While the EEAS has had some welcome recent successes, such as in Serbias extradition of
Radko Mladic and effectively co-ordinating EU sanctions on Iran, this does not mean that these
would not have been achieved through intergovernmental co-operation by the Member States.
EU Aid (Total EU Spending in 2012: 10.6bn, 6.8bn of which from the EU budget)
The EU, in its own right, is the world's second largest aid donor behind the US. It spends
money on: pre-accession funds for EU enlargement; the European Neighbourhood Policy
Instrument (ENPI) for countries in Eastern Europe, the South Caucasus, the near Middle East
and North Africa; and the Development Cooperation Instrument (DCI) for countries in Asia,
South America, the Middle East and South Africa. The EU also provides humanitarian aid
through the European Commissions Humanitarian Aid & Civil Protection Directorate General
(ECHO).
The European Development Fund (EDF) is a separate fund outside the EU budget managed by
the European Commission. The UK currently funds more or less the same percentage of the
EDP as the EU budget. The EDF provides support to African, Caribbean and Pacific (ACP)
countries, as well as the EU-designated Overseas Countries and Territories of Member States.
The EU is the UKs largest multilateral aid partner, with approximately 18% of the UKs total aid
budget spent by the EU each year.
Only 46% of EU aid reached lower income countries in 2009, compared with 74% of UK aid
and 58% of EU Member State governments aid.
In its 2011 multilateral aid review, the UKs Department for International Development (DfID)
noted that, while the EDF (3.8bn a year) has a strong poverty focus (85% of funds are spent in
low income countries), more than 85% of the EUs other development aid budgets (6.8bn a
year) are spent in middle income countries. The EDF is rated strong on both its contribution to
113
the UKs development objectives and on its organisational strengths, but the rest of the
Commissions aid budget is rated weak and satisfactory respectively on these measures.
The EDF relies on voluntary funding from national governments, which gives Member States
much greater power to push for reform and a greater focus on poverty (a key objective of UK
aid spending). Contributions to the EU budgets development aid programmes could also be
made voluntary. In this scenario, the UK could spend its aid budget directly through DfID rather
than the EU, unless there is a demonstrable EU value added, in which case it could opt into
specific programmes. This would not mean a reduction in UK aid spending, but would simply
provide the UK with greater choice and accountability over how its taxpayers money was spent
on aid.
The EUs role could be focused on providing a forum for co-ordination between Member State
donors, rather than itself being a 28th donor. It could serve as an intellectual centre in
development issues and work to improve the aid effectiveness of the worst EU donors, by
encouraging best practices, benchmarking and monitoring progress. There could also be large
savings in administration costs.
Development aid aside, the UK could continue to contribute to the ECHO, which has a
relatively strong record in providing humanitarian aid in emergency situations.
Education and Culture (Total EU Spending in 2012: 1.54bn)
Since 2005, EU spending on Education and Culture has risen by 61%. This does not include
spending on the administrative costs of the Commissions Directorate General for Education
and Culture, which have increased by 53.8% over the same period.
The DG for Education and Culture employs 484 staff. This is higher than the number of
employees at the DG for Internal Market and Services, which is a core EU policy area.
Despite its high staff count, in 2010 alone the DG for Education and Culture issued tenders for
contracts worth up to 4.8m for consultancies and surveys to review its performance and
policies.
Funding for Education and Culture projects is partly decided by a committee of experts acting
on behalf of the Education, Audiovisual and Culture Executive Agency. In 2010, over 850 such
experts were employed. The Commission publishes the experts names, but little else (for
example their country of origin or profession) is known about them.
The 2012 budget provides just over 1.5bn for expenditure on education and culture, roughly
1% of total EU spending. The bulk of the spending goes on various educational programmes,
the most famous being the Erasmus university exchange scheme. The Commission also
spends over 300m on culture and sport initiatives, including support for artistic projects,
endangered languages, the European film industry and actions to promote sport among
young people in Europe.
Erasmus is seemingly a worthwhile and popular programme. However, the value of most other
items in the Education and Culture budget is dubious, and there appears to be plenty of
savings to be made.
The Treaty on the Functioning of the EU calls for the EU to contribute to the flowering of the
cultures of the Member States. On its website, the Commission also admits that another
explicit objective of the culture programme is to improve the external visibility of the EU and to
help convince citizens to give their full support to, and participate fully in, European
integration. Any such propaganda spending should be terminated.
114
Communications (Total EU Spending in 2012: 135.6m)

In 2012, the Commissions Directorate General for Communications will spend over 135.6m
providing information to citizens and promoting EU policies. This does not include the
administrative costs of running the DG, nor does it include a range of other activities that could
be considered communication, including many that fall under education and culture.
The Commission has offices, or representations, around Europe, which cost over 25m to
maintain each year. The UK has four European Commission offices employing a staff of 45.
The work of the Commission outposts is supplemented by the Information outlets network,
which receive a total of 13.7m to respond to citizens queries in over 480 offices across the
EU.
The European Parliament also has Parliamentary Information Offices in each Member State.
France and the UK have two and there are offices in both Luxembourg and Brussels, even
though they are the home of major European Parliament buildings.
The Commissions budget for subsidising various radio and television stations now stands at
47m a 150% rise since 2005. A further 14.4m is set aside for online and written information
for the purpose of providing all citizens with general information on the work of the Union
institutions, the decisions taken and the stages in the building of Europe. This is spent on the
Europa website and the Europe Direct contact centre, which provides online answers to
citizens queries. In 2011, the Europe Direct contact centre received just 79,683 enquiries, a
decrease of 18.6% on the previous year.
Other off budget items (Total EU Spending in 2012: 1.9bn - not including the EDF)
The EU also has a number of funding instruments and policy areas funded by Member States
on an ad hoc basis or separately from the main EU budget. This includes the European
Development Fund, the European Globalisation Adjustment Fund (EGF) and the European
Union Solidarity Fund (EUSF).
The EGF is used to support redundant workers, mainly in regions and sectors disadvantaged
by exposure to the globalised economy. The objective is to ensure workers reintegration into
the labour market. While this rationale might be sound, it duplicates the activities of the
European Social Fund (one of the EUs Structural Funds) and has come under criticism from,
amongst others, the Swedish government, which has called for the fund to be scrapped
altogether.
The EUSF exists to provide rapid, efficient and flexible assistance to Member States
experiencing severe natural disasters. However, the Fund cannot always fulfil its purpose. For
example, Italy only received 16.9m in compensation for floods in the Veneto region, 13
months after they had occurred.
Member States contributions to these funds are roughly proportional to their contributions to
the EU budget as a whole.
Significantly, in its proposal for the 2014 2020 MFF, the Commission has proposed a further
58.3bn of EU spending outside the official EU budget, a 53% increase compared with the
current MFF. In addition to an increase in the EDF, the Commission has proposed setting up a
new Reserve for Crises in the Agricultural sector, and moving large items of expenditure on
research and technology, such as the International Thermonuclear Experimental Reactor
project, off the budget on the basis that the costs and/or the cost overruns are too large to be
borne only by the EU budget.
115
While it may be a very good idea for individual countries to work together on research projects,
there seems little value in letting the Commission take charge of such collaborations and
compulsorily running them at the EU level.
Stopping taxpayer-funded lobbying
Each year the Commission spends millions of Euros on thousands of different projects and
groups that are essentially taxpayer-funded political lobbying.
For example, a huge number of environmental groups are funded through the EUs LIFE+
(Financial Instrument for the Environment) programme. In 2009-2010 these groups received
7.6m.
Among the beneficiaries are: Avalon, which co-ordinates activities and lobbies on behalf of
sustainable rural development in the Central and Eastern European regions; Birdlife Europe;
CEE Bankwatch; Climate Action Network Europe; Coalition Clean Baltic; Danube
Environmental Forum, EUCC The Costal and Marine Union; Eurogroup for Wildlife and
Laboratory Animals; EUROPARC; European Environmental Bureau; European Environmental
Citizens Organisation for Standardisation; European Federation for Transport and Environment;
European Landowners Association; European Water Association; Federation of Associations
for Hunting and Conservation of the EU; FERN; Friends of the Earth Europe; Health &
Environment Alliance; International Federation of Organic Agriculture Movements EU Group;
International Friends of Nature; International Network for Sustainable Energy; Justice &
Environment; Mediterranean Information Office for Environment, Culture and Sustainable
Development; NGO Platform on Shipbreaking; PAN Parks; Pesticides Action Network Europe;
reuse and Recycling European Union Social Enterprises Network; Sea Alarm Foundation; Seas
At Risk; Women in Europe for a Common Future; World Development Movement and World
Wildlife Fund (European Policy Office).
There are dozens of different budget lines that fund other NGOs and groups. A number of
these organisations spend part of this money lobbying for more EU money in the future.
Greenpeace sets a better example. It says:
Greenpeace does not solicit or accept funding from governments, corporations or political
parties. Greenpeace neither seeks nor accepts donations which could compromise our
independence, aims, objectives or integrity. Greenpeace relies on the voluntary donations of
individual supporters and on grant-support from foundations.
Amendments could be placed in the 2013 EU budget to stop this sort of expenditure, and
measures brought in to ensure it is not reintroduced in the next MFF.
116

treaty obligations.
The UK could agree to the Commissions 2014-2020 MFF proposal, with some tweaks. It would
increase funding in real terms and thus most of the EU institutions and some countries (net
beneficiaries) favour this scenario.
However, given resistance from many of the net contributor Member States, an increase of the
magnitude proposed by the Commission is unlikely to be agreed. Considering the well
documented flaws in the EU budget and the current Eurozone economic climate, the UK could
easily resist this proposal.
The UK Governments current strategy is to push for a real terms budget freeze (no increase
above inflation) and to defend the UK rebate. The idea is that with less cash in the pot, EU
Member States, MEPs and the Commission will have no choice but to prioritise their spending
better. While this strategy has the potential to gain support amongst a substantial number of
Member States ten countries have already backed a budget freeze and is therefore clearly
achievable, it also comes with drawbacks.
Firstly, it is biased towards the status quo as the evidence does not suggest that the EU budget
responds to downward pressure in the same way that national budgets do. For example, while
France and the UK agree on a budget freeze, they fundamentally disagree on where potential
savings should be made. It is very unlikely that France will agree to reduce substantially CAP
spending, meaning the downward pressure will be negated by the realities of EU politics.
Secondly, given that by simply vetoing the new MFF the UK would, almost certainly, end up
with a near identical outcome (the previous framework would be carried over with a 2%
increase and the rebate would be preserved), this negotiating stance is little better than the
UKs fallback position.
The UK could instead adopt a more ambitious negotiating position to start with. The UK could
prioritise and target one key area of the EU budget that it identifies as being in its interest to
reform. It could put forward a strong economic case and also threaten to veto the new MFF
unless this reform goes ahead.
This negotiating position also has the advantage that the UK would be in a no-lose situation,
as even if it were unsuccessful in implementing the reforms and had to resort to the veto, it is
very unlikely to suffer real financial losses compared with the current MFF.
Other Fresh Start Green Paper chapters have suggested ways in which individual sectors of
the EU budget can be reformed. For example, if suggested Fresh Start reforms were brought in
for just the Common Agricultural Policy and Structural Funds segments of the budget, the UK
could reduce by roughly half the fiscal cost of our membership of the EU.
Alternatively, the UK could go for a more radical option and threaten to veto the new MFF
unless the EU budget is subject to a complete overhaul. The same negotiation logic would
apply as under the option above, although based on a starting position with even more
ambition. Adopting such an approach would also help to offset any losses that would fall
disproportionately on a small number of Member States if there was a focus on only one area
of the budget. However, overall this would be far more difficult to achieve unless the UK was
prepared for a massive political row with its European partners.
117
The UK could negotiate changes to the EU treaties to streamline the operation of the European
Parliament, for example stopping the use of the Strasbourg seat
Treaty changes would also need to be negotiated to remove some of the EU quangos, such as
the Committee of the Regions and the Economic and Social Committee.
Lastly, treaty changes would need to be made to repatriate the use of EU international
development monies to DFID
The most radical approach of all would be simply to refuse to pay any further monies to the EU,
particularly in the absence of necessary reforms to the EU budget. If, for whatever reason, the
UK refused to pay into the EU budget, it would receive no money from it either, and HM
Treasury would disperse monies the EU would previously have been given. The UK would be
in breach of its EU treaty obligations and therefore likely to face infringement proceedings by
the Commission. There would also be considerable political fallout with all the other countries of
the EU.
118
Chapter 6
Social and employment law
The summary
Some legislation on social and employment matters is needed. However, over-burdensome

regulation in this field reduces wealth and job creation without delivering proportionate benefits.
Further measures to boost growth and jobs in the UK are needed fast, which means stripping
away unnecessary regulation.
It is estimated that if the burden of EU social and employment legislation was halved, it could
deliver a 4.3 billion direct boost to the UKs GDP, as well as 60,000 new jobs.
Based on Government figures, around two-thirds of the cost of this category of EU legislation
comes from two Directives: the Working Time Directive and the Temporary Agency Workers
Directive.
Although the UK appears to have included some gold-plating of the Working Time Directive,
the great majority of the regulatory burden of this measure derives from the Directive itself.
The picture regarding gold-plating of the Temporary Agency Workers Directive is not as clear.
The UKs implementation of the Directive, which includes a 12 week qualifying period before
agency workers get the same treatment as employees in certain employment conditions, is
linked to an agreement brokered between designated social partners, the Confederation of
British Industry and the Trades Union Congress. Consequently, the Government may be
forced to include additional requirements by the TUC.
To boost the British economy and jobs market, there should be a significant reduction in the
constraints imposed by the Working Time Directive and the Temporary Agency Workers
Directive.
The UK could remove as much gold-plating as possible.
The UK could deregulate through the EU, by bolstering its efforts at influencing the EU
legislative process. History suggests this would be very difficult.
Alternatively, the UK could take back control of its social and employment law. There are two
ways the UK could do this as a member of the EU:
a) Obtain a new EU treaty provision creating a triple lock arrangement.
The first lock would be for the UK to opt out completely from the Social Policy section of the
EU treaties the principal part of the treaties used to produce social and employment
legislation.
The second lock would give the UK the ability to opt out of any EU legislative proposal it
believed would impact intolerably on its social and employment law.
The third lock would allow the UK to determine that a piece of EU law unacceptably affected
social and employment policy or law in the UK; and, in making this determination, the UK would
be entitled to disapply the relevant law from itself.
This would be a radical change to the EU treaties, and would need to be agreed by all EU
Member States. However, the UK has some negotiating leverage. For instance, Germany
would still like to incorporate into the EU treaties the 2012 agreement on fiscal integration
between various EU countries, something that would require UK approval.
121
b) Unilaterally disapply EU social and employment law in the UK, through an Act of Parliament.
This would be a clear breach of the UKs EU treaty obligations in international law. Under
general international law, the other Member States might be able to suspend obligations they
owe to the UK internationally, including but not limited to EU treaty obligations.
In short, this unilateral action would not provide a sustainable long-term solution. It could,
though, create the conditions to force a meaningful negotiation if other Member States had
previously refused to take the UK seriously.
122
The introduction
Few question the need for some legislation on social and employment matters. However, overburdensome regulation in this field reduces wealth and job creation without delivering
proportionate benefits. Concerns about regulation choking growth and employment
opportunities are especially great at present given the condition of the British economy. Further
measures to boost growth and jobs are needed fast, including stripping away unnecessary
regulation.
The EU is often criticised for imposing burdensome social and employment legislation on the
UK. In a November 2011 report, think-tank Open Europe estimates that if the burden of this
type of EU legislation was halved, it could deliver a 4.3 billion direct boost to the UKs GDP,
as well as 60,000 new jobs.160
The EU treaties have a dedicated section on Social Policy, covering social and employment
matters. Under this section of the treaties, proposals for EU legislation are usually made by the
European Commission. They must then be agreed under the so-called co-decision procedure
by both a qualified majority of EU Member States in the Council of the EU and by the
European Parliament.161
Figures provided by Open Europe, based on impact assessments produced by the UK
Government, show that out of the annual cost arising from EU social and employment laws
implemented since 1998, around two-thirds of the cost comes from the Working Time Directive
and the Temporary Agency Workers Directive.
The detail
The Working Time Directive (WTD)162, adopted by the EU in its current form in November
2003, regulates various aspects of working time. Best known is its default limit of a 48 hour
working week, with a right for Member States to allow individual workers to opt out of this limit.
The Directive also allows Member States to lay down provisions so that weekly working time is
averaged over a certain period, for the purposes of determining whether the 48 hour limit has
been adhered to.163
However, the Directive contains much more than the 48 hour working week. Other provisions
include:
Workers are entitled to minimum daily rest of 11 consecutive hours in every 24 hour period
in which they work.
160
: Open Europe, Repatriating EU social policy: The best choice for jobs and growth?, November 2011,
p.12 and p.25.
161
: The only variation is where the social partners at EU level certain representative bodies of
employers and workers reach an agreement on a social policy matter falling within the EUs powers,
and request that the EU give it the force of legislation. In this case, the Commission will propose an EU
law implementing the agreement. For these legislative proposals, the European Parliaments agreement
is not required.
162
: Directive 2003/88/EC of the European Parliament and of the Council concerning certain aspects of
the organisation of working time.
163
: The Directive sets an upper limit on that period, which varies according to different scenarios. The
typical upper limit on the period over which weekly working time can be averaged is 4 months.
123
Workers are entitled, as a rule, to minimum weekly rest of 24 uninterrupted hours per each
seven-day period, on top of the minimum 11 hours daily rest period. However, if objective,
technical or work organisation conditions so justify, the weekly rest period of 24 hours can
include rest taken as part of the daily rest entitlement.
Every worker has the right to paid annual leave of four weeks. The Directive explicitly
prohibits this minimum period of paid annual leave being replaced by a payment in lieu.
There are restrictions on the daily working time of night workers. Individual workers cannot
opt out of these restrictions.164
The WTD also contains exceptions to the general rules it sets down. These include the
following:
The Directive does not apply to certain public service activities, such as specific activities of
the armed forces or the police.165
Member States are allowed to disapply/modify the entitlements to, or requirements

regarding, daily and weekly rest periods, the weekly working hours limit and the limitations
on night workers working hours where a job does not have predetermined working hours,
or where workers can determine their hours themselves (e.g. managing executives who
have autonomous decision-taking powers over their working time).
The entitlements to, or requirements regarding, daily and weekly rest periods, the
limitations on night workers working hours and the maximum period over which weekly
working time can be averaged can be disapplied or modified by collective agreements or
agreements concluded between the two sides of industry at the appropriate collective
level. However, this is only on condition that equivalent compensating rest periods are
granted to the workers concerned, in all but exceptional cases. Moreover, there is still an
upper cap of 12 months on the period over which weekly working time can be averaged.
The entitlements to, or requirements regarding, daily and weekly rest periods, the limitation
on night workers working hours and the maximum period over which weekly working time
can be averaged can be disapplied or modified by Member State legislation, in certain
cases. These include: security and surveillance activities requiring permanent presence in
order to protect property and persons; activities involving the need for continuity of service
or production, including services related to the care provided by hospitals; and where
there is a foreseeable surge of activity, such as in agriculture or tourism. However, these
changes are only allowed provided that the workers concerned are afforded equivalent
periods of compensatory rest, or, in exceptional cases, other appropriate protection.
Furthermore, these changes cannot extend the period over which weekly working time is
averaged to more than six months.
164
: The term night worker in the Directive covers: a worker who normally works at least three hours of
his/her daily working time during night time; and a worker who is likely to work a certain proportion of
his/her annual working time during night time, with this proportion defined either by national legislation or
collective agreements or agreements concluded between the two sides of industry. The Directive says
that the period deemed to be night time is specified by national law, but must be, at a minimum, a
period of seven hours that covers the hours between midnight and 5am.
165
: According to the European Commission, the EUs Court of Justice has held that this exemption must
be limited to exceptional situations, such as natural or technological disasters, attacks or serious
accidents, and that the normal activities of workers in the armed forces, police and emergency services
are covered by the WTD. See European Commission, Report on the implementation by Member States
of Directive 2003/88/EC (The Working Time Directive), December 2010, p.6.
124
Member State legislation, or collective agreements or agreements between the two sides of
industry, can extend the period over which the weekly working time of trainee doctors
(sometimes referred to as junior doctors) is averaged to six months, rather than the four
months generally stipulated in the Directive.
Special rules apply to certain sectors, such as some mobile transport workers, offshore
workers and workers on sea fishing vessels. In some cases, the working time of these
people is covered by other EU legislation.
UK implementation the regulatory burden and gold-plating

The Working Time Directive is implemented in Great Britain by the Working Time Regulations
1998, as amended many times by subsequent Regulations, including the Working Time
(Amendment) Regulations 2003. There are also Northern Ireland-specific implementing
Regulations.
The UK Governments own impact assessments show that the Working Time Regulations
1998, as amended by the Working Time (Amendment) Regulations 2003, have created an
annual cost in Britain of 2.6 billion, in 2002 prices.166
This makes the Working Time Regulations the single most expensive piece of EU-driven
regulation in the UK.167
According to the Governments impact assessment, by far the largest component of this cost
derives from the entitlements to daily and weekly rest periods. This is responsible for around
two-thirds of the total cost of the Regulations.168
Comparing the Directive and British implementing Regulations, it appears the great bulk of the
British regulatory burden comes from the Directive it is not gold-plating in the UK legislation.
Having said that, below are some areas that appear to be, or might be, gold-plating:
The Directives definition of working time is any period during which the worker is working,
at the employers disposal and carrying out his activity or duties, in accordance with
national laws and/or practice.
The British Regulations include time receiving relevant training within the definition of
working time. Relevant training is defined as: work experience provided pursuant to a
training course or programme, training for employment, or both, other than work experience
or training (a) the immediate provider of which is an educational institution or a person
whose main business is the provision of training, and (b) which is provided on a course run
by that institution or person [emphasis added]. The main aim of this, apparently, was to
166
: Department for Trade and Industry, Horizontal Amending Directive on the Working Time
Regulations (2000/34/EC), July 2003, in Department for Trade and Industry, 2003 Compendium of
Regulatory Impact Assessments, April 2004, p.136.
167
: Open Europe, Top 100 costliest EU regulations, December 2009. It should be noted that the
Working Time Regulations, as well as implementing the Working Time Directive, also implement certain
provisions of Directive 94/33/EC on the protection of young people at work. However, the UK
Government impact assessment for the 1998 Regulations said that the implementation of this other
Directive makes little difference to the overall figures given here for these Regulations.
168
: The second most costly element of the Regulations is the entitlement to paid annual leave,
accounting for a little over 20% of the total cost. The third most expensive aspect of the Regulations is
the daily limit on night workers working hours, which generates about 8.5% of the legislations total cost.
The limit on weekly working time only accounts for just over 2% of the overall cost due to individuals
being able to opt out of the limit, and the impact assessments finding that the great majority of workers
would not prefer to work fewer hours if it meant less pay. See Department for Trade and Industry, op.
cit., p.149.
125
include the time spent by non-employed trainees (such as those on Government training
schemes) while at training. This would seem to be additional to the Directives
requirements.
The Directive allows Member States to define a period over which the average daily
working hours of night workers are calculated, following consultation of the two sides of
industry. The Directive does not set any clear limit on this period.
The British Regulations set down an averaging period of 17 weeks for this purpose. It might
be that the UK could set down a significantly longer period, increasing flexibility, after
consultation of employers and employees.
The British Regulations require employers to keep records for 2 years showing that they
are complying with the obligations in relation to their employees regarding the weekly
working time limit, the daily working time limit for night workers and the Directives
requirements for health assessments for night workers. Such record-keeping is not clearly
stipulated in the Directive.
The Directive provides workers with an entitlement to paid annual leave of 4 weeks. The
British Regulations state that this leave can only be taken in the leave year in which it
arises. However, the Directive does not contain any clear provision to this effect. If this is
not a requirement of EU law, British legislation could, for instance, provide that the leave
may be rolled over into the subsequent year where both employer and employee agreed.
The aim would be to discourage employees from simply taking leave because they would
otherwise lose it, where the employer could afford to be flexible in carrying the leave over.
The Directive allows collective agreements, or agreements between the two sides of
industry concluded at the appropriate collective level, to exclude or modify the
entitlements to daily and weekly rest periods and the limits on daily working time of night
workers and on the length of the period for averaging weekly working time.
The Directive also says that Member States can lay down rules on the extension of the
provisions of such agreements to other workers in accordance with national legislation. It
is not clear what requirements, if any, there are under the Directive regarding such a
process. British legislation could provide for these agreed reductions in the requirements
under the Directive to be transferred expeditiously to other sections of the national
workforce. The British Regulations are currently silent about this.
As the European Commission has itself said, the Directive does not clearly state how its
limits on working time apply when a worker works under more than one employment
relationship.
Implementation of the Directive in this respect varies considerably across EU Member
States. According to a 2010 Commission report, 14 Member States, including the UK, apply
the Directive per worker ie. all working time performed by a worker under different
contracts is taken together when applying the Directives rules. 11 Member States, on the
other hand, apply the Directive per contract, so that the limits on working time apply
separately to the work performed under each contract held by a worker.169
The Commission has long stated that it believes the Directive should, as far as possible, be
applied per worker.170 However, at present EU law is not clear on this point.
169
: European Commission, Report on the implementation by Member States of Directive 2003/88/EC

(The Working Time Directive), December 2010, p.7
170
: Ibid
126
Naturally, applying the Directives working time limits per contract could make them much
less restrictive in practice.
However, such an approach may not provide a sustainable solution to the burden created
by the Directive. For one, the European Commission could take the UK to the EUs Court of
Justice (ECJ) for what it believed to be incorrect implementation of the WTD. Perhaps more
importantly, a legal challenge might also be brought in a British court by a worker who
claimed that their rights under the Directive were not being recognised. The matter could
then be referred to the ECJ for a definitive ruling. If called on to judge whether the Directive
should be applied per worker or per contract, it seems quite likely that the ECJ would
decide in favour of the former, given it has emphasised in past judgements that the
Directives purpose is to protect workers through restrictions on working time.
The Working Time Directive and the NHS
It has been widely reported that the Working Time Directive is causing serious problems for the
National Health Service, and the training and deployment of junior doctors in particular.
The individual opt out from the 48 hour working week applies to trainee doctors, like anyone
else. However, hospitals do not find it practicable to organise doctors rotas so as to
accommodate individual preferences on the working week (those using the opt out, for
instance, can subsequently change their mind). Doctors working times have therefore become
much more complicated, with some doctors using additional hours to fill gaps in rotas based on
the 48 hour weekly limit. Furthermore, the bill for locum doctors to cover rota gaps is soaring.171
There has actually been a domestic drive to cut trainee doctors working hours since December
1990, when agreement was reached in principle between the Government and doctors to
implement a 72 hour working week for trainees (though it is not clear how much of that 72
hours was intended to be active working time and how much on-call time). From December
2000, this objective became much more binding under the so-called New Deal arrangements
in England. Weekly working hours for trainee doctors were to be limited to 56 for active work,
and 72 including on-call time, or NHS trusts would be in breach of contract. A new NHS
doctors pay system was brought in to accompany these changes.
While this clearly put added strain on the NHS, there seems to be debate about how damaging
the New Deal arrangements have been. The House of Lords EU Select Committee heard in
2004 that the vast majority of NHS organisations had by then adapted to the New Deal weekly
working time.172 The Royal College of Physicians, on the other hand, still believes that the New
Deal has created problems.173 It has been said that the New Deal makes it much more
expensive to employ trainee doctors working more than 48 hours a week, after they have opted
out of the WTDs weekly hours limit.174
Irrespective of the New Deal, the ECJ has set down two judgements interpreting the Working
Time Directive that have caused huge problems for the NHS, on top of the Directives 48 hour
weekly working time limit. The first of these was the ruling in Simap175 in 2000, which was
confirmed and exacerbated by the ruling in Jaeger176 in 2003.
171
: With thanks to Charlotte Leslie MP for some of this information; also derived in part from a briefing
note by the Royal College of Surgeons of England.
172
: House of Lords European Union Committee, The Working Time Directive: A Response to the
th
European Commissions Review, 9 report of Session 2003-04, para 3.7
173
: Royal College of Physicians, Parliamentary briefing: Medical workforce: New Deal and European
Working Time Directive, July 2011
174
: Andrew F Goddard, Progress on the European Working Time Directive (EWTD) and New Deal
negotiations, Clinical Medicine, Vol 11, No 5, 2011, p.420
175
: Simap v Conselleria de Sanidad y Consumo de la Generalidad Valenciana, Case C-303/98
176
: Landeshauptstadt Kiel v Norbert Jaeger, Case C-151/02
127
Among other things, the ECJ in Jaeger held that a hospital doctors on-call time, where he or
she is required to be in the hospital, must be counted as working time, even if he or she is
resting.
Jaeger also said that where the daily rest period of 11 consecutive hours is overridden in whole
or part by a doctor performing such on-call time, so as to provide a continuity of service, the
compensatory rest required by the Directive must be provided immediately after the relevant
period of work, not at a later point. This would apply to any period of work that interrupted the
daily rest period, not just resident on-call duty.
The classification of residential on-call time as working time, combined with the Directives
restrictions on working time, has forced the NHS to move away from its residential on-call
system in part, in favour of a system of shifts for doctors that involve doctors clocking on and
clocking off.
This has restricted the doctors available at any one time in hospitals, including in particular
specialties, disrupted the continuity of patient care, and led to complaints that junior doctors are
not able to access adequate training. Some junior doctors have also said that the more
irregular shifts resulting from the WTD have actually caused a deterioration of their work-life
balance.
The ECJs ruling in Jaeger regarding the timing of compensatory rest has also greatly
compounded the situation. In oral evidence to the House of Lords EU Select Committee in
2004, the then Health Minister John Hutton said: To require compensatory rest to be taken
immediately would potentially have a massively destructive effect across the NHS and might
mean that doctors could not work the following shift or rota that they were required to do and
that would have knock-on consequences right across the hospital. At the end of the day, the
only people who would be negatively affected would be the patients and that is a ridiculous
result.177
It is also possible that the principles regarding on-call time at the place of work, and the timing
of compensatory rest, laid down by the ECJ in Jaeger may be applied more widely than the
NHS by EU law.
It has been mooted that the UK might be able to implement the WTD in certain ways, which
would remedy or mitigate the problems it has caused the NHS, particularly trainee doctors.178
Apparently, for instance, the Republic of Ireland exempts training from the definition of work,
so that trainee doctors fall outside the scope of the Directives requirements. However, this is
unlikely to be compatible with EU law given the Directive is explicitly written to apply to trainee
doctors, and that the ECJ has taken an expansive approach to the concept of work.
On another tack, the Netherlands has apparently classified trainee doctors as autonomous
workers, meaning most of the Directives provisions can be disapplied in relation to them. It
might be argued that the working time of trainee doctors is not predetermined, due to the
unpredictable nature of hospital care, causing them to fall within this exemption in the Directive.
However, this would probably require a departure from the domestic New Deal arrangements,
which do appear to predetermine trainee doctors working time, and it still sits uneasily with the
Directives specific provisions on the (much more limited) exemptions that can be applied to
trainee doctors.
177
: House of Lords European Union Committee, The Working Time Directive: A Response to the
th
European Commissions Review, 9 report of Session 2003-04, Volume II, answer to Q259
178
: Charlotte Leslie MP, article in The Times, 20 January 2012
128
The case study the Working Time Directive and junior doctors
The following description of the problems encountered by a trainee doctor under the Working
Time Directive was provided for this chapter by a hospital doctor who was in foundation training
between 2009 and 2011:
When I was on my surgical placement as part of my training, we were told by the hospital to
take a mandatory zero hours day off every week, as we were working 8am 6pm on the other
weekdays, as well as some longer on-call days and on-call weekends at times. The purpose
was to keep our average working week within the 48 hour limit.
We rotated who took the day off among our team, but this meant that on any particular day
only one or two doctors would know the patients who had been admitted the day before.
However, those particular doctors might not be there the next day, so would have to hand over
patient information to a colleague. Unsurprisingly, much information was lost in translation.
Trainee doctors would also not know which registrar, or even consultant, to expect on any
particular day, due to the irregular working patterns of these people also caused by the limits
on working time.
Furthermore, patients no longer knew who would see them on the ward round. The effect was
poor patient experience, as patients were unable to build a rapport with individual doctors.
People would be very frustrated that the doctors seeing them did not know what the same
medical team had planned/achieved the day before!
There is also much less time for on-the-job training for junior doctors. This was compounded
by the fact that we often had to cover for other trainees who were rostered off due to the
Working Time Directive, missing our regular teaching sessions. Lack of training time has made
it difficult for us to establish rapport with our seniors, and gain adequate support in terms of
mentorship and career advice. In fact, trainee doctors no longer feel that we belong to a team,
given the new shift patterns have broken up teams of trainee doctors and their seniors. Morale
is certainly lower and junior doctor sickness rates much higher. This is a negative spiral more
doctors off means that when you do turn up, your working day is more hectic and stressful, and
you are much more likely to fall ill and take time off yourself.
Diary carding exercises (whereby doctors record the actual hours they work) have shown
almost universally high rates of non-compliance with the Working Time Directive. During my
general medicine attachment in training, I ended up working 1 - 2 extra hours (unpaid) per
day and was consistently non-compliant with the Directive. Doctors that do opt out of the 48
hour limit on the working week are sometimes not sure whether they will be remunerated
appropriately for their time.
Furthermore, a recent report by the West Somerset Coroner Michael Rose indicated that
he felt that hospitals were evidently running into problems with the Working Time
Directive, and that it may have been a factor in the deaths of patients.179
179
: See recent press reports at:

http://www.telegraph.co.uk/health/healthnews/7995374/Coroner-criticises-EU-working-time-directiveafter-hearing-of-doctor-shortage.html
http://www.telegraph.co.uk/health/healthnews/9076736/Family-devastated-after-healthy-daughter-diesfollowing-routine-operation.html
129

In November 2008, the EU adopted the Temporary Agency Workers Directive (TAWD).180
Principally, this Directive requires certain working conditions of agency workers to be the same
as if they were recruited directly to the same job by the organisation at which they are working.
Agency workers are not recruited directly by the place they work, but are provided for a fee by
an agency, and their employment relationship is with that agency. As a general rule, the
Directive requires that this equal treatment be given to agency workers from when they start
their work at the organisation in question.
The working conditions concerned are those laid down by any binding general provisions in
force in the organisation dealing with pay, the duration of working time, overtime, breaks, rest
periods, night work and holidays. Agency workers must also receive the same treatment under
rules in force in the organisation regarding maternity, protection of children and young people
and anti-discrimination.
However, in Member States in which there is no established system for extending particular
collective agreements throughout the economy, the Member State can lay down arrangements
diverging from the equal treatment described above, on the basis of an agreement between
the national social partners, and provided that an adequate level of protection is provided for
temporary agency workers.
In May 2008, in the final stages of negotiations on the TAWD at EU level, the UK Government
facilitated an agreement between the Confederation of British Industry (CBI) and the Trades
Union Congress (TUC) on implementation of the Directive. The Government referred to these
organisations as the UKs national social partners.
The main point of substance of this agreement was that agency workers entitlement to equal
treatment would begin after 12 weeks in a given job, rather than immediately.
The TAWD is implemented in Great Britain by the Agency Workers Regulations 2010, made by
the then Labour Government in January 2010. These Regulations entered force on 1 October
2011. Separate Regulations exist for Northern Ireland, where, according to the Government
impact assessment that accompanied the Agency Workers Regulations, only around 1% of the
UKs agency workers are located.181
The Agency Workers Regulations implement the TAWDs principle of equal treatment for
agency workers, though this principle only applies once an agency worker has completed 12
continuous calendar weeks in the same role, at the same organisation.182
The Government impact assessment on the Agency Workers Regulations estimated that, with
this arrangement, around 40% of all agency workers (about 520,000) would be covered by the
principle of equal treatment.183 It estimated that this would cost private sector employers up to
1.46 billion a year (in 2009 prices).184
180
: Directive 2008/104/EC of the European Parliament and of the Council on temporary agency work
: Department for Business, Innovation and Skills, Impact assessment: European Parliament and
Council Directive on working conditions for temporary agency workers, January 2010, p.3
182
: A worker can, however, take a break for six weeks and return to the same role, and that will not be
counted as breaking the continuous period of work. Other special provisions apply to calculating the
period worked.
183
Council Directive on working conditions for temporary agency workers, p.9
184
: Ibid, passim. The estimated cost to public sector employers was slightly outweighed by the benefits
enjoyed by the Treasury through increased tax revenues and National Insurance contributions.
181
130
The impact assessment also said that around 65,000 agency workers could have their roles
curtailed to prevent them satisfying the 12 week qualifying period for equal treatment, and
incurring extra cost for the organisation at which they were working.185
In 2011, law firm Allen and Overy conducted a survey of 200 medium-sized and large UK
organisations regarding the Agency Workers Regulations. A third of respondents said they
would consider terminating agency workers roles before they had satisfied the 12 week
qualifying period, as a way of preventing the increased costs of equal treatment.186
Has the UK gold-plated the Directive?
The scope for the UK to lessen the burden of the Directive is, in theory, quite wide, but this is
dependent in large part on agreement from the TUC, given it is apparently taken as the UKs
national social partner representing workers.
As it turned out, the one main divergence from the Directives principle of equal treatment that
the 2008 TUC/CBI national social partner agreement allowed was that the equal treatment
principle would not apply until 12 weeks had been completed in a given job.
Taking this into account, the following still appear to be examples of where the Agency
Workers Regulations create additional requirements over and above the TAWD:
The Directive allows Member States to exempt agency workers from the principle of equal
treatment as regards pay, where those workers have a permanent contract of
employment with their agency and continue to be paid between assignments ie. when they
are not actually in work. The Directive does not specify the rate of pay these agency
workers must receive between assignments.
The Agency Workers Regulations allow the principle of equal treatment in pay to be
disapplied in relation to agency workers who are paid at least a certain rate between
assignments, that rate being 50% of the highest level of basic pay they received during the
last 12 weeks of their last assignment. If this would be lower than the National Minimum
Wage, that rate of pay applies instead.
It may be necessary to require minimum pay between assignments to prevent abuse of this
exemption by employers. However, 50% of highest previous basic pay seems
unnecessarily high as a minimum rate.
A major issue during implementation of the Directive was the definition of pay. Regarding
what types of pay do agency workers have to be treated equally with employees?
The Directive does not set down a definition of pay; this is left to national law.187 The
Agency Workers Regulations definition of pay goes beyond, for instance, basic salary,
including payments such as shift allowances and some bonuses. When it consulted on how
to implement the Directive, the previous Government heard from employers that pay should
be defined as basic wage only, so as to enable a simple system that was easy to
185
Council Directive on working conditions for temporary agency workers, p.9
186
: Allen and Overy, Changes to Temporary Workers: An employers guide, September 2011, p.22
187
: The Agency Workers Regulations define pay as any sums payable...in connection with the workers
employment, but excluding certain kinds of payments. Among the excluded payments are occupational
sick pay and pensions, payment regarding maternity or paternity leave, redundancy pay, rewards from
financial participation schemes such as share ownership schemes, and bonuses not directly attributable
to the amount or quality of work done by a worker, and which is given to a worker for a reason other than
the amount or quality of work done such as to encourage the workers loyalty or to reward the workers
long-term service.
131
administer, and prevent problems in distinguishing bonuses directly related to individual

performance from bonuses that were not.188 There was also concern that including agency
workers in performance-related payments would require the hiring organisation to appraise
agency workers performance in a way more like treatment of employees.189 The previous
Government, however, believed that its approach of including other types of pay on top of
basic salary was right in terms of policy.190
As noted above, the Directives principle of equal treatment requires that certain conditions
laid down by binding general provisions in force in the organisation be the same for an
agency worker as those that would apply if the worker had been recruited directly to do the
same job.
The Agency Workers Regulations, on the other hand, say that, where the principle of equal
treatment applies, an agency worker is entitled to the same conditions on these matters as
are ordinarily included in the contracts of the relevant organisations employees, and
which would have applied to the agency worker if he or she had been recruited without the
use of an agency.
In answer to a formal written question tabled by Ashley Fox MEP191, the European
Commission (which proposed the TAWD and polices Member State implementation of the
Directive) said the following on this issue on 26 January 2012: The concept of basic
working and employment conditions as defined in Article 3(1)(f) of the Directive refers to all
binding general provisions, notably legislation, regulations, administrative provisions and
collective agreements, in force in the user undertaking. It therefore in principle does not
cover practices which are not considered as having a general and binding character, such
as individually negotiated wages. It is for the transposing [national] legislation to further
define national criteria allowing for the application of the principle of equal treatment in
situations where such practices prevail.192
However, the Governments guidance on the Agency Workers Regulations, published in
May 2011, makes clear that, under the Regulations, the principle of equal treatment
extends to worker conditions that have been set through custom or practice rather than
binding company policies or pay scales.193
The Association of Recruitment Consultancies, working with the Institute of Directors,
estimated in 2009 that only about 10% of agency workers in the private sector were
covered by a binding pay scale or collective agreement, which usually only exist in the
largest businesses.194 It would seem that on a strict reading of the Directive, other agency
workers in the private sector would not be affected by the principle of equal treatment, at
least as regards pay.
188
: Department for Business, Innovation and Skills, Implementation of the Agency Workers Directive:
Consultation on draft regulations, October 2009, paras 4.16 and 4.17.
189
: Department for Business, Innovation and Skills, Implementation of the Agency Workers Directive:
Response to consultation on draft regulations, January 2010, para 4.14.
190
: Ibid, para 4.17.
191
: Mr Fox is a Conservative MEP representing South West England and Gibraltar.
192
: http://www.europarl.europa.eu/sides/getDoc.do?pubRef=-//EP//TEXT+WQ+E-2011011778+0+DOC+XML+V0//EN&language=EN .
193
: Department for Business, Innovation and Skills, Agency Workers Regulations: Guidance, May 2011,
pp.27-28.
194
: http://www.arc-org.net/news/09-07-30/Government_massively_goldplating_Agency_Workers_Directive_says_ARC_and_the_IoD.aspx . The ARC estimated that 30% of
agency workers worked in the public sector, where binding pay scales are common.
132
The Coalition Government specifically, the Department for Business, Innovation and Skills
undertook a review of the Agency Workers Regulations in 2010 to see if they could be revised
to impose less of a burden on employers.
In a written ministerial statement to Parliament, the minister directly responsible for this review,
Edward Davey MP, identified the definition of pay as one matter that had been raised, but went
on to say:
...the Governments ability to make changes...is constrained by the fact that the regulations
are based to a significant degree on the agreement brokered by the previous Administration
between the CBI and TUC. Due to this unique legal situation, any amendments proposed to the
regulations touching upon the subject matter of the CBI and TUC agreement, which did not
have the agreement of those parties, would face the risk of being set aside in the courts in the
event of a legal challenge.
Were that to happen, the effect could be to call into question the very foundation for the
fundamentals of the implementing legislation, crucially including the 12-week qualifying period
itself.
The Secretary of State [for Business, Innovation and Skills] and I have therefore discussed
this matter on a number of occasions with both the CBI and the TUC, seeking agreement on
changes that we consider would have improved the implementation regime, to the potential
benefit of both employers and agency workers. Unfortunately it has not been possible to find a
way forward that would be acceptable to both parties.
This outcome is clearly disappointing. However, the Government have taken the view that the
absolute priority must be not to take any steps that could put at risk the 12-week qualifying
period, which significantly mitigates the burdens the legislation will place on employers. The
Government will not therefore be proceeding with any amendment of the regulations
themselves.195
It appeared, in particular, that the TUC was resistant to changes lightening the regulatory
burden.
However, under the Directive, the definition of pay by Member State law seems distinct from
any national social partner agreement qualifying the principle of equal treatment. Furthermore,
the 2008 TUC/CBI agreement does not set out a comprehensive definition of pay.
Similarly, the exemption the Directive allows from the principle of equal treatment in pay, when
it comes to agency workers who are paid between assignments, is not dependent on a national
social partner agreement.
In addition, the definition of the working conditions subject to the principle of equal treatment as
those laid down in binding general provisions is set down in the Directive itself it does not
require, and is not subject to, a national social partner agreement.
Nevertheless, the Coalition Government was clearly concerned that changes to UK
implementation in these areas could jeopardise the 2008 national social partner deal.
It may be that, although the Government was legally entitled to alter these aspects of
implementation without revising the social partner agreement, the TUC threatened to pull out of
that agreement if such changes were made. This would raise the prospect of the principle of
equal treatment applying from day one of an agency workers assignment, which is the default
position under the Directive.
195
: HC Deb 19 October 2010, cc49WS-50WS.
133
Whether the TUC could nullify the social partner agreement in this way is not clear. The
agreement contains no expiry date or termination clause.
In sum, according to the Government, the TAWD gives the TUC great leverage to insist on
particular implementation of agency worker rules that are more burdensome for employers,
through the TUCs ability to require the application of the Directives default rule that equal
treatment of agency workers applies from day one of their assignment.
The case study The impact of the Temporary Agency Workers

Directive on job opportunities
The following account of the impact of the TAWD and Agency Workers Regulations was
provided for this chapter by someone who works for a temporary work agency. It provides an
insight into the serious problems this legislation is causing in the UK:
In these extremely difficult economic circumstances this legislation has placed even greater
pressures on businesses in one of the most unfortunate areas, i.e. employment. At the moment
these regulations are actually preventing people from working. I speak from the viewpoint of an
employment agency, but of course these regulations have an impact on every business that
employs people on a temporary basis through an agency.
I work in the logistics sector, predominantly with drivers. We have some companies who will
now only accept PAYE drivers, and some companies who will only accept drivers working
through a limited company. Its become a minefield. Those companies who will accept PAYE
drivers insist that the agency puts them on PBA (pay between assignments) contracts, which of
course makes the industry very nervous. Some only want limited company drivers as the
regulations (so far) dont apply to them or do they? The guidelines are ambiguous a great
help!
In many cases drivers who are employed on a PAYE basis are actually being stopped from
working after their 11th week as this is the point at which the regulations kick in. I have known
this to happen within our company at the request of our client, and also have had drivers call
me as they have lost their long-term job for this very reason, following the regulations entry
into force last October.
Another example is that of an admin assistant working for a client, who had no clear
comparator employee within the business she was working for. We did not know if she would
take us to court; we believed she was paid fairly for her role, and as far as we were aware she
was happy with her wages and was not a litigious person. However, we didnt know this for
sure, and we couldnt afford to be wrong. The client ended her contract in the 12th week. This
lady is now unemployed because of the Agency Workers Directive.

