We will move on to session 2 covering the six-monthly European Union scrutiny report, an update on developments on COM (2013) 207, a draft directive regarding the disclosure of non-financial and diversity information by certain large companies and groups. I again invite the Secretary General to make an opening statement which will be followed by questions from the members. The Secretary General has provided a lengthy opening statement and I am conscious that-----
Scrutiny of EU Legislative Proposals
Mr. John Murphy
I am happy to take the opening statement as having been read.
We can take it as read and go through it as we proceed. As Deputy Áine Collins and others have said, during our recent familiarisation trip in the first week of January, at all of the various levels we received extremely good feedback on the work done during the Irish Presidency and the Secretary General's Department was signalled out for much praise and good comment. I refer to his staff who are working through the ambassador's office, some of whom we met.
There has been much comment on the work they are doing. Nearly half of the European directives relate to enterprise. We recognise the work that is being done and put on record the good feedback. Could Mr. Murphy refer to the progress on implementing the actions taken in the Entrepreneurship 2020 action plan, the state of play in drafting Ireland's national reform plan and the Department's priorities in that regard? I accept the plan is not due to be published until later in the spring but perhaps he could refer briefly to it. If he cannot, that is okay. Could he also provide an update on the EU-US Transatlantic Trade and Investment Partnership, TTIP, talks? If there is time, could Mr. Murphy also outline the Department’s priorities in the context of the EU for 2014? We have read Mr. Murphy’s statement but he is welcome to read certain extracts from it.
Mr. John Murphy
I might just pick out a couple of items from the statement. Horizon 2020 was a particularly important achievement of the Irish Presidency. We secured agreement on a substantial package for research of approximately €79 billion over the period to 2020. There is an increase in the target for participation by SMEs which will be particularly important to Ireland. That was a critical objective that we set at the outset of the Presidency and I was delighted that we achieved it.
I should have introduced my colleagues because there might be some slight changes from the list provided to the committee. Mr. Tommy Murray is the main man on EU matters. I will refer any hard questions to him. Mr. Pat Kelly is an expert on Horizon 2020. Mr. Paul Cullen will deal with the semester process and Employment, Social Policy, Health and Consumer Affairs Council, EPSCO, issues. Mr. Gerry Monks is our trade man and Mr. Patrick Rochford deals with state aid among other matters.
They are all very welcome. I thank them for coming.
Mr. John Murphy
On the EU-US TTIP, it was another significant achievement to get a political mandate for those negotiations. As committee members are probably aware, trade negotiations are conducted by the Commission on behalf of the member states but it requires a political mandate and therefore the real negotiations to get the show on the road had to be done during our Presidency. We secured agreement and the negotiations are under way in three rounds. Significant progress has been made but the agenda is very big. It is potentially very important not just for the Irish economy or the EU economy but for the global economy because together the US and the European Union represent a large proportion of global trade and even with the growth of the BRIC countries will continue to do so in the future. Therefore, facilitating trade and removing regulatory barriers in particular will have the effect of setting the global standards across a range of sectors which could only be to our benefit. In any negotiations there are of course offensive and defensive positions to be taken. We are conscious of the aspects of Ireland’s interests that need to be protected as well as just looking at the opportunities.
The European semester process will become more important for Ireland as we go forward because as we come out of the troika programme we will now be subject to the full possibilities of recommendations that arise out of the semester process. We will talk about that in further detail. I could discuss any of those issues in more detail or we could take them in order.
I would certainly like to hear more about Horizon 2020.
Yes, and the semester as well. We could hear from Mr. Cullen about that.
Mr. John Murphy
We will start with Horizon 2020. As I mentioned in our earlier discussion the Government set a target of €1.25 billion, which is more than double the target that was set for the seventh research framework programme, FP7, which ran out at the end of 2013. The figure for awards to Ireland by mid-2013 was €570 million so I am quite confident that we would have exceeded the €600 million target by the end of 2013.
The target of €1.25 billion is significantly above what a just return figure would give us which would be somewhere around €950 million. We have set an ambitious target. There is a lot of work to be done to make sure we achieve the target. A high level group has been established under the Department which is chaired by one of my colleagues. All Departments and agencies whose remit includes research will have a role in that regard. I invite Mr. Kelly to add to what I have said.
Mr. Pat Kelly
I should just add that on the €1.25 billion target, our attitude is that the target is ambitious but achievable. As the Secretary General has said, it is more than double what we had for the previous programme, FP7, but yet the budget for Horizon 2020 is not more than double the FP7 budget. That shows, if one likes, the confidence we have based on the experience of our performance in FP7 to pitch it at quite a high level of €1.25 billion. All of the key Departments and agencies have been requested to take a much more strategic approach and to engage research centres, higher education institutes and universities and have each of them develop their own strategies. From each framework programme we take a more active hands-on approach as the budget justifies. A budget of €79 billion is a substantial amount. What we have to remember is that it is competitive funding. There is no allocation for member states. We all have to compete for it on the basis of excellence.
