Quantified financial commitments

Legal assistance paper

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Date produced: 04/06/2013

Are there any national legal barriers that would prevent the EU from signing-up to an international legally binding agreement that includes quantified financial commitments and/or a dynamic formula that calculates quantified financial commitments based on changing data (resulting from year-to-year adjustments)?

Summary:

This note is in response to a query from the Legal Response Initiative as to the legal barriers that could prevent the European Union (the “EU”) from signing an international legally binding agreement (an “International Agreement”) that includes financial commitments. These financial commitments are either set out in the text of the agreement or the text of the agreement provides a formula for the calculation of the financial commitments. It addresses the following four issues:

Competence of the EU as a body to commit EU Member States (the “Member States”) to an International Agreement;

The extent to which the area of law involved – in this instance environmental law – will limit the competence of the EU to sign an International Agreement;

The extent to which financial commitments will limit the capacity of the EU to sign an International Agreement; and

The procedure for the EU to “sign-up” to an International Agreement.

Conclusions drawn are:

The EU has competence to negotiate and enter into International Agreements;

The Treaty on the Functioning of the EU (the “TFEU”) confers express although not exclusive competence on the EU to negotiate and sign International Agreements in the area of the environment;

An International Agreement that includes financial commitments must receive consent from the European Parliament; and

The procedural steps for the EU to sign an International Agreement are set out in Article 218 of the TFEU and will be led by the EU Council.

Advice:

1. COMPETENCE OF THE EU TO COMMIT TO AN INTERNATIONAL AGREEMENT

Competence of the EU generally to commit itself to an International Agreement

1.1 Member States have transferred a degree of sovereignty to the EU. This means that the EU is empowered to sign treaties on behalf of Member States, while at the same time, Member States possess all the privileges of statehood, including the privilege of negotiating and signing international conventions.

1.2 Article 216 of TFEU provides that the EU may conclude international agreements:

• in the cases provided for by the founding Treaties of the EU;

• where provided for in a legally binding act;

• where the conclusion of an agreement is necessary in order to achieve one of the objectives of the EU, within the framework of the EU’s policies;

• where the conclusion of the agreement is likely to affect common rules adopted by the EU in internal law.

1.3 These agreements concluded by the EU are binding on EU institutions and on Member States.

1.4 Article 217 TFEU provides that the agreement concluded with third countries or international organisations can establish an association involving reciprocal rights and obligations, common action and special procedure.

1.5 The TFEU further provides at Article 3(2) that the EU has exclusive competence for the conclusion of an international agreement:

• where its conclusion is provided for in a legislative act of the EU; or

• is necessary to enable the EU to exercise its internal competence; or

• so far as its conclusion may affect common rules or alter their scope.

1.6 On the basis of the above it is clear that the EU has competence to enter into an International Agreement.

1.7 EU case law provides further clarification on EU competence to enter into an International Agreement and the extent to which this limits the competence of Member States:

• The ruling in Kramer states that if the EU has acted to implement a common EU policy under the Treaty, Member States no longer have the right to take external action in an area that could affect the common EU policy. It should be noted that in this particular case there was no treaty authorising external EU action.

• Thus, where the EU has adopted common rules for the implementation of a policy, Member States are no longer entitled to enter into obligations with third countries affecting those rules.

1.8 This case law indicates that where the EU has taken action internally under the Treaties, Member States are prevented from taking action externally and that external action in this area is the competence of the EU.

EU competence to commit to an international environmental agreement

1.9 Article 191(1) TFEU states that EU policy on the environment shall aim to pursue the objective of promoting measures at international level to deal with regional or worldwide environmental problems, and in particular combating climate change. (Article 191 (1) TFEU) It appears, therefore, that at the very least the conclusion of an International Agreement for climate change falls within one of the instances in Article 216 TFEU which provides that an agreement can be entered into by the EU “where the conclusion of an agreement is necessary in order to achieve one of the objectives of the EU.”

1.10 Furthermore, Article 191 TFEU provides that with respect of the environment the EU and Member States shall cooperate with third countries and with competent international organisations. Article 191 further provides that the arrangements for EU cooperation can be the subject of an agreement. Article 191 also, however, states that these provisions are without prejudice to the competency of Member States to negotiate and conclude international agreements.

1.10.1 Article 191 seems to indicate that both the EU and Member States are competent to adopt International Agreements in the sphere of climate change.

