The EU and International Regulatory Standards

Deborah A. Sabalot

10 December 2013

Global markets, Local law

“Issues of extra-territoriality or disputes of jurisdictional authority inevitably come to the fore as spaces and the rules which govern them are contested. Spaces and rule-making authority may come to be shared, but the ways in which they are shared and the outcomes of such sharing depend upon the institutional mechanisms which are established to deal with jurisdictional disputes.”

• Alan Hudson, Beyond the Borders: Globalisation, Sovereignty and Extra-territoriality, Geopolitics, 1998

Who’s treaty is it anyway?EU’s role in international treaties

The European Union manages trade relations with countries outside the EU through its trade policy.

Trade policy is an exclusive power of the EU. This means that the EU, and not individual member states, negotiates international trade agreements.

The European Commission negotiates with the trading partner on behalf of the whole EU but does so in close cooperation with the Council and European Parliament who ultimately approve the overall agreement.

Regulatory Dialogues

The European Commission has developed several regulatory dialogues with third countries, in particular with the United States, Japan, China, India and Russia.

The EU (European Commission, EU governments and national regulators) also hold regular talks on financial regulation (and sometimes macroeconomic issues) with its key economic partners (currently the US, Japan, China, India, Russia and Brazil)

Goals of these talks:•monitoring regulatory developments;•identifying – upstream – potential spill-over effects of legislation in each other’s jurisdictions; •seeking mutually acceptable solutions; •converging towards international standards (taking into account different legal/regulatory structures and backgrounds) and exploring possibilities of mutual recognition of standards; •coordinating the implementation of the G20 roadmap.

The EU and International Agreements -TFEU

The Lisbon Treaty made negotiating investment agreements an EU competence. It set a new agenda for investment protection and investor state dispute settlement provisions. Under Article 216 of TFEU the EU may conclude international agreements with third countries or international organisations; those agreements are binding on the Union and the Member States.

This also reflects the views expressed by the European Parliament in its Resolution on the future of European international investment policy adopted on 6 April 2011. See Investment Protection and Investor-to-State Dispute Settlement in EU agreements , November, 2013.

The question of external competence (exclusive or shared); exclusive when necessary to exercise internal competence or when it may affect common rules or alter their scope (Article 3(2) TEU).

Two main changes brought by the Treaty of Lisbon:

The consent of Parliament for the conclusion of agreements in now the rule rather than the exception (Article 218 (6)(a) TFEU)

Specific provision requiring that Parliament be "immediately and fully informed at all stages of the procedure" (Article 218 (10) TFEU)

EU Common Commercial Policy

Article 207 of TFEU

1. The common commercial policy shall be based on uniform principles, particularly with regard to changes in tariff rates, the conclusion of tariff and trade agreements relating to trade in goods and services, and the commercial aspects of intellectual property, foreign direct investment, the achievement of uniformity in measures of liberalisation, export policy and measures to protect trade such as those to be taken in the event of dumping or subsidies. The common commercial policy shall be conducted in the context of the principles and objectives of the Union's external action.

2. The European Parliament and the Council, acting by means of regulations in accordance with the ordinary legislative procedure, shall adopt the measures defining the framework for implementing the common commercial policy.

3. Where agreements with one or more third countries or international organisations need to be negotiated and concluded, Article 218 shall apply, subject to the special provisions of this Article.

The Commission shall make recommendations to the Council, which shall authorise it to open the necessary negotiations. The Council and the Commission shall be responsible for ensuring that the agreements negotiated are compatible with internal Union policies and rules.

The Commission shall conduct these negotiations in consultation with a special committee appointed by the Council to assist the Commission in this task and within the framework of such directives as the Council may issue to it. The Commission shall report regularly to the special committee and to the European Parliament on the progress of negotiations.

EU Common Commercial Policy

4. For the negotiation and conclusion of the agreements referred to in paragraph 3, the Council shall act by a qualified majority.

For the negotiation and conclusion of agreements in the fields of trade in services and the commercial aspects of intellectual property, as well as foreign direct investment, the Council shall act unanimously where such agreements include provisions for which unanimity is required for the adoption of internal rules.