Is the cost of making the application a deterrent?
Mr. Pat Kelly
No, we have had no indication that cost is an issue. In fact, there are thousands of applications. The success rate is probably about 20%. It might be the case that repeated application are costing individuals but our success rate is above the EU average. We are not falling down on the success rate of applications, nor are we concerned or has it been brought to our attention that the cost of application is an issue.
The success rate has been recognised by our colleagues in the Northern Ireland Assembly who visited the committee before Christmas.
Mr. Pat Kelly
Yes.
They were particularly interested in engaging with us on the matter because of the great work the Department has been doing. They recognised that the results have been extremely good for drawing down funding.
I appreciate that we are above the EU average in terms of access to the funding. Mr. Kelly referred to liaison with universities. Does he envisage having a programme of engagement and going out into the field to increase the success rate even further with universities, innovation hubs, and local enterprise offices, LEOs?
Mr. Pat Kelly
We do. The high level group itself will systematically go through each element of Horizon 2020 and bring in the potential players so that they can outline to us what their strategy is and we can critically review it. Agencies such as Science Foundation Ireland will take a much more proactive approach and management approach to the bodies they fund with national research funding to make sure that we leverage the national money to maximise the EU contribution.
The key point made by Mr. Crespo, the director general of the enterprise and industry directorate, when he was before the committee is the fact that it is not about research per se but that it must lead to innovation and jobs. Are we changing our focus from what was in FP7 which was about research to get onto the treadmill so that if we are good at getting the treadmill going early we will have a better chance not alone of achieving the target of €1.25 billion but of going beyond it? I have visited the National University of Ireland, Maynooth, which is linking in with Athlone Institute of Technology, Waterford Institute of Technology and Carlow Institute of Technology. It has set a target of €20 million but it hopes to get more than that. Its focus includes the spin-off companies that emerge from the research.
It also made a very positive announcement last Thursday. Are we focused on the changes from FP7 to the jobs sought under Horizon 2020?
Mr. Pat Kelly
Yes, we are. Horizon 2020 has a much deeper focus on the innovation end, so to speak, and there are innovative actions that were not in FP7. The Deputy mentioned the institutes of technology, IOTs. That is a particular grouping with which we want to engage for Horizon 2020. They are represented on the high level group, which is important because they are involved in the strategic direction of the programme.
It is envisaged that Enterprise Ireland will work closely with the IOTs and develop a database of companies and potential products that they would work towards because the IOTs have been involved in much of this, even outside the framework programmes, working with companies in incubation centres. That is where we see growth in the take for Ireland, so to speak, from Horizon 2020 at the innovation end.
I want to ask a question of Mr. Kelly, which I asked the Minister about last week and on which I have done some research. My understanding of research and innovation is that the money can only be drawn down through educational institutions. The research technology organisations, RTOs, which I understand were set up through the IDA and Enterprise Ireland, want to be able to draw down the money without having to be attached to a college. Of the 34 OECD countries we are the only one that does not have this opportunity. Mr. Kelly might comment on that.
Mr. Pat Kelly
I am not sure about the point the Deputy is making because it is open to any company or university to apply. Individual companies do not have to be affiliated. The industry element of it is paid to individual company applicants. Likewise, researchers in universities can apply. Therefore, I am not clear on the difficulty the Deputy is describing.
This was a trial that was set up. Apparently, these are set up throughout Europe but for some reason most of the research funding has to go in through the colleges, so to speak, before it can be drawn down. A collaboration of companies has come together on this particular model and they are trying to get their own status but apparently there has to be a Cabinet decision or a policy decision change to make it happen.
Mr. Pat Kelly
If the Deputy would give us details we will certainly look into it.
I will, yes, to be fair.
I have a final question on Horizon 2020. The high level group reviews are every year or two years. A large amount of funding has been targeted, and that is worthwhile, but do we measure the outcomes in terms of what is commercialised and what is internationalised? I refer to the numbers at the end of that. What other indicators do we examine? Targeting the money is one aspect, and I believe Mr. Kelly's organisation will be successful in getting that, but does he have hope in terms of the number of jobs that will come out of that?
Mr. Pat Kelly
It is very difficult to link job creation to research investment. It is a very long tail, so to speak. Some of this research is often basic, blue skies research and trying to relate that to outcomes for the economy can be difficult. That sort of monitoring can be done more closely at the innovation end, and it is something of which we are conscious. With the focus during the Presidency on jobs and growth we want to take that through into the implementation of Horizon 2020, but we do not have set targets for job creation. It is unreal to do that at this stage.
In our strategy document, which is on the Department's website, there is a focus on Horizon 2020 that we did not have previously, primarily because innovation is now a key element of it. We are trying to focus on the practical outcomes and the benefits for the economy. There are certain known benefits of sustaining research jobs already in the economy and creating new research jobs but it is about that direct link to commercialisation and what it does in the economy. We will be looking to design metrics for that.