There are a wide range of other EU social and employment laws, covering areas such as
health and safety, employment conditions and industrial relations. Open Europes November
2011 report contained a list of 89 such laws in its Annex II.196
After conducting a wide-ranging study of UK Government impact assessments produced since
1998, Open Europe did not find any evidence of regular, significant gold-plating of EU
legislation by the UK Government.197
196
197
: Open Europe, Repatriating EU social policy: The best choice for jobs and growth?, p.27 et seq.
: Open Europe, Still out of control? Measuring eleven years of EU regulation, March 2010, pp.19-20.
134
As can be seen above, at least in relation to the Working Time Directive, gold-plating does
happen; another example of it is the UKs extension of certain EU health and safety Directives
to the self-employed.198 However, gold-plating does not appear to be anything like the main
driver of the regulatory burden, which comes from the relevant EU laws themselves.
Examples of these EU laws include the health and safety Directives on control of noise and
vibration at work199. These Directives require all organisations within their scope to update risk
assessments on a regular basis.
Furthermore, the Directive on control of noise at work replaced a previous Directive on the
same subject, lowering the noise thresholds at which employers must undertake certain
actions, such as noise reduction programmes, at significant cost.
The options for change in an ideal world

The Governments impact assessments on the Working Time Regulations 1998, and amending
Regulations in 2003, said that the benefits of this legislation were:
promotion of individuals choice over whether they work more than 48 hours a week;
enabling a better balance between work and outside life, which should boost participation in
the workforce;
improving worker health and safety, leading to less call on health services and better work
performance, including fewer accidents;
improving workforce commitment and morale that should result in higher productivity;
ending poor working conditions that amount to exploitation in some situations.
However, the impact assessments left these benefits largely unquantified. The 2003
assessment admitted that there was uncertainty over the degree of causal relationships that
exist between the regulations and most of the benefits cited.200
The British economy clearly needs a major boost. Combined with the huge cost of those
provisions and the clear problems some of them have caused, this strongly suggests that the
requirements of the Working Time Directive should be pared back, while retaining some
regulation of working time as a safety net for workers. Moreover, some provisions of the
Directive seem to interfere unnecessarily with the freedom of individual workers to agree
matters with their employer.
For instance, there could be a statutory entitlement to a minimum 11 hour daily rest period in
usual circumstances, five days out of every seven worked. A minimum 9 hour daily rest period
could exist on the other two days. The additional statutory weekly rest period could become an
entitlement to a minimum of 24 hours uninterrupted rest every two weeks.
The same sort of situations as in the existing WTD could be exceptions to these requirements,
though compensatory rest could be granted within 72 hours or, if that was not possible due to
operational need, within a reasonable period (instead of a requirement for such rest to be
provided immediately, as under the ECJs case law).
198
: Open Europe, Repatriating EU social policy: The best choice for jobs and growth?, p.12.
: Directive 2002/44/EC (control of vibration) and Directive 2003/10/EC (control of noise).
200
: Department for Trade and Industry, op. cit., p.135.
199
135
An individuals right (which they could exercise or not) to a maximum working week of 48 hours
could be retained in general, though with weekly working time automatically averaged over a
year, and periods of on-call time not actually spent working not counting as working time.
Certain sectors might be exempted from the 48 hour limit, such as trainee doctors; the right to
a 56 hour working week might instead apply to them, if the New Deal arrangements were
retained. Night workers could be given the right to opt out of the limitations on their daily
working hours.
Workers and employers could also be given the freedom, by mutual agreement, to replace at
least some of the four weeks of paid annual leave with an allowance.201
When considering the need for this state intervention, the Government impact assessment on
the Agency Workers Regulations said that agency workers can work for the same hirer for
lengthy periods and be well integrated into the hirers business but may not receive the same
basic working and employment conditions, such as pay and holidays, as the permanent
employees who they are working alongside.202 The previous Governments fundamental
justification for the legislation was fairness for workers.203
However, agency workers do not benefit from regulation that raises their cost to employers to
the extent that they are not offered work at all or their work assignments are cut short. The
TAWD and Agency Workers Regulations clearly make agency workers more expensive and
also create a great deal more administrative compliance work for businesses and public
services.
Furthermore, these costs come at a time when the British economy can least afford them, and
when work opportunities need to be boosted as much as possible. Agency work often provides
a route into work for the young, so any measures that limit agency working should be resisted
when youth unemployment is such a major issue.
There might, as identified by the previous Governments impact assessment, be a case for
requiring equal treatment of agency workers in basic working conditions, when those workers
have been working successfully in an organisation for a long period of time. However, three
months does not seem a common sense definition of a lengthy period for these purposes.
Instead, a statutory requirement for equal treatment might kick in after an agency worker had
been working in the same role at the same organisation for two years.
Of course, all agency workers have the statutory protections afforded to every worker in basic
conditions such as working time and paid leave.
Naturally, the UK will want some regulation in matters like health and safety. However, the
EUs regulation in this area can impose unnecessary or disproportionate costs and obstacles.
For instance, in relation to the control of noise and vibration at work, organisations found to be
low risk on their first risk assessment could be exempt from carrying out further assessments,
201
: Though when it comes to statutory entitlement to paid annual leave, a purely domestic requirement
for an additional 1.6 weeks a year was introduced by the previous Labour Government.
202
Council Directive on working conditions for temporary agency workers, p.1.
203
: Ibid.
136
unless and until they underwent a significant, relevant change.204 This would be a more
proportionate rule than the requirement of the current Directives on this subject for all risk
assessments to be updated regularly.
In another case, it has been queried whether the lower noise thresholds in the replacement
Directive on control of noise at work, at which employers have to take certain actions, are
necessary to provide adequate protection for workers.205 Unnecessary burdens on employers,
at a time when more jobs are needed, should of course be removed. Regulation of this area
could be modified so that the obligation on employers to undertake noise reduction
programmes did not kick in until the noise threshold that applied previously for this purpose
was reached.
The options for change what can the UK do?

Start Projects Green Paper chapters. Green are those measures that can be achieved
domestically or within the current EU legal framework; Amber are those measures that require
would involve breaking its treaty obligations. Please see the Introductory Chapter to the Green
Paper.
Try to achieve deregulation through the EU
Firstly, any UK gold-plating of EU social and employment laws could be ended, something
the UK could achieve through domestic action.206
The UK could also mount a determined effort to persuade other Member States and the EU
institutions to repeal undesirable EU regulation.
The EU would retain the ability to pass new social and employment laws binding the UK,
most of which the UK could not veto. To try and block new burdensome laws, the UK could
push to build stronger alliances with any like-minded Member States often opposed to EU
intervention in this policy area.
However, it is highly unlikely that the UK would be able to achieve the kind of deregulation of
working time and agency work described above, through the EU legislative process.
In 2004, the European Commission proposed a revision of the Working Time Directive,
aimed partly at ameliorating the impact of the Simap and Jaeger judgements of the ECJ.
However, after years of negotiations, the attempt at amendment finally collapsed in 2009.
The European Parliament, whose agreement was required, had insisted that the changes
include removing the opt-out from the 48 hour limit on the working week. It had also insisted
on retaining the ECJs definition of all on-call time at the place of work as working time.
In 2010, the Commission initiated a fresh attempt at revising the WTD, though it did not
propose any reduction in the requirements regarding daily and weekly rest periods, night
workers working hours or the core provisions on paid annual leave. The EU-level social
partners representing workers have insisted that the opt-out from the 48 hour cap on the
204
: As suggested by Open Europe in Repatriating EU social policy: The best choice for jobs and
growth?, p.12.
205
: Submission by the British Beer and Pub Association to the Governments Lfstedt Review of health
and safety.
206
: Of course, when it comes to the TAWD, it may not be possible to get the TUCs agreement to
remove certain gold-plating.
137
working week be abolished, and that the ECJs definition of much of on-call time as working
time be retained.
Indeed, it seems very unlikely that a qualified majority could be found in the Council in favour
of the sort of WTD reforms described above. Many of the Member States who currently allow
their workers to opt out of the 48 hour weekly limit do so largely because of the ECJs
judgements counting much on-call time as work. If the EU manages to solve this particular
problem, the UK could again become quite isolated in its use of the opt out, and see
renewed attempts by other Member States to remove this flexibility in the WTD.
Under the Temporary Agency Workers Directive, the European Commission must review the
TAWDs application by December 2013, with a view to proposing amendments if necessary.
However, in the unlikely scenario that the Commission proposed a major reduction in the
TAWDs burden of the kind described above, the chances seem remote that the Council and
the European Parliament would agree to this. The UK was in a minority of Member States
that opposed the original proposal for the Directive on the grounds that it was too
burdensome.207
The prospect for reducing the burdens of, for instance, EU health and safety legislation is not
as clear. However, it does not seem likely that the Commission or the European Parliament
would be prepared to reverse core requirements of these laws, such as those in the
replacement Directive on control of noise at work.
The Commission has spoken about reducing the regulatory burden on small and mediumsized enterprises (SMEs) in particular, and especially so-called microenterprises (defined
as enterprises with fewer than 10 employees and an annual turnover of less than 2 million).
According to the Commission, in the EU SMEs provide two-thirds of private sector jobs and
generate more than half of all the economic value added created by business. 90% of SMEs
are microenterprises.208
In a November 2011 document, the Commission tentatively mooted changes to around a
dozen EU laws, to lighten the regulatory burden on SMEs/microenterprises.209 Some of
these were pieces of health and safety legislation, though none, certainly at this stage, dealt
with terms and conditions of employment.
Ultimately, any serious attempt at EU deregulation would run against political considerations,
not least in the European Parliament. For instance, the UKs Federation of Small
Businesses, in conjunction with the European Small Business Alliance, lobbied intensively in
2011 for MEPs to sign up to a declaration that called for a reduction in the administrative
burdens imposed by EU law (administrative burdens are focused on requirements such as
form-filling, reporting and record keeping). Less than 30% of MEPs agreed to sign, however.
While there may be things the UK could do, under the current EU treaty arrangements,
further to mitigate EU interference in British social and employment law, overall the scales
seem to be tilted against this country, certainly when it comes to labour law. The centre of
207
: A key UK problem here is that agency workers are much more important to the British labour market
than they are to the labour market of virtually all other EU countries. In 2009, agency workers made up
around 3.6% of the UK workforce, compared to a European average of 1.5%. See International
Confederation of Private Employment Agencies, The agency work industry around the world, 2011
edition, pp.23-24.
208
: http://ec.europa.eu/enterprise/policies/sme/facts-figures-analysis/index_en.htm.
209
: European Commission, Minimising regulatory burden for SMEs: Adapting EU regulation to the
needs of micro-enterprises, November 2011, p.12 et seq.
138
gravity in the EU in this policy field is towards the Continental labour market model, which
entails heavy regulation and a corporatist approach.210
However, the approach of deregulation by EU consent has the benefit of not requiring EU
treaty change, or other major revision of the UK-EU relationship, with the diplomatic and
legal issues that would throw up.
Seek EU treaty change to repatriate social and employment policy to the UK
To achieve the kind of deregulation described above, the UK would have to take back
control of its social and employment law.
As a member of the EU, this means changing the EU treaties, which currently provide the
basis for EU legislation in this area that binds the UK. A further consideration is that, other
than the dedicated section on Social Policy, other parts of the EU treaties have also been
used to pass laws that impact on British social and employment policy. For instance, the
UKs Transfer of Undertakings (Protection of Employment) Regulations (TUPE), which set
out employee rights in the event of a business takeover or outsourcing, implement an EU
Directive211 adopted using the EUs treaty powers over the single market.
The impact of this is that there is no one ring-fenced part of the EU treaties that the UK
could seek to opt out of to return social and employment policy fully to British control. While
an opt-out solely from the Social Policy section (which included an opt-out from existing EU
laws based on that part of the treaties) would enable a great deal of deregulation for the time
being, it is highly likely that the EU would make increased use of other parts of the treaties
that continued to apply to the UK to pass social and employment legislation, which would still
bind this country.212
In their November 2011 report, Open Europe suggested an EU treaty change involving a
double lock for the UK in the area of social and employment law.213
The first lock would be a complete UK opt-out from the Social Policy section of the EU
treaties, including an opt-out from all EU laws that have been adopted using those treaty
articles. The second lock would be a right for the UK to insist that any other proposed EU
law be referred to the EUs European Council, for decision by unanimity among Member
States, if the UK believed it affected British social and employment policy or law in a way
that was unacceptable. Once referred, the UK could insist on changes or block the proposal
completely.
As Open Europe point out, this would still leave the problem of rulings by the ECJ that
reinterpreted EU laws after their adoption, in a way that impacted on British social and
employment policy. It would also not prevent the ECJ reinterpreting provisions of the EU
210
: Council Directive 2001/23/EC on the approximation of the laws of the Member States relating to the
safeguarding of employees rights in the event of transfers of undertakings, businesses or parts of
undertakings or businesses.
212
: It should also be noted that the EU treaties contain further sections on economic and employment
policy. These enable the EU to adopt policy guidelines in these areas, and Member States conformity
with those guidelines is monitored. The guidelines themselves, though, are not legally binding. On the
other hand, there are EU treaty provisions that could be interpreted as requiring Member States to give
at least some effect to the EU guidelines, or otherwise run their national policies in this area in
accordance with EU objectives. The final word on the meaning of these EU treaty provisions, under the
terms of the EU treaties, rests with the ECJ.
213
: Open Europe, Repatriating EU social policy: The best choice for jobs and growth?, pp.21-22.
211
139
treaties themselves so that they had new and intrusive effects in the UK. Furthermore, it
would not stop one Government (or Parliament) from agreeing to EU legislation with a major
effect on British social and employment law, which subsequent Governments and
Parliaments would be stuck with.
This particular double lock may also have the drawback in the eyes of other Member States
of interfering with the EU legislative process as it applies to all EU members (by allowing the
UK to hold up a proposal for everyone). To avoid this, the UK might instead be allowed to
opt itself out of an EU legislative proposal it believed would impact intolerably on its social
and employment law.
To be completely watertight legally in terms of repatriating this policy area, the double lock
could be built on so as to include an EU treaty provision allowing the UK to determine that an
EU treaty provision, piece of EU legislation or decision of an EU institution, or an aspect
thereof, perhaps within a certain time period of a new ECJ decision or a new Parliament214,
unacceptably affected social and employment policy or law in the UK; and, in making such a
determination, the UK would be entitled to disapply the relevant provision, legislation or
decision (or part thereof) from itself.
The new treaty provision would need explicitly to prohibit the ECJ from reviewing the legality
of UK opt out decisions, including by reference to general principles of EU law. If this is not
done, there is a risk the ECJ could overturn UK exemptions by reference to higher
principles of EU law.
This sort of treaty provision would be unprecedented in the EU, and very radical.
Any amendments to the text of the EU treaties require the agreement of all EU Member
States (first from their governments, and then through national ratification).
A simple opt-out from the Social Policy section of the EU treaties would be seen as a very
big request by the other Member States, let alone the triple lock suggested above.
One complaint other Member States would be likely to raise is that this new arrangement
would allow the UK to take part in the EU single market on the basis of unfair competition.
In other words, the UK would be allowed the same automatic access to EU markets without
having to apply the minimum EU requirements in labour conditions, which is likely to give UK
traders a competitive edge.
Firstly, it seems a little naive to think that there is currently a level playing field in minimum
working conditions, such as in health and safety, given some EU countries having a patchy
record of actually implementing EU laws, in contrast to the UKs usually diligent
implementation.
Secondly, the UK is not going to regress to some Dickensian state when it comes to working
conditions and labour law. The aim is to cut unnecessary and counter-productive costs, not
to turn people into serfs or run serious risks with health and safety. The British people would
not stand for this, and with social and employment law under their control via the UKs
democratic process, they would be able to prevent it happening.
Thirdly, there are very many factors that determine the costs of a countrys industries, such
as availability of raw materials, geographical positioning, accumulated capital, taxation and
availability of skills. The EU cannot harmonise all of these, and nor would it be desirable for
214
: The new treaty provision could also identify pre-existing aspects of EU law, not based on the Social
Policy section of the treaties, that the UK wants to opt out of.
140
it to try. Free trade is not about homogenisation but about enabling competition to increase
overall welfare.
Indeed, the Deputy Prime Minister, when he was a Member of the European Parliament,
said the following: The claim from advocates of a social Europe that detailed social
legislation is required at European level, to offset the effects of the single market, rests on a
flawed assertion. This is that the best level for the implementation of social protection is the
level at which economic deregulation unfolds...In reality, of course, social protection can be
most effectively administered at lower levels, irrespective of the level at which economic
deregulation operates.215
He went on to say that the necessary EU reforms could include, ...a treaty declaration
stating that certain policy areasnotably health, education, culture, tourism, employment
and social policyare the exclusive province of national authorities. In these areas, any
action at European level should be confined to soft instruments such as exchange of best
practice, bench-marking and peer review. Such action need not even take place within the
EU institutions but could be the subject of issue-specific intergovernmental arrangements.
Naturally, this would require the highly-controversial deletion of the existing treaty references
to these policy areas. But it is difficult to see how we can achieve greater clarity without the
political will to take certain policy competences off-limits altogether.216
It is clear that Germany in particular still wishes to incorporate into the EU treaties the 2012
agreement on fiscal integration (the so-called fiscal compact), something that would require
UK approval. In other words, the UK does have negotiating leverage, and could seek to use
this to defend and uphold its national interest.
An important question is whether the repatriation of social and employment policy should be
a priority when using this leverage, or whether changes in the UK-EU relationship in other
areas, such as financial services or immigration, should be a greater focus.
Take unilateral action to prompt a negotiation

It is possible that, through EU procedures, the UK would not be able to get the other Member
States to agree to a satisfactory change to the EU treaties, which would give the UK control
over its social and employment policy once more.
In this scenario, the UK could revert to the option described above of trying to achieve
deregulation through the EU legislative process. If it was not prepared to do this, the UK
might instead take unilateral legal action. As described in Open Europes November 2011
report217, it is open to Parliament, in the UKs legal order, to disapply EU social and
employment law. This would, however, be a clear breach of the UKs EU treaty obligations in
international law. While, ultimately, the EU cannot enforce its treaties against the UK, under
general international law the other Member States might be able to suspend obligations they
owe to the UK internationally, including but not limited to EU treaty obligations.
In short, such unilateral action would not provide a sustainable long-term solution. It could,
though, create the conditions to force a meaningful negotiation if other Member States had
previously refused to take the UK seriously. The suitability of this approach is likely to
depend on the UKs priorities and its bottom line regarding its future relationship with the EU.
215
: Nick Clegg, Doing less to do more: a new focus for the EU, September 2000, p.21.
: Ibid, pp.36-37.
217
216
141
142
Chapter 7
Financial services
The summary
Financial and professional services provide 2,029,900 jobs in the UK, more than half of them
based outside London. Financial services alone account for 10% of GDP.
The UK represents 36% of the European Unions financial wholesale market and 61% of the
EUs net exports in financial services, but under qualified majority voting (QMV) it has only
8% of the vote in the Council of Ministers.
Financial Services accounted for an estimated 11.2% share of tax receipts in 2009-10
equating to 53.4 billion. Finance provided a 31.5 billion trade surplus in 2010. The overall
UK deficit for trade in goods and services was 39.7 billion, meaning that without financial
services, the UK would have been faced with an overall deficit of 70 billion.
Pre-crisis, EU regulation had a largely liberalising effect across Europe, but post-crisis, the
trend had been in the other direction. The EU is considering or developing 49 new regulatory
proposals that could affect the industry, a great many of which are aimed at constricting
rather than enabling the industry.
Former French President Nicolas Sarkozy welcomed the appointment of his countryman
Michel Barnier as EU Commissioner for the Internal Market and Financial Services as a
defeat for Anglo Saxon capitalism.
The European Central Bank has demanded that clearing houses which deal in sizeable
amounts of euro-denominated business should be located inside the eurozone. The UK
government has taken this to the European Court of Justice.
The European Commission recognises that its proposal for a Financial Transactions Tax
could lead to the loss of half a million jobs across Europe.
Moves towards a banking union will continue to raise questions over whether a more
integrated eurozone is compatible with the EUs single market in financial services for all 27
Member States and that, without safeguards, the UK could be forced to accept new rules
designed for and written by the eurozone countries.
In some cases, the UK may wish to introduce more stringent regulation than the EU currently
proposes, for example regarding capital requirements for banks. This reflects the significant
exposure of the UK economy to the banking sector banking assets are 500% of GDP.
UK financial services firms do not want to be tied into restrictive EU legislation when growth
opportunities are outside the EU. Whilst in 2005 the UK, Germany, France, Spain and Italy
accounted for 27% of global banking assets, PriceWaterhouseCoopers projects that in 2050
that will have decreased to 12.5%. PWC also projects that Brazil, Russia, China and India
will see their share of global banking assets leap to 32.9% in 2050 from the 2005 figure of
7.9%.
The European Parliament's Economic and Monetary Affairs Committee resisted a ban on
short-selling. It will now be restricted to a ban on naked short-selling of sovereign debt.
Parliamentary scrutiny of financial services could be enhanced through reform of the

processes and committees in Westminster.
145
UK placement to senior roles in Brussels could be prioritised and graduate programmes

introduced.
UK financial services are at a structural disadvantage in the European Union. Most of the EU
regulation that pertains to the sector is based on single market articles from the EU treaties,
where QMV and co-decision with the European Parliament apply, meaning that British
politicians can be outvoted. The little-used Luxembourg Compromise could be invoked. It
states that where very important national interests are at stake, the Council will endeavour to
accommodate a countrys concerns. However, the Compromise is not enforceable under the
EU treaties, and some dispute its continued applicability.
69% of UK financial services professionals support the UK having a veto on future EU

financial services regulation even if at the risk of less access to the single market and
reduced business opportunities.
The UK could employ a mechanism introduced by the Lisbon Treaty, a yellow card which
forces the European Commission to reconsider a proposal if one-third of all national

parliaments object to it within eight weeks of it being tabled.
A single market protocol could be sought that would codify better regulation objectives,
establish a one-in-one-out system for regulation, and restate the need for pro-growth
measures.
It would be possible to seek changes to qualified majority voting rules.
The Prime Ministers use of the veto demonstrated his commitment to defending financial
services. He could continue to negotiate for the protections he sought that led to the veto.
The UK government could seek a unilateral break on EU financial services regulation. Open
Europe outlines a possible UK emergency break or double lock approach, embodied in a
legally binding protocol attached to the Treaties. Lock One would assert the special
reconsider proposals that impact disproportionately on the UK. Lock Two would give the UK
a right of appeal for any proposal at any stage during the decision-making process before the
proposal has been agreed by the Council and European Parliament. This would give the UK
a veto, because unanimity applies at the European Council level.
In a more drastic move, Parliament could refuse to accept, via a sovereignty vote, jurisdiction
of the European Union over financial services measures that are against our national
interest.
146
The
T e inttro
odu
ucttio
on
Fina
F anccial serviccess arre a
an imm
i men
nse
ely imp
porrtan
nt part
p t off the
e Unit
U ted Kin
ngd
dom
ms ec
conom
mic
la
and
dscape
e. Ban
B nkin
ng w
whillst vvita
ally
y sig
gniffica
ant acc
a countss for 45
54,200 jo
obs
s in the
e in
ndu
ustrry, just
j t
und
u er a qua
q rter off the to
ota
al off 2,,029,9
900
0 pe
eop
ple wo
w rkin
ng in the
t fin
nancia
al an
nd pro
ofesssio
ona
al
2
2
Mo
212,100 of wh
serv
s vice
es.218
ore tha
an h
halff off these
e jo
obs
s arre bas
b ed ou
utsid
de the
e ca
apittal,219
hich
h
are
a bassed
d in
n the N
Norrth W
We
est alo
one
e.2200
The
T e fin
nancia
al and pro
ofesssio
ona
al serv
s vice
es acc
a cou
unt forr 13
3.5%
% of
o to
ota
al grrosss valu
v ue add
a ded
d.221
Fina
F anccial serviccess by
y th
hem
mse
elve
es are
a on
nly jjust se
eco
ond
d be
ehin
nd ma
anu
ufaccturring
g (1
10%
% as
222
2
United
opp
o ose
ed to 12%
1 %o
of GDP
G P). Fin
nan
ncia
al servvice
es are
a the
ere
eforre eve
e ry b
bit as crittica
al to
o th
he U
d
King
K gdo
oms eco
e nom
my ass the a
auto
omo
otivve ind
i usttry is to
t Ger
G rma
anyy. This
T s is no
ot ju
ust a m
mattterr of
jo
obss fo
or wea
w althyy bank
kerrs - it is abo
a ut p
peo
ople
es pe
ension fundss, the financcing
go
of sm
ma
all
bus
b ine
esse
es and
a d th
he tax
t atio
on tha
at pays
p s fo
or o
our schoo
ols an
nd hos
h spita
als.
How
H wevver,, alttho
ough th
he UK
K re
epre
ese
entss 36
6%
% off the
e Euro
E ope
ean
n Unio
onss fin
nan
ncia
al who
w oles
sale
e
22
23
mar
m rkett an
nd 61%
6 %o
of the EU
Us nett ex
xpo
orts
s in fin
nanccial se
ervices, itt on
nly has 7
72 sea
s ats in tthe
Euro
E ope
ean
n Pa
arliam
men
nt out of
o a to
otal of 73
36.2224 Fro
F om 2014 or
o 201
2 7 iff a me
emb
berr sta
ate
e
re
equ
uessts it the U
UK will ha
ave
e 12
2.3% o
of vote
v es in the
t e Co
oun
ncil of Minissterrs.2225 W
While tha
at w
will
actu
a ually be
b an
a inc
i rea
ase fro
om 8.4
4%, th
he thre
eshold
d ne
eed
ded
d to pa
ass a llaw
w is low
werred an
nd sso it
i
2
will
w be ha
arde
er fo
or tthe
e UK
K to
o blocck a prroposa
al.226
EEU sta
s tess with do
omiinant positiions in
n an
n EU
E pol
p icyy area
40%
%
QM
MV / Co
omp
petion
law
QMV
30%
%
E Veto
EU
V o
E Veto
EU
V o
20%
%
10%
%
0%
%
W olessale finaance
Who
A cultturee
Agri
Fisshin
ng
Au
uto maanuffacture
UK
K
Frrancce
Sp
pain
n
G man
Ger
ny
% of EU
E Indu
ustryy
% of wo
orld
d ind
dusttry
Sour
S rce: Op
pen
n Eu
urop
pe, CO
ONT
TIN
NEN
NTA
AL S
SHIF
FT:: Sa
afeg
gua
ardin
ng tthe UK
Ks fina
f anciial trad
t de in
n a cha
ang
ging
g
Euro
E ope
e, Dece
emb
ber 2011.
21
18
T
TheC
CityyUK
K, Reg
R ional B
Brea
akd
dow
wn of
o U
UK Fina
F anccial and
d Prrofe
essiona
al Serv
S vice
es, Jan
nuary 2
2012.
T
TheC
CityyUK
K, Reg
R ional B
Brea
akd
dow
wn of
o U
UK Fina
F anccial and
d Prrofe
essiona
al Serv
S vice
es, Jan
nuary 2
2012.
22
20
T
TheC
CityyUK
K, Reg
R ional B
Brea
akd
dow
wn of
o U
UK Fina
F anccial and
d Prrofe
essiona
al Serv
S vice
es, Jan
nuary 2
2012.
22
21
T
TheC
CityyUK
K, Reg
R ional B
Brea
akd
dow
wn of
o U
UK Fina
F anccial and
d Prrofe
essiona
al Serv
S vice
es, Jan
nuary 2
2012.
22
22
O
Ope
en Euro
E ope
e, CON
NTIN
NEN
NTA
AL SH
S IFT
T: Safe
egua
ardiing the
e UK
Ks fina
anc
cial trad
de in a ch
hanging
Euro
E ope
e, Dece
emb
ber 201
11.
22
23
O
Ope
en Euro
E ope
e, CON
NTIN
NEN
NTA
AL SH
S IFT
T: Safe
egua
ardiing the
e UK
Ks fina
anc
cial trad
de in a ch
hanging
Euro
E ope
e, Dece
emb
ber 201
11.
22
24
O
Ope
en Euro
E ope
e, CON
NTIN
NEN
NTA
AL SH
S IFT
T: Safe
egua
ardiing the
e UK
Ks fina
anc
cial trad
de in a ch
hanging
Euro
E ope
e, Dece
emb
ber 201
11.
22
25
O
Ope
en Euro
E ope
e, CON
NTIN
NEN
NTA
AL SH
S IFT
T: Safe
egua
ardiing the
e UK
Ks fina
anc
cial trad
de in a ch
hanging
Euro
E ope
e, Dece
emb
ber 201
11.
22
26
O
Ope
en Euro
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NTIN
NEN
NTA
AL SH
S IFT
T: Safe
egua
ardiing the
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Ks fina
anc
cial trad
de in a ch
hanging
Euro
E ope
e, Dece
emb
ber 201
11.
21
19
14
47
The
T e eu
urozzon
ne cris
c sis hass le
ed tto pro
p possals
s fo
or a b
banking u
unio
on witth e
euro cou
c ntriies po
oten
ntia
ally
sha
s ring
g a co
omm
mon
n and
a strrength
hened supervissor, whic
w ch w
wou
uld be ba
acked by a eur
e rozo
one
e
dep
d osit guarrantee
e sc
che
eme
e and bank res
solu
utio
on fun
f d. Alth
A hou
ugh
h th
he U
UK wo
ould
d no
ot ttake
ep
partt,
th
his wo
ould
d cllearly pre
ese
ent a ccha
allen
nge
e to
o the EU
E s sing
s gle ma
arke
et in fiinancial sserrvicces and
crea
c ate inccen
ntive
es for the
e euro
ozo
one supervissor, po
otentia
allyy the Euro
E ope
ean
n Cent
C trall Ba
ank
k, to
o
eithe
e er driv
d ve gre
g eate
er harm
h mo
onissatio
on of reg
gula
atio
on acro
a oss
s th
he EU
E or pro
otectio
onissm within
n th
he
euro
e ozo
one
e. The UK
K co
ould pote
p entially
yb
be fo
orcced to acccep
pt n
new
w re
egu
ulattion
n de
esig
gne
ed ffor and
writt
w ten byy the euro
e ozo
one
e co
oun
ntrie
es.
This
T s is the
e conttext in
n wh
hich E
Euro
ope
ean
n Unio
on reg
r ula
ation
no
of th
he fina
f anccial servicces
s ind
dus
stryy must
m t
be
b ssee
en. It is
s also ne
ecessa
ary to underrsta
and
d th
he attit
a tudina
al sh
hiftt in the
e EU tow
t ward
ds ffina
anccial
serv
s vice
es. Wh
herreass th
he EU
U on
nce
e so
ought to
t e
ena
able
e th
he sec
s ctorr, and
a Brritain was
w s highly influ
uen
ntia
al
in
n co
omple
eting th
he sin
ngle
e mark
m ket forr fin
nan
ncia
al se
ervvice
es, afte
er the
t 20
008
8 fin
nan
ncia
al crrisiss attitu
a ude
es
in
n Euro
ope
e to
owa
ard the
e se
ecto
or h
havve cha
c ang
ged. A tottal of 49
4 new
w EU
E reg
gulato
ory pro
opo
osals tthatt
cou
c ld affe
a ect the
e indus
stryy are e
eith
her be
eing
g co
onsside
ered
d or
o a
alreadyy in
n tra
ain, a gre
eat ma
any
y off
227
whic
w ch are
a e aime
ed a
at con
c stricting ratther th
han en
nab
bling
g th
he ind
dusttry. Th
his is
i a
an uns
u sus
stain
nab
ble
and
a un
naccep
ptable
e sta
ate
e off afffairrs, not
n t lea
astt be
ecause
e muc
m ch of
o th
he gro
owtth pote
p enttial forr the
e UKs
U s
financial ser
s rvices ind
dusstry exxistss outsside
e the euro
e ozo
one
e an
nd Europ
pea
an Unio
U on..
The
T e Inttern
nattion
nal Mo
one
etarry F
Fund has
h s ca
alcu
ulatted tha
at rea
r l GDP
P grrow
wth bettwe
een
n 20
011
1 an
nd
201
2 6 will
w be 2.1
1% in the
e Euro
E ope
ean Un
nion, w
whiich co
omp
pare
es uniimp
presssivvely to
o th
he B
BR
RIC
cou
c ntriies of Bra
azil (4
4.2%
%), Ru
usssia (3.8
8%
%), India (8.1
( 1%) an
nd Ch
hina
a (9
9.5%
%). Th
he EU
EU als
so lag
gs
228
8
beh
b ind
d the glob
g bal ave
era
age
e of 4.9
9%
%. More
eovver, wh
hils
st in
n 20
005
5 th
he U
UK, Germ
G man
ny, Frrancce,
Spa
S ain and
a d Italyy acccountted for 27
7%
% off glo
oba
al ban
b kin
ng ass
a etss, Pric
P eW
Wate
erh
houseC
Coo
ope
ers
proj
p ectts thatt in 20
050 tha
at will
w ha
ave de
ecre
eassed to 12
2.5%
%. P
Pw
wC also
a op
projectts th
hatt the BRI
B C
cou
c ntriies will se
ee the
eir ssha
are lea
ap from
f m the
t 20
005 fig
gure
e off 7..9%
% to
o 32
2.9% in 2
205
50.2229
The
T e follow
wing cha
c rt sho
s ows
s Eu
uropea
an Un
nion
n an
nd Re
est of
o tthe Wo
orld
dG
GDP
P at pu
urc
chassing p
pow
wer
pari
p ty (PP
( PP)) be
etween
n 1990
0a
and 20
016
6.
Sour
S rce: Op
pen
n Eu
urop
pe, CO
ONT
TIN
NEN
NTA
AL S
SHIF
FT:: Sa
afeg
gua
ardin
ng tthe UK
Ks fina
f anciial trad
t de in
n a cha
ang
ging
g
Euro
E ope
e, Dece
emb
ber 2011.
22
27
O
Ope
en Euro
E ope
e, CON
NTIN
NEN
NTA
AL SH
S IFT
T: Safe
egua
ardiing the
e UK
Ks fina
anc
cial trad
de in a ch
hanging
Euro
E ope
e, Dece
emb
ber 201
11.
22
28
IM
MF,, W
World Econ
E nom
mic Ou
utloo
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48
The detail
An analysis of the details presents an even clearer picture of why financial services matter.
The estimated 11.2% share of tax receipts in 2009-10 equated to 53.4 billion.230 Finance
provided a 31.5 billion trade surplus in 2010.231 This is a huge contribution to Britains trade
balance. The think tank Open Europe has highlighted that this trade surplus compares
remarkably favourably with goods and travel, which represented trade deficits in 2010 of 98
billion and 11 billion respectively.232 Nevertheless, the overall UK deficit for trade in goods
and services was only 39.7 billion, which means that without financial services the UK
would have been faced with an overall deficit of 70 billion a year.233 To describe financial
services as important to the UK economy vastly understates their value they are absolutely
critical.
Confidence in a nations economy is bolstered when it can point to world-class goods or
services. The UKs financial services outstrip competitors in a number of areas. The UK
banking sector does more cross-border lending than any other country in the world, with an
18% market share in March 2011.234 Our foreign exchange market is the biggest on Earth, as
is our over-the-counter interest rate derivatives market, which had an enormous 46% global
share in April 2010.235 A net premium income of almost 200 billion gave the UK insurance
industry the number one spot in Europe and number three worldwide.236 We have the largest
hedge fund market on the continent and European Climate Exchange contracts - which have
made up the vast majority of futures and options trading on the EU Emissions Trading
Scheme since 2009 - are traded on the ICE Futures Europe exchange in London.237
Yet even these detailed statistics cannot do full justice to the centrality of the financial
services industry, for the simple reason that the sector does not operate in a vacuum.
Rather, it is intimately connected to most other sectors of the economy. As Open Europe has
highlighted:
The benefits of the financial sector to the broader EU go far beyond the simple generation of
jobs and activity in the City to how business investment is funded, including small local
businesses; how pensions are paid for; how companies manage to buffer themselves against
bad times, to hedge against risks, and insure against disaster; how broader access to
financial services enables households to smooth consumption during periods of
unemployment or unexpected drops in income (e.g. short-hours working); how Governments
230
PricewaterhouseCoopers (PwC), The total tax contribution of UK financial services, third

edition, December 2010 (report prepared for the City of London Corporation),
http://217.154.230.218/NR/rdonlyres/68F49A7E-8255-415B-99A81A8273D568D9/0/TotalTax3_FinalForWeb.pdf.
231
Open Europe, CONTINENTAL SHIFT: Safeguarding the UKs financial trade in a changing
Europe, December 2011.
232
233
234
235
236
237
149
use international financial centres to borrow to service public spending in periods when tax
takes are temporarily depressed.238
However, as Open Europe points out, compared to the 1990s and early 2000s, the balance
of initiative in EU policy-setting is changing, which risks radically reducing the UKs
influence.239
There is not space here to describe in detail every Directive or proposed regulation affecting
financial services which emanates from the European Union (although we attach them as an
appendix), but we can identify some of the most significant and report that there is a move
away from liberalisation, as the clamour for greater integration intensifies.
The case study UCITs: a successful policy

In 1988 the Undertakings for Collective Investment in Transferable Securities (UCITs)
Directive came into effect. It sets out a harmonised regulatory framework for investment
funds. HM Treasury has commented:
The UCITS Directive has been key to the development of the European investment fund
industry. UCITS investments are well-regarded internationally for giving consumers access to
high-quality, consistent investments. UCITS are widely perceived as being regulated to a
high standard, and their status as a global brand has continued to boost net sales of crossborder funds outside Europe.240
The UCITs experience is no longer typical of EU financial regulation.
The heads of state or government at the Lisbon Council of March 2000 reached the following
agreement:
Efficient and transparent financial markets foster growth and employment by better
allocation of capital and reducing its cost. They therefore play an essential role in fuelling
new ideas, supporting entrepreneurial culture and promoting access to and use of new
technologies. It is essential to exploit the potential of the euro to push forward the integration
of EU financial markets. Furthermore, efficient risk capital markets play a major role in
innovative high-growth SMEs and the creation of new and sustainable jobs. 241
Recently, continental politicians have been less fulsome in their praise of the sector with no
let-up in their desire to integrate the sector on an EU-wide basis. German Finance Minister
Wolfgang Schuble opined in October last year that:
We have to fight the causes of this crisis, and the main reasons of the crisis are a lack of
financial market regulation and an abundance of Government deficits and debt.242
238
239
240
http://www.hm-treasury.gov.uk/fin_euintl_dossier_ucits.htm.
241
City of London, Creating a single European market for financial services a discussion paper.
242
Bloomberg, 15 October 2011.
http://www.bloomberg.com/news/2011-10-15/merkelsays-won-t-accept-u-s-balking-at-financetransaction-tax.html.
150
Former French President Nicolas Sarkozy welcomed the appointment of his countryman
Michel Barnier as EU Commissioner for the Internal Market and Financial Services as
adefeat for Anglo Saxon capitalism.243
This attitude does not provide a convincing advertisement for expanding European Union
control of the financial services. Nor do some recent pieces of legislation or current
proposals. On his return from an EU Council in which a financial transactions tax (FTT) was
discussed, the Prime Minister was right to tell the House of Commons in December 2011:
There were two possible outcomes: either a treaty of all 27 countries, with proper safeguards
for Britain; or a separate treaty in which eurozone countries and others would pool their
sovereignty on an intergovernmental basis, with Britain maintaining its position in the single
market and in the European Union of 27 members. We went seeking a deal at 27 and I
responded to the German and French proposal for treaty change in good faith, genuinely
looking to reach an agreement at the level of the whole of the European Union, with the
necessary safeguards for Britain. Those safeguardson the single market and on financial
serviceswere modest, reasonable and relevant. We were not trying to create an unfair
advantage for Britain. London is the leading centre for financial services in the world, and this
sector employs 100,000 people in Birmingham and a further 150,000 people in Scotland. It
supports the rest of the economy in Britain and more widely in Europe. We were not asking
for a UK opt-out, special exemption or a generalised emergency brake on financial services
legislation. They were safeguards sought for the EU as a whole. We were simply asking for a
level playing field for open competition for financial services companies in all EU countries,
with arrangements that would enable every EU member state to regulate its financial sector
properly.244
The Lisbon Council of March 2000 formally endorsed the Financial Services Action Plan
(FSAP). FSAP was a range of measures designed to remove barriers and boost integration
by 2005.245 In essence, FSAP aimed to create: a single wholesale market, with a single point
of entry and clear legal rules; an open and secure retail market with greater electronic
commerce and clearer information for customers; and first-class rules and prudential
regulation.246
One of the main aspects of FSAP was the Markets in Financial Instruments Directive, which
brought other countries up to speed with UK standards by introducing the categorisation of
clients and liberalising trading (so that it did not just focus around a countrys main
exchange).247
Open Europe concludes that in the 1990s and early 2000s:
Though with several exceptions, a significant chunk of EU financial regulation has been protrade, and pro-competition. While the UK might have preferred the details of certain
243
Daily Telegraph 21 December 2009.

http://www.telegraph.co.uk/finance/newsbysector/banksandfinance/6861065/Sarkozy-will-useMichel-Barnier-to-advance-French-interests.html.
244
Hansard 12 December 2011, cols 519 and 520.
245
HM Treasury, the Financial Services Authority and the Bank of England, The EU Financial
Services Action Plan: A Guide, July 2003.
246
HM Treasury, the Financial Services Authority and the Bank of England, The EU Financial
Services Action Plan: A Guide, July 2003.
247
151
regulations to be different, some compromise provided the opportunity to extend UK thinking

at the EU level, in turn promoting trade opportunities in what was a promising market.248
This welcome trend has now palpably been reversed.
The case study clearing houses and the ECB

The European Central Bank has demanded that clearing houses which deal in sizeable
amounts of euro-denominated business should be located inside the eurozone. The ECB
wants this to apply when any of the central counterparties handle over 5% of a eurodenominated product.249
The UK whose capital is home to more clearing houses than any other in the EU - is taking
action against this proposal. A spokesman for HM Treasury said in September:
This decision contravenes European law and fundamental single market principles by
preventing the clearing of some financial products outside the euro area. That is why we
have begun proceedings against the ECB through the European court of justice. The
government wants to see this resolved swiftly and without involving the courts but, if
necessary, will not shy away from continuing legal action to make sure there is a level
playing field across the EU for British businesses.250
The case study Financial Transactions Tax

There has been considerable coverage of the proposal for a financial transactions tax (FTT).
The European Commission advocates a 0.1% levy on all types of financial transactions,
other than those involving derivatives agreements, on which a 0.01% levy would be
imposed.251
The European Commission itself recognises that an FTT would have considerable
disadvantages, stating that the turnover on derivatives markets is expected to decline by up
to 90% in some market segments252 and estimating in an impact assessment that it could
lead to the loss of half a million jobs across Europe.253
Representatives of the British Bankers Association, TheCityUK, the International Swaps and
Derivatives Association, the Investment Management Association and the Association of
British Insurers wrote to the Telegraph to express their concern about an FTT:
248
249
Guardian.co.uk, 14 September 2011.
http://www.guardian.co.uk/business/2011/sep/14/european-central-bank-treasury-court-action
250
Guardian.co.uk, 14 September 2011.
http://www.guardian.co.uk/business/2011/sep/14/european-central-bank-treasury-court-action
251
European Commission, Proposal for a Council Directive on a common system of financial
transaction tax and amending Directive 2008/7/EC, 28 September 2011.
252
European Commission presentation, The Commission proposal for a Council Directive on a
common system of FTT, 28 September 2011, p17.
http://ec.europa.eu/taxation_customs/resources/documents/taxation/other_taxes/financial_sector
/ftt_proposal_en.pdf.
253
152
The Commission has rejected concerns about the effect of the FTT on the City of London as
a global financial centre. Curiously the Commission failed to conduct a country by country
impact analysis to truly understand the impacts on each Member State. However, on just one
measure the effects of FTT on London are clear. The Commission explicitly assumes that
90pc of derivatives could disappear as a result of the implementation of the FTT in the EU.
The UK has the largest financial derivatives market in the world, with an average daily
turnover in interest rate derivatives of just over $1.4 trillion, equivalent to 45.8pc of the total. It
is hard to comprehend how such a reduction of this business would not significantly affect
the UK economy.
These instruments are not the socially useless activities that the Commissioner appears to
believe; as DG Competition stated this month, derivatives are an indispensable tool for risk
management and investment purposes. Derivatives are an insurance against adverse price
moves, protecting companies - and so their customers - against unexpected developments,
such as sudden changes in the value of currencies or price of commodities. They are used
by a range of businesses from importers such as oil companies and exporters such as
manufacturers. Additionally, adding a tax on transactions such as interest rate and currency
swaps would only increase the cost and reduce the flexibility (and therefore availability) of
funding for businesses.254
Such a policy, if unilaterally applied in the EU, might be toasted in New York but should not
raise any sort of cheer in the UK, which again according to the European Commissions
own estimates would contribute 62% of total revenues.255
A report on the FTT by the Institute of Economic Affairs (IEA) cites a calculation from the
European Commission which finds that an FTT would lead to a drop in GDP of 1.76%:
With a tax rate of 0.1% the model shows drops in GDP (-1.76%) in the long-run.256
It has been argued that the UK government was disproportionately worried about the
prospect of an FTT. It is true that the European Commissions proposal for a financial
transactions tax (FTT) was tabled under Article 113 of the Treaty on the Functioning of the
European Union, which requires unanimity, and that therefore the UK could have blocked it
anyway.257 It is however also worth remembering that the Working Time Directive was initially
resisted by the UK but then imposed under health and safety legislation.
Another unwelcome proposal comes from the Solvency II rules on insurance and pension
funds, which would focus those funds away from long-term investment by favouring
investments with shorter maturities and government bonds over bank and corporate bonds.
John Cridland, the Director-General of the CBI, has warned:
As drafted, the proposals promote an investment strategy of punting on supposedly riskfree EU sovereign debt and shortening the duration of corporate debt investments. This
suggests that money is better spent on Government bonds than being put to work funding
energy, road and air infrastructure projects.258
254
telegraph.co.uk, 12 February 2012.

http://ec.europa.eu/taxation_customs/taxation/other_taxes/financial_sector/index_en.htm.
256
http://ec.europa.eu/taxation_customs/resources/documents/taxation/other_taxes/financial_
sector/impact_assessment.zip.
cited in IEA, The case against a financial transactions tax, by Tim Worstall, November 2011.
257
258
Speech to the CBI annual dinner, 13 October 2011.
255
153
The original Markets in Financial Instruments Directive (MiFID) was a deregulatory measure.
Countries including France, Italy and Spain had concentration rules which meant that
shares had to be sold on the main exchange and the change was a welcome development.
MiFID II, however, is a proposal to ban independent advisers from earning commissions from
firms whose products they sell. The irony is that, in other parts of the EU, bancassurance
companies i.e. combined bank and insurance companies - are the norm. So their advisers
are not taking a commission from the organisation they are recommending, they work for it
directly. It is one thing, then, if you work for Barclays, but those UK professionals who offer
independent advice in an environment where insurance companies and banks are typically
separate would be at a disadvantage.259
It may at this point seem counter-intuitive to suggest that sometimes EU regulations might
not go far enough. Nevertheless, there may be occasions when the UK would like to impose
stiffer rules than the EU suggests or even permits.
The case study capital requirements for banks

