European Union Law for the Twenty-First Century: Volume 2 (Essays in European Law)

European Union Law for the Twenty-First Century VOLUME 2

INTERNAL MARKET AND FREE MOVEMENT COMMUNITY POLICIES This book is based on the proceedings of the WG Hart Workshop 2003. It contains contributions by leading experts seeking to assess the state of development of EU law some fifty years after the establishment of the Communities and to contribute to the current debate on the European Constitution. The second volume focuses on challenges in the field of the internal market and Community policies, looking at diverse areas of European Law, including free movement, competition law, state aid, merger control, public procurement, consumer law, sex equality and bioethics.

European Union Law for the Twenty-First Century Rethinking the New Legal Order Volume 2 Internal Market and Free Movement Community Policies

Edited by

Takis Tridimas Queen Mary University of London

& Paolisa Nebbia University of Southampton

OXFORD AND PORTLAND OREGON 2004

Published in North America (US and Canada) by Hart Publishing c/o International Specialized Book Services 5804 NE Hassalo Street Portland, Oregon 97213-3644 USA © The Editors and Contributors severally 2004 The editors and authors have asserted their right under the Copyright, Designs and Patents Act 1988, to be identified as the authors of this work. Hart Publishing is a specialist legal publisher based in Oxford, England. To order further copies of this book or to request a list of other publications please write to: Hart Publishing, Salters Boatyard, Folly Bridge, Abingdon Rd, Oxford, OX1 4LB Telephone: +44 (0)1865 245533 Fax: +44 (0) 1865 794882 email: [email protected] WEBSITE: http//:www.hartpub.co.uk British Library Cataloguing in Publication Data Data Available ISBN 1-84113-460-0 (hardback) Typeset by Olympus Infotech Pvt Ltd, India, Sabon 10/12 pt. Printed and bound in Great Britain by MPG Books Ltd, Bodmin, Cornwall

Foreword The contributions contained in this volume are based on papers presented in the 2003 WG Hart Workshop which took place at the Institute of Advanced Legal Studies, London. The Workshop concentrated on three themes: European constitutionalism in the twenty-first century, the future of the internal market, and external relations. The aim of the Workshop was to assess the state of development of EU law some fifty years after the establishment of the Communities, contribute to the current policy debate on Europe, and identify likely future trends. The proceedings of the Workshop are published in two volumes. This is the second volume and contains contributions pertaining to the internal market and Community policies. The first volume contains contributions on constitutional law and external relations. We are grateful to Professor Barry Rider who, as Director of the Institute of Advanced Legal Studies, initiated this project, and the administrative staff of the Institute, especially David Phillips and Belinda Crothers who worked tirelessly to make the Workshop possible. We are very grateful to all speakers and participants who made the Workshop and the resulting volumes, and those who gave their time to chair sessions. We were very fortunate to be assisted by Lord Slynn of Hadley, Advocate General Francis Jacobs QC, Professor Walter van Gerven, and Sir Christopher Bellamy. We would like to thank Richard Hart and the staff of Hart Publishing who embraced with enthusiasm this project and, as always, have been extremely helpful and efficient in preparing the publication of both volumes. Our thanks also go to Angeliki Mitsolidou for her invaluable assistance in the preparation of the list of cases. The Workshop was organised by David O’Keeffe and Takis Tridimas. It would not have been possible without David’s tireless efforts and inspiration. It is most unfortunate that circumstances beyond his control did not enable David to participate in the preparation of the publications. In his absence, we have taken it upon ourselves to prepare the volumes and our only hope is that the quality of the end product has not suffered too much as a result. Takis Tridimas Paolisa Nebbia March 2004

List of Contributors Vicky ALLSOPP is Principal Lecturer in Economics, Middlesex University Brian BERCUSSON is Professor of Law, King’s College, University of London Andrea BIONDI is Senior Lecturer, Centre of European Law, Kings College London; Visiting Professor at the College of Europe, Natolin Christopher BOVIS is Professor of Law and Jean Monnet Chair in European and Business Law, Lancashire Law School Fernne BRENNAN is Lecturer in Law, University of Essex Dermot CAHILL is Senior Lecturer in Law, University College Dublin Eugenia CARACCIOLO DI TORELLA is Lecturer in Law, University of Leicester Penny ENGLISH is Senior Lecturer in Law and Member of the Centre for Legal Research, Middlesex University Penelope KENT is Principal Lecturer in Law and Member of the Centre for Legal Research, Middlesex University Melanie LATHAM is Reader in Law, School of Law, Manchester Metropolitan University Annick MASSELOT is Lecturer in Law, Centre for the Study of Law and Policy in Europe, Department of Law, University of Leeds Susan MILLNS is Visiting Marie Curie Fellow, European University Institute, Florence; Senior Lecturer in Law, University of Kent Giorgio MONTI is Lecturer in Law, Law Department, London School of Economics Rodolphe MUNOZ is Assistant, IEJE Law Faculty, University of Liege Paolisa NEBBIA is Lecturer in Law, University of Southampton Sara POLI is Research and Teaching Fellow of EC Law and EC Environmental Law at the University of Trieste Peter OLIVER is Legal Advisor, European Commission

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List of Contributors

Wulf-Henning ROTH is Professor of Law; Director of the Institute of Private International Law; Director of the Center of European Economic Law, University of Bonn Jukka SNELL is Senior Lecturer in Law, University of Wales Swansea Erika SZYSZCZAK is Professor of European Competition and Labour Law, Jean Monnet Professor of European Law ad personam, Director of the Centre for European Law and Integration, University of Leicester. Helen TONER is Lecturer in Law, Queen’s College Oxford Dimitri TRIANTAFYLLOU is a Member of the Legal Service, Commission of the European Community Takis TRIDIMAS is the Sir John Lubbock Professor of Banking Law at Queen Mary University of London. He was Senior Legal Adviser to the EU Presidency held by Greece (January-June 2003) Martin TRYBUS is Lecturer in Law, University of Nottingham John USHER is Salvesen Professor of European Institutions, University of Edinburgh Stephen WEATHERILL is Jacques Delors Professor of European Law, Somerville College, University of Oxford

Contents Foreword List of Contributors Table of Cases

v vii xi

1.

Introduction Takis Tridimas and Paolisa Nebbia

2.

Why Harmonise? Stephen Weatherill

3.

Export of Goods and Services within the Single Market: Reflections on the Scope of Articles 29 and 49 EC Wulf-Henning Roth

33

And Then There Were Two: Products and Citizens in Community Law Jukka Snell

49

4.

5.

EMU and Financial Services John Usher

6.

Internal Market and the Harmonisation of European Contract Law Paolisa Nebbia

7.

8.

9.

The Development of the Ex-ante Control Mechanism Regarding Implementation of the Internal Market Rodolphe Munoz The Member States’ Powers to Adopt Emergency Measures in the Context of the Genetically Modified Food/Feed Regulation Sara Poli At the Borderline between Community and Member States’ Competence: The Triple-Exceptional Character of Article 297 EC Martin Trybus

1 11

73

89

103

121

137

10.

Competition and Free Movement: Their Place in the Treaty Peter Oliver

159

11.

New Directions in EC Competition Law

177

x

Contents Giorgio Monti

12.

The Future of Merger Control in the EC Penelope Kent, Vicky Allsopp and Penny English

195

13.

State Intervention and the Internal Market Erika Szyszczak

217

14.

Competition and Protected Services in the EU: Abuse of Dominance by Public Sector Undertakings and the Onward March of Article 86 Dermot Cahill

15.

Justifying State Aid: The Financing of Services of General Economic Interest Andrea Biondi

16.

State Aids and Bankruptcy Dimitris N Triantafyllou

17.

Public Procurement and the Internal Market of the Twenty-First Century: Economic Exercise versus Policy Choice Christopher Bovis

239

259 273

291

18.

The Institutional Architecture of the European Social Model Brian Bercusson

311

19.

The Future of Sex Equality Eugenia Caracciolo di Torella and Annick Masselot

333

20.

Partnership Rights, Migration and EC Law Helen Toner

349

21.

The Race Directive, Institutional Racism and Third Country Nationals Fernne Brennan

371

22.

Bio-Rights, Common Values and Constitutional Strategies Susan Millns

387

23.

Biomedicine, Bioethics and the European Union Melanie Latham

403

Bibliography

419

Table of Cases 1) European Court of Justice Case 7/61 Commission v Italy [1961] ECR 317.............................167, 238 Cases 56 & 58/64 Établissements Consten SARL and Grundig-Verkaufs-GmbH v Commission [1966] ECR 299 .....172, 222 Case 32/65 Italy v Council [1966] ECR 389..................................182, 188 Case 7/68 Commission v Italy [1968] ECR 633.....................................139 Case 13/68 SpA Salgoil v Italian Ministry of Foreign Trade [1968] ECR 453, [1969] CMLR 181 ....................................139, 144–45, 147 Case 14/68 Walt Wilhelm v Bundeskartellamt [1969] ECR 1 ................178 Case 6, 11/69 Commission v France [1969] ECR 523 ...........................274 Case 15/69 Südmilch v Ugliola [1969] ECR 363 ...................................147 Case 29/69 Stauder v City of Ulm [1969] ECR 419...............................413 Case 68/69 Just [1980] ECR 501 ...........................................................273 Case 11/70 Internationale Handelsgesellschaft GmbH v Einfuhr- und Vorratsstelle für Getreide und Futtermittel [1970] ECR 1125 .........................................................................68, 391, 413 Case 6/72 Europemballage Corp and Continental Can v Commission [1973] ECR 215, [1973] CMLR 199 ...............171–72, 188, 204 Case 2/73 Riseria Luigi Geddo [1973] ECR 865 .....................................36 Case 4/73 Nold [1974] ECR 491 ...................................................164, 391 Case 8/73 HZA Bremerhaven v Massey Ferguson [1973] ECR 89 .............................................................................................91 Case 127/73 BRT v SABAM [1974] ECR 313 .......................................233 Case 173/73 Italy v Commission [1974] ECR 709.................................274 Case 2/74 Reyners [1974] ECR 631.......................................................225 Case 8/74 Procureur du Roi v Benoit and Gustave Dassonville [1974] ECR 837................................................................34–35, 222–23, 225 Case 36/74 Walrave and Koch v UCI [1974] ECR 1405....................57–59 Case 36/75 Rutili [1975] ECR 1219 ..............................................168, 408 Case 43/75 Defrenne v Sabena (Defrenne II) [1976] ECR 455 ...................................................................................59, 336 Case 104/75 De Peijper [1976] ECR 613.......................................161, 167 Case 24/76 Metro v Commission [1977] ECR 1873 ..............................171 Case 46/76 Bauhuis v Netherlands [1977] ECR 5..................................170 Case 74/76 Ianelli & Volpi Spa v Ditta Paola Meroni [1977] 2 CMLR 688......................................................................................302

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Case 85/76 Hoffmann-La Roche v Commission [1979] ECR 461, [1979] 3 CMLR 211, [2001] ECLR 227 .........................172, 205 Case 90/76 van Ameyde v Srl Ufficio Centrale Italiano di Assistenza Assicurativa Automobilisti in Circulazione Internazionale [1977] ECR 1091..............................................................................57 Case 13/77 SA GB-INNO-BM v Association des détaillants en tabac (ATAB) [1977] ECR 2115 .........................................................222–23 Case 30/77 Bouchereau [1977] ECR 1999.............................................170 Case 35/77 Beerens [1977] ECR 2249 .....................................................87 Case 82/77 Openbaar Ministerie of the Kingdom of the Netherlands v Jacobus Philippus van Tiggele [1978] ECR 25 ...........................................................................................224 Case 149/77 Defrenne v Sabena [1978] ECR 1365..................................60 Case 182/78 Pierik [1979] ECR 1977 ...................................................408 Case 120/78 Rewe-Zentral AG v Bundesmonopolverwaltung für Branntwein (Cassis de Dijon) [1979] ECR 649 ........12, 18, 20, 34, 37, 41–42, 96–98, 167, 225, 235–37, 264–65 Case 141/78 France v Great Britain [1979] ECR 2923 ..........................107 Cases 209–215/78 van Landewyck v Commission [1980] ECR 3125 .......................................................................................171 Case 5/79 Procureur Général v Hans Buys, Hans Pesch, Yves Dullieux and Denkavit France Sarl [1979] ECR 3203.....................224 Case 15/79 Groenveld v Produktschap voor Vee en Vlees [1979] ECR 3409 .............................................................................35–36, 50 Case 34/79 R v Henn and Darby [1979] ECR 3795 ................................52 Case 61/79 Denkavit [1980] ECR 1200.................................................273 Case 826/79 Mireco [1980] ECR 2559 ..................................................273 Case 58/80 Dansk Supermarked A/S v A/S Imerco [1981] ECR 181................................................................................57 Case 155/80 Oebel [1981] ECR 1993..............................................41, 168 Case 203/80 Casati [1981] ECR 2595 .....................................................73 Joined Cases 212–217/80 Salumi [1980] ECR 1237 ..............................273 Case 270/80 Polydor v Harlequin [1982] ECR 379 .................................75 Case 76/81 A Transporoute et Travaux v Minister of Public Works [1982] ECR 457 .............................................................297–98 Case 95/81 Commission v Italy (import deposits) [1982] ECR 2187 ...........................................................................73, 84, 167 Case 104/8l Hauptzollamt Mainz v C A Kupferberg & Cie KG [1982] ECR 3641, [1983] 1 CMLR 1.........................................75 Case 244/81 Commission v Ireland [1982] ECR 4005...........................303 Case 249/81 Commission v Ireland (Buy Irish) [1982] ECR 4005 .........................................................................................57 Joined Cases 35/82 and 36/82 Morson and Jhanjan v Netherlands [1982] ECR 3273...........................................................................365

Table of Cases

xiii

Case 152/82 Forcheri v Belgium [1983] ECR 2323 .........................63, 162 Joined Cases 177–178/82 Criminal Proceedings Against Jan van de Haar and Kaveka de Meern BV [1984] ECR 1797 .........................................................................57, 224, 236 Case 181/82 Roussel Laboratoria BV and Others v The Netherlands [1983] ECR 3849............................................................................224 Case 222/82 Apple and Pear Development Council v K J Lewis Ltd and Others [1983] ECR 4083 ...........................................................57 Case 238/82 Duphar and Others v Netherlands State [1984] ECR 523 .................................................................................224, 231 Cases 286/82 and 26/83 Luisi and Carbone [1984] ECR 377..................73 Case 72/83 Campus Oil v Ministry of Industry and Energy [1984] ECR I–2727 ....................................................................................238 Case 123/83 Bureau National Interprofessionnel du Cognac (BNIC) v Guy Clair [1985] ECR 391 .............................................................221 Case 180/83 Moser v Land Baden-Württemberg [1984] ECR 2539 .........................................................................................55 Case 184/83 Hoffmann [1984] ECR 3047.............................................334 Case 229/83 Association des Centres Distributeurs Edouard Leclerc and others v SARL ‘Au blé vert’ and others [1985] ECR 1 .............................................................................................224 Case 238/83 Meade [1984] ECR 2631.....................................................60 Case 240/83 Procureur de la République v Association de Défence des Bruleurs de l’Huiles Usagées (ADBHU) [1985] ECR 531 ...........................................................................22, 231, 263 Case 252/83 Commission v Denmark [1986] ECR 3715 .........................48 Case 270/83 Commission v France [1986] ECR 273, [1987] 1 CMLR 401........................................................................................85 Case 288/83 Commission v Ireland (Cyprus potatoes) [1985] ECR 1761 .......................................................................................167 Case 18/84 Commission v France [1985] ECR 1339 .....................261, 303 Case 52/84 Commission v Belgium [1986] ECR 89 ...............................276 Joined Cases 60 and 61/84 Cinéthèque [1985] ECR 2605, [1986] 1 CMLR 365..............................................................................164, 168 Case 103/84 Commission v Italy [1986] ECR 1759...............................303 Case 205/84 Commission v Germany [1986] ECR 3755 .........................42 Case 222/84 Marguerite Johnston v Chief Constable of the Royal Ulster Constabulary [1986] ECR 1651, [1986] 3 CMLR 240 ..................................................139, 141, 143–47, 150–51 Case 248/84 Germany v Commission [1987] ECR 4013 .......................274 Case 24/85 Spijkers v Gebroders Benedik Abbatoir CV [1986] ECR 1123 .......................................................................................308 Case 59/85 Netherlands v Reed [1986] ECR 1283 ................350, 353, 358 Case 118/85 Commission v Italy [1987] ECR 2620...............................287

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Table of Cases

Case 311/85 Vlaamse Reisbureaus v Sociale Dienst van de Plaatselijke en Gewestlijke Overheidsdiensten [1987] ECR 3801 .................................................................................57, 221 Case 316/85 Centre Public d’Aide Sociale de Courcelles v Lebon [1987] ECR 2811............................................................................350 Case C–27/86 Constructions et Enterprises Industrielles SA (CEI) v Association Intercommunale pour les Autoroutes des Ardennes [1987] ECR 3347............................................................................296 Case C–28/86 Ing A Bellini & Co SpA v Regie de Betiemnts [1987] ECR 3347 .......................................................................................296 Case C–29/86 Ing A Bellini & Co SpA v Belgian State [1987] ECR 3347 .......................................................................................296 Case 57/86 Commission v Greece [1988] ECR 2871 .............................274 Case 66/86 Ahmed Saeed Flugreisen and Silver Line Reisebüro GmbH v Zentrale zur Bekampfung Unlauteren Wettbewerbs eV [1989] ECR 803..........................................................................................221, 234 Case 222/86 UNECTEF v Heylens [1987] ECR 4097 ...............55, 63, 162 Case 263/86 Belgium v Humbel [1988] ECR 5365................................231 Case 267/86 van Eycke v ASPA [1988] ECR 4769 ..........................84, 230 Case 302/86 Commission v Denmark [1988] ECR 4607 .......................167 Case 308/86 Lambert [1988] ECR 4364..................................................73 Case 324/86 Tellerup [1998] ECR 739 ..................................................309 Case 30/87 Bodson [1988] ECR 2479 ...................................................226 Case 31/87 Gebroeders Beentjes BV v The Netherlands [1988] ECR 4635 ...................................................................298, 305, 307–8 Case 45/87 Commission v Ireland [1988] ECR 4929.............................298 Case 81/87 The Queen v HM Treasury and Commissioners of Inland Revenue, ex p Daily Mail and General Trust PLC [1988] ECR 5483 ...................................................................................61–62 Case 142/87 Belgium v Commission [1990] ECR I–959 ........................275 Case 254/87 Syndicat des libraires de Normandie v L’Aigle Distribution SA [1988] ECR 4457 ......................................................................224 Case 265/87 Schräder [1989] ECR 2237 ...............................................173 Joined Cases 266 and 267/87 R v Royal Pharmaceutical Society, ex p API [1989] ECR 1295 ...............................................................59 Case 18/88 RTT v GB-Inno BM [1991] ECR 5941 .......230, 240, 251, 253 Case 69/88 H Krantz GmbH & Co v Ontvanger der Directe Belastingen and Netherlands State [1990] ECR 583, [1991] 2 CMLR 677........................................................................................93 Case 103/88 Fratelli Costanzo SpA v Comune di Milano [1989] ECR 1839 .................................................................................297–98 Cases 143/88 and C–92/89 Zuckerfabrik [1991] ECR I–415.................273 Case 177/88 Dekker [1990] ECR I–3941 ..............................................337

Table of Cases

xv

Case 202/88 France v Commission (Telecommunications Terminals) [1991] ECR I–1223.........................................................219, 230, 240 Case 303/88 Italy v Commission (ENI-Lanerossi) [1991] ECR I–1433 ....................................................................................285 Case 347/88 Commission v Greece [1990] ECR I–4747 ........................238 Case 362/88 GB-Inno v Confédération du Commerce Luxembourgeois [1990] ECR I–667...........................................................................167 Case C–5/89 Commission v Germany [1990] ECR I–3437....................273 Case C–44/89 Corsica Ferries France v Direction Générale des Douanes françaises [1989] ECR I–4441.........................................................163 Case C–154/89 Commission v France (tourist guides) [1991] ECR I–649 ......................................................................................167 Case C–205/89 Commission v Greece (pasteurised butter) [1991] ECR I–1361 ....................................................................................163 Case C–260/89 ERT v DEP and others [1991] ECR I–2925 ..............................................................164, 168–69, 250 Case C–296/89 Impresa Dona Alfonso di Dona Alfonso & Figli snc v Consorzio per lo Sviluppo Industriale del Comune di Monfalcone [1991] ECR 2967 ......................................................................297–98 Case C–305/89 Italy v Commission (Alfa Romeo) [1991] ECR I–1603 ....................................................................................285 Case C–339/89 Alsthom Atlantique SA v Compagnie de Construction Mécanique Sulzer SA [1991] ECR I–107 ...........................................92 Case C–353/89 Commission v Netherlands [1991] ECR I–4069 ..............................................................................66, 167 Case C–360/89 Commission v Italy [1992] ECR 3401 ..........................305 Case C–367/89 Aimé Richardt and ‘Les Accessoires Scientifiques’ [1991] ECR I–4621.................................................................147, 155 Case C–370/89 Ex p Antonissen [1992] ECR I–745 ..............................350 Case C–2/90 Commission v Belgium (Walloon Waste) [1992] ECR I–4431 ....................................................................................237 Cases C–6/90 and C–9/90 Francovich and Bonifaci v Italian Republic [1991] ECR I–5357 ..........................................................273 Case C–32/90 Commission v Germany (imports of pharmaceuticals) [1992] ECR I–2575.........................................................................168 Case C–41/90 Höfner and Elser v Macrotron GmbH [1991] ECR I–1979 ............................................................229, 242, 250, 287 Case C–48/90 Netherlands v Commission [1992] ECR I–565 ...............230 Case C–76/90 Manfred Säger v Dennemeyer & Co Ltd [1991] ECR I–4221 ................................................................................42, 65 Case C–159/90 SPUC v Grogan [1991] ECR I–4685 ....................143, 409 Case C–179/90 Merci Convenzionali Porto di Genova SpA v Siderurgica Gabrielle SpA [1991] ECR I–5889........................233, 241

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Table of Cases

Case C–354/90 FNCE (‘saumon’) [1991] ECR I–5505 ..........................281 Case C–370/90 Ex p Surinder Singh [1992] ECR I–4265 ......................365 Case C–2/91 Meng [1993] ECR I–5751 ...................................220–21, 225 Case C–29/91 Dr Sophie Redmond Stichting v Bartol [1992] ECR 3189 .......................................................................................308 Case C–69/91 Criminal Proceedings against Decoster [1993] ECR I–5335 ............................................................................251, 253 Case C–112/91 Werner v FZA Aachen-Innenstadt [1992] ECR I–249 ........................................................................................85 Case C–126/91 Schutzverband gegen Unwesen in der Wirtschaft v Yves Rocher [1993] ECR I–2361.....................................................167 Case C–155/91 Commission v Council [1993] ECR I–939 ......................26 Joined Cases C–159/91 and C–160/91 Poucet and Pistre v AGF and Concava [1993] ECR I–637 .............................................233, 242 Case C–168/91 Konstantinidis [1993] ECR I–1198 ...............................163 Case C 209/91 Rask v ISS Kantinservice [1993] ECR 5735...................308 Joined Cases C–267 and C–268/91 Criminal proceedings against Bernard Keck and Daniel Mithouard [1993] ECR I–6097...................3, 35, 50, 52–54, 65, 69, 94, 96, 164, 235–36 Case C–320/91 Procureur du Roi v Corbeau [1993] ECR I–2533 ....................................................................230, 246, 257 Case C–330/91 R v Inland Revenue Commissioners ex p Commerzbank [1993] ECR I–4017 .............................................85–87 Case C–17/92 Federación de Distribuidores Cinematográficos v Spain [1993] ECR I–2239 ...............................................................167 Case C–93/92 CMC Motorradcenter v Pevin Baskiciogullari [1993] ECR I–5009 ................................................................................35, 93 Case C–109/92 Wirth v Landeshauptstadt Hannover [1993] ECR I–6447 ..............................................................................231–32 Case C–278/92 Spain v Commission [1994] ECR I–4103......................278 Case C–292/92 Hünermund and others v Landesapothekerkammer Baden-Württemburg [1993] ECR I–6787............................34, 47, 164 Case C–364/92 SAT Fluggesellschaft v Eurocontrol [1994] ECR I–43 ..................................................................................225–26 Cases C–382–383/92 Commission v United Kingdom [1994] ECR 2435 ...............................................................................308, 331 Case C–387/92 Banco Exterior [1994] ECR I–877................................283 Case C–391/92 Commission v Greece [1995] ECR I–1621......................53 Case C–392/92 Schmidt v Spar und Leihkasse der fruherer Amter Bordersholm, Kiel und Cronshagen [1994] ECR 1320....................308 Case C–393/92 Almelo [1994] ECR I–1477 ..........................................271 Joined Cases C–401–402/92 Tankstation ‘t Heukske vof and JBE Boermans [1994] ECR I–2199 ..........................................................54

Table of Cases

xvii

Case C–435/92 Association pour la Protection des Animaux Sauvages and others v Préfet de Maine-et-Loire and préfet de Loire-Atlantique [1994] ECR I–67..................................................105 Case C–18/93 Corsica Ferries [1994] ECR I–1783 ..................................42 Case C–32/93 Webb [1994] ECR I–3567...............................................338 Case C–41/93 France v Commission [1994] ECR I–1829 ........................17 Case C–45/93 Commission v Spain [1994] ECR I–911............................42 Cases C–46/93 and C–48/93 Brasserie du Pêcheur and Factortame [1996] ECR I–1029.........................................................................273 Joined Cases C–69/93 and C–258/93 Punto Casa SpA v Sindaco del Comune di Capena [1994] ECR I–2355............................................54 Case C–279/93 Schumacker [1995] ECR I–225 .................................86–87 Case C–280/93 Germany v Council [1994] ECR I–4973 ...............164, 173 Case C–312/93 Peterbroek [1995] ECR I–4559.............................273, 288 Case C–323/93 La Crespelle [1994] ECR I–5077 ..................................226 Case C–324/93 R v Secretary of State for the Home Department, ex p Evans Medical Ltd and Macfarlane Smith Ltd [1995] ECR I–563 ..............................................................................167, 307 Case C–359/93 Commission v The Netherlands [1995] ECR 151 .........................................................................................298 Case C–384/93 Alpine Investments [1995] ECR I–1141 ........................................................38, 41–42, 44, 48, 63 Case C–387/93 Banchero [1995] ECR I–4663.......................................226 Case C–392/93 The Queen v HM Treasury, ex p British Telecommunications plc [1996] ECR I–1631 ..................................111 Case C–412/93 Société d’Importation Edouard Leclerc–Siplec v TF1 Publicité SA and M6 Publicité SA [1995] ECR I–179 ................................................................................94, 236 Case C–415/93 UEFA v Bosman [1995] ECR I–4921 ...............................................52–53, 55–57, 63, 162, 168, 174 Case C–450/93 Kalanke [1995] ECR I–3051.........................................334 Joined Cases C–465–466/93 Atlanta [1995] ECR I–3761......................273 Case C–484/93 Svensson and Gustavsson v Ministre du Logement [1995] ECR I–3955.....................................................................79, 81 Case C–13/94 P v S [1996] ECR I–2143........................................334, 336 Case C–48/94 Rygaard v Stro Molle Akustik [1995] ECR 2745 .......................................................................................309 Case C–55/94 Gebhard 1995 ECR I–4165 ..............................................35 Cases C–68/94 and C–30/95 France v Commission [1998] ECR I–1375 ....................................................................................205 Case C–70/94 Fritz Werner Industrie-Ausrüstungen GmbH v Germany [1995] ECR I–3189 .........................................144, 147, 156 Case C–80/94 Wielockx [1994] CMLR 85 .......................................83, 86

xviii

Table of Cases

Case C–83/94 Criminal Proceedings against Peter Leifer and others [1995] ECR I–3231 ......................................................144, 147 Case C–96/94 Centro Servizi Spediporto [1995] ECR I–2883................226 Case C–107/94 Asscher [1996] ECR I–3089............................................86 Case C–120/94R Commission v Greece (‘FYROM’) [1996] ECR I–1513...................................................147–49, 151–52, 154–56 Case C–140/94 DIP v Comune di Bassano [1995] ECR I–3257 ............226 Case C–151/94 Commission v Luxembourg [1995] ECR I–3685 ............86 Cases C–157–160/94 Commission v Netherlands, Italian Republic, French Republic and Kingdom of Spain [1997] ECR I–5699 ............................................................234, 238, 246, 271 Case C–158/94 Commission v Italy [1997] ECR I–5789 .......................271 Case C–159/94 Commission v France [1997] ECR I–5815 ....................271 Case C–160/94 Commission v Spain [1997] ECR I–5851 ................271–72 Cases C–163, 165 and 250/94 Sanz de Lera [1995] ECR I–4821 ................................................................................75–76 Case C–194/94 CIA Security International SA v Signalson SA and Securitel SPRL [1996] ECR I–2201..................................118, 163 Case C–238/94 Garcia [1996] ECR I–1673 ...........................................233 Case C–241/94 France v Commission [1996] ECR I–4551 ............274, 283 Case C–244/94 Fédération Française des Sociétés D’Assurance and Others [1995] ECR I–4015 ......................................................242 Case C–272/94 Guiot [1995] ECR I–1907 ............................................168 Case C–293/94 Brandsma [1996] ECR I–3159......................................161 Joined Cases C–321–324/94 Pistre, Barthes, Milhau, and Oberti [1997] ECR I–2343...........................................................................55 Case C–1/95 Gerster [1997] ECR I–5253 ..............................................342 Case C–24/95 Alcan [1997] ECR I–1591.......................................275, 288 Joined Cases C–34–36/95 Konsumentombudsmannen v De Agostini (Svenzka) Förlag AB and TV-Shop i Sverige AB [1997] ECR I–3843...........................................................................54 Case C–70/95 Sodemare SA and others v Regione Lombardia [1997] ECR I–3395 ...................................................................231–33 Case C–84/95 Bosphorus [1996] ECR I–3953 .......................................164 Case C–120/95 Decker v Caisse de Maladie des Employés Privés [1998] ECR I–1831 .....................................................167–68, 237–38 Case C–180/95 Draehmpaehl [1997] ECR I–2195 ................................339 Case C–183/95 Affish [1997] ECR I–4315 ............................................161 Case C–189/95 Franzèn [1997] ECR I–5909 .........................................226 Case C–243/95 Hill [1998] ECR I–3739................................................342 Case C–250/95 Futura Investments [1997] ECR I–2471........................269 Case C–265/95 Commission v France (violent action by farmers) [1997] ECR I–6959...........................................57, 163, 167, 170, 221

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Case C–284/95 Safety HI-Tech v S & T [1998] ECR I–4301 ............................................................................160, 167 Case C–299/95 Kremzow [1997] ECR I–2629.......................................169 Case C–343/95 Diego Calì & Figli v Servizi Ecologici del Porto di Genova [1997] ECR I–1547....................................................226, 229 Case C–355/95P Deggendorf [1997] ECR I–2549 .................................277 Case C–368/95 Vereinigte Familiapress v Heinrich Bauer Verlag [1997] ECR I–3689.................................................................164, 168 Case C–388/95 Belgium v Spain [2000] ECR I–3123 ................37, 50, 107 Case C–398/95 SETTG [1997] ECR I–6959..........................................238 Case C–409/95 Marschall [1997] ECR I–6363 ......................................334 Case C–1/96 Compassion in World Farming [1998] ECR I–1251..........170 Case C–35/96 Commission v Italy [1998] ECR I–3851 .................217, 226 Case C–44/96 Mannesmann Anlangenbau Austria AG et al v Strohal Rotationsdurck GesmbH [1998] ECR 73........................229, 293, 304 Joined Cases C–51/96 and C–191/97 Christelle Deliège v Asbl Ligue Francophone de Judo et Disciplines Associées and Others [2000] ECR I–2549...........................................................64, 235, 265 Case C–55/96 Job Centre Coopsarl (II) [1997] ECR I–7119 .................228 Case C–67/96 Albany International BV v Stichting Bedrijfspensioenfonds Textielindustrie [1999] ECR I–5751 ..............................58, 225, 229, 233, 235, 246, 272, 322 Case C–85/96 Maria Martínez Sala v Freistaat Bayern [1998] ECR I–2691...........................................................68, 163, 350 Case C–118/96 Safir v Skattemyndigheten i Dalarnas Län [1998] ECR I–1897 .............................................76, 79, 83–84, 87–88 Case C–158/96 Kohll [1998] ECR I–1673 .............................................238 Case C–163/96 Criminal Proceedings Against Silvano Raso and others [1998] ECR I–533 .................................................230, 250 Case C–176/96 Lehtonen [2000] ECR I–2681.......................................235 Case C–180/96R United Kingdom v Commission (ESB) [1996] ECR I–3909 ....................................................................................161 Case C–200/96 Metronome [1998] ECR I–1953 ...................................164 Case C–203/96 Chemische Afvalstoffen Dusseldorp BV v VROM [1998] ECR I–4075.................................................................168, 222 Case C–249/96 Grant v Southwest Trains [1998] ECR I–621 ....334, 367–68 Case C–264/96 ICI v Colmer [1998] ECR I–4695...................................85 Case C–266/96 Corsica Ferries France SA v Gruppo Antichi Ormeggiatori del Porto Genovo Coop and others (Corsica Ferries III) [1998] ECR I–3949 .......................................222, 225, 234 Case C–274/96 Bickel and Franz [1998] ECR I–7637 ...........................163 Case C–336/96 Gilly v Directeur des Services Fiscaux du Bas-Rhin [1998] ECR I–2793 ...........................................86, 269, 269

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Case C–348/96 Donatella Calfa [1999] ECR I–11.................................269 Case C–360/96 Gemeente Arnhem Gemeente Rheden v BFI Holding BV [1998] ECR 6821 ........................................229, 293, 304 Cases C–369 and 376/96 Arblade v Leloup [1999] ECR I–8453 ....................................................................................168 Case C–400/96 Harpegnies [1998] ECR I–5121 ....................................161 Case C–410/96 Ambry [1998] ECR I–7875.......................................76, 80 Case C–7/97 Oscar Bronner v Mediaprint [1998] ECR I–7791 ....................................................................248, 250, 257 Case C–38/97 Librandi [1998] ECR I–5955 ..........................................226 Case C–42/97 Parliament v Council [1999] ECR I–869...........................26 Case C–75/97 Belgium v Commission [1999] ECR I–3671............274, 283 Joined Cases C–115/97, C–116/97 and C–117/97 Brentjens’ Handelsonderneming BV v Stichting Bedrijfspensionenfonds voor de Handel in Bouwmaterialen [1999] ECR I–6025 .........235, 322 Case C–126/97 Eco Swiss China Time Ltd v Benetton International NV [1999] ECR I–3055 ....................................................166, 193–94 Case C–158/97 Badeck [2000] ECR I–1875 ..........................................334 Case C–200/97 Ecotrade [1998] ECR I–7907........................................281 Case C–209/97 Commission v Council [1999] ECR I–8067 ....................26 Case C–219/97 BV Maatschappij Drijvende Bokken v Stichting Pensioenfonds voor de Vervoer- en Havenbedrijven [1999] ECR I–5751 ............................................................................242, 322 Case C–222/97 Trummer and Meyer [1999] ECR I–1661......76–77, 79–81 Case C–251/97 France v Commission [1999] ECR I–6639 ....................274 Case C–256/97 DMT [1999] ECR I–3913.....................................279, 283 Case C–273/97 Angela Maria Sirdar v The Army Board ex p Secretary of State for Defence [1999] ECR I–7403, [1999] 3 CMLR 559.....................................................139, 145, 147, 149–50 Case C–293/97 Standley and Others [1999] ECR I–2603......................173 Case C–295/97 Piaggio [1999] ECR I–3735 ..........................................281 Case C–319/97 Antoine Kortas [1999] ECR I–3143................................17 Case C–394/97 Heinonen [1999] ECR I–3599 ......................................163 Case C–412/97 Ed Srl v Italo Fenocchio [1999] ECR I–3845 ..................93 Case C–414/97 Commission v Spain [1999] ECR I–5585, [2000] 2 CMLR 4.................................................................139, 143–44, 156 Case C–6/98 Arbeitsgemeinschaft Deutscher Rundfunkanstalten (ARD) v Pro Sieben Media AG [1999] ECR I–7599 ....................................................................43–44, 54, 63 Case C–22/98 Re Becu [1999] ECR I–5665.....................................58, 241 Case C–35/98 Verkooijen [2000] ECR I–4071.............................76–77, 80 Case C–36/98 Spain v Council [2001] ECR I–779 ...................................26 Case C–97/98 Jägerskiöld v Gustafsson [1999] ECR I–7319 ...................55 Case C–156/98 Germany v Commission [2000] ECR I–6857................274

