52023SC0663

EUROPEAN COMMISSION

Strasbourg, 12.12.2023

SWD(2023) 663 final

COMMISSION STAFF WORKING DOCUMENT

IMPACT ASSESSMENT REPORT

Accompanying the document

Proposal for a Directive of the European Parliament and of the Council

establishing harmonised requirements in the internal market on transparency of interest representation carried out on behalf of third countries and amending Directive (EU) 2019/1937

and

Proposal for a Regulation of the European Parliament and of the Council

amending Regulations (EU) No 1024/2012 and (EU) 2018/1724 as regards certain requirements laid down by Directive (EU) XXXX/XXXX

{COM(2023) 637 final} - {SEC(2023) 637 final} - {SWD(2023) 660 final} - {SWD(2023) 664 final}

Table of content

1.Introduction: Political and legal context

2.What is the problem and why it is a problem?

2.1.What are the problems?

2.1.1.Obstacles to the internal market for interest representation activities carried out on behalf of third countries.

2.1.2.Unknown magnitude, trends and actors of interest representation activities carried out on behalf of third countries.

2.2.Magnitude of the problems

2.3.How will the problems evolve?

3.Why should the EU act?

3.1.Legal basis

3.2.Subsidiarity: Necessity and added value of the EU action

4.Objectives: What is to be achieved?

4.1.General objectives

4.2.Specific objectives

5.What are the available policy options?

5.1.What is the baseline from which policy options are assessed?

5.2.Scope of the policy intervention

5.2.1.Option A3

5.2.2.Option B

5.2.3.Option C

5.2.4.Other possible scope

5.2.4.1.Interest representation carried out on behalf of any government or entity

5.2.4.2.Exclusion of some entities from the scope

5.3.Description of the policy options

5.3.1.Policy Option 1: Non-legislative measures

5.3.2.Policy Option 2: Legislative intervention

5.3.2.1.Policy Option 2.1: Targeted requirements

5.3.2.2.Policy Option 2.2: Extended requirement

6.What are the impacts of the policy options?

6.1.The baseline scenario

6.2.Assessment of the options

6.2.1.Economic impacts

6.2.1.1.Functioning of the internal market

6.2.1.2.Competitiveness

6.2.1.3.Costs and administrative burdens for economic actors (+SMEs)

6.2.1.4.Costs for public authorities of measures addressed to economic actors.

6.2.2.Social impacts

6.2.2.1.Transparency of interest representation activities carried out on behalf of third countries.

6.2.2.2.Improve knowledge about the magnitude, trends and actors of interest representation activities carried out on behalf of third countries.

6.2.2.3.Enforcement and supervision by authorities

6.2.3.Fundamental rights impacts

6.2.3.1.Right to private life and to the protection of personal data

6.2.3.2.Freedom of association

6.2.3.3.Freedom of the arts and sciences

6.2.3.4.Freedom of expression and information

6.2.3.5.Freedom to conduct a business

6.2.4.Geopolitical implications

6.2.5.Digital by default principle

7.How do the options compare?

7.1.Effectiveness

7.2.Efficiency

7.3.Coherence with other EU initiatives

7.4.Proportionality60

7.5.Comparison of options

8.Preferred option

8.1.Description of the preferred option

8.2.The choice of instrument

8.3.Application of the “one in, one out” approach

9.How will actual impacts be monitored and evaluated?

Annex 1: Procedural information

Annex 2: Stakeholder consultations

Annex 3: Who is affected and how?

Annex 4: Analytical methods

Annex 5: Competitiveness check

Annex 6: Evidence of current and potential future fragmentation in the regulation of interest representation activities across the internal market

Annex 7: Analysis of administrative fines and thresholds for information requests