Investor protection is one area where the UK calls for more regulation than the EU. Unlike
the Basel III capital requirements for (systemically important) banks, the EUs proposed
regulations called CRD IV impose not only a minimum requirement but a maximum one
too. This development clashes with the recommendations of the Independent Commission
on Banking led by Sir John Vickers.260 It would also, of course, mean that the EU was not
operating on level terms with the rest of the world.
As the Chancellor of the Exchequer commented in December last year:
The balance sheet of our banking system is close to 500% of our GDP, compared to 100%
in the US and 300% in Germany and France. So while a European and international
regulatory response to the crisis is important, we cannot rely on this response alone to make
our banking system safe.261
A representative of a major bank warned us that at a time when banking systems are being
constrained it is vital not to try to close down capital markets. 262

The colour-coding used below for possible UK action follows the categorisation for all
the Fresh Start Projects Green Paper chapters. Green are those measures that can be
achieved domestically or within the current EU legal framework; Amber are those
measures that require negotiated EU treaty change; Red are those steps that the UK
could take unilaterally that would involve breaking its treaty obligations. Please see the
Introductory Chapter to the Green Paper.
Much debate can be had about the best way forward but one thing is undeniable: the
financial services are a critically important industry for the UK and the European Union
is by no means their only market. The EU must not be allowed to strangle them with red
259
260
Independent Commission on Banking, Final report recommendations, September 2011.
261
Banking Reform Statement by the Chancellor of the Exchequer, 19 December 2011.
262
Private meeting.
154
tape, nor impose crippling costs on them, nor dissuade financial companies and workers
from locating or staying in the UK.
For all the reasons outlined above, we start from the premise that the status quo is not an
option. It would however be possible to try to work within the current system to get a better
deal in the EU for the UKs financial services.
The European Parliament has had some success. British MEPs on the European
Parliament's Economic and Monetary Affairs Committee resisted a ban on short-selling. It
will now be restricted to a ban on naked short selling of sovereign debt. Sharon Bowles
MEP, the chair of the committee, described the deal agreed with the Council of the
European Union, which will come into effect from November next year, thus:
Proxy hedging using a CDS [credit default swap] where there are correlated interests is
allowed. And if there is any distress in the market, for example as shown by spreads or
lowering of liquidity, then a Member State can opt-out of the ban. Review comes up quite
quickly, in 2013, and by then there will be more data available, including that from the
experiments that are ongoing at present. ESMA will of course be keeping a watching brief
on all of this ready for the review and to give its opinion on the reasonableness of any optouts.263
Domestic politicians must play their part too. In other chapters, the Fresh Start Project
makes the case for select committees to scrutinise EU proposals and legislation more
thoroughly and at an earlier stage. UK MEPs have an enhanced role now that co-decision
applies and therefore greater responsibility to make the case for the financial services
industry, a vital UK asset.
The government is right to oppose a unilaterally-applied EU Financial Transactions Tax
and to challenge the ruling that trade in euro-denominated products must take place in the
eurozone. We have highlighted the importance of seeking to place UK nationals in key
roles in Brussels. Ministers also constantly need to be abreast of any and all
developments in the European Union.
Commissioner Barnier has claimed that the UK does have the flexibility it needs to
implement the Independent Commission on Bankings proposals on ring-fencing capital
and investment banking and additional capital requirements, thanks to Pillar 2, which
would allow national regulators to apply additional discretionary requirements on particular
firms or groups of firms that are exposed to particular risks.264 However, HM Treasury has
stated, that this flexibility is not designed to be applied to all firms at a systemic level and if
used in that way may be subject to legal challenge.265
The UK financial services are at a structural disadvantage in the European Unions
political system. Most of the EU regulation that pertains to the sector is based on single
263
Speech by Sharon Bowles MEP, 21 October 2011.
264
265
City AM, EU in bid to veto UK bank reform, 31 October 2011, http://www.cityam.com/newsand-analysis/eu-bid-veto-uk-bank-reform.
155
market articles from EU treaties, where Qualified Majority Voting (QMV) and co-decision
with the European Parliament apply.266 This means that British politicians can be outvoted.
It would not be accurate to say that the effect of the EU on the UK financial services
industry is just a reflection of the fact that all countries have to take the rough with the
smooth in a single market. Open Europe explains how the playing field is unlevel:
For instance, the French have a dominant position in agriculture, the Spanish in fishing
and the Germans in car manufacture. But unlike agriculture where the French have a veto
over the reform of the Common Agricultural Policy from which French farmers do
exceptionally well or fishing where Spain wields a veto over change to the Common
Fisheries Policy, the UK has no comparable protection from EU financial regulation.267
General de Gaulles refusal to take part in European Council proceedings led to the
Luxembourg Compromise of 1966, which states:
Where, in the case of decisions which may be taken by majority vote on a proposal of the
Commission, very important interests of one or more partners are at stake, the Members
of the Council will endeavour, within a reasonable time, to reach solutions which can be
adopted by all the Members of the Council while respecting their mutual interests and
those of the Community.268
Although it has never been formally adopted by the European Commission or the ECJ, the
French have nevertheless invoked the Luxembourg Compromise in defence of their
agriculture industry. It could prove to be an inspiration for the UK in relation to the financial
services.269
Open Europe continues:
It is true that the German car industry, like UK finance, is also not fully protected with a
veto, for example with regards to EU competition rules. However, unlike the City of
London, the German car industry is not an area where the interests of different states
diverge so sharply. It is also less mobile than the financial services industry, which is far
more susceptible to regulatory competition. And in one significant area the German
industry has objected to and even ignored EU rules. In fact, Germany has fought a
protracted legal battle with the European Commission in order to preserve the golden
share in Volkswagen owned by the state of Lower Saxony.270
The crisis in the eurozone has prompted George Osborne to state that:
the eurozone countries need to accept the remorseless logic of monetary union that leads
from a single currency to greater fiscal integration.271
266
267
268
269
270
271
Daily Telegraph, 7 August 2011.
156
If such action is indeed inevitable, then one effect may be that the eurozone countries start
to act as one voting bloc in the European Union. This would have a massive impact
straight away and it would intensify: by 2014 or 2017 the eurozone will have the 65% of
votes needed to pass a law by themselves.272
One leading industry insider told us that there is a perception that there is a potential for
overlap or gaps in mapping EU and UK regulators, that the industry needs to work harder
at lobbying the increasingly influential European Parliament, and that people with financial
services experience are rather thin on the ground in Brussels.273
Another expert told us that the UK should put a levy on the City to finance a lobbying effort
in Brussels.274 He added that the UK should look to win middle-management roles in
ESMA - other countries, he assured us, are not squeamish about trying to place people in
Brussels - and seek voting alliances with the Dutch, East Europeans and Nordic countries
in the EU.275 We should also look into developing programmes for getting bright graduates
into Brussels.
Open Europe has suggested that the UK could make more use of the European Court of
Justice, by challenging the use of Treaty articles for ends for which they were not intended
and litigation against protectionism in the eurozone.276
Open Europe has also made the case for ministers seeking public assurances from the
eurozone countries that they will not act as a bloc and recognise that decisions should be
taken by all 27 member states. Open Europe adds that this could go as far as the UK
demanding to be present at all negotiations.277
It may be that more muscular action is necessary.

The industry is evidently both concerned by and losing patience with the EU. In November
and December 2011 ComRes surveyed 500 financial services professionals in London
about their attitudes towards European Union regulation of the industry, on behalf of Open
Europe.278 69% supported the UK having a veto on future EU financial services regulation
even if at the risk of a lessening of access to the single market and reduced business
opportunities.279 56% thought that the costs of EU financial regulation now outweigh the
benefits of the single market to the City and 62% expected that to be the case over the
next five years, with only 24% disagreeing.280
This would involve Treaty changes. Open Europe has identified various possibilities,
including: a single market protocol which could be used to:
272
273
Private meeting.
274
Private meeting.
275
Private meeting.
276
277
278
http://www.comres.co.uk/poll/588/open-europe-eu-veto-survey.htm.
279
280
157
Re-state the importance of the single market.

Include a possible timetable for seeking to reduce barriers to trade in areas such as
services, the digital economy, telecoms and energy.
Codify the better regulation objectives including a commitment to robust impact
assessments.
Establish a one-in one-out system to limit the amount of new regulation.
Ensure that all regulations, including financial ones, are proportional, consistent with
subsidiarity and related to a known risk.
Re-state the need for pro-growth measures at the EU-level, including a need to make
labour markets more dynamic. This could even include the EUs own commitments to
exercise greater flexibility in the aspects of labour market law that it is involved in,
including the Working Time Directive and the Agency Workers Directive. 281
It would also be possible to seek changes to qualified majority voting rules or employ a
mechanism introduced by the Lisbon Treaty the so-called yellow card which forces the
European Commission to reconsider a proposal if one-third of all national parliaments
object to it within eight weeks of it being tabled.282
More drastically, the UK government could seek a unilateral brake on EU financial
services regulation.
Open Europe outlines a possible UK emergency break or double lock approach,
embodied in a legally binding protocol attached to the Treaties. Lock One would assert the
special circumstances that are the UKs stake in the financial services, requiring the
Commission to reconsider proposals that impact disproportionately on the UK. (A FTT
would be an obvious example of that). Lock Two would give the UK a right of appeal for
any proposal at any stage during the decision-making process before the proposal had
been agreed by the Council and European Parliament. This would give the UK a veto,
because at the European Council level unanimity applies.283
An even more absolutist position would be simply to refuse to implement new or existing
directives. Open Europe concludes that:
The legal repercussions of this option are relatively simple. However, the political
implications are hugely uncertain and impossible to predict.284
281
282
283
284
158
They may not always be popular and they are widely misunderstood, but financial
services matter to the whole of the United Kingdom, and indeed to the European Union.
The EU should be their champion, not their executioner.
159
APPENDIX: EU financial regulation in the pipeline

(Source: Open Europe)
EU legislation adopted but not yet transposed into national law
EU legislation
Current status
Deadline for transposition/Entry into
force
Alternative Investment Fund Managers
Adopted on 8 June 2011
22 July 2013
(AIFM) Directive Directive
2011/61/EU
Solvency II Directive 2009/138/EC
Adopted on 25 November
Transposition will have to be complete by 1
2009
January 2013, but the new requirements
will enter into force on 1 January 2014285
1 July 2012
Prospectus Directive (upgraded
Adopted on 24 November
version) Directive 2010/73/EU
2010286
Financial Conglomerates Directive
Adopted by the Council of
To be added in when the Directive is
(upgraded version)287
Ministers on 8 November
published in the EUs Official Journal it is
2011, awaiting publication
temporarily fixed at 18 months after the
on the EUs Official Journal
entry into force of the Directive288
Access to basic banking services (part
Recommendation adopted
EU member states are invited to take the
of the European Commissions Single
by the European
necessary measures by at the latest six
Market Act initiative)
Commission on 18 July
months after the publication of the
2011
Recommendation (i.e. first quarter of 2012)
Consumer Rights Directive (upgraded
Adopted in October 2011,
Transposition will have to be complete by
version)
publication in the EUs
the end of 2013, while the new rules will be
Official Journal expected by
applied at the latest six months after the
the end of the year289
end of the transposition period (i.e. by
approximately mid-2014)
Short-selling and CDS Regulation
Adopted by the European
The Regulation will enter into force after its
Parliament on 15 November
publication in the EUs Official Journal, but
2011, awaiting final (formal)
will apply from 1 November 2012290
approval by the Council of
Ministers
Regulation on wholesale energy
Adopted by the Council of
After its publication in the EUs Official
market integrity and transparency
Ministers on 10 October
Journal
291
2011, awaiting publication
in the EUs Official Journal
Location of clearing houses
ECB communicated its
Unclear
decision to change the
Eurosystems location
policy for clearing houses in
July 2011. The UK started
legal action against the
decision in September,
timeline remains uncertain
at the moment
285
See the FSA website,
http://www.fsa.gov.uk/pages/About/What/International/solvency/implementation/index.shtml.
286
This Directive also amends Directive 2004/109/EC on the harmonisation of transparency
requirements in relation to information about issuers whose securities are admitted to trading on a
regulated market (aka Transparency Directive), see http://eurlex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:L:2010:327:0001:0012:EN:PDF.
287
Due to amend Directives 98/78/EC, 2002/87/EC , 2006/48/EC and 2009/138/EC (Solvency II) as
regards the supplementary supervision of financial entities in a financial conglomerate.
288
Some provisions must be transposed by 22 July 2013, see
http://register.consilium.europa.eu/pdf/en/11/pe00/pe00039.en11.pdf.
289
See the European Commissions website, http://ec.europa.eu/justice/consumer-marketing/rightscontracts/directive/index_en.htm.
290
See European Parliament press release, Parliament seals ban on sovereign debt speculation and
short-selling limitations, 15 November 2011,
http://www.europarl.europa.eu/en/pressroom/content/20111115IPR31525/html/Parliament-seals-banon-sovereign-debt-speculation-and-short-selling-limitations.
291
See Council of the European Union press release, New framework for monitoring of energy markets
adopted, 10 October 2011,
http://www.consilium.europa.eu/uedocs/cms_data/docs/pressdata/en/trans/124995.pdf.
160
EU legislation proposed but not yet adopted

Current status
force
Draft Directive introducing a Financial
European Commission
The Commission proposes 31 December
Transactions Tax (FTT)292
proposal published on 28
2013, with the new provisions entering into
September 2011
force on 1 January 2014
Draft Omnibus II Directive293
European Commission
proposal published in
January 2011
Draft Directive on the access to the
European Commission
activity of credit institutions and the
prudential supervision of credit
July 2011
institutions and investment firms (part
of the CRD IV package)294
Draft Regulation on prudential
European Commission
The Commission proposes applying the
requirements for credit institutions and
new provisions from 1 January 2013296
investment firms (part of the CRD IV
July 2011
package)
Draft Credit Rating Agencies
European Commission
Regulation (CRA III)
Journal298
297
November 2011
Draft Directive amending UCITS IV and
European Commission
new provisions from 12 months after the
AIFMD in respect of the excessive
299
reliance on credit rating agencies (part
November 2011
entry into force of the Directive
of the CRA III package)
Draft Investors Compensation
European Commission
new rules from 12 months after the entry
Schemes Directive (upgraded version)
July 2010. Compromise
into force of the Directive, the FSA notes
proposal drafted by the
that the proposals are anticipated to come
Polish Presidency endorsed
into effect by the end of 2012301
by the Committee of EU
member states Permanent
Representatives to the EU
(COREPER) on 23
November 2011300
Draft Bank Deposit Guarantee
European Commission
Schemes Directive (recast)
2012302
July 2010
Draft Regulation on OTC derivatives,
Negotiations between
central counterparties and trade
member states and the
Journal
repositories (European Market
European Parliament are
Infrastructure Regulation, EMIR)
still under way, EU finance
ministers agreed on a
common negotiating
Proposal
292
Also due to amend Directive 2008/7/EC concerning indirect taxes on the raising of capital, see
http://ec.europa.eu/taxation_customs/resources/documents/taxation/other_taxes/financial_sector/com%
282011%29594_en.pdf.
293
Due to amend the existing Prospectus Directive (Directive 2003/71/EC) and Solvency II in respect of
the powers of EIOPA and ESMA, see http://eurlex.europa.eu/LexUriServ/LexUriServ.do?uri=COM:2011:0008:FIN:EN:PDF.
294
Also due to amend the existing Financial Conglomerates Directive (Directive 2002/87/EC).
295
Chapter 4 (on capital buffers) would apply from 1 January 2016, see http://eurlex.europa.eu/LexUriServ/LexUriServ.do?uri=COM:2011:0453:FIN:EN:PDF.
296
Article 436(1) would apply from 1 January 2015, see
http://ec.europa.eu/internal_market/bank/docs/regcapital/CRD4_reform/20110720_regulation_proposal_
part3_en.pdf, p153.
297
Final text of the proposal is not yet available, a provisional version is available here,
http://ec.europa.eu/internal_market/securities/docs/agencies/COM_2011_747_en.pdf.
298
Some provisions would enter into force from 1 June 2014, see
http://ec.europa.eu/internal_market/securities/docs/agencies/COM_2011_747_en.pdf, p35.
299
Final text of the proposal is not yet available, a provisional version is available here,
http://ec.europa.eu/internal_market/securities/docs/agencies/COM_2011_746_en.pdf.
300
See http://consilium.europa.eu/ueDocs/cms_Data/docs/pressData/en/ecofin/126385.pdf, p7.
301
See http://www.fsa.gov.uk/pages/About/What/International/pdf/ICSD.pdf.
302
Transitional measures have been proposed for deposits paid in before 30 June 2010, which would be
applied until 31 December 2014, see
http://ec.europa.eu/internal_market/bank/docs/guarantee/comm_pdf_com_2010_0368_proposition_de_
directive_en.pdf, p42.
161
Draft Markets in Financial Instruments

Directive (MIFID II, upgraded version)
Draft Regulation amending EMIR (part
of the MIFID II package)
Draft Market Abuse Regulation305
Draft Directive on criminal sanctions for

insider dealing and market
manipulation (part of the Market Abuse
Directive review package)
Draft new rules on corporate
governance in financial institutions
Draft Transparency Directive
(upgraded version)
Draft Savings Taxation Directive
(upgraded version)
Draft Regulation on Single Euro

Payments Area (SEPA) migration enddate(s)309
Draft Directive on credit agreements
relating to residential property
(mortgages)
Draft Regulation on a common

European sales law
Draft Statutory Audit Directive
(upgraded version)314
position on 4 October
2011303
European Commission
October 2011
European Commission
October 2011
European Commission
October 2011
European Commission
October 2011
Proposed as part of MIFID
II and CRD IV307
European Commission
October 2011
European Commission
November 2008,
negotiations between
member states and the
European Parliament are
still under way
European Commission
December 2010
European Commission
March 2011, the latest
compromise text by the
Polish Presidency was
published on 28 November
2011311
European Commission
October 2011
European Commission
November 2011
303
Not specified in the Commissions draft

into force of the Regulation304
Journal, although the existing Market
Abuse Directive (MAD) would be repealed
24 months after the entry into force of the
new Regulation
new provisions from 24 months after the
See above
Deadline for transposition is not specified,

the Commission proposes applying the
new rules from the first day of the third
calendar year following the calendar year
in which the Directive enters into force308
Various, depending on the different

provisions310
new provisions from two years after the

new rules from six months after the entry
See Council of the European Union press release, Council reaches agreement on measures to
regulate derivatives market, 4 October 2011,
http://www.consilium.europa.eu/uedocs/cms_data/docs/pressdata/en/ecofin/124903.pdf.
304
Some articles would apply immediately after the entry into force of the Regulation. Existing third
country firms would be allowed to continue to provide services and activities in EU member states in
accordance with national regimes until four years after the entry into force of the Regulation, see
http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=COM:2011:0652:FIN:EN:PDF, p60.
305
Due to replace the existing Market Abuse Directive (Directive 2003/6/EC), http://eurlex.europa.eu/LexUriServ/LexUriServ.do?uri=COM:2011:0651:FIN:EN:PDF.
306
See http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=COM:2011:0654:FIN:EN:PDF, p13.
307
See Clifford Chance, European regulatory reform progress report, 3 November 2011,
http://www.cliffordchance.com/publicationviews/publications/2011/11/european_regulatoryreformprogres
sreport-.html.
308
See
http://ec.europa.eu/taxation_customs/resources/documents/taxation/personal_tax/savings_tax/savings_
directive_review/com%282008%29727_en.pdf, p27.
309
Due to amend Regulation (EC) No 924/2009 on cross-border payments in the Community.
310
See http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=COM:2010:0775:FIN:EN:PDF, p23-24.
311
The compromise proposal is available here,
http://register.consilium.europa.eu/pdf/en/11/st17/st17608.en11.pdf.
312
313
314
Due to amend Directive 2006/43/EC on statutory audits of annual accounts and consolidated
accounts, see http://ec.europa.eu/internal_market/auditing/docs/reform/COM_2011_778_en.pdf
(provisional version).
162
Draft Regulation on specific

requirements regarding statutory audits
of public-interest entities (part of the
audit reform package)
Draft Directive replacing the EUs
Accounting Directives316
Draft Regulation creating a European
Account Preservation Order to facilitate
cross-border debt recovery in civil and
commercial matters
Draft Directive on Alternative Dispute
Resolution (ADR) for consumer
disputes319
Draft Regulation on Online Dispute

Resolution (ODR) for consumer
disputes
Target-2 Securities programme322
European Commission
November 2011

new provisions from two years after the
entry into force of the Regulation315
European Commission
October 2011
European Commission
July 2011
The Commission proposes 1 July 2014317
European Commission
November 2011
The Commission proposes that

transposition be completed by 18 months
after the entry into force of the Directive320
and estimates that out-of-court ADRs
should be available everywhere in the EU
in the second half of 2014321
The Commission proposes 6 months after
implementation deadline for the draft ADR
Directive, i.e. presumably early 2015
The ECBs Governing Council decided to
push back the go-live date to June 2015 (it
was initially planned for September
2014)324
European Commission
November 2011
Framework agreement
endorsed by the ECBs
Governing Council on 17
November 2011323
315

Transitional provisions are set out for audit contracts concluded within a certain timeframe, see
http://ec.europa.eu/internal_market/auditing/docs/reform/COM_2011_779_en.pdf, p82-83 (provisional
version).
316
Directives 78/660/EEC and 83/349/EEC.
317
See
http://ec.europa.eu/internal_market/accounting/docs/sme_accounting/review_directives/20111025legislative-proposal_en.pdf, p67.
318
With the sole exception of Article 48, which would apply from 12 months after the entry into force of
the Regulation, see http://ec.europa.eu/justice/civil/files/comm-2011-445_en.pdf, p36.
319
Due to amend Regulation (EC) No 2006/2004 on cooperation between national authorities
responsible for the enforcement of consumer protection laws and Directive 2009/22/EC on injunctions
for the protection of consumers interests (codified version).
320
See http://ec.europa.eu/consumers/redress_cons/docs/directive_adr_en.pdf, p22.
321
European Commission press release, Consumers: Commission puts forward proposals for faster,
easier and cheaper solutions to disputes with traders, 29 November 2011,
http://europa.eu/rapid/pressReleasesAction.do?reference=IP/11/1461&format=HTML&aged=0&languag
e=EN&guiLanguage=en.
322
Target-2 Securities is the name of the Eurosystem project to harmonise securities settlement in
central bank money, see
http://www.bundesbank.de/zahlungsverkehr/zahlungsverkehr_t2securities.en.php.
323
See the ECBs website,
http://www.ecb.europa.eu/press/govcdec/otherdec/2011/html/gc111118.en.html.
324
See the ECBs website, http://www.ecb.int/press/govcdec/otherdec/2011/html/gc111021.en.html.
163
EU legislation in the pipeline but without a formal proposal

Potential proposal
Current status
force
Insurance Guarantee Schemes (IGS)
A task force on IGS was set
Unclear
up by EIOPA in May
2011.325 The Commission
may present a proposal
next year, but the exact
timeline is unclear at the
moment
Unclear
Harmonisation of Securities Law
European Commission
proposal was due in the first
semester of 2011,326 but has
been delayed (presumably
to next year)
Central Securities Depositories
European Commission
Unclear
consultation launched on 13
327
January 2011. A proposal
was due during the
summer,328 but has been
delayed and may be put
forward by the end of the
year329
UCITS V
European Commission
Unclear
proposal expected in early
2012, according to the
FSA330
Insurance Mediation Directive
European Commission still
Unclear
(upgrade)
working on a proposal,
which might be published
next year331
Corporate governance framework
European Commission
Unclear
April 2011, with responses
due by 22 July 2011332
Packaged Retail Investment Products
Part of the new rules on
Unclear
(PRIPs)
disclosure proposed as part
of MIFID II, the rest to be
included in the new draft
Insurance Mediation
Directive. New rules on
distribution to be proposed
in a specific piece of
legislation, maybe next
year333
EU framework on bank resolution
European Commission
Unclear
working on a proposal.
Internal Market
Commissioner Michel
Barnier said on 16
November that he expected
325
See EIOPA website, https://eiopa.europa.eu/about-eiopa/organisation/new-working-groups/taskforces/task-force-on-insurance-guarantee-schemes/index.html.
326
See the European Commissions website, http://ec.europa.eu/internal_market/financialmarkets/securities-law/index_en.htm#timetable.
327
See http://ec.europa.eu/internal_market/consultations/docs/2011/csd/consultation_csd_en.pdf.
328
See European Commission press release, Enhancing safety of European financial markets:
Common rules for Central Securities Depositories (CDSs) and securities settlement, 13 January 2011,
http://europa.eu/rapid/pressReleasesAction.do?reference=IP/11/29&format=HTML&aged=0&language=
EN&guiLanguage=en.
329
See European Commission, Planned Commission initiatives until end of 2011, p6,
http://ec.europa.eu/atwork/programmes/docs/forward_programming_2011.pdf.
330
See http://www.hm-treasury.gov.uk/fin_euintl_dossier_ucits.htm.
331
See European Commission communication, Commission Work Programme 2012 Delivering
European renewal, COM(2011)777, 15 November 2011, p4,
http://ec.europa.eu/atwork/programmes/docs/cwp2012_en.pdf.
332
See the Commissions website, http://ec.europa.eu/internal_market/consultations/2011/corporategovernance-framework_en.htm.
333
See European Commission communication, Commission Work Programme 2012 Delivering
European renewal, COM(2011)777, 15 November 2011, p4.
164
Collective redress
Venture capital
Card, internet and mobile payments
Payment Services Directive (upgrade)
Institutions for Occupational Retirement

Provisions Directive (upgrade)
Financial Activities Tax (FAT)
the proposal to be unveiled

in the coming weeks334
European Commission
February 2011, with
responses due by 30 April
2011335
European Commission
June 2011, with responses
due by 10 August 2011.
The Commission aims to
publish a proposal by the
end of 2011336
European Commission
Green Paper due to be
published on 7 December
2011, with follow-up
measures to be considered
by 2013337
European Commission
could put forward a
proposal for revision by 1
November 2012338
EIOPA launched a second
consultation on 25 October
2011, with responses due
by 2 January 2012.339
Based on EIOPA advice,
the Commission will
consider putting forward a
proposal, presumably by
the end of 2012
European Commission
included FAT in a list of
potential sources of
revenue to fund the EU
budget directly.340 It is
unclear when (and if) the
Commission will put forward
a formal proposal, as the
FTT remains the preferred
option at the moment
334
Unclear
Unclear
Unclear
Unclear
Unclear
Unclear
Quoted by Reuters, EU to unveil bank crisis toolbox in coming weeks - Barnier, 16 November 2011,
http://www.reuters.com/article/2011/11/16/euro-zone-barnier-idUSWEA351120111116.
335
See
http://ec.europa.eu/dgs/health_consumer/dgs_consultations/ca/docs/cr_consultation_paper_en.pdf
336
See
http://ec.europa.eu/internal_market/consultations/docs/2011/venture_capital/consultation_paper_en.pdf,
p17.
337
See
http://ec.europa.eu/governance/impact/planned_ia/docs/2013_markt_005_integrated_european_market
_en.pdf.
338
See the European Commissions Roadmap for 2012,
http://ec.europa.eu/governance/impact/planned_ia/docs/2013_markt_007_psd_en.pdf.
339
See EIOPA website, https://eiopa.europa.eu/en/newsletters/news-alerts/eiopa-launches-secondconsultation-on-draft-response-to-call-for-advice/index.html.
340
European Commission, Financing the EU budget: Report on the operation of the own resources
system, 29 June 2011, p31-32,
http://ec.europa.eu/budget/library/biblio/documents/fin_fwk1420/proposal_council_own_resources__ann
ex_en.pdf.
165
Chapter 8
Environment
The summary
Environmental policy has become one of the most significant and wide-ranging policy areas
of EU legislation. An estimated 80% of UK legislation on environmental affairs emanates
from Brussels, touching on almost all areas of industry and the public sector.
Supporters argue that threats to the environment naturally cut across nation-state borders
and should be tackled on an international scale. Many Europeans and members of the
international community argue that the EU's commitment to environmental protection shows
leadership and encourages other countries to adopt similar measures.
Critics of EU environmental policy question the efficiency of some measures, arguing that the
cost of complying with these regulations leaves European business uncompetitive, especially
in the face of increased economic competition from countries such as China and India, where
environmental standards and legislation fall far behind European requirements. Other critics
point to the EUs involvement in environmental issues that are not trans-national, and could
be dealt with by Member States, for example waste management.
The EU Regulation on chemicals and their safe use (REACH) is another such example.
Whilst the social and environmental benefits of regulating dangerous substances are selfevident, REACH has acted as a blunt and disproportionate device which has unleashed a
stream of costs, both intended and increasingly unintended:
The command and control approach to substitution of substances has, in some

instances, been judged to be dangerous where suitable replacements have not been
found
The obligation to publish toxicity data has forced some companies to reveal confidential
information on R&D methods which has given non-EU companies a competitive
advantage
Compliance costs have filtered to downstream users, not just in the chemicals but
across virtually all manufacturing industries, especially SMEs.
The Emissions Trading Scheme (ETS) is a third example. This aims to encourage
companies to invest in low-polluting technologies by requiring EU companies to buy licences
for their emissions above a certain quota. Non-EU polluters have no such schemes which
can put their companies at a competitive advantage.
o
The EUs plan to unilaterally extend the ETS to the aviation industry has lined the EU up
against the US, Canada and the BRIC countries. And while projected costs will vary from
operator to operator, EU airlines are expected to foot the largest bill, and these costs will
inevitably be passed on to the consumer.
On carbon reduction and renewables, the EU has three agreements, which contain the
conflicting priorities of emissions reduction on the one hand and prescriptive, technology
specific targets for the energy mix of Member States on the other.
At the March 2007 European Council summit, EU leaders committed to a set of legallybinding targets to reduce the EUs greenhouse-gas emissions by 20% by 2020 compared to
1990 levels. This also included provision for an EU Renewable Energy Directive, which
requires 20% of the EUs total energy consumption to come from renewable sources by
2020. Furthermore, Member States agreed to introduce a binding target that renewable
fuelsthe majority of which, in practice, will be biofuelsshould constitute at least 10% of
their transport fuel needs by 2020.
o
In the UK, the Renewable Energy Directive requires 15% of energy consumption to be
from renewable sources by 2020. The UK was starting from a rather low base, with
renewables constituting only 1.5% of its energy mix in 2005. To achieve this ambitious
169
target, the last Government developed a national renewable action plan, which placed
investment in energy sourced from onshore wind at the forefront of the UKs strategy.
o
These targets are due to expire in 2020, and the UK Government has stated that it now
envisages multiple low-carbon technologies: renewables, nuclear and carbon capture
and storage, all competing freely against each other in the years to comeFor this
reason, we cannot support a 2030 renewables target.
Such a shift in position could be a game-changer in the move towards low-carbon

economies across the EU. The failure to demonstrate adequate returns on vast public
investments have led to governments in Italy and Germany slashing subsidies for solar
companies, while in Spain, one of the first acts of the new centre-right government was
to axe subsidies for wind and solar power.
As part of a broader energy mix, gas in general, and shale gas in particular, could also
play a major role as a transitional low-carbon fuel, consistent with Britains emission
reduction objectives. The UK Government is supportive of shale gas production, but is
cautious regarding concerns over its extraction process, and is eager to establish a
strong national regulatory framework.
In order to reduce the bureaucratic burden of environmental legislation, and help curb carbon
leakage, the UK could take a more holistic, coordinated approach towards developing a less
prescriptive, more business-friendly, regulatory framework that provides consumers and taxpayers with value for money. The UK could develop a much more active negotiating position
within the Commission and other EU institutions; particularly in the context of our next EU
Presidency term in 2017.
The UK could renegotiate our compliance with the European Chemicals Agency (ECHA)
regime ahead of this year's review of the REACH framework.
The UK could work within current structures to present alternative proposals for the scope
and ambition of the EU ETS fourth trading period (set to begin in 2020).
The EU's renewables targets will expire in 2020, and this offers a window of opportunity for
the UK Government. Negotiations on future targets are due to begin, and the UK could
announce that whilst continuing to respect its current commitments, it would refuse to abide
by any future renewables targets post-2020. This would then permit the UK to concentrate on
developing its own approach to building a low-carbon economy, concentrating further
resources on nuclear, gas and carbon capture and storage.
The UK could negotiate fundamental reform of the REACH regime, or an opt-out for the UK,
as part of wider renegotiation of its relationship with the EU.
On EU ETS, the UK could negotiate through appropriate international bodies, such as
through the International Civil Aviation Organization (ICAO) in the case of aviation, in order to
obtain a global agreement, and ensure a level playing field.
The UK could unilaterally refuse future compliance with existing provisions on REACH, 2020
renewables targets, and/or the EU ETS.
170
The introduction
Although there was no mention of it in the Treaty of Rome, environmental policy has become
one of the most significant and wide-ranging policy areas of EU legislation. The pace of
regulatory activity on environmental matters has accelerated over the last four decades,
particularly since 2006 with the completion of major legislation on chemicals regulation,
directives on waste and hazardous substances, and a raft of measures addressing air
pollution. The energy and climate change package, unveiled by the Commission in 2008
with much pomp and fervour, includes regulations and directives on emissions and
sustainable energy that will and in many cases does already have a major influence on
the way Member States power their buildings, electricity grids and transport networks.
Today, an estimated 80% of UK legislation on environmental affairs emanates from
Brussels, touching on almost all areas of industry and the public sector.
In this paper we have deliberately not challenged the science of anthropomorphic climate
change, preferring to focus on the tools used to reduce carbon emissions. The current EU
energy and climate change package contains two principal elements: carbon reduction
targets which set legally-binding targets to reduce the EUs greenhouse-gas emissions by
20% by 2020 compared to 1990 levels; and renewables targets which requires 20% of the
EUs total energy consumption to come from renewable sources by 2020. These have
presented conflicting priorities in implementation, with renewable energy sources being
prioritised over other methods of carbon reduction, which may be more cost-effective.
Furthermore, analysis indicates that, in order to reduce carbon emissions by sufficient
amounts to reduce the estimated increase in global temperatures by 0.1 degree Celsius
would cost the equivalent of global GDP under current policies.
The detail
A brief history of European environmental policy
Environment Action Programme: The European Economic Community adopted its first
environmental directive on the classification, packaging and labelling of dangerous
substances in 1967. However, the advent of European environmental policy is widely
understood to have started with the introduction of the Environmental Action Programme
(EAP) in 1973, the first six-year plan in what would become a series of seven successive
EAPs (the latest of which is currently under negotiation) that act as a framework for overall
European efforts on the environment.
1973 also saw the European Parliament establish an Environment Committee. Momentum in
European environmental policy was maintained with the establishment of both the European
Commission's Directorate-General for Environment, Nuclear Safety and Civil Protection, in
1981, and with the 1985 Vienna Convention for the protection of the ozone layer, signed by
the Community on behalf of the EU Member States.
The Single European Act (SEA) of 1986 launched a more prominent role for environmental
protection in EU policy-making, introducing the idea of environmental mainstreaming in all
new Community legislation. In addition, the SEA extended the competences of the Union to
single market legislation, and the European Parliaments Environment Committee took on
responsibility under co-operation procedure for a series of legislative proposals on consumer
protection and food safety. Under the 1993 Maastricht Treaty, many of these responsibilities
fell under co-decision; in 1999 this was extended to most areas of environmental, food
safety and public health with the entering into force of the Amsterdam Treaty.
171
Air pollution: Reducing air pollution became increasingly important with the acid rain scares
of the late 1980s, and amid concerns over ozone depletion; the Community was swift in
ratifying the 1988 Montreal Protocol, which committed signatories to a 50% reduction in
chlorofluorocarbon gases (CFCs) by 2000. Air quality legislation has developed along
several parallel tracks since 1980, with the approval of the first Council directive on air
quality limit values341. In addition to setting air quality objectives, the EU has also undertaken
action to reduce pollutant emissions. This has led primarily to directives on, among others,
fuel quality standards, automotive emission standards, and pollution from industrial plants.
REACH: Now considered as landmark legislation, in 2003 a proposal was put forward for a
Regulation on REACH, or Registration, Evaluation, Authorisation and Restriction of
Chemicals. Replacing various European directives and regulations with a common system,
its principal objective was to introduce a single and coherent regulatory framework for both
new and existing chemical substances. In 2006, REACH was adopted, and came into
force in April 2007.
Climate change: The EU has also played a role in global environmental negotiations, most
notably the signing of the Kyoto Protocol under which the EU committed its members to
reducing greenhouse gas emissions by 8% by 2012, compared to levels in 1990. In order to
structure Member States commitments to limit or reduce greenhouse gas emissions, the EU
Emissions Trading System (ETS) was launched in early 2005. The EU ETS is a cap-andtrade system, which means that it caps the overall level of emissions but within that limit
allows participants in the system to trade emissions allowances as they require. These
allowances are the common trading currency at the heart of the system. One allowance
gives the holder the right to emit one tonne of CO2.
In 2009, the Parliament and Council adopted an Energy and Climate Change package,
comprising measures and directives aimed at mitigating the effects of anthropogenic climate
change through emissions reductions, renewables and energy efficiency. The package
includes the EU Renewable Energy Directive which mandates renewable energy use, and
sets out the Commissions 20:20:20 strategic objectives for the remainder of the decade:
20% of energy to come from renewable sources and the commitment to reduce greenhouse
gas emissions by 20% by 2020.
Criticism
Critics of EU environmental policy question the efficiency of some measures, arguing that
the cost of complying with these regulations leaves European business uncompetitive,
especially in the face of increased economic competition from countries such as China and
India, where environmental standards and legislation fall far behind European requirements.
Is environmental legislation at the EU level necessary, or has current legislation gone
beyond its original purpose and intent?
Threats to the environment are global and should be tackled on an international scale. The
EU plays an important role in setting this agenda, and many Europeans and members of the
international community argue that the EU's commitment to environmental protection shows
leadership and encourages other countries to adopt similar measures.
However, critics point to the costs of complying with much of the legislation, and how these
costs are often passed on to consumers and undermine competitiveness. For example the
Industrial Emissions Directive (IED), which is examined in more detail later in this chapter,
forces large combustion plants with a thermal output of 50MW to adhere to unworkable and
341
http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=CELEX:31980L0779:EN:HTML.
172
impractical emission limit values that will reduce the operating time of many industrial
installations to a mere two years (17,500 hours) between 2016 and 2023.
Today, the debate on climate change seems to cloud all environmental debate; but
environmental policy should be much more than just climate change policy. Many questions
still remain over the causes of climate change and its potential future effects. Moreover, if we
are to assume that climate change is man-made, are EU efforts alone enough to force a
change? Surely a global approach should be sought, instead of the EU taking unilateral
action that mostly serves to export industry and its emissions out of the EU, but with
negligible impact on the global level.
To address these questions further, the following pages assess some of the key issues
raised by EU environmental legislation, namely through the REACH regulatory framework
for chemicals, the EU Emission Trading Scheme, and moves towards a low carbon and
diversified energy mix in the context of the energy and climate change package.
The case of REACH - towards a pan-EU regime for chemicals
REACH is the EU Regulation on chemicals and their safe use, dealing with the Registration,
Evaluation, Authorisation and Restriction of Chemical substances. The regulation entered
into force in the UK on 1 June 2007. In the view of the European Commission, the aim of
REACH is to improve the protection of human health and the environment through the
better and earlier identification of the intrinsic properties of chemical substances whilst
simultaneously enhancing the innovation and competitiveness of the EU chemicals
industry. The chemicals industry is the third largest manufacturing industry in the EU,
generating 1.7 million jobs and indirect employment for more than 3 million people. In total,
the EU produces 31% of the world's chemicals, with the UK holding the largest European
share of this industry. By means of comparison, the US produces 28% of the worlds
chemicals.342
Prior to REACHs implementation, a body of EC Directives and Regulations on chemical
substances were developed during the 1970s and 1980s. A marked difference to the
current framework was the different rules for existing and new chemicals. This
distinction, introduced under regulation (EC) 793/93, was based on a cut-off date of 1981 all chemicals that were reported as being on the European Community market between 1
January 1971 and 18 September 1981 were called "existing" chemicals. New chemicals
had to be tested before they were placed on the market, whereas there was no such
provision for "existing" chemicals. Under the previous system, the burden was on the
authorities to prove that a substance posed a threat before it could be withdrawn.
Regime post-REACH
REACH removed the distinction between "new" and "existing" chemicals, and imposed a
reversal of the burden of proof on industry, which has had to collect sufficient data in order to
demonstrate the safe use of the particular chemical before it can be placed on the EU
market. Under the uniform system, both "existing" and "new" chemicals are examined for
health and safety over an 11-year period, beginning in 2007. This data is publicly available
via a central database held at the specially established European Chemicals Agency
(ECHA) in Helsinki. The ECHA is responsible for authorising or rejecting applications from
manufacturers, and failure to register means that a substance cannot be manufactured or
imported into the EU. Moreover, REACH prescribes pan-European rules for the phasing out
and substitution of dangerous chemicals.
342
Information from European Commissions website:

http://ec.europa.eu/environment/chemicals/index.htm.
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Highly hazardous substances are divided into three categories: CMRs (carcinogenic,
mutagenic or toxic to reproduction), PBTs (persistent, bio-accumulative and toxic), vPvBs
(very persistent and very bio-accumulative) and other substances "of equivalent concern".
Under the terms of REACH, PBTs and vPvBs are to be replaced whenever safer alternatives
are available at an 'acceptable socio-economic cost'. This means that the health and
environmental benefits of withdrawing the substance must outweigh those of keeping it on
the market. For carcinogens and mutagenic chemicals (CMRs), producers must show that
the risk they pose can be "adequately controlled". If a safer alternative exists, they will need
to submit a substitution plan so that they are eventually replaced, or if not readily available,
companies will need to produce an R&D plan for substitution at a later stage.
The regulation is due for review in the coming months, but major changes to REACH are
considered unlikely. As a Commission official recently revealed,343 the forthcoming review is
more likely to focus on better implementation of the existing rules rather than a major
overhaul of the legislation, which was fiercely negotiated between Council and Parliament
after years of lobbying battles by industry and NGOs. However, it is believed there will be
scope for reviewing the costs and administrative burdens which REACH has imposed on the
industry, in addition to its adverse impacts on innovation in this field.
Problems with REACH
First and foremost, REACHs framework attempts to set up a command and control
approach to substitution of substances judged to be dangerous. The illusion that in the case
of a substance withdrawn from the market, that a safer substitute will automatically appear,
has proven to be just that an illusion. Companies using chemicals subject to the REACH
regime in the manufacture of consumer goods have found that REACH has disrupted their
supply chains. Post-REACH, many companies have faced extremely onerous tasks to find
equally reliable and high-quality new suppliers, to the extent that in one instance, the
European Aerospace Defence and Security industry declared in 2010 that their supply chain
had completely dried up.
With regard to innovation, REACH imposes the obligation on European firms to publish a
large part of their toxicity data. Hailed by environmental NGOs, this requirement has in
reality forced some companies to reveal confidential data, which reveals their R&D methods.
The obvious consequence has been that non-European rivals have been placed at a
competitive advantage, as they have been permitted a free insight into their European rivals
innovation strategies.
Another major concern regards so-called downstream users- REACHs costs have fallen
not just on the chemicals industry but also across virtually all manufacturing industries,
especially small-to-medium firms which represent 96% of all the EUs chemical concerns. In
the view of UEAPME, the pan-EU group representing SMEs, these smaller businesses
simply cannot cope with hundreds of pages of paperwork in order to complete the obligatory
registration dossiers. In some cases, firms have been forced to invest thousands of pounds
in IT systems and consultancies in order to examine substances so as to provide ECHA with
accurate data.
REACH furthermore falls victim to the law of unintended consequences in the view of
many, while designed to protect consumers from exposure to hazardous chemicals, the vast
bureaucracy entailed in the REACH regime also extends to metals such as Cobalt which
hardly comes into contact with consumers at all. As a recent report by the House of
343
http://www.euractiv.com/climate-environment/chemicals-policy-review-reach-linksdossier-188209.
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Commons Science and Technology committee states, policymakers should adopt different
approaches to substances that arent dangerous and those that are known to be harmful to
human health, stressing the need for a more flexible and less bureaucratic regime.
Ultimately, all these factors have created a legacy of what have been described as de facto
import tariffs which are depressing this vital European industry at a time of grave economic
uncertainty. REACH requires European firms not only to submit highly prescriptive dossiers
on each substance but also to pay registration fees to ECHA, which, according to the UK
government, can cost up to 30,000, not including the sums invested in producing the
dossier in the first instance. REACH adds effective tariffs therefore to every strategically
important metal produced or imported into the EU in quantities of over one tonne per year,
heightening trade barriers and depressing economic growth and competitiveness.
In summary, whilst the social and environmental benefits of regulating dangerous
substances are self-evident, the EUs weapon of choice has acted as a particularly blunt and
disproportionate device which has unleashed a stream of costs, both intended and
increasingly unintended. Emerging economies such as China and the rest of the AsiaPacific region have attracted three times as much chemicals industry-related investment as
in the EU and the USA in 2010. Once again, the dangers of EU unilateral action are clear,
as the single market risks de-industrialisation unless the REACH regime can be overhauled.
With environmental groups actively campaigning for an even more restrictive regime, the
time has never been more pertinent to clarify the real bureaucratic and financial costs of
REACH to business and consumers.
The case of the ETS the cost of EU unilateralism in aviation
The EUs Emissions Trading Scheme (ETS) is the worlds largest carbon market, with a
turnover of over 90 billion in 2010. It aims to encourage companies to invest in lowpolluting technologies by allocating or selling them allowances to cover their annual
emissions. Companies also have the right to sell unused allowances or to hold them in
reserve. This cap and trade approach requires EU companies to obtain licences for their
emissions, which exceed their allocated quotas, but other great international polluters such
as China and the USA have not accepted it. Whilst the Obama administration proposed a
similar emissions exchange programme as part of its early environmental agenda, this has
been subsequently shelved in the teeth of bitter opposition from Congress.
From 1 January 2012, the EU has sought to extend the ETS application to the aviation
industry. Whilst the original Directive was enacted in 2008, the EU waited three years to
implement the provisions on aviation, whilst it engaged with talks at the international level
with other International Civil Aviation Organisation (ICAO) member countries. Once it
became clear that consensus on aviation emissions was not possible, the EU chose the
unilateralist path. Increasingly isolated internationally over cap and trade, such a further
unilateral demarche has provoked an enormous backlash against the EU, with China,
Russia, Brazil, India, Canada and others lining up with the US against the EUs push for
further unilateralist action which severely impacts the rest of the worlds aviation.
The EU is seeking to force airline operators on flights to and from the EU to surrender their
emission allowances for emissions released during these flights. In the example of a flight
from San Francisco to London, the EUs plans would count 100% of the emissions released,
even though the aircraft would spent a tenth of its time in EU airspace. The Air Transport
Association of America has already tried to challenge this move at the European Court of
Justice (ECJ) in Luxembourg, but its core argument that such a unilateral and extraterritorial
attempt to impose the EUs climate change policies on others violated a number of
international treaties and principles of customary international law, was dismissed by the
Court.
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The projected costs for airlines will vary from operator to operator, but European companies
are expected to foot the largest bill, estimated at around $4.5bn a year. The cost to U.S.
carriers is forecasted to reach $2bn a year by 2020, based on the European Commissions
own figures. Naturally, such costs will be passed onto consumers, with passengers ticket
prices set to rise between 10-60, depending on the length of the flight.
As outlined, this ETS extension has set the EU in conflict not just with the US and the
developed world but also with a vast swathe of developing countries. China, India and
Russia have threatened not to let the matter rest, and despite the US failed challenge to the
ECJ, further legal challenges are anticipated, possibly triggering some form of trade war
which the UKs British Air Transport Association described as being in no ones interests.
Recognising the severity of the situation, CEOs from Europes top airlines came together on
the 24 May 2012 to angrily dismiss the ETS as crazy at a time when economic growth is
stagnant, with Willie Walsh, CEO for the International Airlines Group calling on the European
Commission to move quickly to defuse tensions and reverse the EUs arrogant approach.
In response, the EU has threatened sanctions against airlines that fail to comply with the
ETS by mid-June, while in its sole olive branch offering, it has promised to amend the ETS
legislation if a global deal can be agreed in ICAO talks, scheduled for June 2012.
The case of the current EU energy mix and the need for reform
At the March 2007 European Council summit, EU leaders committed to a set of legallybinding targets to reduce the EUs greenhouse-gas emissions by 20% by 2020 compared to
1990 levels. The EU has also pledged to raise this target to 30% if other major polluters
make comparable unilateral commitments. This included provision for an EU Renewable
Energy Directive, which was signed in December 2008 and which provides for an increase
of the share of renewable energies to 20% of the EUs total energy consumption by 2020.
Furthermore, the UK and the 26 other Member States agreed to introduce a binding target
that renewable fuelsthe majority of which, in practice, will be biofuelsshould constitute at
least 10% of their transport fuel needs by 2020.
In order to track progress towards reaching these goals, each Member State agreed to
produce national action plans in the fields of electricity, heating and cooling, and transport to
the European Commission, with progress reports on the plans implementation to follow
every two years. The Commission reserves the right to bring forward infringement
proceedings to the ECJ against Member States in cases where Member States do not take
appropriate action towards achievement of the binding targets. The loose wording is rather
revealing, demonstrating that the decision to take legal action is at the discretion of the
Commission, given the absence of strict criteria, which could form such a judgment to force
Member States before the Court.
The Renewable Energy Directive obliges the UK to achieve 15% of its energy consumption
from renewables by 2020. The UK was starting from a rather low base, with renewables
constituting only 1.5% of its energy mix in 2005. To achieve this ambitious target, the last
Government developed a national renewable action plan, which placed investment in energy
sourced from onshore wind at the forefront of the UKs strategy.
These targets are due to expire in 2020, and attention in Brussels has already turned
towards what provisions will be made for the coming decade. The UK Government has
taken advantage of this vacuum to press for nuclear power, carbon capture and storage
(CCS) to be given parity with renewables in the EU. In a leaked policy paper, the UK
government stated its position as follows:
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The UK envisages multiple low-carbon technologies: renewables, nuclear and carbon

capture and storage, all competing freely against each other in the years to comeFor this
reason, we cannot support a 2030 renewables target.
Such a shift in position opens up the potential for a game-changer in the move towards lowcarbon economies across the EU. This is all the more so as it comes at a crucial time when
the renewables industry has suffered a series of blows over the past number of years,
largely due to the impact of the sovereign debt crisis across Europe, as governments seek to
reduce their overheads. The failure to demonstrate adequate returns on vast public
investments have led to governments in Italy and Germany slashing vital subsidies for solar
companies, while in Spain, one of the first acts of the new centre-right government was to
axe subsidies for wind and solar power.
In terms of Europes future energy mix, this could have far-reaching repercussions.
Governments such as the UK are already putting forward proposals to move towards
outcome targets such as a new goal on carbon reduction, which embrace all low-carbon
technologies, rather than just setting a new target for renewables. Europes major business
lobby, BusinessEurope believes that a renewed focus on nuclear energy could stimulate
growth and competitiveness through lower electricity prices.
It is not just economic competitiveness that is affected by higher energy prices caused by
the implementation of the Renewable Energy Directive. A recent research paper by Policy
Exchange estimated the full cost of UK subsidies for renewable energy at 400 per average
household. Department of Energy and Climate Change figures suggest that, in 2009, 40,000
- 50,000 households were pushed into fuel poverty because of the "wind element" of
renewables.
This concentration on renewables ignores the fact that beyond the concerns raised by the
construction of vast onshore wind farms which scar the landscape, nuclear energy will
remain the most cost-effective of the low-carbon technologies currently on offer. This view
was confirmed by the Committee on Climate Change, the statutory body set up to advise the
Government on climate change policy. According to its recent findings, applying a 10%
discount rate, nuclear power should cost between 5-10p/kWh to produce, even after taking
into account the costs of decommissioning and waste disposal. Onshore wind, on the other
hand will cost a minimum of 7p/kWh, even allowing for a best-case scenario. Consider that
France was able to add 48GW of nuclear capacity - half the UK's entire electricity capacity in less than 10 years, and it would seem that the UK is in danger of neglecting a viable and
affordable way to tackle climate change whilst reducing the pain for households and
business.
In summary, in order to tackle the risk of increased fuel poverty, while simultaneously
tackling the challenge of building a low-carbon economy for the 21st Century, the UK should
explore any possible short-term scope for re-negotiation of the 2020 renewable energy
targets. If such moves prove unfruitful, the key battle will centre on what targets will be set
post-2020. EU policy should focus on overall emissions and embrace all low-carbon
technologies, rather than picking winners. Whilst the business case for government support
for learning and innovation in a range of promising low carbon energy technologies is clear,
the need to meet the EU2020 renewable targets constitutes a burdensome and most
unnecessarily expensive policy.
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The case studyShale Gas