Mr. John Murphy
One of the questions the Chairman raised was about the priorities for 2014. He will appreciate that to a certain extent we are in the hands of the Presidency, which sets priorities and also reflects the position of proposals at a particular point in time. The Greek Presidency has identified a number of priorities. It will also have the complication of the European Parliament elections in May. It is trying to front-load a lot of work on legislation to ensure it can be finished before the Parliament finishes its term. It has identified a number of issues in the trade area. We have referred already to United States trade. There are ongoing trade negotiations with Japan, China, Russia, the ASEAN nations, South America and India. Of immediate interest is the prospect of improvement in negotiations on a Mercosur trade agreement.
On outstanding files, the Presidency is to seek an agreement on the contentious posting of workers directive. In the competitiveness area it will try to progress a product safety directive and a consumer product safety regulation; build on the work of the Lithuanian Presidency; conclude a first reading agreement on e-invoicing in public procurement; and the proposal on damages actions and anti-trust cases.
The European Council will consider the 2030 climate change framework at its March 2014 meeting. That will have significant implications for enterprise. The Council will also undertake an interim assessment of the EU 2020 targets at its meeting in March with regard to employment, research and development, climate education and social inclusion.
There are a number of issues on the research and innovation agenda including to finalise any outstanding legislative work on Horizon 2020 and a timely launch of the joint technology initiatives. It has some priorities on space also. The European semester is an important item on the agenda in the first six months of this year. That is enough to be getting on with. Mr. Murray might want to add to that in terms of our priorities.
Mr. Thomas Murray
Can I add one comment to that regarding a recent publication by the Commission of a new communication on what it is calling an industrial renaissance published by Commissioner Tajani? The European Commission is urging member states to recognise the central importance of industry and manufacturing for creating jobs and growth. It has come out with this new communication the essence of which is to try to mainstream industry-related competitiveness concerns across all policy areas. The core of the communication is a European industrial renaissance, which was adopted on 22 January. Already, the communication is finding resonance with most member states, including Ireland, because it clearly calls for competitiveness to trump all other policies, including energy and climate change. It proposes a better co-ordinated governance across all policies rather than any particular new initiatives.
I would add a caveat from our perspective in terms of the conclusions it arrived at. It could have proposed closer links between trade, on which Mr. Monks might like to comment, in terms of the links between competitiveness and trade, the free trade agreements and the Internal Market. It is something on which we have been strong at the Competitiveness Council and in terms of any discussions on industrial policy or industrial conclusions involving the Minister, Deputy Bruton, and the Minister of State, Deputy Perry, at the Competitiveness Council.
We would also like to see a strengthening of the concept of the potential for bringing back industry to Europe because we cannot continue the way we are going in terms of our competitiveness, high energy costs and so on. The concept of insuring needs to be emphasised also in that particular package.
The communication will be part and parcel of the discussion in the Competitiveness Council on 20 February but it will get a special hearing also at the next European Council on 20 and 21 March.
There also will be various discussions within various industry advisory committees attached to the Commission on the entire subject of industrial policy. Industrial policy and in particular, manufacturing, definitely are rising to the fore and becoming of equal parity with all other policies, if not, as I indicated earlier in terms of competitiveness, being to the fore of policymakers' discussions in the future.
Mr. Murray mentioned competitiveness. During the meetings the joint committee held in January in Europe, a theme that came across many of the meetings concerned the nature of cross-cutting EU policy initiatives, such as that in respect of climate change, which do not directly fall under the ambit of this committee on enterprise but yet will have a major impact on jobs and competitiveness. What is the Department's view in this regard? I presume this is a matter of which the Department is well aware and with which it must deal. Perhaps this issue of competitiveness falls to Mr. Monks.
Mr. John Murphy
As Mr. Murray mentioned, one of the challenges facing Europe is the level of energy costs and one can look at this in a number of different ways. One is to state one should forget about environmental targets and simply focus on a cheap energy policy but that is not a sustainable solution. As for the climate change policy, we recognise there are significant reasons for taking a leadership role in Europe on climate change. A second way to look at this is to manage demand for energy and in the research and innovation area, much of the focus has been on smarter ways of doing that. Part of the agenda for manufacturing must concern ways of addressing energy costs, smarter ways of manufacturing and all that. Nevertheless, the reality is that our energy costs are substantially higher than in the United States, for example, and this issue must be addressed. Mr. Murray referred to how the United States is bringing back manufacturing because it has become more cost-competitive and we must recognise this. This is the reason there has been a focus on having greater flexibility in how we reach climate change targets to avoid, through having a rigid target, imposing additional costs on business. We must try to take a more balanced approach.