Annex 8: Fundamental rights impact

Annex 9: The baseline

Glossary and acronyms

Term or acronym	Meaning
Actions on behalf of third countries	Actions that can ultimately be attributed to a central government or public authorities of a country. It would cover situations where a government is behind the decision of another entity to have interest representation activities carried out on its behalf, in particular by giving instructions or directives to that entity 1 . It would also cover entities that are controlled 2 by the government or a public authority 3 .
AVMSD	Audiovisual Media Services Directive
CER Directive	Critical Entities Resilience Directive
CFSP	Common Foreign and Security Policy
Civil society organisation (CSO)	Non-governmental organisations and institutions of civil society, active in the field of fundamental rights, which are voluntary self-governing bodies or organisations established to pursue the essentially non-profit-making objectives of their founders or members. 4
DSA	Digital Services Act
ECNE	European Cooperation Network on Elections
EMFA	European Media Freedom Act
FDI	Foreign direct investment
FIMI	Foreign information manipulation and interference
Foreign influence	Intervention by third country governments to influence the democratic sphere including legislation and policies, also by shaping public opinion in a way which benefits their interests.
Foreign interference	Foreign interference is used to differentiate between influencing activities that are integral to diplomatic relations and activities that are carried out by, or on behalf of, a foreign state-level actor, which are coercive, covert, deceptive, or corrupting and are contrary to the sovereignty, values, and interests of the Union. 5
GDPR	General Data Protection Regulation
IMI system	Internal Market Information System
Interest representation	Interest representation means an activity conducted with the objective of influencing the development, formulation or implementation of policy or legislation, or public decision-making processes in the Union. It covers a broad range of activities. It would include both activities that aim to influence public decision-making both directly (e.g. direct engagements with public officials) and indirectly (e.g. the dissemination of research outputs, the organisation of and participation in conferences / events, and the provision of education, training and cultural engagement, when performed with the same objective).
NGO	Non-governmental organisation
OECD	Organisation for Economic Co-operation and Development
OSCE	Organization for Security and Co-operation in Europe
Public Official	Member States and Union officials.
TEU	Treaty on European Union
TFEU	Treaty on the Functioning of the European Union
Third country	Countries outside of the European Economic Area (EEA).
Third country entity	The central government and public authorities at all other levels of a third country as well as a public or private entity whose actions can be attributed to such central government or public authorities.

1.Introduction: Political and legal context

Together with the rule of law and fundamental rights, democracy is a founding value of the European Union. For democracy to function well, citizens must be able to express their preferences and elect their representatives freely.

One important characteristic of democratic systems is that stakeholders, citizens and civil society organisations (CSOs), are consulted and involved in the preparation of laws and policies on the basis of transparent processes, at European, national, regional and local levels. The space for public debate in Europe is and must remain open, also to ideas from across the world 6 .

There is a growing concern that the openness of European societies is being exploited for covert interference 7 from foreign governments to manipulate decision-making processes and public opinion in the EU. The European Parliament 8 and the Council 9 have underlined the importance of addressing the threat to democracy posed by such covert foreign interference. Governments 10 , citizens 11 and civil society organisations 12 are concerned by the impact of such external interference on European democracies and the public sphere. For example, a recent Flash Eurobarometer survey on Citizenship and Democracy found that about 8 in 10 Europeans agree that foreign interference in European democratic systems is a serious problem that should be addressed 13 . Concerns have intensified after Russia’s war of aggression against Ukraine and the so-called “Qatar-gate”, a corruption scandal involving Members of the European Parliament and EU staff. The Union witnessed numerous instances of some third countries seeking to covertly influence in its politics and decision-making 14 . While the full scale of this phenomenon is unknown, reports of such activities exist 15 .

‘A new push for European democracy’ is a headline priority of the Commission and many initiatives have been adopted over recent years, including in the framework of the European Democracy Action Plan 16 presented in 2020, that put forward a comprehensive approach to ‘empower citizens and build more resilient democracies across the EU’. Existing policy interventions include updating rules governing European political parties and foundations 17 , regulating various aspects of online platforms 18 , addressing disinformation 19 , detecting, analysing and countering foreign information manipulation and interference (FIMI) 20 , regulating political advertising including on social media 21 , supporting free, fair and inclusive elections, supporting free and plural media 22 , addressing questions of investments by third countries in electoral infrastructure 23 , cybersecurity 24 , anti-money laundering and corruption 25 .

Instead of relying on traditional and formal diplomatic channels and processes, foreign governments increasingly rely on lobbyists and other forms of influence to promote their policy objectives 26 . Typically, states have resources that private actors might not have and pursue different aims. As noted by the Organisation for Economic Co-operation and Development (OECD), foreign governments “can have a transformative impact on the political life of a country, not only on domestic policies but also on its foreign policy, its election system, economic interests and its ability to protect its national interests and national security” 27 and the risks involved in lobbying and influence activities of foreign government are higher than the risks posed by purely domestic lobbying and influence activities 28 .