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xxi

Joined Cases C–180–184/98 Pavel Pavlov and Others v Stichting Pensioenfonds Medische Specialisten [2000] ECR I–6451 ................................59, 221, 226, 229, 231, 235–36, 242 Case C–209/98 FFAD/Københavns Kommune [2000] ECR I–3743 ....................................................................................222 Case C–222/98 Van der Woude [2000] ECR I–7111 .............................235 Case C–225/98 Commission v France (Nord-Pas-de-Calais) [2000] ECR 7445............................................................................298 Case C–228/98 Dounias v Minister for Economic Affairs [2000] ECR I–577...........................................................................163 Case C–251/98 Baars v Inspecteur der Belastingdienst [2000] ECR-I 2787 ..........................................................................85 Case C–254/98 TK-Heimdienst Sass GmbH [2000] ECR I–151...........................................................................168 Case C–258/98 Re Carra [2000] ECR I–4217 .......................................250 Case C–281/98 Roman Angonese v Cassa di Riparmio di Bolzano SpA [2000] ECR I–4139........................................58–59, 63, 163, 237 Case C–285/98 Tanja Kreil v Germany [2000] ECR I–69 ................................................................................139, 147 Case C–332/98 France v Commission (`CELF’) [2000] ECR I–4833 ....................................................................................266 Case C–344/98 Masterfoods v HB Ice Cream [2000] ECR I–11371 ..................................................................................173 Case C–367/98 Commission v Portugal [2002] ECR I–4731 ........................................................................65, 77, 227 Case C–368/98 Vanbraekel and Others [2001] ECR I–5363 .................269 Joined Cases C–376/98 Germany v European Parliament and Council and R v Secretary of State for Health and Others, ex p Imperial Tobacco Ltd (Tobacco Advertising) [2000] ECR I–8419 ..................................................2, 25–30, 50, 92, 94, 219 Case C–377/98 Netherlands v European Parliament and Council [2001] ECR I–7079 ...........................................389, 396–97, 399, 415 Case C–379/98 PreussenElektra AG v Schleswag AG [2001] ECR I–2099 ......................................................167, 237–38, 265, 274 Case C–380/98 The Queen and HM Treasury, ex p University of Cambridge [2000] ECR 8035..........................................................304 Case C–390/98 Banks [2001] ECR I–6117 ............................................285 Cases C–397 and 410/98 Metallgesellschaft and Hoechst v Inland Revenue [2001] ECR I–1727...........................................77, 81, 86–87 Case C–405/98 Konsumentenombudsmannen and Gourmet International Products AB [2001] ECR I–1795...............43–44, 54, 63 Case C–407/98 Abrahamsson [2000] ECR I– 5539 ...............................334 Case C–411/98 Ferlini v Centre Hospitalier de Luxembourg [2000] ECR I–8081 ............................................................................163, 242

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Case C–423/98 Alfredo Albore v Italy [2000] ECR I–5965.........................................................139, 144–52, 155–56 Case C–443/98 Unilever Italia SpA v Central Food SpA [2000] ECR I–7535.................................................................119, 163 Case C–473/98 Kemikalieinspektionen v Toolex Alpha [2000] ECR I–5681.........................................................................161 Case C–480/98 Spain v Commission (Tubacex) [2000] ECR I–8717 ............................................................................278, 279 Case C–6/99 Greenpeace France and others [2000] ECR I–1651 ....................................................................................123 Case C–9/99 Echirolles Distribution SA du Dauphiné and others [2000] ECR I–8207.........................................................................228 Case C–94/99 ARGE Gewässerschutzt v Bundesministerium für Land- und Forstwirtschaft [2000] ECR I–11037 ............................304 Cases C–122 and C–125/99P D & Sweden v Council [2001] ECR I–4319 ...................................334, 350, 356, 367–68, 415 Case C–135/99 Elsen [2000] ECR I–10409 ...........................................163 Case C–143/99 Adria-Wien Pipeline [2001] ECR I–8365 ......................274 Case C–157/99 Geraets-Smits v Stichting Ziekenfonds VGZ and Peerbooms v Stichting CZ Groep Zorgverzekeringen [2001] ECR I–5473 ...........................................................231, 269–70 Case C–173/99 BECTU [2001] ECR I–4881 ...................................67, 415 Case C–184/99 Rudy Grzelczyk v Centre Public d’Aide Sociale d’Ottignies-Louvain-la-Neuve [2001] ECR I–6193 ......................................................................68, 163, 350 Case C–192/99 Ex p Manjit Kaur [2001] ECR I–1237 ..........................365 Case C–203/99 Henning Veedfald [2001] ECR 3569.....................229, 231 Case C–205/99 Analir and Others [2001] ECR I–1271 .........................269 Case C–223/99 Agora Srl v Ente Autonomo Fiera Internazionale di Milano [2001] ECR I–3605 .........................229, 293 Case C–237/99 Commission v France [2001] ECR 934 .........................304 Case C–258/99 BASF AG v Präsident des Deutschen Patentamts [2001] ECR I–3643...........................................................................93 Case C–260/99 Excelsior [2001] ECR I–3605 ...............................229, 293 Case C–274/99P Connolly v Commission [2001] ECR I–1611 ..............170 Case C–285/99 & 286/99 Impresa Lombardini SpA v ANAS [2001] ECR 9233.................................................297–98 Casee C–309/99 JCJ Wouters, JW Savelbergh and Price Waterhouse Belastingadviseurs BV v Algemene Raad van de Nederlandse Orde van Advocaten [2002] ECR I–1577 .....59, 235, 265 Cases C–328/99 and C–399/00 Italian Republic and SIM v Commission [2003] ECR 4035..................................................285–86 Case C–340/99 TNT Traco SpA v Poste Italiane [2001] ECR I–4109 ..........................................6, 230, 241, 245–47, 257, 415

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xxiii

Case C–353/99 Council v Heidi Hautala [1999] ECR II–2489 ...........................................................................414, 415 Case C–385/99 VG Müller-Fauré [2003] ECR I–4509...........................269 Case C–390/99 Canal Satélite Digital v Spain [2002] ECR I–607 ......................................................................................163 Case C–413/99 Baumbast and R v Secretary of State for the Home Department [2002] ECR I–7091 ...............................................68, 366 Joined Cases C–414–416/99 Zino Davidoff SA et al [2001] ECR I–8691 Case C–453/99 Courage Ltd v Bernard Crehan and Bernard Crehan v Courage Ltd and Others [2001] ECR I–6297 .................................166 Case C–462/99 Connect Austria v Telekom-Control-Kommission [2003] ECR I–5197 ....................................................................................230 Case C–475/99 Ambulanz Glöckner v Landkreis Sudwestpfalz and Others [2001] ECR I–8089 .......................................226, 229–31, 243 Case C–483/99 Commission v France [2002] ECR I–4781 ........65, 77, 227 Case C–499/99 Commission v Spain (Magefesa) [2002] ECR I–6031 ..............................................................276, 278–79, 284 Case C–503/99 Commission v Belgium [2002] ECR I–4809 ........................................................................65, 77, 227 Case C–512/99 Germany v Commission [2003] ECR I–845..................132 Case C–513/99 Concordia Bus Filandia Oy Ab v Helsingin Kaupunki et HKL-Bussiliikenne (The Concordia) [2002] ECR 7213....................................................................298, 309 Case C–53/00 Ferring [2001] ECR I–9067...............................222, 263–67 Case C–60/00 Mary Carpenter v Secretary of State for the Home Department [2002] ECR I–6279, [2002] 2 CMLR 64 ..................4, 35–36, 44–47, 53, 56, 64, 165, 168, 351, 365 Case C–112/00 Eugen Schmidberger, Internationale Transporte und Planzüge v Austria [2003] ECR I–5659........................................3, 57, 163–64, 168, 170, 173 Case C–136/00 Danner [2002] ECR I–8150......................................45, 84 Case C–137/00 The Queen v The Competition Commission, Secretary of State for Trade and Industry and The Director General of Fair Trading, ex p Milk Marque Ltd and National Farmers’ Union, Judgment of 9 September 2003 .......................................................166 Case C–146/00 Commission v France [2001] ECR I–9767 ............247, 253 Case C–159/00 Sapod Audic v Eco-Emballages SA [2002] ECR I–5031 ....58 Case C–168/00 Leitner v TUI Deutschland GmbH & Co KG [2002] ECR I–2631...........................................................................95 Case C–208/00 Überseering BV v NCC Nordic Construction Company Baumanagement GmbH [2002] ECR I–9919..............62, 67 Case C–218/00 Cisal di Battistello Venanzio & C Sas v Istituto Nazionale per l’Assicurazione contro gli Infortuni sul lavoro (INAIL) [2002] ECR I–691 .................................232–33, 241–43, 257

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Table of Cases

Case C–277/00 Germany v Commission (SIMI), Judgment of 29 April 2004..................................................................................287 Case C–279/00 Commission v Italy, [2002] ECR I–1425...................................................................................76, 80–81 Case C–280/00 Altmark Trans GmbH, Regierungspräsidium Magdeburg v Nahverrkehrsgesellschaft Altmark GmbH and Oberbundesanwalt beim Bundesverwaltungsgericht [2003] ECR I–7747.............................7, 222, 230–31, 234, 262, 264–72, 289 Case C–294/00 Deutsche Paracelsus Schulen für Naturheilverfahren GmbH v Kurt Gräbner [2002] ECR I–6515......................................54 Case C–325/00 Commission v Germany [2002] ECR I–9977..................57 Case C–463/00 Commission v Spain [2003] ECR I–4581...............................................................................65, 227, 271 Case C–469/00 Ravil v Bellon, Biraghii [2003] ECR I–5053 ...................37 Case C–34–38/01 Enirisorse v Ministero delle Finanze, Opinion of 7 November 2002, nyr .......................................................................263 Case C–57/01 Makedoniko Metro [2003] ECR I–1091 .........................105 Case C–82/01P Aéroports de Paris v Commission [2002] ECR I–9297 ......................................................................241–43, 257 Joined Cases C–83/01P, C–93/01 and C–94/01P, Chronopost SA, La Poste and French Republic v Union Française de l’Express (Ufex), DHL International, Federal Express International (France) and CRIE, Judgment of the 3 July 2003............................268 Case C–98/01 Commission v United Kingdom [2003] ECR I–4641.................................................................................65, 77, 227 Case C–108/01 Consorzio del Prosciutto di Parma v Asda Stores [2003] ECR I–5121...........................................................................37 Case C–109/01 Akrich [2003] 3 CMLR 26 .......................................... 349 Case C–117/01 K B v National Health Service Pensions Agency and Secretary of State for Health, Opinion of 10 June 2003, Judgment of 7 January 2004 ...........................................................336 Case C–126/01 Ministre de l’économie, des Finances et de l’industrie v GEMO SA, Opinion of 30 April 2002, Judgment of 20 November 2003..................................................................222, 237, 263–64, 267 Case C–186/01 Alexander Dory v Bundesrepublik Deutschland, Judgment of the Court of 11 March 2003.......................................333 Case C–187/01 Gözütok [2003] ECR I–1345 Case C–198/01 Consorzio Industrie Fiammiferi (CIF) v Autorità Garante della Concorrenza e del Mercato, Judgment of 9 September 2003 ...........................................................166, 217, 227 Case C–236/01 Monsanto Agricoltura Italia SpA and Others c Presidenza del Consiglio dei ministri and Others, Judgment of 9 September 2003 ...................................................122, 124, 126, 130 Case C–261/01 van Calster, Judgment of 21 October 2003...................272

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xxv

Joined Cases C–264/01, C–306/01, C–354/01 and C–355/01 AOK Bundesverband and others v Ichthyol-Gesellschaft Cordes and Others, Opinion of 22 May 2004, Judgment of 16 March 2004 ...............................................................................234 Case C–281/01 Commission v Council (Re Energy Star Agreement) [2002] ECR I–12049.........................................................................26 Case C–322/01 0800 Doc Morris Judgment of 11 December 2003 .........70 Case C–385/01 Brügge, Judgment of 11 February 2003 Case C–413/01 Ninni-Orasche McCollum Judgment of 6 November 2003 ...........................................................................350 Case 491/01 The Queen v Secretary of State for Health ex p British American Tobacco (BAT) and Imperial Tobacco (Investments), Judgment of 10 December 2002..................................27, 30, 160, 173 Case C–12/02 Criminal Proceedings against Marco Grilli, Judgment of 10 December 2002 ............................................................................37 Case C–138/02 Collins, Opinion of 10 July 2003 ..................................350 Case C–148/02 Garcia Avello v Belgium, Judgment of 2 October 2003...............................................................................163 Case C–224/02 Pusa Judgment of 29 April 2004.....................................68 Case C–289/02 AMOK Judgment of 11 December 2003.........................54 Case 442/02 CaixaBank OJ C19/03 .......................................................69 Case C–12/03P Tetra Laval v Commission OJ 2003 C70/03 ...........................................................................195, 206, 213 Opinions Opinion 1/94 WTO [1994] ECR I–5267 .................................................64

2) European Court of First Instance Case T–24/93 etc Compagnie Maritime Belge Transports v Commission [1996] ECR II–1201 .......................................................................205 Case T–528/93 Métropole v Commission [1996] ECR II–649 ...............171 Case T–260/94 Air Inter [1997] ECR II–997 .........................................233 Case T–106/95 FFSA and others v Commission [1997] ECR II–229 .....................................................................222, 231, 262 Case T–76/96R The National Farmers’ Union v Commission (BSE) [1996] ECR II–815................................................................161 Case T–102/96 Gencor v Commission [1999] ECR II–753, [1999] 4 CMLR 971 ...................................................................205–6 Case T–46/97 Sociedade Independente de Comunicação (SIC) v Commission [2000] ECR II–2125 ...........................................222, 262 Case T–123/97 Salomon [1999] ECR II–2925 .......................................276 Case T–228/97 Irish Sugar v Commission [1999] ECR II–2969 ...................................................................................172

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Table of Cases

Case T–266/97 Vlaamse Televisie [1999] ECR II–2329 .........................230 Case T–65/98 Van den Bergh Foods v Commission, Judgment of 23 October 2003.............................................................................173 Case T–139/98 AAMS v Commission [2001] ECR II–3413 .............................................................241, 248–50, 257 Case T–55/99 CETM [2000] ECR II–3207............................................274 Case T–70/99 Alpharma v Council [2002] ECR II–3495 .......................131 Case T–112/99 Métropole Television v Commission [2001] ECR II–2459 ...................................................................................181 Joined Cases T–127/99, T–129/99, T–148/99 Territorio Historico de Alava [2002] ECR II–1275..............................................................274 Case T–144/99 Institute of Professional Representatives before the European Patent Office v Commission of the European Communities [2001] ECR II–1087..................................................235 Case T–152/99 Hijos de Andres Molina SA (HAMSA) v Commission [2002] ECR II–3049..................................................................281–83 Case T–175/99 UPS Europe SA v Commission [2002] ECR II–1915 .................................................6, 230, 241, 244–45, 257 Case T–219/99 British Airways v Commission, Judgment of 17 December 2003 ..........................................................................172 Case T–319/99 FENIN v Commission, 4 March 2003, unreported ...............................................................229, 241–43, 2571 Case T–342/99 Airtours plc v Commission [2002] ECR II–2585, [2002] 5 CMLR 7......................................................................6, 195, 206, 208 Case T–203/01 Michelin v Commission, Judgment of 30 September 2003 .........................................................................172 Case T–217/01 Forum des migrants v Commission, Judgment of 4 September 2003 Case T–253/01 OJ C31/02.....................................................................230 Cases T–310/01 and T–77/02 Schneider Electric SA v Commission [2002] ECR II–4071, [2003] 4 CMLR 17 .............6, 195, 202, 210–12 Cases T–5/02 & T–80/02 Tetra Laval BV v Commission [2002] ECR II–4519, [2002] 5 CMLR 29.......................................6, 195, 213 JQ case, Judgment of 3 May 2002.........................................................415 Case T–217/03 FNCBV v Commission pending ....................................174 Case T–245/03 R FNSEA v Commission, Judgment of 21 January 2004 .............................................................................174

3) Commission Decisions Gencor/Lonrho (Case No IV/M619) [1977] OJ L30..............................205 Vacuum Interrupters [1977] OJ L48/32 ...................................180, 184–85 Sopelem/Vickers [1978] OJ L70/47........................................................182

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xxvii

Italian Flat Glass [1989] OJ 333/44.......................................................205 Elopak/Metal Box-Odin [1990] OJ L209/15 .........................................180 Spanish Courier Services [1990] OJ L233/19 .........................................226 Ford/VW [1993] OJ L20/14...................................................................182 Exxon/Shell [1994] OJ L 144/36 ...........................................................171 Philips-Osram [1994] OJ L378/44.........................................................171 Asahi/SainT–Gobain [1994] OJ L1994/94.............................................171 Airport of Brussels [1995] OJ L216/8....................................................226 BNP-Dresdner Bank [1996] OJ L188/37...............................................193 Atlas [1996] OJ L239/23 .......................................................................181 BiB/Open [1999] OJ L312/1..................................................................181 ECSC (Groeditzer) (Dec 1999/720/EC) [1999] OJ L 292/27 .................286 Airtours/First Choice (Case IV/M) [2000] OJ L93/1, [2000] 5 CMLR 494 .........................................................195, 208–10 CECED [2000] OJ L 187/47 .........................................................171, 189 Seleco (Dec 2000/536/EC) [OJ 2000] L227/24 ......................................286 UPS Europe v Deutche Post AG (Dec 2001/354/EC) [2001] OJ L125/27 .....................................................................230, 240, 245 VEBA/VIAG [2001] OJ L188/1.............................................................191 Dec of 8 May 2001................................................................................289 General Electric/Honeywell (Case No COMP/M2220) decision of 3 July 2001................................................................................197–98 EdF/EnB W [2002] OJ L59/1 ................................................................191 Hays/ La Poste (Dec 2002/180/EC) [2002] OJ L61/32.......................................................................230, 241, 255–57 La Poste (France)/SNELPD (Dec 2002/344/EC) [2002] OJ L120/19 .........................................................240–41, 250–57, 262 TPS [2002] OJ C 13/28 .........................................................................186 Simulcasting [2003] OJ L107/58............................................................190 Tetra Laval/Sidel (Case No Comp/M2146) [2003] OJ C 137/14 .................................................................202, 208, 212, 214 Dec [2003] OJ L209/12 .........................................................................173 EnBW /EDP/Cajastur/Hidrocantábrico (Case No COMP/M2684)...............................................................................192

4) European Court of Human Rights Goodwin v United Kingdom (2002) 35 EHRR 18.................................415 SW v United Kingdom and CR v United Kingdom (1995) 21 EHRR 363......................................................................393 The Observer and The Guardian v United Kingdom, A.216 p. 30.........170 Wingrove v United Kingdom, 1996-V 1957 ..........................................170 X, Y and Z v United Kingdom (1997) 24 EHRR 143 ............................401

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5) National law cases US

Adarand Constructors v Pena 515 US 200 (1995) .................................305 Edwards v California 314 US 160, 62 S Ct 164 (1941) ...........................71 Yamaha v FTC 657 F2d 971 (8th Cir 1981) ...........................................180

FRANCE

Decision no 71–44 DC of 16 July 1971, Freedom of Association Parpalaix c Centre d’études et de conservation du sperme (CECOS), TGI de Créteil (1re ch civ), 1 August 1984, Gazette du Palais, 18 Sept 1984, 560 ...........................................................................394 Bioethics, French Constitutional Council Decision no 94–343/344 DC of 27 July 1994 ........................................................391, 394, 397 Habitat, Cass soc, 22 May 1997, n° 94–40.297, Juris Actua n° 7759 of 13 November 1997........................................................337 Cass soc, 7 October 1997, pourvoi n 95–41.857, arrêt n° 3446 D .......................................................................................337 French Constitutional Council Decision no 2001–446 DC of 27 June 2001...................................................................................398 Mahieux v SA Sergic Flandres, Court of Appeal of Douai, 31 January 2002 .............................................................................337 Mme El Madouri v Sté EGNS, Cass Soc, 4 March 2003........................337

GERMANY

German Constitutional Court BVerGE 39,1 (1975) ..............................................................................398 BVerGE 88, 203 (1993) .........................................................................398

ENGLAND

DGFT v First National Bank [2001] 3WLR 1297 ...................................95 Buttes Gas v Hammer [1982] AC 888 ...................................................152 McCollum v SSHD [2001] EWHC Admin 40, [2001] Admin Ct Digest 58 ................................................................351, 366 General Building and Maintenance v Greenwich Borough Council [1993] IRLR 535 ...............................................................306

Table of Cases

xxix

Ghaidan v Mendoza [2002] EWCA Civ 1533, [2002] 4 All ER 1162..........................................................................................369 R v Human Fertilization and Embryology Authority ex p Blood [1996] 3 WLR 1176 (QBD), [1997] 1 FCR, [1997] 2 FLR 742, [1997] 2 All ER 687 (CA) ...................................................390, 407–8 U v W (Attorney-General Interverning) [1992] FLR 282.......................405

FINLAND

Hakunila, Vantaa Local Court R 00/30855 ...........................................382

1 Introduction TAKIS TRIDIMAS AND PAOLISA NEBBIA

T

HE CONTRIBUTIONS CONTAINED in this volume pertain to the four freedoms, the internal market, social law, and competition law of the EU. They review the major changes and challenges that the EU is facing at the turn of the century by providing a snapshot picture of the state of the internal market and assessing possible future developments. They address a number of fundamental questions which underlie the EU polity. What is the optimum division of competence between the Union and its Member States? What is the most desirable economic model for the EU? Article 4 of the EC Treaty refers to the principle of free market economy with free competition as the leitmotiv of the Union’s economic policy. The draft Constitution refers in Article I–3(3) to a ‘social market’ economy. Neither of those formulations, however, answers in concrete terms some fundamental questions: how much do we leave to the market and how much do we entrust to the state? In which areas is this to be decided by the Community and in which areas by the Member States? Institutions vested with decision-making powers tend to expand their competence. This is partly because they wish to uphold and implement their own choices and partly because, by the nature of things, policy-making develops in an organic rather than cellular way. Action in one field is likely to have impact, and therefore call for regulatory intervention, in other fields. What implications does this have for Community and national decision-makers? What is the role of the Court of Justice and the national courts in this context? This volume poses questions, identifies themes, and provides reflections.

THE INTERNAL MARKET AND THE FOUR FREEDOMS

Weatherill rings the alarm bell against the ‘competence creep’. He questions the assumptions upon which harmonisation has so far been based, namely, that a common market needs common rules, and that, where the Treaty is deficient in allocating competence to act in a certain area, a legal basis may

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Takis Tridimas and Paolisa Nebbia

be borrowed from another area. The Tobacco Advertising judgment1 introduced a trend towards making the scope and limits of EC competence more visible. In the light of this, Weatherill reflects on the desirability and feasibility of an ever-growing expansion of EC competence and on the function of harmonisation. While acknowledging that a measure in the field of the internal market may have side-effects on other areas, he pleads for a new model of integration that does not necessarily involve a one-way transfer of competence from the States to the Community and the flattening of local diversities. In the same line of reasoning, Nebbia examines the Commission’s recent—and constitutionally questionable—initiatives on harmonisation of contract law, and the extent to which the adoption of a European Contract Code is necessary for the functioning of the internal market. This brings to light the need for a clearer definition of the ultimate objectives of the internal market programme. It is no surprise that Article 95 EC -defined by Weatherill as the main accomplice in the crime of competence creep- was picked out by the Laeken declaration as a candidate for possible revision in order to clarify the division of competence between the Union and the Member States. At the other end of the competence spectrum, Trybus and Poli explore the borderline between Community and national competence in two specific areas, namely, national security and genetically modified organisms. Trybus investigates the limits of Article 297 EC which allows Member States to take steps which may disturb the functioning of the common market in the interests of national security. This escape clause is subject to judicial control but, in the absence of case law under Article 297, Trybus explores the principles laid down by the Court in the context of other derogations. He concludes that, in contrast to the derogations from the provisions of the Treaty on free movement where judicial scrutiny is intense, the standard of scrutiny to be employed in relation to Article 297 may be less strict. Poli discusses the limits of the safeguard clause contained in the new Regulation on genetically modified food and feed.2 This allows Member States, subject to the Commission’s powers of review, to restrict the circulation of a GM product within their territory where there is plausible evidence that it may pose a risk for human health or the environment. Poli highlights the significant discretion that Member States enjoy in determining the level of protection to be granted to their population, and compares it to the one that they enjoyed under the safeguard clause included in the Novel Food Regulation.3 The main difference appears to be a procedural one.

1 C–376/98 Germany v European Parliament 2 COM(2001) 425 final. 3 Regulation 258/97/EC [1997] OJ L43/1.

and Council [2000] ECR I–8419.

Introduction

3

Under the new regime, the Commission must decide whether to approve a domestic measure within a specific time-limit. Poli concludes that, although the safeguard clause is still likely to be abused by States wishing the suspend the marketing of certain GM food/feed, the new time limit imposed on the Commission is preferable and likely to increase legal certainty. Oliver examines the status of the four freedoms and competition law under the EC Treaty and the draft Constitution. He points out the phenomenon of Querschnittsklausel, namely the emergence of clauses which require the Community to respect certain policies in all of its diverse actions. This has been followed by a tendency to assimilate the four freedoms to fundamental rights, which is in turn reflected in the primary position allocated to them in the draft Constitutional Treaty. In some cases, however, as illustrated by Schmidberger,4 fundamental freedoms and human rights may be on a collision course and a balance needs to be reached between them. The judgment of the Court in that case indicates that it takes human rights seriously and honours the constitutional expectations of the Member States. Usher reviews the provisions governing monetary movements. The free movement of capital has undergone a transformation. From being the Cinderella of the four freedoms, it has developed in recent years to one of the most dynamic imperatives of the internal market. The case law interprets the provisions on the free movement of capital broadly but has not laid down clear criteria for determining whether a restriction falls under the freedom of capital or comes instead within the scope of the freedom to provide services or the right of establishment. The law here is in need of urgent clarification. Usher points out another inconsistency. Despite the fact that the Treaty appears to subordinate the freedom to provide services to the movement of capital, the ECJ in some cases appears to grant priority to the former. This has implications for national tax law. Whilst Article 58 EC appears to provide a derogation from the free movement of capital in relation to tax, discriminatory tax treatment is prohibited by the case law on the right of establishment and the free movement of persons. Snell discusses the divergent approaches adopted by the ECJ in relation to the free movement of goods and the free movement of workers. In relation to goods, Keck5 has established a discrimination-based criterion whilst the free movement of workers is based on the criterion of market access. He justifies such divergence by the fact that free movement of persons should be given preferential treatment compared to the

4 C–112/00 Eugen Schmidberger, Internationale Transporte und Planzüge v Austria judgment of 12 June 2003, [2003] ECR 1–5659. 5 Joined Cases C–267 and C–268/91 Criminal Proceedings against Keck and Mithouard [1993] ECR I–6097.

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Takis Tridimas and Paolisa Nebbia

other freedoms since it embeds, more than any other economic freedom, a fundamental human right. Accordingly, he suggests that the adoption of a fundamental rights approach to the movement of citizens could help the Court to clarify some remaining inconsistencies and build a solid basis for a stable and sensible framework for the movement of persons and products in the Community. The increasing prominence of human rights also explains the striking judgment in Carpenter,6 where the ECJ appears to give freedom to provide services a scope of application with no discernible limits. Roth argues that the application of Article 49 EC should be restricted to cases where the integration of the national markets is at stake and not used as a catch-all provision to confront all measures of the State of origin which may have an incidental effect on the interstate provision of services. But he also compares and contrasts Carpenter with the case-law on Article 29 EC where the Court has persisted in a discrimination-based approach. Roth argues that the exportation of goods and services should be governed by the same principles which, from an internal market perspective, should prohibit all rules of the state of origin which inhibit access to the market of another State irrespective of whether they are discriminatory. The fact that, owing to the increasing importance of human rights, the internal market has acquired a dimension that transcends the purely economic one does not mean that there is always consensus among Member States as to the values underlying such dimension. In the area of biotechnology and bioethics, for example, Latham supports the idea that a European framework is needed to facilitate access to other States’ health care services to the advantage of ‘procreative tourists’, i.e. those who wish to avail themselves of assisted reproductive technologies available in other Member States. Millns, after pointing out that the national approaches to biotechnology and bioethics issues diverge, seeks to identify a ‘common core’ of values that may provide a navigational map with which to formulate panEuropean responses to the challenges of scientific and technological progress. Another dimension of the internal market is examined by Dormann. He highlights the close link between Justice and Home Affairs and the internal market, especially in the aftermath on September 11. Threats to world trade and economy may trigger higher transaction costs for businesses. Terrorist attacks on airlines might involve subsidies to carriers, and the increase of black market owing to illegal immigration may ultimately affect free and fair competition. Against this background, Dormann emphasises the asymmetry between the internal market and Justice and Home Affairs in terms of constitutional framework and competence and argues in favour of a stronger

6 C–60/00

Mary Carpenter v Secretary of State for the Home Department [2002] ECR–I 6279.

Introduction

5

Community presence in the latter area. In this respect, Article I-3(2) of the draft Constitution represents a significant step forward. It refers to the establishment of the internal market as well as ‘an area of freedom, security and justice without internal frontiers’ as objectives of the Union, thus introducing a constitutional link between the two. Munoz deals with a more procedural aspect of the internal market: how can we ensure that Member States transpose directives correctly and on time? After highlighting the difficulties of the present system, Munoz takes as a model the ‘notification Directive’ (Directive 98/34)7 and draws attention to the advantages of a system of ex ante control: not only does such a system increase transparency but it also facilitates dialogue between States and Community to the benefit of efficiency and certainty. He suggests that the same mechanism should be used more widely in all cases where problems in implementation are likely to arise to the detriment of the internal market, for example, in relation to measures which have Article 95 EC as their legal basis.

COMPETITION LAW

European competition law is currently undergoing dramatic changes. Monti deals with the recent shift towards a more economics-oriented approach in the application of Article 81. The new block exemptions for research and development agreements and the Commission Notice on Horizontal Co-operation appear to go beyond the ‘economic freedom model’, under which a restriction of competition is said to occur when an agreement has a significant effect on the economic freedom of the contracting parties or third persons, towards a more finely-trimmed economic analysis focusing on economic welfare. Such a shift in paradigm should mean that more agreements than hitherto would fall outside the scope of Article 81(1) altogether rather than qualify for exemption under Article 81(3). Monti notes, however, that the new approach combined with the new enforcement system under Regulation 1/20038 may have detrimental effects on agreements which do not fit within the block exemptions. The abolition of the notification system, together with the fact that the new approach is not based solely on economic analysis but incorporates also non-economic values, may place undertakings in a difficult situation as it reduces the possibility of ex ante control. The author proposes the abolition of the block exemption as a means of achieving more flexibility and equality of treatment for agreements that do not fit within the four corners of the exemption.

7 [1989] 8 [2003]

OJ L204/37. OJ L1/1.

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Kent, Allsopp, and English highlight the increasing importance of economic analysis in merger control. They discuss the seminal CFI judgments in Airtours/First Choice,9 Schneider/Legrand10 and Tetra/Laval11 which overturned the Commission’s decisions to prohibit the respective mergers. These cases illustrated clearly that the system in place was unable to cope with the growing complexity of contemporary competition, thus providing a further impetus towards reform of merger control. The authors examine the reform package against the background of the three CFI judgments and, more broadly, the case law on collective dominance. They draw attention to the need to take into account the increasing global dimension of mergers: international collaboration between competition authorities, especially closer links with the US and other major national players, is set to become the norm, and thus a degree of alignment in merger regulation becomes highly desirable. The application of competition rules on state undertakings gives rise to some of the most challenging issues in competition law. Szyszczak focuses on the interrelationship between internal market and competition law and examines the techniques used to create ‘bright lines’ to determine when State intervention in the market is not subject to EC competition rules. In an era where States tend to delegate more and more public tasks to private bodies and look towards public/private finance initiatives, the distinguishing criteria seem to focus increasingly on the nature of the service provided rather than on the form or status of the body that provides it. Given the link between competition law and internal market, Szyszczak pleads in favour of a global approach. She suggests that whenever the State or a delegated public or private body engages in a market activity, it should be subject to the disciplines of Community law. Also, a generic defence/justification should be available to Member States for a breach of Community law based on overriding requirements of general interest. Cahill focuses on the relationship between protected monopolies enjoying a special position on a reserved market and Article 82. He reviews recent Commission decisions and case law and seeks to identify the parameters which determine whether the behaviour of a reserved market monopolist constitutes abuse. The underlying concern here is to strike a balance between, on the one hand, allowing State appointed monopolies to engage in the provision of services of general economic interest free from competition and, on the other hand, ensuring that the grant of exclusive rights does not allow the monopolist to extent its monopoly beyond the scope of the protected service. Judgments such as UPS Europe12 and TNT Traco13 suggest that the Community courts 9 T–342/99 [2002] ECR II–2585. 10 T–310/01 and T–77/02 [2002] ECR II–4071. 11 T–5/02 and T–80/02 [2002] ECR II–4519. 12 T–175/99 [2002] ECR–II 1915. 13 C–340/99 [2001] ECR–I 4109.

Introduction

7

are willing to give monopolists some breathing space to conduct market policy and, perhaps, evince a more relaxed approach to the application of the disciplines of free market on them. Biondi and Triantafyllou examine state aids. Biondi deals with the question of whether support given by the State to enable undertakings entrusted with services of general economic interest to discharge their ‘public’ obligations should be regarded as an aid and, if so, whether certain justifications may available to Member States. He reviews the two existing approaches, namely, the ‘State Aid approach’ and the ‘compensation’ approach and draws parallels between state aid law and the internal market acquis. The landmark judgment in Altmark14 has the merit of striking a balance between the two approaches by making the compensation approach subject to stringent economic conditions. Still, as the author points out, the judgment does not clarify how Article 86(2) would apply to those cases where State support in favour of an undertaking entrusted with public service would not benefit from the Altmark test. Triantafyllou tackles an interesting but somewhat neglected issue, namely, the repercussions of state aid provisions on national bankruptcy law. He examines, inter alia, the rules concerning the recovery of illegally granted aid, the conditions upon which aid can be granted to an insolvent undertaking for the purposes or temporary assistance or restructuring, and the position of the state as creditor in insolvency proceedings. A concluding caveat warns that even the more favourable treatment of enterprises which results from the fact that their legal form is exempt from bankruptcy or other insolvency proceedings may fall within the scope of the provisions prohibiting state aid. Finally, Bovis elaborates on the legal and economic importance of public procurement for the functioning of the internal market. He contrasts two approaches to the regulation of public procurement: the neo-classical approach, which is found in the Commission Guidelines and in some of the case-law, and is based on the lowest offer as the criterion for awarding public contracts; and the ordo-liberal (or policy) approach, which is sometimes supported by the ECJ, and uses the most economically advantageous offer as the award criterion. The first approach focuses mainly on price competition as the tool which is expected to result in production and distribution efficiencies and drive the market towards an optimal allocation of resources. The second approach accepts that the public sector can award contracts by reference to ‘qualitative’ criteria, in conjunction with price, and thus can legitimately deviate from the strict price competition

14 C–280/00

Altmark Trans GmbH, Regierungspräsidium Magdeburg v Nahverrkehrsgesellschaft Altmark GmbH and Oberbundesanwalt beim Bundesverwaltungsgericht, judgment of 24 July 2003, nyr.

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environment set by the lowest offer criterion. The ordo-liberal approach views the integration of public markets in the European Union as a conveyer belt of common policies, such as environmental policy, consumer policy, social policy, industrial policy and takes into account a flexible and wider view of national and Community priorities. By placing emphasis on market access, it advances a regulatory system which can be described as public competition law.