The Department has a focus on having a better internal market in energy. A fair bit of progress has been made on an all-island energy market and I have looked at the east-west energy links but for Europe as a whole, there must be a more efficient internal market in energy and more work remains to be done in this regard. Our focus is very much on these other major policy pillars, which must reflect the concern for competitiveness and this is where we will seek to make that input. However, we will seek to make it in a way that also recognises the importance of the other policy agendas, just as we would hope those who are pursuing environmental or other policy goals would recognise the enterprise agenda.
In a practical, functional way, do the witnesses make this input or have that influence directly or through the other Departments? Is there cross-departmental co-operation on this issue or do the witnesses act directly?
Mr. John Murphy
We must do it in a variety of forums. Mr. Murray mentioned the recognition of the importance of the European Union developing a more coherent and focused industry strategy. In other words, it is not enough to try to feed into trade negotiations or the environmental policy discussions or whatever. One actually must have a starting point, which is, what is our industrial policy, what do we seek to achieve and how can we achieve that, while taking into account our other policy objectives?
Mr. Thomas Murray
It is interesting that in its recently-published climate change package, the Commission has decided not to renew the so-called 20-20-20 target, that is, a 20% improvement in efficiency, a 20% increase in the use of renewable sources and a 20% reduction in carbon emissions. Some would state the best energy efficiency is no energy and therefore, energy usage should be reduced and that probably is the best way to go. Rather than that, the Commission is proposing in respect of renewable sources at least 20% of the total energy mix - I emphasise "total energy mix" - binding only at European Union level. In other words, the target would be reached in a combination of the entire European Union. The message about competitiveness, certainly from our perspective in the Department of Jobs, Enterprise and Innovation, is one we would welcome. Our colleagues in the Department of the Environment, Community and Local Government may not share that particular perspective but the way it is going at European level, certainly because it is being put to the fore at Heads of Government level at the European Council in March, will give a better focus to the competitive aspects of all this. Moreover, the 40% emissions target is the one on which the Commission now is concentrating. Ultimately, that will be agreed by leaders and thereafter, the Commission then will propose a legislative package for 2015 around the whole area of European Union emissions targets but that would be the only binding target, as far as I understand.
Mr. Gerard Monks
I wish to pick up on something Mr. Murray mentioned in respect of trade. The European Union is negotiating a comprehensive suite of trade agreements across the world. Members are familiar with the proposed Transatlantic Trade and Investment Partnership, TTIP, with the United States but there also is an agreement with Japan, as well as the one with Canada that was politically agreed on last October. There also is a range of such agreements with ASEAN economies such as Malaysia, Vietnam and Thailand, which all are economies that are growing rapidly. If we are going to expand the European Union's manufacturing base, we must have access, as well as more, cheaper and easier access to global markets. The objectives of the trade agreements are both to reduce tariffs - with some economies, such as that of the United States, they are very low - and to address the technical barriers to trade. I refer to different regulations third countries have to give a preference to their own domestic manufacturers, which impose higher costs on European Union manufacturers. For example, if one takes the car sector, in a trade agreement we will try to get the third country to recognise the international United Nations standard for car parts, which lowers the cost of our products entering into the global market. Picking up on another point in respect of the benefits of free trade agreements, in energy and raw materials, for example, cheaper and easier access to raw materials helps our manufacturing base and the objective of the free trade agreements would be to reduce or eliminate export taxes on raw materials, which would include energy, for example.
This has been an interesting discussion on the area of competitiveness and energy. I note from commentators in the United States that it is reluctant to set targets in respect of pollution, for example, while China does not participate. There is discussion on some mainstream media channels about this issue, the question being, why should we do something while large polluters such as China will not engage? While I suppose this is an ongoing debate, I believe the Chairman asked a question regarding the lead Department. While I imagine the Departments of Foreign Affairs and Trade and Jobs, Enterprise and Innovation are involved, if one takes an important area for Ireland, namely, agriculture, I presume the Department of Agriculture, Food and the Marine and its Minister would be involved in any negotiations in this regard. While improving competition is one thing, there are quite specific differences between agriculture in the European Union and agriculture in the United States. This definitely is the case when one compares Irish agriculture with that practised in the United States. In general, agriculture in the United States is conducted on a larger scale and entails more factory farming, as well as the use of hormones and the use in dairying of bovine somatotropin, which increases yield and has some health effects on cows. Approximately 20% of farms there use this substance. In addition, there is the debate on genetically modified food and so on. Quite specific issues exist regarding the quality and standards the European Union imposes on its people, as compared with those which obtain in the United States and this is an important area for consideration. Obviously, the Minister is cognisant of this in the context of any trade negotiations between the European Union and the United States.
Mr. John Murphy
Absolutely, and while I will invite Mr. Monks to cover this issue in a bit more detail, I mentioned earlier the need for having both offensive and defensive strategies and we are acutely aware of some of the issues raised by the Deputy. We must protect access to markets while also avoiding some difficult issues that could arise in the context of hormones and various other matters. We must make sure that we get the right balance.