The Council shall also act unanimously for the negotiation and conclusion of agreements:

(a) in the field of trade in cultural and audio-visual services, where these agreements risk prejudicing the Union's cultural and linguistic diversity;

(b) in the field of trade in social, education and health services, where these agreements risk seriously disturbing the national organisation of such services and prejudicing the responsibility of Member States to deliver them.

5. The negotiation and conclusion of international agreements in the field of transport shall be subject to Title VI of Part Three and to Article 218.

6. The exercise of the competences conferred by this Article in the field of the common commercial policy shall not affect the delimitation of competences between the Union and the Member States, and shall not lead to harmonisation of legislative or regulatory provisions of the Member States in so far as the Treaties exclude such harmonisation.

TFEU – who has the power?

Article 31. The Union shall have exclusive competence in the following areas:(a) customs union;(b) the establishing of the competition rules necessary for the functioning of the internal market;(c) monetary policy for the Member States whose currency is the euro;(d) the conservation of marine biological resources under the common fisheries policy;(e) common commercial policy.2. The Union shall also have exclusive competence for the conclusion of an international agreement when its conclusion is provided for in a legislative act of the Union or is necessary to enable the Union to exercise its internal competence, or in so far as its conclusion may affect common rules or alter their scope.

International Agreements

EU participation in international agreements can be concluded either by the Community or by the Community and the Member States (joint agreements). These agreements are binding on the Community and the Member States and thus render them liable at international level.

There are three forms of agreement:

Association agreementsAssociation involves close economic cooperation, combined with extensive financial support from the Community for the partner to the agreement. This category of agreements includes those with the overseas countries and territories, agreements preparing the way for accession and creating a customs union, and the agreement on the European Economic Area (EEA).

Cooperation agreementsCooperation agreements do not have the same scope as association agreements, in that they are concerned only with intensive economic cooperation. Agreements of this kind link the Community in particular with the countries of the Maghreb (Algeria, Morocco and Tunisia) and Masher (Egypt, Jordan, Lebanon and Syria) and with Israel.

Trade agreementsThese are agreements on customs and trade policy concluded with non-member countries or groups of non-member countries or within the framework of international trade organisations. The agreement establishing the World Trade Organisation (WTO) comes into this category.

Tripartite process in International Agreements

Commission submits recommendations to the Council (Article 218 (3) TFEU)

Council adopts a decision (Article 218 (2-4) TFEU): authorising the opening of negotiation and issuing negotiating directives (negotiating mandate)may designate a special committee in consultations with which the negotiations must be conducted

Commission negotiates (in consultation with the special committee)At the end of the negotiations, the Commission and third country agree on a text and initials it.

Commission submits two proposals for Council Decisions:• proposal for signature (and possibly for the provisional application) of the agreement• proposal for the conclusion of the agreement

Council adopts the Decision authorising the signature of the agreement. If so proposed by the Commission, it may also authorise the provisional application of the agreement (Article 218 (3) TFEU).

Council requests Parliament's consent on the agreement, before its conclusion. Where consent is required:• if Parliament gives its consent to the conclusion of the agreement, Council may then conclude the agreement • if Parliament refuses consent, then the agreement cannot be concluded. In cases where the agreement is already

provisionally applied, that provisional application has to be terminated.

Council adopts the Decision concluding the agreement.

Tripartite process in International Agreements

Parliament's involvement only comes in at the very end of the process.

However, through Article 218(6)(v), consent is now required for all agreements in fields where OLP applies. This means that the Commission will now know from the very start of the negotiations that consent will be required for a specific agreement. Parliament has also the possibility to request the Opinion of the Court when there are doubts about conformity of an envisaged agreement with the Treaties (Article 218(11) TFEU).

Article 218 (10) TFEU provides that: "The European Parliament shall be immediately and fully informed at all stages of the procedure".

Parliament must:• be informed about the recommendations submitted to Council (draft negotiating directives); the

authorisation to negotiate and the negotiating directives;• receive all the information which is given to the special committee about the progress in

negotiations. This should include draft texts, agreed texts, and finally the initialled text;• be informed whether the Commission intends to propose provisional application.