THE SOCIAL DIMENSION OF THE EU

Bercusson examines the institutional architecture of the European social model. He assesses the concept of European citizenship and contrasts the European social partnership model with the US experience. He concludes that the EU Charter on Fundamental Rights can be a catalyst for the establishment of a European social citizenship which transcends the division between traditional human rights and social and economic rights. The interaction between market-related values and human rights is aptly illustrated in the field of sex equality. The principle of equal treatment was originally conceived as an instrument to ensure fair competition but, as the Community legal order matured, it firmly acquired the deeper dimension of a fundamental human right, thanks mainly to the ECJ’s enthusiasm and, more recently, the fresh impetus of the Amsterdam Treaty. Caracciolo di Torella and Masselot argue that this development has dramatically enlarged the scope of sex equality so as to include, for example, a more general prohibition of discrimination outside the workplace and commitment to promote equality between men and women in many areas of policy. In spite of this, the authors argue that the Community legislator still seems to lack a coherent approach to sex equality: recent initiatives, namely the revision of the Equal Treatment Directive,15 the refonte project of simplification and improvement of equality legislation, and the Commission’s proposal for an Equality Directive, are not underpinned by a coherent strategy. They fail to address several contentious issues such as the status of maternity and pregnancy or the exact scope of gender (rather than sex) discrimination. The increasing interaction between fundamental freedoms and human rights bears another significant consequence: the more focus shifts from the former to the latter, the more difficult it is to justify conferral of certain rights to certain categories of persons only, due to the universal character of human rights. Toner, for example, reviews the Family Reunification Directive16 and the proposed EU Citizens Directive,17 both of which have as 15 Directive 2002/73/EC [2002] OJ 16 COM(1999) 638 as amended by 17 COM(2001) 257 as amended by

L 269/15. COM(2000) 624 and COM(2002) 225. COM(2003) 199.

Introduction

9

their addressee the traditional heterosexual married couple. She challenges the assumption that this should be the only beneficiary of the free movement rights and argues that basic ECHR and Community law principles should entail the right of a migrant EU citizen to reunification with any cohabiting partner. Nevertheless, unmarried, including homosexual, couples currently remain reliant on national law or the ECHR to protect their rights, with the ultimate consequence that discrimination against third country nationals is perpetuated. Along a similar line of reasoning, Brennan examines the new Race Directive18 aimed at removing institutionally racist constraints on the free movement of persons within the Community. Brennan argues that the textual ambivalence of the Directive seems to exclude third country nationals from its ambit, thus creating double standards to the detriment of the latter, which are often the most vulnerable to racism.

18 Directive

2000/43/EC [2000] OJ L 180/22.

2 Why Harmonise? STEPHEN WEATHERILL

INTRODUCTION

T

HE THESIS OF this paper is that the impetus to adopt EC legislation in the name of harmonisation has historically been driven by two separate rationales. The first is the assumption that market integration is promoted by harmonised rules—that a common market requires common rules. The second is that in so far as the EC Treaty is deficient in allocating competence to act in particular areas of ‘non-market’ regulation then the legal base authorising harmonisation may be ‘borrowed’ to fulfill that role. From this root sprang much early EC legislative activity in the fields of consumer protection, environmental protection and labour market regulation, where harmonisation of national rules has generated common Community rules governing the field in question, ostensibly to advance market integration but more frequently, behind this constitutionally proper veneer, in order to meet unanimous demand from the Member States acting in Council for Community rules in the regulatory fields in question. The first rationale, which connects harmonisation to market-building, is increasingly under threat because of the perception that in a geographically and functionally expanded European Union the establishment of common rules is not only increasingly difficult to achieve, it is also increasingly undesirable as a suppression of competitive and cultural diversity. From this perspective harmonisation should not be treated as necessarily antagonistic to minority preference and diversity; it can be ‘modernised’. The second rationale, which plays constitutionally fast-and-loose with the Treaty-conferred competence to harmonise national laws and, behind that, the foundational principle of attributed competence contained in Article 5(1) EC, is under threat because of its tendency to damage the constitutional structure and, indeed, the very legitimacy of the EU settlement. The rise of Qualified Majority Voting in Council has in particular provoked sceptical scrutiny. What is at stake here is not so much modernising the harmonisation programme by embracing more fondly the possibility of diversity as curtailing what may constitutionally be done in its name.

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Stephen Weatherill

As a general observation I welcome this debate provided it is used as a constructive basis for identifying what is truly needed of a competence to harmonise in current economic and political conditions and not as a pretext for unthinking, even envious, re-nationalisation of regulatory powers. The tension between centralisation and respect for local autonomy has become ever more problematic in a geographically and functionally expanded EU that operates in many areas according to qualified majority vote among its members. The debate about the function of harmonisation is therefore part of a wider and grander debate about the function of the EU itself—how to generate trust and confidence that the creation of stronger central institutions will be balanced by their respect for local regulatory autonomy. In this vein both rationales for harmonisation raise questions about protection of minorities and protection of diversity. This paper is designed to rely on exploration of the particular case of legislative harmonization in order to identify some of the manifestations of the current tension between integration, which possesses such deep-rooted associations with thirst for common rules, and diversity, which speaks for tolerance of variation in Europe.

COMMON RULES FOR A COMMON MARKET: ASSUMPTIONS ABOUT THE VIRTUES OF HARMONISATION

The Practice The first of the two rationales for harmonisation mentioned in the Introduction is the assumption that market integration is promoted by harmonised rules—that a common market requires common rules. In so far as different rules are applied in different Member States then the pursuit of trade integration may be hindered by the prevailing disparity. In some circumstances such laws may be successfully challenged according to the case law of the European Court which has elaborated a formula for judging the permissibility of national measures against the standards found in the relevant Treaty provisions governing economic freedoms. The elimination of obstructive national laws in this fashion may be regarded as a form of ‘judicial harmonisation’ of the market or ‘negative harmonisation’ in the sense that integration is advanced by suppressing national preferences. But, as connoisseurs of Cassis de Dijon are aware, such laws may be shown to be justified if they pursue a sufficiently strong goal in the public interest. Market-partitioning rules may be lawfully applied, for the EC Treaty does not guarantee traders unconditional access to the markets of all the Member States simply because they are lawfully operating in one of those States. This prompts consideration of the need for legislative or positive harmonisation, according to which a Community rule is introduced to govern

Why Harmonise?

13

the area in partial or total replacement for national rules. Put another way, the limits of judicially-driven integration yield to the scope of intervention reserved to the legislature, although the precise location of this divide is admittedly not static and has altered over time in tune with judicial moods in Luxembourg. So traders are able to rely on harmonised rules which apply in common in all the Member States, confident that the construction of marketing campaigns aimed at an efficiently functioning pan-European space will not be confronted by local rules that obstruct trade or distort competition. This is the legal description of the ‘level playing field’ and it treats national regulatory autonomy as commercially costly and ripe for suppression.

The Objections The insistence on connecting harmonisation to effective market-building attracts criticism on at least two levels. These may be summarised as cultural and economic objections. To refer to cultural objections is merely to offer a very brief catchphrase designed to capture a complex and controversial set of anxieties about the damagingly intrusive effect of the harmonisation programme. But, in short, what is at stake is the allegation that harmonisation, as a technical process devoted to market-making, tends to disregard the rich and deep historical roots of the national laws that are subjected to its influence. And the ornate strands of cultural tradition that pattern national laws are thereby sacrificed to the cold calculations of economic gain. Ian Ward has reflected that ‘The Utopian allure lies at the centre of the European intellectual tradition, rooted deep in the Platonic idyll. It is the restless, ceaseless desire to harmonise, to perfect, to make as one. It is this restlessness which possessed Leibniz. And it is the same restlessness which has possessed European integrationists since 1945’.1 Still more aggressive is Pierre Legrand: ‘Nowadays, there is only one way in which one can be a ‘good European’ and it is to support the suppression of local particularism. Any expression of doubt in favour of cultural diversity, any critique of centralising legal integration processes is rapidly construed as inimical to the grand European project …’.2 The EC’s intervention in private law has proved one particularly lively arena for debate of this nature. There is a widespread instinct among

1 In

‘Beyond Constitutionalism: The Search for a European Political Imagination’ (2001) 7 ELJ 24, 25. Cf C Harlow, ‘Voices of Difference in a Plural Community’ (2002) 50 American Journal of Comparative Law 339. 2 In ‘On the unbearable localness of the law: academic fallacies and unseasonable observations’ (2002) 10/1 European Review of Private Law 66.

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private lawyers that intervention in their province motivated by the desire to improve the functioning of European markets requires reasoned explanation of a more sophisticated nature than a simple appeal to remove diversity. In particular, the subjection of long-established diverse systems of private law in the Member States to the demands of harmonisation has been critically portrayed as apt to prise open traditional and intellectually coherent categories in the private law and to impoverish the richness of legal culture.3 It is beyond the scope of this paper to provide a detailed examination of the strength of these claims. They are serious objections. Nonetheless, I tend to consider them persuasive only if pursued with sector-specific rigour. And simply to portray national ‘culture’ as preternaturally benevolent is not only deeply conservative, it is also alarmingly unappreciative of the historical background that provides a necessary context within which to judge the contribution of the post-war experiment in European integration to (relative) peace and prosperity. Local culture can be exclusionary; local culture can be downright nasty. Part of the very the point of EC law is that it puts to the test the validity of local ‘cultural’ preferences in the context of the benefits of integration (which are admittedly not unqualified). The economic objection to harmonisation is primarily driven by proponents of inter-jurisdictional regulatory competition as a model for the EU. This perspective would damn harmonisation itself as anti-competitive. Why should there not be regulatory variation among Member States, with the market, populated by consumers of regulation, inter alia commercial firms, dictating which approach is ‘best’ by selecting the jurisdiction judged most hospitable, and using that as a base to supply the wider market? This, one might argue, is not State laws causing a distortion of competition—it is competition! The counter-argument would assert—inter alia—that markets for regulation are no more immune from failure than any other market. Transnational harmonisation of laws may cure flaws such as the imposition of external costs that are associated with unduly decentralised models of rule-making. This is close to the rich literature surveying the economics of federalism and invites argument about whether 3 Footnote references are advanced with trepidation, for—of course—scholarly investigation is unfailingly much richer than this potted summary can suggest: but, with that caveat, see inter alia C Joerges, ‘European challenges to private law: on false dichotomies, true conflicts and the need for a constitutional perspective’ (1998) 18 Legal Studies 146; M Van Hoecke and F Ost, The Harmonisation of European Private Law (Oxford, Hart Publishing, 2000); M-J Campana, ‘Vers un langage juridique commun en Europe?’ (2000) 8 European Review of Private Law 33; P-C Mueller-Graff, ‘Die Europaeische Privatrechtsgesellschaft in der Verfassung der Europaeischen Union’ in P-C Mueller-Graff and H Roth (eds), Recht und Rechtswissenschaft (Heidelberg, CF Mueller Verlag, 2000); L Nottage, ‘Convergence, Divergence and the Middle Way in Unifying or Harmonising Private Law’ (Florence, EUI, Law Working Paper 2001/1); T Wilhelmsson, ‘Private Law in the EU: Harmonised or Fragmented Europeanisation?’ (2002) 10 European Review of Private Law 77.

Why Harmonise?

15

mutual recognition of divergent standards and unlimited market access to host State markets of goods and services complying with home State requirements is a better way to proceed than the imposition of common standards of mandatory substantive regulation.4 Wolfgang Kerber deftly connects the economic approach to regulatory competition with the topical interest in securing greater respect in the EU for the virtues of decentralisation. He writes that ‘competition processes among jurisdictions … are not seen as being an integral part of the process of European integration … It seems rather that advocates of European integration have a hostile attitude toward the idea of competition among jurisdictions …’. But he observes that ‘if we want simultaneous mobility and decentralisation, then we must accept interjurisdictional competition and we must think about ways to make competition processes workable’.5 Untrammelled local regulatory autonomy is antagonistic to mobility, but central regulatory competence damages local choice and the prospects for inter-jurisdictional competition. The big point is, of course, that the more reticent the EC political and judicial institutions are in identifying ‘distortion’ requiring cure, the more space is left to State regulatory autonomy. This point also has resonance when inspecting the pre-conditions for authorising enhanced co-operation, which itself may generate regulatory competition between the co-operators and the non-participants—but only, pursuant to Article 43(f) EU, if it does not ‘distort’ competition between Member States. Some literature is beginning to examine what ‘distortion’ can and should imply in the context of legal diversity within the EU and to explore the case for and against regulatory competition in particular sectors, such as contract law,6 labour standards,7 environmental policy8 and company law.9 This paper must content itself with simply saluting the worth of such inquiry. Manifestations of the Debate It is plain that harmonisation, conventionally understood as a process of generating common rules for a common market, increasingly co-exists with other ‘softer’ forms of governance and a general willingness to tolerate, 4See, much more fully, D Esty and D Geradin, Regulatory Competition and Economic Integration (OUP, 2001). 5 In ‘Interjurisdictional Competition within the European Union’ (2000) 23 Fordham International Law Journal S217, S221, S249. 6 E.g. G Wagner, ‘The Economics of Harmonization: the Case of Contract Law’ (2002) 39 CML Rev 995. 7 E.g. C Barnard, ‘Social dumping and the race to the bottom: some lessons for the European Union from Delaware?’ (2000) 25 EL Rev 57. 8 E.g. M Faure, ‘Regulating Competition vs Harmonization in EU Environmental Law’ in D Esty and D Geradin n 4 above. 9 E.g. J Wouters, ‘European Company Law: Quo Vadis?’ (2000) 31 CML Rev 257.

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even extol, a higher degree of flexibility and diversity in coverage under the EU umbrella than would previously have been imagined to be feasible. Greater space is left for expressions of local diversity. This raises the possibility of an EC contribution to the regulation of a particular area that is pitched at a less dogmatic level than would be expected of traditional harmonisation. And this provides at least a pointer towards greater appreciation of variation in culture and the possibility of shaping an arena more apt for release of regulatory competition. The Treaty itself recognises that harmonisation is a sensitive matter and it includes provisions that reveal a concern to feed in a degree of respect for variation and for effective regulatory protection, albeit necessarily within a context that emphasises the value of border-free trade. Qualified majority voting was accepted by the Member States in the Single European Act as the basis for future harmonisation activity under (what is now) Article 95 on the basis that, in short, what they would lose on being outvoted would be outweighed by what they would gain by being able to out-vote. However, an enduring tension was introduced into communautaire practice. States surrendered the veto as a brutal form of control: but they wanted some protection against majoritarian drift. This invites awareness of subsidiarity, flexibility and the need to avoid insensitive suppression of local preference, but already, in the Single European Act, very specific provisions reflecting such broad anxieties were included. Market-building through harmonisation implies only the need for common rules and makes no assumption about the quality of the common rule. However, in practice choices have to be made about the quality of the standard of regulatory protection set by the EC. This is precisely because of the point that the EC is reacting to interventions to correct perceived flaws in the market chosen over time within national systems and is therefore attempting to provide a European-level framework for addressing such anxieties. So although assessing the proper limits of autonomy in the market is not a general EC competence, setting limits to autonomy becomes a ‘Europeanised’ matter via harmonisation simply because national systems have already (in diverse ways) taken their own stance. This is the ‘spillover effect’ that is endemic to trade integration founded on legal rules and it is reflected in Article 95(3) EC. In its form effective since the Amsterdam Treaty entered into force, this provides that: The Commission, in its proposals envisaged in paragraph 1 concerning health, safety, environmental protection and consumer protection, will take as a base a high level of protection, taking account in particular of any new development based on scientific facts. Within their respective powers, the European Parliament and the Council will also seek to achieve this objective.

Moreover the ‘horizontal’ provisions found inter alia in Articles 6 and 153(2) EC dictate that requirements of regulatory protection shall be taken

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into account in defining and implementing other Community policies and activities, including, no doubt, market-building listed in Article 3 EC and elaborated in, inter alia, Article 14 EC. Harmonisation is not simply a technical process—it demands that the centralised legislator, reacting to diverse existing patterns of regulation, assess the desired quality of the transnational regulatory environment. So a programme of harmonisation is of itself an exercise in both deregulation (15 to 1, in the EU) and also re-regulation (what shall be the shape of that ‘1’) and accusations that Community rules degrade local tradition should be accompanied by sector-specific interrogation of the values governing selection of the quality of the harmonised regime. But the deal struck in the groundbreaking Single European Act was still more complex; more concessions had to be made to secure agreement to revise the Treaty in favour of a functionally broad competence to harmonise laws capable of exercise by qualified majority vote in Council. A distinct device, yet equally motivated by the desire to qualify the ‘harmonisability’ of rules at EC level, is found in the procedures now found in Article 95(4)–(10). This demonstrate the anxiety that harmonisation in pursuit of integration may damage local preferences for stricter protective rules. The scope of derogation permitted under this notorious procedure is to be interpreted narrowly,10 but it allows Member States to seek authorisation from the Commission to apply rules above the harmonised norm, even though this would doubtless damage trade integration. More than merely confirming the sensitivity of the task of defining the quality of a harmonised regime, Article 95(4) et seq reveals a tension between fixing common standards and slaking local thirst for divergence which is endemic to the modern EC, which is devoted to a wider field of interests than trade integration alone. Indeed, by taking the matter of permitted State departure from the agreed norm outside the particular measure under negotiation11 and instead rooting it in the Treaty itself, Article 95(4) may be taken as one of the early striking manifestations of the general phenomenon of ‘flexibility’, a trend which has commanded much political and legal attention lately as the patterns and pressures of geographic and functional expansion have provoked general though perhaps uneasy tolerance of devices that shrug off a dogmatic assumption that competence belongs necessarily either to the EU or to the Member States. One would cite relatively recently introduced provisions such as Article 151 (culture), Article 152 (public health), and Article 153

10 Case C–41/93 France v Commission [1994] ECR I–1829; Case C–319/97 Antoine Kortas [1999] ECR I–3143. Cf N de Sadeleer, ‘Les clauses de sauvegarde prévues à l’article 95 du Traité CE’ (2002) 38 RTDE 53. 11 On derogation even in internal market measures, see G de Búrca, ‘Differentiation within the Core? The case of the internal market’ in G de Búrca and J Scott (eds), Constitutional Change in the EU: from Uniformity to Flexibility? (Oxford, Hart, 2000).

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(consumer protection) which emphasise the Community’s role in supporting and supplementing State action, to the exclusion of harmonisation; and which also stipulate that the Community rules be pitched at a minimum level only. In this vein there is also a turn towards ‘softer’ instruments, embracing framework measures, ad hoc recommendations, optional instruments, or, in some areas, more institutionalised forms of softer co-operation that do not conform to communautaire orthodoxy such as the Open Method of Co-Ordination.12 The most high-profile concrete form of ‘flexibility’ is provided by the arrangements for enhanced or closer co-operation introduced at Amsterdam and adjusted at Nice—but not yet used. And EMU too offers a case study in fragmentation. These represent manifestations of general discomfort about the potentially over-intrusive role of the EU which has led to the release of veto power under the spread of QMV being accompanied by techniques for insulating, initially, dissentients and, latterly, participants generally from the tightest restraint of the straitjacket. There are close associations between scepticism about the value or even the sheer feasibility of securing uniformity in the wider sweep of Community activity and this developing ‘flexibility debate’ within which diversity is no less a value than integration;13 and in which authority in the wider framework of the Union is increasingly layered.14 This may also be the road, albeit a controversially mapped one, towards regulatory competition as a competing paradigm of internal market law. As a matter of law, the Treaty does not establish any explicit preference for regulatory competition. One may nonetheless instructively trace the pattern according to which the law has developed from the standpoint of regulatory competition.15 The provisions on free movement, creatively interpreted in the Court’s famous line of Cassis de Dijon case law, envisage that 12 On

which see D Hodson and I Maher, ‘The Open Method as a New Mode of Governance: the case of Soft Economic Policy Co-Ordination’ (2001) 39 JCMS 719. For more general survey of departures from ‘classic Community method’ see J Scott and D Trubek, ‘Mind the Gap: Law and New Approaches to Governance in the European Union’ (2002) 8 ELJ 1. 13For investigation into this fertile field, see e.g. de Búrca and Scott note 11 above; F Tuytschaever, Differentiation in European Union Law (Oxford, Hart, 1999); B De Witte, D Hanf and E Vos, The Many Faces of Differentiation in EU Law (Antwerp, Intersentia, 2001). Cf P Xuereb, ‘The future of Europe: solidarity and constitutionalism. Towards a solidarity model’ (2002) 27 EL Rev 643; J Shaw, ‘Flexibility in a reorganised and simplified Treaty’ in B De Witte (ed), Ten Reflections on the Constitutional Treaty for Europe, (Florence, EUI, Robert Schuman Centre for Advanced Studies and the Academy of European Law, 2003). 14 Cf I Pernice, ‘Multi-level constitutionalism in the European Union’ (2002) 27 EL Rev 511; S Weatherill, ‘Is constitutional finality feasible or desirable? On the cases for European constitutionalism and a European Constitution’, Constitutionalism Web-Papers (ConWEB), Paper No 7/2002, http://les1.man.ac.uk/conweb; J Wouters, ‘Institutional and Constitutional Challenges for the European Union—some reflections in the light of the Treaty of Nice’ (2001) 26 EL Rev 342; J Shaw, ‘Postnational constitutionalism in the European Union’ (1999) 6 Journal of European Public Policy 579. 15 Cf C Barnard and S Deakin, ‘Market Access and Regulatory Competition’, Ch 8 in C Barnard and J Scott (eds) The Law of the Single European Market (Oxford, Hart, 2002).

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cross-border trade may be restricted where a sufficiently strong reason for preserving local autonomy is demonstrated. This, then, is a form of conditional regulatory competition. Once the Community has legislated to advance the process of integration beyond that secured by the application of the free movement rules the scope for regulatory competition will be dictated by the content of the regime—what will be especially important will be the extent to which States are free to depart from the agreed common Community regime and the extent to which such different rules are capable of application against imported goods and services conforming to the Community standard. So there is a crucial connection between permitting variation to persist between the regulatory regimes in the Member States and the applicable rules of market access. Regulatory competition is maximised under a pattern of permitted inter-State variation coupled to an insistence that a State may not exclude imports that fail to comply with local rules. This is a matter for the legislature; but ambiguity typically produces awkward questions demanding judicial resolution.16 There is, in short, scope for injecting regulatory competition more deeply into the Community system—but this paper does not take a position on the desirability of doing so but merely asserts that sector-specific examination of the value of such a shift is appropriate.17 Harmonisation, then, is not necessarily antagonistic to minority preference and diversity, nor even to patterns permitting regulatory competition.

CONSTITUTIONALLY ADVENTUROUS INTERPRETATIONS OF THE COMPETENCE TO HARMONISE

The Practice As mentioned in the Introduction, the second rationale for legislative harmonisation has been that in so far as the EC Treaty is deficient in allocating competence to act in particular areas of ‘non-market’ regulation then the legal base authorising harmonisation may be ‘borrowed’ to fulfill that role. The Paris Summit of 1972 famously launched the European Community on a trajectory which would draw within its ambit more general matters of regulatory activity than mere trade integration. Early legislative activity in

16 Cf e.g. M Dougan, ‘Minimum Harmonization and the Internal Market’ (2000) 37 CML Rev 853; Kurcz, ‘Harmonisation by means of Directives—never-ending story?’ [2001] European Business Law Review 287; also materials collected in Chs. 19.3, 19.4 of S Weatherill, Cases and Materials on EU Law (Oxford OUP, 6th ed., 2003). 17 It bears repetition that the quality of the cited literature far transcends this condensed account; but for discussion see refs at notes 4–9 above.

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the fields of consumer protection and environmental protection was duly pursued in the name of the harmonisation programme at a time when the political will was firm, yet when the Treaty was bare of any explicit legislative competence to act in these realms. Environmental protection was added to the list of explicit EC competences only in 1987, on the entry into force of the Single European Act, while consumer protection was a child of Maastricht. But before these milestones were reached the Community had already become a significant actor in the fields of consumer and environmental protection by virtue of an expansive reading of the harmonisation programme underpinned by unanimous demand from the Member States acting in Council for relevant EC rules. Of course, harmonisation of laws for defined ends associated with marketbuilding has always been an EC competence recognised by the Treaty, initially pursuant to Article 100 (now 94), and since the entry into force of the Single European Act in 1987 also under Article 100a (now after amendment Article 95). Many harmonisation measures adopted pursuant to these provisions are perfectly obviously based on the perception that legislative diversity damaged integration, and that, from cosmetics to mineral water, common rules were required. The Court’s landmark ruling in Cassis de Dijon in 1979 altered the priorities, and in the Commission’s perception reduced the necessary scope of a programme of legislative harmonisation. More could be achieved by the judicially applied principle of non-absolute mutual recognition than was previously appreciated. But the basic point— that harmonisation is intimately connected with market-making—was not disturbed. Nonetheless, several Directives were adopted pursuant to these provisions with no serious expectation that they would advance the process of market integration. One of the more egregious examples of ‘false’ harmonisation is provided by Directive 85/577 on ‘Doorstep Selling’. It was based on Article 100 EC (now Article 94). The Preamble states that the practice of doorstep selling is the subject of different rules in different Member States. This is perfectly true. The Preamble proceeds to declare that ‘any disparity between such legislation may directly affect the functioning of the common market’. This is rather less obviously true, and the claim is not supported by any evidence. The Directive then proceeds to establish a European-level regulation of the phenomenon by requiring inter alia that the consumer be permitted a minimum seven-day cooling-off period within which to withdraw from an agreed transaction. The use of the phrase ‘any disparity between such legislation may directly affect the functioning of the common market’ in the Directive’s Preamble reflects the need to pay respect to the fundamental constitutional principle that the Community can act only where its Treaty equips it with competence. The language of (what was) Article 100 is blithely borrowed to invest the Doorstep Selling with constitutional respectability. But in fact the political environment

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demonstrates the ease with which the principle of attributed competence may be subverted. The Preamble also makes reference to Council Resolutions of 1975 and 1981 on consumer protection and information policy and observes that consumers may be ‘unprepared’ in negotiations for contracts away from business premises. This gives the political game away. It was plain that the Member States were committed to developing a richer texture to EC policy-making, beyond mere trade integration in the narrow sense. In the absence at the time of any formal Treaty revision giving effect to these wider aspirations by extending the list of available legislative competences, harmonisation was used as the chosen route. At this time, prior to the entry into force of the Single European Act, the Member States were required to act unanimously to adopt such legislation. Given unanimity in Council, as was the case for measures such as that governing ‘Doorstep Selling’, constitutional niceties tended to sink from view. A comparable picture emerges from the field of environmental protection. Directive 76/160, the ‘Bathing Water’ Directive, was based on what were Articles 100 and 235 (both requiring unanimous vote in Council). The Preamble asserts that surveillance of bathing water is necessary in order to attain the Community’s objectives ‘as regards the improvement of living conditions, the harmonious development of economic activities throughout the Community and continuous and balanced expansion’ (a reference to what was Article 235); also, that national laws in the field directly affect the functioning of the market (Article 100). A contribution to environmental protection was also mentioned in the Preamble and this was really the core of the measure. The Treaty at the time afforded no competence to pursue such a policy in its own right, but unanimity in Council and a readiness to take a functionally expansive view of existing competences, including that governing harmonisation, launched the EC as an active environmental regulator. How shocking! But in fact (almost) no one was shocked.18 In tracking the evolution of the harmonisation programme, it is important to appreciate that the phenomenon of ‘spillover’, whereby the impetus to integrate markets brought with it incidental incursion into new areas of regulatory activity, was for a long period neither accidental nor politically controversial in communautaire practice. Quite the opposite. It is highly unlikely that anyone believed the truth of the stated connection between an absence of harmonisation in these niche areas and the inability to perfect the common market, but there was no political wish to question it. The governments of the Member States were fully aware and entirely content with the tendencies to use the Treaty competence governing harmonisation to invade wider areas of (apparently) national competence. The constitutional constraint of attributed competence, now found in Article 5(1), was simply dormant. 18But

see G Close, ‘Harmonisation of Laws: use or abuse of powers under the EEC Treaty?’ (1978) 3 EL Rev 461.

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And no serious challenge to the States’ generous reading of the scope of EC competence was ever brought before the Court. In fact, the Court’s mood may be gauged from its famous statement in Procureur de la Republique v Adbhu19 that environmental protection constituted ‘one of the Community’s essential objectives’. This conformed to regular legislative practice, but not to the explicit terms of the Treaty, which until 1987 did not even include specific reference to the protection of the environment, let alone consecrate it as an essential objective. This is competence creep.20 The principle of attributed competence gave way in communautaire practice to the capacity of the Council—acting unanimously—to fix the scope of EC action and, in the field of harmonisation, it appeared to assume it enjoyed carte blanche. This is not to make a case that the EC’s programmes of consumer protection and environmental protection are irredeemably intellectually incoherent. They may be incapable of being conceived as systematic programmes of the type that one might expect to see at national level, but, patchy though the EC’s coverage may be, the choice of measures inevitably reveals some approach(es) to the shaping of intervention in the market which will in turn provoke descriptive and normative investigation of the EC’s preferred regulatory paradigms. So, for example, the batch of Community harmonisation Directives governing contract formation largely, though not exclusively, concern consumer contracts. These measures do not follow a uniform pattern but they share several features in common, most strikingly a preference not to outlaw particular trade practices but rather to require the disclosure of information to the consumer in advance and also typically to provide that an opportunity must be allowed to the consumer to withdraw from the contract for a defined period after its conclusion—the so-called ‘cooling-off period’. The aim is a more informed bargaining environment and a more efficient, competitive market. These are, strictly, not autonomous choices by the EC legislature about the nature and limitations of contractual autonomy. Rather, they represent reactions to diverse national preferences. But the increasing body of EC measures attracts an inevitable desire to impose intellectual order and the rules are therefore not merely to be seen as instrumental in marketbuilding but as rich material for comparative analysis of legal techniques for addressing potential failure and/or inequities in markets.21 Harmonisation generates intellectual momentum. It also, as considered above, attracts 19 Case 240/83 [1985] ECR 531. 20E.g. M Pollack, ‘Creeping Competence:

The Expanding Agenda of the European Community’ (1994) 14 Journal of European Public Policy 95. 21 See e.g. H-W Micklitz, ‘Principles of Social Justice in European Private Law’ (2000) 19 YEL 167; S Weatherill, ‘Consumer Policy’, in P Craig and G de Búrca (eds), The Evolution of EU Law (Oxford, OUP, 1999); J Stuyck, ‘European Consumer Law after the Treaty of Amsterdam: Consumer Policy in or beyond the Internal Market?’ (2000) 37 CML Rev 367; G Howells and T Wilhelmsson, ‘EC Consumer Law: has it come of age?’ (2003) 28 EL Rev 370;

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dissent. So I do not at all make the case that harmonisation policy does not interconnect with consumer protection policy or environmental protection policy. Quite the reverse. It is inevitable that market-building through harmonisation implies choices about the proper limits that should be placed on market freedom by the EC as legislator. Harmonisation is two-edged in its transfer of competence from Member States to Community. It sets common rules as a basis for market integration while also shaping a distinctive European-level (re-)regulatory system. The Objections The above account of the inevitability that the harmonisation programme will be functionally broad in its reach provides no compelling defence of the ‘Doorstep Selling’ Directive as constitutionally valid. And—to take the point on to a wider plane—once the Single European Act had provided a basis for harmonisation according to qualified majority vote in Council the older examples of insouciant use of (what was) Article 100 to conduct policymaking in areas remote from a narrow conception of market-making were converted into skeletons in the cupboard. To be clear: the fact of unanimity in Council as an impetus to many of these instances of creeping competence is alarming enough, because other actors—including national parliamentary processes—suffer impoverishment as a result of legislative excesses backed by unanimity in Council. This is at the heart of the allegation that the EU is an arena that has tended to tighten the grip of Member State executives over political processes in Europe. But the stakes have been raised by the rise of Qualified Majority Voting in the sense that even political elites in States may find themselves unable to quell unwelcome competence creep. It would take time for this to emerge as a live constitutional issue in communautaire practice—not least because it is in fact far more common for compromise bargains to be struck in the legislative process than for reluctant States to suffer outvoting—but the Single European Act’s injection of QMV into the system fundamentally altered the constitutional context in which the harmonisation programme evolved. States needed to rethink how best to exercise control, having judged it worth abandoning the veto in Council.22 Articles 95(3) and (4) et seq,

N Reich and H-W Micklitz, Europäisches Verbraucherrecht (4. Auflage. Baden-Baden, Nomos, 2003); R Schulze and G Ajani (eds), Gemeinsame Prinzipen des Europäischen Privatrechts (Baden-Baden, Nomos, 2003); S Grundmann, W Kerber and S Weatherill, Party Autonomy and the Role of Information in the Internal Market (Berlin, Walter de Gruyter, 2001); S Grundmann, ‘The Structure of European Contract Law’ (2001) 9 European Review of Private Law 505. 22 Cf,

much more generally, J Elster, Ulysses Unbound (Cambridge, CUP, 2000).

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examined above alongside derogations, flexibility and opt-outs, fit this pattern, but more fundamental issues are here ripe for consideration—never mind respect for high levels of protection and the tolerance of diversity in the harmonisation programme, what is the very limit of the competence to harmonise in the first place? So the core objection is that harmonisation had, in short, gone too far— too far as a basis for an assertion of Community competence and too far as an incursion into national regulatory autonomy. This projects the debate about harmonisation on to the broader stage of the debate about the nature of the relationship between the EU and its Member States. Harmonisation raises questions of competence and constitutional control. The tension between centralisation and respect for local autonomy has become ever more problematic in a geographically and functionally expanded EU that operates in many areas according to qualified majority vote among its members. The Laeken Declaration of December 2001 went so far as to pick out Article 95, alongside Article 308, as the only Treaty provisions deserving of explicit attention as candidates for revision: … the important thing is to clarify, simplify and adjust the division of competence between the Union and the Member States … there is the question of how to ensure that a redefined division of competence does not lead to a creeping expansion of the competence of the Union … How are we to ensure at the same time that the European dynamic does not come to a halt? … Should Articles 95 and 308 of the Treaty be reviewed for this purpose in the light of the acquis jurisprudentiel?

The accusation: that Article 95 is complicit in the crime of competence creep. Accordingly new methods have been found to curtail expansive reading of harmonisation—to re-balance the constitutional settlement.

Manifestations of the Debate What is at stake here is not modernising the harmonisation programme by embracing or, as a minimum, tolerating diversity but rather curtailing what may constitutionally be done in its name. Manifestations may be found in the Treaty superstructure. One may discern an anxiety to exclude an open-ended legislative brief. Particular forms of harmonisation are placed off limits the Community—the provisions specific to culture (Article 151(5)) and public health (Article 152(4) EC) offer examples. So at times of Treaty revision States have embraced a formal expansion of competence and agreed the exercise of powers to be subjected ever more frequently to qualified majority voting; but, as a type of compensatory bargain, the States have asserted other methods for clinging to

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control over paths to be taken by the Community.23 This is the post-QMV ‘bargain’ and it is a delicate one. But the nature, purpose and scope of the programme of legislative harmonisation itself has also come under more overtly constitutional supervision. The past practice of relying on Council unanimity constituted an essentially political context within which to assemble approval for adventurous readings of the competence to harmonise, but this has not survived the rise of sensitivity provoked most of all by the release of the virus of qualified majority voting into the system, initially under the Single European Act but expanded subsequently by the Treaties of Maastricht, Amsterdam and Nice. Constitutionalism has long been used as a term apt to capture the fashioning of an EU system that in many practical respects transcends its orthodox Treaty-based roots, but now the dimension of constitutionalism that is directed at providing reliable limits to the competence of the Community to intrude on national autonomy is coming more clearly to the fore. This invites consideration of the scope of judicial control. The Treaty confers no competence to harmonise per se: the competence is more limited than that and is, in short, tied to the process of market-building. But what exactly is at stake in determining how much harmonisation is constitutionally permitted? This is Tobacco Advertising—and more. Secondly, what legal principles constrain the exercise of legislative competence to harmonise— this is subsidiarity (and more: including proportionality).

Tobacco Advertising The number of legal bases in the Treaty has been steadily increased by periodic revision in recent years. Among other implications this has required that attention be paid to establishing the scope of new competences which impinge on areas previously invaded by the functionally expansive reading of the harmonisation programme. As mentioned above, EC environmental protection and consumer protection took shape in the 1970s under the wing of the harmonisation programme (plus, in some cases, reference to Article 235, now 308), but both subsequently acquired their own explicit mandate under the Treaty. So how to demarcate old from new? This is an issue of real constitutional sensitivity given the differences between applicable legislative procedures. So Member States might have incentives to argue because the applicable voting rule in Council is not the same between two candidate legal bases; the Parliament might have incentives to

23 Cf A Dashwood, ‘States in the European Union’ (1998) 23 EL Rev 201, examining ‘conservatory’ vs ‘constitutionalising’ elements.