The Department and Minister for Agriculture, Food and the Marine would be involved and would be consulted on those issues. That would have featured in the Canada agreement that was recently concluded. Mr. Monks might like to talk in a little more detail about how we deal with those issues.
Mr. Gerard Monks
With regard to the US trade agreement, there was at the very outset a deep understanding regarding the direction the Ministers gave to the Commissioner that there be no weakening of existing EU standards, including food, labour and environmental standards. The trade agreement with Canada has a couple of benefits for us because we will be able to export beef there, and the European Union has one extra access point for cheese. It is not that trade agreements deliver a one-way competitive advantage for one party because there is a mix. The access the Canadians will have to the EU agriculture and food market will be phased over time. Right now, the European Union is negotiating what the phasing will be and the extent to which it will be delivered to the Canadians. It is a two-way street where both parties benefit. No meat that has been hormone treated will be allowed in. The Canadians do not have a history of rearing beef that is hormone free so they will have to set up a new production process to meet EU expectations and standards on food quality.
With regard to the transposition of EU directives into Irish law, I wish to raise the sharps directive. I have been hammering at this for the past year and a half. Could the delegates give me an update on when we are likely to transpose it into Irish law?
Mr. John Murphy
I would be happy to do that. When that directive was adopted, the transposition date was 11 May 2013. The Department worked with the Health and Safety Authority and put together a draft that was submitted to the Office of the Parliamentary Counsel in November 2012. We would have met the deadline had that draft been acceptable. The Office of the Parliamentary Counsel identified concerns over whether it is appropriate to transpose the directive under the Safety, Health and Welfare at Work Act or under the European Communities Act 1972. It raised the mismatch between the penalties provisions in the directive and the Safety, Health and Welfare at Work Act. It suggested there should be an alternative approach to transposing the directive. It has not been possible to sort that out as quickly as we would have liked. We are at an advanced stage of finalising the transposition according to the alternative approach required by the Office of the Parliamentary Counsel. We have received an infringement notice in the past week. We have two months in which to issue a formal response to that. I expect that it will involve our having transposed the directive. That is the effective deadline we are operating within. We worked on this in good faith on a basis that we felt was appropriate. We have to bow to legal advice.
Is that the comprehensive update the Deputy wanted?
It was a comprehensive update but there is a lead-in period of a couple of years between the issuing of a directive and its transposition. We learnt in Brussels that we must get involved much earlier in the law-making process to determine the impact. I have raised but one directive. The habitats directive, which dates from 1993, I believe, is still causing problems for us.
Mr. John Murphy
The only comment I wish to make on that is that Ireland, as a member state, has an extremely good record on transposition. In the run-up to our Presidency, we put considerable effort into ensuring, across the government system, that we got as many transpositions that were late or under pressure out of the way before the Presidency started. Generally speaking, Departments and their agencies have a range of directives on the go at any point in time. It is not so easy to address something well ahead of the transposition date. As I stated, this was an unanticipated problem; these things happen. One must deal with the legal advice one receives. If one must start again, one must start again. It would be better to do so than to proceed only to discover one has not transposed a directive appropriately, thus creating a much more difficult problem for those affected by it.
Could the Secretary General e-mail me on what he said?
Mr. John Murphy
Yes. There are a couple of points I will send to the clerk.
I have three more comments. On foot of what Deputy Lawlor said, a common message emerging from the European players at all our meetings concerns engagement by national parliaments. The main reason we went to Brussels was to elaborate on our new role as a committee in the Lisbon process. We do a lot of EU scrutiny here and the Department of Jobs, Enterprise and Innovation is a major help in equipping us for that. However, we want to go further with the process. It is very clear from all our meetings that, in order to influence emerging EU legislation, we need to have early engagement in the legislative process at national parliament level by way of impact assessments. When EU legislation comes from the Commission to us, and probably the Department in some cases, it is too late. The Department was told it would be involved at an earlier stage, but it can be a bit too late for ourselves. We want to have much earlier intervention. It is up to us to watch out for the White and Green Papers and to be part of the process.
The second comment is that during a meeting with the director general of the Directorate-General for Enterprise and Industry, Daniel Crespo, he referred to the need to update the state aid rules to reflect the need to finance SMEs. Since then, a communication was adopted. I refer to the guidelines on state aid to promote risk capital investments. Does that change the state of play here? Have the delegates any thoughts on that? Will it benefit our SMEs? Mr. Rochford might answer those questions. Mr. Paul Cullen might respond on the state of play regarding the European semester and our reform plan. While it is not to be published until the spring, he might update us on the current position.