Several democratic countries outside the Union have already adopted measures including to enhance transparency of interest representation activities carried out on behalf of third countries and support democratic accountability. These include Australia and the US, while other democracies, like the UK and Canada are considering adopting similar measures. 29 International organisations and fora such as the Organization for Security and Co-operation in Europe (OSCE), OECD and G7 have also been working on the issue.

In the internal market, a wide range of cross-border activities which seeks to influence decision-making processes is conducted on behalf of third countries. Such activities involve different types of EU-based commercial and non-commercial entities such as think tanks, lobbying firms, CSOs, or law firms. Interest representation involves direct contact with decision-makers, communication and other efforts to represent a particular interest and influence decision-makers and the wider debate. While these activities can be conducted transparently, this is not always the case, and national measures intended to ensure the transparency and accountability of such activities are not always effective in isolation at the national level.

Where they are regulated, interest representation activities carried out on behalf of third countries are regulated together with other interest representation activities. Currently, 15 Member States 30 have a transparency register on interest representation activities, albeit only at sub-national level for some 31 . In those Member States, where such a regulatory framework exists, it is highly fragmented across the EU 32 . The scope of the entities and activities covered differ widely 33 . There are different definitions of interest representation activities, thresholds on the size of entities or level of activities triggering transparency or registration requirements, as well as record-keeping 34 . Moreover, the existence, powers, structures and independence of supervisory authorities differ greatly across the EU. The same goes for the nature of sanctions, and amounts of pecuniary fines, where they exist 35 . 12 Member States do not regulate the transparency of interest representation activities 36 .

The internal market, already fragmented by existing rules, risks being further fragmented. Member States have expressed increasing concerns about covert influence by third countries in democratic processes in the EU. Some Member States are thinking to adopt measures to protect their democratic sphere. Member States generally agree that EU action is needed against the background of the need to address foreign interference.

In its Work Programme for 2023, the Commission announced that it would present a “Defence of Democracy” package to increase transparency and accountability, thus promoting “institutional trust and democratic values in the EU” and protecting “the EU democratic sphere from covert interference in democratic processes”.

The package builds upon and is complementary to the European Democracy Action Plan and fully aligned with its logic 37 . The initiative related to interest representation activities is a key component of the Defence of Democracy package. The package will also include non-legislative measures aiming to promote high standards for elections to the European Parliament and elections and referenda at national level and to foster an enabling civic space and promote the inclusive and effective participation of citizens and civil society organisations in the public policy-making processes.

The main aim behind this initiative is to introduce common transparency and accountability standards in the internal market for interest representation activities carried out on behalf of third countries. By providing common transparency requirements for such activities, the initiative will improve the functioning of the internal market for such activities, by creating a level playing field, reducing unnecessary cost for entities that seek to carry out interest representation activities on behalf of third countries across borders and prevent regulatory arbitrage.

This intervention would also enhance the integrity of, and public trust in, the EU and Member State democratic institutions by ensuring the transparency of interest representation activities carried out on behalf of third countries on the basis of proportionate standards, and by improving the knowledge of the magnitude, trends and actors of interest representation activities carried out on behalf of third countries. The initiative would ensure full respect of fundamental rights and democratic values; strong safeguards should mitigate the potential negative impacts on concerned entities.

This initiative will provide for common transparency standards in the context of legal and legitimate interest representation activities carried out in the interests of third countries in the internal market. While interest representation activities carried out covertly on behalf of third countries could amount to foreign interference, foreign interference encompasses a wide range of activities that are carried out by or on behalf of a foreign state or a state actor, and which are coercive, deceptive or corrupting and are contrary to the sovereignty, values and interests of the Union and its Member States. This can for example include disinformation, corruption of officials or cyber-attacks on the IT infrastructure supporting elections. This initiative does not aim to exhaustively address all foreign interference activities.

The legislative initiative complements existing measures at EU level that contribute to enhancing transparency and addressing certain activities carried out by or on behalf of third countries. As regards activities impacting the democratic sphere, this includes the proposal for a Regulation on the transparency and targeting of political advertising, the proposal for European Media Freedom Act 38 (EMFA), the Digital Services Act 39 (DSA), the Regulation on European political parties and European political foundations and the proposal to amend it 40 and non-legislative measures for combating disinformation and other forms of foreign interference, including the Foreign Information Manipulation and Interference Toolbox. It also complements and is coherent with other legislative proposals, legislation and initiatives beyond the European Democracy Action Plan which enhance the transparency of activities affecting democratic processes, such as the Anti-Money Laundering Directive and the Whistle-blower Directive.