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argue because its influence is not the same between two candidates. The case law is complex and appears rather technical.24 Its precise impact depends on the state of the Treaty at the time of the litigation, and, gratifyingly, periodic Treaty revision has reduced, but not entirely eliminated, the eccentric procedural variations between legal bases governing cognate areas of regulatory activity. Incentives to litigate on this particular point have been correspondingly reduced. In the meantime the Court steered a course through the jagged rocks strewn by the incremental process of Treaty revision by insisting that recourse to Article 95 (ex 100a) is not justified where the measure has only the incidental effect of harmonising market conditions within the Community. So—to take a prominent flashpoint in the case law—where the predominant purpose of a measure establishing common standards is environmental protection, not market-making, that dictates the appropriate legal base.25 Tobacco Advertising brought the issue into even sharper focus, for it was not a case where unavailability of the legal base governing harmonisation pushed the legislature towards reliance on another candidate. Instead it was a case where it was ‘harmonisation or bust’ for the Community legislature, for the relevant sector-specific legal base, that governing public health, was plainly inadequate to support the load of the Directive in question because, as mentioned above, it explicitly excludes the harmonisation of laws from its ambit. So the Court’s ruling is of great importance in understanding the limits of the Treaty-conferred competence to harmonise. In Tobacco Advertising—more properly, Germany v Parliament and Council26—the Court was invited to annul Directive 98/43 on the advertising of tobacco products. The measure had been adopted as a measure of harmonisation directed at integrating goods and services markets and was based on Articles 100a, 57(2) and 66 (now 95, 47(2) & 55). Germany had opposed the measure but had been outvoted in Council. Here, then, was the bite of qualified majority voting. But Germany persuaded the Court to annul the Directive. So Germany, having lost the political debate, was rescued by resort to arguments based on the constitutional limits imposed on the EC.27

24 For illustrative case law (in a range of different policy sectors) in which the Court has set out its stance, see e.g. Case C–42/97 Parliament v Council [1999] ECR I-869, Case C–36/98 Spain v Council [2001] ECR I–779; Case C–281/01 Commission v Council judgment of 12 December 2002. 25 E.g. Case C–155/91 Commission v Council [1993] ECR I–939; Case C–209/97 Commission v Council [1999] ECR I–8067. 26Case C–376/98 [2000] ECR I–8419. 27 Cf e.g. J Usher, ‘Annotation’ (2001) 38 CML Rev 1519; T Hervey, ‘Community and National Competence in Health after Tobacco Advertising’ (2001) 38 CML Rev 1421; D Khanna, ‘The Defeat of the European Tobacco Advertising Directive: a Blow for Health’ (2001) 20 YEL 113; G Tridimas & P Tridimas, ‘The European Court of Justice and the annulment of the Tobacco Advertisement Directive’ (2002) 14 European Journal of Law & Economics 171.

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In paragraph 95 of the judgment the Court states that it is required that a measure of harmonisation ‘actually contributes to eliminating obstacles to the free movement of goods and to the freedom to provide services, and to removing distortions of competition’. The first and refers to the fact that this Directive was based on the Treaty provisions governing harmonisation in both the goods and services sectors, and should be converted to or for the purposes of drafting a legal test appropriate for defining the scope of harmonisation in either sector. And the thrust of the judgment is that the distortions of competition to be removed must be appreciable. So the threshold that must be crossed by a valid measure of harmonisation is that it must actually contribute to eliminating obstacles to the free movement of goods or to the freedom to provide services or to removing appreciable distortions of competition. The EC enjoys no carte blanche to harmonise laws. Article 5(1) EC matters.28 From this perspective, the Directive made an inadequate contribution to building the internal market and therefore it was annulled. 29 But although the ruling puts the legislature on notice that it must offer more rigorous justification, the case is by no means fatal to the future vitality of the harmonisation programme. A different strand of the EC’s (anti-) tobacco policy—dealing principally with labelling rather than advertising— prompted another legal challenge to the validity of an adopted Directive, Directive 2001/37. This is R v Secretary of State ex parte BAT and Imperial Tobacco30 but the measure survived scrutiny. Harmonisation is not extinct! And neither case denies that public health policy may legitimately inform the shaping of the harmonisation programme. Quite the reverse. The Court accepts that public health requirements are to form a constituent part of the Community’s other policies, including marketmaking.31 This means inter alia that the Community is able, by harmonisation, to adopt a re-regulatory standard that restricts particular forms of trade throughout the territory of the EU,32 and the judgment in ex parte BAT helps to clarify the circumstances in which this is permissible. So the Court has not been lured down a path which envisages the internal market being built by the EC only on the basis of market freedoms unfettered by regulatory prohibition. Were it otherwise a ‘one-sidedness’ would be opened up under Community law and policy of market re-regulation.33 The Court’s point is only that the threshold of a required sufficient contribution 28See especially paras 83, 107 of the ruling; and cf 29 See now, on the harmonisation of laws relating

para 83 of the Opinion of AG Fennelly. to advertising and sponsorship of tobacco

products, Directive 2003/33 OJ 2003 L152/16.

30 Case C–491/01 judgment of 10 December 2002. 31Cf paras 78 and 88 of Tobacco Advertising and para 32Cf paras 98 and 117 of Tobacco Advertising. 33 A Von Bogdandy and J Bast, ‘The European Union’s

62 in Ex parte BAT.

vertical order of competences: the current law and proposals for its reform’ (2002) 39 CML Rev 227, 245.

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to the improvement of the conditions for the establishment and functioning of the internal market must be crossed before the competence to harmonise exists.34 Tobacco Advertising injects ‘competence anxiety’ into a number of sectors remote from the judgment’s particular concern. One example must suffice. How far into private law might the EC legitimately reach? Past excursions into the field of private law provide some of the more intriguing tests for whether previous legislative practice in the field of harmonisation truly conforms to the Court’s reading of the limits of Article 95 (ex 100a). ‘Doorstep selling’ was mentioned above. It is plain that the threshold for reliance on the Treaty as a basis for harmonisation which is envisaged by the Court in Tobacco Advertising is a good deal higher than that with which compliance is asserted in these measures. The historical explanation for this lack of congruence is readily explained. The key to the functional expansion of the harmonisation programme lies in the political willingness of the Member States acting unanimously in Council to treat the relevant Treaty provisions as little short of the carte blanche to harmonise which, as a matter of constitutional principle, the Treaty never declared them to be. This is not to say that because the reasons given for the older generation of consumer protection Directives do not reach the rigorous standards demanded by the Court in Tobacco Advertising no adequate reasons—by the standards of October 2000—could be found. It is only to observe that previously no effort was made to provide a justification for compliance with the requirements of the Treaty provisions governing harmonisation that was more sophisticated than mere repetition of the relevant words simply because there was no political or, in practice, legal need. If the Member States agreed, there was adopted legislation; if they did not, there was none. The task now is to rethink whether the older generation could satisfy the benchmark set by the Court in Tobacco Advertising, in part to determine whether the measures will stand if attacked, as may occur indirectly via proceedings before national courts even though direct actions before the European Court are of course time-barred. But the principal purpose for considering this issue lies in mapping the future. What can we now expect of the European Community as a legislator in the field of private law, given that harmonisation has now been exposed as subject to judicially-defined constitutional limits? Recent Commission documentation canvassing views on the appropriate direction for European Contract Law has been issued in the shadow of awkward questions about the scope of available competence. The 2001 Communication on Contract Law35 called explicitly for information on 34 Of

course this does not exclude the possibility of challenge to the exercise of that competence e.g. for violation of principles such as subsidiarity, proportionality or freedom of expression. 35 COM (2001) 398, 11 July 2001.

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whether diversity between national contract laws ‘directly or indirectly obstructs the functioning of the internal market, and if so to what extent’, with a view to considering appropriate action by the EC. The follow-up Action Plan of February 2003 on ‘A More Coherent European Contract Law’36 refers to having unearthed ‘implications for the internal market’ arising from legal diversity. Tobacco Advertising and the limits of the competence to act under Article 95 haunts the debate, but for the time being the Commission prefers to avoid aggressive engagement with the matter, sticking to the debate about substance. Limited space precludes further reflection.37 The point for present purposes is that Tobacco Advertising, which does not explicitly rest on any sensitivity to QMV rather than unanimity but which would never even have arisen in a pre-QMV world, is a strong indication of a changing mood. A (re-)constitutionalisation of the previously political reading of the limits of competence is plain. In this vein the addressees of this decision should be taken to be not only the Member States and the EC’s political institutions but also national courts, anxious to see the European Court fulfil its role in maintaining constitutional balance in the EC and capable of exerting their own unilateral checks, to the peril of the integrity of the EC legal order, should they feel dissatisfied with the European Court’s performance in patrolling the limits of Community competence.38 And although it is not at all suggested that the presence of consensus in Council will never again generate harmonisation measures that strain the bounds of EC competence, nonetheless it is the case that the context has altered. Harmonisation has become a more constitutionally contested process.

Subsidiarity Finding the existence of competence is plainly fundamentally different in principle from choosing whether to exercise it, but in functional terms the two issues have close associations. Both bear heavily on what shall be left in the hands of the Member States as regulators. So finding issues that 36 COM (2003) 68, 12 37Cf D Staudenmayer,

February 2003. ‘The Commission Action Plan on European Contract Law’ (2003) 11 European Review of Private Law 11; on competence in particular see S Weatherill, ‘The Commission’s Options for Developing EC Consumer Protection and Contract Law: Assessing the Constitutional Basis’ (2002) 13 European Business Law Review 497; W-H Roth, ‘Europaeischer Verbraucherschutz und BGB’ 10/2001 Juristenzeitung 475; M Kenny, ‘The 2003 Action Plan on European Contract Law: is the Commission running wild?’ (2003) 28 EL Rev 538. 38Cf S Weatherill, ‘Activism and Restraint in the European Court of Justice’, Ch 13 in P Capps et al (eds), Asserting Jurisdiction (Oxford, Hart Publishing, 2003); more generally see the collected essays in A-M Slaughter, A Stone Sweet and JHH Weiler, The European Courts and National Courts (Oxford, Hart Publishing, 1998).

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properly belong for inspection under Article 5(1) being instead assessed from the perspective of Article 5(2) deserves mild reproof as constitutionally improper, but the practical implications might be negligible. Private law again provides a helpful example, for the Commission policy documents mentioned above portray the inquiry into the deficiencies of unharmonised contract law to be rooted in subsidiarity—Article 5(2) EC—instead of competence—Article 5(1) EC.39 But post-Tobacco Advertising some of the work in braking expansion of EC activity that was expected to be done by the subsidiarity principle in Article 5(2) may now anyway be seen more properly to be done by the principle of attributed competence in Article 5(1). Functionally the two are linked. The Court has adopted a position which insists that in principle measures of harmonisation are subject to review for compliance with the subsidiarity principle but that in practice the exercise of legislative discretion will be treated deferentially. In Tobacco Advertising the Court did not consider the challenged Directive in the light of subsidiarity—logically so, since it had annulled it as ultra vires the Community. Equally logically, once it had found the labelling Directive attacked in ex parte BAT40 to be validly adopted as a measure of harmonisation it proceeded to consider the relevance of the subsidiarity principle. It ruled that the EC’s competence in the matter was not exclusive, with the consequence that the Directive was required to comply with dictates of subsidiarity as a condition of its validity. But it then stated that the Directive’s objective of eliminating barriers to trade caused by differences between Member States laws in the field ‘cannot be sufficiently achieved by the Member States individually and calls for action at Community level’. So once the competence to adopt common rules is established there seems little scope for subsidiarity-based judicial interference with the legislative decision to exercise that competence.41 The main site for checking adventurous use of the competence to harmonise is at the stage of identifying whether competence to act even exists, not whether a competence should be exercised in the particular case. And/or it lies in a more rigorous application of the proportionality principle— although in ex parte BAT the Court showed conspicuously little enthusiasm for asserting that as a basis for supervision. At stake here is cleaning out the relevance of older legislative accidents. I welcome the trend to make more visible the scope and limits of EC competence and, in fact, regard it as an essential component in making stable the ‘post-QMV bargain’. In this sense the demise of the second rationale for 39Cf

S Weatherill, ‘The European Commission’s Green Paper on European Contract Law: Context, Content and Constitutionality’ (2001) 24 Journal of Consumer Policy 339, esp at 361–63, 371–72. 40 Note 30 above. 41 The Convention on the Future of Europe accepted the primarily political nature of subsidiarity and has proposed inter alia a formal role for monitoring by national Parliaments.

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harmonisation, that pertaining to constitutional over-ambition, may clear the way to a more explicit and constructive focus on what really is needed of a programme of harmonisation in the context of the modern European Union. But let it not be thought this is a matter that is capable of being neatly wrapped up in a simple form of words. It was mentioned above that the Laeken Declaration of December 2001 picked out Article 95, alongside Article 308, as the only Treaty provisions deserving of explicit attention as candidates for revision. But the Convention failed to act vigorously in response to this message that harmonisation is not a technical process, but rather engages profound questions about competence control and legitimacy. Radical revision of Article 95 subsided from view as the Convention progressed. CONCLUDING COMMENTS

The seductive appeal of harmonisation is today tarnished. Its role is increasingly contested. The tension between centralisation and respect for local autonomy has become ever more problematic in a geographically and functionally expanded EU that operates in many areas according to qualified majority vote among its members. The debate about the function of harmonisation is part of a wider and grander debate about the function of the EU itself—how to generate trust and confidence that the creation of stronger central institutions will be balanced by their respect for local regulatory autonomy. The Convention on the Future of Europe’s depiction of a Europe ‘united in its diversity’ in the Preamble to its draft Constitution of July 2003 provides a deliciously piquant taste of the quest to find harmony amid these apparently discordant trends. Yet it is apt to recall that unity need not mean uniformity. Why should minorities be forced into ‘one size fits all’? So instruments of harmonisation, once adopted, allow space for variation. Minorities may achieve an even more radical protection by placing the restraint on the majority’s wish to impose common rules ‘above’ political argument in Council and instead in the constitutional superstructure of the Community itself, in its Treaty. And even where competence to harmonise is acknowledged, there may be more intense questioning of the assumption that it should be pursued—economic arguments may be at stake, but so too cultural objections to harmonisation. So ‘Why harmonise?’ counts as an element in the wider debate about ‘Why transnational governance for Europe?’ This paper is intended to trace the shape of the debate in the belief that what is at stake here is nothing less than the end of the first cycle of European federalism.42 So far, the transfer 42 And so there is much appeal in embarking on exercises in ‘comparative federalism’; cf K Nicolaidis and R Howse (eds), The Federal Vision (Oxford, OUP, 2002).

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of competence has been exclusively from state to EU-level—naturally enough, since the EU began with nothing. Things are changing now. That promises to be a healthy debate provided it is conducted in a manner which makes no assumptions about the inevitable superiority of one form of or one location of legitimacy when planning a structure of governance for Europe.43

43 Cf

A Menon and S Weatherill, ‘Legitimacy, Accountability and Delegation in the European Union’, in A Arnull and D Wincott (eds), Accountability and Legitimacy in the European Union (Oxford, OUP, 2003).

3 Export of Goods and Services within the Single Market: Reflections on the Scope of Articles 29 and 49 EC WULF-HENNING ROTH

INTRODUCTION

I

N THE LAST thirty years, the case law of the Court of Justice concerning the fundamental freedoms of the EC-Treaty has been at the centre of academic comment and reflection. The freedoms form part of the constituant elements of what may be described as the European economic constitution.1 With the interpretation of the freedoms, the determination of their scope, and the development of the relevant control standards—extending the reach of the freedoms beyond a mere prohibition of discriminatory measures to a prohibition of even-handedly applied measures—the Court has moved itself into the position of a final arbiter between the demands of the European Single Market on the one hand and the effectiveness of the decentralized decision making process on the level of the Member States on the other. The interpretation as to the reach and content of the freedoms touches on the delicate issue of the competencies of the Member States and to the extent to which they still may be exercised. The determination of the scope of the freedoms ratio materiae and the appropriate control standards to be applied—discrimination test versus

1 For the concept of an economic constitution, based on the fundamental freedoms, the principle of an open economy with undistorted competition and the general principles of European law, see e.g. R Barents, ‘The Community and the Unity of the Common Market’, (1990) 33 German Yearbook of International Law 9; J Basedow, Von der deutschen zur europäischen Wirtschaftsverfassung (1992); U B Neergaard, Competition and Competences, (1992) 204; W Mussler, Die Wirtschaftsverfassung der Europäischen Gemeinschaft im Wandel, (1998); M P Maduro, We the Court, (1998); J B Cruz, Between Competition and Free Movement, (2002).

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strict scrutiny over restrictive measures2—have a direct impact on the structure and balance of decentralized decision making in the Union, presenting hard choices between the promotion of free trade and free movement of goods, services, persons, and capital on the one hand and social choices pursued by the Member States on the other. The impact of the Court’s adjudication was, in the 1970’s and 1980’s, highly visible and utmost prominent in the area of the free movement of goods.3 Today, the case law regarding freedom to provide services seems to have overtaken by numbers, and the adjudication concerning the free movement of capital and the free movement of companies has gained momentum and importance. Over the years, the interpretation of the freedoms has undergone some changes. Freedom to provide services and freedom of establishment were, at the outset, conceived as implying only a prohibition of discriminatory measures,4 whereas with regard to the free movement of goods the Court started out with its far-reaching formula in Dassonville,5 which was meant to institute judicial control over all State measures potentially or actually hindering the import of goods. And in Cassis6 the Court made it clear that its control would not only embrace discriminatory, but also even-handedly applied measures. The result of this adjudication is well-known: it had the effect that the Member States were put under pressure to justify their regulations by the so-called mandatory requirements of the general good, based on the standards of necessity, appropriateness, and proportionality. As a consequence, for some years and as a result of a number of judgments, it was feared that the Court would overstretch its oversight over Member State regulations into areas where the impact on interstate commerce was more speculative than real, coming close to a more or less ‘economic due process’ jurisprudence. Advocate General Tesauro, in his Hünermund opinion, rightly confronted the Court with the question: ‘Is Article 30 of the Treaty a provision intended to liberalise intra-Community trade or is it intended more generally to encourage the unhindered pursuit of commerce in individual Member States?’7 The answer of the Court to this question is 2 W-H

Roth, ‘The European Court of Justice’s Case Law on Freedom to Provide Services: Is Keck relevant?’ in M Andenas and W-H Roth (eds), Services and Free Movement in EU Law, (2002) 1–24. 3 For an account of the case law, see e.g. S Weatherill and P Beaumont, EU Law, (3rd ed. 1999), 500; JHH Weiler, ‘The Constitution of the Common Market Place: Text and Context in the Evolution of the Free Movement of Goods’, in P Craig and G de Búrca (eds), The Evolution of EU Law, (1999) 349. 4 For an overview see W-H Roth, ‘Niederlassungs- und Dienstleistungsfreiheit’, in MA Dauses (ed), Handbuch des EU-Wirtschaftsrechts, (2002), E.I., para 62–68, 117–18. 5 Case 8/74 Procureur du Roi v Benoit and Gustave Dassonville [1974] ECR 837. 6 Case 120/78 Rewe-Zentral AG v Bundesmonopolverwaltung für Branntwein [1979] ECR 649. 7 Case C–292/92 Hünermund and others v Landesapothekerkammer Baden-Württemberg [1993] ECR I–6787; Opinion delivered on 27 October 1993.

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well known: In its famous Keck judgment8 the Court retreated from its rigorous scrutiny as far as selling arrangements are concerned, reducing its control to merely discriminatory State regulations.9 Moreover, in the 1990s, it became apparent that the Court was attempting to apply converging standards of interpretation to the relevant freedoms, at least, as far as measures of the importing or host States were concerned: Today the Court applies all freedoms to evenhandedly applied State regulations, at least in those situations in which imports are burdened by what may be described as a double regulation. With regard to all freedoms, the Court has added the mandatory requirements of the public interest to the list of justifications which are expressly provided for in the Treaty; and the Court applies the proportionality test, as e.g. set forth in the Gebhard judgment,10 to all the freedoms. In academic quarters, the call for a ‘unified approach to the fundmental freedoms’11 reflects this development in the case law. Whereas the adjudication of the Court concerning the freedoms as applied to regulations of the host States seems to have reached at least some degree of convergence,12 the same cannot be said with regard to regulations of the Member States in their role as home States, concerning the export of goods and services. With regard to the export of goods, the Court, since Groenveld,13 and in contrast to Dassonville, has persistently applied a simple discrimination test in its standard definition of ‘measures of equivalent effect’ under Article 29 EC.14 In contrast, with regard to the export of services, the Court, in its recent Mary Carpenter judgment,15 assumes that a nondiscriminating State interference into the family life of a service provider may amount to an obstruction of freedom to provide services, calling for a strict control as to the justifying reasons and proportionality. Obviously, the Court has adopted the view that any (nondiscriminatory) regulation or measure of the State of origin which may have some negative effect on the interstate provision of services has to be justified by mandatory requirements of the general good. Thereby the Court has dramatically 8 Joined Cases C–267/91 and C–268/91 Criminal proceedings against Bernard Keck and Daniel Mithouard [1993] ECR I–6097. 9 With the same result but based on a somewhat different approach, the Court has consistently held that Member States will not have to justify their policies in those cases in which the influence of (evenhandedly applied) measures on the trade between the Member States is ‘too remote’ and ‘uncertain’; See Case C–93/92 CMC Motorradcenter [1993] ECR I–5009, 5021 para 12. 10 Case C–55/94 Gebhard 1995 ECR I–4165. 11 HD Jarass, ‘A Unified Approach to the Fundamental Freedoms’, in Andenas and Roth (eds) above n 2, 141–62. 12 For an argument for a still more principled and structured approach, replacing the existing, sometimes still confusing multitude of considerations associated with the fundamental freedoms, see e.g. Jarass ibid, 141. 13 Case 15/79 Groenveld 1979 ECR 3409. 14 Described by Weiler, above n 3, 363, as an ‘anomaly’. 15 Case C–60/00 Mary Carpenter [2002] ECR I–6279.

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extended its control over nondiscriminatory measures of the State of origin to all conditions under which the service provider exercises his or her fundamental freedom. This adjudication stands in a striking contrast to the Groenveld jurisprudence which is characterized by an obvious judicial restraint vis-à-vis regulations of the Member States as home States. In the following, I would like to argue that the Court should reconsider its adjudication with its (perhaps) underlying policy considerations and strive for converging standards also in this field of law. I will proceed in three steps. (1)

(2)

(3)

First, I will discuss the adjudication concerning Article 29 EC and the underlying considerations for the somewhat restrictive approach taken by the Court. Secondly, I will then turn to the Court’s case law with regard to the interstate provision of services, as represented by the Mary Carpenter judgment, and the reasons for this far-reaching jurisprudence. Thirdly, I will argue that, on the one hand, export regulations concerning goods and services should be governed by the same standards, and, on the other hand, that these standards should be assimilated to the approach used with regard to import regulations.

EXPORT REGULATIONS FOR GOODS AND ARTICLE 29 EC

Whereas export prohibitions and quantative restrictions of goods are per se caught by Article 29 EC,16 the Court has, ever since its Groenveld judgment, reduced its oversight over State regulations restricting the export of goods to those regulations that discriminate against the export: In the Court’s words, Article 29 EC concerns national measures which have as their specific object or effect the restriction of patterns of exports and thereby the establishment of a difference between the domestic trade of a Member State and its export trade in such a way as to provide a particular advantage for national production or for the domestic market of the State in question at the expense of the production or the trade of the other Member States.17

Despite criticism from a number of Advocates General which have repeatedly argued that the Groenveld test turns out to be too narrow, and in 16 Case 2/73 Riseria Luigi Geddo 17 Groenveld, above n 13.

[1973] ECR 865, 879 para 7.

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contradiction to the Court’s approach with regard to freedom to provide services,18 the Court has never shown any inclination to deviate from its discrimination test and to turn to a prohibition-of-restriction approach.19 Recent case law concerning the proper use of designations of origins, connected with territorally restricted bottling or packing requirements (Belgium v Spain; Ravil and Prosciutto di Parma20), has again restated and reinvigorated the discrimination test. The Court has never attempted to give an explanation why Article 28 EC is applied to import regulations, irrespective of the element of discrimination, whereas Article 29 EC is only applicable to discriminatory regulations. Nevertheless, several explanations for the Court’s restrictive approach to export regulations have been advanced by commentators.21 (1)

(2)

(3)

Member State export regulations seem to be generally much less inimical to interstate trade than import regulations. The reason for that is simple: Member States are generally interested in a promotion of their industry, and therefore also in the furtherance of their exports. Thus, there seems to be no need to go beyond a discrimination test as far as export regulations are concerned. Insofar as Articles 28–30 EC are meant to combat protectionism, the application of a discrimination test seems to serve this purpose sufficiently: experience proves that Member States may be inclined to discriminate against exports requiring domestic raw materials to be processed within their territory, thereby protecting their local processing industry and improving the employment situation.22 A strict oversight over import regulations can be justified by the fact that national rules may lead to a double burden for imported goods which may restrict or even prevent their market access. The Court’s jurisprudence since Cassis is carried by the

18 For a summary see P Oliver, ‘Some further Reflections on the Scope of Articles 28–30 (ex 30–36) EC’, (1999) 36 CML Rev, 783, 800–02. In Case C–12/02 Grilli, Advocate General Léger has not reiterated this criticism (para 22), however, in fn 14, he cites literature criticizing the case law of the Court. 19 For a recent overview of the case law see P Oliver and M Jarvis, Free Movement of Goods in the European Community, (4th ed. 2003) paras 7.101–115. 20 Case C–388/95 Belgium v Spain [2000] ECR I–3123, 3162 para 41, concerning the Rijo rules; Case C–469/00 Ravil v Bellon, Biraghi [2003] ECR I–5053, 5100–5101 para 40–43, concerning packing requirements for ‘Grana Padano’; Case C–108/01 Consorzio del Prosciutto di Parma v Asda Stores [2003] ECR I-5121, 5181–5183 para 54–58, slicing and packing requirements for ‘Prosciutto di Parma’. 21 See e.g. Oliver and Jarvis above n 19, para 6.83. 22 J Snell and M Andenas, ‘How Far? The Internal Market and Restrictions on the Free Movement of Goods and Services: Part 2’, (2000) 2 International Comp Corp Journal, 362, 378.

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(4)

aim to reduce this double burden, as far as product rules are concerned, by applying the mandatory requirements and the proportionality test to import regulations. In contrast, it has been argued that regulations by the exporting State do not create a double burden:23 the producer would have to conform to just one set of rules. Last but not least, the judicial restraint of the Court as to export regulations may find its explanation in an underlying assumption concerning the political representation of the economic and social interests in the political process in the Member States of origin:24 one may argue that the interests of the exporting industry are likely to be efficiently represented in the decision making process (parliament etc.) in the exporting Member State, and that therefore there is no need for the Court to compensate for any under-respresentation of important economic interests involved, as is the case with regard to import regulations.

Despite these considerations, I would like to argue25 that there may be still better reasons for a more intensive control of the exporting State’s regulations that, though evenhandedly applied, may burden the exportation of goods. (1)

The fundamental freedoms should be regarded as subjective rights of traders and consumers to trade and move goods, services and capital across State borders. In this perspective, Article 29 EC should be conceived as a right of the producer (exporter) vis-à-vis his home State to sell his products everywhere in the European market. This right is unnecessarily infringed in a case where the Member State of origin extends the application of its marketing regulations to cross-border situations, comparable to the coldcalling regulation in the case of Alpine Investments.26 A regulation of the State of origin, prohibiting cold calling practices with regard to certain products (e.g. pharmaceuticals), being evenhandedly applied to intrastate and interstate settings, cannot be regarded as discriminating against exports. However, the argument can be and has been made27 that in a situation where the

23 Weatherill and Beaumont above n 3, pp. 605–6. 24 See W-H Roth, ‘Wettbewerb der Mitgliedstaaten

oder der Hersteller?’ (1995) 159 ZHR 78, 87–88; for a full exposition of this argument see M Maduro, We the Court, (1998) 166. 25 The argument has been put forward in (1995) 159 ZHR 78, 88–95; see for reactions e.g. Snell and Andenas above n 22, 376; P Oliver, ‘Some Further Reflections on the Scope of Articles 28–30 (ex 30–36) EC’ (1999) 36 CML Rev 802. 26 Case C–384/93 Alpine Investments [1995] ECR I–1141. 27 Snell and Andenas above n 22, 362–3.

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(2)

39

export State applies its marketing regulations across-the-border in a somewhat extraterritorial fashion, the danger of ‘dual burden’ or double regulation becomes imminent again. Moreover, by applying its marketing regulations to export settings, the exporting Member State may withhold from the producer/exporter an important instrument to gain a foothold on the markets of the other Member States. In the perspective of a single market, in which the producer should be able to have unrestrained access to the markets of all Member States, such marketing rules of the State of origin deserve a judicial scrutiny that goes beyond a mere discrimination test. An analogous argument can be advanced with respect to the socalled product rules. It is certainly correct that at the stage of production only one set of rules (those of the State of production) will apply,28 and therefore apparently no double burden exists. However, as for products to be exported, another set of product rules will become applicable in the future:29 the product rules of the State of destination, resulting also in a dual burden that should call for judicial scrutiny as well. From a single market perspective, the idea of undistorted competition calls for a more intensive control of the exporting State’s product rules as well: Take the case in which State B applies a lenient technical standard to product x, whereas State A applies a strict standard. A company producing product x in State A according to the strict standards of A will easily fulfil the lenient requirements of State B, but the company may nevertheless have a problem when it tries to market its products in State B: The strict standards of State A may likely result in higher production costs, and therefore put the company producing in State A according to the standards of A at a competitive disadvantage in the market of State B. As a consequence, Member States interested in the promotion of exports may restrict the scope of application of product rules to those products that are produced for and marketed in the home market. In my view, however, the producer from State A should not depend on the discretion or grace of the regulator in State A, whether it finds it appropriate to promote the export industry or not. It is Article 29 EC that

28 In this sense Weatherill and Beaumont above n 3, 606. 29 The ‘dual burden’ analysis, as applied to import regulations,

has to take into account that after the goods have left the State of production, the regulations of that State are no longer applicable. The ‘dual burden’ arises often, if not typically, by the consecutive application of the laws of the State of origin and the State of destination. Insofar as this is the case, it cannot be negated that product rules applied by the State of origin to products to be exported may lead to the same dual burden as product rules by the State of destination.

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(3)

gives the company/exporter from State A a right to compete on the market of State B on the terms and on the basis of the conditions set forth by State B. Such a view of the function of Article 29 EC calls for strict scrutiny also with regard to product rules where goods are produced for the purpose of export. The enforcement of product rules by the State of origin A with regard to products to be exported to State B will lead to an unavoidable dual burden in all those settings in which State B will be allowed to apply its more severe product rules being justified by mandatory requirements of the general good. In such a setting a producer in State A who is forced to produce according to the standards of State A and therefore hindered to set up a separate production line for exports to State B cannot export its goods to State B at all. In a setting where State B has good reasons to apply its standards to the marketing of a certain product, the mandatory application of the product rules of State A by State A prevents any exports to State B. Strict scrutiny should therefore be the standard.

Summing up, I would like to argue that the Court’s approach to Article 29 EC is not wholly in tune with the idea of a Single Market. Though the discrimination test takes care of the policy to prevent protective strategies by the State of origin, it falls short as far as the interests of the producers are concerned: a producer in one Member State should, in principle, be able to compete with producers from other Member States on the markets of the other Member States on an equal footing. All non-discriminatory marketing or product regulations of a State of origin that prevent access to the markets of other Member States, or that put the producer at a competitive disadvantage should need to be justified by mandatory requirements of the general good of the State of origin. Where such a justification is not available, the producer should have the choice either to conform to the product standards of the State of origin, or to the product standards of the State for which the goods are produced. As a consequence, the definition of measures of equivalent effect under Article 29 EC should not only embrace measures discriminating against exports, but it should also be extended to all even-handedly applied marketing restrictions and product regulations by the State of origin, as applied to exports. This proposal calls for two further comments: (1)

It is important to note that the proposal refers just to product rules, and not to regulations and measures relating to the conditions under which the goods are produced, such as labour and social legislation, town planning, building codes, police laws, environmental legislation and alike. These regulations are, indeed, far

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(2)

41

removed from interstate trade.30 It has to be acknowledged that, on the one hand, the legislative jurisdiction of the Member State where the production is carried on extends to the regulation of all these areas, and that, on the other hand, the jurisdiction of the importing States will not, or at least should not, extend to these areas in an extraterritorial fashion. No dual burden is thus likely to arise.31 Therefore, there is no need for any intensified judicial scrutiny. The application of the discrimination standard turns out to be sufficient for the protection of exports, and, at the same time, this standard proves to be a reasonable compromise between the demands of free trade and the ability of the Member States (where the production takes place) to effectively pursue their social policies (in the widest sense). The Court, in Oebel, found a prohibition of baking at night times, which was applied even-handedly and irrespective of whether the goods were to be exported or sold on the domestic market, not to be a measure of equivalent effect under Article 29 EC,32 and this judgment, in my opinion, should be good law further on. Applying judicial scrutiny to product rules under Article 29 EC neither contravenes the foundations of Cassis, nor do we have to be afraid of regulatory lacunae. It is true that the Cassis approach is only applicable with respect to products that have been lawfully produced and marketed in the State of origin A—the term ‘lawfully’ referring to regulations of the State of origin that are even-handedly applied to goods that are produced for export purposes as well. In a setting, where the State of origin A is restricted under Article 29 EC from applying its product and/or marketing rules to goods produced for exportation, the Cassis reasoning cannot apply, as far as regulations of the State of destination B are concerned. But that is exactly the result that should be reached: In a case where the Cassis approach is not applicable to product rules of the State of destination B, the Court will have to resort simply to the discrimination test, and that is what the producer in the State of origin A will call for: either he will choose to produce the goods according to the standards of his home State A—and then Cassis will be applicable

30 Oliver and Jarvis above n 19, para 6.83. 31 In case the importing State would attempt

to extend its legislative jurisdiction in an extraterritorial fashion, those regulations would have to be considered as infringing Art 28 EC. The fundamental freedoms lead, indeed, to some extent to a division of competencies, as indicated in the Alpine Investments judgment; see e.g. Snell andAndenas above n 22, 362; J Fetsch, Eingriffsnormen und EG-Vertrag (2002), 198, 233; W-H Roth, ‘Altruistische Interessenwahrnehmung im Binnenmarkt’, in Festschrift für Wolfgang Fikentscher (1997) 723, 725. 32 Case 155/80 Oebel [1981] ECR 1993.

42

Wulf-Henning Roth with regard to regulations of State B—, or, he will produce according to the product standards of B, if that is preferable. Therefore, the Cassis approach is not undermined; it stays applicable, and no regulatory lacunae are in sight: The goods have to be produced either according to standards of State A or State B.33

PROVISION OF SERVICES AND ARTICLE 49 EC

With regard to freedom to provide services (Article 49 EC), the Court has applied a strict scrutiny approach to non-discriminatory rules of the State of destination since the 1980s.34 Though Article 29 EC finds no equivalent in the wording of Article 49 EC, it is generally accepted that freedom to provide services is not only directed towards regulations of the host State (State of destination), but also towards regulations and measures of the home State of the provider of the service as well. The Court has interpreted Article 49 EC as a right to export services and, connected with the export of services, as a right to move out.35 With regard to regulations of the State of origin, Article 49 EC prohibits regulations that discriminate against recipients of services on the basis of their nationality,36 or their establishment in another Member State. The Court has—in contrast to its case law concerning the export of goods under Article 29 EC—however gone beyond a control of merely discriminatory measures, without ever attempting to give an explanation for this somewhat contrasting adjudication. One striking example for this approach is the judgment Alpine Investments,37 dealing with a Dutch regulation prohibiting ‘cold calling’. The scope of this regulation extended not only to domestic calls, but also to calls across the border to other Member States, in the specific setting of the case to England where cold calling was allowed. The regulation was evenhandedly applied. The Court did not restrict Article 49 EC to prohibiting just discriminatory regulations, but it extended the reach of Article 49 EC to non-discriminating regulations restricting the access of the service provider to the market of another Member State.38 A functional explanation of the catchword ‘restriction of market access’, as used in this setting, may turn on the fact that application of marketing rules by the State of origin 33 In accord Snell and Andenas 34 Case 205/84 Commission v

above n 22, 368. Germany [1986] ECR 3755; Case C–76/90 Manfred Säger v Dennemeyer & Co Ltd [1991] ECR I–4221. 35 See Case C–18/93 Corsica Ferries [1994] ECR I–1783, 1822 para 30. 36 See Case C–45/93 Commission v Spain [1994] ECR I–911, 918–20 para 5–10, decided under Art 12 EC. 37 Case C–384/93 Alpine Investments [1995] ECR I–1141. 38 Cf para 37 of the judgment.