Mr. Patrick Rochford
In terms of state aid, the committee is probably aware there is currently a state aid modernisation initiative under way in the Commission. Part of the process is a review of the various guidelines in place. One of the more important ones for Ireland concerns regional aid. The Commission is also examining areas such as de minimis aid, broadband, research and development, and the risk capital guidelines. In the past six months, new regulations have been adopted for regional aid, de minimis aid, broadband and cinema communication. Other regulations are outstanding and they will have to be adopted in the next six months. I believe the deadline is July 2014. Of note for Ireland is the group block exemption regulation. It effectively covers categories of aid that are block exempted by the Commission. Covered in this regard are regional aid, risk capital and environmental aid. This means that one develops schemes under the block exemption. The likes of Enterprise Ireland and the IDA would develop schemes with regard to regional aid and they would not have to notify every support to every company to the Commission. Once there is notification under the scheme, it is fine and it is considered that it is complying with state aid guidelines, thus allowing those concerned to work away.
At present, regional aid is one of the more important categories for us. Reference was made to SMEs. Regional aid tends to be investment aid for companies to go to disadvantaged areas of Ireland. The main issue is that we are currently compiling the regional aid map for Ireland. It will be presented to the Cabinet in the next two weeks and there will be a Government memorandum after that. Provided we have a decision, it will be presented to the Commission. We will seek that the Commission approve the regional aid map for Ireland.
Those new guidelines will kick into place on 1 July 2014. Up to 51.28% of the population will be covered by the new regional aid maps. The counties outside of this map are exempt from providing investment aid to companies. There are, however, other forms of aid available such as risk capital, environmental aid for small and medium-sized enterprises, as well as research and development aid. That is the core focus of state aid for us.
The state aid modernisation initiative itself is the simplification of the process and to get more member states to use the block exemption schemes rather than notifying large projects to the Commission which takes up its time. Ireland tends to use the block exemption scheme, not the notification process. We do not notify or ask the Commission on ad hoc schemes. Instead, we use the pre-notified schemes. Other member states do not tend to use them as much as we do which, in turn, creates problems for the Commission. Accordingly, the Commission’s proposals should not cause us any particular problems and we actually welcome them.
The only slight change for us would be the move from ex-ante to ex-post evaluation. Effectively, when we use the scheme and it is considered as part of the block exemption, the ex-ante notification means that the Commission has evaluated it and it is fine. The Commission is now moving to a phase of ex-post evaluation which will effectively mean, even though one has used the block exemption schemes and one is complying with the stipulated guidelines, the Commission can audit the schemes to be entirely sure there is compliance. That is a significant change for most member states, particularly for us. We are not used to having to tell individual companies that the Commission wants to audit the moneys we have given them. That will be a significant change for the agencies and the client companies. Issues around confidentiality and so on could arise that could be quite tenuous.
Effectively, the Commission will now be able to audit aid given.
Mr. Patrick Rochford
It is a change of tactics. Before, the Commission would state the guidelines. The member state would then say it could comply with them and the Commission would not ask about the aid, unless there was a complaint made against a certain member state or scheme. Across the state aid modernisation initiative, the Commission is getting far more hands-on with auditing aid.
During the Irish EU Presidency, the Commission asked for a review of the procedural regulation. One of the main changes to that is that the Commission can now use market information to perform an audit and ask the beneficiary companies directly. It also has to inform the member state of this action. Prior to that change, the Commission would ask for the information from the member state first and then the member state could choose to talk to the beneficiaries. Now, the Commission can go directly to Kerry Group or Intel, say, because it feels there are problems in their areas.
It also introduced a sectorial inquiry procedure which means it can conduct an inquiry across, say, the car industry or ICT, information and communications technology, if it feels there are problems in those sectors. If there is a state aid case in the national courts system of any member state, the Commission can provide information to that national court because the case law could be altered and not be reflective of state aid rules. These are significant changes and reflect the fact the Commission feels the complaints procedures have not been working the way they should be.
This could have serious consequences for some companies that have benefited from state aid here. I accept the European Court of Auditors would be under pressure to ensure value for money. Is there an appeals mechanism within this new procedure?
Mr. Patrick Rochford
Yes, there will be an appeals mechanism. As I said earlier, it should not affect us as greatly as it will other member states because we use the block exemption schemes. This means the agencies and lead Departments are all heavily involved in designing these schemes to ensure they comply with state aid guidelines. Problems tend to arise with ad hoc notified aid projects when the bigger issues arise.
During our EU Presidency, member states were very strong on having an appeals mechanism. They want to be fully informed at all stages and involved throughout the process if the Commission chooses to go to a company. There is nothing here that is going to come as a surprise to us.
The Minister for Communications, Energy and Natural Resources is looking at providing broadband services in rural areas through the ESB network where it is not commercially viable for service providers. When will a decision be made on this?
Mr. Patrick Rochford
All the various different regulations have to be wrapped up before 1 July 2014. The Department of Communications, Energy and Natural Resources and its Minister are directly responsible for the guidelines on broadband. I would not be aware of the ins and outs of where issues will arise and when they feel it will be wrapped up.
