Select Committee on European Union Minutes of Evidence


Supplementary memorandum from Rt Hon Peter Hain

  I am writing to follow-up on the points raised at last week's oral evidence session, on which I promised to write. I recall that these points covered the Charter of Fundamental Rights, subsidiarity, Foreign Policy, and the European Court of Auditors.

  Lord Hannay of Chiswick and Lord Neill of Bladen asked about the Charter of Fundamental Rights.

  Lord Hannay was particularly interested in the effect of the EU institutions of the Charter being incorporated into any EU Constitution. The Charter was, of course, proclaimed by the institutions. If it were to be incorporated, the Charter as a whole would, as now, apply primarily to the institutions. The Convention on the Future of Europe proposed that the Charter be amended to make it more suitable for incorporation into the draft Constitutional Treaty. This would have to be agreed by the common accord of all Member States at the forthcoming Inter-Governmental Conference (IGC).

  We haven't yet taken a final decision on whether we will agree to the proposals to incorporate the Charter. This, like much else, depends on the precise terms of the final package, which we will consider in the context of the forthcoming IGC. However, in the Convention we have negotiated two important safeguards:

    —  amendments to the "horizontal articles" to help define the scope and meaning of the Charter's provisions—in particular those which correspond neither to ECHR not to Community law; and

    —  agreement to give the Commentary on the Charter's provisions enhanced status. This is vital in guiding the reader in their interpretation of the Charter.

  We also strengthened the provision ensuring that the Charter will not extend the Union's competence or powers.

  Lord Neill raised the issue of double jeopardy, which is dealt with in Article 50 of the Charter (Article II-50 of the draft Constitution). Article 51 provides that the Charter does not extend Union competence. The Government does not believe that there should be wholesale harmonisation of law and procedures at EU level. Rather, we believe that there should be approximation of certain areas of criminal law, where this is appropriate. The Charter could not require harmonisation of criminal law across the Member States unless the Union were given competence to do that elsewhere in the Constitution.

  Lord Scott of Foscote asked whether the subsidiarity mechanism would apply to comitology. As you will know, comitology is used for implementing Community primary legislation by means of secondary legislation at the Community level. Article I-9 of the draft Constitution states that the principle of subsidiarity will apply to all areas of non-exclusive Union Competence, including Union action in primary legislation, delegated regulations and implementing acts. The draft Protocol on the application of the principles of subsidiarity and proportionality further states that the institutions "shall ensure constant respect for" subsidiarity. The procedures set out in the Protocol from paragraph 2 onwards apply only to legislative acts. Nevertheless, we are content that the draft text makes it clear that subsidiarity will apply to implementing regulations or decisions. These will of course, be made pursuant to primary legislation which will itself be directly subject to the procedures set out in the Protocol.

  Lord Williamson of Horton asked whether the subsidiarity mechanism would apply to any new legislative proposal, not just those emanating from the Commission. I can confirm that this is the case.

  Let me turn now to the questions posed by Lord Selborne and Lord Jopling about foreign policy.

  I thought you and your Committee would welcome a more detailed answer than was possible within the time constraints to Lord Selborne's question about whether the draft Constitution would give the High Representative a right of initiative on defence. In practice Javier Solana already may make proposals on either foreign or defence policy issues, as part of his remit to assist the Council in matters coming within the scope of the common foreign and security policy (Art 26 TEU). He also has an important role in the European Security and Defence Policy (ESDP), as he chairs the Political and Security Committee in times of crisis. The draft Constitution proposes transforming the High Representative role into a "European Foreign Minister". Art I-27.2 and Art I-40, read together, give the "European Foreign Minister" the right to contribute by his/her proposals to the development of the common foreign policy and the common security and defence policy. This will mean that the "European Foreign Minister" will now formally have a right of initiative across the whole area of CFSP, including ESDP.

  Lord Jopling asked whether the Solana Security Strategy would be "parachuted" into the IGC. There are no current plans to formalise the Strategy within the IGC. It is about policy, rather than institutions. However, the UK and other Member States warmly welcomed the Strategy paper when Javier Solana presented it at the Thessaloniki European Council. It seems to us to focus the EU rightly on meeting the security challenges of the future. Member States have agreed to look at the paper in more detail. We expect to see it adopted, with supporting action plans, at the December European Council.

  Lord Jopling also asked me to write on the detail of how any "European Foreign Minister" would work in practice. The draft Constitution sets out some of the detail of the exact nature of the role of the proposed "European Foreign Minister". So far the job description has the following 10 responsibilities (set out in Part I Art 27 and Part III Art 192):

    —  he will be appointed by the European Council by QMV, with agreement of Commission President;

    —  he shall contribute by his proposals to the development of CFSP and ESDP, which he shall carry out as mandated by the Council;

    —  he shall be one of the Vice Presidents of the Commission;

    —  within the Commission he shall be responsible for handling external relations and co-ordinating other aspects of the Union's external action;

    —  he shall be bound by Commission procedures for his responsibilities within the Commission;

    —  he shall chair the Foreign Affairs Council;

    —  he shall ensure implementation of European decisions adopted by the European Council ad Council of Ministers;

    —  he shall represent the Union for matters relating to CFSP and conduct political dialogue on the Union's behalf;

    —  he shall express the Union's position in international organisations and at international conferences;

    —  he shall be assisted by a European External Action Service which will work in co-operation with the Diplomatic Services of Member States.