1.10.2 With regard to internal climate change legislation, the competence to adopt such legislation is a shared competence between the EU and Member States. (Article 4(2)(e) TFEU) Shared competence means that the EU and Member States may legislate and adopt legally binding acts in the area but the Member States can only exercise their competence to the extent that the EU has not already exercised its competence.

1.11 On the basis of Articles 191 and 216 TFEU it appears that the EU has express although not exclusive competence to conclude an International Agreement in the area of climate change. As the EU has taken action in the area of the environment, it appears, on the basis of the case law cited above, that this limits the competence of Member States to do so.

1.12 In addition, Article 10a(1) of Directive 2003/87/EC as amended by Directive 2009/29/EC provides that the EU will approve an international agreement on climate change. In accordance with Article 3(2) TFEU cited above, the conclusion of a treaty on climate change is expressly provided for in a legislative EU act. This means that a climate change treaty could arguably fall within exclusive EU competence.

1.13 It is clear that the EU has competence to enter into environmental International Agreements and indeed the EU has signed and ratified the Kyoto Protocol.

Competence of the EU to commit to legally binding financial commitments

1.14 Article 218(6)(a)(iii) envisages the EU entering into agreements with important budgetary implications. Such an agreement will, however, require the consent of the European Parliament before it can be signed by the EU. Please refer to Section 3 “Procedure” of this note for further explanations.

1.15 Several international environmental treaties and protocols impose obligations to provide binding financial commitments. The EU is party to the treaties with financial commitments set out below:

1.15.1 Article 10 of the Montreal Protocol on Substances that Deplete the Ozone Layer established a Multilateral Fund, which was the first financial mechanism to be created under an international treaty, to provide financial assistance to developing countries to help them achieve their phase out obligations of ozone depleting substances.

1.15.2 Article 4.3 of the UNFCCC imposes a clear obligation on Annex II countries to provide financial resources to enable developing countries to undertake emissions reduction activities under the Convention and to help those particularly vulnerable countries adapt to adverse effects of climate change.

1.15.3 Article 11.2 of Kyoto Protocol to the UNFCCC imposes obligations on the developed country parties to provide financial resources to meet the full costs incurred by developing country parties in achieving internationally binding emission reduction targets under the treaty.

1.15.4 Article 20 of the United Nations Convention to Combat Desertification in Countries Experiencing Serious Drought and/or Desertification, Particularly in Africa imposes obligations on parties to provide adequate financial resources for programmes to combat desertification and mitigate the effects of drought. Article 6(b) imposes obligations on developed country parties to provide substantial financial resources and other forms of support to assist affected developing country Parties, particularly those in Africa, to achieve the aims of the convention.

2. PROCEDURE

2.1 The International Agreement will be negotiated and concluded by the EU in accordance with the provisions set out in Article 218 TFEU. Except for instances where the agreement relates exclusively or principally to the common foreign and security policy, the procedures set out below will apply.

2.1.1 The Council authorises the opening of negotiations, adopts negotiating directives, authorises the signing of agreements and concludes them.

2.1.2 The Council may address directives to the negotiator and designate a special committee in consultation with which the negotiations must be conducted.

2.1.3 On a proposal by the negotiator, the Council adopts the decision authorising the signing of the agreement.

2.1.4 On a proposal by the negotiator, the Council adopts a decision concluding the agreement.

2.1.5 It is likely that the Council will have to obtain the consent of the European Parliament before adopting a decision concluding the agreement:

(A) the European Parliament must give its consent for agreements with important budgetary implications as would be the case here if financial commitments are given. (Article 218(a)(iv) TFEU)

(B) the European Parliament must also give its consent for agreements establishing a specific institutional framework, as would most likely be the case for a major climate change treaty. (Article 218(a)(iii) TFEU)

(C) the European Parliament must give its consent to agreements covering fields to which the ordinary legislative procedure applies – the ordinary legislative procedure applies to EU action relating to the environment.

2.1.6 The EU Parliament and the Council can agree on a time-limit for consent if the situation is urgent.

2.1.7 Throughout the procedure the Council must act by a qualified majority.

2.1.8 The EU Parliament must be kept informed at all stages of the procedure.

2.1.9 A Member State, the European Parliament, the Council or the Commission can obtain the opinion of the European Court of Justice as to whether the agreement is compatible with the EU Treaties. If the Court of Justice gives an adverse opinion, the agreement cannot enter into force unless it is amended or the Treaties are revised.