There are over nine sets of guidelines which cover a plethora of different regions which all have to be signed off between the member states and the Commission by 1 July 2014 for the new period to come into place.
Has the Department done an impact assessment of these changes?
Mr. Patrick Rochford
The regional aid guidelines, for which our Department is responsible, are a Commission competence. Accordingly, there is not a specific working group in which we can influence these or vote them down. The Commission produces a non-paper and then a draft proposal. At that stage, there can be some influence. The proposal is then adopted through the College of Commissioners. We do not produce a regulatory impact assessment because it is not a directive that we have direct control of in terms of implementing it. We just have to react as best we can.
Is there a briefing note on the changes?
Mr. Patrick Rochford
Yes, we provided a briefing note previously.
Yes, the committee has discussed this change previously and the Department provided a briefing note on it.
Mr. Patrick Rochford
Yes, we can provide detailed information on the change. There were three core issues for us when it comes to regional aid. In the original proposal, the population coverage would have been cut to 25%, the aid intensity rates were to be reduced dramatically and complete supports for large enterprises prohibited. In terms of the outcome, our population coverage has been actually slightly increased from 50% to 51.28%, aid intensity rates maintained and we agreed a compromise with the Commission that aid can be provided to large enterprises. There are restrictions in place in that regard but for new investments one can provide investment aid to large companies. The result we got was largely positive. We can provide a briefing on how it progressed.
Mr. John Murphy
While it is a Commission competence, there was a significant political interest at EU ministerial level. During our EU Presidency when this was considered, the Minister was heavily involved with his EU counterparts in seeking to influence the outcome in the Commission. Mr. Rochford referred to several significant results in this regard.
Another issue we were concerned about was the safeguarding of the possibility of providing aid not just to new investments but to support existing enterprises which are transforming what they do by way of products or processes through innovation and to have sufficient flexibility in that.
If one looks at what the IDA does, one can see that 60% of the new investment we are getting is from the existing stock of companies. However, we are seeking to move up the value chain to maximise the benefit of our involvement in research and innovation but also so that the Irish branches of those companies are in a position to successfully bid internally for new projects. The capacity to provide is important. From the point of view of Europe as a whole because it is not just an Irish agenda, it would be unrealistic to limit aid to completely new greenfield investments or completely new products or services because of the rate at which the economy is evolving. As a country with particular experience of inward investment, it is important that we are in a position to lead on that and ensure our partners are aware of the need for a degree of flexibility there. Eventually, that was recognised by the Commissioner. In these circumstances, where the Commission has competence, it jealously guards that right and does not always welcome suggestions, be they from Ministers or national parliaments.
The need for the Commission to get involved at an earlier stage was highlighted. Absolutely - we are all in the business of trying to be involved at an early stage to influence policy. It is not always easy to do that because the Commission does not always hold up its proposals at an early enough stage and say it would really like our input on this. It tends to consult a range of different actors at different times and then when it is ready, it will land you with a fairly large document to which you have to react.
I would also suggest that you should be careful what you wish for. We supplied the list of items to the committee and it identified the ones on which further input was required. This list will be multiplied if you get involved at an earlier stage and you will still end up against a deadline trying to decide how we focus on this. We are happy to work with the committee but I am afraid this will not be an easy problem to solve.
I recognise the amount of work the Department helps us with.
Mr. Patrick Rochford
I should add that in terms of state aid modernisation and the various guidelines, the Commission is very much caught between austerity and stimulus. It sold state aid modernisation as a simplification process. In respect of regional aid, if the Directorate General for Competition had got its way, it would have driven it through ECOFIN rather than the Competitiveness Council. There is a much greater propensity in ECOFIN to narrow the thing down, query why aid is being given to large companies and argue that they can provide their own access to finance. There is a real philosophical debate in terms of whether we are really looking towards growth or looking after our own finances. One is caught between the two sometimes.
On this one, it is a job well done. It probably would not have been recognised but after the details the Department has given us, we know much more about what the Department has had to do in some of these cases so fair dues on that. We will finish on the semester.
Mr. Paul Cullen
Further to what the Chairman said about the early engagement, I recall that the Minister was here in December before the Employment, Social Policy, Health and Consumer Affairs Council at a stage when the annual growth survey and the draft joint employment report had been published. They are some of the building blocks of the semester. As the Secretary General said, we will be in receipt of country-specific recommendations this fourth semester. This is the ultimate in cross-cutting in that the semester and package of country-specific recommendations address research and development, energy, credit support for SMEs and employment issues. It is in the employment sphere that the Department of Jobs, Enterprise and Innovation facilitates and seeks to integrate the contributions of the Departments of Social Protection and Education and Skills. As the Minister said back in December, we can expect country-specific recommendations this year on labour market participation, active labour market policies, poverty and social inclusion and education and skills. Those are four of the six areas at which country-specific recommendations are usually targeted under the employment and social pillar. The other two areas are wages policy issues and what is called labour market segmentation, which is the problem in southern Europe where young people are excluded from jobs because of the over-reliance on fixed-term contracts. Broadly speaking, the Commission acknowledges in the range of reports that we do not have problems in either of those two spheres. To some extent, we know what its targets will be because it is also telling us that there will not be such a great shift from what we understood to be our concerns in the context of the memorandum of understanding and the relations with the troika. So it will be looking to some extent at the continuation of projects such as Pathways to Work, SOLAS and the roll-out of the education and training boards. So there will not be that many surprises.