  This looks like a sensible basis on which to begin discussions in the IGC. We particularly welcome the recognition that the "European Foreign Minister" would be responsible to the Council on CFSP. But more discussion will be needed at the IGC.

  You asked me to write on the European Court of Auditors (ECA). The Government tabled a paper on the ECA (copy attached for convenience), together with proposed amendments to the relevant draft Treaty Articles in Parts I and III of the draft Constitution.

  The ECA needs reform in order to make it a more effective institution. The current structure is not designed for operational or management convenience. Nor does it maximise efficiency. And of course the current operational and management constraints will become more acute with the accession of 10 new Members next year. For these reasons, the Government has proposed:

    —  to replace the large Court with a Governing Committee, made up of a representative from each Member State to elect the President, provide strategic direction and agree the annual business plan; and

    —  to set up a nine member executive Board of Auditors General, made up from Member States, strictly rotated on the basis of equality, with a President at its head.

  The Government intends to take forward these ideas at the IGC.

  I very much hope I have responded to all the points raised by you and your Committee. May I take this opportunity to wish you a relaxing summer break.

Peter Hain

18 July 2003

Annex

Convention Paper by the UK

INSTITUTIONAL REFORM OF THE EUROPEAN COURT OF AUDITORS

SUMMARY

  1.  This paper proposes reforming the European Court of Auditors (ECA) to make it a more effective institution. The current structure is not designed for operational or management convenience, nor does it maximise efficiency. The current operational and management constraints will become more acute with the accession of around 10 new Members. Therefore it is proposed:

    —  to replace the large Court with a Governing Committee, made up of a representative from each Member State to elect the President, provide strategic direction and agree the annual business plan; and

    —  to set up a nine member executive Board of Auditors General, made up from Member States, strictly rotated on the basis of equality, with a President at its head.

  Revisions to proposed Article 22 of the Constitution are attached, along with proposed changes to the current Article 247.

BACKGROUND

  2.  The ECA is responsible for auditing all the revenue and expenditure of the Community and is required under the Treaty to provide the European Parliament and Council annually with a Statement of Assurance as to the reliability of the accounts and the legality and regularity of the underlying transactions.

  3.  The ECA's current structure of one member from each Member State was introduced when only nine countries were represented. At Nice the principle was laid down that there should be one Member from each Member State. So, as there is no chance of changing the Treaty to reform the Court's structure before enlargement, there will probably be 25 members of the Court: such a prospect risks making the ECA unwieldy and ineffective. In the run up to the Nice IGC, the ECA proposed it adopt a system of Chambers, which would group the auditors more formally into sub-colleges, but unfortunately this would not improve efficiency.

  4.  The ECA is organised and functions in accordance with the principle of collective responsibility. The current 15 Members of the Court are appointed for a renewable term of six years by the Council, acting by QMV after consulting the European Parliament.

  5.  The ECA's audit functions are carried out by Audit Groups which divide up the various auditing sectors amongst the Members in each Group. Inevitably with 15 equal Members, the work has to be subdivided sufficiently to give each Member a role (see diagram at Annex A for current breakdown of responsibility). Taking into account all categories of staff (both permanent and temporary posts), the Court's establishment is approximately 550 people.

PROBLEMS WITH THE CURRENT SYSTEM

  6.  The collegiate system can work well for some institutions but, as bodies grow, a clearer line of responsibility and authority becomes essential to ensure effective management. Moreover as the ECA is responsible for auditing EU monies spent within Member States, it is important that it represents knowledge of the different accounting and audit frameworks within those Member States. But with 25 Members, management difficulties will increase, making it harder to ensure consistency of approach across the Court, potentially taking the edge off any criticism. It will also become even harder to allocate tasks among Board members, as each tries to get a high profile portfolio.

  7.  In terms of resource allocation the Court is already fairly top-heavy, with 75 of the Court's 550 staff working in cabinets. A further 10 Court members will increase this to 125 staff in cabinets—almost a quarter of the current complement. If we want the Court to maximise its effectiveness, then its structure should be built on business/operational priorities.

PROPOSALS FOR REFORM

  8.  A reformed ECA needs to satisfy the professional need for expertise, including detailed knowledge of all the different audit systems in the EU Member States, with an acceptable degree of representation. Fair and equal representation remains essential not least because the ECA will be auditing expenditure programmes across all Member States.