The transparency achieved by these EU instruments and initiatives leaves an important part uncovered which this initiative aims to address – interest representation carried out on behalf of third countries.

2.What is the problem and why is it a problem?

2.1.What are the problems?

2.1.1.Obstacles to the internal market for interest representation activities carried out on behalf of third countries.

In Member States where it is regulated, interest representation activities carried out on behalf of third countries are regulated together with other interest representation activities.

At present, 15 Member States 41 regulate the transparency of interest representation activities and have a transparency register on interest representation activities, albeit only at sub-national level for some 42 . In those Member States, where such a regulatory framework exists, it is highly fragmented across the EU 43 , and only 9 of those Member States impose a specific legal obligation to register before carrying out interest representation activities 44 . Conversely, 12 Member States do not regulate the transparency of interest representation activities 45 .

Fragmentation of the internal market for interest representation activities.

The definition of interest representation activities 46 , and the scope of the entities and activities covered differ widely leading to gaps in entities and activities covered. The actors required to register are usually formulated in general terms across Member States 47 , with natural and legal persons conducting interest representation activities having an obligation to register themselves. In 5 Member States, more precise rules exist on the personal scope for registering 48 .

10 Member States 49 do not have any thresholds in place for registration. In 2 Member States 50 , thresholds are purely financial, while in the 3 others 51 , they are non-financial and based on criteria such as the frequency of contacts, the number of employees, or the time dedicated to lobbying activities. Record-keeping obligations also differ across Member States 52 .

With regard to supervision, enforcement and sanctions, in 9 Member States 53 , the registers are supervised by an independent authority. 3 other Member States 54 tasked their government with this supervision, while 3 others 55 tasked their parliament. All Member States that have a supervisory regime also have sanctions regimes. Pecuniary sanctions exist in 10 Member States 56 . In all those Member States, pecuniary sanctions are of an administrative nature, except in France where pecuniary sanctions are of a criminal nature. Criminal sanctions exist in Member States such as France and Ireland 57 . Suspension or removal from a register is present as an enforcement measure in 2 Member States 58 .

This fragmentation causes several obstacles in the internal market for interest representation activities carried out on behalf of third countries that undermine the proper functioning of the internal market.

First, there is an uneven playing field. Geographically, the transparency of interest representation activities is regulated differently in different Member States. This regulatory fragmentation results in a landscape in which interest representation activities are costly and complex to perform in some Member States and not, or not to the same extent, in others. Among providers of interest representation activities, diverging requirements at Member State level impact different types of stakeholders in different ways, making them subject to more stringent requirements than others although they would be performing the same activities 59 .

Uneven playing field between different actors

Stakeholder views:

During the focus group with representatives of the legal profession 60 , a majority of participants emphasised the importance of setting up transparency requirements that apply to all entities performing interest representation activities in the internal market. Among other, certain participants expressed the view that there are loopholes in the current regimes regarding CSOs which carry out similar activities while not being subject to similar transparency requirements regarding the funding of their activities influencing decision-making processes in the EU.

During the second focus group with commercial actors involved in interest representation 61 , one participant noted that in its Member State some of the exemptions are too broad and for example exclude lawyers from registration requirements although they may carry similar activities.

Illustrative case study n°1:

Commercial Company A carries out interest representation activities in Germany and in Lithuania and faces different competitors in both Member States which do not face the same regulatory requirements. In Germany, many of its competitors are organised like it, in the form of a commercial company. However, it also faces competition from law firms which also perform interest representation activities but do not always incur regulatory costs related to these activities when working in Germany at local level, as legal professionals only fall under the scope of rules on registration and transparency in some Länder (e.g. Baden-Württemberg 62 ) whereas other Länder do not include them in the scope of their transparency registers (e.g. Brandenburg 63 ) 64 . In Lithuania, Commercial Company A faces regulatory requirements which do not apply to civil society organisations performing similar activities, because these are excluded from the scope of the registration and transparency requirements existing in Lithuania 65 .