As part of a broader energy mix, gas in general, and shale gas in particular, could also play
a major role as a transitional low-carbon fuel, consistent with Britains reduction objectives.
The UK Government is supportive of shale gas production, amid concerns over its extraction
process, and is eager to establish a strong national regulatory framework.
Shale Gas: An Introduction
Shale gas is the natural gas trapped within shale rock formation, most commonly extracted
by hydraulic fracturing, known as fracking. Estimates indicate that using shale gas in
electricity generation produces between one third and one half the carbon emission of
coal,344 making it an attractive solution to the EUs 2020 emission reduction goals. It has the
advantage over popular renewable resources like wind in that it can produce a baseload
supply of energy, whereas wind farms will only generate if conditions are suitable.
Additionally, the often unsightly structures used for hydraulic fracturing are more temporary
than wind farms, making fracking often more popular locally than wind.
Nonetheless, shale gas is not a perfect solution. Many take issue with perceived
environmental consequences of the fracking process, including possible earth tremors and
potential harm to the water supply. Most of these complaints are disputed, and supporters
argue that shale gas is among the most cost-effective and the least invasive plans for
alternative energy for the UK, especially given that shale gas has already been found onand offshore in the UK.
Shale in the UK
Cuadrilla Resources, a UK based energy company, began testing the Lancashire area for
shale reserves in 2010. Due to minor earth tremors less powerful than those caused by city
traffic, their tests were paused indefinitely. However, by that point, they had already found
over 200 TCF (trillion cubic feet) of shale gas on site in Lancashire, and preliminary tests
indicated that it would have commercial potential. According to conservative estimates, this
quantity could correspond to the entire supply of gas used in the United Kingdom for several
years. A domestic shale supply in the UK would be likely to cut costs, reduce emissions, and
create jobs.
Whats hindering UK fracking?
Despite significant evidence about the existence and the possible benefits of fracking in the
UK, several factors have hindered this alternative energy project from progressing. The first
is a moratorium on fracking in the UK passed in autumn 2011, effective until more
information on environmental and health risks is assessed. A round of bidding for onshore
exploration licenses has been delayed. Twenty-seven rounds of bidding for offshore licenses
and thirteen for onshore licenses have already taken place, but an effective freeze on this
fourteenth onshore license is preventing any progress in UK shale from taking place.
Shale in the US
The United States has seen increased focus in research and production of shale gas in the
last five years. An early release edition of the Annual Energy Outlook 2012 report produced
344
Burnham, Andrew, et al. Life-Cycle Greenhouse Gas Emissions of Shale Gas, Natural Gas, Coal and
Petroleum Environmental Science and Technology. 2012, Vol. 46, (2).
http://pubs.acs.org/doi/abs/10.1021/es201942m?prevSearch=Lifecycle%2Bemissions%2Bshale%2Bgas&searchHistoryKey=#citing.
178
by the US Energy Information Administration (EIA) estimates that as of January 2010, the
US possessed roughly 2,214 TCF in shale gas reserves.345 Over the past five years, the
US, which did not sign the Kyoto protocol and does not have binding carbon reduction
targets, has cut carbon dioxide emissions by 450m tonnes, a feat the chief economist at the
International Energy Agency accredits to this shale boom.346
From an economic standpoint, the impact of the shale boom has also been visible. In
January 2012, the Financial Times reported that US natural gas prices were the lowest they
had been in a decade, down 85% since 2005 to a low of $2.32 per million BTU.347 And
according to research from Pennsylvania State University, the Marcellus Shale reserves in
Pennsylvania have already contributed to massive surges in local employment and relief to
the government deficit.348
Yet despite this success, it remains unclear how likely the United States is to export its shale
in liquid form to other countries. A report produced by the Brookings Institution, a
Washington, DC-based public policy think tank, offers a thorough analysis of some of the
factors hindering the US from engaging in significant LNG (liquid natural gas) exports,
despite numerous offers. As this report notes, factors including the logistical transport
difficulties associated with facilitating such an export market, the effect of exporting on
domestic prices, and the demand for LNG both at home and abroad make the US next step
unclear.349
Shale in the EU
While several Member States, including France, oppose fracking on environmental grounds,
countries like Poland that were preliminarily shown to be rich in shale, support fracking as a
means to decreased dependence on imported energy resources from Russia. Exxon
recently pulled out of its major shale venture in Poland, in light of further research
suggesting projections of shale reserves in Poland might have been overestimated by a
factor of ten. The long-term impact of this initial setback remains to be seen, and it is still
unclear how viable an option for alternative energy in Europe shale really is.
Critics will note that shale gas does not contribute to fulfilling the renewables directive
outlined in the European Commissions Europe 2020 climate change target. Although shale
gas will clearly contribute to carbon emission reductions, it is not a renewable energy
source. Nonetheless, an energy source that could reduce energy costs, contribute to lower
carbon emissions, and improve UK energy security deserves further exploration.
345
What Is Shale Gas and Why Is It Important? Energy In Brief. U.S. Energy Information Administration. 11
Apr 2012. http://205.254.135.7/energy_in_brief/about_shale_gas.cfm.
346
Chazan, Guy. Shale Gas Boom Helps Slash US Emissions. Financial Times. 23 May 2012
http://www.ft.com/cms/s/0/3aa19200-a4eb-11e1-b421-00144feabdc0.html#axzz1yR6Stfa7.
347
Meyer, Gregory and Guy Chazan. US natural gas prices fall to decade low. Financial Times. 19 Jan 2012
http://www.ft.com/cms/s/0/1199fc56-426e-11e1-97b1-00144feab49a.html#axzz1yR6Stfa7.
348
Considine, Timothy, et al. The Pennsylvania Marcellus NaturalGas Industry: Status, Economic Impacts, and
Future Potential. 20 July 2011 http://marcelluscoalition.org/wp-content/uploads/2011/07/Final-2011-PAMarcellus-Economic-Impacts.pdf.
349
Ebinger, Charles, et al. Evaluating the Prospects for Increased Exports of Liquefied Natural Gas from the
United States: An Interim Report. Prod. By Energy Security Initiative at Brookings Institution. January 2012.
http://www.brookings.edu/~/media/research/files/papers/2012/1/natural%20gas%20ebinger/natural_gas_ebinger
_2.pdf.
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The Industrial Emissions Directive / Large Combustion Plant Directive

The Industrial Emissions Directive incorporated the EUs 2001 Large Combustion Plant
Directive (LCPD). The LCPD is designed to reduce the amount of sulphur dioxide, nitrogen
oxides and dust emitted from large conventional power stations. Existing plants had the
choice to either comply with the new targets by installing new technology to remove
emissions or remain open for a limited period only. In the UK, 11GW of capacity opted out of
the Directive and will consequently have to close in 2015.
The short timeframe for the retirement of this capacity could have a serious impact on the
UKs ability to cope with peak demand, when taken together with the slow pace of building
new generation capacity, and the fact that it is impossible to rely on just renewables, such as
wind, for peak demand, due to intermittency.
The UK currently has around 97 GW of generation capacity covering an estimated peak
demand of 57.1 GW. However, of this only 64.1 GW of generation capacity is base load or
reliable for peak periods, this currently gives the UK a spare peak time capacity of 13%.
However, as a result of the removal of large plants from production the base load is
predicted to fall to 46.8 GW. Unless measures are taken, this could leave the UK with very
little or no peak time generation cover, potentially leading to blackouts.

Environmental legislation cannot work completely independently, and can require a

transnational approach; it is also inextricably linked to a number of other policy areas such
as energy, trade, competition, consumer protection, transport and scientific research, and
therefore has a considerable impact on the EU single market. Therefore, in order to reduce
the bureaucratic burden of environmental legislation, and help curb carbon leakage, the UK
could take a more holistic, coordinated approach towards developing a less prescriptive,
more business-friendly, regulatory framework that provides consumers and tax-payers with
value for money. The UK could develop a much more active negotiating position within all
relevant Commission DGs and bodies of the European institutions; particularly in the context
of our next EU Presidency term in 2017.
The UK could renegotiate our compliance with the ECHA regime ahead of this year's review
of the REACH framework.
The UK could present alternative proposals for the scope and ambition of the EU ETS fourth
trading period (set to begin in 2020).
Similarly, the UK could also take hard-line positions on any successor agreement on
renewables after the existing 2020 targets expire. Negotiations on the Commission's Third
Strategic Energy Review, expected in the next two years, will provide a good opportunity for
the UK to set out its strategic goals, and press the case for investment in a pragmatic
diversified energy portfolio that includes low carbon energy sources such as nuclear and
180
shale gas, instead of focusing almost entirely on costly renewables targets.

The UK could announce that whilst continuing to respect its current commitments, it would
refuse to abide by any future renewables targets post-2020. This would then permit the UK
to concentrate on developing its own approach to building a low-carbon economy,
concentrating further resources on nuclear, gas and CCS.
Hypothetically, if the European Commission was also to introduce legislative proposals on
shale gas which would greatly restrict its future development, the UK Government in the
Council could seek to build allies such as Poland who would seek to block such moves.
The UK could negotiate a derogation from the Industrial Emissions Directive / Large
Combustion Plant Directive.
Moreover, the review of the REACH framework, due to begin later this year, would further
provide a negotiating opportunity for the UK. The remit of the review beginning this year, is
aimed at ironing out the current problems with the current regime, rather than replacing it
altogether. The scope for UK repatriation from REACH is rather narrow, and would require
being part of a much wider package of reform of other areas of the UK's relationship with the
EU.
On EU ETS, the solution lies more realistically in negotiation through appropriate
international discussions, such as through the ICAO in the case of aviation, in order to obtain
a global agreement, rather than demanding repatriation.
It is possible that the UK's ambitions to radically alter the existing policy at European level
would be thwarted under the existing EU procedures and commitments to which the UK is
legally bound. If, however, the UK is determined to take unilateral action and withdraw
either partially or entirely from the EU's environmental acquis, there would be various
consequences.
This scenario could arise in a number of circumstances. For instance, the UK could
unilaterally announce its intention to refuse future compliance with existing provisions on
2020 Renewables targets, REACH or the EU ETS. This would lead to the UK being in clear
breach of its existing legally binding commitments. Moreover, if the UK, as a large and
powerful Member State, unilaterally announced its refusal to comply with EU environmental
legislation, and did not receive appropriate sanction, other smaller Member States could
possibly be emboldened to no longer feel obliged to respect other EU Treaty obligations,
possibly in areas linked to the Single Market.
Such a move would however surely prompt swift reaction from the Commission which would
pursue and almost certainly succeed in bringing infringement proceedings against the UK to
the European Court of Justice, leading to heavy financial penalties and an order to
implement and abide by existing Treaty obligations.
If the UK was unable to negotiate an opt-out from the Industrial Emissions Directive / Large
Combustion Plant Directive, and implementation threatened the UK energy supply, the UK
could simply ignore it and allow the affected power stations to go on producing. This would
involve breaking treaty commitments and may result in sanctions from other countries.
However, if the choice was between implementing the Directive, and the lights going out,
Government would face little choice.
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Chapter 9
Policing and Criminal Justice
The summary
The Lisbon Treaty, which entered force in December 2009, radically increased EU control over
policing and criminal law.
EU laws in this area are now typically decided by qualified majority voting rather than unanimity in
the Council of the EU, and the European Parliaments agreement to proposals must now usually
be obtained.
EU policing and criminal justice laws adopted since the Lisbon Treaty took effect also come under
the full jurisdiction of the EUs Court of Justice (ECJ). This means that the ECJ can issue binding
rulings in cases brought against a Member State by the European Commission, for what the
Commission alleges to be that Member States failure to abide by one of these laws. It also means
the ECJ can rule on questions about the interpretation of these laws submitted to it by British
courts rulings that will be applied by UK judges.
The UK can choose whether or not it becomes bound by individual EU policing and criminal justice
laws proposed now the Lisbon Treaty is in force. If it chooses to participate, the UK cannot opt out
of the relevant law again. Up to the end of May 2012, the UK has chosen to become bound by 20
post-Lisbon EU laws in this area.
The EU treaties allow the UK to opt out of EU policing and criminal justice laws adopted before the
Lisbon Treaty entered force, if the UK gives notification before June 2014 of its wish to do this. This
opt out would be effective from December 2014. This is sometimes called the block opt out, as the
UK would be opting out of all of these laws en masse.
Around 130 EU laws currently fall under the block opt out. The Government has promised to give
Parliament a vote on whether the UK should exercise this opt out, before a final decision is taken
by ministers. The Government is currently considering whether, in its opinion, invoking the block
opt out would serve the national interest.
If the UK does not invoke the block opt out, under the EU treaties it will become bound irreversibly
by these pre-Lisbon EU laws, which will come under the full jurisdiction of the ECJ from December
2014.
If the UK does invoke the block opt out, it will be entitled to apply to re-join individual EU laws
affected. The EU institutions would decide on the UKs application, and may set conditions before
the UK is allowed to re-join. If the UK became bound by EU laws again through this process, it
would not be able to opt out of them again and they would come under the full jurisdiction of the
ECJ.
Many provisions of EU laws under the block opt out regulate the internal criminal law of Member
States, rather than establishing cross-border co-operation between EU countries. Other legislation
under this opt out does create cross-border co-operation between EU states, such as the
European Arrest Warrant (EAW). Use of the EAW to extradite people for trivial offences, and its
requirement in many cases that people be extradited for acts that are not criminal offences in their
home country, has caused major concern. The laws setting up Europol and Eurojust, the EUs
policing and criminal justice bodies, are also currently covered by the block opt out.
If a law covered by the block opt out is amended now the Lisbon Treaty is in force, and the UK
chooses to participate in the new amending law, the pre-Lisbon law no longer falls under the block
opt out. Up to the end of May 2012, the UK has decided to participate in seven post-Lisbon laws
that take pre-Lisbon laws out of the block opt out.
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Do not invoke the block opt out, and lead reform of EU laws it covers. The UK would become
bound irreversibly by a large number of EU laws, which would from that point on be controlled and
developed much more readily by the European Commission and the ECJ. However, the UK would
continue to enjoy the benefits of these laws without having to negotiate replacement cross-border
arrangements or its re-entry to desirable EU legislation. The UK could lead a quarter of Member
States to propose changes to laws such as the EAW, though how much reform is likely to be
agreed through the EU legislative process is not clear.
Invoke the block opt out. The UK would regain control over a large amount of law. However, there
are arguments for international co-operation in policing and criminal justice matters. This could be
done bilaterally, multilaterally or on a pan-EU basis:
o
The UK could seek to opt back in to one or a group of EU laws covered by the block opt out.
This opt in would be irreversible and entail the ECJs full jurisdiction over the laws concerned.
The UK could pursue non-EU international agreements with other Member States that
established any co-operation needed. This would give the British people much greater control
over this area compared to control by the EU institutions. It would take time and determination.
The UK could seek provisions in certain pieces of EU legislation that allowed it to co-operate
without being bound by these EU laws. There is precedent for this in the EU.
To extract itself from EU policing and criminal justice laws it is bound by but which do not fall under
the block opt out, the UK would need EU treaty change as an EU member. Such treaty change
would require the agreement of every other EU Member State. The UK will have negotiating
leverage when EU treaty change is sought as a result of the Eurozone crisis.
Seek EU treaty change that allows the UK to opt out of those EU laws not under the block opt out
that currently exist. This includes the proposed European Investigation Order.
Seek EU treaty change that limits or excludes ECJ jurisdiction over these laws in relation to the
UK, while the UK is bound by them.
Seek EU treaty change that makes reversible all past and future UK decisions to become bound by
EU laws in this area.
Refuse to apply EU policing and criminal justice laws that bind the UK under the EU treaties, where
these are deemed unacceptable. This could be done in the UK legal order with an Act of
Parliament. However, this action would breach the UKs EU treaty obligations in international law,
which may prompt countermeasures by other Member States.
186
The introduction
Particularly since 1993, when the Maastricht Treaty entered force, the EU has had the power to
pass laws on co-operation between its Member States in policing and criminal justice.
At first, the European Commission had no right to propose EU laws in this area; subsequently, it
shared this right with individual Member States. EU policing and criminal justice laws were
typically decided by unanimity among Member States in the Council350. The jurisdiction of the
EUs Court of Justice (ECJ) over these laws was significantly restricted.
Since 1993, successive amending EU treaties351 have increased EU power over policing and
criminal law. This has culminated in the Lisbon Treaty, which entered force on 1 December 2009.
Under the Lisbon Treatys changes, new EU laws on policing and criminal justice can now only be
proposed by the Commission or a quarter of Member States acting together. Such EU proposals
are usually decided by qualified majority voting (QMV) in the Council, though unanimity still
applies to some laws on operational co-operation in policing.352 Furthermore, the European
Parliament usually has to agree to the text of a proposal before it can be adopted (prior to the
Lisbon Treaty, the EP could only give a non-binding opinion).
The UK can typically choose whether or not it takes part in new EU policing and criminal justice
laws, following the Lisbon Treaty. If it does take part, however, the UK cannot opt out of the
relevant EU law again.
The ECJ has full jurisdiction over EU policing and criminal justice laws adopted following the
Lisbon Treatys entry into force.
The Lisbon Treaty also introduced special transitional provisions for around 130 EU policing and
criminal justice laws adopted before the Lisbon Treaty entered force.
These laws will come under full ECJ jurisdiction, for the first time, from December 2014 and the
UK has the right, if exercised before June 2014, to opt out of these laws en bloc.
The detail
EU policing and criminal justice laws proposed following the Lisbon Treaty
As noted above, the UK can typically choose whether or not it takes part in new EU policing and
criminal justice laws, following the Lisbon Treaty.
If it wishes to take part in voting on a proposal, the UK has to decide that it will participate within 3
months of that proposal being made. Once it has done this, the UK cannot opt out of the proposal
again, and will be bound by whatever EU law results. When QMV and co-decision with the
European Parliament apply, this means the UK may find itself bound by a law it did not agree
with.
The UK does, alternatively, have the possibility of opting in to an EU policing or criminal justice
law after its adoption by the other Member States, though it has no vote over the laws provisions
350
: Sometimes known informally as the Council of Ministers.

: In chronological order: the Amsterdam Treaty, the Nice Treaty and the Lisbon Treaty.
352
: A procedure known informally as the emergency brake can also be applied to some criminal law
proposals. The emergency brake allows a Member State to prevent itself becoming bound by an EU
proposal it believes would affect fundamental aspects of its criminal justice system (in the words of the EU
treaties).
351
187
in this case. UK participation in this case is also subject to approval by either the Commission or
the Council, which may apply, at least in some instances, conditions before the UK is allowed to
join. If the UKs request to opt in is approved, it cannot opt out of the relevant law again.
Under UK law, it is the Governments decision whether or not the UK participates in an EU
policing or criminal justice measure.353 The current Government has undertaken to give
Parliament a vote on the question of participation in cases where there is particularly strong
Parliamentary interest354 though it is not clear precisely what constitutes this.
Also as stated above, the ECJ has full jurisdiction over EU policing and criminal justice laws
adopted following the Lisbon Treatys entry into force. This means, among other things, that the
ECJ can hear cases brought against a Member State by the Commission, for what the
Commission alleges to be that Member States failure to abide by one of these laws. Consequent
rulings by the ECJ are binding on the relevant Member State. It also means the ECJ can receive
questions about the interpretation of these laws submitted by national courts from any Member
State (known as preliminary references), and can set down authoritative rulings in response that
will be applied by national courts.355
Under the pre-Lisbon Treaty rules, the Commission had no power to refer a Member State to the
ECJ for alleged infringement of an EU policing or criminal justice law.356 The ECJ did have the
power to rule upon questions of interpretation of these laws referred by national courts, but only
where the Member State of the national court seeking the ECJs opinion had explicitly accepted
such ECJ jurisdiction. This does not include the UK or seven other Member States.357 The ECJ
also had jurisdiction to rule in disputes between Member States on how EU policing and criminal
justice laws should be construed and applied. However, no such case has ever been taken to the
ECJ by one Member State against another.
353
: With a handful of exceptions regulated under the European Union Act 2011, in which the electorate
and/or Parliament have the final say on UK participation.
354
: HC Deb 20 January 2011, cc51WS-52WS.
355
: Article 276 of the Treaty on the Functioning of the European Union (TFEU, one of the EU treaties)
says: ...the Court of Justice of the European Union shall have no jurisdiction to review the validity or
proportionality of operations carried out by the police or other law-enforcement services of a Member State
or the exercise of the responsibilities incumbent upon Member States with regard to the maintenance of law
and order and the safeguarding of internal security. The effect of this provision is not clear, and will be for
the ECJ to determine. A narrow reading of the provision would, for instance, entail little if any limitation on
the ECJs power to interpret EU law on a question referred by a national court. This is because, formally,
the ECJ does not apply EU law to the facts of the case before the national court, but gives an authoritative
ruling on the meaning of EU law, which is then applied by the national court.
356
: That said, the ECJ did have the power to rule on a dispute between the Commission and a Member
State over the interpretation and/or application of an EU convention in policing and/or criminal justice. Title
VI of the Treaty on European Union (TEU) which was known as the EUs third pillar before the Lisbon
Treaty allowed the Council to draw these conventions up, but they then required national ratification by
Member States. Basically, these were not like usual EU laws, being more akin to international agreements
(between Member States) in their own right. Significantly, not many conventions were agreed; when the
Lisbon Treaty took effect, only four EU conventions, in the main, were relevant going forward.
357
: House of Commons Library, UK Government opt-in decisions in the Area of Freedom, Security and
Justice, October 2011, p.4. The other Member States are: Republic of Ireland, Denmark, Poland, Slovakia,
Malta, Bulgaria and Estonia.
188
EU policing and criminal justice laws adopted before the Lisbon Treaty entered force
The Lisbon Treaty also introduced special transitional provisions for EU policing and criminal
justice laws adopted before the Lisbon Treaty entered force. These are laws adopted on the basis
of the pre-Lisbon Title VI of the Treaty on European Union (one of the EU treaties), sometimes
known as third pillar laws. According to the Government, these laws number 133358.
Apart from those that have lapsed or been replaced, these EU laws continue to have force and
bind the UK.
The jurisdiction of the ECJ over these laws remains the same as before the Lisbon Treaty, until
December 2014.359 At that point, however, the ECJ irrevocably gains full jurisdiction over them,
entailing the effects described above.
The UK, though, is given the option of refusing to accept full ECJ jurisdiction over these laws. The
consequence of this is that all of these laws would cease to bind the UK from December 2014. In
effect, the UK would be opting out of them en masse.
The deadline for the UK to state that it is opting out is 31 May 2014. If it does not actively invoke
this opt out by this date, the UK will remain bound by these laws, subject to the full jurisdiction of
the ECJ, and will have no further right to opt out of them.
This UK block opt out does not apply to pre-Lisbon third pillar laws that are amended now the
Lisbon Treaty is in force, where the UK decides to take part in the new EU amending law. In
these cases, the UK loses its right to opt out of the relevant law. It is worth stressing that the block
opt out also does not apply to any completely new EU policing or criminal justice laws adopted
following the Lisbon Treatys entry into force, which the UK chooses to participate in.
Under UK law, it is the Governments decision whether or not the UK invokes the block opt out.
However, the Coalition Government has promised to arrange a vote in both Houses of Parliament
on the question of this opt out, before the decision is taken.360 The Government is currently
considering whether, in its opinion, invoking the block opt out would serve the national interest.
If the UK invokes the block opt out and thereby ceases to be bound by the relevant pre-Lisbon
laws, the EU treaties provide that the Council will decide the necessary consequential and
transitional arrangements, acting by QMV but without a UK vote.361 The Council can also require
the UK to bear the direct financial consequences, if any, necessarily and unavoidably incurred as
a result of the UKs opt out from the laws concerned, again acting by QMV but this time with a
UK vote.362 Clearly, there are likely to be some technical legal changes required as a result of the
UKs departure from the relevant laws, perhaps to clarify in these instruments that they no longer
bind the UK. It should be noted that the possibility for the UK to bear costs is only that a
possibility, not a certainty and the EU treaties require that these costs must be direct and
necessarily and unavoidably incurred as a result of the UK opt out.
358
: Letter from Home Secretary Theresa May to the Chairman of the House of Commons European
Scrutiny Committee, 21 December 2011: http://www.parliament.uk/documents/commonscommittees/european-scrutiny/Ministerial%20Correspondence%202010-12.pdf. These are the EU laws in
this category that were still in force when the Government drew up its list ie. they had not lapsed or been
repealed/replaced. In fact, the Government appears to have overlooked that a couple of measures had
been repealed and replaced when it drew up its list; this is examined below.
359
: Apart from where one of these laws is amended by a new EU measure adopted now the Lisbon Treaty
is in force. In this case the ECJ gains full jurisdiction over the amended law after the amendment takes
place, including in relation to the UK where the UK has chosen to participate in the new amending law.
360
361
: Article 10(4) of Protocol (No. 36) to the EU treaties, on transitional provisions.
362
: Ibid.
189
Opting back in to EU laws following the block opt out

If the UK invokes the block opt out, the EU treaties allow it to seek to opt back in to any of the
individual EU laws affected.
If the UK did this, the same procedure would be followed as currently applies if the UK wants to
join an EU policing or criminal justice law adopted by the other Member States without UK
participation. This procedure is different depending on whether or not the EU law in question is
deemed to be part of the Schengen acquis.363
UK applications to re-join laws within the Schengen acquis are subject to the unanimous
agreement of the Council.364
For laws not deemed to be part of the Schengen acquis, the Commission is tasked in the first
instance with approving a UK request to join. The Government believes that the EU treaties allow
the Commission to set conditions that must be met before the UK can become bound by the
relevant law.365 If, however, the UK does not meet any such conditions, it can direct its request to
join to the Council, which can then decide on UK participation by QMV of the Member States
bound by the law.
The EU treaties provide that, should the UK seek to re-join any of these pre-Lisbon policing and
criminal justice laws after invoking its block opt out, the Union [EU] institutions and the United
Kingdom shall seek to re-establish the widest possible measure of participation of the United
Kingdom in the acquis [law] of the Union in the area of freedom, security and justice without
seriously affecting the practical operability of the various parts thereof, while respecting their
coherence.366 This is a very double-edged provision, which might be interpreted in particular
cases as encouraging the approval of the UKs application, but in other situations might be seen
as requiring the UK to accept other EU policing or criminal justice laws before it can be admitted
to those laws it wants.
If the UK applied to re-join any of these pre-Lisbon policing and criminal justice laws, and its
application was accepted, it would not be able to opt out of those laws again. Furthermore, the
ECJ would have full jurisdiction over the law(s) concerned.
EU laws covered by the UKs block opt out
As noted above, the Government has said that, in December 2011, there were 133 pre-Lisbon EU
laws on policing and criminal justice that were covered by the UKs block opt out. However, some
of these laws have already been removed from the UKs opt out, or are set to be removed. This is
because the UK has chosen to participate in EU laws introduced since the Lisbon Treatys entry
363
: The Schengen acquis is a part of EU law originally based on the Schengen Convention, which was
agreed between certain Member States in 1990, with the primary aim of abolishing border controls between
the participating countries. The provisions of this Convention were incorporated into EU law via the
Amsterdam Treaty in 1999, and have been developed since by new EU laws termed Schengen-building
measures. The UK remained outside the Schengen acquis at first, but the EU treaties allow it to apply to
join some or all of this body of law. In 2000, following a request by the UK Government, the Council agreed
on UK participation in certain provisions of the Schengen acquis, mainly relating to policing, criminal justice
and illegal immigration, but not abolition of border controls (which the UK had not requested). Before the
Lisbon Treaty, the parts of the Schengen acquis relating to policing and criminal justice were outside the full
jurisdiction of the ECJ, just like non-Schengen EU laws in these matters.
364
: Though the Council does not include the Republic of Ireland when it comes to decisions on UK
participation, given this Member State is also not automatically bound by the Schengen acquis.
365
: Letter from Home Secretary Theresa May to the Chairman of the House of Commons European
Scrutiny Committee, 21 December 2011.
366
: Article 10(5) of Protocol (No. 36) to the EU treaties, on transitional provisions.
190
into force, which either repeal and replace or amend EU laws that otherwise fell under the block
opt out. The laws in question are:367
Pre-Lisbon law
Decision
2008/839/JHA on
migration from the
Schengen
Information System
to the second
generation
Schengen
Information System
[this law is not
mentioned in the
Governments
December 2011 list]
Framework Decision
2004/68/JHA on
combating sexual
exploitation of
children and child
pornography
Framework Decision
2008/978/JHA on
the European
Evidence Warrant
367
Post-Lisbon law
Date of UK
Government
decision that the
UK should
participate in
post-Lisbon law
May 2010
(Labour
Government)
Regulation 542/2010.
This Regulation amends
Decision 2008/839/JHA,
partly to extend the
transition period to the
second generation
Schengen Information
System. The 2008
Decision is still due to
expire by the end of 2013,
and Decision
2007/533/JHA establishing
the second generation
Schengen Information
System still falls under the
UK block opt out.
Directive 2011/92/EU on
June 2010
combating the sexual
abuse and sexual
exploitation of children and
child pornography (repeals
and replaces Framework
Decision 2004/68/JHA)
Proposed Directive on the July 2010
European Investigation
Order. This is still being
negotiated but is subject to
QMV, meaning the UK
cannot block the proposal
on its own. The proposal
would repeal and replace
Framework Decision
2008/978/JHA. It would
also introduce new
provisions in place of part
of Framework Decision
2003/577/JHA on the
execution in the EU of
orders freezing property or
evidence. It is not clear
whether this would also
take the whole of
Framework Decision
2003/577/JHA out of the
UKs block opt out.
: Correct as at the end of May 2012.
191
Date of
repeal/replacement
or amendment of
pre-Lisbon law for
the UK
June 2010
December 2011
Proposed new law is

not yet adopted.
Pre-Lisbon law
Framework Decision
2005/222/JHA on
attacks against
information systems
Framework Decision
2002/629/JHA on
combating trafficking
in human beings
Framework Decision
2001/220/JHA on
the standing of
victims in criminal
proceedings
Post-Lisbon law
Proposed Directive on
attacks against information
systems. This is still being
negotiated, but is subject
to QMV. However, the
emergency brake is
available, meaning the UK
should still be able to
prevent itself becoming
bound by the proposal.
The proposal would repeal
and replace Framework
Decision 2005/222/JHA.
Directive 2011/36/EU on
preventing and combating
trafficking in human beings
and protecting its victims
(repeals and replaces
Framework Decision
2002/629/JHA)
Date of UK
Government
decision that the
UK should
participate in
post-Lisbon law
December 2010
May 2011. The

Governments
wish to opt in to
the Directive was
endorsed by a
resolution of the
House of
Commons on 9
May 2011.
Proposed Directive
August 2011
establishing minimum
standards on the rights,
support and protection of
victims of crime. This is
still being negotiated, but
is subject to QMV.
However, the emergency
brake is available,
meaning the UK should
still be able to prevent
itself becoming bound by
the proposal. The proposal
would repeal and replace
Framework Decision
2001/220/JHA.
192
Date of
repeal/replacement
or amendment of
pre-Lisbon law for
the UK
Proposed new law is
not yet adopted.
October 2011
Proposed new law is

not yet adopted.
Pre-Lisbon law
Post-Lisbon law
Framework Decision
2008/977/JHA on
protection of
personal data
processed in the
framework of police
and judicial
cooperation in
criminal matters
Proposed Directive on
protection of individuals
with regard to processing
of personal data by
authorities for the
purposes of prevention,
investigation, detection or
prosecution of criminal
offences or the execution
of criminal penalties, and
the free movement of such
data. This draft Directive is
still being negotiated but is
subject to QMV, meaning
the UK cannot block the
proposal on its own. The
new Directive would
repeal and replace
Framework Decision
2008/977/JHA.
Date of UK
Government
decision that the
UK should
participate in
post-Lisbon law
April 2012. The
Governments
position on
participation was
endorsed (on a
Division) by a
resolution of the
House of
Commons on 24
April 2012.
Date of
repeal/replacement
or amendment of
pre-Lisbon law for
the UK
Proposed new law is
not yet adopted.
The Annex to this chapter shows the Governments list of EU laws subject to the block opt out,
with the laws mentioned above omitted, apart from where the UK could still invoke the
emergency brake to stop these laws being removed from the opt out.
The European Commission shows no sign of easing off proposing new EU policing and criminal
justice laws that would take pre-Lisbon laws out of the UKs block opt out.
The EU laws covered by the block opt out, and EU policing and criminal justice laws that have
arrived since the Lisbon Treatys entry into force, usually have very positive-sounding names.
Who could criticise measures to fight human trafficking, child sex exploitation or cyber attacks?
However, these laws represent further transfers of power away from the UKs democracy to the
EU, which, in fact, may not be necessary to ensure international co-operation to fight these
appalling scourges and protect British citizens.
EU regulation of domestic law rather than cross-border co-operation
Many of the provisions of EU laws under the block opt out deal solely with the internal law of
Member States, rather than establishing cross-border co-operation between Member States.
For instance, the main provisions of Framework Decision 2005/222/JHA on attacks against
information systems oblige Member States to criminalise and punish certain acts against
computer systems, in their domestic law. These acts need not have any cross-border implications
ie. they could be entirely domestic in source and effect.
Another example is Framework Decision 2003/568/JHA on combating corruption in the private
sector. This requires Member States to criminalise and punish particular actions in their domestic
law, such as intentionally requesting or receiving an undue advantage of any kind, or accepting
193
the promise of such an advantage, for oneself or for a third party, while in any capacity directing
or working for a private-sector entity, in order to perform or refrain from performing any act, in
breach of ones duties. Again, the offences included in the Framework Decision need not have
any cross-border dimension.
EU control over the relevant aspects of internal criminal law will significantly increase when the
ECJ gains full jurisdiction over the legislation concerned. This is because the ECJ will be much
more able to enforce the application of particular interpretations of this legislation.
For instance, EU laws requiring Member States to criminalise particular actions often oblige
Member States to punish such offences with effective, proportionate and dissuasive criminal
penalties, where they do not specify penalties more precisely. This is, of course, an ambiguous
phrase, and the ECJ will be the final arbiter of what it requires in particular cases.
Some may argue that there is a need for international requirements to strengthen the domestic
criminal law of countries. This could be aimed at preventing certain states from acting as safe
havens for criminality that could spill over national borders, or at providing people with minimum
procedural rights as they travel through different countries.
As a general point, this may well be true. However, it is no argument for the UK to submit itself to
EU criminal law, which could be developed dynamically by the EU institutions and would be
irreversible by the UK short of withdrawing from the EU altogether. The UK is perfectly capable of
adapting its domestic criminal law through its democratic system, which could include aligning
that law with other countries provisions if this was felt desirable. The UK does not need to
transfer control to the EU to achieve this. Nor does it need to transfer control to the EU to achieve
an improvement in the internal criminal law of other Member States. This is because, under the
EU treaties, even if the UK opts out of such EU legislation, this legislation will continue to bind the
other Member States.
EU laws on cross-border co-operation
Some of the EU laws under the UK block opt out do seek to establish cross-border co-operation
between Member States in policing and criminal justice. Many of these, such as the European
Arrest Warrant, concern what is effectively bilateral co-operation between two Member States at a
time368. Some, such as Framework Decision 2002/465/JHA on joint investigation teams, are
multilateral arrangements, setting out a legal framework in which multiple Member States can act
together at once. There are also laws establishing specialised EU bodies and databases in
policing and criminal justice. Foremost among these bodies are Eurojust and Europol.
Eurojust
Eurojust is an EU body based in The Hague in the Netherlands, established by a 2002 Decision
(EU law)369. Its primary remit is to bolster coordination and cooperation between national
authorities when it comes to investigations and prosecutions regarding various kinds of crime and
which concern more than one Member State. To this end, Eurojust can, among other things, ask
national authorities of the affected Member States to carry out particular investigations or
prosecutions though national authorities can decline such requests and it can ensure that the
relevant national authorities keep each other informed about investigations and prosecutions
brought to Eurojusts attention. Indeed, Member State authorities are obliged to provide Eurojust
with any information necessary for the performance of its tasks, and are entitled to obtain
information from Eurojust. Each Member State seconds a national member to Eurojust, who
368
: Though the EU law establishing the European Arrest Warrant does include one article in particular, on
transit of surrendered persons through the territory of third Member States, that is more multilateral in
nature.
369
: Council Decision 2002/187/JHA.
194
takes a seat and one vote on the bodys College, which has overall responsibility for the way
Eurojust is run.
In 2010 the European Commission said that it planned to propose a new EU Regulation on
Eurojust, the provisions of which would include giving this body the power to initiate criminal
investigations, rather than simply being able to ask national authorities to take such action.370 A
new Commission proposal on Eurojust is expected this year371, and will be decided by QMV in the
Council.
It is likely that this new Regulation will seek to repeal and replace the existing 2002 Eurojust
Decision. If the UK feels that the risk of the proposal giving Eurojust too much power (under full
ECJ jurisdiction) means that it cannot opt in to it, there will probably be a serious question mark
over whether the UK can continue to be bound into Eurojust as at present. This is because, unlike
the UK, most other Member States will move on to the new Eurojust.
Europol
The European Police Office (or Europol) first became operational in 1999, on the basis of an EU
convention that required ratification by Member States. However, from January 2010 that
convention was replaced by a Decision372 (EU law), and this Decision now underpins Europol.
Like Eurojust, Europol is an EU body based in The Hague.
Europol deals with various kinds of crime that affect more than one Member State in such a way
as to require a common approach by the Member States owing to the scale, significance and
consequences of the offences. Europols remit also includes offences that are related to these
crimes, such as offences that aim to procure the means to commit such crime.
Europols principal activities include collecting, storing, analysing and exchanging information,
and asking national authorities to initiate, conduct or coordinate criminal investigations
though national bodies can refuse such requests. As with Eurojust, Member State authorities are
obliged to supply Europol with the information and intelligence necessary for it to carry out its
tasks. Subject to conditions that the Member State which supplied the information can apply in
some cases, Europol is also required to notify Member States of information concerning them it
holds. Furthermore, Europol staff can take part in supporting capacity alongside criminal justice
authorities of different Member States operating in ad hoc joint investigation teams, established
under other EU laws, where those teams are investigating crime within Europols mandate.
Europol staff cannot, however, take any coercive measures. Each Member State appoints a
representative with one vote on Europols Management Board, which, among other things,
annually adopts a work programme for Europol.
A proposal for a new EU Regulation to re-found Europol is planned by the Commission in 2012.373
As with Eurojust, this new Regulation will be decided by QMV in the Council, and it will probably
seek to repeal and replace the EU Decision that currently forms Europols legal basis.
If the UK opted in to this new Regulation it would not be able to opt out again, and it would come
under the full jurisdiction of the ECJ. On the other hand, if it did not opt in the UK may not be able
to participate in Europol in the same way that it does now, given most other Member States would
be operating on a different arrangement for the body.
370
: European Commission, Delivering an Area of Freedom, Security and Justice for Europes citizens:
Action Plan implementing the Stockholm Programme, April 2010, p.18.
371
: European Commission, Roadmap: Proposal for a regulation reforming Eurojusts structure, available at:
http://ec.europa.eu/governance/impact/planned_ia/docs/2012_just_028_eurojust_en.pdf.
372
: Council Decision 2009/371/JHA.
373
: European Commission, Roadmap: Establishing the European Police Office - EUROPOL, available at:
http://ec.europa.eu/governance/impact/planned_ia/docs/2011_home_010_europol_en.pdf.
195
Even setting aside the likelihood of new Regulations on Eurojust and Europol that expand their
powers, if the UK did not opt out of the existing Decisions establishing these bodies full ECJ
jurisdiction could cause major problems for this country. For example, the ECJ could apply the
obligation to provide these organisations with information needed for the performance of their
tasks in ways the UK did not expect or believe were in its interests.
European Arrest Warrant
Entering force at the start of 2004, the European Arrest Warrant (EAW) is established by EU
Framework Decision 2002/584/JHA. In essence, it obliges EU Member States, subject to some
limited exceptions, to arrest and remove persons from their territory to a Member State that has
requested their extradition, for an alleged crime under the requesting countrys law or to serve a
custodial sentence passed in the requesting country.374 For a wide range of acts, the Member
State that receives a European Arrest Warrant is banned from making the extradition of the
relevant person conditional on the activity in question also being a criminal offence in its law. For
these offences, this represents the abolition of the so-called dual criminality requirement that
previously applied. Decisions on carrying out an EAW must be taken by the Member State
receiving the Warrant within strict time limits.
From its introduction up to 2011, 193 British citizens have been extradited from the UK under the
EAW, with the rate of such extraditions steadily increasing over time.375 A great many more nonBritish nationals have also been extradited from the UK under this system.376 In 2010-11, for
instance, 48 British nationals were extradited from the UK under an EAW, while 1,125 other
persons were.377
Conversely, the UK received a total of 134 persons in 2010-11 after issuing an EAW for them.378
Since 2006, many more people have been extradited from the UK under the EAW than have
been brought to the UK using this system.379
Over the two full years for which figures are available, 2009-10 and 2010-11, the Member State
which obtained the extradition of the most British citizens by far from the UK under the EAW was
Spain, with 27 British people being extradited there over the period. There is then a group of
Member States who obtained between 7 and 9 British people each over those two years using
the EAW, made up of France, Germany, Greece, the Republic of Ireland, the Netherlands and
Poland.380
As noted above, the EAW has abolished the dual criminality requirement for a wide range of acts,
which means British citizens may be extradited for actions that are not even crimes in the UK.
British nationals have also been subjected to appalling mistreatment in other ways through the
EAW. A recurring criticism made by observers is that, generally speaking, the criminal justice
systems of many other Member States leave much to be desired in terms of their treatment of
criminal suspects, who, of course, should be regarded as innocent until proven guilty. Trial
procedures themselves can be unfair, there can be very long periods of pre-trial detention, and
detention conditions are sometimes abysmal.
374
: The European Arrest Warrant does not cover all crimes and sentences, though its scope is very wide. It
covers crimes in the requesting Member States law that are punishable by a maximum custodial sentence
of at least 12 months, and sentences of at least four months detention.
375
: Open Europe, An unavoidable choice: More or less EU control over UK policing and criminal law,
January 2012, p.10.
376
: HC Deb 9 November 2010, c190W.
377
378
379
380
: HC Deb 1 December 2011, c1063W.
196
The UK-based non-governmental organisation Fair Trials International gives a couple of

examples of mistreatment of British people in a briefing paper on the EAW:
Patrick Connor (not his real name) was 18 when he was arrested in Spain with two friends in
connection with counterfeit Euros. Patrick had no counterfeit currency on him or in his belongings
at the time of the arrest, and has no idea how the notes came to be on his two friends or in their
apartment. In total, the police found 100 in two notes of 50. Patrick and his friends were
released and returned to the UK. Four years later Patrick was arrested on an EAW and extradited
to Spain. Held in a maximum security prison in Madrid, and facing the prospect of up to two years
in pre-trial detention, he decided to plead guilty. Patrick spent 9 weeks in prison before coming
home to recommence his university career, his future blighted by a criminal record.381
Andrew Symeou, a twenty-one year old British student, was extradited to Greece in July 2009 to
face charges in connection with the death of another young man at a nightclub on a Greek island.
Andrews extradition was ordered despite evidence that the charges he was facing were based on
statements extracted by Greek police through the brutal mistreatment of witnesses, who later
retracted their statements...
Once in Greece, Andrew spent a year in horrendous prison conditions, and has described how
he awoke each morning covered in cockroaches and was frequently bitten by fleas in his bedding.
The shower room floor was covered in excrement and the prison was infested with vermin...He
was held in a filthy, overcrowded cell for almost a year before being finally given local bail. He
was acquitted in June 2011, four years after the events in question. His father lost his business
because of the costs incurred in helping with Andrews defence.382
Technically, the EAW is not supposed to lead to extradition if that would violate a persons human
rights, but in practice it seems that national courts often presume that the destination Member
State will uphold basic rights, and err on the side of facilitating EAW extradition.383
There is also a problem with Member States issuing EAWs for relatively trivial offences,
extradition for which given the distress and upheaval it causes the suspect is disproportionate.
This also puts an unnecessary burden on the resources of the Member State that is obliged to
execute the Warrant.384
It should also be pointed out that, for their part, British police and prosecutors have lauded the
EAW for the much shorter time period it now takes, on average, to extradite someone from
another EU country. The EAW has also made the extradition process more straightforward and
reliable for law enforcers. Previously, some EU countries refused to extradite their own citizens.385
Despite calls to revise the EU law establishing the EAW to address concerns about its operation,
such a proposal does not feature in the 2012 Work Programme of the European Commission.
Even if an amending proposal was made, should the UK opt in to this it would be bound into full
ECJ jurisdiction over the EAW after the proposal had been adopted (and it would not be able
subsequently to opt out of the EAW). Such a proposal would be decided by QMV in the Council.
Even if significant improvements to the text of the existing EAW Framework Decision were
possible, full ECJ jurisdiction would radically increase EU control over this law in relation to the
UK. Basically, the ECJ would be entrenched as the final arbiter of when British citizens must be
extradited to other EU countries.
381
: Fair Trials International, The European Arrest Warrant eight years on time to amend the Framework
Decision?, February 2012, p.4.
382
: Ibid, p.9.
383
: Ibid, p.7.
384
: Ibid, p.3.
385
: Open Europe, An unavoidable choice: More or less EU control over UK policing and criminal law,
pp.10-11.
197
EU laws not under the UKs block opt out