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in an extraterritorial fashion carries with it the potential danger of a dual burden which should give rise to strict scrutiny. Moreover, and perhaps more importantly in the given case, the service provider of the State of origin should be in a position to compete in the State of destination on the same terms and under the same conditions as service providers seated in that State. The extension of the Dutch prohibition of cold calling to across-theborder settings meant in the end that Dutch service providers could not use the same effective marketing instruments as their English competitors, and accordingly, that they met with a competitive disadvantage on the English market. This result makes it obvious that there is, indeed, a good case for the Court to apply its strict scrutiny approach to marketing regulations of the State of origin in settings of interstate trade. The Court has, however, applied its strict scrutiny approach not only to marketing regulations, but also to regulations that concern the production of a service in the State of origin. ARD v PRO Sieben Media39 dealt with a German television advertising provision limiting the number of advertisements that could be shown during the broadcast of a movie by way of interruption. The Court held that such a regulation which limits the possibility for television broadcasters established in the State of transmission to broadcast advertisements for the benefit of advertisers established in other Member States amounted to a restriction on the freedom to provide services under Article 49 EC. 40 It is to be noted that the German rule did not attempt to regulate the product ‘advertisement’ as to its content, design etc., but that the rule rather concerned the question in what quantities the specific service may be produced in the television medium. Taken seriously, the judgment in Pro Sieben Media stands for the proposition that a total prohibition of advertising will have to be regarded as a restriction of the freedom to provide services as well. And, indeed, in Gourmet,41 the Court has taken this view. The Court had to deal with a Swedish regulation which prohibited the advertising of alcoholic beverages in magazines. Without any further explanation or argument, the Court stated that ‘a measure such as the prohibition on advertising … even if it is non-discriminatory, has a particular effect on the cross-border supply of advertising space …’ (to advertisers in other Member States), and ‘thereby constitutes a restriction on the freedom to provide services’ within the meaning of Article 49 EC.42 It is submitted that offering advertising in newspapers, magazines or on television is a service that may be offered to recipients in other Member 39 Case

C–6/98 Arbeitsgemeinschaft Deutscher Rundfunkanstalten v PRO Sieben Media AG [1999] ECR I–7599. 40 See para 49. 41 Case C–405/98 Konsumentenombudsmannen and Gourmet International Products AB [2001] ECR I–1795. 42 See para 39 of the judgment.

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States like any other service. If advertising is a service like any other, ARD v PRO Sieben Media and Gourmet stand for the proposition that the scope of Article 49 EC is not restricted to evenhandedly applied marketing regulations and to regulations as to the content of the product, but that it extends also to the legal conditions under which the service is produced in the State of origin (e.g. licensing requirements, quality control regulations etc.). The Court seems not to be prepared to differentiate between marketing regulations on the one hand, and product or production regulations on the other. In Gourmet, the Court cites its Alpine Investments judgment to justify the application of Article 49 EC, though there were striking differences as to the regulations involved: the advertising prohibition in Gourmet could neither be qualified as a regulation creating a potential dual burden for the interstate provision of services, nor could it be argued that access to the market of other Member States was in any way specifically restricted.43 The Court does not point to any principled standards that would or could limit the scope of Article 49 EC with respect to regulations of the State of origin. The danger of an exorbitant, over-reaching scope of Article 49 EC seems to be imminent, with freedom to provide services turning into an economic freedom of service providers vis-à-vis the States in which they are seated. The contrast to the interpretation of Article 29 EC could not be more striking. The failure of the Court to discuss the limits of the scope of Article 49 EC in a principled manner, based on a functional interpretation of freedom to provide services, is reflected in the most recent case of Mary Carpenter. Mrs Carpenter, a national of the Philippines, had overstayed an entry permit of the United Kingdom that had been issued for a period of six months. She failed to apply for an extension of her stay, and consequently married a British national, Mr Carpenter, in 1996. Mr Carpenter ran a business, established in the UK, selling advertising space in medical and scientific UK-based journals and offering certain services to the editors of those journals. A significant proportion of the business was conducted with advertisers established in other Member States (to whom Mr Carpenter traveled for the purpose of his business). The application of Mrs Carpenter for leave to remain in the UK as the spouse of Mr Carpenter was denied, and, subsequently, a deportation order was issued by the Secretary of State. After an unsuccessful appeal to the Immigration Adjudicator, Mrs Carpenter took her case to the Immigration Appeal Tribunal which stayed proceedings and referred the question to the Court of Justice whether under the circumstances of the case a non-national spouse could rely on freedom to provide services (Article 49 EC). 43 In

his opinion, AG Jacobs just cites Alpine Investments for the (correct) proposition that Art 49 EC also covers regulations by the State of origin vis-à-vis the provider of a service seated in this State. The decisive issue—whether Art 49 EC extends to regulations of the product and of the conditions of production—is not mentioned at all.

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In its answer the Court (rightly) assumes that Article 49 EC covers the activities of Mr (and not Mrs) Carpenter as far as services are provided to recipients in other Member States and within those States. As for the required ‘restriction’ under Article 49 EC, the Court held that (i)t is clear that the separation of Mr and Mrs Carpenter would be detrimental to their family life and, therefore to the conditions under which Mr Carpenter exercises a fundamental freedom. That freedom could not be fully effective if Mr Carpenter were to be deterred from exercising it by obstacles raised in his country of origin to the entry and residence of his spouse.44

Having thus accepted that freedom to provide services has been infringed, the Court applies its strict scrutiny approach, accepting a justification of the State measure by the general good only when applied in conformity with Article 8 of the Human Rights Convention (ECHR). In the present case, the Court concludes that the decision to deport Mrs Carpenter has, in the light of Article 8 ECHR, not struck a fair balance between the right of Mr Carpenter to respect for his family life and the maintenance of public order and public safety. The approach taken by the Court is most striking for more than one reason. At the outset, it may be admitted that the Court’s argument with Article 8 ECHR is a forceful one, and that, had the Human Rights Convention been binding on the Secretary of State and the Immigration Adjudicator at the time when the relevant decisions were taken, the deportation order against Mrs Carpenter would probably not have been issued. However, it is, of course, not the function of the Court of Justice to intervene when the human rights protection in a Member State in a given case does not meet the minimum standards. As long as the Court of Justice has not been attributed the competence to act as a general Human Rights Court overseeing not only Community acts but also acts of the Member States that are unrelated to Community law, the Court is bound to strictly observe the limits of its competence, and to refrain from overstretching the scope of the freedoms in order to reach an admittedly just solution in the individual case. Moreover, the Court seems to have been overwhelmed and carried away by the human dimension of the case. However, as Advocate General Jacobs has recently argued, in an Article 234 EC proceeding, it is not the function of the Court to decide specific cases on the basis of narrowly distinguished facts, or to solve a problem for the national court in the particular case, but to state clearly and coherently for the benefit of everyone in the Community what the correct understanding of the law is, and to give rulings of general significance … .45 44 Case 45 Case

C–60/00 Mary Carpenter [2002] ECR I–6279, 6320 para 39. C–136/00 Danner [2002] ECR I–8150, 8158–9 para 38.

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It is submitted that the Court’s interpretation of Article 49 EC in view of the facts of the case raises more (methodological) questions than it answers. It is, of course, settled law that freedom to provide services not only extends to regulations of the State of destination, but also to regulations of the Member State where the service provider has his or her seat. Nor can it be disputed that the service provider may call on Article 49 EC vis-à-vis regulations of the State of origin. The decisive issue that is raised by the Mary Carpenter judgment is whether all regulations (and measures) of the State of origin that may actually or potentially burden or restrict the export of services to other Member States have to be justified by the mandatory requirements of the general good. It is suggested that the Court, in Mary Carpenter, being strongly influenced by the circumstances of the specific case, is overstretching the scope of freedom to provide services: taken seriously the Carpenter judgment opens up the strict scrutiny approach of the Court to the whole mass of legislation that may have an indirect effect on the provision of services. Again the Court seems to be in danger of misconceiving the freedoms as economic freedoms—and this time as an instrument to control State measures on the basis of human rights—and to give freedom to provide services vis-à-vis the regulations of State of origin a scope of application without any discernable limits. It is worth noting that the Court, in Mary Carpenter, does not set forth any principled definition of what amounts to a restriction of freedom to provide services as far as measures of the State of origin are concerned. Instead, the Court points to the fact that the deportation of Mrs Carpenter would obstruct the family life of the couple, and as a result of that would deter Mr Carpenter from exercising his right to provide interstate services. The Court neither states that access to the market of the other Member States is impinged upon, nor that the deportation measure has been taken in view of the fact that Mr Carpenter was engaged in the provision of interstate services. Indeed, the fact that Mr Carpenter was also engaged in the interstate provision of services was merely incidental to the issue of deportation. If the Court were ready to take this approach seriously and to classify non-discriminatory intrusions of the State of origin into family life as obstructions of freedom to provide services, there would be no discernible limits to the Court’s control of State regulations and measures under the strict scrutiny approach: We will have to expect that in the future jail sentences for spouses of service providers will be scrutinized by the Court for their justification and their proportionality, as the effect on family life (e.g. taking care of children etc.) are no different from a deportation order when a spouse has to go to jail. We have to assume all the more that, in principle, all even-handedly applied regulations and measures that are addressed to a provider of interstate services will in the future be strictly scrutinized: e.g. any jail sentence for a service provider will have to be classified as a restriction of

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the freedom as the service provider will be hindered from exercising his or her right. It becomes evident that freedom to provide services will have been turned into a freedom without limits vis-à-vis all non-discriminatory regulations and measures of the State of origin which may have an incidental burdening effect on the interstate provision of services. In effect, the approach taken by the Court will lead to a question comparable to that one which was posed by Advocate General Tesauro in the Hünermund proceedings:46 whether freedom to provide services is to be considered as a general right of a service provider encouraging the pursuit of economic activities within the Member State of origin, or whether it is restricted to those regulations and measures of the State of origin that specifically hinder the access to the markets of the other Member States or put him or her at a competitive disadvantage on the markets of those States.

A PATH FOR THE FUTURE

It is suggested that the answer which the Court ought to give to this question should clearly correspond with the second alternative: It is the very function of the freedoms to control and set limits to regulations that hinder the trade across the borders and that are an obstacle to the integration of the markets of the Member States, and not to guarantee economic and noneconomic due process as such. Viewed in this perspective, the Court should refrain from the temptation to stretch freedom to provide services to all kinds of regulations and measures that have only some incidental effect on the interstate provision of services. It should restrict the application of Article 49 EC to those cases in which the integration of the national markets is at stake, and develop the case law in a principled fashion that gives the national courts and the traders secure guidelines for the future. It is, therefore, suggested that—in contrast to Mary Carpenter—all provisions and measures of the State of origin that relate to the conditions under which the production of services takes place—regulations on labour law, on social security or on police matters etc.—should be regarded as not impinging on freedom to provide services as long as they do not discriminate (in law or in fact) against the interstate provision of services. Moreover, as it comes to institutional arrangements as conditions to take up an activity, and as for necessary vocational and other qualifications required for an activity, there is much to be said that such regulations, as long as they are evenhandedly applied, are not to be considered as ‘restrictions’ under Article 49 EC either: In 1986, it was self-evident to the Court that a non-discriminatory regulation (of the State of origin) such as the Danish law on the supervision of

46 Cf

also Snell and Andenas above n 22, 380.

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insurance undertakings, though clearly being a restriction of the economic freedom of insurance undertakings, should—as an evenhandedly-applied regulation—escape the scope of ex Article 59 (now Article 49).47 It is to be conceded that sometimes it will not be an easy task to draw a bright line between those rules which should be controlled by a strict scrutiny approach, and those regulations where the judicial control should be restricted to a discrimination test. However, it is the task of the Court to identify, in a principled manner, those cases in which non-discriminatory regulations of the State of origin run counter to the idea of market integration and therefore should need a justification by the mandatory requirements of the general good. These may be e.g. cases in which the State of origin accords to its marketing regulations an extraterritorial effect (such as in Alpine Investments), leading to a double burden and a restriction of market access to the other Member States. Moreover, it can very well be argued that service providers, in principle and subject to the mandatory requirements of the general good, should not be hindered from competing on equal terms on the markets of other Member States. In this respect, regulations of the State of origin as to the ‘content’ of the service may be classified as a ‘restriction’ under Article 49 EC if applied also to the interstate provision of services. E.g. requirements of the home State that shape the content or structure of the service as a product (e.g. a credit contract) may amount to a restriction insofar as they hinder the service provider to adapt the service product to the legal environment of the State of destination, or/and to compete on equal terms with local competitors in that market. It is submitted that only if the Court is ready to develop its jurisprudence with regard to freedom to provide services in this direction, a reasonable balance between the exigencies of free trade in services and free movement on the one hand and decentralized decision making on social policies (in the widest sense) on the other hand will be upheld. Rethinking the functional bases of the freedoms to export goods and services should, moreover, lead at least to some convergeance in the interpretation of both freedoms: viewed in the perspective of market integration and undistorted competition there seems to be no convincing justification for the widely diverging approaches of the Court to both freedoms: It seems to me that a good case can be made to develop the Court’s adjudication under Article 29 EC beyond the traditional discrimination approach, whereas, with regard to the export of services, the Court should review its interpretation of Article 49 EC as a freedom without limits, and start to explore and define the limits of this freedom in a principled manner.

47 Case

252/83 Commission v Denmark [1986] ECR 3715, 3751 para 28.

4 And Then There Were Two: Products and Citizens in Community Law JUKKA SNELL*

INTRODUCTION

I

T IS OFTEN argued that the four freedoms, free movement of goods, persons, services, and capital, are converging. Despite the fact that they are set out in different and differently worded Articles of the EC Treaty, many maintain that they are to be interpreted in a uniform fashion. And indeed, after the early years when the free movement of goods was treated much more favourably than the other freedoms, during the last two decades a certain convergence has taken place.1 This paper does not concentrate on the similarities between the freedoms, but instead focuses on the differences. It argues that there still are important inconsistencies remaining in the free movement case law of the European Court of Justice. However, the inconsistencies may be more apparent than real, for it seems that a common pattern may be emerging, namely that the Court is now treating the freedoms involving the free movement of Union citizens more favourably than the movement of products. The paper further argues that the distinction between products and citizens could and should be maintained and developed, as it can provide a coherent and sensible basis for the free movement jurisprudence. The end result could and should be a clear bifurcation of the law, where the products and citizens are seen as two distinct legal categories.

* The author would like to thank Kelyn Bacon, Dr Arwel Davies, Dr Bebhinn Donnelly, Professor Erika Szyszczak, and Dr Helen Toner, as well as all participants in the Workshop, for their helpful comments. 1 P Oliver and M Jarvis, Free Movement of Goods in the European Community (4th edn, London, Sweet & Maxwell, 2003) write at 10: ‘The prevailing view is that the Court’s case law on the principles governing those freedoms is converging, although there are some notable exceptions’.

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This paper proceeds in three stages. It first looks at the case law of the Court on the freedoms, highlighting differences both between freedoms and within freedoms, and noting that the movement of Union citizens seems to have consistently been given preferential treatment. It then proceeds to examine services and capital where the case law does not fit into this mould. Finally, the paper moves from this positive or descriptive analysis to a normative or prescriptive mode, and seeks to provide reasons why a bifurcated approach is preferable to a uniform one.

DIFFERENCES IN THE CASE LAW OF THE COURT

Restriction Perhaps the most fundamental question of internal market law is what amounts to a restriction on free movement. If a restriction is found, the European Court of Justice, or a national court applying Community law, can examine the justification and the proportionality of the measure. If a restriction is found, the Community legislature gains the competence to harmonize under Article 95 EC.2 Despite the fundamental importance of the issue, the approach of the Court has varied greatly across time and subject matter. Currently, in the area of free movement of goods the concept of restriction is tied to discrimination, while for persons and services market access is crucial. The reason for this distinction is unclear. In the field of goods, Article 28 EC prohibits restrictions on imports while Article 29 EC bans export restrictions. According to a consistent line of cases dating from 1979, the latter provision is only concerned with discriminatory treatment of products destined for the markets of other Member States.3 For example, in Belgium v Spain4 the Court decided that a Spanish rule allowing the name of the wine-producing region to be used only if the wine was also bottled in the region amounted to a prima facie restriction on exports. The reason given was that the Spanish measure had the effect of specifically restricting patterns of exports of wine … and thereby of establishing a difference of treatment between trade within a Member State and its export trade.5

After years of expansive reading of Article 28 EC, the Court in 1993 decisively shifted to a discrimination-based approach in the case of Keck,6 which 2 Case C–376/98 Germany v European Parliament and Council [2000] ECR I–8419. 3 Case 15/79 Groenveld v Produktschap voor Vee en Vlees [1979] ECR 3409. 4 Case C–388/95 Belgium v Spain [2000] ECR I–3123. 5 Ibid para 41. 6 Joined Cases C–267 and 268/91 Criminal proceedings against Bernard Keck and

Mithouard [1993] ECR I–6097.

Daniel

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concerned a French rule banning resale at a loss. It did so by creating a distinction between two types of measures, product requirements and rules relating to selling arrangements. It argued that: obstacles to free movement of goods which are the consequence of applying, to goods coming from other Member States where they are lawfully manufactured and marketed, rules that lay down requirements to be met by such goods (such as those relating to designation, form, size, weight, composition, presentation, labelling, packaging)

constitute restrictions prohibited by Article 28 EC, even if the rules are equally applicable.7 By contrast, the application to products from other Member States of national provisions restricting or prohibiting certain selling arrangements is not such as to hinder directly or indirectly, actually or potentially, trade between Member States … so long as those provisions apply to all relevant traders operating within the national territory and so long as they affect in the same manner, in law and in fact, the marketing of domestic products and of those from other Member States.8

The rule prohibiting resale at a loss in issue concerned selling arrangements and did not discriminate, and consequently fell outside Article 28 EC altogether. The apparently different treatment of product requirements and rules concerning selling arrangements is readily explicable with reference to the concept of discrimination. The former rules create a double burden on products coming from other Member States that have already complied with one set of product rules and now may need to be altered to comply with additional requirements. This can be seen as a form of discrimination. By contrast, the same double burden does not necessarily arise in the case of rules that do not relate to the products themselves but only concern their marketing. Accordingly, these rules are only within Article 28 EC if they discriminate in law or in fact.9 The result is that for Article 28 EC to apply it is ‘necessary that sales of imported products be affected to a greater extent than sales of domestic products’.10 This emphasis on discrimination is also borne out by paragraph 17 of the judgment, where the Court explains its ruling by arguing that, in the 7 Ibid para 15. 8 Ibid para 16. 9 See N Bernard,

‘Discrimination and Free Movement in EC Law’ (1996) 45 ICLQ 82, 91–93. See also S Weatherill and P Beaumont, EU Law (3rd edn, London, Penguin, 1999) 612–13. Joliet, ‘The free circulation of goods: The Keck and Mithouard decision and the new directions in the case law’ (1995) 1 Columbia Journal of European Law 435, 447. Judge Joliet was one of the judges deciding the case.

10 R

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absence of discrimination, the application of rules concerning market circumstances to the sale of products from other Member States ‘is not by nature such as to prevent their access to the market or to impede access any more than it impedes the access of domestic products’. Again, the Court is concerned about whether access of foreign products is impeded more than the access of domestic products, or prevented altogether, as in the case of a total ban.11 It was not worried about non-discriminatory impediments to market access.12 This case can be contrasted with the decisions of the Court in the fields of persons and services. The best-known example is provided by the judgment in Bosman,13 which concerned rules of sporting bodies setting up a transfer fee system that prevented Mr Bosman from moving from his Belgian football club to a French club. The Court acknowledged that the rules applied in the same way to transfers within a Member State as to transfers between Member States, but nevertheless found a restriction on free movement of workers. It replied to the argument that Keck should apply by analogy, by reasoning that the transfer rules were not comparable to the rules concerning selling arrangements in Keck, as they directly affected players’ access to the employment market in other Member States. It could be argued that the Court distinguished Keck on the facts and therefore did not deny its applicability in the field of workers. Certainly, the factual situations in the two cases were quite different. In Keck the national measure took effect at the retail level. It only prohibited one method of marketing of products that had already entered another Member State. Its impact on inter-State movement was neither substantial nor direct. By contrast, the transfer rules in Bosman totally prevented Mr Bosman from transferring to another club unless the fee was paid and directly concerned cross-border movement. Their impact was both substantial and direct. However, it seems that the argument of factual differences explaining the different approaches cannot be sustained.14 First, on the facts Bosman should not really be compared with Keck in the first place. The relevant comparison is the case law on Article 29 EC, as Bosman concerned a rule preventing a footballer from leaving his country of origin, a type of 11 Already in Case 34/79 R v Henn and Darby [1979] ECR 3795 a total ban on importation was seen as a quantitative restriction, imposing a quota of zero. A total ban can be seen as a form of discrimination. A product that has complied with the regulations of the country of export is not allowed on the market of the importing country without being fundamentally changed. 12 This is also noted in C Barnard, ‘Fitting the Remaining Pieces into the Goods and Persons Jigsaw?’ (2001) 26 EL Rev 35, 48. 13 Case C–415/93 Union Royale Belge des Sociétés de Football Association ASBL and others v Jean-Marc Bosman [1995] ECR I–4921. 14 See also M Poiares Maduro, We The Court. The European Court of Justice and the European Economic Constitution. (Oxford, Hart Publishing, 1998) 101. Contrast generally AG Tizzano in Case C–442/02 CaixaBank nyr.

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export restriction. The Court has never found non-discriminatory rules to constitute restrictions on the export of goods, like it did here for workers. Accordingly, the approaches to workers and goods seem manifestly different. Secondly, some cases in the area of free movement of goods seem to involve direct impediments on market access of foreign products, but in the absence of discrimination the Court has approved of the national measures, in contrast with Bosman where the directness of the impediment resulted in the finding of a restriction. An example is Commission v Greece15 where the Court decided that a Greek rule allowing the sale of processed milk for infants only in pharmacies did not infringe Article 28 EC, as it concerned selling arrangements and did not discriminate. Yet the rule was clearly capable of having a substantial impact on imports by disallowing supermarkets from carrying the product. Its impact on imports seemed direct, as it forced importers to deal solely with pharmacies, and it also prohibited direct sales methods, such as selling of tins of baby milk powder in catalogues.16 Thirdly, there are cases dealing with persons or services that do not involve direct impediments to market access but where restrictions have been found. Yet in Bosman the Court had treated directness as the crucial factor distinguishing it from Keck, in effect arguing that it was the indirect impact of the ban on resale at a loss that removed it from the ambit of Article 28 EC. The best example of this is Carpenter. 17 The case involved the decision of the UK authorities to deport Mrs Carpenter, who was the wife of a British national providing services to clients in other Member States. The Court found that the deportation was contrary to Article 49 EC, arguing that: the separation of Mr and Mrs Carpenter would be detrimental to their family life and, therefore, to the conditions under which Mr Carpenter exercises a fundamental freedom. That freedom could not be fully effective if Mr Carpenter were to be deterred from exercising it by obstacles raised in his country of origin to the entry and residence of his spouse.18

Yet here one can hardly speak of a direct impediment to Mr Carpenter’s access to the service markets of other Member States. The impact on his activities was indirect, felt through the treatment of his wife, and consisting primarily of a need to adopt alternate child care arrangements.19 This seems 15 Case C–391/92 Commission v Greece [1995] ECR I–1621. 16 AG Lenz argued in para 19 of his Opinion that the rules were

capable of adversely affecting imports and had a direct effect on them. He further maintained that measures relating to the marketing of a product, such as processed milk for infants, generally had more intensive effects than rules governing general conditions of sale, such as a prohibition of resale at a loss. 17 Case C–60/00 Mary Carpenter v Secretary of State for the Home Department [2002] ECR I–6279. 18 Ibid para 39. 19 See the argument of Mrs Carpenter ibid para 17.

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to have been recognised by the Court, which did not refer to market access at all, but spoke in terms of a detriment to the conditions for the exercise of a fundamental freedom. Fourthly, a simple analysis on the basis of factual distinctions cannot explain those cases where the facts have had clear similarities, but the approaches adopted by the Court have differed fundamentally. For example, the ban on selling baby milk in supermarkets fell outside Article 28 EC altogether, while the ban on selling advertising space for alcoholic beverages in magazines was held to be within Article 49 EC in Gourmet International Products.20 Finally, it seems that the Court is not really interested in analyzing whether its rulings in the fields of persons and services comply with Keck, let alone with the case law on Article 29 EC. It usually only refers to Keck if a party actually argues that the case law on goods should apply by analogy, so far always rejecting such an argument. In general, it does not independently explore the implications of the goods cases.21 The Court has not explained the reasons for the differences between goods, and persons and services cases. However, some hints may be gleaned from the reasoning in the judgments and from the Opinions of the Advocates General. In Keck the Court stated that it considered the re-examination and clarification of its earlier case law on the free movement of goods necessary [i]n view of the increasing tendency of traders to invoke Article [28] of the Treaty as a means of challenging any rules whose effect is to limit their commercial freedom even where such rules are not aimed at products from other Member States.22

This can be understood against a background of a relatively large number of cases where national rules that had very little to do with inter-State trade, such as the British Sunday trading legislation, were challenged on the grounds that they infringed free movement of goods.23 This threatened

20 Case C–405/98 Konsumentombudsmannen v Gourmet International Products Aktiebolag [2001] ECR I–1795. Compare also the advertising of goods in Joined Cases C–34–36/95 Konsumentombudsmannen v De Agostini (Svenska) Förlag AB and TV-Shop i Sverige AB [1997] ECR I–3843 with the advertising of services in Case C–294/00 Deutsche Paracelsus Schulen für Naturheilverfahren GmbH v Kurt Gräbner [2002] ECR I–6515, and the treatment of Art 28 EC in Joined Cases C–401–402/92 Tankstation ‘t Heukske vof and JBE Boermans [1994] ECR I–2199 and Joined Cases C–69/93 and C–258/93 Punto Casa SpA v Sindaco del Commune di Capena [1994] ECR I–2355 with the treatment of Art 49 EC in Case C–6/98 Arbeitsgemeinschaft Deutscher Rundfunkanstalten (ARD) v PRO Sieben Media AG [1999] ECR I–7599. 21 See also V Hatzopoulos, ‘Alpine Investments’ (1995) 32 CML Rev 1427, 1438–9. In Case C–289/02 AMOK nyr para 27 the Court has again implicitly rejected Keck. 22 Above n 6, para 14. 23 See on this saga C Barnard, ‘Sunday Trading: A Drama in Five Acts’ (1994) 57 MLR 449.

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to overwhelm the Court and to bring its legitimacy into question.24 By contrast, challenges based on free movement of persons or services have traditionally been less numerous. In part this may have to do with the earlier, restrictive approach of the Court towards these freedoms, which has now been entirely reversed, but there are also two structural factors at work. First, free movement rules are only applicable if there is an interState element. In practice, this may be easier to find in the field of goods, as for example traders wishing to sell on Sundays can usually claim to be stocking some products from other Member States, and anyway a potential effect on intra-Community trade is sufficient. 25 Consequently, test cases are easy to construct, and Article 28 EC can be used as a generalpurpose defence against the application of national regulations. By contrast, in the fields of persons and services the inter-State element may create more problems for litigants.26 For example, Article 39 EC is only applicable if a worker has migrated to another Member State or returned to his home state after a period abroad. A mere hypothetical possibility that he might do so in the future is not sufficient.27 This means that in many factual circumstances EC rules do not come into play.28 Secondly, the litigants may differ. In the field of goods corporations may find it worthwhile to litigate aggressively and to construct test cases to advance their commercial interests. By contrast, in particular in the case of workers the litigant is often a private individual who may not have the means or the motivation for a prolonged legal struggle.29 Another hint is provided by the Opinion of Advocate General Lenz in Bosman, which was followed by the Court in result, where he made an interesting argument for a wide interpretation of Article 39 EC. Drawing on the judgment in Heylens,30 where the Court had stated that ‘free access to employment is a fundamental right which the Treaty confers individually on each worker in the Community’,31 he argued that free movement of workers was a true fundamental human right.32 Accordingly, the 24 K

Lenaerts, ‘Some Thoughts About the Interaction Between Judges and Politicians in the European Community’ (1992) 12 YEL 1 at 12 writes: ‘Even the judge questions, at times, the legitimacy and the feasibility of making policy choices, of weighing the Community interest in having an internal market, and the Member States’ interest in protecting what they see as fundamental local values’ (footnotes omitted). 25 Joined Cases C–321–324/94 Pistre, Barthes, Milhau, and Oberti [1997] ECR I–2343. 26 See eg a failed test case Case C–97/98 Jägerskiöld v Gustafsson [1999] ECR I–7319. 27 Case 180/83 Moser v Land Baden-Württemberg [1984] ECR 2539. 28 For a general discussion of the case law, see N Nic Shuibhne, ‘Free movement of persons and the wholly internal rule: time to move on?’ (2002) 39 CML Rev 731, who argues that the trend is towards the relaxation of the inter-State element requirement. 29 See also M Poiares Maduro, ‘Harmony and Dissonance in Free Movement’ in M Andenas and W-H Roth (eds), Services and Free Movement in EU Law (Oxford, OUP, 2002) 67. 30 Case 222/86 UNECTEF v Heylens [1987] ECR 4097. 31 Ibid para 14. 32 As opposed to a mere fundamental freedom.

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non-discriminatory character of the measure was irrelevant,33 as violations of the human rights of non-nationals cannot depend on whether human rights of nationals are also violated. This reasoning cannot be easily transposed to goods, as selling of products cannot readily be seen as a fundamental right.34 An American Legal Realist might also detect an unarticulated reason for the divergence.35 In some judgments on persons or services where the Court has gone particularly far, such as Bosman and Carpenter, on the facts of the cases the judges must have felt great sympathy towards the parties relying on the free movement rules. Jean-Marc Bosman was a professional footballer with a limited number of years remaining of his career. He was placed in a situation where his contract with his original club had come to an end, but another club could not employ him either. Effectively, he could not practise his profession at all and, without the intervention of a Belgian court, would have received no income whatsoever. Clearly from his personal point of view the situation was absolutely intolerable. In 2002 when the judgment was rendered Mary Carpenter had been in the UK for eight years and had been married to Peter Carpenter for six years. The marriage was a genuine one, and Mrs Carpenter looked after the children of her husband from his previous marriage. She was now facing deportation to the Philippines as a consequence of having overstayed her original visa and having failed to apply for an extension. A prime duty of any court is to protect individuals against misuse of power. An American realist might say that in both of these cases any judge might have been inclined to disregard jurisdictional niceties in order to protect a vulnerable individual.36 By contrast, in the area of free movement of goods the factual situations are generally less extreme. In summary, the concept of restriction in this case law is fundamentally different for goods than for persons and services. In the former field discrimination is the underlying concern, while in the latter market access dominates. The Court has never sought to explain this divergence.

Private Parties Another area where the case law on the free movement of goods differs significantly from that on persons and services concerns measures adopted 33 See 34 See 35 See

above n 13, para 203 of the Opinion of AG Lenz. further below at section IV. generally eg H Collins, ‘Law as Politics: Progressive American Perspectives’ in J Penner, D Schiff, and R Nobles (eds), Introduction to Jurisprudence and Legal Theory. Commentary and Materials (London, Butterworths, 2002) 282. 36 See also G Davies, Nationality Discrimination in the European Internal Market (The Hague, Kluwer Law International, 2003) 74–76 and ‘Editorial comments: Freedoms unlimited? Reflections on Mary Carpenter v Secretary of State’ (2003) 40 CML Rev 537, 540–1.

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by private parties. Here the question is whether private behaviour can constitute an obstacle to free movement. In the field of goods the early decisions of the European Court of Justice on intellectual property and unfair competition contained statements that seemed to indicate that private parties were bound by Article 28 EC.37 However, in later cases the Court has decisively moved away from that view. In Van de Haar38 the Court emphasised that Article 28 EC on free movement of goods and Article 81 EC on restrictive agreements pursued different aims, the former being directed at State measures hindering imports and the latter targeting anti-competitive behaviour of undertakings. In Vlaamse Reisbureaus39 the Court stated that ‘Articles [28] and [29] of the Treaty concern only public measures and not the conduct of undertakings’.40 As a consequence, in the area of goods private barriers are either dealt with under competition law, or the State may be held responsible for a failure to adopt necessary measures to protect the free movement of goods from private actions, contrary to Article 28 EC, read together with Article 10 EC.41 The case law of the Court in the fields of persons and services has developed very differently. Already in 1974, in Walrave and Koch42 the Court held that Articles 39 and 49 EC applied not only to the action of public authorities but extended ‘likewise to rules of any other nature aimed at regulating in a collective manner gainful employment and the provision of services’.43 This decision has been later confirmed in numerous cases.44 It could perhaps be argued that the emphasis of the Court on collective regulation meant that its stance was not too far removed from that in the area of goods, in particular due to the expansive reading given to the concept of State in Article 28 EC cases such as Commission v Ireland (Buy Irish).45 However, the reasoning of the Court differs fundamentally, despite the fact that the results may not be too dissimilar. In the goods cases the argumentation revolves around the question of whether a State body is the source of the measure, while the connection between the 37 See eg Case 58/80 Dansk Supermarked A/S v A/S Imerco [1981] ECR 181. 38 Joined Cases 177 and 178/82 Van de Haar and Kaveka de Meern BV [1984] ECR 1797. 39 Case 311/85 Vlaamse Reisbureaus v Sociale Dienst van de Plaatselijke en Gewestlijke

Overheidsdiensten [1987] ECR 3801. 40 Ibid para 30. 41 Case C–265/95 Commission v France [1997] ECR I–6959. See also Case C–112/00 Schmidberger v Austria [2003] ECR I–5659. 42 Case 36/74 Walrave and Koch v UCI [1974] ECR 1405. 43 Ibid para 17. 44 See eg Bosman above n 13 and Case 90/76 van Ameyde v Srl Ufficio Centrale Italiano di Assistenza Assicurativa Automobilisti in Circulazione Internazionale [1977] ECR 1091 (establishment). 45 Case 249/81 Commission v Ireland [1982] ECR 4005. See also eg Case 222/82 Apple and Pear Development Council v KJ Lewis Ltd and Others [1983] ECR 4083 and, more recently, Case C–325/00 Commission v Germany [2002] ECR I–9977.

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measure and public authorities is not examined at all in the persons and services decisions. The Court has been even more expansive in respect of Article 39 EC. In 2000 in Angonese46 a requirement of an Italian bank that job applicants possess a particular certificate of linguistic competence issued by local authorities was held to discriminate on grounds of nationality and to violate Article 39 EC, despite the fact that the measure emanated from a single private undertaking. There is no equivalent decision in the field of goods, and in 2002 in Sapod Audic47 the Court again ruled that ‘a contractual provision cannot be regarded as a barrier to trade for the purposes of Article [28] of the Treaty since it was not imposed by a Member State but agreed between individuals’.48 Again, these cases show a fundamental difference between the freedoms, and again the Court has not explained why this should be so. In the field of goods in Van de Haar the Court seemed to be concerned with preventing an overlap between Article 28 EC and competition law, but this concern applies equally to establishment and services, where such an overlap may also manifest itself. In the field of workers, by contrast, any overlap between Articles 39, and 81 and 82 EC is less frequent, as the competition rules are addressed to undertakings, not to individual workers49 and Article 81 EC does not apply to agreements concluded in the context of collective negotiations between management and labour seeking to improve conditions of work and employment.50 In the field of persons and services the Court has deployed a number of arguments to support the finding that at least some private barriers are caught by free movement rules.51 It has argued that the abolition of public restrictions on free movement could prove futile if private obstacles were immune to free movement rules; that the uniform application of Community law demands the inclusion of private barriers, since in some Member States working conditions are governed by law but in others by agreement; and that the language of the Treaty is neutral and does not limit itself to prohibiting public restrictions.52 The first two reasons seem to be particularly relevant for the field of workers, due to the lack of bite of competition law provisions in that area and because of the prevalence of collective

46 Case C–281/98 Roman Angonese v Cassa di Riparmio di Bolzano SpA [2000] ECR I–4139. 47 Case C–159/00 Sapod Audic v Eco-Emballages SA [2002] ECR I–5031. 48 Ibid para 74. 49 Case C–22/98 Becu [1999] ECR I–5665. 50 Case C–67/96 Albany International BV v Stichting Bedrijfspensioenfonds Textielindustrie

[1999] ECR I–5751. 51 For further discussion, see S Van den Bogaert, ‘Horizontality: The Court Attacks?’ in C Barnard and J Scott (eds), The Law of the Single European Market. Unpacking the Premises (Oxford, Hart Publishing, 2002) 134–8. 52 Walrave and Koch above n 42 paras 18–20.