  9.  The solution could lie in separating the statutory audit functions under the Treaty from a representative governance role (see Annex A ii). A fully representative Governing Committee could be set up to provide overall strategic direction and supervise the statutory audit functions which would be carried out by a smaller Board of Auditors General. The Governing Committee would be responsible for approving the appointment of the President of the Board (the Chairman of the Governing Committee would need to be agreed by the Council), and approving the annual business plan and activity report and would act by QMV. The Governing Committee could be made up of representatives of all the Member States, appointed by common accord. They could expect to attend annual business meetings and, as appropriate, extraordinary meetings (called by the Board of Auditors General or a pre-determined quota of Member States). The Governing Committee might be drawn from the heads, deputy heads or former senior members of the national audit authorities of the Member States and therefore have relevant management perspectives to offer.

  10.  Under this arrangement, a smaller (nine member) Board of Auditors General could report to the Governing Committee. The Board of Auditors General would be responsible for managing and prioritising work flows and for the ECA's day to day audit work, including producing the annual reports, special reports, the statutory Statement of Assurance, and for proposing the ECA's annual business objectives and staffing plans. The Board of Auditors General would be organised on a system of strict rotation (which the Council should decide, by QMV) and on the basis of full equality between Member States. Members of the Board would be appointed for non-renewable six year terms after consultation with the European Parliament.

Annex A

  1. EXISTING STRUCTURE


(II)   PROPOSED STRUCTURE



UK PROPOSED AMENDMENTS TO ECA ARTICLES

1.  TITLE IV OF PART I OF THE CONSTITUTION

Article 22

Paragraph 1

  The [European Union] Audit Office shall carry out the audit.

Paragraph 2

  [No change.]

Paragraph 3

  The Audit Office shall be managed and directed by a Board of Auditors General, consisting of nine members appointed by the Council for a term of six years, and supervised by a Governing Committee of representatives of the Member States. Members of the Board shall be chosen from among persons who belong or have belonged to external audit bodies or who are especially qualified for the office. In the performance of their duties they shall be completely independent.

2.  CURRENT TREATY

New article 246

  The European Union Audit Office shall carry out the audit.

New article 247

  1.  The European Union Audit Office shall have legal personality. It shall be managed and directed by a Board of Auditors General and supervised by a Governing Committee.

  2.  The Governing Committee shall consist of one representative nominated by each Member State. The Committee shall be responsible for the appointment of the President of the Board of Auditors General and the approval of the Office's annual business plan and annual activity report. The Committee shall act by qualified majority.

  3.  The Board of Auditors General shall consist of nine (9) members, appointed by the Council for a term of six years and drawn from the Member States on a rotational basis decided by the Council. For these purposes the Council shall act by a qualified majority, after consulting the European Parliament. The Governing Committee shall appoint one member to be President of the Board of Auditors General for a term of three years.

  4.  The Board shall be responsible for the business of the Office, in accordance with Article 248, under the authority of the President. It shall also be responsible for preparation of the annual business plan and annual activity report for the approval of the Governing Committee, and for the appointment of senior officials.

  5.  Members of the Board of Auditors General shall be chosen from among persons who belong or have belonged to external audit bodies or who are especially qualified for the office. They shall be completely independent in the performance of their duties; they shall neither seek nor take instructions from any Government or any other body. They shall refrain from any action incompatible with their duties.

  6.  The Members of the Board of Auditors General may not, during their term of office, engage in any other occupation, whether gainful or not. When entering upon their duties they shall give solemn undertaking that, both during and after their term of office, they will respect the obligations arising there from and in particular their duty to behave with integrity and discretion as regard the acceptance, after they have ceased to hold office, of certain appointments or benefits.

  7.  Apart from normal replacement, or death, the duties of a Member of the Board of Auditors General shall end when he resigns, or is compulsorily retired by a ruling of the Court of Justice pursuant to paragraph 8. The vacancy thus caused shall be filled for the remainder of the Member's term of office by the Council.

  Save in the case of compulsory retirement, Members of the Board of Auditors General shall remain in office until they have been replaced.

  8.  A Member of the Board of Auditors General may be deprived of his office and his right to a pension or other benefits in its stead only if the Court of Justice, at the request of the Board of Auditors General, finds that he no longer fulfils the requisite conditions or meets the obligations arising from his office.

  9.  The Council, acting by a qualified majority, shall determine the conditions of employment of the President and members of the Board of Auditors General and any allowances paid to members of the Governing Committee.

  10.  The provisions of the Protocol on the privileges and immunities of the European Communities applicable to the Judges of the Court of Justice shall also apply to Members of the Board of Auditors General.

New article 248

  [replace Court of Auditors with European Union Audit Office]

Future of Europe Evidence Session 9 July: Follow-up

  I am writing to thank you formally for your very full letter of 18 July following your appearance before my Committee on 9 July. Your letter, and the transcript of your evidence, will be printed with the Committee's forthcoming report on the IGC. Any substantive comments the Committee has arising from your letter will be covered in that report.

  I take this opportunity to say how truly grateful I am for all the hard work you have done to keep my Committee informed of the Convention's work.

  I really can say a final thank you on this occassion!

J Grenfell




 
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