As discussed previously, EU policing and criminal justice laws the UK chooses to be bound by
now the Lisbon Treaty is in force do not fall under the block opt out. The block opt out also does
not cover EU laws that were adopted prior to the Lisbon Treaty but which have been amended
since that treaty took effect, where the UK chooses to participate in their amendment.
The section above lists the 7 post-Lisbon EU policing and criminal justice laws that the UK has
decided to participate in that take, or will take if they are adopted with the UK, pre-Lisbon laws out
of the block opt out.
In addition to those new laws, the UK has chosen to become bound by the following EU policing
and criminal justice laws since the Lisbon Treaty took effect, which do not amend or replace preLisbon measures.386 Where the previous Labour Government took the decision that the UK would
participate, the relevant EU law is in italics; otherwise, the decision was taken by the Coalition
Government:
1. Directive 2010/64/EU on the right to interpretation and translation in criminal proceedings
2. Decision 2010/482/EU on the conclusion of an agreement between the EU and Iceland
and Norway on the application of certain provisions of the Prm Decisions on stepping up
cross-border co-operation
3. Proposed Decision on the conclusion of an agreement between the EU and Iceland and
Norway on the surrender procedure [extradition] between the Member States of the EU
and Iceland and Norway
4. Proposed Decision on the conclusion of an agreement between the EU and Iceland and
Norway on the application of certain provisions of the EU Convention on Mutual
Assistance in Criminal Matters and its 2001 Protocol
5. Decision 2010/616/EU on the conclusion of an agreement between the EU and Japan on
mutual legal assistance in criminal matters
6. Directive 2011/99/EU on the European protection order
7. Regulation 1077/2011 establishing a European Agency for the operational management of
large-scale IT systems in the area of freedom, security and justice
8. Decision 2010/412/EU on the conclusion of an agreement between the EU and the USA
on the processing and transfer of financial messaging data from the EU to the US for the
purposes of the Terrorist Finance Tracking Program
9. Directive 2012/13/EU on the right to information in criminal proceedings
10. Proposed Directive on the use of passenger name record data for the prevention,
detection, investigation and prosecution of terrorist offences and serious crime
11. Decision on the conclusion of an agreement between the EU and Australia on the
processing and transfer of passenger name record data by air carriers to the Australian
Customs and Border Protection Service
12. Decision on the conclusion of an agreement between the EU and USA on the use and
transfer of passenger name record data to the US Department of Homeland Security
386
: Correct as at the end of May 2012.
198
13. Proposed Regulation establishing an action programme for customs and taxation in the
EU for the period 2014-2020
Those EU laws that have not been adopted yet are described above as being proposed though
the UK has decided, irreversibly, to take part in their adoption and in all cases QMV applies,
meaning the UK cannot now block their adoption on its own.
One of the post-Lisbon decisions to become bound by an EU policing or criminal justice law that
has aroused the most concern is the July 2010 opt in to the proposed Directive on the European
Investigation Order (EIO). This Directive is mentioned in the previous section as, when adopted, it
will take at least one pre-Lisbon law out of the UKs block opt out.
The proposed Directive on the EIO is subject to QMV in the Council and must also be agreed by
the European Parliament. Negotiations over the proposal continue, but in June 2011 the Council
reached an interim political agreement on many of the Directives provisions.
In essence, the EIO would allow one Member State to oblige another Member State to carry out a
particular investigative measure, for the purpose of criminal proceedings under the law of the
Member State issuing the EIO. There would be limited grounds on which the Member State
receiving an EIO could refuse to carry it out. Importantly, where it came to Orders that requested
search or seizure, the EIO Directive would stop the UK from refusing to execute such requests on
the grounds that the act being investigated was not a criminal offence in the UK, where the
request related to one or more of a long list of activities. This list is the same as that in the
Framework Decision on the European Arrest Warrant, covering those matters for which people
must be extradited even if the act is not a criminal offence under the law of the Member State
being asked to extradite.
Indeed, under the text agreed in the Council last June, a Member State would not be able to
refuse to execute any EIO, no matter the coercive measures involved, on the grounds that the
matter being investigated was not a criminal offence in that Member State, if the EIO related to
this same list of acts. In cases other than search and seizure (which would have to be carried
out), it is not clear if the Directive would allow the Member State receiving an EIO to claim, where
the act under investigation was not a crime under its law, that it could not legally apply certain
coercive measures under its national law. However, the UK Government felt strongly enough
about this particular provision to withhold its support from the text of the proposed Directive
agreed last summer; the text was nevertheless agreed by what would appear to be a qualified
majority of Member States.387
387
th
: European Scrutiny Committee, Documents considered by the Committee on 6 July 2011, 36 report of
Session 2010-12, para 10.8.
199

Start Projects Green Paper chapters. Green are those measures that can be achieved within the
current EU legal framework; Amber are those measures that require negotiated EU treaty
treaty obligations.
Options that do not require EU treaty change
Do not invoke the block opt out, and lead reform of EU policing and criminal justice laws
Instead of invoking the block opt out, the UK could remain bound by all pre-Lisbon EU policing
and criminal justice laws and, where it finds these problematic, seek reform through the EU
legislative process.
Aside from the European Commission, a quarter of Member States (currently 7) acting together
can propose EU legislation in policing and criminal justice. The UK could lead an effort by
Member States to change EU laws in this area, where it wished to see reform. For instance, there
also seems to be concern in other Member States at the use of the European Arrest Warrant for
relatively trivial offences.
Not triggering the block opt out would allow the UK to keep the positive aspects of the EU laws
concerned ie. certain forms of cross-border co-operation, without the time and diplomatic effort
required to negotiate replacement arrangements or opt back in to desirable EU laws.
However, from December 2014 the ECJ would start applying to the UK its interpretations of the
pre-Lisbon EU laws, in a way that would be unprecedented. From that point on, the ECJ would
act something like a supreme court in significant areas of UK criminal law.
It is also highly questionable how much reform of problematic EU laws could be achieved through
the EU legislative process. Typically, not only would a qualified majority of Member States have to
support amendments, but so too would the European Parliament, which has a track record of
supporting greater EU obligations on Member States. For instance, it is quite hard to see the EU
reinstating the principle of dual criminality where it has been abolished under the EAW. Moreover,
once the UK had forgone the chance to invoke the block opt out, it would not be able to opt out of
any of these laws again, under the existing EU treaties.
Invoke the block opt out
If the UK did not invoke the block opt out it would be undertaking a major transfer of power to the
EU. Under the EU treaties, the UK would become bound irreversibly by a large number of EU
laws in this sensitive policy area, which would from that point on be controlled and developed
much more readily by the supranational European Commission and European Court of Justice.
In February 2012, 102 Conservative Members of Parliament wrote to the Telegraph calling for the
UK to invoke the block opt out.388 In January 2012, think-tank Open Europe recommended using
this opt out after analysing the issue.389
However, there is widespread recognition of the need for international co-operation in Europe to
tackle, in particular, cross-border crime. The options for doing this after invoking the block opt out
388
: http://www.telegraph.co.uk/comment/letters/9062615/Repatriate-powers-on-crime-and-policing-sayConservative-MPs.html#.
389
: Open Europe, An unavoidable choice: More or less EU control over UK policing and criminal law, p.3.
200
will now be considered. These options are not mutually exclusive ie. different approaches could
be used for different cases of co-operation.
Opt out of pre-Lisbon EU laws then seek to opt back in to certain of these laws where
deemed necessary
As described above, the EU treaties make clear that the UK could apply to opt back in to
particular pre-Lisbon EU policing and criminal justice laws after it had invoked the block opt out.
The UK might wish to do this in the case of, for example, the EU Decision establishing the
policing and criminal justice aspects of the second generation Schengen Information System
(SIS II)390, unless that law is amended to allow the EU or Member States to conclude an
international agreement with the UK providing it with access to the System, despite the UK not
being bound by the EU Decision. SIS II is not operational yet, but is intended to enable alerts on
things such as wanted and missing persons to be sent around Member States using a single IT
network. Member States will be obliged to take particular actions in response to such alerts.
It is possible the EU institutions might require the UK to fulfil certain conditions before it was
allowed to re-join the relevant EU laws. However, the procedure that the Government believes
could give rise to this has been used before by the UK to opt in to EU laws, and to date no
conditions have ever been set.391
Of course, the UK would have to weigh any advantages of this approach against the fact that
opting back in to the EU laws concerned would be irreversible. Furthermore, the ECJ would have
full jurisdiction over these laws, to apply them as it saw fit.
Opt out of pre-Lisbon EU laws and pursue international agreements with other EU Member
States as desired
Rather than seeking to maintain co-operation with other EU countries through the EUs law and
institutions, the UK could seek to conclude ordinary international agreements with other Member
States that established any co-operation needed.
If other Member States accepted such co-operation with the UK through the EU, it should not be
too difficult to persuade them to maintain similar arrangements through international agreements.
That said, it is possible some Member States might have had greater integration in policing and
criminal justice imposed upon them through EU law, which they would not want to repeat in an
international agreement with the UK. However, it is likely in many cases that the UK would itself
not want such a level of integration, given misgivings about loss of national control.
This would avoid the pitfalls of the EU institutional framework, whereby the provisions of laws
governing co-operation often need to be agreed by the supranational European Commission and
European Parliament, and which will see the ECJ able to develop dynamically the meaning of
such laws in a way the UK would be obliged to accept.
Furthermore, seeking non-EU international agreements would allow the UK to tailor its relations
with different EU countries, depending on the subject matter. For instance, the UK might not want
co-operation anything like the European Arrest Warrant with some EU countries, due to concerns
about the conditions British citizens would face if extradited there.
Concluding international agreements, rather than being bound by EU laws, would in practice
provide the British people with much greater democratic control over how their country co-
390
391
: Decision 2007/533/JHA.
: HC Deb 1 May 2012, c1157W ; HC Deb 1 May 2012, c1451W.
201
operated in police and criminal justice matters with other EU nations. This is because the UK
could not be forced to accept provisions it did not agree with and, ultimately, such international
agreements would be easier to renounce than membership of the EU.
It should also be noted that there are already some non-EU international agreements between the
UK and all other EU countries, dealing with police and criminal justice co-operation similar to that
in some EU laws falling under the block opt out.392
These international agreements would continue to apply regardless of the UKs exercise of the
block opt out. The UK may feel in certain cases that it needed to supplement these agreements
with new treaties of its own, concluded with some or all other EU countries.
This approach would not be without drawbacks.
It would take time to put in place all the relevant international agreements. That said, if the UK
decided soon that it was going to invoke the block opt out, a lot of work could be done by the
point at which the pre-Lisbon EU laws ceased to apply to the UK.
There is also the fact that without the co-operation being required as part of EU obligations, which
from 2014 will entail the full EU enforcement mechanisms, the UKs international agreements
might not be as diligently implemented by the other Member States as EU laws, hindering cooperation. However, there is nothing automatic about this, and the UKs international agreements
could include oversight mechanisms to check whether they were being implemented and apply
pressure if problems were occurring. Unlike, typically, with EU laws, the international agreements
could allow the UK to suspend application of all or part of an agreement if the other state party
was seriously deficient in abiding by their end of the deal.
In some areas, EU law might restrict other Member States discretion over the exact content of
international agreements they could conclude with the UK. This is unlikely to pose a major
obstacle to co-operation, however.
Opt out of pre-Lisbon EU laws and seek provisions in particular EU laws that allow the UK
to take part if it wishes
If the UK wished to take part in EU bodies created to facilitate co-operation in policing or criminal
justice, it could lobby the other Member States and EU institutions to include provisions in the
relevant laws that allowed the UK to take part in these entities, without actually being bound by
the EU legislation.
There is precedent for this sort of relationship. In 2004 the EU adopted a Regulation393 to
establish the EU agency Frontex. Frontex was created to help Member States manage their
external borders that is, their borders with non-EU countries when it came to the movement
of people. The UK was actually excluded from the Regulations application as the legislation was
deemed to build on an aspect of the Schengen acquis in which the UK did not take part. The
Regulation, therefore, does not bind the UK.
However, the UK was keen to play a role in Frontexs work, and the Frontex Regulation includes
a provision explicitly authorising the agency to facilitate operational co-operation between the UK
and other EU Member States, in its field of activity. The UK chooses which Frontex operations it
wishes to be involved in, and while technically Frontexs Management Board has to approve UK
392
: For a list of these international agreements, see Annex I to Professor Steve Peers, The Mother of all
Opt-outs? The UKs possible opt-out from prior third pillar measures in June 2014, Statewatch, January
2012.
393
: Council Regulation (EC) No 2007/2004.
202
participation in each of these operations, the UK has never been refused access and has taken
part in a great many projects.394
Although the UK does not have a vote on the agencys Management Board, the Frontex
Regulation requires the UK to be invited to all Board meetings, where it can feed into plans. It
seems other Member States value the UKs operational knowledge and expertise in this area.395
This sort of approach might be used, for instance, in relation to Europol and Eurojust. As noted
above, the Commission is planning to issue proposals this year for new EU Regulations
establishing these bodies, which will almost certainly replace their existing founding laws. The
negotiation process over these proposals would be an ideal opportunity for the UK to seek
essentially the same relationship with these organisations as it has with Frontex practical cooperation without EU legal obligations.
It might be argued that the nature of Eurojust and Europol, as bodies dealing with continual
exchange of information rather than the more discrete operations organised by Frontex, means
that the UK would need a more integrated relationship with them to maintain the benefits it
currently derives. If so, a slightly different approach could be for the UK, while remaining outside
the EU laws setting up these bodies, to pursue provisions in those laws that mandated these
organisations to conclude international agreements with the UK, which could then establish close
standing co-operation (including some UK participation in the organisations governing bodies).
Both Eurojust and Europol currently have the power to conclude international agreements with
non-EU countries, and have done so.
The advantage of this method would be that the provisions of such international agreements need
not come under the control of the ECJ, and could include suspension or withdrawal mechanisms
that the UK may use if it believed the agreements started to act against its national interest.
Irrespective of the precise course of action taken, this approach would require the UK to make
clear that it was not going to opt in to the new Europol and Eurojust EU laws. Other Member
States, the European Commission and the European Parliament might resist the idea of the UK
being involved in Europol and Eurojust without being bound by the relevant EU legislation.
However, the precedent for this has already been set with Frontex, and the UK could offer a good
deal of operational know-how and resources if it was involved, which other Member States, at
least, are likely to value. At the same time, the UK would need to remain firm that it was not
prepared to subject itself to ECJ jurisdiction in these matters and become bound by the EU laws
in question.
Options that require EU treaty change
To reiterate, EU policing and criminal justice laws the UK chooses to participate in now the Lisbon
Treaty is in force, and any pre-Lisbon laws they amend, do not fall under the UKs block opt out.
Under the existing EU treaties, the UK cannot opt out again from these laws. The ECJ has full
jurisdiction over them, which means their effect can be changed over time by ECJ rulings the UK
has to accept.
394
th
: House of Lords European Union Committee, Frontex: the EU external borders agency, 9 report of
Session 2007-08, March 2008, para 124; Home Office, Deposited Paper DEP2012-0728 listing the UK's
requests to participate in activities of the EU agency Frontex, 30 April 2012, available at:
http://www.parliament.uk/business/publications/business-papers/commons/depositedpapers/?page=2&fd=2012-04-30&td=2012-05-02&house=1#toggle-728.
395
th
: House of Lords European Union Committee, Frontex: the EU external borders agency, 9 report of
Session 2007-08, March 2008, para 124.
203
If the UK wished to extract itself from these laws, either now or in the future, while remaining a
member of the EU, it would have to obtain an amendment to the EU treaties. An amendment to
the EU treaties might also provide a more ideal way of dealing with the pre-Lisbon EU laws that
do fall under the block opt out.
Any such EU treaty amendment would require the agreement of all EU Member States.
EU treaty change allowing the UK to opt out of current post-Lisbon laws
The least radical change would be to insert a provision into the EU treaties allowing the UK to opt
out of those EU policing and criminal justice laws not under the block opt out that are presently
known.
Other Member States might insist that the UK opt out of negotiations on such laws that are not yet
adopted, as otherwise the UK would have a vote on these laws but could then opt out of them
straight away.
This amendment would leave the treaty provisions allowing the UK to take part in further EU
policing and criminal justice laws, but which stipulate that the UK cannot opt out of such further
laws it decides to participate in, and which provide for full ECJ jurisdiction over these measures.
This runs the risk of one Government/Parliament choosing to bind the UK into an EU law which
future Parliaments cannot then extract the UK from (without leaving the EU), and which may be
developed in an unexpected way by ECJ rulings.
On the other hand, this would allow the UK to opt out of measures such as the European
Investigation Order, and the limited scope of this change would increase its chances of being
accepted by the other Member States.
EU treaty change allowing the UK to stay outside full ECJ jurisdiction
There may be cases where, apart from full ECJ jurisdiction, the UK wished to remain bound by
EU laws under the block opt out, or desired to take part in post-Lisbon EU laws in policing or
criminal justice. The UK could seek an EU treaty amendment that applied, for the UK, the preLisbon level of ECJ jurisdiction to these laws. Alternatively, the UK could seek the complete
exclusion of ECJ jurisdiction from itself when it came to this legislation.
Denmark currently has an arrangement under the EU treaties whereby EU laws building on the
Schengen acquis if Denmark chooses to participate in them apply between Denmark and the
other Member States as an international legal obligation, rather than as EU law. This seems to
mean that the ECJ does not have the power to issue rulings to Denmark on these laws
provisions. However, Denmark is also not allowed a vote on the adoption of these laws by the
EU.
A treaty amendment limiting or excluding ECJ jurisdiction as described above would restrict the
power of the supranational EU institutions to develop EU policing and criminal justice laws as they
applied to the UK. However, it would not alter the fact that a UK decision to participate in such
laws is, under the EU treaties, irreversible. This means a Government and/or Parliament could
continue to require future Parliaments to abide by such laws, while the UK remained an EU
member.
204
EU treaty change that made the UK decision to participate reversible

Probably the most radical change the UK could seek would be an amendment to the EU treaties
that allowed the UK to opt out of EU policing and criminal justice laws it had previously decided to
participate in.
This would enable the British people to exercise continuing democratic control over this area, in a
way consistent with UK membership of the EU.
The main objection other Member States are likely to raise against making the UK decision to
participate reversible is that the UK could take part in voting on a law that would bind the other
Member States, but which the UK could then opt out of itself.
To mitigate this, the EU treaties could provide that the UK may only opt out of a law after three
years had elapsed since it had to be implemented by Member States, or after a new Parliament
had been formed in the UK since its adoption. This could be combined with a treaty provision
allowing the UK to opt out of the adoption of (and voting on) a proposed EU policing or criminal
justice law, where the UK had previously opted to take part in its adoption. Given the prevalence
of QMV, this would be a useful safeguard to prevent the UK becoming bound by a law it believed
was against its interests, even for a temporary period, after negotiations took an undesirable turn.
Alternatively, the EU treaties could allow the UK to opt out whenever it wished (subject perhaps to
a notice period, where necessary), though at the same time they could prevent the UK from
wielding a vote in the adoption of EU policing and criminal justice laws.
If the UK was given the right to opt out of these EU laws after becoming bound by them, this
could reduce the need to restrict the ECJs jurisdiction over these laws. This is because if the ECJ
passed a ruling that applied one of these laws in a detrimental way, the UK would have the option
of ceasing to be bound by that law altogether. Indeed, such a right for the UK could remove the
need to invoke the block opt out from pre-Lisbon policing and criminal justice laws the UK could
instead opt out of selected laws from this category as and when it felt the need.
It should also be pointed out that there are articles in the EU treaties that could be used to pass
EU policing and criminal justice laws, which may not currently be covered by the UKs ability to
decide whether or not it is bound by such laws. This is because the EU treaties say this UK
choice covers EU laws based on a particular part of the treaties, and these articles sit outside that
part. Two articles in particular are Article 33 TFEU396 and Article 325 TFEU. Respectively, these
allow the EU to pass laws on customs co-operation and the fight against fraud affecting the EU
budget. Before the Lisbon Treaty, these articles said that EU laws based upon them could not
concern the application of national criminal law or the national administration of justice. The
Lisbon Treaty removed this limitation. Such laws are decided by QMV in the Council.
It may be that the UK Government believes it can assert a UK right to decide whether or not to
participate in EU laws based on these articles. However, if an EU treaty amendment takes place
in this area, it would seem prudent to seek an explicit provision allowing the UK not to participate
in EU laws based on these articles that would affect its criminal law or enforcement or
administration of criminal justice.
Even with certain safeguards for the other Member States, allowing the UK to opt out of EU
policing and criminal justice laws it had previously become bound by would probably be regarded
as a very big request by the other EU countries. The same would go for special UK exemption
from ECJ jurisdiction in this area.
396
: Treaty on the Functioning of the European Union, one of the EU treaties.
205
However, as noted, special rules already apply to the UK in this field. It is hard to see how the UK
discretion sought would have any major adverse effects on other Member States.
Moreover, the UK may have negotiating leverage over EU treaty change in the coming months or
years.
Firstly, Germany would like to incorporate the terms of the fiscal integration treaty agreed among
most EU countries in March 2012 into the EU treaties.
Secondly, if (or perhaps this should be when) Greece leaves the Euro, there will almost certainly
need to be an amendment to the EU treaties giving legal authority to this course of action,
probably retrospectively. This is because the EU treaties do not currently provide for a Eurozone
Member State to leave the single currency.
Such changes to the EU treaties would require the UKs approval.
Refuse to apply EU policing and criminal justice laws deemed unacceptable

If the UK found EU policing and criminal justice laws it was bound by intolerable, perhaps
because of rulings by the ECJ, and other Member States were not willing to agree changes to the
EU treaties that allowed the UK to opt out of such laws, the UK could unilaterally stop applying
these laws in its territory.
This would be perfectly possible in the UKs legal order, though to be legally watertight it would
almost certainly require an Act of Parliament.
This course of action would, however, be a breach of the UKs EU treaty obligations in
international law. While, ultimately, the EU cannot enforce its treaties against the UK, in general
international law the other Member States might be able to suspend obligations they owe to the
UK internationally, including but not limited to EU treaty obligations. This action could, though,
help to force a meaningful negotiation if other Member States had previously refused to take the
UK seriously. The suitability of this approach is likely to depend on the UKs priorities and its
bottom line regarding its future relationship with the EU.
206
Appendix: EU policing and criminal justice laws under the UK

block opt out397
No.
Year of
adoption
1995
Council Act of 26 July 1995 drawing up the Convention on the protection of

the European Communities' financial interests
1996
Joint Action 96/277/JHA of 22 April 1996 concerning a framework for the

exchange of liaison magistrates to improve judicial cooperation between the
Member States of the European Union
1996
Joint Action 96/610/JHA concerning the creation and maintenance of a

Directory of specialized counter-terrorist competences, skills and expertise to
facilitate counter-terrorist cooperation between the Member States of the
European Union
1996
Joint Action 96/698/JHA on cooperation between customs authorities and

business organizations in combating drug trafficking
1996
Joint Action 96/699/JHA concerning the exchange of information on the

chemical profiling of drugs to facilitate improved cooperation between
Member States in combating illicit drug trafficking
1996
Joint Action 96/747/JHA concerning the creation and maintenance of a

directory of specialized competences, skills and expertise in the fight against
international organized crime, in order to facilitate law enforcement
cooperation between the Member States of the European Union
1996
Joint Action 96/750/JHA concerning the approximation of the laws and

practices of the Member States of the European Union to combat drug
addiction and to prevent and combat illegal drug trafficking
1996
Council Act of 27 September 1996 drawing up a Protocol to the Convention

on the protection of the European Communities' financial interests
1997
Convention on the fight against corruption involving officials of the European

Communities or officials of Member States of the European Union
10
1997
Joint Action 97/339/JHA of 26 May 1997 with regard to cooperation on law

and order and security
11
1997
Joint Action 97/372/JHA of 9 June 1997 for the refining of targeting criteria,
selection methods, et. and collection of customs and police information
Title
397
As provided by the Government in December 2011, though with four of the laws on the Governments
list struck off see the section of this chapter EU laws covered by the UKs block opt out. Correct as at the
end of May 2012.
207
12
1997
Council Act of 19 June 1997 drawing up the Second Protocol of the

Convention on the protection of the European Communities' financial
interests
13
1997
Joint Action 97/827/JHA of 5 December 1997 establishing a mechanism for

evaluating the application and implementation at national level of international
undertakings in the fight against organized crime
14
1997
Council Act of 18 December 1997 drawing up the Convention on mutual

assistance and cooperation between customs administrations
15
1998
Council Act of 17 June 1998 drawing up the Convention on Driving

Disqualifications
16
1998
Joint Action 98/427/JHA of 29 June 1998 on good practice in mutual legal

assistance in criminal matters
17
1998
Joint Action 98/699/JHA of 3 December 1998 on money laundering, the

identification, tracing, freezing, seizing and confiscation of instrumentalities
and proceeds from crime
18
1998
Joint Action 98/700/JHA of 3 December 1998 concerning the setting up of a

European Image Archiving System (FADO)
19
1999
Council Act of 3 December 1998 laying down the staff regulations applicable
to Europol employees
20
1999
Council Decision 1999/615/JHA of 13 September 1999 defining 4-MTA as a

new synthetic drug which is to be made subject to control measures and
criminal penalties
21
1999
Council Decision of 2 December 1999 amending the Council Act of 3

December 1998 laying down the staff regulations applicable to Europol
employees, with regard to the establishment of remuneration, pensions and
other financial entitlements in euro
22
2000
Council Decision 2000/261/JHA of 27 March 2000 on the improved exchange

of information to combat counterfeit travel documents
23
2000
Council Decision 2000/375/JHA to combat child pornography on the internet
24
2000
Council Framework Decision 2000/383/JHA of 29 May 2000 on increasing

protection by criminal penalties and other sanctions against counterfeiting in
connection with the introduction of the euro
25
2000
Council Act of 29 May 2000 establishing the Convention on mutual

assistance in criminal matters between the Member States of the European
Union
208
26
2000
Council Decision 2000/641/JHA of 17 October 2000 establishing a secretariat

for the joint supervisory data-protection bodies set up by the Convention on
the establishment of a European Police Office (Europol Convention), the
Convention on the Use of Information Technology for Customs Purposes and
the Convention implementing the Schengen Agreement on the gradual
abolition of checks at the common borders (Schengen Convention)
27
2000
Council Decision 2000/642/JHA of 17 October 2000 concerning

arrangements between financial intelligence units of the Member States in
respect of exchanging information
28
2001
Council Framework Decision 2001/220/JHA of 15 March 2001 on the

standing of victims in criminal proceedings
29
2001
Council Framework Decision 2001/413/JHA of 28 May 2001 combating fraud

and counterfeiting of non-cash means of payment
30
2001
Council Decision 2001/419/JHA of 28 May 2001 on the transmission of

samples of controlled substances
31
2001
Council Framework Decision 2001/500/JHA of 26 June 2001 on money

laundering, the identification, tracing, freezing, seizing and confiscation of
instrumentalities and the proceeds of crime
(repealing Articles 1, 3, 5(1) and 8(2) of Joint Action 98/699/JHA)
32
2001
Council Act of 16 October 2001 establishing the Protocol to the Convention

on mutual assistance in criminal matters between the Member states of the
European Union
33
2001
Council Decision 2001/887/JHA of 6 December 2001 on the protection of the

euro against counterfeiting
34
2001
Council Framework Decision 2001/888/JHA of 6 December 2001 amending

Framework Decision 2000/383/JHA on increasing protection by criminal
penalties and other sanctions against counterfeiting in connection with the
introduction of the euro
35
2002
Council Decision 2002/187/JHA of 28 February 2002 setting up Eurojust with

a view to reinforcing the fight against serious crime
36
2002
Council Decision 2002/188/JHA of 28 February 2002 concerning control

measures and criminal sanctions in respect of the new synthetic drug PMMA
37
2002
Council Decision 2002/348/JHA of 25 April 2002 concerning security in

connection with football matches with an international dimension
38
2002
Council Framework Decision 2002/465/JHA of 13 June 2002 on joint

investigation teams
39
2002
Council Framework Decision 2002/475/JHA of 13 June 2002 on combating

terrorism
209
40
2002
Council Decision 2002/494/JHA of 13 June 2002 setting up a European

network of contact points in respect of persons responsible for genocide,
crimes against humanity and war crimes
41
2002
Council Framework Decision 2002/584/JHA of 13 June 2002 on the

European arrest warrant and the surrender procedures between Member
States
42
2002
Council Framework Decision 2002/946/JHA of 28 November 2002 on the

strengthening of the penal framework to prevent the facilitation of
unauthorised entry, transit and residence
43
2002
Council Decision 2002/956/JHA of 22 November 2002 setting up a European

Network for the Protection of Public Figures
44
2002
Council Decision 2002/996/JHA of 28 November 2002 establishing a

mechanism for evaluating the legal systems and their implementation at
national level in the fight against terrorism
45
2003
Council Decision 2003/170/JHA of 27 February 2003 on the common use of

liaison officers posted abroad by the law enforcement agencies of the
Member States
46
2003
Council Framework Decision 2003/568/JHA of 22 July 2003 on combating

corruption in the private sector
47
2003
Council Framework Decision 2003/577/JHA of 22 July 2003 on the execution

in the European Union of orders freezing property or evidence
48
2003
Council Decision 2003/642/JHA of 22 July 2003 concerning the application to

Gibraltar of the Convention on the fight against corruption involving officials of
the European Communities or officials of Member States of the European
Union
49
2003
Council Decision 2003/847/JHA of 27 November 2003 concerning control

measures and criminal sanctions in respect of the new synthetic drugs 2C-I,
2C-T-2, 2C-T-7 and TMA-2
50
2003
Council Decision 2003/335/JHA on the investigation and prosecution of

genocide, crimes against humanity and war crimes
51
2004
Council Decision 2004/731/EC of 26 July 2004 concerning the conclusion of

the Agreement between the European Union and Bosnia and Herzegovina on
security procedures for the exchange of classified information Agreement
between Bosnia and Herzegovina and the European Union on security
procedures for the exchange of classified information
52
2004
Council Framework Decision 2004/757/JHA of 25 October 2004 laying down

minimum provisions on the constituent elements of criminal acts and
penalties in the field of drug trafficking
210
53
2004
Council Decision of 2004/843/CFSP 26 July 2004 concerning the conclusion

of the Agreement between the European Union and the Kingdom of Norway
on security procedures for the exchange of classified information
54
2004
Council Decision 2004/919/EC of 22 December 2004 on tackling vehicle

crime with cross-border implications
55
2005
Council Common Position 2005/69/JHA of 24 January 2005 on exchanging

certain data with Interpol
56
2005
Council Framework Decision 2005/212/JHA of 24 February 2005 on

Confiscation of Crime-related Proceeds, Instrumentalities and Property
57
2005
Council Framework Decision 2005/214/JHA of 24 February 2005 on the

application of the principle of mutual recognition to financial penalties
58
2005
Council Framework Decision 2005/222/JHA of 24 February 2005 on attacks

against information systems
59
2005
Council Decision 2005/296/CFSP, JHA of 24 January 2005 concerning the

conclusion of the Agreement between the European Union and the former
Yugoslav Republic of Macedonia on the security procedures for the exchange
of classified information Agreement between the former Yugoslav Republic of
Macedonia and the European Union on the security procedures for the
exchange of classified information (Council Decision 2005/296/CFSP/JHA of
24 January 2005)
60
2005
Council Decision 2005/387/JHA of 10 May 2005 on the information exchange,

risk-assessment and control of new psychoactive substances
61
2005
Council Decision 2005/481/CFSP of 13 June 2005 concerning the conclusion

of the Agreement between the European Union and Ukraine on the security
procedures for the exchange of classified information
62
2005
Council Decision 2005/511/JHA of 12 July 2005 on protecting the euro

against counterfeiting, by designating Europol as the Central Office for
combating euro-counterfeiting
63
2006
Council Decision 2006/560/JHA of 24 July 2006 amending Decision

2003/170/JHA on the common use of liaison officers posted abroad by the
law enforcement agencies of the Member States
64
2005
Council Decision 2005/671/JHA of 20 September 2005 on the exchange of

information and cooperation concerning terrorist offences
65
2005
Council Decision 2005/681/JHA of 20 September 2005 establishing the

European Police College (CEPOL) and repealing Decision 2000/820/JHA
66
2006
Council Framework Decision 2006/783/JHA of 6 October 2006 on the

application of the principle of mutual recognitions to confiscation orders
211
67
2006
Council Framework Decision 2006/960/JHA of 18 December 2006 on

simplifying the exchange of information and intelligence between law
enforcement authorities of the Member States of the European Union
68
2006
Council Decision 2006/317/CFSP of 10 April 2006 concerning the conclusion

of the Agreement between the European Union and the Republic of Croatia
69
2006
Council Decision 2006/467/CFSP of 21 November 2005 concerning the

conclusion of the Agreement between the European Union and the Republic
of Iceland on security procedures for the exchange of classified information
70
2007
Council Decision 2007/412/JHA of 12 June 2007 amending Decision

2002/348/JHA concerning security in connection with football matches with
an international dimension
71
2007
Council Decision 2007/845/JHA of 6 December 2007 concerning cooperation

between Asset Recovery Offices of the Member States in the field of tracing
and identification of proceeds from, or property related to, crime
72
2007
Agreement between the European Union and the United States of America
on the processing of Passenger Name Records (PNR) data by air carriers to
the United States Department of Homeland Security
73
2007
Council Decision 2007/274/JHA of 23 April 2007 concerning the conclusion of

the Agreement between the European Union and the Government of the
United States of America on the security of classified information
74
2008
Council Decision 2008/206/JHA of 3 March 2008 defining 1-benzylpiperazine

(BZP) as a new psychoactive substance which is to be made subject to
control measures and criminal provisions
75
2008
Council Decision 2008/426/JHA of 16 December 2008 on the strengthening

of Eurojust and amending Decision 2002/187/JHA setting up Eurojust with a
view to reinforcing the fight against serious crime
76
2008
Council Decision 2008/568/CFSP of 24 June 2005 concerning the conclusion

of the Agreement between the European Union and the Swiss Confederation
77
2008
Council Decision 2008/615/JHA of 23 June 2008 on stepping up of crossborder cooperation, particularly in combating terrorism and cross-border
crime
78
2008
Council Decision 2008/616/JHA of 23 June 2008 on the implementation of

Council Decision 2008/615/JHA on stepping up of cross-border cooperation,
particularly in combating terrorism and cross-border crime
79
2008
Council Decision 2008/617/JHA of 23 June 2008 on the improvement of

cooperation between the special intervention units of the Member States of
the European Union in crisis situations
212
80
2008
Council Decision 2008/651/CFSP/JHA of 30 June 2008 on the signing, on

behalf of the European Union, of an Agreement between the European Union
and Australia on the processing and transfer of European Union-sourced
passenger name record (PNR) data by air carriers to the Australian Customs
Service
81
2008
Council Framework Decision 2008/675/JHA of 24 July 2008 on taking

account of convictions in the Member States of the European Union in the
course of new criminal proceedings
82
2008
Council Framework Decision 2008/841/JHA of 24 October 2008 on the fight

against organised crime
83
2008

application of the principle of mutual recognition to judgments in criminal
matters imposing custodial sentences or measures involving deprivation of
liberty for the purposes of their enforcement in the European Union
84
2008
Council Framework Decision 2008/913/JHA of 28 November 2008 on

combating certain forms and expressions of racism and xenophobia by
means of criminal law
85
2008
Council Framework Decision 2008/919/JHA of 28 November 2008 amending

Framework Decision 2002/475/JHA on combating terrorism
86
2008

application of the principle of mutual recognition to judgments and probation
decisions with a view to the supervision of probation measures and
alternative sanctions
87
2008
Council Decision 2008/976/JHA of 16 December 2008 on the European

Judicial Network
88
2009
Council Framework Decision 2009/299/JHA of 26 February 2009 amending

Framework Decisions 2002/584/JHA, 2005/214/JHA, 2006/783/JHA,
2008/909/JHA and 2008/947/JHA, thereby enhancing the procedural rights of
persons and fostering the application of the principle of mutual recognition to
decisions rendered in the absence of the person concerned at the trial
89
2009
Council Framework Decision 2009/315/JHA of 26 February 2009 on the

organisation and content of the exchange of information extracted from the
criminal record between Member States
90
2009
Council Decision 2009/316/JHA of 6 April 2009 on the establishment of the

European Criminal Records Information System (ECRIS) in application of
Article 11 of Framework Decision 2009/315/JHA
91
2009
Council Decision 2009/371/JHA establishing the European Police Office

(Europol)
213
92
2009
Council Decision 2009/796/JHA of 4 June 2009 amending Decision

2002/956/JHA setting up a European Network for the Protection of Public
Figures
93
2009
Council Framework Decision 2009/829/JHA of 23 October 2009 on the

application, between Member States of the European Union, of the principle
of mutual recognition to decisions of supervision measures as an alternative
to provisional detention
94
2009
Council Decision 2009/902/JHA of 30 November 2009 setting up a European

Crime Prevention Network (EUCPN) and repealing Decision 2001/427/JHA
95
2009

accreditation of forensic service providers carrying out laboratory activities
96
2009
Council Decision 2009/917/JHA of 30 November 2009 on the use of

information technology for customs purposes
97
2009
Agreement on mutual legal assistance between the European Union and the
United States of America
98
2009
Agreement on extradition between the European Union and the United States
of America
99
2009
Council Decision 2009/933/CFSP of 30 November 2009 on the extension, on

behalf of the European Union, of the territorial scope of the Agreement on
extradition between the European Union and the United States of America
100
2009
Council Decision 2009/934/JHA of 30 November 2009 adopting the

implementing rules governing Europol's relations with partners, including the
exchange of personal data and classified information
101
2009
Council Decision 2009/935/JHA of 30 November 2009 determining the list of

third countries with which Europol shall conclude agreements
102
2009
Council Decision 2009/936/JHA of 30 November 2009 adopting the

implementing rules for Europol analysis work files
103
2009

prevention and settlement of conflicts of exercise of jurisdiction in criminal
matters
104
2009
Council Decision 2009/968/JHA of 30 November 2009 adopting the rules on

the confidentiality of Europol information
105
2009
Council Decision 2010/348/EC of 17 November 2009 concerning the

conclusion of the Agreement between the Government of the Russian
Federation and the European Union on the protection of classified information
214
The EU laws above are non-Schengen measures. The following measures are EU
Schengen laws:
106
1985
107
Convention implementing the Schengen Agreement of 1985

Article 27(2) and (3)
Article 39 to the extent that that this provision has not been replaced by Council
Framework Decision 2006/960/JHA.
Article 40
Article 42 and 43 (to the extent that they relate to article 40)
Article 44
Article 46
Article 47 (except (2)(c) and (4))
Article 48
Article 49(b) (f)
Article 51
Article 54
Article 55
Article 56
Article 57
Article 58
Article 71
Article 72
Article 126
Article 127
Article 128
Article 129
Article 130
Final Act - Declaration N 3 (concerning article 71(2))
Accession Protocols: (amended in conformity with article 1(b) of CD
2000/365/EC and CD 2004/926/EC article 1)
Italy: Articles 2, , 4 + common declaration on articles 2 and 3 to the extent it
relates to article 2,
Spain: Articles 2, 4 and Final Act, Part III, declaration 2
Portugal: Articles 2, , 4, 5 and 6
Greece: Articles 2, 3, 4, 5 and Final Act, Part III, declaration 2
Denmark: Articles 2, , 4 and 6 and Final Act Part III joint declaration 3
Finland: Articles 2, , 4 and 5 and Final Act, Part II joint declaration 3
Sweden: Articles 2, , 4 and 5 + Final Act, Part II Joint declaration 3
108
1993
SCH/Com-ex (93) 14 on improving practical judicial cooperation for combating

drug trafficking
109
1996
SCH/Com-ex (96) decl 6 rev 2 (declaration on extradition)
110
1998
SCH/Com-ex (98) 26 def setting up a Standing Committee on the evaluation

and implementation of Schengen
111
1998
SCH/Com-ex (98)52 on the Handbook on cross-border police cooperation
112
1999
SCH/Com-ex (99)6 on the Schengen acquis relating to telecommunications
113
1999
SCH/Com-ex (99)7 rev 2 on liaison officers
114
1999
SCH/Com-ex (99)8 rev 2 on general principles governing the payment of

informers
215
115
1999
SCH/Com-ex (99) 11 rev 2 (agreement on cooperation in proceedings for road

traffic offences)
116
2000
Council Decision 2000/586/JHA of 28 September 2000 establishing a

procedure for amending Articles 40(4) and (5), 41(7) and 65((2) of the
Convention implementing the Schengen Agreement of 14 June 1985 on the
gradual abolition of checks at common borders.
117
2003
Council Decision 2003/725/JHA of 2 October 2003 amending the provisions of