Tripartite process in International Agreements

According to Article 218 TFEU Council may decide that the agreement be provisionally applied before entry into force, i.e. even before Parliament's consent.

Parliament could put pressure on the relevant Commissioners to:• avoid proposing provisional application as much as possible• and when provisional application is necessary, the Commission should inform the relevant committee of

Parliament of such intention before submitting the proposal to Council. This would allow Parliament time to indicate to the Commission and Council if it has strong reservations about an agreement.

EUROPEAN PARLIAMENT RESOLUTION OF 9 FEBRUARY 2010 ON A REVISED FRAMEWORK AGREEMENT BETWEEN THE EUROPEANPARLIAMENT AND THE COMMISSION

"(h) a commitment by the Commission for reinforced association with Parliament through the provision of immediate and full information to Parliament at every stage of negotiations on international agreements (including the definition of the negotiation directives), in particular on trade matters and other negotiations involving the consent procedure, in such a way as to give full effect to Article 218 of the TFEU, while respecting each institution's role and complying in full with new procedures and rules for the safeguarding of the necessary confidentiality;

(i) at international conferences, the Commission, in view of Parliament's extended powers under the Lisbon Treaty and in order to guarantee an efficient flow of information, shall, at Parliament's request, facilitate the granting of observer status to the Chair of Parliament's delegation in relevant meetings and shall for this purpose guarantee access to EU facilities for Parliament's delegations"

•

Treaties Office

• The Treaties Office of DG External Relations of the European Commission, has two main roles: – to advice on practice and procedural matters

relating to the different stages of negotiation of treaties to which the European Community is a party and

– to provide information on those treaties.

• Treaties, are published in the Official Journal of the European Union (OJ).

The EU and the WTO

The EU has been a WTO member since 1 January 1995.

The 28 member States of the EU are also WTO members in their own right.

The European Commission — the EU’s executive arm — speaks for all EU member States at almost all WTO meetings. The EU is a WTO member in its own right as are each of its 28 member states — making 29 European WTO members altogether.

Member States coordinate their position in Brussels and Geneva, but the European Commission alone speaks for the EU and its members at almost all WTO meetings and in almost all WTO affairs. For this reason, in most issues, WTO materials refer to the “EU” (or previously the legally-official “EC”).

Sometimes references are made to the specific member states, particularly where their laws differ. This is the case in some disputes when an EU member’s law or measure is cited, or in notifications of EU member countries’ laws, such as in intellectual property (TRIPS). Individual EU members speak in committee meetings or sponsor papers, particularly in the Budget, Finance and Administration Committee.

Financial Stability Board

Created in April 2009 under the auspices of the G20, the Financial Stability Board (FSB) has been linked to an effort to strengthen an international prudential standards regime. The FSB faces a number of serious challenges in its new role: • developing effective mechanisms for monitoring and

encouraging compliance; • promoting the development of effective international

standards and fostering consensus on their content; • establishing its legitimacy vis-a`-vis non-members and

within member countries; and • clarifying its relationship with other global governance• institutions.

FSB Mandate

The FSB will:(a) assess vulnerabilities affecting the global financial system and identify and review on a timely and ongoing basis within a macro-prudential perspective, the regulatory, supervisory and related actions needed to address them, and their outcomes;(b) promote coordination and information exchange among authorities responsible for financial stability;(c) monitor and advise on market developments and their implications for regulatory policy;(d) advise on and monitor best practice in meeting regulatory standards;(e) undertake joint strategic reviews of and coordinate the policy development work of the international standard setting bodies to ensure their work is timely, coordinated, focused on priorities and addressing gaps;(f) set guidelines for and support the establishment of supervisory colleges;(g) support contingency planning for cross-border crisis management, particularly with respect to systemically important firms;(h) collaborate with the International Monetary Fund (IMF) to conduct Early Warning Exercises;(i) promote member jurisdictions’ implementation of agreed commitments, standards and policy recommendations through monitoring of implementation, peer review and disclosure; and(j) undertake any other tasks agreed by its Members in the course of its activities and within the framework of this Charter.