That is also one of the issues that member states have been critically conveying to the Commission. The manner in which the Commission has sought to allay the concerns of the member states is through what has been a steady evolution of the semester. In this fourth semester, the ground is being laid through a series of three bilaterals. The first took place in November, the second will take place within a fortnight and the third will take place in April at the stage when the member states are presenting their national reform programmes. In our case, the kind of framework of reference for the CSRs will be the history of how we emerged from the memorandum of understanding and what we are putting into the national reform programme. That is building on the Action Plan for Jobs, Pathways to Work and the strategic plan for SOLAS and how it will give messages to the education and training boards that will emerge from the Department of Education and Skills in March.
It is interesting that while we were not part of the semester other than being observers, we were in a management role in the context of the Presidency. We were credited with smoothing out some of the recurrent problems within that and reinforcing the role of what are called the preparatory committees that service the respective councils. The key councils are ECOFIN and the Employment, Social Policy, Health and Consumer Affairs Council with the Competitiveness Council feeding in through ECOFIN by and large on SMEs and credit issues and the education committee and the social protection committee feeding in to the employment committee. A lot of work takes place before the ultimate delivery of the Commission's country-specific recommendations in that there is a review of how countries have been implementing the recommendations they got last year. To some extent, we are jumping into a relay race because we are not under scrutiny for how we delivered on the country-specific recommendations of last year but we have been in there in the sense that our national reform programme for 2013 was on the board. Equally, what we were doing under the memorandum of understanding was very transparent.
That will be a good cover in respect of the next Action Plan for Jobs.
Is it a consultative process between the Government and the Commission or is it a diktat from the Commission? Can the Commission say "this is what we want"? It is a recommendation. Is it the final recommendation or a suggestion worked on between the Commission and the Government? If the Commission recommends something that goes against the programme for Government, will the Minister negotiate and say "no, we cannot accept this but we can look at something else."?
Mr. Paul Cullen
It is an iterative process in which there are unlikely to be surprises.
The Commission is not going to contest a sovereign government's established programmes and electoral mandate. That said, however, we know the Commission's mind and the Commission knows our mind through the troika process. The recommendations are not binding, although the framework of economic governance increasingly ensures there are interconnections which enhance the conditionality to some extent. The country-specific recommendations are no longer the Commission's once the sectoral councils and European Council endorse them. The preparatory committees have done their work on the Commission's initial presentation.
The Secretary General referred to the European Parliament elections that are taking place this year. These elections will only increase the difficulty of allowing member states sufficient time to react to, correct and adjust the Commission's recommendations. The Commission can lack sensitivity in the framing of its recommendations and member states review recommendations collegially and, in many cases, adjust and modify them prior to their adoption by the Council. The problem is that the timescale for such deliberation will be incredibly tight this year. As a consequence of the European Parliament elections, the Commission will not present its recommendations until 3 June. The EPSCO Council will meet on 10 June, ECOFIN is meeting immediately thereafter and the European Council will meet a fortnight later.
Three different spheres of activity must also be borne in mind. First, the deputy permanent representative and the ambassador in Brussels deal directly with the Commission through the bilateral process. Second, the Department of the Taoiseach co-ordinates across Government on the semester. Third, in respect of our own Council we work with the Departments of Social Protection and Education and Skills. As an iterative process, we can anticipate developments and engage with the Commission to clarify recommendations as we proceed. We hope that will help should any strings be encountered.
On behalf of the committee I thank the witnesses for facilitating this useful and informative discussion. I apologise if several members had to leave the meeting. I hope the committee will now be better placed to engage on European issues. I look forward to another opportunity to discuss these issues in six or eight months' time.
Mr. John Murphy
I wish to make one comment before we conclude. I appreciate the compliments that the Chairman and other members paid to us regarding our engagement with the European Union and, in particularly, our efforts during the Presidency. My colleagues were all personally involved in these efforts.
That came across very strongly at our meetings. We held more than 20 meetings and the first matter on the agenda of every meeting was comments by members on the professionalism shown by Irish representatives, both administrative and elected, to the Council, Commission and Parliament. That is a credit to the witnesses.
The joint committee adjourned at 4.25 p.m. until 1.30 p.m. on Tuesday, 4 February 2014.