Second, there are unnecessary costs for entities that wish to operate across borders in the internal market. At present, the process of entering a new market in another Member State than the state of establishment is made difficult by the costs of complying with fragmented rules.

Compliance with different regulatory frameworks

Stakeholder views

Interest representation service providers expressed their desire to expand beyond their Member State’s market 66 . During a focus group consultation with commercial actors involved in cross-border interest representation activities, participants explained their difficulties to comply with all the different transparency registers’ requirements, in particular with the need to maintain up-to-date information in all of them, as the obligations vary across Member States.

Illustrative case study n°2

A small-sized service provider established in Sweden, specialised in interest representation activities on behalf of third country A, wants to carry out these activities in several other Member States. It therefore has to comply with different rules and requirements in each Member State which implies costs. It decides to start with Greece and Slovenia. At present, Sweden 67 does not regulate interest representation activities while Greek 68 and Slovene 69 laws require to declare information such as the institutions or bodies it intends to direct its interest representation activities to, the policy areas and types of decisions it intends to target, and the intended results of its interest representation activities. The service provider needs to ensure that its internal record-keeping allows it to easily comply with Greek and Slovene laws.

The service provider then decides to enter the German market. However, its internal record-keeping is not fit for purpose in this new context because Slovenia 70 requires financial disclosures to be based on payments received from interest regroups for each matter handled while in Germany 71 these are based on expenditures linked to interest representation activities.

Later on, the interest representation service provider decides to also expand into Ireland and Lithuania. While the mandatory update timeframes to the Greek 72 and Slovene 73 registers are the same, i.e. annual, the requirements in Ireland 74 are to update registration information every 4 months, and in Lithuania 75 within 7 days following each lobbying activity. This will lead to creating an on-going mechanism throughout the year instead of performing a disclosure exercise once yearly, as well as potentially dedicating resources to maintain registrations up-to-date across the markets it operates in.

This situation also leads to one main consequence. The uneven playing field directs cross-border interest representation activities away from more regulated Member States towards less regulated ones or where enforcement is limited. In other words, there is a risk of forum shopping and regulatory arbitrage by entities seeking to evade regulation in certain Member States. This risk is especially high in those Member States that have a regulatory regime for the transparency of interest representation, but do not make registration compulsory or lack monitoring or enforcement mechanisms. Beyond the internal market-related consequences described here, this phenomenon of regulatory arbitrage could also present an opportunity for third-country actors to evade transparency requirements and covertly influence decision-making in the EU.

2.1.2.Unknown magnitude, trends and actors of interest representation activities carried out on behalf of third countries

The scale of interest representation activities carried out on behalf of third countries in the Member states is largely unknown.

There are indications that the broader phenomenon of foreign interference exists and is increasing. Some stakeholders have indicated that third country governments provide funding with clear objectives which aim at legal or policy changes 76 . There are also numerous media reports of foreign interference from third countries whereby interest representation activities are being carried out on behalf of third countries covertly to influence decision-making processes, sow distrust and undermine the EU’s democratic processes 77 .

Interest representation activities can take very different forms such as direct lobbying of decision-makers, organising or participating in meetings, conferences or events, contributing to or participating in consultations or parliamentary hearings, organising communication or advertising campaigns, organising networks and grassroots initiatives, preparing policy and position papers, legislative amendments, opinion polls, surveys or open letters, or activities in the context of research and education, where they are specifically carried out with that objective. They can be conducted both at European, national, and sub-national level and they can have a harmful and disruptive impact on decision-making processes. However, Member States do not consistently collect or systematically share information on interest representation carried out on behalf of third countries and there is no reliable and consistent data on these activities. This results in difficulties to identify and map interest representation activities carried out on behalf of third countries and do so in a coordinated and efficient way across the EU. This makes the situation prone to foreign interference operations, as third countries may seek to exploit the information asymmetry among authorities. In turn, it has an effect on wider perceptions about the integrity of public decision-making.

The lack of transparency and inconsistency of regulation and oversight, the many different ways in which interest representation activities on behalf of third countries are carried out and the difficulty of measuring them, do not allow to monitor these activities accurately, especially with quantitative data. It also risks conflating legitimate interest representation by third countries with covert activities which may not pursue such ends.