FSB Mandate

The FSB will promote and help coordinate the alignment of the activities of the SSBs to address any overlaps or gaps and clarify demarcations in light of changes in national and regional regulatory structures relating to prudential and systemic risk, market integrity and investor and consumer protection, infrastructure, as well as accounting and auditing.

The FSB should, as needed to address regulatory gaps that pose risk to financial stability, develop or coordinate development of standards and principles, in collaboration with the SSBs and others, as warranted, in areas which do not fall within the functional domain of another international standard setting body, or on issues that have cross-sectoral implications.

International Standards

In January 2010, FSB members strengthened the obligations of membership further to include undergoing an FSAP assessment ‘every five years’ and disclosing ‘their degree of adherence of international standards, notably by publishing the detailed assessments prepared by the IMF and World Bank as a basis for the Reports on the Observance of Standards and Codes (ROSCs)’.

Leading by example

FSB members’ adherence to international standards is essential to reinforce the credibility of the FSB’s efforts to strengthen adherence by all countries and jurisdictions. To lead by example, FSB member jurisdictions have committed to:• implementing international financial standards;• undergoing an assessment under the IMF-World Bank Financial Sector

Assessment Program (FSAP) every five years;• disclosing their degree of adherence of international standards, and• undergoing periodic peer reviews using, among other evidence, reports

prepared as part of the FSAP.

The FSB establishes a toolbox of measures to encourage adherence to international cooperation and information exchange standards by all countries and jurisdictions. Application of these measures will be based on transparent procedures to evaluate the degree of adherence of jurisdictions to the relevant standards.

Peer Reviews

Financial Stability Board (FSB) member jurisdictions have committed, under the FSB Charter and in the FSB Framework for Strengthening Adherence to International Standards, to undergo periodic peer reviews. To fulfil this responsibility, the FSB has established a regular programme of country and thematic peer reviews of its member jurisdictions.

Peer review of UK -http://www.financialstabilityboard.org/publications/r_130910.pdf

The G20

The Group of Twenty (G20) is a forum for its members’ international economic cooperation and decision-making. Established in 2008 in response to the financial crisis, its membership comprises 19 countries plus the European Union representing around 85 per cent of global gross domestic product, over 75 per cent of global trade, and two-thirds of the world’s population. G20 leaders meet annually. Additionally during the year Finance Ministers and Central Bank Governors of the G20 members meet to discuss ways to strengthen the global economy, reform international financial institutions, improve financial regulation, and discuss the key economic reforms that are needed in each of the member countries. Underpinning these meetings is a year-long program of meetings among senior officials, and of working groups coordinating policy on specific issues such as OTC derivatives.

Transatlantic Trade and Investment Partnership - TTIP

At the November 2011 EU-US Summit, leaders established a High-Level Working Group on Jobs and Growth, led by US Trade Representative Ron Kirk and EU Trade Commissioner Karel De Gucht. The Working Group was tasked to identify policies and measures to increase EU-US trade and investment to support mutually beneficial job creation, economic growth, and international competitiveness. The final report of the Group, published on 13 February 2013, recommended launching the negotiations between US and EU.

The first round of the Transatlantic Trade and Investment Partnership (TTIP) talks took place between US and EU in Washington, D.C. between 8 and 12 July 2013.

Negotiating groups have set out respective approaches and ambitions in twenty various areas that the TTIP is set to cover, including those related to custom duties and technical standards for goods produced on both sides of Atlantic.

The talks have been based on a review of the stakeholders views expressed to date and have followed the negotiating guidelines the Member States gave to the European Commission beforehand (IP/13/548).

Negotiators identified certain areas of convergence across various components of the negotiation and - in areas of divergence – begun to explore possibilities to bridge the gaps.

Japan – The EU and Japan launched negotiations for a free trade agreement in April 2013 (MEMO/13/348) and have held so far two rounds of talks. Fourteen working groups focused on various parts of the negotiated text including trade in goods, services, investment, competition, government procurement and sustainable development.

The EU and International Standards

EU playing an increasingly large role in the negotiation of international agreements and setting of international standards by bodies such as FSB

Where would UK be if “outside” the EU?