Article 40(1) and (7) of the Convention implementing the Schengen Agreement
of 14 June 1985 on the gradual abolition of checks at common borders
118
2004
Council Decision 2004/849/EC of 25 October 2004 on the signing, on behalf of

the European Union, and on the provisional application of certain provisions of
the Agreement between the European Union, the European Community and
the Swiss Confederation concerning the Swiss Confederation's association
with the implementation, application and development of the Schengen Acquis
119
2005
120
2006
121
2006
Council Decision 2005/211/JHA of 24 February 2005 concerning the

introduction of some new functions for the Schengen Information System,
including in the fight against terrorism
Council Decision 2006/228/JHA of 9 March 2006 fixing the date of application
of certain provisions of Decision 2005/211/JHA concerning the introduction of
some new functions for hte Schengen Information System, including the fight
against terrorism
some new functions for the Schengen Information System, including the fight
against terrorism
122
2006
123
2007
124
2007
125
2008
126
2008
127
2008
128
2008
129
2009

some new functions for the Schengen Information System, including the fight
against terrorism
Commission Decision 2007/171/EC of 16 March 2007 laying down the network
requirements for the Schengen Information System II (third pillar)
Council Decision 2007/533/JHA of 12 June 2007 on the establishment,
operation and use of the second generation Schengen Information System
(SIS II)
Council Decision 2008/173/EC of 18 February 2008 on the tests of the second
generation Schengen Information System (SIS II)
Commission Decision 2008/334/JHA of 4 March 2008 adopting the SIRENE
Manual and other implementing measures for the second generation Schengen
Information System (SIS II)
Council Decision 2008/328/EC of 18 April 2008 amending the Decision of the
Executive Committee set up by the 1990 Schengen Convention, amending the
Financial Regulation on the costs of installing and operating the technical
support function for the Schengen Information System (C.SIS)
Council Decision 2008/149/EC of 28 January 2008 on the conclusion, on
behalf of the European Union, of the Agreement between the European
Union, the European Community and the Swiss Confederation on the Swiss
Confederation's association with the implementation, application and
development of the Schengen acquis
Commission Decision 2009/724/JHA of 17 September 2009 laying down the
date for the completion of migration from the Schengen Information System
(SIS 1+) to the second generation Schengen Information System (SIS II)
216
Chapter 10
Immigration
The summary
The immigration to the UK of the last 15 years has been of far greater scale than in previous
decades. Net immigration (which is immigration after taking account of emigration) is estimated
to have been 252,000 people in 2010 alone.
Immigration can be hugely beneficial for a country. However, large-scale immigration may
cause problems. Immigration can affect overall prosperity, the job prospects of citizens and the
public finances. Net immigration fuels population growth, which may have economic and quality
of life downsides in a country with high population density. Large-scale immigration over a short
period might also negatively affect social cohesion.
A rough estimate shows that net immigration from the EU accounted for almost a third of total
net immigration to the UK in 2010.
Under EU law, the UK has very limited control over the immigration of nationals of other EU
Member States and certain of their family members.
Under the EUs so-called Free Movement Directive, an EU immigrants right to reside in
another Member State is only loosely tied to them being in work or self-sufficient. For instance,
an EU immigrant can stay in another Member State for as long as they are looking for work and
can show that they have a genuine chance of finding employment. When resident in another
Member State under the Directive, an EU immigrant is entitled to equal treatment with citizens
of the host Member State, in most matters. This includes access to state welfare in most
circumstances.
The previous Government decided not to apply temporary restrictions on access to the UK job
market for nationals of the eight Central and Eastern European countries that joined the EU in
2004. This contributed to a major increase in net immigration from the EU. Romania and
Bulgaria became EU members in 2007; this time, the UK did apply transitional labour market
restrictions on people from these new Member States. The current Government is extending
these restrictions until 2014, the maximum period permitted under the Romanian and Bulgarian
EU accession treaty.
It seems likely that major immigration from the EU will continue for some time, and may
increase as the eurozone crisis continues and Bulgarians and Romanians gain full EU free
movement rights.
Evidence and theory suggest that EU immigration has a negligible effect on overall UK wealth
per capita.
There is little hard evidence that EU immigration affects the employment / unemployment rate
of British citizens. However, more research needs to be done on the effect of EU immigration
on the employment prospects of both low-skilled and young British people, since the recession
of 2008. This is because a large proportion of immigrants from the newer Member States work
in lower-skilled jobs.
Lack of evidence of a link between EU immigration and British unemployment may be due, in
part, to those British people seeking work not accepting the sort of jobs being filled by many EU
immigrants. However, the current Government is pursuing major welfare reform aimed at
getting the long-term unemployed back into work. As these reforms take effect, competition for
jobs between Britons and EU immigrants may intensify.
219
Little research has been done on the overall impact on the public finances of EU immigration.
One study estimated that immigrants from the Central and Eastern European countries that
joined the EU in 2004 made a net contribution to the UK public purse between 2005 and 2009.
However, this contribution was a tiny proportion of total public expenditure. It is also difficult
accurately to project the long-term fiscal effect of immigration.
Net EU immigration is increasing the UK population, despite the UK already having the highest
population density of any comparably sized EU country. This could have economic costs, such
as through increased transport congestion, and creates environmental pressures.
The EU also has powers over immigration to Member States from non-EU countries, including
asylum seekers. The UK has the right to choose whether it is bound by EU laws in this area,
but once it has opted in to such a law it cannot opt out again. The UK has opted in to some EU
laws on asylum, but not on economic immigration from outside the EU.
Undertake domestic reforms but seek no change to EU law. The UK could choose this option
on the basis of a lack of hard evidence of negative economic effects of EU immigration. The UK
could focus, as the current Government is doing, on reducing immigration from outside the EU
and pursuing welfare and education reform, to encourage and enable more British people to
find work. This would not address the fact that EU immigration seems set to continue adding to
the UK population, and might increase in future. In addition, the lack of evidence to date on
negative economic effects of EU immigration could be down to gaps in research.
Seek better safeguards in EU law while retaining general EU free movement. The UK could
seek changes to the Free Movement Directive and other EU legislation to try and ensure that
EU immigration does not impact adversely on the UK. Changes could include more closely
tying the right to reside in another Member State to being in work or self-sufficient, as well as
tightening up access to another Member States welfare system. However, whether such
changes could be made through the EU legislative process is dubious, given likely resistance
from the European Commission and European Parliament. Separately, the UK could wield its
veto to ensure that if and when further countries join the EU, existing Member States are able
to apply controls on immigration from those countries until economic convergence is achieved.
Seek EU treaty change to allow Member States to impose a skill / income threshold on
immigrants from other EU countries. Such a threshold would be likely to reduce significantly the
number of EU immigrants coming to the UK, and help ensure that they increased UK prosperity
and did not become a fiscal burden. It would also protect against the risk of EU immigrants
depriving British citizens of jobs in the low-skilled end of the labour market. This treaty change
could also allow the UK to reverse decisions to opt in to EU laws on non-EU immigration. EU
treaty change would require the agreement of all Member States, though not the Commission
or European Parliament. This would be a radical change in the EU and many Member States
are likely to be opposed, at least at first. However, the UK will have negotiating leverage if, as
seems likely, EU treaty change is sought as a result of the eurozone crisis.
Limit EU immigration despite EU free movement rules. If the UK believed EU immigration was
having an adverse impact upon it, and it was not able to get agreement to its desired reforms to
EU free movement rules, it could unilaterally cease applying those rules to one extent or
another. The UK could, for instance, stop at least some immigrants from other EU countries
entering at the border, or refuse to pay out benefits to them. Such actions would be possible in
the UK legal order through an Act of Parliament, but would breach the UKs EU treaty
obligations in international law. Such action would provoke a major row with other EU countries,
which would be likely to impose similar restrictions on British immigrants. However, it could
bring other Member States back to the negotiating table over EU rules.
220
The introduction
The immigration to the UK in both gross and net terms of the last 15 years has been of far
greater scale than in previous decades.
This has led to a major increase since the mid-1990s in the number of foreign nationals living in
the UK.
There has always been some immigration to the UK, and there is nothing wrong with
immigration per se. The UK is, and should remain, a tolerant country that rejects racism.
Immigration can be hugely beneficial for a country.
However, large-scale immigration raises important questions, and may cause problems. Are
the new arrivals helping to make the country more prosperous, or are they making it poorer?
Can existing public services, infrastructure and housing stocks cope? Are immigrants affecting
any particular group of UK citizens adversely, such as by taking jobs that would otherwise go to
them? Will the new arrivals integrate satisfactorily into British society, and respect the law of the
land?
The British public are not happy with the current scale of immigration to the UK. In a 2011
survey, 69% of respondents thought that the number of immigrants should be reduced, a result
in line with other polls. This survey did, though, reveal some nuances in public opinion towards
particular types of immigration. A large majority believed that the number of most low-skilled
immigrant workers should be brought down.398
The Governments Coalition Agreement says to ensure cohesion and protect our public
services, we need to introduce a cap on immigration and reduce the number of non EU
immigrants. The Home Secretary has said the Government will reduce net immigration from
the hundreds of thousands to the tens of thousands.399
The debate about immigration is wide-ranging and complex, and it is not within the scope of
this chapter to address it fully. In particular, while recent immigration to the UK has come from
many different parts of the world, this chapter is focused on UK immigration as it is affected by
the EU. This means a focus, mainly, on immigration from other EU countries, though the EU
does also have legislation on asylum and immigration from non-EU states. Asylum seekers are
a special subset of immigrants, who seek refuge from what they claim to be persecution in their
country of origin. This distinguishes them from immigrants (much larger in number) who come
to the UK not to escape persecution, but to seek a better life in general terms.
This chapter examines the scale and certain key effects of immigration to the UK that is
regulated by EU law. It assesses what reforms may be needed in this area, and how these
could be achieved.
398
: Migration Observatory at the University of Oxford, Thinking Behind the Numbers: Understanding
Public Opinion on Immigration in Britain, October 2011. This survey was based on a representative
sample of the adult population in Great Britain.
399
: House of Commons Library, Immigration and Asylum Policy: Government plans and progress made,
May 2012, pp.2-3.
221
The detail
Overall scale of immigration in historical context
Graph 1 below400 shows estimates of long-term immigration, emigration and net migration401 to
and from the UK since the International Passenger Survey the main measure of such UK
migration was introduced in 1964. This covers EU and non-EU migration.
Graph 1
thousands
600
Immigration
500
Emigration
400
300
Net migration
200
100
2010
2008
2006
2004
2002
2000
1998
1996
1994
1992
1990
1988
1986
1984
1982
1980
1978
1976
1974
1972
1970
1968
1966
1964
-100
This shows that immigration to the UK really took off after 1997, with two especially sharp
increases in the level of annual immigration occurring in the periods 1997 1999 and 2002
2004. Between 2004 and 2010 (the latest calendar year for which figures are available), the
level of immigration has remained broadly stable, averaging 582,000 people per annum.402 Net
immigration has fluctuated more since 2004, but mainly due to variations in the level of
emigration. Net migration to the UK between 2004 and 2010 has averaged + 213,571 people
per annum.
Unsurprisingly given the above, the number of foreign nationals resident in the UK more than
doubled between 1993 and 2011, from almost 2 million to 4.5 million.403 Over the same period,
the share of foreign nationals in the total UK population increased from 3.6% to 8%. The share
was relatively flat until around 1999, when it began to rise steadily, with the fastest increase
between 2003 and 2008.404
400
: House of Commons Library, Migration Statistics, December 2011, p.5.

: A long-term international migrant is defined as someone who changes his or her country of usual
residence for at least a year. Net migration is the difference between immigration and emigration; where
it is a positive figure there is net immigration, while a negative figure shows net emigration.
402
: Graph 1 shows estimates based solely on the International Passenger Survey (IPS). Since 1991,
more accurate estimates have been obtained by supplementing the IPS with other data sources. These
more accurate figures are used to derive the annual averages cited regarding immigration since 2004.
403
: Migration Observatory at the University of Oxford, Migrants in the UK: An Overview, May 2012, p.3.
404
: Ibid, p.5.
401
222
The EU dimension
Intra-EU immigration
Basic EU law
The EU greatly limits the UKs control over the immigration of nationals of other EU countries
and certain of their family members.
The EU treaties state that all nationals of EU Member States are also EU citizens.
The treaties further provide: Every citizen of the Union [EU] shall have the right to move and
reside freely within the territory of the Member States, subject to the limitations and conditions
laid down in the Treaties and by the measures adopted to give them effect.405
The primary piece of EU legislation governing the right of Member State nationals to move to,
and reside in, other Member States is the so-called Free Movement Directive406.
Rules regarding EU citizens under the Directive also apply to nationals of countries in the
European Economic Area (EEA) that are not in the EU. These are Norway, Iceland and
Liechtenstein. References to Member States are taken as references to these countries as
well.
The right of residence under the Directive is only quite loosely tied to being in work. An EU
citizen (who may be joined by certain of their family members) may enter and stay in another
Member State as long as they are looking for a job and can show that they have a genuine
chance of finding work. EU citizens can also stay in another Member State if, after completing
one year of employment, they lose their job involuntarily and register as a job-seeker. Various
family members of an EU citizen can obtain their own independent right of residence in another
Member State if their associated EU citizen leaves that country. EU citizens and their relevant
family members are also given a permanent right of residence in another Member State, if they
have resided there under the terms of the Free Movement Directive for 5 years (and sometimes
for a shorter period).
Under the EU treaties, the interpretation of the Directives provisions is ultimately for the EUs
Court of Justice (ECJ) to determine.
Key provisions of the Directive include:
An EU citizen has the right of residence for up to 3 months in a Member State other than
the one of which they are a national, as long as they do not become an unreasonable
burden on the host Member States social assistance system. The same applies to
certain family members of the EU citizen, who accompany or join that citizen but are not
themselves EU citizens.
An EU citizen (along with certain of their family members, whether or not they are
themselves EU citizens) has a right of residence for more than 3 months in another
Member State if that EU citizen:
o
405
406
Is employed or self-employed in the host Member State, or
: Article 21(1) of the Treaty on the Functioning of the European Union, one of the EU treaties.
: Directive 2004/38/EC.
223
Has sufficient resources so that they and their family members do not become a
burden on the host Member States social assistance system.
The EU citizen retains the status of an employed or self-employed person (and hence their
right, and the right of their family members, of residence in the host Member State for more
than 3 months) in scenarios including:
o
They are in duly recorded involuntary unemployment after being in employment for
more than a year, and have registered as a job seeker.
They embark on vocational training; unless they are involuntarily unemployed, this
training must be related to the previous employment.
The right of residence for an EU citizen and their family members continues for as long as
the conditions for residence post-3 months are met. In addition, the Directive includes a
provision that prohibits the host Member State from expelling an EU citizen or their family
members if:
o
The EU citizen is employed or self-employed, or
The EU citizen entered the host Member State to seek employment, and can provide
evidence that they are continuing to seek employment and that they have a genuine
chance of finding work.
This applies both before and after 3 months have elapsed following the persons entry into
the host Member State.
When it comes to determining whether an EU citizen has sufficient resources not to be a

burden on the social assistance system, Member States must take into account the
personal situation of the person concerned. The resources the person is required to have
shall not be higher than the threshold below which nationals of the host Member State
become eligible for social assistance, or, where this criterion is not applicable, higher than
the minimum social security pension paid by the host Member State.
Once an EU citizen has resided legally in a host Member State for a continuous period of 5
years, they gain the right of permanent residence there. The same applies to a family
member who is not an EU citizen, who has resided with their associated EU citizen for 5
years.
Where an EU citizen or family member enjoys the right of entry or residence under the
Directive, the grounds on which a Member State may restrict those rights are public policy,
public security or public health. The Directive states explicitly, These grounds shall not be
invoked to serve economic ends.
Restrictions based on public policy or public security must comply with the principle of
proportionality and be based exclusively on the personal conduct of the individual
concerned. Previous criminal convictions shall not in themselves constitute grounds for
taking such measures. In addition, when it comes to restrictions on public health grounds,
a Member States scope for action is very limited.
224
Member States may also refuse or terminate any right under the Directive in the case of
abuse of rights or fraud, with marriages of convenience given as an example.407
EU enlargements from 2004

In May 2004, 10 new Member States joined the EU. Eight of these are in Central and Eastern
Europe the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Slovakia and
Slovenia. This group of countries is sometimes termed the A8. Cyprus and Malta also joined
the EU at this time.
The combined population of the A8 is 72.9 million. The population of Poland, at 38.1 million, is
larger than that of all the other 2004 accession countries put together.408
In January 2007, Bulgaria and Romania joined the EU. These are sometimes called the A2
countries. The combined population of the A2 is 29.1 million, split between Romania with 21.5
million people and Bulgaria with 7.6 million.409
The accession treaties providing for the EU enlargements of 2004 and 2007 effectively qualified
the free movement provisions of EU law for people from the new Member States, apart from
Cyprus and Malta410, for a period of up to 7 years from the relevant countrys accession.
This qualification allowed pre-existing Member States to impose temporary controls on people
moving from the new Member States to take up employment in their territories. These controls
could not apply to those moving from the new Member States to become self-employed, or who
had sufficient resources not to become a burden on the social assistance system. The
controls could also not affect the right of entry to a Member State.
For the 2004 accession, the UK decided to apply only minor conditions to the right of nationals
of the A8 Member States to come and take up employment in the UK. The centerpiece of the
UKs approach was the Worker Registration Scheme (WRS).
Under the WRS, nationals of these countries were free to come and take up employment in the
UK, but they were required to register with the Government upon taking up a job, or their
employment became unlawful. UK rules provided that if they lost their job for whatever reason
before completing 12 months continuous, legal employment in the UK, A8 nationals would not
qualify for the right of residence on the grounds of employment or as a job-seeker. On the other
hand, once these people had done a years legal employment, they gained the same rights of
residence as nationals of pre-2004 EU Member States.
One consequence of an A8 national not having the right of residence was that they could not
access UK benefits that are only given to those with the right to reside in the UK. These include
Housing Benefit, Council Tax Benefit, Income Support, income-based Jobseekers Allowance
and income-related Employment and Support Allowance. So while A8 nationals could access
these benefits while in legal employment, they could not access them when out of work, until
they had completed a years employment.
407
: In a guidance document on the Directive, the European Commission said abuse of rights can be
defined as artificial conduct entered into solely with the purpose of obtaining the right of free movement
and residence under Community law which, albeit formally observing of the conditions laid down by
Community rules, does not comply with the purpose of those rules [emphasis in original]. European
Commission, Guidance for better transposition and application of Directive 2004/38/EC on the right of
citizens of the Union and their family members to move and reside freely within the territory of the
Member States, July 2009, p.15.
408
: http://europa.eu/about-eu/countries/index_en.htm.
409
: Ibid.
410
: These countries were, by and large, wealthier per capita than the A8 nations, and have very small
populations.
225
With the exception of the Republic of Ireland and Sweden, all other pre-2004 Member States
placed restrictions on the right of A8 nationals to take up employment in their countries (as
opposed to the UK regime, which merely required registration, rather than imposing
restrictions).
Under the relevant accession treaty, the 7-year transitional period relating to A8 country
workers expired in May 2011. This means A8 nationals now have the full rights of residence
under EU law in all Member States. As a result, the UKs WRS and related special restrictions
on the right of residence of A8 nationals no longer apply.
For the 2007 accession, the UK decided to impose much more restrictive limitations on the right
of Bulgarian and Romanian nationals to come to the UK to take up employment. For the most
part, these people still have to obtain authorisation to assume employment in the UK. Until they
have legal employment, they do not have the right to reside in the UK under EU law on the
grounds of employment. Furthermore, the UK does not recognise a right for these people to
reside in this country while they are looking for work.
However, if Bulgarian or Romanian employees who needed authorisation to work complete 12
months continuous, legal employment in the UK, they no longer require permission to work
they get free access to the UK jobs market.
The Government has said that the UK restrictions have limited Bulgarian and Romanian
immigrant employees to employment that is either skilled or is in sectors where there
continues to be a shortage of labour.411
As noted above, restrictions on the right of Romanian and Bulgarian nationals to take up
employment in the UK and other Member States can only be maintained for a maximum of 7
years under the relevant accession treaty that is, until January 2014. The Coalition
Government has announced that it will be applying the UKs restrictions until that point.412
Conversely, some other Member States do not currently apply any restrictions to A2
nationals.413
The scale of EU immigration
Table 1 below shows total net migration to the UK of foreign nationals414 in the decade 2001
2010. It also shows the net migration to the UK of non-British EU citizens in this period, in the
context of total net migration. In the tables that follow, EU15 are all the pre-2004 EU Member
States, while EU14 are these countries minus the UK.
411
: HC Deb 23 November 2011, c21WS.

: HC Deb 23 November 2011, cc21WS-22WS.
413
: Fic et al, Labour Mobility within the EU the impact of enlargement and transitional arrangements,
National Institute of Economic and Social Research, August 2011, p.7.
414
: This excludes net migration of British nationals.
412
226
Table 1
Year
Total net
migration
of foreign
nationals
to the UK
Net
migration
to the UK
of
nationals
of all other
EU
countries
Net
migration
to the UK
of
nationals
of EU14
countries
Net
migration
to the UK
of
nationals
of EU
countries
outside
EU15
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
+ 220,000
+ 241,000
+ 239,000
+ 352,000
+ 294,000
+ 322,000
+ 330,000
+ 251,000
+ 242,000
+ 294,000
+ 7,000
+ 7,000
+ 15,000
+ 87,000
+ 96,000
+ 104,000
+ 127,000
+ 63,000
+ 58,000
+ 77,000
+ 7,000
+ 7,000
+ 15,000
+ 38,000
+ 33,000
+ 30,000
+ 36,000
+ 37,000
+ 29,000
+ 18,000
n/a
n/a
n/a
+ 49,000
+ 63,000
+ 74,000
+ 91,000
+ 26,000
+ 29,000
+ 59,000
Percentage of
total net
migration of
foreign
nationals to the
UK made up by
net migration of
nationals of all
other EU
countries
3.2
2.9
6.3
24.7
32.7
32.3
38.5
25.1
24.0
26.2
Percentage of
total net
migration of
foreign
nationals to the
UK made up by
net migration of
nationals of EU
countries
outside EU15
n/a
n/a
n/a
13.9
21.4
23.0
27.6
10.4
12.0
20.1
Data source: UKs Office for National Statistics (ONS), Migration Statistics Quarterly
Report, May 2012
The annual average over 2001 2010 for the following is:
o
o
Total net migration of foreign nationals to the UK: + 278,500

Percentage of total net migration of foreign nationals to UK made up by net migration of
nationals of all other EU countries: 21.6%. The annual average for this over 2004 2010 is
29.1%.
Over 2004 2010, the average annual percentage of total net migration of foreign nationals to
the UK made up by net migration of nationals of EU countries outside the EU15 is 18.3%.
These figures show that net immigration of (non-British) EU citizens to the UK was a tiny
fraction of total net immigration of foreign nationals at the start of the 2000s. In 2004, however,
EU immigration as a proportion of all foreign national immigration jumped to around a quarter,
before growing to over a third in 2007, then receding back quickly to around a quarter again.
2004, of course, was the year that 10 new countries joined the EU, followed by a further two in
2007. This added roughly a further 25% to the EU population, but, up to 2010, almost trebled
net EU immigration to the UK.415 It is interesting to note, though, that net immigration of
nationals of pre-2004 Member States also rose sharply near the start of this period, doubling in
2003 and more than doubling again in 2004, with a fall away from this level only registering in
2010.
415
: There will have been some immigration from the countries that joined the EU in 2004 and 2007
before they became EU Member States. However, it is not possible to extract from UK official statistics
migration numbers for these countries specifically, for the years prior to their accession. The National
Institute of Economic and Social Research, though, has estimated that almost 90% of immigration to the
UK from the A8 in 2004-2009 was due to EU enlargement, whereas approaching 70% of immigration
from the A2 in 2007-2009 was due to EU expansion: Fic et al, op. cit., p.57.
227
It should be noted that the large-scale net immigration of foreign nationals to the UK over 2001
2010 was offset, partially, by net emigration of British nationals from the UK. The average
annual total net migration of British nationals over this decade was - 81,700 (making the
average annual total net migration to the UK, of all people, just under + 200,000).416
The same official UK statistics do not show net migration of British nationals vis--vis specific
parts of the world, such as other EU countries. However, it is possible to get an estimate of this
using official data, though the figures are not directly comparable to, or as reliable as, the other
net migration figures used above. Nevertheless, they provide an illustration.
These figures show that in 2009 and 2010 (the latest calendar years for which there is data)
there was net immigration of British nationals from the rest of the EU, adding to the net
immigration of other EU citizens also taking place.417
What is driving EU immigration to the UK?
Clearly, the EU accession from 2004 of the relevant Central and Eastern European countries
led to a major increase in net immigration to the UK from the EU, as A8 and A2 nationals
gained free movement rights under EU law. This was reinforced by the UKs decision in 2004
not to restrict the right of A8 country nationals to come and take up employment in the UK.
There are many reasons why a person may choose to migrate to another country, but better
material prospects are likely to be a major factor. Research from 2007 showed a correlation
between the unemployment rates and Gross Domestic Product (GDP) per capita of A8
countries, and the number of immigrants coming to the UK from each of these states since they
joined the EU. More immigrants arrived as these economic indicators worsened.418
As the tables below show, there was a yawning gap in economic prosperity419 between the UK
and the A8 / A2 countries when they joined the EU, which has persisted to a large extent.
Table 2
Country
(in order of
population
size)
GNI per capita,

PPP (current
international $),
2004
UK
Poland
Czech Republic
Hungary
Slovakia
Lithuania
Latvia
Slovenia
Estonia
32,210
12,650
18,220
15,340
14,060
12,610
11,480
22,010
13,990
A8 country GNI
per capita as
percentage of UK
GNI per capita,
2004
39.3
56.6
47.6
43.7
39.1
35.6
68.3
43.4
GNI per capita,

PPP (current
international $),
2010
35,840
19,160
22,910
19,550
22,980
17,840
16,320
26,530
19,810
A8 country GNI
per capita as
percentage of UK
GNI per capita,
2010
53.5
63.9
54.5
64.1
49.8
45.5
74.0
55.3
Data source: World Bank
416
: ONS, Migration Statistics Quarterly Report, May 2012.

: House of Commons Library, from ONS data.
418
: Open Europe, Tread carefully: The impact and management of EU free movement and immigration
policy, March 2012, p.19.
419
: Measured by Gross National Income (GNI) per capita, at purchasing power parity (PPP).
417
228
Table 3
Country
(in order of
population
size)
GNI per capita,

PPP (current
international $),
2007
UK
Romania
Bulgaria
36,230
12,660
11,400
A2 country GNI
per capita as
percentage of UK
GNI per capita,
2007
34.9
31.5
GNI per capita,

PPP (current
international $),
2010
35,840
14,290
13,440
A2 country GNI
per capita as
percentage of UK
GNI per capita,
2010
39.9
37.5
Data source: World Bank
As an illustration, if the GNI per capita of all these countries continued to converge with that of
the UK at the same rate as over the periods above, these nations would take on average a
further 28 years to reach UK prosperity. Poland would take 20 years and Romania 36.
It seems, therefore, that a significant imbalance in prosperity will create an incentive for
immigration to the UK from these countries for many years to come.
On the other hand, it has been argued that more A8 country nationals may migrate to other,
geographically closer pre-2004 EU Member States, now that these have been required to drop
barriers to their labour markets. There is not yet adequate official data to see if this change has
impacted on A8 immigration to the UK. However, the Migration Observatory at the University of
Oxford has cast doubt on the idea that A8 immigration will decline:
Despite all EU member states having had to open their labour markets to A8 workers, the
factors that created the initial pull for A8 workers to the UK are still in place there is a demand
for their labour, wages are still much higher than Poland or other A8 nations and there are now
well established A8 communities and networks here to help new and returning EU migrants find
a job and negotiate the complexities of life in a new country.
This adds up to the likelihood that the UKs population of Eastern Europeans will continue to
increase for some time, as there are no signs on the horizon that the overall trend of positive
A8 net-migration to the UK will end soon.420
The economic situation in some EU14 countries is also deteriorating quite drastically, due to
the eurozone crisis. This could well lead to a very large increase in immigration from those
countries.
The impact of EU immigration overall prosperity
As stated by the House of Lords Select Committee on Economic Affairs, in a report analysing
the economic impact of immigration:
GDPwhich measures the total output created by immigrants and pre-existing residents in the
UKis an irrelevant and misleading measure for the economic impacts of immigration on the
resident population. The total size of an economy is not an indicator of prosperity or of
residents living standards. GDP per capita is a better measure than GDP because it takes
account of the fact that immigration increases not only GDP but also population.421
420
: Migration Observatory at the University of Oxford, Targeting Uncertainty: EU Migration in the UK,
August 2011, p.3.
421
st
: House of Lords Select Committee on Economic Affairs, The Economic Impact of Immigration, 1
report of Session 2007-08, April 2008, paras 49-50.
229
The Committee explained: In a simple short-run [theoretical] model..., immigration lowers the
wages of local workers who are substitutes and compete with immigrants for jobs, and
increases the wages of locals whose skills complement those of immigrants. In the short run,
immigration also increases the profit of capital owners and employers who benefit from the
increased supply of labour.422
The longer-term effects of immigration are distinguished in theory, as the economy may adjust
over time to the larger labour force and population.
The House of Lords Committee reported: Most economists giving evidence to us suggested
that the likely long-term effect of immigration is to expand employment and the economy, with
small or no impacts on the per capita income of the resident [pre-existing] population. This
conclusion, and the economic model underlying it, have, however, been criticised because they
exclude the possibility of dynamic effects and spillover effects that may arise from, for example,
having a bigger economy (that is, a higher GDP), a more diverse society, a greater share of
highly skilled and motivated people, a higher population density and more congested living
spaces. In theory, such dynamic and/or spillover effects could...raise or lower the productivity of
the resident population, even in the long run.423
Most examples given to the Committee of positive spillover effects of immigration related to
highly skilled migrants working in finance, medicine and higher education.424
In August 2011 the National Institute of Economic and Social Research (NIESR) think-tank
produced a paper analysing the economic impact of migration that occurred from 2004 to 2009,
between the A8 and A2 and the pre-2004 EU Member States.
The authors estimated that the long-run effect (which should be felt by 2017) on UK GDP per
capita of A8 immigration to the UK over this period ranged from a decrease of 0.13% to an
increase of 0.22%.425 The long-run effect on the UKs GDP per capita of A2 immigration in the
same period ranged from no change to an increase of 0.04%.426 The ranges result from
different assumptions about the productivity of the immigrants. These estimates assumed that
the immigration was permanent (whereas some of these immigrants are in fact highly likely to
return to their home country), though they also made no allowance for further immigration after
2009 (which has of course occurred). The research also estimated that the impact on UK GDP
per capita in 2009 of A8 immigration in the period 2004 2009 was to decrease it by 0.18%427
(and this did not take into account the productivity of the A8 immigrants, which would probably
have caused the deterioration in GDP per capita to be slightly worse).428
This seems to bear out the finding of the House of Lords Select Committee in its report: The
overall conclusion from existing evidence is that [overall] immigration has very small impacts on
GDP per capita, whether these impacts are positive or negative.429 If this is true, the kind of
overall immigration the UK has been experiencing (including EU immigration) will have
negligible effects on general UK prosperity.
422
: House of Lords Select Committee on Economic Affairs, op. cit., para 55.
: Ibid, para 58.
424
: Ibid, para 67.
425
: Fic et al, op. cit., p.49.
426
: Ibid, p.52.
427
: Ibid, p.54.
428
: It should be noted that this includes some immigration from the A8 and A2 countries that would have
occurred without EU enlargement. However, according to the NIESR estimates, almost 90% of
immigration to the UK from the A8 in 2004-2009 was due to EU enlargement, whereas approaching 70%
of immigration from the A2 in 2007-2009 was due to EU expansion: ibid, p.57.
429
423
230
The impact of EU immigration jobs

The table below shows estimates of the number of UK residents of certain nationalities in
employment, both in 2003 and in the year up to September 2011. It also shows the change in
these numbers between the two years.
Table 4
Nationality
Number employed430
in 2003
(000s)
Number employed
in year to
September 2011
(000s)
British
26,798
26,651
Percentage change
in number employed
between 2003 and
year to September
2011
- 0.5
Countries other than

UK that made up EU
in 2011
EU14 countries
556
1,290
+ 132.0
506
562
+ 11.1
50
728
+ 1356.0
Countries that joined

EU from 2004
onwards
Source: House of Commons Library, from ONS data
The same estimates show that in 2003 unemployment among British nationals was 1,361,000,
whereas in the year to September 2011 this had risen more than 66% to 2,263,000. So while
British peoples employment flat-lined over this period, and their unemployment increased
significantly, the employment in the UK of other EU citizens shot up. While British nationals
unemployment increased by around 900,000, the employment of other EU citizens increased
by around 730,000. This was mainly driven by increased employment of nationals of countries
that joined the EU from 2004.
Of course, there is nothing to say that all of the jobs taken up by EU immigrants would have
otherwise gone to British people. However, such a large increase in EU immigrant employment
raises questions about its effect on British unemployment. The UK economy created many
additional jobs over this period, showing a demand for labour. However, these jobs have
tended to be filled by foreign national immigrants rather than Britons, despite the significant
number of British people seeking work.
Empirical studies into the possible causal relationship between immigration and employment /
unemployment of pre-existing residents have produced varying conclusions. One study431 of
Great Britain in the period 1983 2000 found no statistically significant relationship between
overall UK-born employment and unemployment rates and the proportion of all foreign-born
people in the working age population. However, it did find that an increase of 1% in the ratio of
foreign-born to UK-born people among those of working age with intermediate qualifications (Olevel or equivalent) reduced the employment rate of the UK-born with intermediate
qualifications by 0.2%, and increased the unemployment rate of these UK-born people by
0.1%.432
430
: This includes those in self-employment.

: Dustmann et al, The impact of immigration on the UK labour market, Centre for Research and
Analysis of Migration, 2005.
432
: As described in Migration Advisory Committee, Analysis of the Impacts of Migration, January 2012,
pp.69-70.
431
231
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o w
work
king
g age forreig
gn-b
borrn imm
migran
nts is ass
a sociate
ed wit
w h a de
ecre
easse in
i
tthe nu
umb
berr of UK
K-born
n in em
mploym
me
ent o
of 23.
2 433
H
How
wevverr, th
his sam
me
e stu
udyy allso fou
und
d no
o statiisticcally sign
s nificcan
nt asso
a ocia
atio
on in tthis
s pe
erio
od
b
betw
we
een EU
U im
mm
migrratio
on spe
eciffica
ally an
nd ove
o erall UK-b
borrn e
emp
ployymentt. The
T refo
ore
e, th
he red
ducction
n
in UKU -bo
orn em
mplo
oym
men
nt ccited
da
above wa
as foun
f nd to be ass
socciatted on
nly w
with im
mm
migrrants bor
b rn
o
outside the EU
U. Ano
A othe
er sstud
dy ffoccuse
ed on A8
8 im
mmigra
atio
on in the period
d 2004
2 4 20
006
6, and
a fou
und
d
n
no sta
atisttica
ally sig
gniffica
ant effe
ectt of this im
mm
migrration on un
nem
mplo
oym
ment iin the UK
K. This
T s was
w the
e
ccon
nclu
usio
on for
f overa
all une
u emp
ployymentt ass well
w as forr yo
outh
h unemp
ploy
yme
ent (th
hose und
u der 25)) an
nd
u
une
emp
ploym
ment off the lo
ow--sk
kille
ed.434
T
The
ese
e studiies do
o no
ot, how
h wev
verr, ad
ddrresss th
he sspe
eciffic issu
i uess off yo
outh
hu
unemp
ployyme
ent an
nd
u
une
emp
ploym
ment off the lo
ow--sk
kille
ed in
n th
he rec
cesssions sin
nce 20
008
8. UK
U you
y uth unem
mplo
oym
men
nt iss an
4
e
esp
peccially pres
p ssin
ng pro
oble
em, sttand
ding a
at 21.9
2 9% in the
e la
atesst offic
o cial figure
es.435
T
The
e evid
dence is
tthat A8 im
mm
migrrants a
are
e prredo
om
mina
antly yyounge
er peo
p ople
e, in th
heir 20
0s or e
earrly 30ss,4336 a
and tha
at they
t y
a
are he
eavvily con
nce
entrrate
ed in low
wer skilled
d occu
upa
atio
ons,, which iss in
n co
ontrrasst to
o otther co
oun
ntryy off
4
o
orig
gin gro
oup
ps, as the
e grap
ph belo
b ow437
sho
ows
s.
G
Gra
aph
h 2 - Per
P rcen
nta
age
e off wo
ork
kerrs in
nU
UK by oc
ccu
upa
atio
on s
skill le
eve
el4338, by
b cou
unttry of birrth
g
gro
oup
ps, Q1
1 20
011
1
45%
%
40%
%
35%
%
L w
Low
30%
%
LLow
wer
m dle
mid
25%
%
20%
%
Upp
U
per
m dle
mid
15%
%
H h
High
10%
%
5%
%
0%
%
U borrn
UK-
EU 14
4
E A8
EU
A
Reest of
o th
he
Wo
orld
Sou
S urce
e: O
ONS
S, frrom
m La
abo
our For
F rce Surrveyy
4
433
: Miigra
ation
n Advi
A sorry Com
C mmitttee
e, op.
o cit.,
c pp
p.62
2-65
5.
: Le
emo
os and
a Po
ortess, The
T imp
pacct of
o migra
m atio
on fr
from
m th
he new
n w Eu
urop
pea
an Unio
U on Mem
M mbe
er Stat
S tes on nattive
e
w
worrkerrs, Dep
D parttme
ent ffor Wo
ork and
d Pe
ens
sion
ns, 200
2 08, p.36.
4
435
: ON
NS,, La
abour Mar
M rkett Sttatis
sticss, June
J e 20
012
2. Y
Youtth une
u mployment here
h e iss the
e prroportion of 16-2
1 24
yyea
ar ollds who are
a eco
e onomiccally
y acctive (e
either in
i w
workk orr loo
okin
ng ffor wor
w rk) who
o are not
n in wor
w rk and
a are
e
look
king
g fo
or work
w k.
4
436
: Op
pen
n Eu
urop
pe, op.. citt., p
p.22
2.
4
437
: Ibiid, p.23
p 3.
4
438
: Lo
ow Th
his skill le
evell eq
quattes to the
t compete
ence
e accqu
uired
d th
hrou
ugh co
omp
pulsory
y ed
duca
atio
on. Job
J b
rrela
ated
d co
omp
pete
ence
em
may be
e ac
cquired
d thrrough a shorrt pe
erio
od of
o trrain
ning
g. Lo
owe
er-m
midd
dle This
T s lev
vel covvers
s
o
occ
cupa
atio
ons tha
at re
equire the
e same
e co
omp
pete
ence
e accqu
uired
d th
hrou
ugh
h co
omp
puls
soryy ed
duca
atio
on, but inv
volvve a
long
ger period
d off wo
ork--rela
ated
d training and e
expe
erie
ence
e. Upp
U per-m
mid
ddle
e Thi
T s le
evell eq
quattes to com
mpe
eten
nce
e
a
acquire
ed thro
t ough post
p t-co
omp
puls
soryy ed
duca
atio
on but
b nott to deg
gree
e le
evell. High
H hT
Thiss sk
kill lleve
el iss no
orm
mallyy
a
acquire
ed thro
t ough a de
egre
ee o
or an
a e
equiivalentt pe
eriod
d off wo
ork experrience.
4
434
23
32
This profile of A8 immigrants suggests that they could be competing with low skilled British
nationals for work, and also that they may be occupying some lower skilled / entry level jobs
that would otherwise go to young British people. One analysis suggested that A8 nationals as a
proportion of total UK employees was particularly significant in the agriculture and hospitality
and catering sectors, over the period 2004 2010.439 With increased unemployment of British
people due to the recessions since 2008, this competition for jobs with British nationals may
now be significantly greater than in previous years. Of course, some EU14 nationals will also
be holding these kinds of lower skilled jobs.
The lack of evidence of a link between EU immigration and British unemployment might be
down, in part, to those British people seeking work not taking up the sort of jobs being filled by
EU immigrants. This is likely to apply especially to the low skilled end of the labour market.
There is some evidence that A8 immigrants take jobs in the UK that employers find difficult to
fill with domestic labour. This relates not just to immigrants accepting dirty, difficult and
dangerous jobs that are shunned by the British labour force, but also to a more positive work
ethic among A8 workers.440 One study conducted interviews in 2010 with employers and
recruitment agencies in the food production/processing and hospitality sectors, about the use of
A8 workers in the economic downturn. In the food production and processing sector, A8
workers were regarded as a crucial supply of labour, with a far better work ethic:
Because it is minimum wage work on a factory floor no Scottish people want to do it and the
Eastern Europeans are the only ones that will. The locals are not really interested unfortunately
because theyd rather be on benefits but our European workers are a great bunch, really hard
working and diligent and if we didnt have them wed be in real trouble so it gets on my nerves
when people complain about migrant workers because this country could not do without them.
(operations director, food processing company, rural Scotland) 441
There is a danger that employers may generalise about British workers compared to EU
immigrants, and deny British people the chance to prove themselves by offering immigrants
jobs instead. However, this cannot account for a lack of British people applying for certain jobs
in the first place.
There is a significant amount of empirical evidence that general immigration lowers average
wages among the lowest paid in the UK, though most estimates show this effect to be fairly
small.442 This will be due to an increased labour supply, and the fact that immigrants from
poorer countries will often be willing to work for lower wages than their British counterparts.
Lower wages in lower-skilled jobs may be a reason many British people are not willing to take
those jobs on, when combined with the availability of out-of-work state welfare. There may well
also be problems with the long-term unemployed not having basic skills and readiness for work.
Chris Grayling MP, the Minister for Employment, said in a speech in 2010: Before this
recession, the UK enjoyed a long period of sustained economic growth. Around 4 million jobs
were created during this period yet the country suffered persistently high structural
unemployment, with some 4.5 million people on out of work benefits before this recession even
started. In a way, you could argue that immigration filled the economic gap that allowed us as a
country to ignore deeper problems within our own society Businesses brought in people while
we ignored the opportunity to motivate our own citizens many of whom remain stuck in a
welfare dependency trap.443
439
: McCollum and Findlay, Trends in A8 migration to the UK during the recession, ONS, 2011, p.5.
: Ibid, p.7.
441
: Ibid, p.10.
442
: Migration Advisory Committee, op. cit., p.59.
443
: As quoted in Open Europe, op. cit., p.27.
440
233
The current Government is pursuing major welfare reform aimed at ensuring that work, not a
life on benefits, pays, and that the long-term unemployed are given the support and motivation
they need to enter the workplace. As these reforms take effect, the competition for jobs
between British people and EU immigrants, particularly from the newer Member States, may
intensify.
The impact of EU immigration fiscal impact
The EUs Free Movement Directive states that, as a general rule, all EU citizens residing in
another Member State on the basis of the Directive enjoy equal treatment with nationals of the
host Member State, in all matters within the scope of the EU treaties. This includes state
welfare. The same right to equal treatment extends to non-EU family members of EU citizens,
who have the right of residence under the Directive.
The Directive then qualifies this right to equal treatment in two ways regarding general state
welfare:
o
The host Member State is not obliged to provide social assistance during the first 3
months of residence.
The host Member State is not obliged to provide social assistance when the EU citizen
and any family members remain in the country because they cannot be expelled, on the
basis that the EU citizen entered the host country to seek employment and can provide
evidence that they are continuing to seek employment and have a genuine chance of
finding work.
However, social assistance is, at least according to the European Commission, not
synonymous in EU law with state welfare provision. Many benefits are termed social security
by the EU, and come under another piece of EU legislation, a Regulation on the co-ordination
of social security entitlements within the EU for EU citizens and certain of their family
members.444 UK benefits falling under this Regulation include Child Benefit, Child Tax Credit,
Pension Credit, Income Support, income-based Jobseekers Allowance and income-related
Employment and Support Allowance. The Regulation provides that for EU citizens not working,
the usual rule is that the Member State in which the person habitually resides is responsible
for providing social security. These people are entitled to equal treatment with nationals of the
host Member State when it comes to social security provision.
The UK applies a habitual residence test to claims for those benefits listed above, with the
exception of Child Benefit and Child Tax Credit. Since 2004, an integral part of the habitual
residence test has been the right to reside test. The right to reside test also applies to claims
for Child Benefit and Child Tax Credit. British citizens pass the right to reside test by virtue of
their nationality they automatically have the right to reside in the UK under UK law.445 Other
EU citizens pass the right to reside test if they are entitled to stay in the UK under the Free
Movement Directive.446
The European Commission, though, has in the last two years taken the first steps of legal
action against the UK under the EU treaties, because of the UKs right to reside test. The
444
: Regulation (EC) 883/2004.

: Irish citizens also pass the right to reside test by virtue of their nationality, as the test is whether the
person has a right to reside in the Common Travel Area, which consists mainly of the UK and Republic of
Ireland.
446
: Though they are still not entitled to benefits if they are economically inactive and resident purely on
the basis of the Directives right to residence for less than 3 months. In addition, those present on the
grounds that they are looking for work do not have access to Income Support, income-related
Employment and Support Allowance or Pension Credit.
445
234
Commission argues that the social security Regulation provides a right for non-working EU
citizens to receive social security in a Member State in which they are habitually resident, which
cannot be restricted by conditions in the Free Movement Directive. The Commission says that,
contrary to the social security Regulation, the UKs right to reside test causes unequal
treatment of other EU citizens compared to UK nationals, as nationals of other Member States
do not pass the test automatically like British citizens do. The Commission instead argues that
the UK should only apply to these benefits the habitual residence test that exists in EU law.447
The EU habitual residence test, though, is not tied to economic activity or self-sufficiency (even
less so than the Free Movement Directives right of residence). The Secretary of State for Work
and Pensions, Iain Duncan Smith MP, has said of the European Commissions moves: ...what
the EU is now trying to do is get us to provide benefits for those who come to this country with
no intention to work and no other means of supporting themselves, with the sole purpose of
accessing a more generous benefit system.448 The current Government has said it will fight the
Commissions moves vigorously. If the Commission takes the UK to the ECJ, the Courts ruling
will be binding on the UK under the EU treaties.
Even setting aside this Commission challenge to the UKs right to reside test, it is clear that the
Free Movement Directive gives EU immigrants wide-ranging access to the UK benefits system.
They can claim Jobseekers Allowance, and when in work get full access to the welfare system,
on the same basis as British citizens, including public assistance with housing. This continues
to apply if they are made unemployed involuntarily after working for a year and register as a job
seeker.
An initial indication of whether EU immigrants are an extra burden on the welfare state can be
gained from looking at the numbers of them in and out of work, and comparing this with the
same breakdown for British citizens. If the share of the working population is greater for EU
immigrants, it could suggest that the welfare state is aided by their presence, in terms of tax
contributions. The table below shows this information for the year to September 2011.
Table 5
Nationality
British
EU countries
other than UK
EU14
countries
Countries that
have joined
EU from 2004
onwards
Total
number
(000s) of
residents
in UK
57,037
2,190
1,096
1,094
Number
(000s) (and
proportion,
%) aged
under 16
10,916
(19.1)
337
(15.4)
146
(13.3)
192
(17.6)
Number
(000s) (and
proportion,
%)
employed
26,651
(46.7)
1,290
(58.9)
562
(51.3)
728
(66.5)
Number
(000s) (and
proportion,
%)
unemployed
2,263
(4.0)
90
(4.1)
48
(4.4)
43
(3.9)
Number (000s)
(and proportion,
%) economically
inactive449 (aged
16 and over)
17,207
(30.2)
473
(21.6)
341
(31.1)
132
(12.1)
Source: House of Commons Library, from ONS data
447
: House of Commons Library, EEA nationals: the right to reside requirement for benefits, December
2011, pp.15-17.
448
: Brussels poses serious threat to our welfare reforms, Telegraph, 30 September 2011.
449
: Not in work or looking for work.
235
This shows that the proportion of EU immigrants in employment is significantly larger than the
proportion of British citizens working. In particular, the proportion of immigrants from the newer
Member States who are in work is far greater than the proportion of British people.
Of course, this is far from the end of the story. EU immigrants may still be a significant net cost
to the welfare state even though many of them are in work, for instance if they tend to be low
paid. The evidence is that workers from the newer Member States are, on average, significantly
lower paid than British workers.450
The Government has published figures for the number of people in Great Britain who, in
February 2011, were claiming certain working age benefits451 and who were foreign nationals
when they registered for their National Insurance number.452
According to these figures, around 91,310 people in Britain were claiming these benefits who
were nationals of other EU countries when they registered for their NI number. This was around
a quarter of all those claiming these benefits who were foreign nationals when they undertook
NI registration. 62,570 were nationals of EU14 countries and 28,740 were nationals of countries
that have joined the EU from 2004 onwards.453
Using data on UK residents by nationality from the House of Commons Library, a rough
estimate of the proportion of EU immigrants of working age who were claiming one or more of
these benefits is 5.5%. This is about a third of the estimate of the proportion of working age
British people claiming these benefits given by the Government.454 The proportion is even lower
for immigrants from the newer EU Member States specifically.
However, this still does not provide figures on the amounts contributed to and received from the
benefits system by EU immigrants. These claimant numbers also exclude certain aspects of
welfare provision, such as public assistance with housing and Child Benefit.
The fiscal impact of immigration will also extend beyond the welfare system, even if this is
taken to include the UKs tax-funded education and healthcare provision. For instance,
immigrants will place increased demand on transport infrastructure, which is paid for in
significant part out of general taxation.
One study sought to estimate the overall net fiscal contribution of A8 immigrants who came to
the UK following EU enlargement.455 The estimates cover the four fiscal years 2005-06 to 200809. This analysis estimated that A8 immigrants made a total net fiscal contribution, ie. paid
more in tax than they cost in public expenditure, of 3.91 billion over this four-year period. This
figure equated to 0.17% of total public expenditure over this timeframe. In the same period, UKborn people contributed less in tax than they received in public expenditure.456
450
: Open Europe, op. cit., pp.23-24.