Differences in data collection requirements

Discrepancies in data collection requirements in Member States make it difficult to shed light and identify patterns on the magnitude of the phenomenon of interest representation activities carried out on behalf of third countries, be it with regard to the entities, the activities they perform, and the amounts of money involved.

While 12 Member States 78 require identification data of interest representatives (e.g. name of the lobbyist), only 8 Member States 79 request specific information on the client represented by the entity carrying out interest representation activities (e.g. name of the client). Furthermore, only 10 Member States 80 require entities to provide information on the policy field in which they pursue interest representation for their clients, while 6 Member States 81 ask for information on the budget/expenditure from entities carrying out interest representation activities, albeit in different ways 82 .

Data comparisons are further complexified by the differences in regimes with regard to the updates of that data. For example, in Ireland 83 , updates have to take place 3 times a year, while in countries such as France 84 or Greece 85 updates take place once yearly. In other Member States such as Finland 86 or Germany 87 , only some information has to be updated yearly while other information has to be updated twice yearly (e.g. financial information in Finland) or at the end of every quarter (e.g. basic personal data such as addresses and contact details in Germany). Another system exists for example in Lithuania 88 where updates have to take place within 7 days of an interest representation activity taking place.

Lastly, data analysis is rendered difficult by the fact that not all registers are public, and that for those that are, not all data is publicly accessible. The data of transparency registers on lobbying is made public on the websites of 10 Member State 89 authorities, while it is not the case in 2 others 90 . In the Member States where transparency registers are publicly accessible, certain restrictions exist. For example, in Austria 91 , the legal regime only requires the disclosure of general information about the purposes and amounts spent on interest representation activities and does not include most of the information on clients that certain other Member States require (e.g. names and contact details of the clients or granular description of the sums received).

The lack of transparency undermines democratic processes and impacts EU citizens’ trust in related processes and/or decision-makers and their ability to exercise their rights and responsibilities.

Citizens are concerned about the impacts of foreign government meddling with decision-making processes in the EU. A recent Eurobarometer on Citizenship and Democracy showed that about 8 in 10 Europeans agree that foreign interference in European democratic systems is a serious problem that should be addressed 92 . According to the Online Public Consultation 84.5% of respondents considered that lobbying or public relations activities remunerated by or controlled by third countries triggered a high risk of covert foreign interference. 65% of them considered that the activities of think tanks remunerated by third countries triggered such a risk. A survey conducted by Friedrich-Ebert-Stiftung on European sovereignty in 8 EU Member States 93 found that 93% of respondents considered that it is essential or important to have common tools to combat foreign interference for Europe to be sovereign 94 . Due to the lack of information on the magnitude, trends and actors of interest representation carried out on behalf of third countries, it is difficult to assess the reality and the risks caused by this phenomenon and establish the data needed to develop evidence-based policy.

This problem is a European one. Interest representation activities carried out on behalf of third countries is a transnational issue with cross-border implications that can affect the policy decisions and political processes of other countries. This is because third countries often engage in activities aimed at influencing policy decisions and political processes in Member States, which can have an impact beyond each Member States’ borders. It is not necessary to exercise influence at the European level to impact EU decision-making.

Figure 1. Problem tree:

2.2.Magnitude of the problems

As presented in detail in Annexes 3 and 4, the estimates place the number of players in the internal market for interest representation activities carried out on behalf of third countries (the population of enterprises that would be subject to requirements under the proposed policy options) at between 712-1,068 enterprises 95 . The number of market actors does not prejudge the influence of such activities on the democratic sphere (see section 2.1.2).

Currently, there is no comprehensive data available on the size of the market for interest representation across the EU, or the specific market for interest representation activities carried out on behalf of third countries. Furthermore, even if interest representation activities carried out on behalf of third countries are a transnational issue, there is also a lack of data on the cross-border activities of these entities carrying out interest representation activities on behalf of third countries.

The current legal fragmentation described in the previous section contributes to explain this lack of information. Data collection across Member States is not unified and cannot provide a sufficient basis to highlight how much of the interest representation activities taking place in the internal market happen across borders nor to estimate the size of the market. This issue is further compounded by the lack of transparency generally characterising the market for interest representation activities.

The fragmentation of the internal market for interest representation activities carried out on behalf of third countries is presented in section 2.1.1. Annex 6 presents the regulatory situation in the Member States.