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agreements. However, they are mostly inapplicable both for goods, and for establishment and services.53 The third reason has little force, as private parties are not explicitly included by any of the relevant provisions and seem to be excluded by some, such as Article 50(3) EC. In any event, the same argument could be made for goods. In addition, in some cases the Court has drawn attention to Article 7(4) of Regulation 1612/68,54 which prohibits discrimination against workers from other Member States in collective or individual agreements.55 This argument obviously does not apply in the field of goods, but neither does it apply for establishment or services. Further, as an argument it is quite unattractive for it fundamentally involves construing primary law in the light of secondary law, contrary to the canons of juridical interpretation. It is interesting to note that this argument did not feature in Angonese, where it would have been relatively easy for the Court to decide the case on the basis of Regulation 1612/68 without having to extend Article 39 EC. In Angonese the Court brought out a new reason for the horizontal application of Article 39 EC. The Court referred to its judgment in Defrenne II,56 where it had decided that the prohibition of sex discrimination in respect of pay in Article 141 EC applied also to private employers, despite the fact that the provision only referred to Member States. It had argued that the wording of the Article did not prevent rights being conferred to individuals, and that the mandatory nature of the provision meant it applied also to private behaviour. In Angonese, the Court stated that these considerations must, a fortiori, be applicable to Article [39] of the Treaty, which lays down a fundamental freedom and which constitutes a specific application of the general prohibition of discrimination … [L]ike Article [141] of the EC Treaty … it is designed to ensure that there is no discrimination on the labour market.57

The reference to the case law on equal pay is interesting for at least two reasons. First, it serves to draw attention to the special nature of the labour

53 Professional bodies which regulate some service activities may be caught by competition rules, as seen eg in Case C–309/99 JCJ Wouters, JW Savelbergh and Price Waterhouse Belastingadviseurs BV v Algemene Raad van de Nederlandse Orde van Advocaten [2002] ECR I–1577, or they may be held to form a part of a state, as seen eg in Joined Cases 266 and 267/87 R v Royal Pharmaceutical Society, ex p API [1989] ECR 1295. Compare also Joined Cases C–180–184/98 Pavlov v Stichting Pensioenfonds Medische Specialisten [2000] ECR I–6451 with Albany, above n 50, to see the greater impact of competition rules for professionals than for workers. 54 Council Reg (EEC) 1612/68 on freedom of movement for workers within the Community [1968] OJ Spec Ed 475. 55 Walrave and Koch above n 42, para 22. 56 Case 43/75 Defrenne v Sabena [1976] ECR 455. 57 Above n 46, para 35.

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market, where social issues feature large.58 Secondly, and more importantly for the present purposes, it implicitly gives free movement of workers the status of a fundamental human right. It draws a parallel between equal pay and free movement of workers, arguing that the considerations that led to the extension of Article 141 EC apply with even more force to Article 39 EC. The significance of this becomes apparent when it is remembered that the Treaty provision on equal pay is an expression of the fundamental personal human right of elimination of sex discrimination, which is a part of the Community legal order.59 In effect, the Court is saying that Article 39 EC has a similar status. It also reflects a fundamental right. The same cannot easily be said of Articles 28 and 29 EC.

Third Country Workers Fault lines have not only emerged between the freedoms but also within them. One such line divides the workers who are Community nationals from those who are not. The former are able to enjoy rights given by Article 39 EC, as well as rights derived from secondary legislation. The latter are mainly dealt with under Title IV EC on visas, asylum, immigration and other policies related to free movement of persons. In the case of Meade,60 involving a United States national, the European Court of Justice ruled that Article 39 EC only applies to nationals of the Member States. The Court did not give any reasons for this decision, treating it almost as a self-evident fact. Yet a different interpretation would have been possible. Article 39 EC does not explicitly limit itself to Member State nationals, in 39(1) it speaks simply of ‘workers’, and in 39(2) of ‘workers of the Member States’. Its language is neutral as regards the nationality of the workers and could be interpreted to include long-term resident third country nationals. This can be contrasted with Article 69 of the ECSC Treaty, which provided for the removal of ‘any restriction based on nationality upon the employment in the coal and steel industries of workers who are nationals of Member States’. It can therefore be argued, a contrario, that the absence of an express limitation to Community nationals in Article 39 EC should be read to mean that free movement rights are also given to certain third country nationals.61 Further, from an

58 J Baquero Cruz, Between Competition and Free Movement. The Economic Constitutional Law of the European Community (Oxford, Hart Publishing, 2002) 96 emphasises the ‘social dimension’. 59 Case 149/77 Defrenne v Sabena [1978] ECR 1365. 60 Case 238/83 Meade [1984] ECR 2631 para 7. 61 This point is made by R Plender, ‘Competence, European Community Law and Nationals of Non-Member States’ (1990) 39 ICLQ 599, 604.

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economic perspective, it is entirely irrelevant whether a mobile unit of production moving to a higher-valuing user in another country is a Member State national or, for example, a long-term resident with a third country nationality. Of course there were good reasons to limit Article 39 EC only to Community nationals. Article 39(2) EC prohibits discrimination based on nationality, and it is somewhat difficult to see how this could refer to anything apart from nationality of a Member State. Also, Article 238 EC [now 310 EC] association agreements were at that time the most natural vehicle for the creation of free movement rights for third country nationals.62 Additionally, according to Articles 43 and 49 EC the right of establishment and the freedom to provide services, as well as the Community secondary legislation on free movement of workers, only apply to Community nationals, and a different interpretation of Article 39 EC would have created considerable difficulties. The point here is not that the Court made a right or a wrong decision. Rather it is that its decision was not inevitable; it was faced with a choice. It could conceivably have extended Article 39 EC to third country workers, but chose not to do so.63 It gave preference to the movement rights of Union citizens.

Establishment of Companies Another internal fault line emerges in the field of right of establishment. Article 48 EC provides that companies and firms that fulfil certain criteria are to be treated, for the purposes of the chapter on establishment, ‘in the same way as natural persons who are nationals of Member States’. Despite this clear instruction of parallel treatment, in practice the Court has given preference to the movement of natural persons, and has expressly argued that legal persons cannot be dealt with as favourably. In Daily Mail64 the applicant company wished to transfer its central management and control from the UK to the Netherlands to secure certain tax advantages. Under the UK legislation the transfer was subject to the prior consent of the Treasury. Had this been a case of a natural self-employed person, such as a lawyer, wishing to transfer the management and control 62 These

points were made eg by T Kingreen and R Strömer, ‘Die subjektiv-öffentlichen Rechte des primären Gemeinschaftsrechts’ (1998) Europarecht 263, 274. 63 For an early debate on the topic, see DF Edens and S Patijn, ‘The Scope of the EEC System of Free Movement of Workers’ (1972) CML Rev 322 and WR Böhning, ‘The Scope of the EEC System of Free Movement of Workers: A Rejoinder’ (1973) 10 CML Rev 81. The latter author argued that Article 39(1) EC applied also to third country nationals. 64 Case 81/87 The Queen v HM Treasury and Commissioners of Inland Revenue, ex parte Daily Mail and General Trust PLC [1988] ECR 5483.

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of his operations to another country, a requirement of prior authorization would self-evidently have constituted a restriction on the right of establishment. However, the Court, despite the clear instruction in Article 48 EC to treat legal persons the same way as natural persons, proceeded to impose a significant limit on the reach of the right of establishment in the case of companies. It argued that ‘unlike natural persons, companies are creatures of the law and, in the present state of Community law, creatures of national law’.65 It then noted that national legislations vary greatly as regards the connection required between a company and a State, and that this had not been harmonized. Accordingly, the rules on the right of establishment had not resolved the question about whether and how a company may transfer its real head office to another Member State, and therefore Articles 43 and 48 EC could not be read as granting the company the right to transfer its central management and control to another Member State.66 Again the result is that priority is given to the movement of natural persons, this time over the movement of companies. Again, this cannot be seen as an inevitable ruling. In Daily Mail Advocate General Darmon had actually suggested another course, arguing that ‘[n]o prior authorization may be required for the exercise of a fundamental freedom’,67 but that a Member State may require the taxes to be settled in respect of the assets affected by the transfer. Some commentators have seen this as a superior alternative.68 Yet again the Court decided that Community nationals deserved preferential treatment.

A Common Theme It can be argued that a common theme is emerging from this case law. The Court has consistently favoured the movement of Union citizens over other forms of free movement. The concept of restriction is wider for Articles 39, 43, and 49 EC than for Articles 28 and 29 EC, and private behaviour has

65 Ibid para 19. 66 Daily Mail still

seems to be good law despite the decision of the Court in Case C–208/00 Überseering BV v NCC Nordic Construction Company Baumanagement GmbH [2002] ECR I–9919. In this latter judgment the Court spent thirteen paragraphs carefully distinguishing Daily Mail on the facts rather than overruling it. Similarly, W-H Roth, ‘From Centros to Ueberseering: Free movement of companies, private international law, and Community law’ (2003) 52 ICLQ 177, 206. 67 n 64 above para 12 of the Opinion of AG Darmon. 68 See eg V Edwards, EC Company Law (Oxford, OUP, 1999) 380. She also argues at 364, consistently with the thesis presented in this paper, that ‘in contrast to the case-law on individuals’ freedom of establishment, the case-law on corporate establishment appears to have little evolved towards a restriction based analysis’, but mostly maintains its connection to discrimination.

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been held to infringe free movement of persons and services, but not free movement of goods. Movement rights are only given to Community rather than third country nationals, and natural persons are treated more favourably than companies. One clear argument for this preference arises from the reasoning. In particular, in Bosman AG Lenz argued that the free movement of workers should be seen as a fundamental human right, and a similar inference can be made from Angonese, where the Court drew a parallel to the fundamental right of equality between sexes. Of course, there is nothing new in this argument. It was already made in 1983 in Forcheri69 where the Court stated that [a]ccording to both the legislative practice of the Community and the established case-law of the Court the right to free movement must not be interpreted narrowly. As the recitals in the preamble to Regulation no 1612/68 of the Council state, it constitutes a fundamental right of workers.70

The Court repeated this in 1987 in Heylens where it argued that ‘free access to employment is a fundamental right which the Treaty confers individually on each worker in the Community’.71 However, it may be that the Court is only now drawing full conclusions from this human rights argument, and from the fact that it cannot very easily be made in the case of products or companies.

SERVICES AND CAPITAL

However, there are two dogs that have failed to bark, and those are the cases on services and capital. Regarding services, if the above thesis is correct and the Court has given priority to the movement of Union citizens, it could have been expected to treat situations where a service provider moves more favourably than situations where only the service moves. Yet in the main there are no fault lines here. In particular, the case law has given the notion of restriction the same wide reading regardless of whether the service itself was supplied cross-border, as in Alpine Investments,72 Pro Sieben Media,73 and Gourmet International Products,74 or whether the travel of

69 Case 152/82 Forcheri v 70 Ibid para 11. The third

Belgium [1983] ECR 2323. recital of Council Reg 1612/68, above n 54, states that ‘freedom of movement constitutes a fundamental right of workers’. 71 Above n 30, para 14. 72 Case C–384/93 Alpine Investments BV v Minister van Financiën [1995] ECR I–1141. 73 Above n 20. 74 Above n 20.

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Union citizens providing services was involved,75 as in Deliège76 and Carpenter.77 The uniform interpretation of free movement of services is not entirely surprising, for two reasons. First, there is nothing in the text of the Treaty to suggest that within this single freedom preference should be given to situations where natural persons move. In fact, an opposite reading would be more natural, given that Article 49 EC simply prohibits restrictions on freedom to provide services, but Article 50(3) EC seems to only require national treatment in the case of the service provider moving. Secondly, a split approach to different modes of service provision could have economically undesirable consequences. Often a service can be provided using alternative modes of supply and the selection is only a matter of technological and economic convenience.78 For example, in the past doctors often treated patients in their homes (the service provider moving), whereas nowadays the patient usually goes to the doctor instead (the recipient moving), and in the future a doctor may perhaps be routinely contacted via a videolink (the service moving). If a mode that involves the movement of Union citizens was given privileged treatment in law, service providers might opt for outdated delivery techniques simply to come within a more favourable legal regime, hardly a desirable result. However, there are some instances where the different modes of supply of services have been treated differently. In Opinion 1/94 (WTO)79 the Commission had argued that the conclusion of GATS (General Agreement on Trade in Services) fell within the Common Commercial Policy where the Community has exclusive competence, relying inter alia on the overlap between goods and services. The Court accepted this argument only partially. With respect to cross-frontier supply of services not involving movement of persons, the situation was not unlike trade in goods, which is unquestionably covered by the common commercial policy … There is thus no particular reason why such a supply should not fall within the concept of common commercial policy.80

By contrast, the other modes of supply did not fall within Article 133 EC. The Court argued in respect of natural persons that Article 3(1) EC drew

75 See generally on this case law J Snell, Goods and Services in EC Law. A Study of the Relationship Between the Freedoms (Oxford, OUP, 2002) 91–116. 76 Joined Cases C–51/96 and C–191/97 Christelle Deliège v Asbl Ligue Francophone de judo et disciplines associées and Others [2000] ECR I–2549. 77 Above n 17. 78 GP Sampson and RH Snape, ‘Identifying the Issues in Trade in Services’ (1985) 8 The World Economy 171, 173–74. 79 Opinion 1/94 (WTO) [1994] ECR I–5267. 80 Ibid para 44.

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an explicit distinction between the common commercial policy and the movement of third country nationals and, more generally, that the existence of specific Treaty chapters on the free movement of natural and legal persons showed that they were not covered by Article 133 EC. A similar connection between goods and services was drawn by Advocate General Jacobs in his seminal opinion in Säger.81 He argued that services should in general be treated by analogy with goods. However, he also noted that the analogy was particularly appropriate where the physical movement of the service provider was not involved but the service was transmitted by post or telecommunications, while in certain cases involving movement of service providers the closest analogy was to establishment.82 Another area that is difficult to square with the thesis that the movement of Union citizens is given preferential treatment is the free movement of capital. In the recent golden share rulings the Court has been faced with a number of national measures that have sought to maintain various degrees of public control over privatised undertakings.83 In particular, large-scale transfers of shares and certain key decisions, such as winding up, have been made subject to governmental approval. The defendant Member States have generally argued that their rules apply without distinction on grounds of nationality and accordingly do not restrict capital movements in the first place, sometimes also expressly referring to Keck.84 These arguments have been brushed aside by the Court, which has held that, even in the absence of unequal treatment, the rules have been liable to impede and dissuade capital movements, and accordingly have constituted restrictions. It has countered the Keck argument by distinguishing the golden share rules from those governing selling arrangements, stating that the former ‘affect the position of a person acquiring a shareholding as such and are thus liable to deter investors from other Member States from making such investments and, consequently, affect access to the market’.85 Clearly the language of the Court in the golden share rulings evokes the case law on persons. However, on the level of facts it can be argued that the golden share schemes may at least potentially have a disparate impact on

81 Case C–76/90 Manfred Säger v Dennemeyer & Co. Ltd [1991] ECR I–4221. 82 For a somewhat similar argument, see N Reich and S Harbacevica, ‘Citizenship

and family on trial: a fairly optimistic overview of recent Court practice with regard to free movement of persons’ (2003) 40 CML Rev 615, 636. See also S Puth, ‘Die unendliche Weite der Grundfreiheiten des EG-Vertrags’ (2002) 37 Europarecht 860, 873–4. 83 Case C–367/98 Commission v Portugal [2002] ECR I–4731, Case C–483/99 Commission v France [2002] ECR I–4781, Case C–503/99 Commission v Belgium [2002] ECR I–4809, Case C–463/00 Commission v Spain [2003] ECR I–4581, and Case C–98/01 Commission v United Kingdom [2003] ECR I–4641. 84 Above n 6. This argument was made by the UK government in the cases against Spain and the UK. 85 Commission v Spain above n 83, para 61 and Commission v United Kingdom above n 83, para 47.

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foreign interests.86 The approval of share transfers by governmental authorities may in practice operate in a discriminatory manner, with foreign investors being more likely to be rebuffed,87 while giving a national (public) shareholder the ultimate control over the key decisions of a company can also be seen as discriminatory, due to national control being maintained and foreign control prevented.88 Accordingly, it cannot yet be predicted with absolute certainty how the Court will react to a truly non-discriminatory national measure. In an article Steve Peers has warned of a real danger of overextension in this field, arguing that one could imagine an [sic] potentially limitless application of the capital rules unless the Court sets out some clearly defined limitations on them’, and noting that ‘almost any form of national regulation which restricts corporate activity in any way could be described as a measure ‘liable to dissuade’ foreign investors.89

Accordingly, he has proposed an ‘adverse effect’ test that focuses on whether ‘a national rule is inherently likely to deter movements of capital from outside the country more than it would deter movements inside the country’.90 Given the past history of overextension in the field of goods, and given the fact that the potential litigants in the area of capital are likely to be wealthy corporations with interest and sufficient resources to bring test cases, it can only be hoped that the Court heeds his warning and adopts a discrimination-based approach, in line with goods. Further, unlike persons capital is by its nature very mobile, and accordingly there should be no great need for the Court to push Article 56 EC to absolute limits in order to advance integration. However, in the light of the rejection of some rather similar arguments of the UK Government in Commission v United Kingdom,91 the signs are not good. Altogether, there are some indications that the Court is prepared to distinguish situations where the provision of services involves physical movement of Union citizens from those involving cross-frontier supply,

86 See also the Opinion of AG 87 See E Szyszczak, ‘Golden

Ruiz-Jarabo Colomer ibid paras 50–51. Shares and Market Governance’ (2002) 29 Legal Issues of European Integration 255, who argues at 271 that in fact ‘many privatizations favour domestic investors, providing a means of “paying back” political favours’. 88 The fact that other domestic shareholders are also deprived of the possibility of controlling the undertaking is immaterial. See Case C–353/89 Commission v Netherlands [1991] ECR I–4069. 89 S Peers, ‘Free Movement of Capital: Learning Lessons or Slipping on Spilt Milk’ in C Barnard and J Scott (eds), The Law of the Single European Market. Unpacking the Premises (Oxford, Hart Publishing, 2002) 342–3. 90 Ibid 345. 91 See above n 83, particularly paras 28 and 35.

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emphasising in the latter instance the similarities with goods. However, in the main the Court has not relied on this distinction. In the field of capital, the language of the Court has been expansive, steering away from the narrow discrimination-based approach on goods towards the wider approach adopted for persons. Accordingly, the current case law can only partly be explained with reference to a special status granted to Union citizens.

FUNDAMENTAL AND MARKET RIGHTS

So far the analysis has been descriptive or positive, focusing on what the law is. Now the emphasis will shift to a normative or prescriptive analysis of what the law ought to be. It will be argued that the European Court of Justice should explicitly distinguish between free movement of products and citizens, and give preferential treatment to the latter. There are at least two different arguments for giving priority to the movement of citizens, one of them relating to the self-fulfilment of individuals, the other to the ‘self-fulfilment’ of the Union. 92 First, free movement of Union citizens is properly seen as a fundamental right, not just as a market freedom. 93 This emerges clearly from the Charter of Fundamental Rights. 94 Article 45 of the Charter provides that ‘[e]very citizen of the Union has the right to move and reside freely within the territory of the Member States’ and Article 15(2) affirms the freedom of every citizen of the Union ‘to seek employment, to work, to exercise the right of establishment and to provide services in any Member State’. 95 Although the Charter is not (yet) binding,96 it does form an expression of the constitutional traditions common to the Member States,97 which is 92 This corresponds to the suggestion by J Bengoetxea, ‘The Scope for Discretion, Coherence and Citizenship’ in O Wiklund (ed), Judicial Discretion in European Perspective (The Hague, KLI, 2003) 72, that ‘the Court should seek… inspiration in citizens rights and fundamental rights in order to give coherence to the whole of EC law.’ 93 See also Oliver and Jarvis above n 1 who argue at 12 that: [s]ince they relate to the individual’s right to live and work in the country of his choice and not be separated from his immediate family, the freedoms relating to the movement of natural persons can more readily be seen as fundamental rights of the kind enshrined in the European Convention than can the free movement of goods. 94 The Charter of Fundamental Rights of the European Union [2000] OJ C364/1. 95 In the draft Treaty establishing a Constitution for Europe the former statement is contained both in Art I–8 under Title II: Fundamental Rights and Citizenship of the Union and in Art II–45, while the latter is expressed in Art II–15(2). 96 This may well change. See the draft Constitution Art I–7. Note also the reordering of the four freedoms in Part III. 97 See para 59 of the Opinion of AG Ruiz-Jarabo Colomer in Überseering above n 66. See also the Opinion of AG Tizzano in Case C–173/99 BECTU [2001] ECR I–4881 para 28 where he argued that the Charter serves as a ‘substantive point of reference’ and provides ‘the most reliable and definitive confirmation of the fact that the right to paid annual leave constitutes a fundamental right.’

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one of the sources of inspiration for Community fundamental rights,98 and citizens’ right to move and reside freely is indeed found in many national constitutions.99 It is entirely appropriate to grant this right a fundamental status. The right to move and choose the place of residence is not just an instrumental right, but can be seen as an end in itself.100 It is an essential element of the self-fulfilment of an individual, a part of his dignity. By contrast, the right to sell products is just an instrumentality, a means to an end, namely one way to earn money. It is not, and should not, be seen as a fundamental right.101 Secondly, the emergence and evolution of EU citizenship justifies the giving of a preferential treatment to the movement of Union citizens.102 In its recent case law, the Court has given an increasing legal importance to this concept103 and has stated that ‘Union citizenship is destined to be the fundamental status of nationals of the Member States’. 104 For the Union citizenship to reach its full potential, it is important that the movement of citizens is guaranteed against all restrictions. In the EU a particular challenge is clearly the ‘difficulty of inculcating the psychological sense of citizenship, of making individuals feel a sense of attachment to the institutions of the Union’,105 and one critical precondition for any such attachment is that citizens are physically free to leave their home states and travel to and reside in the other parts of the Union. It is difficult to see how the loyalty of the citizens can be extended to the Union if they are still at the most basic physical level tied to their Member States. And if its citizens do

98 See Art 6(2) TEU and Case 11/70 Internationale Handelsgesellschaft mbH v Einfuhr- und Vorratsstelle für Getreide und Futtermittel [1970] ECR 1125 para 4. 99 See eg Finland’s Perustuslaki 731/1999 9 §, Germany’s Grundgesetz Art 11, Italy’s Costituzione della Repubblica Italiana Art 16, and Sweden’s Regeringsformen 1974:152 2:8. The Constitution of Finland extends this right also to foreign nationals legally resident in Finland. See also Art 2 of Protocol 4 to ECHR, which has not been signed or ratified by three current EU Member States, and Art 13 of the Universal Declaration of Human Rights. These human rights instruments do not limit the right to nationals. 100 Kant draws a distinction between means and ends, arguing eg in I Kant, Practical Philosophy (Cambridge, CUP, 1996) at 83 that all rational human beings ‘stand under the law that each of them is to treat himself and all others never merely as means but always at the same time as ends in themselves.’ 101 The freedom to conduct a business in accordance with Community laws and national laws expressed in Art 16 of the Charter and the right to property of Art 17 of the Charter may of course have relevance for goods, but this does not mean that Arts 28 and 29 EC should be seen as expressions of a fundamental right, like Arts 39, 43, and 49 EC. 102 Davies above n 36, 189 argues that citizenship ‘can exert an interpretative influence’ to economic freedoms. 103 See eg Case C–85/96 Maria Martínez Sala v Freistaat Bayern [1998] ECR I–2691, Case C–184/99 Rudy Grzelczyk v Centre public d’aide sociale d’Ottignies-Louvain-la-Neuve [2001] ECR I–6193, and Case C–413/99 Baumbast [2002] ECR I–7091. For further development, see AG Jacobs in Case C–224/02 Pusa nyr para 22. 104 See Grzelczyk above n 103, para 31. 105 NW Barber, ‘Citizenship, nationalism and the European Union’ (2002) 27 EL Rev 241, 247.

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not develop this European identity, if they do not ‘feel European’, the Union itself simply cannot achieve its full potential.106 By contrast, in the absence of any fundamental right or citizenship arguments, other concerns counselling caution predominate. Accordingly, a more restrained approach to free movement of products is appropriate, be the products in material or non-material form. A relatively narrow interpretation has many advantages. It allows for the development of a rule-like test that is easier to administer and offers legal certainty, while a wide approach necessarily leads to unpredictable balancing exercises.107 Even more importantly, a narrow approach guards against excessive intrusions into the proper spheres of the Member States, in accordance with the principle of subsidiarity. In a federal-type polity, it is crucial to avoid unnecessary centralization, as it leads to regulation that is unresponsive to local preferences, stifles experimentation and competition among the states, and reduces the opportunities for citizen participation.108 Accordingly, free movement of Union citizens should not be treated in the same way as free movement of products, but the two should be seen as separate legal categories. The rights relating to products are merely market rights, while the rights relating to the movement of citizens, such as that expressed in Article 39 EC, are truly fundamental ones.109 This has clear practical implications. In particular, it is entirely proper to maintain a narrow, equality-based approach to the free movement of goods,110 while a

106 For a discussion on the possible content of this European identity, and on the fundamental implications of its absence for the political legitimacy of the EU, see JHH Weiler, The Constitution of Europe. ‘Do the New Clothes Have an Emperor?’ and Other Essays on European Integration (Cambridge, CUP, 1999) 336–48. 107 See also the discussion in Kingreen and Strömer above n 62, 287–8. P Oliver, ‘Some further reflections on the scope of Articles 28–30 (ex 30–36) EC’ (1999) 36 CML Rev 783, 793 commends Keck, above n 6, in terms of legal certainty. For a discussion on the difficulties that balancing creates for national courts, see MA Jarvis, The Application of EC Law by National Courts. The Free Movement of Goods (Oxford, OUP, 1998) 180–230. 108 For full discussion of the merits of a discrimination test, see J Snell and M Andenas, ‘Exploring the Outer Limits—Restrictions on the Free Movement of Goods and Services’ (1999) 10 European Business Law Review 252, 256–70, J Snell, ‘Who’s Got the Power? Free Movement and Allocation of Competences in EC Law’ (2003) 22 YEL 323, and Davies above n 36, 93–115. See also the analysis of free movement and decentralised governance in N Bernard, Multilevel Governance in the European Union (The Hague, Kluwer, 2002) 15–62. On competences, see AG Tizzano in CaixaBank paras 59–61 above n 14. 109 Cf P-C Müller-Graff, ‘Grundfreiheiten und Gemeinsschaftsgrundrechte’ in H-J Cremer, T Giegerich, D Richter, and A Zimmermann (eds), Tradition und Weltoffenheit des Rechts. Festschrift für Helmut Steinberger (Berlin, Springer, 2002) who notes the critical importance of the four freedoms for the integration project and argues at 1301 that in case of doubt they must be given preference over fundamental rights. 110 For a recent thoughtful critique of a discrimination-based approach in the context of services, see W-H Roth, ‘The European Court of Justice’s Case Law on Freedom to Provide Services: Is Keck Relevant?’ in M Andenas and W-H Roth (eds), Services and Free Movement in EU Law (Oxford, OUP, 2002). While many of the criticisms have merit, it can be asked whether the ‘restriction prohibition’ approach proposed is a sensible one. Roth identifies at 19

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similar approach is not appropriate in situations where, for example, the movement of workers is involved, which should be seen from a freedom perspective. For products, a truly non-discriminatory national regulation should not constitute a restriction, while for citizens discrimination is irrelevant and the crucial question is simply whether their freedom has been restricted. When a fundamental right has been impaired, it is of no consequence that rights of home state nationals have also been encroached upon.111 The suggestion made here corresponds to the developments in the United States. There, free movement of goods and services is dealt with under the commerce clause of Article I, section 8, of the Constitution, and discriminatory state laws have been the main targets, while movement of citizens has also been granted further-reaching protection under other provisions of the Constitution.112 For example, Nowak and Rotunda state that when dealing with ‘incoming commerce’, the real question for the Supreme Court is ‘whether the state legislation discriminates against interstate commerce, that is, whether the state law involves economic protectionism’.113 For ‘outgoing commerce’ the Supreme Court ‘grants the states some deference in dealing with genuine health and safety concerns, and rejects regulations that on their face, or as applied, discriminate against interstate commerce’.114 By contrast, the ‘right to travel’ is a ‘fundamental right’,115 and the principle is that there is a fundamental constitutional right to travel … [and a] law that constitutes a substantial impairment of that right will be subject to independent judicial review and is unlikely to be upheld unless the Court finds that it is narrowly tailored to a compelling interest.116

In this way the Supreme Court has incorporated in its case law the concern that reliance on the commerce clause could dilute the right of double burden as the concern legitimising the restriction standard, … but if this is the main problem, would not the logical response be reliance on a wide concept of discrimination. The Court refused to depart from the equality-based approach in Case C–322/01 0800 Doc Morris nyr, contrary to the suggestion of the AG. 111 Logically, as noted by Szyszczak above, n 87, the proposal would also mean that establishment of companies and natural persons could be treated differently, and that cross-frontier service supply and personal movement of service providers could be distinguished. Former situations concern market rights, while in the latter fundamental rights are in issue. 112 The privileges and immunities clause of Article IV § 2, and the privileges or immunities clause, the due process clause and the equal protection clause of the Fourteenth Amendment. 113 JE Nowak and RD Rotunda, Constitutional Law (6th edn, St Paul, Minn, West Group, 2000) 323. 114 Ibid at 332. 115 Ibid at 985. 116 Ibid at 990.

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personal mobility.117 This concern was expressed by Justice Douglas in Edwards v California (concurring) where he argued that the right of persons to move from state to state is a fundamental one and enjoys a more protected position than the movement of products, as it arises from the body of the Constitution itself, is a right of national citizenship, and enjoys protection under the privileges or immunities clause of the Fourteenth Amendment.118

CONCLUSION

It has been argued in this paper that there are clear divergences in the free movement jurisprudence of the European Court of Justice. It has further been argued that a common pattern may be emerging where the Court gives situations involving the movement of Union citizens preferential treatment. This kind of preference is evident mainly in the results of the cases and has not been expressed clearly in the language of the Court, but some hints of such an attitude can be gleaned from the reasoning. However, the Court has not been consistent in this approach; in particular it has in the main used a unified approach to the provision of services, regardless of whether physical movement is involved or not, although even here cross-frontier supply has sometimes been seen as distinct from movement of natural persons, and its language in the field of capital has been expansive, steering the case law towards persons rather than goods. Additionally, this paper has made a normative argument to the effect that the Court should draw an express distinction between situations where citizens move and those that do not involve such movement, and treat the former category more favourably. This is due to the status of free movement of citizens as a fundamental right and to the implications of the Union citizenship, while for products subsidiarity-related concerns predominate. An approach that expressly distinguished between products and citizens would offer few answers of itself. For example, an explicit recognition that 117 Ibid at 337. 118 Edwards v California

314 US 160, 62 S Ct 164 (1941). He opined at 177, 169 ‘that the right of persons to move freely from State to State occupies a more protected position in our constitutional system than does the movement of cattle, fruit, steel and coal across state lines.’ His opinion was joined by Murphy and Black JJ. In the same case Justice Jackson, concurring, wrote at 182, 171 that ‘the migrations of a human being, of whom it is charged that he possesses nothing that can be sold and has no wherewithal to buy [the situation Mr Duncan was in], do not fit easily into my notions as to what is commerce. To hold that the measure of his rights is the commerce clause is likely to result eventually either in distorting the commercial law or in denaturing human rights.’ He further argued at 183, 171 that ‘[the] Court should … hold squarely that it is a privilege of citizenship of the United States, protected from state abridgment, to enter any state of the Union, either for temporary sojourn or for the establishment of permanent residence therein… If national citizenship means less than this, it means nothing.’

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Article 39 EC is to be treated as expressing a fundamental right would not end the debate about the exact scope of this right, any more than a statement that Article 28 EC is, by contrast, merely a market right would end the debate for free movement of goods. However, with an open recognition of this distinction the Court would acquire much needed coherence and clarity to its free movement jurisprudence, and would establish a strong and stable basis for developing its case law further.

5 EMU and Financial Services J A USHER

BACKGROUND

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OR THOSE OPERATING in the Eurozone, the elimination of exchange risk and interest rate risk makes it a realistic proposition even for the private citizen to borrow, lend or invest in other participant States, making the free movement of capital a matter of practical importance even at the personal level. However, even for those not within the Eurozone, one result of the second stage of EMU which applies to all Member States is the introduction of the current rules governing freedom to make monetary movements in EC Treaty Articles 56–60—the only treaty freedom where the rules have been changed. The aim of this chapter is to look at monetary movements in the light of the other Treaty freedoms, and in particular to note the contrast between the use of a broad interpretation of the monetary movement rules to help open up the internal market, and the avoidance of their use where they might appear to justify discriminatory tax treatment. To put the matter in its context, the original capital movement rules were the Cinderella of the Treaty freedoms, not having direct effect,1 with freedom of movement being finally achieved by legislation over 20 years late by Council Directive 88/361.2 However, the old Article 106 on current payments related to other freedoms was held to be directly effective,3 albeit only allowing payments in the creditor’s currency.4 On the other hand restrictions on payments relating to the other freedoms were sometimes categorised as restrictions on those freedoms, as in Case 95/81 Commission v Italy5 where an import deposit scheme was held to constitute a measure equivalent to a quantitative restriction on the import of goods. 1 Case 203/80 Casati [1981] ECR 2595. 2 OJ 1988 L178/5. 3 Cases 286/82 and 26/83 Luisi and Carbone 4 Case 308/86 Lambert [1988] ECR 4364. 5 [1982] ECR 2197.

[1984] ECR 377.

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Be that as it may, the lists of capital movements attached to successive Directives, culminating in the list annexed to Council Directive 88/361 include operations that are clearly current payments, such as payment under insurance contracts under heading X and financial loans and credits under heading VIII, as well as capital movements as such.