: The benefits in question are: Jobseekers Allowance; Employment and Support Allowance;
Incapacity Benefit; Severe Disablement Allowance; Income Support; Carers Allowance; Pension Credit;
Disability Living Allowance and Widows Benefit.
452
: Department for Work and Pensions, Nationality at point of National Insurance number registration of
DWP benefit claimants: February 2011 working age benefits, January 2012. While some of these people
may have gained British citizenship since obtaining their NI number, this publication also presented data
indicating that very few nationals of other EU countries who register for an NI number go on to become
British citizens: ibid, p.15.
453
: Ibid, p.8.
454
: Ibid, p.4.
455
: Dustmann et al, Assessing the Fiscal Costs and Benefits of A8 Migration to the UK, Fiscal Studies,
Vol 31, No 1 (2010), pp.1-41.
456
: Ibid, p.27.
451
236
The authors of this study concede that this is only a snapshot of the fiscal effect of A8
immigration that occurred over 2004 2008. It does not seek to forecast the future fiscal effects
of this immigration, as some A8 immigrants stay in the UK and their profile alters eg. they age
and have more children.
However, the authors also say that they do not believe there is reason to think that these A8
immigrants will become a net burden on the public finances in the long run. This opinion is
based partly on a prediction that the wages (and therefore tax contribution) of these people will
rise over time, following evidence that their wages have already increased significantly since
their arrival in the UK.457
On the other hand, the authors acknowledge that, in general, accurate projections of the longrun fiscal effects of immigration are inherently difficult, due to the many unknown variables
involved.458 Of course, this study also only covers A8 immigrants, not, for instance, A2 nationals
coming to the UK.
Impact of EU immigration larger UK population
EU immigration is clearly steadily increasing the UK population, due to the consistent net
immigration to this country from the rest of the EU. As well as the direct addition of people, net
immigration increases a countrys population through those immigrants that stay and have
children.
A larger population provides a greater pool for national human resource needs. However, this
has to be balanced against the inhabitable area available in a country. Very high population
density can be an economic drag, due for instance to increased transport congestion. It also
places huge pressures on the environment, for example as land is required for housing.
Furthermore, it can reduce residents quality of life through increased crowdedness.
The UK already has the highest population density of any comparably sized country in the
EU.459 In 2008 the House of Lords Select Committee on Economic Affairs received evidence
that around a third of the projected growth in the number of households in England over the
next 15 20 years is due to net immigration.460 It has also been argued that the UK has more
Nimbys (people who try to block nearby developments) than countries like France or the US
because of the UKs higher population density and that it is this factor, more than the planning
system, that often makes it much slower and more costly to build large infrastructure projects in
the UK compared to other nations.461
A fairly rough estimate is that net immigration from the EU made up almost a third of net
immigration to the UK in 2010. This indicates that the overall scale of net immigration could be
reduced substantially without touching EU immigration. However, the Migration Observatory at
the University of Oxford has warned, ...as the government continues to focus on reducing nonEU net migration, employers may turn increasingly to EU migrants to fill positions.462 In other
words, increased EU immigration may replace at least some of the immigration from outside
the EU that is cut back.
457
: Dustmann et al, Assessing the Fiscal Costs and Benefits of A8 Migration to the UK, p.30.
: Ibid.
459
: Eurostat figures from 2009:
http://epp.eurostat.ec.europa.eu/tgm/table.do?tab=table&init=1&plugin=1&language=en&pcode=tps0000
3. Only Belgium, the Netherlands and Malta have higher population densities.
460
461
: Ibid, para 183.
462
: Migration Observatory at the University of Oxford, Targeting Uncertainty: EU Migration in the UK, p.3
458
237
Impact of EU immigration other effects

EU immigration has other impacts on the UK, though this chapter does not have space to go
into them in detail.
One such impact is the disruption to local public services of a large influx of immigrants over a
short period of time. As it is effectively outside the UKs control, this is especially relevant to EU
immigration. In the absence of controls, it can be difficult accurately to project the scale of
immigration and, to a lesser extent, where immigrants will go within a country. This makes
forward planning of public services, ranging from education and health to transport
infrastructure, much harder. When a large number of immigrants arrive, it places increased
demand on public services that often do not have the capacity at that point to cope properly.
Immigrants may also bring special demands with them, for example the need for translation into
new languages. Local authorities sometimes complain that local public service pressures are
maintained by inaccuracies in official data used to allocate central government funding, which
underestimate the number of resident immigrants.463
Large-scale immigration can also affect social cohesion in communities. A large and rapid
increase in the number of people who speak a different language and have different cultural
habits is likely to unsettle many existing residents. This is much more of a problem if the
immigrants do not integrate into society over time, mixing with other residents and accepting
key planks of British social life, and instead become a largely detached community of their own.
Of course, there are many similarities between societies in continental Western Europe, in
particular, and the UK, which will make integration of immigrants from those countries easier. It
is probably too early to tell whether the immigrants from Central and Eastern Europe will
integrate fully, but many at least speak English. In addition, some argue that diversity in
national backgrounds is a benefit to the UK, because it allows the UK to draw more readily on
knowledge and experiences from abroad. A key question this raises, in light of the very largescale immigration the UK has been experiencing, is to what extent the UK should be diverse in
terms of foreign nationalities.
Finally, EU law on free movement and residence has a significant impact on criminal justice in
the UK, in terms of controlling the entry and stay of nationals of other EU countries who are
convicted of serious crime. The Free Movement Directive allows the right of EU citizens to
enter or reside in another Member State to be restricted on grounds of public security, but it
also says, Previous criminal convictions shall not in themselves constitute grounds for taking
such measures. The personal conduct of the individual concerned must represent a genuine,
present and sufficiently serious threat affecting one of the fundamental interests of society. In
short, automatic deportation or refusal of entry on the grounds of a criminal conviction is not
allowed, and decisions to deport or refuse entry are subject to a rather vague test that is
policed, ultimately, by the EUs Court of Justice.
Immigration of non-EU citizens
The EU treaty provisions and UK discretion
The EU also has wide-ranging power to legislate on the immigration of non-EU citizens,
including asylum seekers, to EU Member States from any part of the world.464
The UK has an arrangement under the EU treaties whereby it is not bound by EU law in this
area, unless it decides to participate in a piece of EU legislation. If the UK chooses to opt in to
an EU law concerning non-EU immigration, it cannot opt out of that law subsequently.
463

: This is distinct from the immigration of non-EU citizens who are family members of EU citizens
(discussed above).
464
238
If the UK wishes to take part in voting on a proposed EU law, it has to decide to participate
within 3 months of that proposal being made. Once it has done this, the UK cannot opt out of
the proposal again, and will be bound by whatever EU law results. In virtually all cases, EU
laws on non-EU immigration are decided by qualified majority voting (QMV) in the Council of
the EU, and must also be agreed by the European Parliament. This means the UK may find
itself bound by a law it did not agree with.
The UK does, alternatively, have the possibility of opting in to an EU law in this area after its
adoption by the other Member States, though it has no vote over the laws provisions in this
case. UK participation in this case is also subject to approval by either the Commission or the
Council. If the UKs request to opt in is approved, it cannot opt out of the relevant law again.
Under UK law, it is the Governments decision whether or not the UK participates in an EU law
on non-EU immigration.465 The current Government has undertaken to give Parliament a vote
on the question of participation in cases where there is particularly strong Parliamentary
interest466 though it is not clear precisely what constitutes this.
As with almost all other EU law, the ECJ has full jurisdiction over EU laws on non-EU
immigration. This means, among other things, that the ECJ can receive questions about the
interpretation of these laws submitted by any national court, and can set down authoritative
rulings in response that will be applied by national courts. Before the Lisbon Treaty took effect
in 2009, the ECJ could only receive these questions from the highest national courts,
somewhat limiting its influence over this area of EU law.
The Common European Asylum System
Between 2000 and 2005, the EU adopted a raft of laws as part of developing a Common
European Asylum System:
The EURODAC Regulation467, establishing a fingerprint database (EURODAC) to assist in

the identification of asylum seekers
The Dublin II Regulation468, determining which Member State is responsible for an asylum
application in the EU
The Temporary Protection Directive469, allowing the EU to declare a mass influx of persons
displaced from non-EU countries and obliging Member States to provide them with
temporary protection
The Reception Conditions Directive470, laying down minimum standards for the reception of
asylum seekers
The Qualification Directive471, laying down rules on who qualifies as either a refugee or a
beneficiary of subsidiary protection (an alternative to refugee status) and the rights of
people who so qualify
465
: Though if the Government wished to take the UK into any aspect of the EUs Schengen acquis that
abolished a UK border check on persons, this would have to receive approval from Parliament as well as
the electorate in a referendum.
466
467
468
469
470
471
239
The Asylum Procedures Directive472, laying down minimum standards for the procedures for
deciding asylum claims and withdrawing refugee status
The previous Government opted the UK in to all these pieces of legislation, which bind this
country as a result.
Since 2005, the European Commission has proposed new EU legislation altering all those
asylum laws listed above, apart from the Temporary Protection Directive. In most cases the
changes are aimed at greater EU regulation of the asylum matters covered, reducing Member
State discretion.
The previous Government opted the UK in to the new proposals replacing the Dublin II and
EURODAC Regulations, but not the proposals to alter the other EU laws. Following prolonged
Member State negotiations, the Commission felt the need to re-table an amended proposal for
the replacement EURODAC Regulation in October 2010, which triggered another UK opt in
decision. On this occasion, it was the Coalition Government that decided the UK would opt in.
Though it has not opted in to some of the new proposals, the UK will remain bound by the
original EU laws it did opt in to, which the new proposals will replace for the other Member
States.
The main provision of the Dublin II Regulation is that the EU Member State in which an asylum
seeker first arrived is often responsible for dealing with their asylum application. The central
EURODAC database comprises the fingerprints of those who claim asylum in the EU or who
are caught trying illegally to enter a Member State, and helps Member States to determine who
is responsible for an asylum seeker under the Dublin System.
When explaining the Coalition Governments decision to opt in to the amended proposal
replacing the EURODAC Regulation, Immigration Minister Damian Green MP said: The
Government are committed to the Dublin system, of which EURODAC is an essential part, as it
helps tackle the problem of people abusing asylum systems across Europe by making multiple
claims in different EU member states.473 The UK has been a target for asylum tourists who
have already travelled through other EU Member States.
Government figures show that, on average, each year in the period 2007 2010 the UK
transferred 780 more asylum seekers to other EU countries than it had transferred to it under
the provisions of the Dublin II Regulation.474 To put this in context, the UK received 17,790
principal applications for asylum in 2010 (some of these applications will cover more than one
asylum seeker).475
The Commissions proposed replacement Dublin II Regulation (which the previous Government
opted the UK into) included a new provision that would allow the Commission to suspend
Dublin transfers of asylum seekers to a Member State, if it was deemed that such transfers
would exacerbate serious pressures on that Member States asylum system. The UK strongly
resisted this proposal, and it seems to have been successful in negotiations within the Council.
However, the European Parliament must also agree to the proposed new Dublin Regulation,
and it is yet to be seen what demands MEPs will make. The proposal will be decided by QMV
in the Council, meaning the UK could be outvoted.
472
474
: HC Deb 30 April 2012, cc1078W-1079W.
475
: House of Commons Library, Asylum Seekers, January 2012.
473
240
Additionally, the Dublin System has been somewhat undermined by an ECJ ruling handed
down in December 2011. Drawing on the EUs Charter of Fundamental Rights (and echoing
jurisprudence of the European Court of Human Rights), the ECJ ruled that the UK could not
transfer an Afghan asylum seeker to Greece, despite Greece being responsible for the asylum
seeker under the Dublin II Regulation, because there were substantial grounds for believing
that the asylum seeker would face a real risk of being subjected to inhuman or degrading
treatment.476 This was because of poor conditions in the Greek asylum system. This has
effectively suspended the transfer of asylum seekers to Greece. The danger is that the asylum
systems of more Member States are deemed to be substandard by the ECJ, which blocks the
application of the Dublin System to them as well, further undermining the mechanism.
This highlights an important effect of the UK being bound by EU legislation on asylum matters;
it transfers ultimate jurisdiction over these matters to the ECJ. If the EU Court interprets the
legislation in a way the UK believes is harmful, there is little the UK can do about it it must
apply the rulings.
EU policy on economic immigration of non-EU citizens
Over the last ten years in particular, the EU has also moved to establish a common policy on
economic immigration from non-EU countries. EU laws in this area cover the entry of highlyskilled migrants and seasonal workers, rules on family reunification and the transfer of foreign
workers within multinational companies.
UK governments of different colours have, however, declined to opt in to any of these laws.
On the other hand, the EU has concluded international agreements with non-EU countries that
have included provisions allowing people from those countries to stay in Member States
temporarily, to provide services. The UK has asserted a right to decide whether or not it opts in
to these provisions. Nevertheless, the current Government has opted in to such provisions on
several occasions.
The EU also has laws on certain aspects of illegal immigration of non-EU citizens, such as
sanctions for employers of illegal immigrants, an obligation on carriers to return those arriving
without the right travel documents, and international agreements with non-EU countries on the
readmission of their nationals who have been illegal immigrants. The UK is bound by some of
these EU measures but not others.477

treaty obligations.
476
477

: Ibid, p.9.
241
Undertake domestic reforms but seek no change to EU law

The UK could decide that, due to a lack of hard evidence of negative effects of EU immigration
on the economy, public finances and British peoples job prospects, changes to EU law are
unnecessary. It could instead focus, as the current Government is doing, on immigration from
outside the EU. To ensure the UK can continue to exercise discretion over non-EU economic
immigration, the UK could remain outside EU legislation in this area.
The UK could also pursue reform of the welfare and education systems to encourage and
enable more British people to find work. Again, this is something the current Government is
doing. In addition, the Government could seek to ensure that measurement of the number of
immigrants in particular localities, and methods of projecting migration flows, enable effective
planning of public services and other public policy decisions.
This approach would not address the fact that EU immigration seems set to continue adding to
the UK population, further increasing the UKs population density and entailing certain
drawbacks. It is also possible that if the Government reduces the scale of non-EU immigration,
partly in response to strong public feeling on this matter, EU immigration will at least partially fill
the gap. Furthermore, though there is little hard evidence at present on negative effects of EU
immigration, this could be because there are gaps in the research undertaken to date.
This approach would also allow a future Government to opt the UK into the EUs policy on nonEU economic immigration, or further regulation on asylum seekers from outside the EU, which
would remove the right of subsequent Governments and Parliaments to determine this policy,
for as long as the UK remained an EU member.
Seek better safeguards within general EU free movement
To try and ensure that EU immigration does not impact adversely on the UK and its people, the
UK could seek various new safeguards regarding the general principle of free movement and
residence.
The reforms suggested below should be possible through changes to the Free Movement
Directive and associated EU legislation they should not require EU treaty change:
Tighten up provision of the right of residence in another Member State for more than 3 months,
to align it more closely with being in work or self-sufficient:
There would be no right of residence as a job seeker, prior to having been in employment in
the host Member State. If an EU citizen was made involuntarily unemployed after working in
the host country, they could retain the right of residence as a job seeker for a maximum of 6
months (or perhaps a year, if they had been working continuously for at least 5 years).
There would be no right of residence based on being in vocational training.
To retain their right of residence, family members of an EU citizen would have to be in work,
or not be a burden on the welfare system, if their association with that EU citizen ended.
The permanent right of residence would typically only be provided after a continuous period
of legal residence of 10 years, rather than 5.
242
Tighten up access to the welfare system of the host Member State:
The EUs social security co-ordination Regulation would be amended to ensure there was
no access to a host Member States benefits without the EU citizen having the right to
reside in that country under the Free Movement Directive. Where the Free Movement
Directive currently speaks about the social assistance system, the Directive could
explicitly provide that this means all state welfare.
When determining whether an EU citizen is a burden on the welfare system, the host
Member State should be allowed to apply general thresholds for the income/resources that
person is required to have, which could for instance be up to 10% more than the threshold
below which host Member State nationals become eligible for welfare.
The requirement for equal treatment with nationals of the host Member State would be
removed for EU citizens without the permanent right of residence, when it comes to the
provision of state welfare that is in particularly scarce supply, such as social housing. This
would allow nationals of the host Member State to be given priority for such welfare.
Explicit provisions in the Free Movement Directive would guard against EU immigrants leaving
the host Member State then returning very shortly afterwards, to continue residing on the basis
of the initial 3 month right of residence, which comes with few conditions.
Member States would be allowed automatically to deport or refuse entry to an EU citizen on the
basis of their conviction for a serious crime.
In addition to these changes to EU legislation, the UK could insist on more robust transitional
controls on the free movement of people from future new Member States of the EU. Rather
than applying an arbitrary time limit for such controls as in the past, controls could be allowed
until the new Member States GNI per capita had reached the average for the pre-2004
Member States. Turkey, for example, is a candidate for EU membership; it has a population of
over 70 million and a GNI per capita less than half that of the UK.478
Under the EU treaties, changes to the relevant EU legislation would need formally to be
proposed by the European Commission. They would also need the agreement of the European
Parliament, as well as a qualified majority of Member States in the Council.
It is very unlikely, for instance, that the Commission would agree to propose the amendment of
the social security Regulation described above, given it is now pushing the UK to provide
access to certain benefits to EU citizens who may not have the right of residence.
In general, while some Member States might support the thrust of changes like those mooted
above, the Commission and European Parliament are likely to be fiercely opposed, as they
would see it as an attack on EU citizenship and the free movement rights it entails.
Even if such changes could be made through the EU legislative process, they probably would
not lead to a major reduction in the scale of EU immigration to the UK. EU immigrants would
continue to have wide-ranging access to the UK welfare system, even if they were posing a net
burden on that system. The UK would also not be able to limit the immigration of EU citizens
who were taking on low-skilled jobs. In addition, these reforms would not address the risk of a
future Government irreversibly binding the UK into further EU law on non-EU immigration.
478
: Data from the World Bank.
243
In contrast to the quite weak position of the UK regarding changes to EU legislation on

immigration within the existing EU, before a new country can join the EU its accession treaty
has to be agreed by all Member States. This would give the UK a veto over accession if its
desired safeguards were not in place vis--vis the new Member State
Seek radical reform to allow Member States more selective policies on EU immigration
The UK could pursue a radical change to EU free movement rules and push for Member States
to be allowed to impose a skill / income threshold on immigrants from other EU countries.
Imposing a relatively high skill / income threshold would be likely to reduce significantly the
number of EU immigrants coming to the UK, and help ensure that they increased UK prosperity
and did not become a burden on the public finances. It would also protect against the risk of EU
immigrants depriving British nationals of jobs in the low-skilled end of the labour market,
particularly as the current Governments welfare reform programme seeks to place more longterm unemployed Britons in work.
This change could avoid affecting the right of companies in the EU to post their workers, on a
temporary basis, to other Member States in which they operate. There is only a small number
of so-called EU posted workers in the UK.479
This radical change would very likely require amendment of the EU treaties provisions on the
free movement of workers and freedom of establishment of natural persons within the EU.
Treaty change would need the agreement of all Member States though it would not require
the agreement of the European Commission or the European Parliament.
The Member States that have joined the EU since 2004 would probably be strongly opposed to
such a move, given their nationals have benefitted greatly from existing wholesale EU free
movement, and that this change could result in the wealthier Member States more selectively
creaming off their brightest people. On the other hand, many of these newer Member States
may have been set back by the large-scale emigration they have encountered under free
movement to date.
Other Member States may be against the change on the grounds that it undermines a key
element of the EUs internal (single) market, in which the free movement of people parallels
the free movement of capital. To lessen fears of completely unravelling a key aspect of the EU,
the change could only give the UK the freedom to impose such thresholds, rather than all
Member States. Realistically, other Member States would also need to gain the reciprocal right
to impose thresholds on British immigrants, which would of course limit the free movement
rights of British people. Provisions might be agreed that only applied the changes to future
immigration, to limit disruption to existing immigrants on both sides.
The UK will have significant negotiating leverage if, as seems likely, EU treaty change is sought
as a result of the eurozone crisis.
As part of this treaty change, the UK could also push for the right automatically to deport or
refuse entry to EU immigrants on the basis of their conviction for a serious crime.
In addition, the treaty amendment could allow the UK to reverse decisions to become bound by
EU laws on asylum and economic immigration from outside the EU. The main objection other
Member States are likely to raise against this particular change is that the UK could take part in
voting on a law that would bind the other Member States, but which the UK could then opt out
479
244
of itself.
To mitigate this, the EU treaties could provide that the UK may only opt out of a law after three
years had elapsed since it had to be implemented by Member States, or after a new Parliament
had been formed in the UK since its adoption. This could be combined with a treaty provision
allowing the UK to opt out of the adoption of (and voting on) a proposed EU law in this area,
where the UK had previously opted to take part in its adoption. Given the prevalence of QMV,
this would be a useful safeguard to prevent the UK becoming bound by a law it believed was
against its interests, even for a temporary period, after negotiations took an undesirable turn.
Alternatively, the EU treaties could allow the UK to opt out of such a law whenever it wished
(subject perhaps to a notice period, where necessary), though at the same time they could
prevent the UK from wielding a vote in the adoption of these laws
Limit EU immigration despite EU free movement rules

If the UK believed EU immigration was having an adverse impact upon it, and it was not able to
get agreement to its desired reforms to EU free movement rules, it could unilaterally cease
applying those rules to one extent or another.
The UK could, for instance, stop at least some immigrants from other EU countries entering at
the border. It could also refuse to pay out benefits to EU immigrants, if it believed EU law gave
them unjustifiable access to the UKs welfare system. Such actions would be possible within
the UK legal order, if authorised by an Act of Parliament.
This would be likely to provoke a major row with other EU countries and the EU institutions, as
a clear breach of the UKs EU treaty obligations in international law. Other Member States are
likely to impose similar restrictions on British immigrants, which could have a very detrimental
effect on some of the British nationals concerned.
Of course, the net flow of EU immigration has for years been into, rather than out of, the UK.
Under pressure from their own nationals, this may mean that other EU countries feel a need to
resolve the impasse, which would be disruptive all round, and take the UKs requests for
changes to EU law seriously.
Similarly, the UK could unilaterally stop applying EU laws on non-EU asylum seekers, if these
began seriously undermining the UKs asylum system, for instance due to court rulings on their
application. If the UK did this with the EU laws that, essentially, regulate the internal asylum
standards in Member States, it would not have a great knock-on impact on other EU countries.
It would still be a breach of the UKs EU treaty obligations, however, and therefore lead to a
political and legal standoff that would have to be resolved sooner or later.
245
Chapter 11
Defence
The summary
The UK is one of the two major military powers in Europe480. In terms of international military
operations and its wider security interests, it attaches foremost importance to its membership
of the Nato alliance which binds the US to the security of Europe, includes most European
countries in its membership and provides a unique platform for crisis response.
In 1998, the EU began in earnest to develop an autonomous military capability, following a

UK-French initiative at St Malo.
By 2012, following the earlier entry into force of the Lisbon Treaty, the EU had created a
fully-fledged defence structure under the rubric of its Common Security and Defence Policy
(CSDP). The EU High Representative, effectively the EU's Foreign & Defence Minister, is
now supported, inter alia, by a Political & Security Committee, a Military Committee, an
Assessment Staff (SitCen), a Military Staff, a European Defence Agency (EDA) as well as
various permutations of operational planning HQs. It has launched some 27 "CSDP
missions".
The EU neither has, nor creates, any additional military forces. For its operations it draws on
the same pool of diminishing military resources that nations have available for their own
national operations, for Nato, the UN and other commitments.
The UK is actively engaged across a spectrum of CSDP policies and missions.
For the UK, CSDP is about generating more military capability from reluctant European
allies. For example, MoD officials point out that, for a modest financial commitment, the EDA
has developed extra capability through training helicopter pilots.
For the EU institutions and the governments of many Member States it is about projecting
the EU as a global actor and intensifying the process of political integration. The ambition for
a "European Defence Policy", with a "European Army" was confirmed on 15 June 2012 by 10
Foreign Ministers from EU Member States, led by Germany.
Some argue that CSDP is designed to strengthen Nato, while others argue that CSDP is a
duplicative and increasingly costly replica of Nato, that none of its military operations stand
up to scrutiny, and that it has a debilitating effect on the Alliance.
In terms of defence equipment procurement, there may be budgetary and industrial merit in
collaborative equipment schemes, although this is open to challenge. Whether these require
the involvement of the institutions of the EU is open to challenge. There is possibly scope,
however, for greater pooling and sharing of resources among Nato's European allies,
provided this produces additional capability.
The key difference between Nato and the EU is that the former is an inter-governmental
alliance which does not impact to any degree on the sovereign defence capabilities of its
member nations. The EU is essentially a supra-national body designed to replace national
decision-making.
CSDP is moving towards greater integration of policy, organisation and deployment. As the
years pass, the UK's independent freedom of action is likely to be increasingly constrained.
If the UK wished to consider a change in its relationship to CSDP without jeopardising its
overall membership of the EU, there are examples for this in the defence policy positions that
have been taken by France and Denmark.
480
see World Military Strength Comparison, www.globalfirepower.com using 2011 statistics.
249
Traditionally, the UK position on EU foreign policy and defence cooperation is to ensure that
European cooperation bolsters the Nato and trans-Atlantic alliance rather than duplicates or
weakens it. With the United States less willing to shoulder the burden of guaranteeing
European security, due to changing strategic priorities, European countries must make
efforts to boost their military capacity in order to ensure the durability of the Alliance. The UK
could insist that EU activity in this area is complementary to Nato, or at least not in
competition with it.
The UK could be more assertive in vetoing EU proposals that compete with, or duplicate,
Nato. In parallel, the UK could encourage EU CSDP to focus on areas of civil instruments
and capability building, in order to complement Nato.
Without any change to the treaties, the UK could reduce direct involvement in EU defence
matters and insist that all defence matters be dealt with "in another institution" (i.e. Nato). As
regards committee and institutional engagement, the UK could adopt an empty chair
approach, or informally designate itself as a non-participatory observer.
The UK could prioritise interoperability of equipment with Nato allies, especially the US, over
the EU.
CSDP initiatives which require assent of the Council through the unanimity voting procedure
could be vetoed. The UK could also make a non-binding political declaration, publicising its
intention to take a non-participatory role in CSDP and to apply its energies to revitalising
Nato.
A treaty amendment may be sought, delivering an opt-out from CSDP, on the lines of that
applying to the Kingdom of Denmark, but, as a full EU Member State, the UK could retain the
right to attend all meetings, in the same way as France previously acted in relation to the
integrated military structure of Nato. Any attempts at further integration and strengthening the
CDSP by treaty amendment could be vetoed and the UK could seek a complete opt-out from
any such provisions while insisting that no steps be taken under CSDP which jeopardise or
inhibit the UK's full access and engagement in the single market.
The UK could invoke Article 50 (TEU) and negotiate a relationship with the EU which does
not include any defence element. And such negotiation could include opt-outs from defence
procurement regulations and directives, but may include opt-ins where this is in the national
interest.
250
The introduction
The defence of the realm is the most fundamental aspect of national sovereignty. The
Armed Forces add an important dimension to foreign policy in the protection of UK national
interests overseas, usually with allies. In the UK, when requested by the civil power, they
assist in national emergencies, the provision of essential services, and in internal security
and the maintenance of public order. The importance of our Armed Forces, however, is
more than the sum of their parts. They are part of the fabric of our society. Their status,
activities and performance enhance national prestige and contribute significantly to our
national identity and many aspects of national life, including education and training.
There are 200,000 Service personnel, plus an establishment of 70,141 civil servants (fulltime equivalents).481 The UK defence industry has an annual turnover of 35 billion, making
up ten percent of UK manufacturing. The export value of 7.2 billion (2009) places the UK as
the second-largest defence exporter in the world, after the United States. The industry
directly supports an estimated 300,000 jobs in 9,000 defence companies, including small
businesses.
Since the Second World War, the role of UK forces has undergone a gradual transition.
From defending UK possessions overseas, and supporting the Nato alliance in the defence
of continental Europe against attack by the Warsaw Pact while maintaining the nuclear
deterrent to ensure national security, and supporting the civil power in Northern Ireland
they now function mainly as expeditionary forces, usually in support of multilateral
operations.
In parallel to its long-standing commitment to Nato, the UK is now a full participant in the
EU's Common Security and Defence Policy (CSDP)482. Under the control of the Council of
the European Union, CSDP is managed by the EU High Representative, effectively the EU's
Foreign & Defence Minister. It is supported, inter alia, by a Political & Security Committee, a
Military Committee, a Military Staff, Assessment Staff (SitCen), a European Defence Agency
(EDA) as well as operational planning HQs. Since 2003, it has launched some 27 "CSDP
missions".483
According to the Lisbon Treaty, CSDP is aimed at reinforcing the European identity and its
independence.484 Specifically it will provide the Union (EU) with an operational capacity
drawing on civilian and military assets".
In these times of financial and economic crisis and given the inclination of the US to focus
less on European interests, some question the wisdom of establishing structures under EU
auspices that duplicate and create tensions in Nato, and create limited additional military
capability.
CSDP has been presented differently in the UK and on the Continent. Previous British
Ministers have confidently stated that the EU's CSDP "is not trying to compete with Nato, nor
striving to replace it and that "a key objective of our European defence policy is that it will
strengthen Nato, not least by enhancing the European capabilities available to the
Alliance.485 For the UK, CSDP is all about trying to generate more military capability from
481
http://data.gov.uk/dataset/workforce-management-information-ministry-of-defence.
formerly known as the European Security and Defence Policy (ESDP).
483
The term EU is used as shorthand throughout and includes the previous EC/EEC.
484
Preamble to the Treaty of Lisbon (the Treaty on European Union and of the Treaty on the Functioning of the
European Union, together with the annexes and protocols thereto, as they result from the amendments
introduced by the Treaty of Lisbon, which was signed on 13 December 2007 in Lisbon and which entered into
force on 1 December 2009.)
485
http://www.mod.uk/linked_files/european_def.pdf.
482
251
reluctant European allies. For example, MoD officials point out that, for a modest financial
commitment, the EDA has developed extra capability through training helicopter pilots. And
Foreign Office Officials have noted that the EU has been useful in helping to develop
effective sanctions against Iran, and in Serbias extradition of Radko Mladic.
For the EU, however, CSDP was always about building Europe. In 1975, Leo Tindemans,
then Prime Minister of Belgium, told the European Council that: The EU will not be complete
until it has drawn up a common defence policy.486 Some deny that the objective is a
"European Army", for others this aim is unquestionable.
The one-time Chairman of the EU's Military Committee, General Gustav Hagglund of Finland
said of the European Rapid Reaction Force (ERRF): We are not talking about a subsidiary
of Nato. This is an independent body. We are talking about co-operation with Nato...... it is a
question of identity in the same way as the flag and the euro.487
In July 2006, Claude-France Arnould, Director of Politico-Military Affairs at the European
Council (and subsequently Head of the EDA), declared at a seminar on the future of the
European Security and Defence Policy that the then emergent EU Battle Groups were more
a tool for political integration than to attain military objectives.488
European Commission President Romano Prodi, told an English newspaper in February
2000: "If you don't want to call it a European army, don't call it a European army. You can
call it Margaret, you can call it Mary-Ann, you can find any name."489
The idea of a European Army is not some obsolete aspiration, long since abandoned. On 15
June 2012 the Foreign Ministers of 10 EU countries, keen to push ahead more intensively
with European integration, issued a statement which included: "We need a more dynamic
CSDP, stronger EEAS planning and command capabilities for civil-military operations, more
pooling and sharing. We should commit to more majority decisions in the sphere of our
Common Foreign and Security Policy. With regard to Defence Policy most Foreign Ministers
feel that we should be more ambitious. We should raise the level of our ambition beyond
pooling and sharing. In the long term, we should aim for a European Defence Policy with
joint efforts regarding the defence industry; for some members this could also include a
European army. We should also aim for a common seat in international organisations."490
The EU philosophy of "small steps" encourages what is known as the "ratchet effect". One
thing leads inevitably to another.
In 2008, after the European Parliament had endorsed a report calling for a large standing
military force under EU command, it was noted that the same ratchet effect that was used
to introduce the single currency and an EU diplomatic service is now being applied in the
military sphere.491
Notwithstanding the more recent Lisbon Treaty, EU defence integration began in earnest in
1998. The objective was to develop an autonomous military capability, despite the fact that
most EU members were already Nato members and that all sat at the Nato table in some
form.
486
http://www.europeansecurityfoundation.eu/whitebook.php.
The Daily Telegraph, 12 April 2001.
488
http://www.eureferendum.com/blogview.aspx?blogno=78307.
489
The Independent, 4 February 2000.
490
"The time for a debate on the future of Europe is now", Foreign Ministers Group on the Future of Europe,
Chairman's Statement 15 June 2012.
491
See: on the Implementation of the European Security Strategy and European Security and Defence Policy ,
http://m.conservatives.com/News/News_stories/2008/06/EU_grabs_bigger_role_in_defence.aspx.
487
252
The key word that emerged was that the EU should have an "autonomous" military
capability. In other words, its decision-making processes were to be separate from Nato,
there was no longer a recognition of Nato 'primacy' - that the Alliance should have the 'first
bite' at consideration of a crisis - and 'EU forces' should ultimately no longer have reliance
on Nato command, control, communications or intelligence and target acquisition.
"Necessary" duplication, regardless of cost and additional complexity, was apparently a
price worth paying in order to cement a policy whose primary aim was European integration.
The EU CSDP includes the concept of collective security. The collective self-defence clause
(Article 41(7) of the Treaty on European Union) states that when an EU country is the target
of armed aggression on its territory, the other EU Member States shall aid and assist it by
any means possible. It remains doubtful how far this principle would be applied. For
example, if the Falklands again came under attack by Argentinean forces, it is unlikely that
EU member states would send troops to support the UK. Furthermore, the EU mutual
assistance article is a duplication of Nato's Article 5, and the EU does not have the capacity
to fulfill that obligation without the assistance of Nato.
The detail
The Evolution of CSDP
Common Security and Defence Policy (CSDP) is an integral part of the Common Foreign
and Security Policy (CFSP) of the European Union (EU).492 According to the Lisbon Treaty,
CSDP is aimed at reinforcing the European identity and its independence.493 Specifically it
will provide the Union with an operational capacity drawing on civilian and military assets.
Defence was reintroduced into the EU policy arena when the Maastricht Treaty was signed
on 7 February 1992. This included as a formal objective the eventual framing of a common
defence policy, which might in time lead to a common defence. Such a development
required the unanimous agreement of all governments, and the expectation was that
certainly no British government, let alone others, would agree. At that time British policy was
to sustain the Western European Union (WEU) which provided a forum for European
discussion of defence matters but which was not a serious competitor with Nato as it lacked
the capacity to act.
France in particular had different ideas about the WEU. It wanted to develop it as an
effective and separate European military arm. At the WEU Council of Ministers at
Petersberg, near Bonn on 19 June 1992, the status of the WEU was confirmed as "the
defence component of the EU and the means to strengthen the European pillar of the
Atlantic Alliance".494 The WEU also set out proposals for strengthening its operational role
with what became known as the "Petersberg tasks".495The principle of propagande par le fait
(the propaganda of the deed) was put into practice in 1992 when WEU deployed a fleet to
enforce the UNSC embargo on the former Yugoslavia in the Adriatic. However, Nato was
already carrying out this task. So there were two fleets from more or less the same navies
492
The terms EU is used as shorthand throughout and includes the previous EC/EEC.
Preamble to the Treaty of Lisbon (the Treaty on EU and of the Treaty on the Functioning of the EU, together
with the annexes and protocols thereto, as they result from the amendments introduced by the Treaty of Lisbon,
which was signed on 13 December 2007 in Lisbon and which entered into force on 1 December 2009.)
494
This had been announced in the Declaration of member states of the WEU at Maastricht on 10 December
1991.
495
" Military units of WEU member states, acting under the authority of the WEU, could be employed for:
humanitarian and rescue tasks; peacekeeping tasks; tasks of combat forces in crisis management, including
peacemaking.
493
253
carrying out the same task in the same stretch of water (a situation to be repeated off the
coast of Somalia in years to come).
On 1 May 1997, there was a change of government in the UK and British policy towards the
EU began to shift in a way that, on the one hand was more sympathetic to French
aspirations for European defence while still remaining strongly attached to the Atlantic
Alliance. In the EU Treaty of Amsterdam, signed by Heads of Government on 10 November
1997, there was now to be a "progressive framing of a common defence policy which might
lead to a common defence, the "Petersberg tasks" were incorporated in the Treaty, along
with the "possibility of the integration of the WEU into the Union (EU)".
Effectively, the idea of a European Security and Defence Identity (ESDI) within Nato, carried
out through the WEU, was abandoned and movement began towards the creation of a
separate EU military capability. The shift in policy was confirmed at the informal Prtschach
European Council of 24-25 October 1998 where the remarks of British Prime Minister Blair,
calling for an intensification of EU CFSP were apparently warmly received. Mr Blair was at
pains to emphasise "I am certainly not - repeat not- talking about a European Army or
anything like it at all [...] all I am saying, and I am not saying more than this, is that we need
to allow fresh thinking in this and it is important for Britain to be part of this thinking..."496
France and Germany moved quickly to push at this opening, and at the bilateral FrancoGerman Summit of 1 December 1998 in Potsdam took the first decision that the EU should
be given its own operational military capability and that the WEU should definitely be
integrated into the EU. Two days later, on 3 December 1998, Prime Minister Blair met
French President Jacques Chirac for their own bilateral summit in St. Malo. Afterwards, they
issued a joint declaration in which was stated:
the Union (EU) must have the capacity for autonomous action, backed up by
credible military forces, the means to decide to use them and a readiness to do
so, in order to respond to international crises [...] the Union must be given
appropriate structures and a capacity for analysis of situations, sources of
intelligence, and a capability for relevant strategic planning, without unnecessary
duplication, taking account of the existing assets of the WEU and the evolution of
its relations with the EU. In this regard, the EU will also need to have recourse to
suitable military means (European capabilities pre-designated within Natos
European pillar or national or multinational European means outside the Nato
framework).497
At Cologne on 3-4 June 1999, during the Kosovo conflict, the European Council decided that
defence should have formal structures within an EU treaty framework. These were to be
placed at the core of what was now labelled the European Common Security and Defence
policy (ESDP). It was resolved that the EU should play its full role on the international
stage. To that end, it should be provided with all the necessary means and capabilities to
assume its responsibilities regarding a common European policy on security and
defence.498 Echoing the language of the St Malo Declaration, it decided that the EU must
"have the capacity for autonomous action, backed up by credible military forces."499
At the following Helsinki Council in December 1999, the pace of integration advanced
further, with an agreement to create a European rapid reaction force. This was to be an EUcontrolled military force able to deploy within 60 days and sustain for at least one year up to
496
Extract from press conference given by Mr Blair following the Prtschach European Council of 25 October
1998.
497
Cited in: http://www.cap.uni-muenchen.de/download/2004/2004_Venusberg_Report.pdf.
498
http://ue.eu.int/ueDocs/cms_Data/docs/pressData/en/ec/kolnen.htm.
499
Presidency conclusions. Annex III. http://ue.eu.int/ueDocs/cms_Data/docs/pressData/en/ec/57886.pdf.
254
60,000 personnel capable of the full range of Petersberg tasks.500 Also agreed was a
Headline Goal which set out the specific force components which member states agreed to
contribute. The EU had an army in the making, and had now issued a shopping list for its
equipment.
Recognising that a fruitful avenue for the EU to follow was in the broader 'security' arena,
where non-military assets were required the Santa Maria da Feira Council of June 2000 took
in civil aspects of the policy, identifying four civilian priority areas.501 This was followed on 26
February 2001 by the creation of a financial rapid-reaction mechanism to underpin existing
Community policies and programmes and enable the Community to take urgent action to
help re-establish or safeguard normal conditions for the execution of the policies undertaken,
in order to preserve their effectiveness.502
While the 16 December 2002 "Berlin Plus" agreement allowed the EU to draw on some of
Natos military assets for its own peacekeeping operations503, the ambition for EU autonomy
remained.
In 2003, ESDP became operational, starting with the EU Police Mission in Bosnia and
Herzegovina (EUPM). Since then, 27 "CSDP operations" have been initiated, creating a
plausible narrative of security and defence activity.504 Most are on a small-scale, most are
civil missions operating under the CSDP mandate, and only a handful have been purely
military in nature.505
The military operations tend either to be French in origin, sub-contracted to the EU; recent
Nato operations which have effectively been wound up or with which the EU seeks to
compete; or the result of the EU efforts to find gaps in the wider international effort where the
EU can respond sometimes all three of these. Many argue that few of the CSDP missions
stand up to critical scrutiny.
When the Libya crisis unfolded in 2011, the EU sought some sort of role under its CSDP
heading but neither the UN, the US, nor European leaders had any desire to provide an
opportunity for CSDP. The EU plea to run the maritime embargo or to deliver humanitarian
assistance with military escorts was turned down. A coalition of the willing was quickly
engaged, led by France and the UK. This then became a Nato operation, European-led, with
strong US support.
Why CSDP?
Over the years at least ten different justifications for CSDP have been developed with the
"comprehensive approach" being most fashionable at the moment:
More influence in the world through Joint EU Action
It is argued, with the growth of new powers such as China and India, the best way for
Europeans to have more influence on the world stage is with a unified approach. This
presupposes a common European strategic interest or foreign policy and abandons the
idea of national interests. Of course, where 27 EU nations or 28 NATO nations can deliver
500
http://europa.eu.int/comm/external_relations/esdp/chrono.htm.
http://www.consilium.europa.eu/uedocs/cms_data/docs/pressdata/en/ec/00200-r1.en0.htm.
502
Council Regulation (EC) No 381/2001 of 26 February 2001 creating a rapid-reaction mechanism. http://eurlex.europa.e.u/LexUriServ/LexUriServ.do?uri=CELEX:32001R0381:EN:HTML.
503
http://www.europarl.europa.eu/meetdocs/2004_2009/documents/dv/berlinplus_/berlinplus_en.pdf.
504
http://www.consilium.europa.eu/uedocs/cmsUpload/csdp_handbook_web.pdf.
505
For a list of operations, see: http://www.consilium.europa.eu/eeas/security-defence/euoperations?amp;lang=en.
501
255
a common message, that is to be welcomed. In the field of Foreign Policy, the UK has
viewed the EU as a useful tool, for example in developing sanctions against Iran over its
Nuclear programme in 2012.
Common EU structures and procurement to save money
It is suggested that closer EU co-operation in security and defence matters leads to
efficiency savings, in manpower, in procurement, in communication systems, in HQs, and in
role specialisation.
For this calculation, the EU tends to amalgamate the activities of the 27 countries that are
EU members and present these as if they are a coherent EU whole. This has been termed
by some as the 'sin of elision'. We often hear reference to "EU forces" in Afghanistan for
example. Of course, there is no such thing. There are various national contributions, by Nato
allies and others, to a Nato mission. The EU has no military forces of its own.
The key comparator that is used is the US. On the world stage, the US remains by far
biggest defence spender, having spent $711.4 billion in 2011506. According to the European
Defence Agency, the aggregated military spend for the 26 EDA participating member states
(pMS), what we might better refer to as European countries, was $257 billion a ratio of
2.7:1.507
And while the US had seen a modest fall, of the three top spenders in Western Europe France, Germany and the UK - France's military budget had fallen 4% since 2008, Germany
had cut 1.4 % and only the UK was holding up, with a 0.6 % cut although deeper cuts are
in the pipeline.
In other European countries, far larger cuts had been made. Greece was down 26% since
2008, Spain 18%, Italy 16% and the Irish Republic 11%. Belgium had seen a 12% cut and
most central European countries had also made severe cuts.
It is suggested that "pooling and sharing" capabilities is the best way to leverage more
capability and to overcome budgetary limitations. Some also see this as a means of
transition from individual national forces to full integration of military capabilities.
However, Nato is also looking at the possibility of more integrated military effort, in limited
areas, through its 'Smart Defence' initiative.
The EU has resources which other organisations lack
Supporters of European defence integration argue that, over and above operational
economies, activity on a European level can receive additional subvention from the EU
budget as well as extra-budgetary funding managed by EU institutions. This includes
contributions from the European Development Fund, the Athena mechanism and
programmes created by intergovernmental agreements, with the EU acting as the coordinator or facilitator.
Pressure for an EU budgetary component devoted to military capabilities is certainly
increasing. In December 2011, the European Parliament considered a report on the impact
of the financial crisis on the defence sector in the EU Member States, which offered several
suggestions in this direction.
506
507
SIPRI Military Expenditure Database - http://milexdata.sipri.org/result.php4.