As explained in Section 2.1.2 comprehensive information on the magnitude, trends and actors of interest representation activities carried out on behalf of third countries is lacking.

2.3.How will the problems evolve?

Regarding the first problem, obstacles in the internal market, the issues related to the uneven playing field, the risk of regulatory arbitrage and the unnecessary costs for entities carrying out interest representation activities that wish to operate across Member States are bound to increase.

This problem is driven in a large part by the fragmentation of the internal market which is itself likely to increase. The consultations carried out during the preparation of the initiative, in particular in the context of focus group meetings and contributions provided by Member State authorities showed an increasing risk awareness in Member States about the issue of interest representation carried out on behalf of third countries, and an increase in national plans for regulatory interventions to address this issue. For example, in countries like Poland and the Netherlands 96 , draft laws have been put forward which would impact foreign funding, which could affect entities carrying out interest representation on behalf of third countries. In both cases, stakeholders expressed concerns, which were also reflected in the 2022 Rule of Law Report 97 . Some Member States, such as France, have indicated their interest in regulating in particular interest representation carried out on behalf of third countries 98 . Furthermore, draft laws regulating interest representation in general are either under discussion or planned in 12 Member States 99 . Furthermore, the fact that Member States do not consistently collect or systematically share information on interest representation carried out on behalf of third countries leads to different levels of awareness of the issue that could result in Member States responding divergently to this phenomenon. Such fragmentation would exacerbate the obstacles faced by entities carrying out interest representation on behalf of third countries in the internal market.

The second problem, the unknown magnitude, trend and actors of covert interest representation activities carried out on behalf of third countries, will not be solved over time within the current baseline scenario. Both the issues of the lack of transparency in the market for interest representation activities carried out on behalf of third countries and the willingness of third countries to covertly influence decision-making in the EU are likely to remain or increase. While it is in the interest of many actors in this market to operate transparently to preserve the reputation of their industry and of their other clients, the market for interest representation activities cannot by itself promote more transparency without regulatory interventions.

In addition, an increase in reports of interference operations carried out via interest representation activities would lead to more distrust from citizens in decision-making processes and decision-makers. The Commission’s 2021 Strategic Foresight Report indicates that pressure on democratic models of governance and values is likely to persist in the coming decades due to rising geopolitical tensions, and that “the long-term performance of democratic systems hinges on their capacities to adapt to new realities and to remain resilient to internal and external challenges” 100 . As reported by the OECD, foreign governments increasingly rely on lobbyists and other forms of influence to promote their policy objectives 101 .

3.Why should the EU act?

3.1.Legal basis

Article 114 of the Treaty on the Functioning of the European Union (TFEU) allows for the adoption of measures which have as their object the establishment or functioning of the internal market and which are considered necessary for the approximation of the provisions laid down by law, regulation or administrative action in the Member States. In accordance with Article 288 TFEU, these measures may take the form of regulations, directives, decisions, recommendations, and opinions.

The Court of Justice has confirmed that recourse to Article 114 TFEU as a legal basis is possible if the aim is to prevent the emergence of future obstacles to trade as a result of divergences in national laws, where the emergence of such obstacles is likely and the measure in question is designed to prevent them 102 .

Article 114 TFEU does not presuppose the existence of a link with the free movement of services in every situation covered by the measures founded on that basis 103 . It permits additional objectives to be pursued 104 . Measures based on Article 114 TFEU may touch upon many different areas, because the economic and the non-economic aspects of national provisions pursuing an objective in the public interest are many times closely intertwined. As confirmed by the Court, the EU legislature cannot be prevented from relying on that legal basis on the ground that the protection of other policy objectives is a decisive factor in the choices to be made 105 . What is relevant is that the measures adopted on that basis be actually intended to improve the conditions for the establishment and functioning of the internal market 106 .The Court focuses on the fulfilment of the conditions for the use of Article 114 TFEU, i.e., that the measure in question effectively pursues the internal market objective.

Currently, Member States have divergent approaches to defining and regulating interest representation activities carried out on behalf of third countries in the internal market. These differences restrict the freedom to provide services 107 and therefore have a direct effect on the functioning of the internal market 108 . In the absence of EU action, some Member States are likely to implement national legislation. Draft laws regulating interest representation in general are either under discussion or planned in 12 Member States 109 . Poland, the Netherlands and France are considering legislations which would affect in particular entities carrying out interest representation on behalf of third countries.