THE CURRENT RULES AND THEIR EXTENSIVE INTERPRETATION

The Maastricht Treaty on European Union introduced new provisions on ‘capital and payments’ with effect from 1st January 1994, the date set for the start of the second stage of Economic and Monetary Union. The fundamental rules are set out in Article 56, paragraph 1, which states that within the framework of the provisions set out in that Chapter, all restrictions on the movement of capital between Member States and between Member States and third countries shall be prohibited, and paragraph 2, which states that within the same framework, all restrictions on payments between Member States and between Member States and third countries shall be prohibited. At first sight a fundamental distinction between these provisions and the original provisions—and indeed from the situation reached under the 1988 Directive—is that it appears that movements to and from third countries are to be treated the same way as movements between Member States. With hindsight, this can be seen as anticipating the need reassure the international money markets with regard to the external movement and availability of the euro. However, in reality there are differences which remain. Under Article 57, the provisions of Article 56 are stated to be without prejudice to the application to third countries of any restrictions which existed on 31 December 1993 under national or Community law adopted in respect of the movement of capital to or from third countries involving direct investment (including investment in real estate), establishment, the provision of financial services or the admission of securities to capital markets; in other words, they do not require existing lawful restrictions to be abolished in these (admittedly limited) areas. Furthermore, the second paragraph of Article 57, empowering the Council to legislate on those capital movements, makes reference to ‘endeavouring’ to achieve the objective of free movement of capital between Member States and third countries to the ‘greatest extent possible’, language redolent of the original capital movement provisions in relation to movements between Member States. Under Article 59, where, in exceptional circumstances, movements of capital to or from third countries cause, or threaten to cause, serious difficulties for the operation of economic and monetary union, the Council, acting by a qualified majority on a proposal from the Commission and after consulting the

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ECB, may take safeguard measures with regard to third countries for a period not exceeding six months if such measures are strictly necessary. Finally, by virtue of Article 60, the Council may take urgent measures under Article 301, where Community action to interrupt or reduce economic relations with one or more third countries is required by a common position or in a joint action adopted under the European Union provisions on a common foreign and security policy, in relation to the movement of capital and on payments as regard the third countries concerned; indeed, pending such measures, Member States themselves may, under the second paragraph of Article 60, take unilateral measures against a third country with regard to capital movements and payments ‘for serious political reasons’. The freedom is therefore not absolute. Be that as it may, to the extent that a payment or capital movement is not excluded, Article 56 has been held to be directly effective even with regard to capital movements to third countries such as Switzerland and Turkey.6 This in itself is an interesting development given the Court’s reluctance in earlier case-law automatically to extend concepts developed in the context of the internal market to situations governed by similar language in relations with third countries. So, for example, in Case 270/80 Polydor v Harlequin7 in the context of the free movement of goods, it was held that even where a free trade agreement does expressly prohibit not only quantitative restrictions but also measures having effects equivalent to quantitative restrictions, the same interpretation of that phrase need not be given in the context of trade with a non-Member State as will be given in the context of trade between States, since there is no intention to create a single market under free trade agreements. A synthesis of the approach to the direct effect of provisions of international agreements was given in the context of an agreement between the Community and Portugal in the Kupferberg case.8 The Court started from the principle that it is open to the Community and the third country to agree what effect the provisions of the agreement are to have in the internal legal order of the contracting parties, and that the matter fell to be decided by the Court only in the absence of express agreement on the point, emphasising however that it was open to the courts of one contracting party to consider that certain provisions were directly effective even if that view was not shared by courts of the other contracting party. It then went on to consider whether the provision at issue could be regarded as unconditional and sufficiently precise to have direct effect in the light of the object and purpose of the agreement, concluding that the provision at issue imposed an 6 Cases C–163, 165 and 250/94 Sanz 7 [1982] ECR 379. 8 Case 104/8l Hauptzollamt Mainz v

CMLR 1.

de Lera [1995] ECR I–4821. C A Kupferberg & Cie KG [1982] ECR 3641, [1983] 1

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unconditional rule against discrimination in matters of taxation, dependent only on a finding that the products affected were of like nature, so that it could be applied by a court and produce direct effects throughout the Community. The Court did, however, emphasise that, despite the fact that the provision at issue had the same object as Article 95 (now Article 90) of the EC Treaty, each of these provisions should be interpreted in its own context, and that the interpretation given to Article 90 could not be applied by way of simple analogy to the corresponding provision of an agreement on free trade. However, in Sanz de Lera the judgment does not discuss these issues, and simply holds Article 56 to be directly effective in itself and on its own terms. Nevertheless, despite the fact that free movement of capital rules now apply to movements into and out of the Community, the 1988 definitions drafted to cover movements within the Community continue to be used. This was made clear when the Court confirmed that a mortgage fell within the scope of a capital movement as defined in the Directive in Case C–222/97 Trummer and Meyer,9 and further held that this interpretation should continue to apply to the free movement of capital under Article 56. However, in Case C–410/96 Ambry 10 it was held that for France to require the compulsory financial security provided by a travel agent to be guaranteed by a credit institution or insurance company situated in France breached the Treaty rules on freedom to provide services— although it may be observed that the list in the Annex to the 1988 capital movements Directive expressly includes guarantees granted by non-residents to residents.11 Nevertheless, in Case C–279/00 Commission v Italy,12 it was held that an Italian requirement that undertakings engaged in the provision of temporary labour established in other Member States had to lodge a guarantee with a credit institution having its registered office or a branch office in Italy was a breach both of the freedom to provide services under Article 49 and of the free movement of capital under Article 56; it was held to restrict the free movement of capital on the basis that under point IX of annex I to Directive 88/361, guarantees granted by non-residents to residents or by residents to non-residents constitute movements of capital, which should therefore be liberalised under Article 56(1). As in Safir, the question arises as to how a transaction construed as a capital movement can also involve the provision of services under the Treaty. A similar potential for overlap may also be seen in the relationship between free movement of capital and freedom of establishment: in Case C–35/98 9 [1999] ECR I–1661. 10 [1998] ECR I–7875. 11 Annex I, heading IX A. 12 7 February 2002.

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Verkooijen13 receipt by a resident of one Member State of dividends on shares in a company whose seat was in another Member State was treated as free movement of capital falling under Directive 88/361,14 whereas in Cases C–397/98 and 410/98 Metallgesellschaft and Hoechst v Inland Revenue15 the payment of dividends by a subsidiary company to a parent company resident in another Member State was treated as a question of freedom of establishment. The broad use of the capital movement rules to deal with issues which might be thought to involve questions of freedom of establishment is very clearly shown in the series of decisions in relation to ‘golden shares’,16 where measures designed to enable the public authorities to limit the size of shareholdings or restrict the disposal of assets in privatised companies were held to amount to restrictions on investment in breach of the rules on the free movement of capital. Against this background of conflicting case-law, an examination may be made of the broad concept of capital movements exemplified in Trummer and Meyer.17 It is not often that a reference to the European Court of Justice from a national court, in which neither the parties to the main action nor the national government concerned submit any observations, is deemed worthy of a judgment delivered by a Full Court of all 15 judges, but that is what occurred in Trummer and Mayer. In its judgment, the Court clarified the relationship between the concept of capital movements in Articles 56 to 60 of the EC Treaty, and the definitions of capital movements set out in the earlier Directives. However, in so doing it raised further questions as to the relationship between the free movement of capital and the freedom to provide services, and indirectly it raised questions as to the scope of the taxation provisions set out in Article 58. The facts were quite simple and undisputed. In 1995, Mr Mayer, a German resident, sold a share in a property situated in Austria to Mr Trummer, an Austrian resident. It was agreed that Mr Trummer could have until the end of 2000 to settle the purchase price, which was fixed in German marks, and that payment should be secured by way of a mortgage over his share of the property. The problems arose when they tried to register the transaction in the local land register: registration of the mortgage was refused on the ground that the sum involved was not denominated in Austrian schillings. This view was upheld in the regional appeal court (Landesgericht Graz); in the Oberster Gerichtshof (which eventually made the reference) it was said that registration of a security right in respect of a 13 6 June 2000. 14 OJ 1988 L178/5. 15 8 March 2001. 16 Case C–483/99 Commission

v France (4 June 2002), Case C–367/98 Commission v Portugal (4 June 2002), Case C–503/99 Commission v Belgium (4 June 2002), Case C–98/01 Commission v UK (13 May 2003). 17 [1999] ECR I–1661.

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foreign-currency debt was valid only where it was denominated in Austrian schillings in a sum corresponding to the foreign-currency debt as at the date of application for registration. The Oberster Gerichtshof therefore considered that the claim could only be allowed if the refusal of registration constituted a restriction on the movement of capital and payments prohibited by Article 56 of the EC Treaty, and it referred to the European Court the question of the compatibility of the Austrian rule with Article 56 (then still Article 73b) of the EC Treaty. The Court observed that it was necessary first of all to consider whether the creation of a mortgage to secure the payment of a debt payable in the currency of another Member State was covered by Article 56. Article 56 requires in its first paragraph that, within the framework of the Chapter in which it appears, all restrictions on the movement of capital between Member States and between Member States and third countries shall be prohibited, and paragraph 2 states that within the same framework, all restrictions on payments between Member States and between Member States and third countries shall be prohibited. Unfortunately, as the Court noted, the EC Treaty does not define the terms ‘movements of capital’ or ‘current payments’. However, the basic pattern established by the early Directives issued under the original Treaty rules on capital movements was to divide capital movements into four lists (eventually three), with different degrees of liberalization.18 A new approach was followed by Council Directive 88/361,19 which finally established the basic principle of free movement of capital as a matter of Community law with effect, for most Member States, from 1st July 1990. Subject to its other provisions, Article 1(1) of the 1988 Directive provided that ‘Member States shall abolish restrictions on movements of capital taking place between persons resident in Member States’, and although there was still a nomenclature of capital movements annexed to the Directive, it was stated to be to facilitate its application, rather than to introduce distinctions in treatment. Annex I itself stated that the nomenclature was not intended to be an exhaustive list of the notion of capital movements, and it should not be interpreted as restricting the scope of the principle of full liberalization of capital movements in Article 1. However, in the absence of a Treaty definition, the headings of the nomenclature (which in reality owe much to the previous lists) indicate the concept of capital underlying the Directive: direct investments, investments in real estate, operations in securities normally dealt in on the capital market, operations in units of collective investment undertakings, operations in securities and other instruments normally dealt in on the money market, 18 See Usher The Law of Money and Financial Services in the EC (Oxford, OUP, 2nd edition, 2000) 17–19. 19 OJ 1988 L178/5.

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operations in current and deposit accounts with financial institutions, credits related to commercial transactions or to the provision of services in which a resident is participating, financial loans and credits, sureties, other guarantees and rights of pledge, transfers in performance of insurance contracts, personal capital movements, physical import and export of financial assets, and ‘other capital movements’ (defined so as to include transfers of the moneys required for the provision of services). The introduction to the Annex further states that the capital movements mentioned are taken to cover all the operations necessary for the purposes of capital movements, i.e. the conclusion and performance of the transaction and related transfers, and should also include access for the economic operator to all the financial techniques available on the market approached for the purpose of carrying out the operation in question. The present author suggested in 199420 that in the continued silence of the Treaty the Annex to the Directive remained a useful source of illustration of the principle of the free movement of capital even after the entry into force of Articles 56 to 60 under the Maastricht Treaty. Such a view had in fact been accepted by the Landesgericht in Trummer and Mayer, but the Landesgericht interpreted the Annex so as not to cover the transaction in question. For its part, the European Court took the view that Article 56 ‘substantially reproduces the contents of Article 1 of Directive 88/361’ and held that: the nomenclature in respect of movements of capital annexed to Directive 88/361 still has the same indicative value, for the purposes of defining the notion of capital movements, as it did before the entry into force of Article [56] et seq., subject to the qualification, contained in the introduction to the nomenclature, that the list set out therein is not exhaustive.

The Court had in fact already held that borrowing money from a bank in another Member State to buy a house fell within the scope of the Directive, in Case C–484/93 Svensson and Gustavsson v Ministre du Logement.21 Though it had subsequently been suggested by AG Tesauro in his Opinion in Case C–118/96 Safir v Skattemyndigheten i Dalarnas Län22 that a narrower concept of capital movements should be adopted, the Court confirmed in Trummer and Mayer that a mortgage fell within the scope of a capital movement as defined in the Directive. More specifically, it was held both that the mortgage in this case was inextricably linked to a capital

20 Usher,

The Law of Money and Financial Services in the European Community (Oxford, OUP, 1994) 19. 21 [1995] ECR I–3955. 22 Opinion delivered 23 September 1997, [1998] ECR I–1899.

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movement—the liquidation of an investment in real property23—and that the mortgage as such was a capital movement under Point IX of the nomenclature as an ‘other guarantee’ under the heading ‘sureties, other guarantees and rights of pledge’. In those circumstances, the Court held that an obligation to have recourse to the national currency for the purposes of creating a mortgage must be regarded, in principle, as a restriction on the free movement of capital within the meaning of Article 56 of the EC Treaty. While Trummer and Mayer may have involved a private transaction, in the commercial world such a broad definition of capital movements raises problems with regard to the status and scope of the freedom to provide services. In that case, the Court confirmed that a mortgage falls within the scope of a capital movement as defined in the Directive, and further held that this interpretation should continue to apply to the free movement of capital under Article 56. However, a few months earlier in Case C–410/96 Ambry24 it had been held that for France to require the compulsory financial security provided by a travel agent to be guaranteed by a credit institution or insurance company situated in France breached the Treaty rules on freedom to provide services—although it may be observed that the list in the Annex to the 1988 capital movements Directive expressly includes guarantees granted by non-residents to residents.25 It may be submitted that this is an area in urgent need of clarification, particularly since the Court has more recently held in Case C–279/00 Commission v Italy26 that an Italian requirement that undertakings engaged in the provision of temporary labour established in other Member States had to lodge a guarantee with a credit institution having its registered office or a branch office in Italy was a breach both of the freedom to provide services under Article 49 and of the free movement of capital under Article 56, precisely on the basis that under point IX of annex I to Directive 88/361, guarantees granted by non-residents to residents or by residents to non-residents constitute movements of capital, which should therefore be liberalised under Article 56(1). In any event, serious legal issues arise from the classification as a capital movement of an economic activity which might otherwise be regarded as a service. As mentioned earlier in this paper, a similar need for clarification also arises in the relationship between free movement of capital and freedom of establishment: in Case C–35/98 Verkooijen27 receipt by a resident of one Member State of dividends on shares in a company whose seat was 23 Point II of Annex I to the 24 [1998] ECR I–7875. 25 Annex I, heading IX A. 26 7 February 2002. 27 6 June 2000.

Directive.

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in another Member State was treated as free movement of capital falling under Directive 88/361, 28 whereas in Cases C–397/98 and 410/98 Metallgesellschaft and Hoechst v Inland Revenue29 the payment of dividends by a subsidiary company to a parent company resident in another Member State was treated as a question of freedom of establishment. There is therefore clear potential for overlap with other Treaty freedoms, as occurred in e.g. Svensson and Gustavsson. The question then arises as to whether the current capital movement provisions effectively extend the other freedoms to third country nationals or residents. It does not take much imagination to envisage the possible consequences of this approach to the capital movement provisions if, as in Case C–222/97 Trummer and Mayer30 or Case C–279/00 Commission v Italy,31 they are interpreted broadly so as to include activities which might economically be regarded as the provision of services, such as the provision of mortgage credit or of guarantees. Does it mean that borrower resident in the Community has an enforceable Community law right to take out a mortgage with a provider in a third country, and does it mean that a lender in a third country has an enforceable Community law right to offer a mortgage to a borrower in a Member State? Conversely, does it mean that a lender in the Community has an enforceable Community law right to offer a mortgage to a borrower in a third country, and that a borrower in a third country has an enforceable Community law right to take out a mortgage with a provider in the Community (and therefore presumably the right to enter the Community for that purpose)? Their broader geographical scope is not the only way in which the broad interpretation of the capital movement provisions may give rise to problems with regard to the provision of services: tax discrimination is also an issue.

THE TAX ISSUE

The downside of the current rules is that Article 58(1)(a) appears to allow certain forms of tax discrimination, leading to a possible negative result from classifying an operation as a capital movement. While questions of taxation did not arise directly in the Trummer and Mayer case, the broad interpretation of the concept of capital movements does raise an issue as to the scope of Article 58. Article 58(1)(a) states that the provisions of Article 56

28 OJ 1988 L178/5. 29 8 March 2001. 30 [1999] ECR I–1661. 31 7 February 2002.

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(i.e. the liberalisation of capital movements and payments inside and outside the Community): shall be without prejudice to the right of Member States: (a) to apply the relevant provision of their tax law which distinguish between tax-payers who are not in the same situation with regard to their place of residence or with regard to the place where their capital is invested …

At first sight this might be taken as a clear authorisation to discriminate in the tax system between residents and non-residents. Most of the discussion has centred on the question whether this provision allows discrimination against non-residents, which could clearly conflict with the fundamental Treaty freedoms relating to establishment, provision of services, and movement of workers. On the other hand, it has been suggested that the aim of Article 58(1)(a) was to permit discrimination in favour of non-residents, which could conflict with the State Aids rules, and which also raises the question of tax competition. The provision must however be taken in its context: in effect it is drafted as a permission to take measures which might interfere with the free movement of capital and payments, rather than carte blanche to discriminate. In other words, the fact that a measure may be justifiable as a restriction on the movement of capital and payments does not necessarily make it acceptable as a state aid. However, this is a matter on which there has not been any litigation, and arguments could be made for a broad interpretation. In any event, Article 58(1)(a) is subject both to the caveat that such measures ‘shall not constitute a means of arbitrary discrimination or a disguised restriction on the free movement of capital and payments as defined in Article 56,’ and to a Declaration made by the Member States when the Maastricht Treaty was signed stating that: The Conference affirms that the right of Member States to apply the relevant provisions of their tax law as referred to in [Article 73d(1)(a)] of this Treaty will apply only with respect to the relevant provisions which exist at the end of 1993. However, this Declaration shall apply only to capital movements between Member States and to payments effected between Member States.

It may be suggested that this at the least amounts to a political commitment not to introduce any new measures of the type at issue in the context of monetary movements between Member States. Be that as it may, the classification as a capital movement of an economic activity which could be regarded as involving freedom of establishment or freedom to provide services, has the potential to give rise to awkward tax questions. Further problems of demarcation might be thought to arise from Article 50 of the EC Treaty, stating that services are only ‘services’ if they

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do not fall under one of the other freedoms, and Article 51 subordinating banking and insurance services to the liberalisation of the movement of capital. More generally, in so far as Article 58(1)(a) does provide that in the context of free movement of capital and payments, the prohibition of restrictions on capital movements and payments is without prejudice to the right of Member States to apply provisions of their tax law which distinguish between taxpayers who are not in the same situation with regard to their place of residence or with regard to the place where their capital is invested, it may be wondered how this provision may be reconciled with the concept of a single market for financial services, and more particularly how it may be reconciled with the principle of non-discrimination underlying the Treaty provisions on free movement of persons and provision of services. The most straightforward approach would be to argue that it is only concerned with monetary movements as such32 and that it does not apply to situations governed by the other Treaty freedoms. While the thesis pursued in this chapter may lead to a similar result, it may be submitted that this straightforward approach does not appear to take account of Article 43 (second paragraph) or Article 51(2) of the Treaty. These provisions were not altered by the Single European Act or by the Maastricht , Amsterdam or Nice Treaties. The second paragraph of Article 43 defines freedom of establishment as including the right to take up and pursue activities as self-employed persons, and to set up and manage undertakings, ‘subject to the provisions of the Chapter relating to capital’, and Article 51(2) states that the liberalisation of banking and insurance services connected with movements of capital shall be effected in step with the progressive liberalisation of the movement of capital. This link between the Treaty rules on establishment and the provision of services and the rules relating to the movement of money was noted in the recitals to the Second Banking Directive, which recognised that capital safeguard measures under the 1988 capital movements Directive33 may lead to restrictions on the provision of banking services. The provision of banking and insurance services therefore appears expressly to be subordinated to the rules on monetary movements. However, it may be observed that in Case C–118/96 Safir v Skattemyndigheten i Dalarnas Län34 the European Court held that the Swedish tax regime for insurance policies taken out in other Member States concerned the provision of services, so that there was no need to consider the capital movement provisions. Such an approach is difficult to reconcile with the

32 See

Vanistendael: ‘The consequences of Schumacker and Wielockx: two steps forward in the tax procession of Echternach’ (1996) 33 CMLR 255, and Wattel: ‘The EC Court’s attempts to reconcile the Treaty freedoms with international tax law.’ (1996) 33 CMLR 223. 33 Council Directive 88/361 (OJ 1988 L178/5). 34 [1998] ECR I–1897.

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wording of the Treaty—though it may be suggested that the wording of the Treaty is hardly appropriate in the context of the 12 States sharing a single currency—but it has subsequently been followed in Case C–136/00 Danner.35 More generally, the provisions of Article 56, and therefore the exception in Article 58(1)(a), relate not only to capital movements as such but also to payments, which, as ‘current payments’ under the old Article 106(1) were defined in terms of payments or transfers relating to the exercise of the other Treaty freedoms. Indeed, it may be wondered how far payments and transfers can be separated from the substantive Treaty freedom: in Case 95/81 Commission v Italy,36 as mentioned earlier, an import deposit scheme imposed in the context of exchange control legislation was classified as a measure equivalent to a quantitative restriction on the import of goods. In the context of the Treaty rules on the provision of services there is, as has been mentioned above, an express link with the provisions governing free movement of capital in Article 51(2) which states that the liberalisation of banking and insurance services connected with movements of capital shall be effected in step with the progressive liberalisation of the movement of capital. This link was applied in a restrictive way by the European Court in Case 267/86 Van Eycke v ASPA37 where it was held that since the opening of a savings account in another Member State was not at that time liberated under the capital movements Directives, it was not a breach of the Treaty provisions on freedom to provide services for Belgium to limit tax exemptions on such accounts to deposits in local currency at credit institutions having their head office (siège social) in Belgium. By way of contrast, in Case C–118/96 Safir v Skattemyndigheten i Dalarnas Län,38 it was held that for Sweden to impose a different tax regime for insurance policies purchased from providers outside Sweden which would have the effect of deterring Swedish residents from taking out such policies, even though it was intended to achieve tax neutrality between policies purchased inside and outside Sweden, was a breach of Article 49 (formerly Article 59) on freedom to supply services. It is also clear that differential tax treatment based on residence or place of investment may infringe freedom of establishment. While the second paragraph of Article 43 (formerly Article 52) defines freedom of establishment as including the right to take up and pursue activities as self-employed persons, and to set up and manage undertakings, ‘subject to the provisions of the Chapter relating to capital’, there is a long line of 35 3 October 2002. 36 [1982] ECR 2187. 37 [1988] ECR 4769. 38 [1998] ECR I–1897.

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case-law indicating that those falling within its scope may not be subjected to tax discrimination. In the context of freedom of establishment, if an undertaking does establish a permanent presence in another Member State, then whatever form that establishment takes, it has been clear since Case 270/83 Commission v France,39 that Member States may not treat companies differently for tax purposes depending on the type of establishment present within their jurisdiction. It was there held, in the context of French legislation granting shareholders’ tax credits to French insurance companies but not to branches or agencies in France of foreign insurance companies, that France could not treat the branches of foreign insurance companies whose main offices were in other Member States differently from those insurance companies which took the form of French-based companies which were subsidiaries of those foreign insurance companies. In other words, branches (which are a part of the foreign undertaking in another Member State) and subsidiaries (which are formed under local law but controlled by the foreign undertaking) had to be treated the same way, both being forms of establishment recognized in what is now Article 43. Furthermore, it was made clear in that case that there was no way that restrictions could be imposed on the freedom of establishment in order to prevent tax evasion, even though it might be legitimate outside that context to operate differential tax treatment on the basis of residence, as was subsequently held in Case C–112/91 Werner v FZA Aachen-Innenstadt.40 However, when the question of residence did arise in the context of freedom of establishment in Case C–330/91 R v Inland Revenue Commissioners ex p Commerzbank,41 it was held that a German company which traded in the UK through a branch established there but which was fiscally nonresident in the UK, was entitled to receive interest on the repayment of tax which should not have been charged to it, if an undertaking resident in the UK would have received interest on such a repayment—and it made no difference that the only reason for the repayment of the tax was the fact that the German company was not resident in the UK. A similar approach has been taken in Case C–264/96 ICI v Colmer,42 where tax relief for a holding company depended on the residence of its subsidiaries. Subsequently, in Case C–251/98 Baars v Inspecteur der Belastingdienst,43 it was held that Dutch legislation which gave an exemption from wealth tax for Dutch residents with a controlling shareholding in a company established in the Netherlands but did not give that exemption for a controlling shareholding

39 [1986] 40 [1992]

ECR 273; [1987] 1 CMLR 401. ECR I–249. This case nevertheless distinguished and reaffirmed the judgment in the French tax case. 41 [1993] ECR I–4017. 42 [1998] ECR I–4695. 43 13 April 2000.

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in a company established in another Member State (in that case Ireland), breached the Treaty rules on freedom of establishment, and in Cases C–397/98 and 410/98 Metallgesellschaft and Hoechst v Inland Revenue44 the subjection of the payment of dividends by a subsidiary company to a parent company resident in another Member State to advance corporation tax when no advance corporation tax was required on payments of dividend to a parent company resident in the UK was held to be a breach of the Treaty rules on freedom of establishment. With regard to free movement of workers, in Case C–279/93 Schumacker45 and Case C–151/94 Commission v Luxembourg46 it was made clear that discrimination cannot be justified where the taxpayer benefits from the rules on free movement of workers, and in Case C–107/94 Asscher,47 it was made clear that discrimination cannot be justified where the taxpayer benefits from the rules on freedom of establishment. In the Schumacker case it was held that where the State of residence could not take account of the taxpayer’s personal and family circumstances because the tax payable there was insufficient to enable it to do so, the Community principle of equal treatment required that in the State of employment the personal and family circumstances of a foreign non-resident be taken into account in the same way as those of resident nationals, and the same tax benefits should be granted. In the Luxembourg case it was held that it was a breach of the rules on the free movement of workers for Luxembourg to retain and not repay excess amounts of tax deducted from the earnings of Community nationals who resided or worked in Luxembourg for less than the whole tax year, and in the third case, the Netherlands could not impose a higher income tax liability on a non-resident to compensate for the fact that he paid social security contributions in another Member State. On the other hand it was accepted by the European Court in Case C–336/96 Gilly v Directeur des Services Fiscaux du Bas-Rhin48 that a frontier worker may have to accept less than perfect equality of treatment under a double taxation agreement. On the face of it, therefore, there is a conflict between the Treaty rights of freedom of establishment and free movement of workers as interpreted in Commerzbank, Wielockx, Schumacker, Luxembourg and Asscher, and the discriminatory tax treatment apparently authorised by Article 58(1)(a). As indicated above, one simple explanation would be to say that a situation governed by another Treaty freedom does not fall within Article 58(1)(a), but that is hardly compatible with the express terms of Article 51(2), subjecting

44 8 March 2001. 45 [1995] ECR I–225. 46 [1995] ECR I–3685. 47 [1996] ECR I–3089. 48 [1998] ECR I–2793.

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freedom to provide services in the financial sector to the liberalisation of capital movements, or with the fact that current payments will normally relate to another Treaty freedom. However, in decision in Case C–118/96 Safir v Skattemyndigheten i Dalarnas Län,49 where it was held to be a breach of Article 49 for Sweden to impose a different tax regime for insurance policies purchased from providers outside Sweden which would have the effect of deterring Swedish residents from taking out such policies, even though it was intended to achieve tax neutrality between policies purchased inside and outside Sweden, it was stated that the decision on this point made it unnecessary to determine whether the legislation was also incompatible with Articles 56 and 58—even though under the express terms of Article 50, services are only services within the meaning of the Treaty to the extent that they do not fall under one of the other Treaty freedoms. Similarly, though less controversially, in Cases C–397/98 and 410/98 Metallgesellschaft and Hoechst v Inland Revenue50 the fact that the UK rules on payment of advance corporation tax to parent companies resident in other Member States were held to breach the rules on freedom of establishment was held to make it unnecessary to decide whether they breached the rules on free movement of capital. Be that as it may, Article 58(1)(a) only entered into force on 1 January 1994, and as has been noted earlier, there is attached to the Maastricht Treaty a Declaration in the following terms: The Conference affirms that the right of Member States to apply the relevant provisions of their tax law as referred to in [Article 73d(1)(a)]of this Treaty will apply only with respect to the relevant provisions which exist at the end of 1993. However, this Declaration shall apply only to capital movements between Member States and to payments effected between Member States.

While a mere Declaration may not amend the terms of the Treaty, it has long been established in other areas of Community law that it may be binding upon its author.51 If the Member States are bound by their Declaration, it may be submitted that its effect is that with regard to monetary movements between Member States, the only discriminatory measures which may be maintained under Article 58(1)(a) are those which were lawfully in force at the end of 1993. Since the Commerzbank, Wielockx, Schumacker and Asscher cases all relate to situations arising before the end of 1993, it may be suggested that the discrimination on the basis of residence found unlawful in those cases cannot be revived under Article 58(1)(a). However,

49 [1998] ECR I–1897. 50 8 March 2001. 51 In the context of declarations

under Regulation 1408/71 on social security, see Case 35/77 Beerens [1977] ECR 2249, 2254.

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this approach also will not work if situations which at first sight might appear to involve the provision of services, such as the creation of a mortgage, are categorised as movements of capital—unless, as in Safir, the wording of the Treaty is ignored, and it is held that the free movement of capital rules do not have to be considered if a situation can be categorised as provision of services.

CONCLUSION

A broad interpretation of capital movements seems to be developing which could have unanticipated knock-on effects, effectively opening other aspects of the internal market to traders from third countries. However, this broad interpretation does not appear to be followed where the tax provisions of the capital movement rules would limit other freedoms; indeed, to avoid that situation, the Court appears to have ignored the wording of the EC Treaty which categorises freedom to provide services as residual in nature. While more general issues as to the dividing-lines between the Treaty freedoms are raised, it may be suggested that the question of the subordinate nature of freedom to provide services is in urgent need of reconsideration.

6 Internal Market and the Harmonisation of European Contract Law PAOLISA NEBBIA 1

INTRODUCTION

I

N JULY 2001 the Commission issued a Communication on European Contract Law2 aimed at triggering a debate among Community institutions and stakeholders (businesses, legal practitioners, academics) on European contract law. This initiative must be seen in the context of an ongoing discussion, started several years ago, on the need and desirability of harmonisation, in the form of codification, of comprehensive legislation the area of contract law.3 The core question posed by the Commission in its Communication was whether the sector-specific approach to contract law so far adopted (i.e. regulating specific contracts or marketing techniques) is sufficient to ensure the proper functioning of the internal market, or rather there is a need for farther-reaching and more comprehensive measures. 1 Many thanks to Auke Haagsma for his useful comments on an earlier draft. 2 ‘Communication from the Commission to the European Parliament and

Council on European Contract Law’ COM (2001) 398 final. 3 The whole issue 4/1997 of the European Review of Private Law, for example, is dedicated to the debate on harmonisation of private law. A comprehensive discussion of these issues can be found in A Hartkamp, M Hesselink, E Hondius, C Joustra, E Du Perron (eds) Towards a European Civil Code. Second Revised and Expanded Edition (The Hague, Kluwer, 1998), while the main points of such debate are summed up by L Nottage ‘Convergence, Divergence and the Middle Way in Unifying or Harmonising Private Law’ EUI Working Paper No.2001/1. Several groups of academics throughout Europe are currently working in parallel on draft Contract Codes or common principles which should constitute the basis for a new jus commune: see, for example, the work of the Osnabrück Study Group on a European Civil Code; of the Accademia dei Giusprivatisti Europei based in Pavia; of the Leuven Jus Commune Casebooks Project; not to mention, of course, the already existing and well known Lando Principles of European Contract Law (the last edition of parts 1 and 2 was published by Kluwer in 2000; part 3 in 2003). (Note continues overleaf.)

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The Commission also envisaged a series of actions that could be taken to tackle the concrete problems, if any, arising from the current situation: these range from taking no action at all and leaving the solution to the market (option I); to promoting the development of common contract law principles leading to more convergence of national laws (option II); to improving the quality of the EC legislation already in place (option III); to adopting new comprehensive legislation in the form of an overall text comprising provisions on general questions of contract law as well as specific contracts (option IV). Two years later, in 2003, the Commission adopted a second Communication 4 summarising the responses received and defining an ‘action plan’ i.e. a chronological list of measures to achieve a ‘more coherent contract law’. The action plan pursues options II and III in the short-mid term but leaves the door open for a long-term reflection on the adoption of an optional instrument. In practice, the actions proposed to implement options II and III consist in 1) increasing the quality of the existing Community acquis in the area of contract law; 2) establishing a ‘common frame of reference’ allowing the identification of common terminology for particular fundamental concepts and containing rules on the conclusion, validity and interpretation of contracts;5 3) promoting the elaboration of EU-wide standard terms. Although the adoption of a non-sector specific measure is of less immediate concern, it is rather clear that the actions pursued under options II and III, especially the elaboration of a common frame of reference, are instrumental to the ultimate achievement of a modern, comprehensive and common body of contract rules. The Commission does not openly tackle, in its Communications, the issue of the legal basis on which it intends to act; this appears to be, nevertheless, a matter of some concern since one of the aims of the first Communication is explicitly stated to be ‘to find out whether the co-existence of national

At Community level, the European Parliament had already called, in 1989 and 1994, for work to be started on the possibility of drawing up a common European Code of Private Law; it also stated that unification of the major branches of private law in the form of a European Civil Code would be the most effective way of carrying out harmonisation with a view to meeting the Community’s legal requirements in order to achieve a single market. In 2000, the Parliament reaffirmed that greater harmonisation of civil law has become essential in the internal market and called on the Commission to draw up a study in this area (OJ 2000 C377/323). The Presidency Conclusions of the European Council in Tampere of 15–16 October 1999 also made it clear that the approximation of substantive law in civil matters was an important step towards eliminating obstacles to the good functioning of civil proceedings. 4 ‘Communication

from the Commission to the European Parliament and Council. A more coherent European Contract Law. An Action Plan’ COM (2003) 68 final. 5 The Communication also mentions performance, non-performance, remedies, credit securities on moveable goods and the law of unjust enrichment.

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contract laws in the Member States directly or indirectly obstructs to the functioning of the internal market, and if so to what extent’.6 This paper seeks to explore in some detail the issue of the existence, in the current Treaty, of a suitable legal basis not only for the final, long term objective of a European contract code, but also for the comprehensive measures, such as the common frame of reference, which the Commission intends to take in the short–medium term.7

IDENTIFYING POSSIBLE LEGAL BASES

The sector-specific measures so far adopted in the area of contract law are based on Article 95. This enables the Community to lay down rules only where those are needed for the establishment and functioning of the internal market; while it is commonly accepted that this Article permitted the enactment of a directive on unfair terms or on doorstep selling, it is doubtful whether it would provide a competence which is wide enough for more comprehensive measures. The existence of Article 95 does not exclude that other articles, such as Articles 308 or 94, can serve as a legal basis. Article 308, however, can only be used as basis of Community legislation if the Treaty has not provided the necessary power elsewhere:8 it is therefore necessary to investigate, in the first place, whether any other provision can act as a legal basis. Article 94, on the other hand, appears to have a broader formulation than Article 95 in that it allows approximation of national laws which directly affect the establishment or functioning of the common market; it can, however, only be used for the adoption of directives, while it appears from the second Communication that the Commission intends to use the whole range of available regulatory (and non-regulatory) measures.9 In addition, it is not

6 ‘Communication from the Commission to the European Parliament and Council’ above n 2, para 23. 7 On the legal basis for an European Contract Code see W Van Gerven ‘Codifying European private law’, lecture delivered at the conference ‘Epistemology and Methodology of Comparative Law in the light of European Integration’ Brussels, October 24th–26th, 2002; from the same author ‘Coherence of Community and national laws. Is there a legal basis for a European Civil Code?’ (1997) 5 ERPL 465 and ‘Codifying European Private Law? Yes, if’ (2002) 27 EL Rev 156; see also W Tilmann ‘The Legal Basis for a European Civil Code’ (1997) 5 ERPL 471; J Basedow ‘A Common Contract Law for a Common Market’ (1996) 33 CML Rev 1169. 8 Case 8/73 HZA Bremerhaven v Massey Ferguson [1973] ECR 89. Also, the imposition on the Member States of changes which have a constitutional dimension exceeds the limits of Art 308. The imposition of a Contract Code, at least upon certain Member States, would certainly have constitutional importance, see W Van Gerven ‘Coherence of Community and national laws. Is there a legal basis for e European Civil Code?’ above n 7, 468. 9 ‘Communication from the Commission to the European Parliament and Council’ above n 4, para 52.

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unlikely ‘that the restrictive interpretation which the ECJ has attached, in the Tobacco10 judgment, to the application of Article 95—ie to exclude harmonisation of national laws merely justified by an “abstract risk”—is also valid for Articles 94 and 308 EC’11 since it vehemently re-states the principle, underlying the whole Community law, of specific, hence limited, attribution of competences to the Community institutions. The aim of this chapter is therefore limited to investigate the relationship, if any, between contract law harmonisation and Article 95. This will be done in two different stages, tightly connected to each other, focusing respectively on the notion of ‘obstacle to trade’ and on the notion of ‘internal market’.