http://www.eda.europa.eu/News/12-01-25/EU_and_US_government_Defence_spending.
256
Of course, the EU budget is largely made up of contributions from its Member States. Those
same States could decide to spend their money elsewhere or with other organisations.
An EU military capability will reinforce Nato
Conscious of the historic and political attachment of its members to Nato, and the widely
expressed concerns that EU defence ambitions are undermining the Atlantic alliance, the
rationale for CSDP is sometimes expressed in terms of strengthening Nato itself. Those EU
integrationists that are Atlanticist foster the ambition for a future Nato in two parts - with a
North American and an EU pillar. This would effectively dissect the Alliance and see the
European allies pre-cooking their positions and presenting an EU caucus in Nato. Nato
would effectively become a two-flag operation. And there is no evidence that countries
committed to a CSDP path will strengthen their Nato contributions. On the contrary, certain
nations with very capable armed forces such as Germany and Poland, refuse to contribute
to Nato's operations.
The EU can go where the US cant
For some, Nato is seen as a US organisation and they claim the US brand is sometimes
toxic. Therefore the EU - with its currently limited military profile - would be more acceptable.
The most recent example of such sensitivity was in regard to the Lebanon crisis in 2006
when the EU was keen to create a role for itself, but this was rejected in favour of expanding
the nature and scope of the UNs UNIFIL mission.
Of course, there may well be occasions when nations other than the US must take the lead
in a crisis, but this does not automatically lead to a role for the EU. There is a plethora of
more appropriate organisations, including the UN, African Union, and ASEAN as well as
effective coalitions of the willing.
There is no good reason why Nato should not decide that European members of Nato
should take the lead in a particular crisis and use Nato structures and assets. This was the
idea behind the European Security and Defence Identity (ESDI) initiative in 1996 a
separable but not separate part of Nato.
CSDP embodies the novel Comprehensive Approach
It is said that Nato does not have the ability to cover the full spectrum of defence and
security-related tasks. In addition to high-end military intervention, there is a need for
stabilisation and reconstruction measures to follow any major combat phase. This requires
civilian skills and capabilities.
Since most of the conflicts that allies are likely to confront will be insurgencies and
unconventional conflicts at the low end of the conflict spectrum, these capabilities will be at a
premium. It is argued that only the EU has the means to engage both civil and military
capability simultaneously, in what is known as the comprehensive approach. There is no
particular merit or advantage in institutionalising such a combination. It can equally well be
achieved through good planning and liaison.
A division of labour rather than duplication would be helpful. If the EU had co-ordinated its
civil missions in Afghanistan with Nato and got them right development projects, police
training etc the situation there might have been improved. For a long time, the CSDP
mission in Somalia (EUTM Somalia) had no contact with the local delegation of the EU.
257
The EU could perform a useful role if it concentrated on efficient delivery of civil tasks of
conflict prevention, and post-conflict reconstruction. This would be helpful and
complementary to the mainly military interventions best done by Nato.
CSDP enhances European nations military capabilities
The European Defence Agency (EDA) has the task of enhancing military capabilities. MoD
officials point to specific examples, such as the training of helicopter pilots, which have
added military capability. In some cases, the EDA duplicates roles already being performed
at Nato. For example, Natos Multinational Aviation Training Centre, which builds on
operational experience and expertise from Afghanistan, provides training to helicopter pilots
and ground crews.
The armed forces of European countries will become more capable when they are flexible
and interoperable not just with one another but with all other Nato allies, particularly the
US - and properly financed.
Nato member countries agreed to spend a minimum of 2% of GDP on defence. Most
European countries fail this test. The UK is an exception. However, even the UK among
the most active military powers is already spending less now on defence as a proportion of
national wealth than at any time since the 1930s. A favourite mantra of the EDA is that it is
not the size of a defence budget that matters but how it is spent.
It is doubtful that the EU could spend defence funds more effectively than national
governments.
Nato and the US support CSDP
In the aftermath of the Second World War, the US wanted to make Europe less dependent
and able to contribute to defence needs in the face of the Soviet threat. In fact, the need for
greater burden sharing has been the recurring theme of Alliance politics for decades. The
US tended to the view that how the Europeans organise themselves is up to them,
provided they come up with more capability and are reliable allies when it counts.
The problem has proved twofold limited additional capability has been produced, and
those driving the ambition for CSDP were often motivated by competition and distinctiveness
rather than a desire for partnership with the US.
Just after the St Malo Declaration on creating an autonomous EU defence capability, US
Secretary of State Madeleine Albright, while diplomatically welcoming the burden-sharing
possibilities of the Anglo-French initiative, felt compelled to warn against no diminution of
Nato, no discrimination and no duplication.508 In many cases, unfortunately all of what
became known as the 3 Ds have become features of CSDP.
There is no good reason why, if it was decided that a crisis should be dealt with
predominantly at a European level, Nato structures should not accommodate European-led
operations. Furthermore, there is a precedent for the EU in a two-tier approach, which Nato
successfully dealt with during the 40-year period when France absented herself from the
integrated command structure of the Alliance. As its full Nato membership allowed, France
continued to be present at all meetings (except nuclear) and cooperated in operational
planning.
508
Transcript of Albright Press Conference at Nato HQ 8 December 1998.
258
Europe must take responsibility for its own backyard

The backyard argument came to the fore in June 1991, when Slovenia and Croatia
declared their independence from the Federation of Yugoslavia. The response of the
Belgrade government was to order the Yugoslav National Army into Slovenia to put down
the rebellion by force.
Of course, the US quite rightly expects the Europeans to take on greater responsibility for
their immediate region, just as the US is increasingly concerned with the Asia-Pacific region.
But all these issues demand the common focus of all the democracies. The great merit of
Nato is that the North American and European allies sit at the same table and agree by
consensus on the best approach to a crisis. This enables the most appropriate force
configuration, avoids the danger of contradictory political signals, and ensures solidarity in
the face of crisis.
Libya provides an example albeit imperfect of this process in action. Under the
leadership of France and the UK and with the full support of the US, Nato allies and a
number of partner nations including Sweden, Qatar, the United Arab Emirates and Jordan,
undertook operations to protect civilians in Libya. On 31 March 2011, Nato took sole
command and control of the international military effort in support of UNSCR 1973.
In many respects this provided the final evidence of the irrelevance of CSDP. EU
representatives had desperately sought a CSDP role in the Libya crisis but these were all
rejected in favour of intervention under Nato command.
Popular legitimacy
A more contentious argument for EU defence involvement is the one of legitimacy, where it
is asserted that European action enjoys high levels of popular support. Certainly there are
Europe-wide polls that suggest that decisions on defence and foreign affairs made jointly
within the EU are strongly backed by all national parliaments, and by 76% of European
public opinion, with majority support in all 27 countries in the EU.509
But there is a considerable range of opinion, even within the terms of the polling questions
as formulated, from 83% (Slovakia) to 20% (Finland), with the UK recording a 40% approval
rating. By comparison 79% of respondents in Finland, 55% in the UK and 50% in Sweden
would prefer decisions to be taken at national level.510 Opinion seems remarkably stable,
with little difference year-on-year, evidenced by results in the autumn of 2010.511
The argument is that, when the Union acts on the world stage, it does so by consensus. It is
thus claimed that its actions are indirectly sanctioned by nearly 500 million people, with no
single country able to lay claim to such legitimacy.512
However, traditionally, national sovereignty and national defence are seen to be intimately
related, defence of sovereign territory being regarded as the principle duty of national
governments.
In the UK at least, there is certainly a demonstrable lack of enthusiasm for the idea of
sharing military resources with other nations, and a belief that it is important for the UK to
retain a strong national grip on its defence assets. In a Harris poll conducted for the
509
ibid, p.27.
Eurobarometer Standard, The EU Today and Tomorrow, November 2008:
http://ec.europa.eu/public_opinion/archives/eb/eb69/eb69_part3_en.pdf.
511
Eurobarometer: http://ec.europa.eu/public_opinion/archives/eb/eb74/eb74_publ_en.pdf
512
http://www.iss.europa.eu/uploads/media/What_ambitions_for_European_defence_in_2020.pdf.
510
259
Financial Times, more than a third actively opposed sharing resources, and 81% said they
were concerned that reductions in national defence expenditure will weaken the UKs
ability to protect itself. Only 33% actively supported the idea of defence sharing.513
CSDP provides opportunity for military participation of non-Nato nations
It is true that six EU member states are not Nato allies. But, with the exception of Cyprus,
where there are specific problems, all the others have either sat at the Nato table514 or
participated in Nato operations. Equally, some seven Nato allies are not EU member states.
Even more than the EU, Nato provides opportunities for operational involvement of nations
that are not members of Nato or the EU. The Nato ISAF operation in Afghanistan included
Australia, New Zealand, Mongolia, Korea, Singapore, Jordan, and Bosnia among others.
The Libya operation, noticeably short of Nato allies Germany and Poland, included Qatar,
UAE, Jordan. Denmark a good Nato ally has consciously opted-out of CSDP and
contributed disproportionately to Nato air missions over Libya.
Defence industrial policy
The Treaty of Amsterdam had contained only a weak reference to defence industrial policy
with recognition that "the progressive framing of a common defence policy will be supported,
as Member States consider appropriate, by cooperation between them in the field of
armaments". In 2004 the European Defence Agency (EDA) was established in order to
create major cooperation among Member States in the defence sector and to facilitate the
birth of the European Defence Equipment Market.
The UK, however, remains a significant and attractive market, more so since the recent
publication of the British Governments White Paper, National Security Through
Technology: Technology, Equipment, and Support for UK Defence and Security.515 The
issue of relevance was raised by the Financial Times, headlining: MoD will no longer favour
UK companies. The Ministry of Defence stated that it:
"[...] will no longer give UK companies priority over their foreign competitors when
buying equipment and weapons for the armed forces. The only exceptions will be
cases where buying British is essential to maintaining national security". 516
Ostensibly, this opens defence purchasing to the international market in a manner which
transcends CSDP. A commitment to buying off the shelf on the basis of value for money
liberates the UK from politically motivated programmes. Although not specifically intended
as such, this already reduces the impact of the common policy which holds as a central
tenet that the creation of a competitive and efficient European defence market is a
precondition to achieving better military capabilities across the EU through pooling and
sharing.517
That notwithstanding, the effects of the unilateral action by the UK are mitigated by the need
to conform with general treaty obligations. In particular, there is Directive 2009/81/EC on the
co-ordination of procedures for the award of certain works contracts, supply contracts and
513
Financial Times, 1 November 2010, Military sharing plan finds resistance.

http://www.ft.com/cms/s/0/d6c63a7e-e5ec-11df-af15-00144feabdc0.html#axzz1v3SjeNxi.
514
All sit on Partnership for Peace and the Euro-Atlantic Partnership Council.
515
MoD website. http://www.mod.uk/NR/rdonlyres/4EA96021-0B99-43C0-B65E-CDF3A9EEF2E9/0/cm8278.pdf.
516
Defence Procurement Minister Peter Luff, in comments to The Financial Times, 31 January 2012.
http://www.ft.com/cms/s/0/435b4bfe-4c15-11e1-b1b5-00144feabdc0.html.
517
Claude-France Arnould. et al (2009), What ambitions for European defence in 2020? ISS, Paris.
http://www.iss.europa.eu/uploads/media/What_ambitions_for_European_defence_in_2020.pdf.
260
service contracts by contracting authorities or entities in the fields of defence and security,
and amending Directives 2004/17/EC and 2004/18/EC.518
All of these rely on Single Market treaty provisions for their legal base, and were
transposed into UK law as the Defence and Security Public Contracts Regulations on 21
August 2011.
However, this Directive has a sting in the tail. The declared intention is to promote the
gradual establishment of a European defence equipment market which is regarded as
essential for strengthening the European Defence Technological and Industrial Base. But
its additional objective is the development of the military capabilities required to implement
the European Security and Defence Policy.
No longer are we talking about national defence industries. The Commission is aiming for a
truly European defence equipment market. It has steadily eroded the national interest
exemption in the procurement of military equipment, embodied in Article 296 of the Treaty,
enabling them to by-pass Single Market rules on competition. This was achieved not by any
new law or agreement, but by an Interpretative Communication of the Article, issued on 7
December 2006.
The crucial point here is that while Commission initiatives aimed at harmonising defence
procurement are an integral part of the CSDP, with the actual instruments being part of the
Single Market acquis, the UK cannot entirely exclude itself from them without being in
breach of its treaty obligations. Nor does it have to.
In terms of equipment procurement, there may well be budgetary and industrial merit in
collaborative equipment schemes, although this is open to challenge. In any case, such
arrangements do not require the involvement of the institutions of the EU.519 Invariably,
multilateral equipment programmes cost more and take longer to develop than national or
bilateral schemes. Furthermore, the important requirement for interoperability of military
forces acting in coalition extends well beyond the EU. Britain is more likely to be fighting
alongside US troops in any future conflict.520
The Case StudyCounter Piracy Operations off the Coast of

Somalia
International Co-Ordination
Under the mandate of UNSCR1851(2008) the international community has responded to the
piracy threat off the coast of Somalia. It has established co-ordination structures under UN
auspices. Warships are provided mainly by the US and many European navies under Nato
command. More recently, the same European navies also deploy their warships under EU
command.
Contact Group on Piracy off the Coast of Somalia. (CGPCS), New York
Working Group 1: Improving naval operational co-ordination and building the judicial,
penal and maritime capacity of Regional States. Chaired by UK.
Working Group 2: Establishing judicial frameworks for the arrest, detention and
prosecution of suspect pirates. Chaired by Denmark.
518
http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:L:2009:216:0076:0136:en:PDF.
See EU White Elephants?: The Political Economy of Multi-national Defence Projects", Keith Hartley, New
Direction 2012.
520
http://www.geoffreyvanorden.com/user_files/documents/Defence_Pamphlet_-_Oct._2010.pdf.
519
261
Working Group 3: Strengthening commercial shipping self-awareness and self-defence.

Chaired by USA.
Working Group 4: Improving diplomatic and public information efforts within Somalia and
the international community. Chaired by Egypt.
Shared Awareness and Deconfliction (SHADE) mechanism, Bahrain
Maritime Capabilities
Operation Ocean Shield Natos current counter-piracy mission - succeeded two shorter
counter-piracy operations dating from October 2008 to protect WFP ships. Counter-piracy
operations at sea are its main focus. Controlled from Allied Maritime Component Command
Headquarters Northwood, UK.
CTF-151 is part of the US-commanded Combined Maritime Force - a 25-nation coalition
headquartered in Bahrain. The Royal Navy regularly provides a frigate and occasionally a
Royal Fleet Auxiliary Ship.
EUNAVFOR or Operation Atalanta - also headquartered in Northwood, UK. It was an
evolution of a French operation out of Djibouti and was turned into an EU mission - "the first
maritime CSDP mission" under the French EU presidency in 2009. It took over protection of
WFP shipments from Nato, but has expanded to take on a broader anti-piracy role. The last
extension of EUNAVFORs mandate has allowed it to target both 'motherships' and pirate
bases on land, thus extending its operational mandate considerably.
In addition to these three major taskforces, several nations have also deployed vessels
independently, including Australia, Bahrain, China, Egypt, India, Jordan, Pakistan, Russia,
Saudi Arabia, Seychelles, Singapore, South Korea, Ukraine and Yemen.
Extent of UK involvement in CSDP

CSDP has always presented a particular policy dilemma for the UK. The UK sees defence
as the strong suit in its hand which it could play to win support in other EU policy areas.
Equally, there is reluctance to concede defence leadership in Europe to France or to create
a situation where defence matters in Europe were being discussed without a UK presence.
The US might also have been uncomfortable with this.
The UK has therefore found itself on an endless escalator - unwilling to risk getting off and
often engaged in activities producing no tangible benefit while diverting energy and
resources from more important tasks.
The UK is a signatory to the succession of EU treaties from Maastricht to Lisbon which have
included defence commitments of increasing intensity (see above). At no stage did the UK
seek a defence opt-out except to insist that reference be included in the Treaties to the
obligations of certain Member States under the North Atlantic Treaty.
Denmark is the only EU Member State to have excluded itself - and continues to exclude
itself - from all aspects of CSDP, having negotiated an opt-out from this policy area following
the Danish peoples initial rejection of the Maastricht Treaty in a 1992 referendum.
The 2009 Treaty of Lisbon has given fresh energy and coherence to CSDP. The UK is
engaged in policy formulation, provision of personnel, military operations, and funding.
262
The UK is fully engaged in all the policy committees. Much of the activity in relation to CSDP
is devolved to the Political and Security Committee (PSC) with representation at
ambassadorial level and an EU Military Committee with representation at 3-star level (in the
UK and most other cases the same officer who sits on the Nato Military Committee).
Given the British Governments role as midwife to CSDP it was not surprising that the UK
should give early encouragement to CSDP missions and seek to contribute to them. For
example, in December 2004, European Union Force (EUFOR) Althea, under British
command, took over Natos Stabilisation Force (SFOR) in Bosnia. This was hailed as the
EUs first substantial military mission.
In December 2008 the EU launched its first naval operation, Operation ATALANTA, to
combat piracy off the coast of Somalia. The UK provided the Operational Headquarters at
Northwood and the Operational Commander. This operation draws on the same diminishing
national naval assets that also help support Nato's counter-piracy mission in the same
waters.
The EUs 2004 battlegroup concept was a response to the failure of the more ambitious
project for a Corps-sized European rapid reaction force. Again, it drew on the same national
forces that would have to be employed to mount other national or Nato missions. No
battlegroup has yet been used on operations, in spite of the fact that there are two
battlegroups on standby at any one time. The UK provided battlegroups in the second half of
2008 and the first half of 2010 and will do so, with Sweden, in the second half of 2013.
British contributions to CSDP missions inevitably varies. Of 27 CSDP missions, the UK has
so far contributed to 18. Currently, as at February 2012, a total of 153 British Military
personnel were deployed as follows: EUNAVFOR Somalia - 69; EULEX Kosovo - 35;
EUPOL Afghanistan - 18; EUMM Georgia - 12; EUPOL Copps - 5; EUSEC RD Congo - 4;
EUFOR Althea - 4; EUTM Somalia - 2; EUJUST LEX Iraq - 2; EUPM BiH - 2.521
The UK also contributes military and civil staff to the EU Military Staff (EUMS), the source of
military expertise within the European External Action Service. Currently, the Deputy
Director General is Rear Admiral B N B Williams RN, a British officer on secondment. It
works under the direction of the EU Military Committee. Housed in a building in the
European quarter in Brussels, it employs nine Generals and 57 Colonels, with a total of 135
staff in all.522
At the British Permanent Representation to the EU there is now an embedded military
section led by a one-star officer supported by 6 personnel. In addition there are 12
diplomatic/civilian staff engaged on CSDP-related issues.
These personnel are, of course, additional to the much larger number of UK military and
civilian personnel serving at Nato on both Alliance and national staffs. While the EU
numbers are relatively small, they nevertheless represent a significant investment in
manpower and resources.
At the heart of the European External Action Service, however, is the Crisis Management
Planning Directorate (CMPD). It was established in December 2008, when the European
521
For full details and further breakdowns of national contributions, see here: http://www.csdpmap.eu/missionpersonnel.
522
http://www.europeanvoice.com/article/imported/behind-the-camouflage-nine-generals-and-57-colonels-areready-for-action/44434.aspx.
263
Council merged civilian and military aspects of the planning for European peace keeping
missions into a single directorate. It is envisaged that the CMPD will incorporate integrated
strategic planning and CSDP policy development issues, including civilian and military
aspects of capabilities, partnerships, exercises and lessons learned.523
The Civilian Planning and Conduct Capability (CPCC) is designated as the permanent
structure responsible for an autonomous operational conduct of civilian CSDP operations.
Under the political control and strategic direction of the COPS, the CPCC ensures the
effective planning and conduct of civilian CSDP crisis management operations, as well as
the proper implementation of all mission related tasks. It currently employs 60 staff, half of
whom are Council officials, the other half seconded national experts.524
The Joint Situation Centre (JSC or SitCen) is the EUs intelligence assessment body, part of
the EEAS, and under the authority of the EU's High Representative, with some 100
personnel based in the EU Council Building in Brussels and in the nearby Cortenberg
building where the EUMS is located.
The EU Satellite Centre (EUSC) supports the decision-making of the EU by providing
analysis of satellite imagery and collateral data.525
The EU has long regarded the establishment of an EU Operational Headquarters, or EU
OHQ as a key objective in furtherance of EU operational autonomy. This has always been
problematic for the UK526 which preferred to make existing HQs available for command and
control of EU Military or Civ-Mil missions.
This so-called 'framework nation' track was used during Operation Artemis and EUFOR
Tchad/RCA (both using France's Mont Valrien HQ), EUFOR DR Congo (using Germany's
Potsdam HQ), and currently Operation Atalanta (using UK's Northwood HQ).
However, the European Council of December 2004 took the decision to establish "a further
OHQ option"527 and has been trying to find an agreeable formula since then.
The issue arose again at the July 2011 European Council, and the UK made clear her
fundamental objections. Foreign Secretary William Hague MP observed: "I have made very
clear that the United Kingdom will not agree to such a permanent OHQ. We will not agree to
it now, we will not agree to it in the future. That is a red line for us. We are opposed to this
idea because we think it duplicates Nato structures and permanently disassociates EU
planning from Nato planning. Secondly, it's likely to be a much more costly solution than
existing structures; and thirdly, a lot can be done by improving the structures that already
exist."528
523
524
http://www.europarl.europa.eu/sides/getAllAnswers.do?reference=E-2009-6039&language=EN.
http://www.europarl.europa.eu/meetdocs/2004_2009/documents/dv/sede131008cpcc_/SEDE131008CPCC_en.p
df.
525
http://www.eusc.europa.eu/.
526
Even Prime Minister Blair made it clear that the establishment of any EU OHQ would be a red line for the UK.
Instead of building up an entirely new institution at Tervuren (Belgium), it was decided to instead create a small
unit of planners to join the existing EU military staff (EUMS), as part of the secretariat of the Council of
Ministers.526 A small unit of EUMS were also embedded at NATO's Supreme Headquarters Allied Powers Europe
(SHAPE) "to prepare for EU operations having recourse to NATO common assets and capabilities under Berlin
plus arrangements".
527
EU Council Secretariat - Background document: 'The EU Operations Centre' (p.2)

http://www.consilium.europa.eu/uedocs/cmsUpload/070228-EU_OpsCentre.pdf.
528
In comments to journalists on 18 July 2011, as reported by news outlets - including:
http://www.telegraph.co.uk/news/worldnews/europe/eu/8645749/Britain-blocks-EU-plans-for-operational-militaryheadquarters.html and http://www.euractiv.com/justice/uk-blocks-bid-permanent-eu-secur-news-506640.
264
But, only eight months following this veto, on 23 March 2012, the Foreign Affairs Council
took the unprecedented step of activating an EU OpsCen - "to coordinate and increase
synergies" between the three CSDP missions in the Horn of Africa - EUNAVFOR Operation
ATALANTA, EUTM Somalia and EUCAP NESTOR.529
529
Foreign Affairs Council Press Release - 'EU Operations Centre to support CSDP missions in the Horn
of Africa' - http://register.consilium.europa.eu/pdf/en/12/st07/st07858.en12.pdf.
265
EU Duplication Of Nato
EU (CSDP)
21 European countries
Sweden, Finland, Austria, Repub of IRL
Malta, Repub of Cyprus
Nato
21 European countries
US, Canada, Iceland*, Norway
Turkey*, Albania, Croatia*
(* EU candidate countries)
Nato Article 5
Lisbon Treaty 'Mutual Assistance Clause'

Art. 42.7)
Military Forces
AWACS
The Strategic Airlift Capability
Missile Defence capability
Alliance Ground Surveillance
programme
NIL
NATIONAL ARMED FORCES
NATIONAL ARMED FORCES

Capability Improvements
"Smart Defence"
Nato-led projects to pool and share
more military capabilities. e.g.
Remotely controlled counter IED
robots
Multinational Coop on Munitions
Strategic Airlift Capability (see above)
Missile Defence capability
Multinational Aviation Training Centre
Medical Treatment Facilities
Multinational Logistics Partnership for
Fuel Handling
Joint Intelligence, Surveillance and
Reconnaissance (JISR).
"Pooling and Sharing"

EU-led projects to pool and share more
military capabilities e.g.
Counter IED
Strategic and Tactical Airlift Management

Helicopter Training Programme
Medical Support
Multinational Logistic Support/
Fuel and Energy
Intelligence Surveillance and
Reconnaissance (ISR)
Command & Control Structures

NATO Military Committee
EU Military Committee
Highest Nato military decision21 of the same officers that sit on Nato.
making body, comprising 28 national Provides military advice through EU/PSC
Chiefs of Defence Staff, represented
on permanent basis by 3-star military
officers. Advises NAC
Defence Policy & Planning Cttee
Senior defence advisory body
comprising defence counsellors from
all national delegations.
Political and Security Committee

Ambassadorial level. Provides defence
policy advice within EU.
NATO International Military Staff

450 military and 90 civilian staff for
military staff-work and planning at
highest pol-mil level.
European Union Military Staff

200 military and civilian staff seconded
from national armed forces. Tasks similar
to Nato IMS.
Civil Emergency Planning Cttee

Oversight of all civil emergency
planning.
Civ Planning and Conduct Capability

60 staff plan civil aspects of CSDP
missions.
266
Effects of change in UK relationship with CSDP

The UK's main concerns seem to be twofold. Firstly, there are concerns that policy
disagreements over CSDP might impact on the UKs ability to find support in other policy
areas. We are not aware of evidence for this proposition or indeed that other countries,
France for example, have in any way been marginalised by a strong policy stance. The UK
tends to be on the back foot, fearful of the consequences of robust action. In reality, given
the size of the UKs subvention to the EU, it should be the demandeur. Assertiveness in one
area does not signal an unwillingness to co-operate in other areas of EU policy.
For the British, there is a huge disparity between the strategic assumptions governing UK
forces, and those of our European partners. In the UK, it is still assumed that our Armed
Forces must be prepared to fight high-end warfare and also be capable of dealing with a
range of low intensity conflict situations, and with non-European allies, particularly the US.
Secondly, our defence industries do not wish to be excluded from opportunities that might
arise from involvement in CSDP structures such as EDA. British interests should be
protected through single market mechanisms and legislation. It should also be noted that
non-EU countries such as Norway are able to participate in EDA on an ad hoc basis.
Should we disengage can it be done?
Protocol 10 of the Lisbon Treaty acknowledges that the common security and defence
policy of the Union does not prejudice the specific character of the security and defence
policy of certain Member States."
Arguably, Britains interests are best served by building capacity and support within Nato,
keeping the US embedded within the Atlantic Alliance.
As to European defence cooperation in general, there is no reason why European allies
within Nato should not take the lead in specific operations, when it is appropriate, as we
have seen in Libya. This has the enormous advantage of ensuring that all allies, including
the US and Canada, are round the same table with European allies in order to discuss the
most effective way of dealing with a crisis.
On the other hand, a fully institutionalised EU security policy means a second bureaucracy
beside Nato. In times of austerity, two bureaucracies with more or less the same job is an
extravagance. If EU countries wish to spend even less on defence, they would be better off
concentrating on one organisation rather than financing two.
If we were to ask - would it make one jot of difference to our military capabilities or to the
security of the European democracies if the EU had no military role? The answer is surely
no. The same cannot be said if Nato were to wither.
However, if the UK were to withdraw from the CSDP, the remaining EU Member States
would be likely to proceed with further integration in the absence of the UK. This ultimately
could present the UK with a difficult strategic position of a large military power on its
doorstep.
267
The Options for change

Traditionally, the UK position on EU foreign policy and defence cooperation is to ensure that
European cooperation bolsters Nato and the trans-Atlantic alliance rather than duplicates or
weakens it. With the United States less willing to shoulder the burden of guaranteeing
European security, due to changing strategic priorities, European countries must make
efforts to boost their military capacity in order to ensure the durability of the Alliance. From
within the EU, the UK can seek to ensure that EU activity in this area is complementary to
Nato, or at least not in competition with it. Arguably, Frances decision to formally re-join
Natos military command under President Nicolas Sarkozy illustrates that this UK objective
has been somewhat successful.
The UK could be more assertive in vetoing EU proposals that compete with, or duplicate,
Nato. In parallel, the UK could encourage EU CSDP to focus on areas of civil instruments
and capability building, in order to complement Nato. And the UK could help build capability
by supporting various groups of Members States to collate their efforts in different areas
cooperation does not have to Pan-European.
The UK could develop the comprehensive approach to include conflict prevention, and
more effectively combine CSDP with development and regional strategies.
Since active involvement in EU-led operations, and the provision of headquarters and
planning staffs, is largely discretionary, it is open to the UK to reduce such involvement,
without the need for treaty change or formal negotiations. As regards committee and
institutional engagement, the UK can either adopt the empty chair approach, or informally
designate itself as a non-participatory observer.
New initiatives within the CDSP, which require assent of the Council through the unanimity
voting procedure could be vetoed by the UK, on the basis that any such development is
against the national interest, and detrimental to the role and status of Nato.
To assert the primacy of British policy in respect of Nato, it is also open to the UK to make a
non-binding political declaration, publicising its intention to take a non-participatory role in
CSDP. This can be done at an EU level, with a statement made at a routine European
Council meeting and appended to the communiqu. In the UK, it may be generated at the
executive level, as a Cabinet decision, and/or as a resolution from both Houses of
Parliament.
Within the context of an Inter Governmental Conference (IGC), given the agreement of the
President of the European Council and the unanimous agreement of all member states, a
treaty amendment may be sought, delivering an opt-out on the lines of that applying to the
Kingdom of Denmark.
Should as may well be the case in the light of the current Eurozone crisis an IGC be
convened in the near future, in which modifications to the treaties are sought, the UK could
seek discussion, inter alia, concerning CSDP with the possibility that the UK might seek an
opt-out from any or all CSDP provisions as well as from other areas of policy.
Alternatively, to formalise the separation from CSDP, the UK could invoke Article 50 (TEU)
and negotiate a relationship with the EU which does not include any defence element. And
such negotiation could include opt-outs from defence procurement regulations and
directives.
268
However, any such option could also include specific opt-ins to EU programmes that are
deemed to be in the national interest. Norway, which is not an EU member, has been
granted an opt-in to participate in EDA programmes on a case-by-case basis, without voting
rights. The UK could also seek such provisions.
269
Chapter 12
Appendices
Appendices
Appendix 1 - A quick guide to the EU institutions
European Council is composed of the Heads of State or Government of the 27 EU Member
States. At their meetings, EU leaders agree on broad political guidelines, but rarely discuss the
details of individual draft EU laws.
Council of the European Union (also referred to as the Council of Ministers) is usually
composed of the ministers of the 27 EU Member States; the ministers present vary depending
on the subject being discussed (agriculture, home affairs, financial regulation, and so forth).
The Council of Ministers discusses, amends, and adopts EU legislation tabled by the European
Commission. It takes its decisions by qualified majority or (less frequently) by unanimity or
simple majority. Since the Lisbon Treatys entry into force, it shares legislative powers with the
European Parliament in the great majority of EU policy areas.
European Commission is currently composed of 27 Commissioners, one per member state,
responsible for different policy areas. The Commission is in charge of drafting new legislative
proposals, which are then usually negotiated and adopted by the Council of Ministers and the
European Parliament acting jointly.
European Parliament is currently composed of 754 MEPs, divided among EU Member States
roughly based on each countrys population. Particularly since the entry into force of the Lisbon
Treaty, the European Parliament has great power in the EUs legislative process. MEPs now
have the same legislative weight as national governments in most EU policy areas, including,
among others, single market regulation.
Court of Justice (often referred to as the European Court of Justice, ECJ) is composed of
27 judges, one per member state. Its main function is to ensure that EU law is applied
consistently in all 27 EU Member States. The ECJ also settles disputes between national
governments and EU institutions. Its rulings are binding, and EU Member States can incur fines
if they fail to comply with them.
Subsidiarity. According to the official EU definition, the principle of subsidiarity means that:
the Union shall act only if and in so far as the objectives of the proposed action cannot
be sufficiently achieved by the Member States, either at central level or at regional and
local level, but can rather, by reason of the scale or effects of the proposed action, be
better achieved at Union level.530
The Lisbon Treaty includes provision for national parliaments to send a yellow card or
orange card to the Commission, if sufficient numbers say that proposed EU legislation
breaches the principle of subsidiarity. Under the yellow card, the Commission is obliged to
review a proposal if one third of the total votes allocated to national parliaments (at least 18 out
of 54) are against it. However, it can present the proposal again unchanged. The yellow card
was most recently triggered by the so-called Monti II Regulation, designed to clarify the
balance between a workers right to strike and the freedom of companies to provide services
across the EU.531
530
Article 5 Treaty on European Union.

See EUobserver, National parliaments show yellow card to EU law on strikes, 29 May 2012;
http://euobserver.com/851/116405; The threshold is a quarter in the case of draft proposals on policing or criminal
justice. As part of its review, the Commission has to decide to maintain, amend or withdraw the act, and explain its
decision. The orange card requires at least a simple majority of the total votes allocated to national parliaments (i.e.
at least 27 out of 54 votes), but is restricted to proposals subject to co-decision between national governments and
531
273
Appendix 2 - Different types of EU legislation, ECJ rulings, gold-plating and qualified

majority voting
EU Regulations, not to be confused with the generic term regulation, are directly applicable
in EU Member States, meaning they are enforceable in national legal systems without further
Member State implementation. In practice, however, EU Regulations are sometimes subject to
additional implementing measures. In the UK, Regulations are rarely subject to Impact
Assessment and their resulting cost is therefore often unknown.
EU Directives are not directly applicable, in that they usually require further national measures
in order to take effect in Member States legal systems. They are, however, binding on Member
States, which must implement them in domestic law. In the UK, they can be implemented by
either primary legislation (Act of Parliament) or secondary legislation (Statutory Instruments
(SIs) adopted under an Act of Parliament). In practice, in the UK, the majority of Directives are
implemented by SIs.
EU Decisions can be used for any purpose and are often directed at individual authorities or
individuals in Member States. They are binding, but very few EU Decisions generate new UK
laws.
ECJ rulings can have a significant impact on EU legislation. The ECJ has a huge amount of
power to interpret individual Regulations and Directives, which means that its case law can
have a significant impact on how EU law evolves and affects individuals and Member States.
Gold-plating describes a situation in which a Member State adds extra requirements to EU
legislation, which in turn can increase regulatory burdens on business and others. This almost
exclusively applies to EU Directives as these allow Member States room for interpretation
when implementing them into national law. There is no conclusive evidence of systematic goldplating by the UK. However, there may well be certain instances where the UK could be
imposing extra burdens on businesses or the public sector by extending the reach or remit of
EU law. This will require further examination.532
Qualified majority voting (QMV), the usual voting method of the Council of Ministers, means
an EU proposal has to be supported by a qualified majority of EU Member States in the
Council. A qualified majority is defined in the EU treaties, and always involves more than half of
Member States; other thresholds also apply, with different Member States holding different
voting weights. Of course, QMV means that not every Member State has to agree to a proposal
for it to be adopted, though all Member States are typically bound by the resultant EU law.
MEPs. If the orange card is invoked and the Commission decides to stick to its original proposal, either 55% of
national governments in the Council or a majority in the European Parliament can decide that the draft law violates
the subsidiarity principle, in which case the proposal is scrapped. However, this threshold in the Council is higher
than the usual threshold for blocking a proposal under co-decision. See
http://ec.europa.eu/codecision/stepbystep/text/index_en.htm.
532
See discussion in Open Europe, Still out of control: measuring eleven years of EU regulation, 2010, p13;
http://www.openeurope.org.uk/research/stilloutofcontrol.pdf.
274
Appendix 3 - How EU Treaty Change can be achieved

The ordinary revision procedure (Article 48 (2-5) of the EU Treaties). If a proposed Treaty
change is significant, the European Council will convene a Convention (composed of
representatives of the member states national parliaments, Heads of State or Government of
the member states, the European Parliament and the European Commission) prior to a
decision being taken by an Intergovernmental Conference. If the European Council decides
(after obtaining consent from the European Parliament) that the proposed Treaty changes are
not significant, the proposals will only be examined by an Intergovernmental Conference.
Treaty changes, if agreed unanimously, then need to be ratified by all member states.
The simplified revision procedure (Article 48 (6))
A proposed Treaty change under this mechanism must only change the internal policies and
action of the EU and cannot add new competences. The European Council has the power to
approve by unanimity the necessary amendments in these areas, after consultation with the
European Parliament. Member states then need to ratify these measures.
The flexibility clause (Article 352)
This Article states that if action by the EU should prove necessary, within the framework of the
policies defined by the Treaties, to attain one of the objectives set out in the Treaties, and the
Treaties have not provided the necessary powers, the Council, acting unanimously on a
proposal from the European Commission and after obtaining the consent of the European
Parliament shall adopt appropriate measures. Although this is not technically a Treaty change,
it could provide a mechanism for specific targeted changes to EU policies.
275
Appendix 4 - Improving Scrutiny and UK Influence in Brussels

There are a number of steps the UK can take of its own accord that could improve the scrutiny
of EU legislation in Westminster and increase UK influence in Brussels. In particular, the UK
could be better at influencing the legislative process in Brussels at an earlier stage than it often
currently does. Some options in this area include:
The Government could subject all significant EU proposals to a robust subsidiarity test. In
their evaluation of EU proposals, the UK Governments impact assessments do in theory
assess whether the subsidiarity principle has been met, but in practice this almost always
amounts to a box-ticking exercise. These could be more rigorously applied, and if a
proposal does not pass this test, the Government should notify Parliament (and potentially
other European parliaments and governments) and both could object to the proposal.
The UK could pursue measures to strengthen the co-operation between national

parliaments across the EU on enforcing the principle of subsidiarity. The Lisbon Treaty
includes provision for national parliaments to send a yellow card or orange card to the
Commission, if sufficient numbers say that proposed EU legislation breaches the principle
of subsidiarity. Under the yellow card, the Commission is obliged to review a proposal if one
third of the votes allocated to national parliaments (at least 18 out of 54) are against it.
However, it can present the proposal again unchanged. The yellow card was most recently
triggered by the so-called Monti II Regulation, designed to clarify the balance between a
workers right to strike and the freedom of companies to provide services across the EU.533
The UK Parliament could introduce European Questions to the Foreign Secretary or

Minister for Europe in the House of Commons on a regular basis. There could additionally
be an annual 1 week long debate on upcoming proposals from the Commission to coincide
with the publication of the Commission's Annual Policy Strategies / 5-year strategic aims.
The aim of this would be to influence the Commission's Legislative and Work Programme
(so it would need to be co-ordinated with effective lobbying), and it could specifically test
whether Commission proposals met the principle of subsidiarity.
The Government could make it easier for the House of Commons and House of Lords to
make submissions to the EU institutions on breaches of subsidiarity, by lending expertise
and official capacity, or even supplying draft submissions. The Government has taken
some positive steps by giving the House of Commons EU Scrutiny Committee more time to
assess individual proposals, but more could be done.
The European Scrutiny Committee (ESC) terms of reference could be widened to ensure it
can act as a full merits committee, able to express a clear opinion of its own on what the
UKs stance should be on EU proposals (currently the ESC only makes a judgement on the
legal and political importance of EU documents).
The ESC could make more use of its existing power to ask departmental select committees
to provide their opinion on the impact of EU proposals in their area of expertise and those
committees could be supported to do such analysis.
533
See EUobserver, National parliaments show yellow card to EU law on strikes, 29 May 2012;
http://euobserver.com/851/116405; The threshold is a quarter in the case of draft proposals on policing or criminal
justice. As part of its review, the Commission has to decide to maintain, amend or withdraw the act, and explain its
decision. The orange card requires at least a simple majority of the total votes allocated to national parliaments (i.e.
at least 27 out of 54 votes), but is restricted to proposals subject to co-decision between national governments and
MEPs. If the orange card is invoked and the Commission decides to stick to its original proposal, either 55% of
national governments in the Council or a majority in the European Parliament can decide that the draft law violates
the subsidiarity principle, in which case the proposal is scrapped. However, this threshold in the Council is higher
than the usual threshold for blocking a proposal under co-decision.
See http://ec.europa.eu/codecision/stepbystep/text/index_en.htm.
276
Departmental select committees could be more proactive at assessing and influencing EU

legislation, particularly at an early stage in the process. For example, one session each
month could be devoted to examining EU issues.
The European Committees A, B and C (which debate EU documents deemed sufficiently

important by the ESC), could be given permanent memberships, selected for a Parliament
at a time to allow Committee members to build up knowledge of an area, both in terms of
EU and domestic policy. Currently European Committee members are selected on an ad
hoc basis, for a debate at a time. The number of European Committees could be increased,
so that being a member of one did not place excessive burdens on an MPs time.
At present the ESC cannot require a debate to take place in the Chamber of the House of
Commons on the most important EU documents. There could be a minimum number of
debates in the Chamber that the ESC could require each year. In some years the
Committee might not use all of these slots, in others it might request more debates. This
could be complemented by a right for 90 or more backbench MPs, including at least 40
from the largest party in the House, to require a debate in the Chamber, in Government
time, on an EU document that has not yet been finally agreed at EU level. This reflects the
fact that scrutiny of EU matters can and should also be carried out by MPs not on the ESC.
These committees could work more closely with their counterparts in the Lords and in the
European Parliament to take advantage of their expertise.
MEPs could be more effectively engaged in the UK Parliaments scrutiny process and
provide early notice of proposed EU legislation, as well as effectively influencing legislation
as itis being formulated in Brussels. MEPs could be invited to European Questions in the
House, and joint committees of MPs, Lords and MEPs could be convened to explore
particular aspects of EU legislation.
Parliament could mandate the UK negotiating position on particularly important EU

proposals before Ministers cast the national vote in the Council of Ministers. Currently,
Parliament often examines post facto what ministers have been doing in Brussels. This
could involve approval being granted from the House of Commons, or perhaps the ESC, for
a negotiating position. A number of other EU countries, notably Denmark and Finland,
currently have a similar system.
The House of Commons or ESC could be given the power to approve or reject the UK
appointment to the EUs Court of Justice. Respect for subsidiarity could be made a precondition for approval.
The UK could improve its staffing of UKREP, the UKs permanent representation in
Brussels, and the Commission to a level and grade comparable to those of other EU
countries. The UK has less than half the EU staff you would expect given its population.
UKREP staff could be increasingly drawn from across Whitehall to improve its policy area
expertise.
277
Acknowledgements
The Fresh Start Project would like to thank all colleagues in the House of Commons, the
House of Lords, and the European Parliament who have contributed their time and expertise
to this work.
Thanks also to the APPG for European Reform and to Open Europe for their detailed and
insightful briefings to the APPG.
We would particularly like to thank the think tanks, interest groups, and other organisations
who have contributed their thoughts to the consultation, either through speaking at the
APPG for European Reform, through written submission, or through interview. These
include:
Adam Smith Institute, Alternative Investment Management Association, Association of British
Insurers, Barclays, Black Rock, British Banker Association, British Venture Capitalist
Association, Campaign for Rural England, Capital Economics, Carbon Trust, Centre for
Policy Studies, City of London Corporation, City UK, Confederation of British Industry,
Country Land & Business Association, European Foundation, Federation of Small
Businesses, Global Vision, Hackney Council, Institute of Directors, Institute of Economic
Affairs, Institute of Fiscal Studies, Investment Management Association, JP Morgan, Liberty,
Local Enterprise Partnerships, Local Government Association, Metropolitan Police, Migration
Watch, National Farmers Union, New Direction, Palladian Energy, Policy Exchange, Politeia,
Reform, Royal Bank of Scotland, Royal Society for the Protection of Birds, Tax Payers
Alliance, Tenant Farmers Association, The Association of Private Client Investment
Managers and Stockbrokers, The Global Warming Policy Foundation, The Renewable
Energy Foundation, Trade Policy Research Centre, Trade Union Congress.
We would also like to thank the various departments of the UK Government and the
European Commission for their contributions.
Finally, our thanks go to Robert Broadhurst, Stephen Booth, Alex Boyd, Patrick Cassidy,
Russell Darke, Dan Dalton, Tom Greeves, Duncan McCourt, Richard North, and Vincenzo
Scarpetta for their work in drafting this paper.
279

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Regional Development Policy

Common Agricultural Policy

Common Fisheries Policy

Budget and institutions

Social and employment law

Policing and Criminal Justice

Public opinion is in favour of reform and renegotiation

What can be done?

Those measures that can

Those measures that

We would like to hear your views

The case study: access to public procurement markets

Other Models of Association with the EU

The EEA or "Norwegian Option."

The requirements of REACH, which stipulates that manufacturers register certain

The Options for change

The UK government could seek a unilateral brake on EU financial services regulation

Conducted under the

Full access via the

Subject to the EU's

Full access for goods.

All trade conducted under

Access in most areas

The options for change

: Council Regulation 1083/2006; Regulation 1080/2006; Regulation 1081/2006; Regulation 1082/2006;

The EUs NUTS regions

: Open Europe, op. cit., p.41.

: Open Europe, op. cit., p.19.

Unnecessary EU redistribution within richer Member States: The Structural Funds

Operational programmes based on incongruous EU regions: Spending would still take

: HM Treasury, Explanatory Memorandum on European Union legislation: Proposal for a Council

: European Court of Auditors, op. cit., para 10.

The options for change

account as part of this.

Negotiate to abolish the Structural and Cohesion Funds

Refuse to pay until adequate reform is achieved

Axis 1: Improving competitiveness through farm modernisation.

Net ceilings per member state for Pillar 187

DP net ceilings f ully phased-in (EUR/ha)

Per hectare value of P2 payments by MS

Euro per hectare

P2 per ha (2012 RDP budget/UAA)

Data supplied by the NFU.

Data supplied by the NFU.

The case study: the cost of the CAP to the UK

Information from the OECD website

Global food security and challenges to agriculture

The options for change

reform within the confines of the existing framework of the CAP.

requirements, if it was deemed necessary to retain some sort of basic payment.

A further option could be a complete "greening" of Pillar 1. The European

In addition, as EU rules on animal welfare and environmental protection would remain in

Take unilateral action to prompt a negotiation

Laying down common rules to safeguard the sustainability of Europes fisheries

The EFF has a budget of 4.3 billion for 2007-2013, http://ec.europa.eu/fisheries/cfp/eff/index_en.htm.

The management of European fisheries under the CFP

Available here, http://www.un.org/depts/los/convention_agreements/texts/unclos/unclos_e.pdf.

Fishing effort limitations

EU member states whose coastal waters UK is allowed to fish in

Source: European Commission

Transferable Fishing Concessions to reduce fleet overcapacity. Subsidies to

The options for change

basic CFP Regulation accordingly.