In light of the existing fragmentation (see section 2.1.1), which is likely to increase, it is necessary to provide for harmonised transparency measures to create an even playing field, reduce existing compliance costs and regulatory arbitrage as well as the emergence of additional obstacles in the internal market for interest representation activities carried out on behalf of third countries, resulting from an inconsistent development of national laws.

The objective of this intervention is to ensure the proper functioning of the internal market for interest representation activities carried out on behalf of third countries through harmonisation of regulatory approaches regarding the transparency of such activities.

Even though Article 114(3) TFEU does not mention the resilience of EU democracies and decision-making processes (unlike, for example, a high level of health protection, environmental protection or consumer protection), it is inherent to the purpose of Article 114 TFEU that the objectives of the national rules which are to be approximated through harmonisation should be taken into account. The objective of ensuring the transparency of activities affecting public decision-making and the functioning of democratic institutions is a legitimate public goal. It therefore follows from the purpose of Article 114 TFEU that EU rules harmonising national rules adopted to regulate an activity in the pursuit of these goals may themselves pursue the same ends. In this regard, this intervention also aims to enhance the integrity of, and public trust in, the EU and Member State democratic institutions by ensuring the transparency of interest representation activities carried out on behalf of third countries.

Furthermore, in Article 2 of the Treaty on European Union (TEU) democracy is recognised as one of the essential values on which the Union is founded. The Court has ruled on 16 February 2022 on the rule of law conditionality regulation that “the EU must be able to defend those values, within the limits of its powers as laid down by the Treaties” 110 . This case law indicates that the EU legislature is empowered to ensure the protection of the values mentioned in Article 2 TEU and of other fundamental rights (such as the right to receive information) where it has an appropriate legal basis for taking legislative action.

EU action focusing on transparency is needed to prevent obstacles to the provision of interest representation activities carried out on behalf of third country entities, ensuring the establishment and functioning of the internal market. It will also contribute to improve the knowledge on the magnitude, trends and actors of interest representation activities carried out on behalf of third countries. Importantly, the intervention does not aim to restrict the provision of interest representation activities carried out on behalf of third countries in the internal market.

3.2.Subsidiarity: Necessity and added value of the EU action

According to the principle of subsidiarity (Article 5(3) TEU), action at EU level should be taken only when the aims envisaged cannot be achieved sufficiently by Member States alone and can therefore, by reason of the scale or effects, be better achieved by the EU.

As Member States’ rules affecting interest representation on behalf of third countries diverge in their scope, content and effect, a patchy framework of national rules is appearing and risks to increase, especially when it comes to interest representation activities carried out on behalf of third countries. It undermines the internal market by creating an uneven playing field and unnecessary costs for entities that seek to carry out cross-border interest representation activities on behalf of third countries. It invites regulatory arbitrage to avoid transparency measures which in turn impacts the citizens’ confidence and trust in the effectiveness of regulation.

Only intervention at EU level can solve these problems, as regulation at national level already results in the creation of obstacles to cross-border interest representation activities in the internal market. In contrast, the effects of any action taken under national law would be limited to a single Member State and risks being circumvented or be difficult to oversee in relation to entities carrying out interest representation on behalf of third countries from other Member States. Furthermore, some Member States are currently considering legislative initiatives in the field of foreign influence that might not align with the proportionate and targeted approach of this initiative and that might not provide with a comprehensive system of safeguards. Only action at EU level can address this consistently across the internal market. Introducing common and proportionate standards for transparency of interest representation carried out on behalf of third countries at EU level is essential to ensure that such measures are established consistently across all Member States with respect to all fundamental rights and in particular subject to comprehensive safeguards including access to the courts.

Finally, interest representation activities carried out on behalf of third countries is a transnational issue with cross-border implications that need to be addressed at EU level. Influencing policy decisions and political processes in one Member State can have an impact beyond that Member State’s borders, in another Member State or at the European level. The absence of EU-level action may result in some Member States being less knowledgeable than others about interest representation activities carried out on behalf of third countries, and it seems unlikely that Member States would converge on aligned standards on how to collect comparable data on interest representation activities carried out on behalf of third countries, or establish a systematic EU wide cooperation mechanism to exchange information with each other and the Commission.

Figure 2. Intervention logic:

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