RULES OF CONTRACT LAW AS AN OBSTACLE TO TRADE

The starting point for our investigation is, quite obviously, the question whether and to what extent domestic rules of contract law can constitute an obstacle to trade or cause distortions of competition. The question has come to the analysis of the ECJ only twice, both times in relation to the free movement of goods. Alsthom Atlantique12 is a case that concerned exemption clauses. Sulzer, involved in a claim for latent defects in two vessel engines provided to Alsthom, was, according to French law, unable to rely on a clause that exempted its liability. This was because a peculiar but consolidated caselaw of the Cour de Cassation interpreted the relevant provisions of the French Code Civil so as to allow clauses limiting liability only where the parties to the contract were engaged in the same specialised field (which was not the case in Alsthom). Sulzer therefore claimed that such case law distorted competition and hindered, contrary to Article 34 (now Article 29), the free movement of goods by putting French undertakings at disadvantage compared to the foreign competitors who were not subject to such stringent liability. The Court held that Article 34 (now Article 29) applied to restrictions on intra-Community trade which placed the export trade at disadvantage for the benefit of domestic trade. Accordingly, the fact that all traders subject to French law were at disadvantage, without there being any advantage for domestic production, did not trigger the application of Article 34. In addition, parties to an international contract of sale are generally free to determine the law applicable to their contractual relations and can thus avoid being subject to French law.13 10 C–376/98 Federal Republic of Germany v European Parliament and Council [2000] ECR I–8419. 11 Van Gerven ‘Codifying European private law’ above n 7. 12 C–339/89 Alsthom Atlantique SA v Compagnie de Construction Mécanique Sulzer SA [1991] ECR I–107. 13 Sulzer’s claim was also based on an alleged breach of Art 85 (now Art 81) by the French State that, with their law, distorted competition among traders. The argument was rejected by

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The specific facts of the case and the solution given by the ECJ make it of little interest for the purposes of this chapter in a different scenario, however, it may have been possible to argue that French law constituted a measure having equivalent effect to a quantitative restriction (MEQR) under Article 28 since a foreign trader would feel that his access to the French market is restricted by the fear of being subject to the French rules of liability. That was actually the issue in CMC Motorradcenter v Pevin Baskiciogullari:14 Motorradcenter, a non-authorised trader in motorcycles which had been the object of parallel import, claimed that an obligation under German law to communicate to the other party of a contract facts which may determine its decision to make the contract was a MEQR within the meaning of Article 30 (now 28). The Court stated that the possibility that a duty of information in German contract law could deter from business was too remote and indirect to be an obstacle to trade under Article 30 (now 28), but the case was then decided mainly on other grounds—the ECJ held that it was the behaviour of the parties to that particular case that obstructed the free movement of goods. The issue of the indirectness and remoteness of an obstacle is, however, a very important one. Cases such as Krantz GmbH v Ontvanger der Directe Belastingen and Netherlands15 or BASF AG v Präsident des Deutschen Patentamts16 certainly provide some enlightenment as to what position the ECJ might take be in future cases concerning the relationship between contract law and free movement. In the case of Krantz, for example, the issue was whether non-discriminatory domestic tax legislation allowing tax authorities to seize goods in possession of a taxpayer, even when those are property of a supplier in another Member State, could prevent traders from selling goods to purchasers established in other Member States. Both the Advocate General and the Court pointed out that the rules at issue were indistinctly applicable to domestic and imported goods and, in addition: the possibility that nationals of other Member States would hesitate to sell goods ( … ) to purchasers in the Member State concerned because such goods would be liable to seizure by the collector of taxes if the purchaser failed to discharge their Dutch tax debts is too uncertain and indirect to warrant the conclusion that a national provision authorising such seizure is liable to hinder trade between Member States.17 the Court on the ground that Arts 85 and 86 (now Arts 81 and 82) of the Treaty concern the conduct of undertakings and not measures adopted by the authorities of the Member States, unless the latter were adopting or maintaining in force measures which could deprive these articles of their effectiveness (e.g. if national case-law was in favour of the adoption of agreements contrary to Art 85). 14 C–93/92 [1993] ECR I–5009. 15 C–69/88 [1991] 2 CMLR 677. 16 C–258/99 [2001] ECR I–3643.

I–3845.

17 Above

n 15, para 11.

See also C–412/97 Ed Srl v Italo Fenocchio [1999] ECR

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The Court appears to introduce here a sort of de minimis rule18 according to which a remote possibility that a rule acts as a hindrance to trade is not sufficient to trigger the application of Article 28. The concept is comparable to the ‘substantial restriction’ principle laid down by Jacobs AG in his well-known opinion in Leclerc Siplec,19 particularly where he emphasises the need to consider the direct or indirect, immediate or remote, or purely speculative and uncertain effect of a certain measure. Under the well known formal distinction made in Keck,20 rules of contract law would in most cases be considered as selling arrangements and therefore not constitute an obstacle to trade. Considering the progressive shift of the Court towards a test based on ‘substantial hindrance’ within the category of selling arrangements, however, the issue of domestic contract law rules would probably fall back, once again, on the question whether their divergence does or not impede directly and substantially access to the market. The Tobacco Advertising case points to the same direction where it excludes that ‘a mere finding of disparities between national laws and of the abstract risk of obstacles to the exercise of fundamental freedoms or of distortions of competitions’ can be sufficient to justify the application of Article 95: this would contradict the principle of Article 5 that the Community has only the powers specifically conferred on it and ‘the powers of the Community would be practically unlimited’. In some ways, the Tobacco Advertising case represented one extreme, since in combination with the fact that the risk of obstacles or distortions was ‘abstract’, it was clear from the judgment that the measure failed in all respects the proportionality test because of its generality and of the fact it did not ensure the free movement of products in conformity with its provisions.21 Assuming one could prove that divergence in domestic laws of contract restricts trade, the proportionality issue could not be re-proposed in the same terms as above in relation to a European Contract Code (or to the common frame of reference): first, because its primary and unique aim would be that of facilitating trade; second, because it would be 18 It seems to me, however, that there is a slight difference between the de minimis rule above and the one known in competition law. In competition law, the de minimis rule is a quantitative criterion based on the assumption that, because of the size of the parties’ market share, an agreement which could potentially restrict trade does not have an appreciable effect on trade; in the area of free movement, on the other hand, de minimis appears to rest on a qualitative criterion, ie. one where it is the capability itself of a measure to restrict trade which is uncertain. 19 Opinion delivered in C–412/93 Societe d’Importation Edouard Leclerc-Siplec v TF1 Publicite SA and M6 Publicite SA [1995] ECR I–179. 20 C–267 and 268/91 Criminal Proceedings against Keck and Mithouard [1993] ECR–I 6097. 21 T Tridimas and G Tridimas ‘The European Court of Justice and the Annulment of the Tobacco Advertisement Directive: Friend of National Sovereignty or Foe of Public Health?’ (2002) European Journal of Law and Economics 174.

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unthinkable to harmonise only the ‘chunks’ of general contract law that appear to present more problem for intra-Community trade without negatively affecting the coherence and self-consistency of what is, in all Member States, a ‘monolithic’ system of strictly inter-related rules; or to proceed to harmonise several types of contracts without fitting them within a broader conceptual framework.22 The fundamental question that remains open, therefore, is to decide the extent to which a measure should facilitate trade in order to be legitimised under Article 95: in other words, one needs to understand how direct and concrete need to be the obstacles and distortions that contract law harmonisation seeks to remove.

THE NOTION OF ‘MEQR’ AS A FUNCTION OF THE NOTION OF ‘INTERNAL MARKET’

It is not an uncommon view, among academics, that uncertainties of foreign languages and customs, of private international law and foreign substantive law often erode the commercial incentive of foreign trade: transaction costs, together with psychological barriers and uncertainty, doubtlessly have the potential to make cross border transactions appear less advantageous to a relevant number of economic agents, especially SME’s and consumers, preventing them from taking full advantage of the internal market.23 The response of governments and businesses to the Commission’s second Communication suggests that, although private international law and conventions can provide satisfactory solutions for cross-border transactions, sometimes diversities in national law lead to distortions of competition, eg through higher information costs and lack of legal certainty. Particular problems are associated, for example, with divergence in rules on limitation of liability, on security interests and on the supply of services; with differences in pre-contractual duties; with ignorance of the fact that the law of contract does not necessarily govern the proprietary aspects of transactions in some Member States.24 Unfortunately, the degree of ‘appreciability’ of an obstacle or distortion is not a pre-determined notion: suffice here to recall that from the Court’ seminal judgments on free movement one gains the impression that even the notion of ‘measure equivalent to a quantitative restriction’ is, in itself, not a 22 This

task would otherwise be fulfilled by the ECJ, as already happened in C–168/00 Leitner v TUI Deutschland GmbH & Co KG [2002] ECR I–2631. A comment on this judgment by WH Roth is forthcoming in (2003) 4 CML Rev. See also my comments to the English case DGFT v First National Bank [2001] 3WLR 1297, forthcoming in the same issue of that review. 23 See eg J Basedow ‘A Common Contract Law for the Common Market’ above n 7, 1182–83. 24 Communication from the Commission to the European Parliament and Council above n 4, paras 3.1.1 and 3.1.2.

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given one, but one which is somewhat functional to the objective which, within a certain political and economic context, the ECJ seeks to attain.25 Cassis de Dijon, for example, represented not only the most robust judicial contribution to the internal market but also the perfect example of purposive interpretation knowingly aimed at promoting market integration and at fending off political stagnation and euro-pessimism, paving the way for the Commission’s new regulatory strategy.26 The sudden revirement in Keck, on the other hand, rather than simply representing the Court’s attempt to ‘clarify its case-law’, also corresponded to a voluntary self restraint in the free movement of goods. In the first place, the allocation of Community competences following Cassis had resulted in a mechanism where ‘the broader [is] the catch of Article 30, the broader [are] the legislative competences of the Community’:27 any rules which fell under Cassis becomes prey to the Community legislative process under Article 95 operating by majority voting. Keck therefore aimed to make a major contribution to limiting Community governance in a scenario where the growing involvement of the Court in regulatory policy and the consequent increase in judicial activism was endangering the Court’s legitimacy; second, as the harmonisation programme had developed very successfully since Cassis, the need for judicial activism as a means of driving the common market agenda had considerably lessened, and the Court could shift its focus from ‘market building’ to ‘market maintaining’, hence addressing its activism to other, less integrated, areas of the common market.28 The post-Keck case law is also significant in this respect, since its confusion as to what constitutes or not an MEQR somehow represents the quest for clarity ‘as to the ultimate constitutional objective of the internal market, in general, and free movement of goods, in particular’.29 Accordingly, a decision as to what constitutes or not a MEQR (and even more as to the extent to which an obstacle is ‘direct’ and ‘concrete’) is not taken in a vacuum, but rather by reference to what should be the objectives and the nature of the internal market. As these are not, in themselves, predetermined, the exact width of Community competence in relation to the internal market in not pre-determined either: it largely depends on the interaction between the ECJ and the Community institutions,

25 For

an example in the area to freedom of establishment see C Barnard and S Deakin ‘Market Access and Regulatory Competition’ in C Barnard and J Scott (eds) The Law of the Single European Market. Unpacking the Premises (Oxford, Hart, 2002), 209–12. 26 See the Commission’s White Paper ‘Completing the Internal Market’ COM (85) 310. 27 J Weiler ‘The Constitution of the Common Market Place’ in P Craig and G De Búrca (eds) The Evolution of EU Law (Oxford, OUP, 1999) 372. 28 M Poiares Maduro We, the Court. The European Court of Justice and the European Economic Constitution (Oxford, Hart, 1998) 99. 29 See P Koutrakos ‘On groceries, alcohol and olive oil: more on free movement of goods after Keck’ (2001) 26 EL Rev 401.

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Treaty articles and secondary Community legislation at a given historical moment. THE AMBIGUITIES OF THE INTERNAL MARKET

Community measures based on Article 9530 that affect Member States’ law of contract are already in place: those are the so-called ‘consumer contract’ directives such as, for example, Directive 93/13 on unfair terms in consumer contracts,31 Directive 85/577 on doorstep sales,32 Directive 97/7 on distance selling,33 Directive 1999/44 on the sale of consumer goods and associated guarantees.34 One would think that the qualitative difference between an obstacle created, for example, by divergence in Member States’ laws on unfair terms and by divergence in Member States’ laws on precontractual liability is not such, as to justify Community action in the former case but not in the second. Yet, the legal base of the Unfair Terms Directive has never been seriously questioned.35 The analysis of the process whereby the ‘consumer contract’ Directives have slipped in the internal market programme can be rather helpful to understand the nature of the internal market itself. It is common knowledge that the Cassis ruling had a landmark influence on the understanding of the relationship between national consumer protection measures in Europe and the goal of ensuring the free flow of trade and factors of production. In explicitly stating that the diverse national consumer laws can act as a legitimate obstacle to the free movement of goods, the ECJ in Cassis opted in favour of positive integration in the field of consumer protection as a remedy to the diversity of national measures. Several measures of consumer protection have been adopted after this seminal judgement was given,36 and the manifest connection between consumer protection and internal market was acknowledged in a number 30 Or, for the older ones, Art 94. 31 OJ 1993 L95/29. 32 OJ 1985 L372/31. 33 OJ L1997 L144/19. 34 OJ 1999 L171/12. 35 But see, with reference to the consumer

guarantees directive, the criticism expressed in the Editorial Comments ‘Europeanization of Private Law—Part 2’ (1998) 35 CML Rev 1013. 36 It must be pointed out, however, that even before the Cassis judgement the link between consumer protection and internal market was evident to the Commission that, in the first proposal for a Directive on Product Liability, stated that: … approximation of laws of the Member States concerning the liability of the producer for damage caused by the defectiveness of his products is necessary because the existing divergencies may distort competition and affect the movement of goods within the Common Market and entail a different degree of protection of the consumer against damage caused by a defective product to his health or property; ( … ) Protection of the consumer requires that all the producers involved in the production process should be

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of soft law measures as well as measures of legislative nature. The bulk of binding EC law affecting the position of the consumer, initially built up over the decades as a ‘spillover’ of other competence, later culminated in the introduction by Maastricht of Article129a (now 153) conferring to the Community the competence to adopt measures in the area of consumer law, and in the Amsterdam amendment to that article that further ‘emancipated’ consumer policy from the internal market. More recently, the Commission emphasised once more that the development of consumer policy at EU level has been the ‘essential corollary of the progressive establishment of the internal market’.37 Shortly after Cassis was delivered, however, the attention of the Commission shifted from labelling or technical provisions to selling techniques and contract law: if harmonisation of technical regulations can find a solid basis in the internal market programme, harmonisation of provision of private law appears to be less evidently necessary for completing the internal market, while at the same time having quite drastic consequences for the national legal systems of private law.38 It is here submitted that the question to be asked is not whether harmonisation of provisions of private law is necessary to complete the internal market; rather, one should ask in the first place what type of internal market the European Community is aiming to provide. Since it was first introduced as ‘common market’ in the Treaty of Rome, the project of the internal market has undergone dramatic transformation.39 Without going into the details of its development, suffice here to draw attention on a few crucial phases of its evolution. While, until 1992, the focus of internal market on the removal of physical technical and fiscal barriers implied a relatively narrow economic understanding of its nature and function, the post-1992 agenda sees the internal market become an increasingly complex legal-economic structure more and more deeply tied to the made liable, in so far as their finished product, component part or any raw material supplied by them was defective … . Accordingly, the Cassis judgement, rather than enunciating it for the first time, provided strong support to idea that the two policies are necessarily interconnected. 37 Communication

from the Commission to the European Parliament, the Economic and Social Committee and the Committee of the Regions Consumer Policy Strategy 2002–2006 COM (2002) 208 final, 2002/C137/02. 38 J Stuyck ‘European Consumer Law after the Treaty of Amsterdam: Consumer Policy in or Beyond the Internal Market? (2000) 37 CML Rev 396. See also the Editorial Comments ‘Europeanization of Private Law–Part 2’ above n 34 and ‘On the way to a European Consumer Sales Law?’ (1997) 34 CML Rev 821. 39 For two enlightening overviews of the evolution of the internal market see P Craig ‘The Evolution of the Single Market’ in C Barnard, J Scott (eds) The Law of the Single European Market. Unpacking the Premises above n 25, 1 and K Mortelmans ‘The Common Market, the Internal Market and the Single Market; What’s in a Market?’ (1998) 35 CML Rev 101.

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wider Community framework of social, economic, external and monetary policies. This entails, in the first place, that the internal market has been gradually developing closer links with other substantive policies which, although independent of the internal market, are functionally related to its improvement: for example, monetary union is certainly something which although not strictly necessary for the internal market, facilitates its development; similarly, the attempt to establish a single, European, judicial area, buttressed by the transfer of EC competence regarding judicial co-operation from the third to the first pillar, also indirectly facilitates the internal market.40 In parallel, the notion of internal market itself has undergone a process of revision and expansion: ‘the concern for economic integration per se is still evident, but the internal market is consciously conceptualised in a broader, more holistic, manner. Consumer welfare, social policy, environmental policy and the like are all regarded as important facets of the internal market strategy’.41 As Craig describes, the shift is taking place gradually but eloquent signs of it can be found in several of the major papers emanating from the Commission and the European Council over the last fifteen years.42 The rise and development of European consumer policy, including the enactment of the ‘consumer contract’ Directives, must therefore be seen rather than as a phenomenon on its own as one of the new facets gained by

40 Art

65 of the Treaty, for example, states that:

measures in the field of judicial co-operation in civil matter having cross border implications, to be taken in accordance with Art 67 and insofar as necessary for the proper functioning of the internal market shall include: (a)

improving and simplifying: the system for cross-border service of judicial and extrajudicial documents; cooperation in the taking of evidence; the recognition and enforcement of decisions in civil and commercial cases, including decisions in extrajudicial cases; (b) promoting the compatibility of the rules applicable in the Member States concerning the conflict of laws and of jurisdiction; (c) eliminating obstacles to the good functioning of civil proceedings, if necessary by promoting the compatibility of the rules on civil procedure applicable in the Member States. Among the more recent initiatives, the 2002 Proposal for a Directive to improve access to justice in cross border disputes by establishing minimum common rules relating to legal aid and other financial aspects of civil proceedings (COM(2002) 13 final) is based on article 65(c). 41 Craig ‘The Evolution of the Single Market’ above n 39, 37. 42 See for example the 2000 Review of the Internal Market Strategy

COM (99) 624 final, setting as a task for the internal market job creation, social cohesion and citizen’s health and safety.

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the internal market in the course of its evolution: in other words, consumer policy does not run parallel to the internal market, but runs within the internal market. Also, the last fifteen years have marked a change in the paradigms and assumptions of consumer policy itself. The more recent measures relating to consumer protection place emphasis on a consumer who is active in the market43 and seeks, by travelling or by internet, to obtain products and services abroad. Accordingly, a certain level of harmonisation of rules concerning contracts, even where those do not come across as major obstacles to trade, can constitute in the eyes of the consumer a further incentive towards cross-border shopping. In the light of the above remarks, determining whether an initiative impinging on consumer law can properly be viewed as a contribution to removing direct and concrete obstacles to trade is reductive: the broader is the scope of the internal market, the more irrelevant is the dimension of the obstacle or distortion to be removed. In other words, it appears that the concreteness and directness of an obstacle or distortion due to divergence in domestic law is a function of the notion of internal market that one takes as a starting point. Equally, deciding whether and to what extent comprehensive contract law harmonisation contributes to the reinforcement of the internal market requires to establish, in the first place, the concept of internal market to be taken as a point of reference.

CONCLUSION

In applying the reflections made in the above paragraphs to the case of contract law harmonisation, this paper intends to argue neither against, nor in favour of the existence of a legal basis for a comprehensive European measure; its much more limited purpose consists in suggesting some points for reflection over the nature and objectives of the internal market. 43 See,

for example, the Recital to Directive 1999/44 on certain aspects of the sale of consumer goods and associated guarantees (OJ 1999 L171/12) that states: Whereas consumers who are keen to benefit from the large market by purchasing goods in Member States other than their State of residence play a fundamental role in the completion of the internal market; ( … ) whereas the opportunities available to consumers have been greatly broadened by new communication technologies which allow ready access to distribution systems in other Member States or in third countries; whereas, in the absence of minimum harmonisation of the rules governing the sale of consumer goods, the development of the sale of goods through the medium of new distance communication technologies risks being impeded; Whereas the creation of a common set of minimum rules of consumer law, valid no matter where goods are purchased within the Community, will strengthen consumer confidence and enable consumers to make the most of the internal market (…)’. See also the comments by M Tenreiro ‘Guarantees and after-sales services: brief analysis of the Green Paper presented by the European Commission’ (1995) 3 CLJ 79.

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It has been argued in this paper that the intensity of the legal regulation desired at European level largely depends on the ultimate constitutional objectives that the Union intends to achieve; it can be added, in this conclusion, that this also depends on the initial level of fragmentation of a certain market. As noted,44 many measures that are challenged in Europe as restriction to the free movement have been the object of state regulation in the US without being challenged in the US Supreme Court as contrary to the Commerce Clause. This is a consequence of the fact that American operators are used to operating in the context of both state and federal market and to incorporate its costs and advantages, while Europeans have always planned their strategies according to their national markets: the degree of activism of a court, but also, I believe, of a legislator, also depends on the habits of economic operators. Accordingly, every legislative act that helps reduce individual resistance against participation in international commerce may be viewed as a contribution to the internal market.45 Against this background, the ‘latent tension between the “specific” character of Community powers and the characteristics of the Treaty as a “traité-cadre” ’46 gives rise to problems of delimitation of competence of which the issue of contract law harmonisation is just one facet. The mission for the new Constitutional era is therefore to clarify the ultimate objective of the internal market and accordingly the division of competences between the Union and the Member States in this respect. As long as this remains unclear, the question of the legal basis of a European comprehensive measure of contract law harmonisation will also remain unresolved.

44 Poiares Maduro We, the Court. The European Court of Justice and the European Economic Constitution above n 28, 90–98. 45 I am assuming here that a Code or a common frame of reference would facilitate, rather than impede, trade. This is not, however, an unquestioned assumption: see, for example, the response of the Bar Council for England and Wales to the Commission’s first communication (all responses can be viewed at the page: http://www.europa.eu.int/comm/consumers/ cons_int/safe_shop/fair_bus_pract/cont_law/comments/index_en.htm) and the strong negative views expressed against a European Contract Code or frame of reference by Clifford Chance (Clifford Chance press release of 22.05.2003). 46 As R Barents put it a few years ago: see ‘The Internal Market unlimited: some observations on the legal basis of Community legislation’ (1993) 30 CML Rev 89.

7 The Development of the Ex-ante Control Mechanism Regarding Implementation of the Internal Market* RODOLPHE MUNOZ

INTRODUCTION

T

HE AIM OF this chapter is to promote the development of an ex-ante mechanism regarding the transposition of Directives. This system will ensure that Member States transpose Directive correctly and on time. In order to do so, an example of an ex-ante mechanism which has already been working efficiently for 20 years, Directive 98/34/EC1 (thereinafter: the notification directive) will be used. I will demonstrate the interest of such a mechanism and draw parallels between this well-established procedure and current Directive transposition mechanisms. Once I have completed the drawing of parallels, I will show the importance of applying such a system in order to control the transposition of Directives. In the first part, I will highlight the advantages of any ex-ante control mechanism. Afterwards, the success of Directive 98/34/EC in controlling draft national measures will be underlined. Then, the current situation regarding the control of the national transposition of Directives will be analysed. Finally, I will detail the framework of a potential mechanism aimed at allowing ex-ante control of the transposition of Directives. In abstracto, what are the advantages of an ex-ante control mechanism and the drawbacks of an ex-post system? Transparency and dialogue are the main positive assets of ex-ante control. Concerning transparency, the ex-ante system allows the possibility of

* The views expressed in this article are strictly personal. The author would like to thank for his help David Henry (researcher, University of Liege) in revising the wording of this article. 1 Directive 89/183/EC, OJ n° L 109 of 26/04/1983 p 8–12, codified by Directive 98/34/EC.

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informing all actors, every Member State, the Commission but companies and citizens as well. Currently, for example, companies encounter difficulties in gaining access to all national transposing measures of EC Directives. This can deter the sale of products in certain Member States. Concerning dialogue, ex-ante control renders it easier to develop a dialogue between the Commission and Member States. Indeed, once measures are adopted, it is harder to obtain their withdrawal from Member States for legislative and political reasons. Finally, the ex-ante mechanism can also increase dialogue between Member States. The principal tool of the ex-post mechanism is the infringement procedure (Article 226).2 However, this procedure has major drawbacks. Firstly, it only comes into play once the obstacle has already created barriers for stakeholders. Secondly, during the time of the procedure, the measure is still producing negative effects within the Internal Market. Finally, it takes too long to deal with the infringement.3 Indeed, when companies are ready to start an infringement action, they want to know what will happen, for example, to their trucks full of apples stopped at the border. By the time the infringement procedure is finished their products will have deteriorated and they will have stopped selling in this Member State. Therefore, for Stakeholders, Member States and the Commission, the ex-ante control appears to be the most suitable tool to overcome problems regarding internal market implementation. What is the interest in developing such a mechanism? Why is it necessary to re-think the system which deals with Directive transposition? First, the European Community is facing an increasing number of problems linked to transpositions.4 Secondly, there is the necessity of coping with the increasing number of infringement procedures due to transposition problems. Thirdly, the content of Directives is becoming more and more complex. Therefore their transposition is becoming more and more difficult for Member States. Fourthly, there is the necessity of coming up with a new system to control the transposition of Directives. Indeed, the present system was set up while the Community had six Member States. It is time to rethink the transposition procedure in order to be able to welcome the new Member States. Indeed, a Directive automatically incorporates transposition measures; the control of these transpositions has to be carried out by the Commission in order to ensure the uniform application of EC law. An ex-post control cannot be efficient if one has to deal with 25 different

2 The goal of the author is not to discredit the infringement procedure but rather to limit its use in order to increase its efficiency. 3 C Turner & R Munoz, ‘Revising the Judicial Architecture of the European Union’ (1999–2000) 19 Yearbook of European Law, 1–94. 4 http://www.europa.eu.int/comm/internal_market/fr/update/score/index.htm and recently IP/03/1272 , http://www.europa.eu.int/news/index_fr.htm.

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transposition measures, 25 different legal systems and 20 official languages. Finally, there is the necessity to ensure the uniform application of EC law. Member States only transpose on average between 3 to 6 per cent of EC directives.5 Nowadays, however, it is rarely the same Directives that create problems in every Member State. Indeed, every Member State has its ‘own problematic field’. For example, France has difficulty with the ‘Hunting Directive’,6 Greece with ‘Public procurement Directives’,7 and so on. An increase in the number of Member States will lead to an automatic increase in areas where there is a lack of uniform application of EC law.

EXISTING TOOLS: DIRECTIVE 98/34/CE

The Content of this Directive This Directive has established a notification procedure dealing with the notification of national measures containing technical regulations at a draft stage. Article 1 of Directive 98/34/EC provides the definition of the technical regulation: technical specifications and other requirements, including the relevant administrative provisions, the observance of which is compulsory, de jure or de facto, in the case of marketing or use in a Member State or a major part thereof, as well as laws, regulations or administrative provisions of Member States, except those provided for in Article 10, prohibiting the manufacture, importation, marketing or use of a product.

Therefore, in order to fall within the scope of this Directive, the national measure has to be a compulsory technical specification or an other requirement. The definition of a technical specification is particularly wide: it comprises any national measure dealing with the characteristics required of a product such as the level of quality, performance, safety, dimension, etc … The question remaining is the definition and meaning of other requirements. With this addendum added by Directive 88/182/EEC,8 the legislator wanted to extend the scope of ‘technical specification’. Indeed, ‘other requirements’ cover the after-life of the product, such as the recycling, re-use or disposal of the product. In order to control notifications, Directive 98/34/EC provides the Commission with different tools. It can ask questions, formulate observations, 5 Press Release: IP/03/621, http://www.europa.eu.int/news/index_fr.htm. 6 Case C–435/92, Association pour la protection des animaux sauvages and

Maine-et-Loire and préfet de Loire-Atlantique [1994] ECR I–67. 7 Case C–57/01, Makedoniko Metro [2003] ECR I–1091. 8 Directives 88/182/EEC of 22 March 1988, OJ L81, 26/03/1988, 75–76.

others v Préfet de

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send stringent legal analysis (detailed opinion) and block draft national regulation. This wide range of possibilities gives the Commission time before using the most stringent tool, so it encourages dialogue. In addition, Member States can use observations and detailed opinion. The different steps in the notification procedure can be summarised in a few words.9 Member States notify its draft.10 The Commission translates it and sends it to its experts inside the Commission and to all Member States. The Commission and Member States have three months to react. If during this time period they have not reacted, the Member State is entitled to adopt its measure. However, the Commission keeps the possibility of launching an infringement action if it discovers afterwards that the national text was in fact contrary to EC law.11 Because of its success, the scope of this instrument has been widened to cover all industrial goods, fisheries and agricultural goods.12 Directive 98/48/EC13 had extended this scope to include Information Society Services. In conclusion, it appears that this Directive has a wide scope of application. However, it is limited to non-harmonised fields. In addition, Article 10 stipulates that ‘Articles 8 and 914 shall not apply to those laws, regulations and administrative provisions of the Member States or voluntary agreements by means of which Member States comply with binding Community acts which result in the adoption of technical specifications ( … )’. This Article has been interpreted as excluding, from the notification obligation, the transposition of Directives.

Achievements The results achieved and the effectiveness of the procedure introduced by Directive 98/34/EC can be underlined in two ways. First, the use by Member States and the Commission of detailed opinions and comments made, including the withdrawal of drafts by the Member States. Secondly,

9 For further explanations see: Compulsory notification of draft technical regulations: the contribution of Directive 83/189 to the management of the Internal Market see Stephen Weatherill, (1996) 16 Yearbook of European Law, 129–205 and S Lecrenier (1997) 35 Journal des Tribunaux Européens (Janvier) 1–10. 10 Art 8 of Directive 98/34/EC ‘ … Member States shall immediately communicate to the Commission any draft technical regulation’. 11 This remains a possibility but it has practically never been used. 12 Art 1 of the notification Directive. 13 In 1998, the scope of the notification procedure was extended by Directive 98/48/EC. This Directive deals with Information Society Services and obliges Member States to notify national measures covering Information Society Services. OJ n° L 217 of 5/08/1998, 18–26. 14 These articles concern the obligation to notify at a draft stage and the obligation to respect the standstill period after the notification.

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the effectiveness of the Directive can also be checked with the analysis of cases which are not solved by the Directive 98/34/EC procedure and where it was necessary to start an infringement action. 1)

Is Directive 98/34/EC Functioning?15

The Commission and Member States are using the different possibilities offered to them extensively. Regarding the Commission, its services are using all the tools offered by Directive 98/34/EC. Indeed, it gives the Commission the possibility to screen national measures at a draft stage. Moreover, the services of the Commission are aware of the difficulty in dealing with national measures once they are adopted, so they have used this procedure extensively. Regarding Member States specifically, first, it appears that they are notifying on a large scale. Since 1983, the Commission has screened more than 7,000 national measures, using this instrument. Secondly, in order to show the effectiveness of this instrument, the most interesting aspect to analyse is the possibility for Member States to send observations and detailed opinions to each other. This enhances the incentive for Member States to scrutinise other Member States’ draft legislation. It is impossible for the Commission to control every article of all national acts. This aspect is important, considering how few possibilities are offered to Member States to control and raise concerns regarding regulatory acts from other Member States. Even if the Article 227 procedure allows Member States to start an infringement procedure, this procedure has not been used16 very often in 55 years. In comparison, Member States reacted 216 times in 2001 which is even more than the Commission, which reacted ‘only’ 201 times.17 Moreover, regarding the number of detailed opinions, which are a more stringent tool (preventing the adoption of a measure for six months) this was used twice as much by Member States than by the Commission. Finally, it gives Member States the opportunity to follow regulatory work in other Member States and learn from it. In conclusion, we can say that Directive 98/34/EC managed to enhance dialogue between Member States and the Commission, but also between Member States themselves. The next part will be dedicated to looking at the follow-up of detailed opinions to check the efficiency of this ex-ante procedure.

15 http://europa.eu.int/comm/enterprise/tris/index_en.htm. 16 Case C–388/95, Belgium v Spain, [2000] ECR I–3123

& Case 141/78, France v Great Britain, [1979] ECR 2923. 17 http://europa.eu.int/comm/enterprise/tris/statistics/index_en.htm.

108 2)

Rodolphe Munoz The Follow-up to Commission Intervention

A quick analysis of the follow-up given by the Member States to the detailed opinions delivered by the Commission under the notification procedure shows the effectiveness of this procedure.18 Years 1999 and 2000: Year

Total number of finalised procedures

Positive Commission position

Negative Commission position

1999 2000

29 26

24 18

5 8

The number of cases (out of 1600 notifications in 1999 and 2000) which have raised concerns regarding EC law and where the whole procedure is over (meaning notification, dialogue and adoption by the Member State of the national draft) is low. In 84.2 per cent of cases a solution in accordance with internal market rules could be found. In addition, out of the 13 cases where the Commission did not give a positive response, according to the information sent to the Commission by the Member States, only five drafts were adopted without the formal approval of the Commission. Out of these five notifications, following the amendments finally made by Member States, the Commission was of the opinion that in three cases the texts in question were no longer in breach of Community law. In the remaining two cases, the Commission was of the opinion that the texts were still in breach of Community law and consequently announced the possible opening of infringement proceedings on the basis of Article 226 of the Treaty. Therefore, as a preliminary conclusion, we can say that this procedure is working efficiently. It has increased the awareness of Member States regarding national legislation from other Member States. Moreover, the procedure in itself seems to act as a safety net blocking potential infringements and limiting the number of infringement cases. Finally, it allows for considerably enhanced dialogue between Member States. The success of this procedure has led to its development internally and externally. Many improvements are planned in order to develop all its potential. First, a study has been launched jointly by DGs Enterprise and Internal Market in order to analyse the possibility of extending this procedure to all services.19 Indeed, the most important sector in our economy is the service sector. Therefore, there is a potential need for such

18 Report

of the Commission COM(2003) 200 Final 23/05/2003, published at the following address: http://europa.eu.int/comm/enterprise/tris/reps_2002_1999_IS/COMM_PDF_COM_ 2003_0200_F_EN_ACTE.pdf. 19 http://europa.eu.int/comm/enterprise/tris/index_en.htm.

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a tool to improve the concordance of national measures with internal market rules. Secondly, this procedure has been extended in advance to candidate countries, in order to prevent them adopting harmful internal market measures, in the non harmonised area.20 Externally, the ex-ante procedure is currently used more and more. First, this Directive has been used as a model to sign an international Convention in the Council of Europe. The aim of this Convention is to apply the transparency procedure in the field of Information Society Services at Council of Europe level. The Commission is planning to ratify this Convention as soon as possible.21 Secondly, this procedure exists at the WTO level with the Technical Barrier to Trade (T.B.T.) agreement. Currently, this procedure is being extensively used by third countries and it is linked to recent WTO panels.22 Therefore, if this system is currently working inside and outside the European Community, why not use it to deal with the transposition of EC Directives?

APPLICATION OF AN EX-ANTE CHECK TO DIRECTIVE TRANSPOSITION

The Status of Transposition Measures: State of Play 1.

The Current Situation

The Directive is one of the instruments at the disposal of the Community Institutions under the terms of Article 249 TCE. It lays down the guidelines of a measure and leaves to the Member States the choice of the means to achieve the goals defined by the directive. Member States face several difficulties at the time of directive transposition and the Commission, for its part, seems not to have succeeded in effectively controlling the transposition of Directives. Nowadays, despite the efforts of the Commission, Member States still encounter problems regarding the transposition of Directives. These problems may be exacerbated by the entry of ten new Member States, not because these future members are not well prepared but because with ten new

20 See report from the Commission to the Council and the European Parliament: http://europa.eu.int/comm/enterprise/tris/COMM_PDF_COM_2003_0200_F_EN_ACTE.pdf. 21 IP/03/955, http://www.europa.eu.int/news/index_fr.htm. 22 See cases on the WTO website (www.wto.org) the following cases Sardines (WT/DS231/ AB/R) and asbestos (WT/DS135/AB/R) but also forthcoming important case on GMOs (W/DS/291/23).

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Member States, the statistics suggest that the number of non-transpositions is bound to increase. Upon reading the ‘19° annual report of the monitoring of the application of Community law’,23 it appears that non-communication of national measures of implementation by Member States is the principal cause of infringement procedure. A rapid analysis of this report shows that within the framework of the letters of formal notice sent in 2001,24 for 13 Member States, at least 50 per cent of these letters concerned cases of non-communication. Moreover, for nine Member States, the cases of non-communication accounted for more than 60 per cent of letters of formal notice. If one continues analysing the results for the following phase, the reasoned opinion, figures remain rather high. For ten Member States, 50 per cent of the reasoned opinions sent by the Commission during 2001, concern cases of non-communication of the national measures of transposition. As regards the referral to the Court, figures remain important despite a reduction, for six Member States, non-communication cases account for 50 per cent and more of their referral to the Court and for four states, it concerns almost 70 per cent of cases. The figures of the previous reports 1998, 1999 and 200025 consolidate this analysis. All these figures are even more evocative when all other cases, connected to directive transposition, are cumulated. Indeed, there are three potential cases. First of all, there are cases of non-communication that we have just developed. Secondly, the cases of non-conformity which concern the cases where the Member State transposed a directive in time and communicated national transposition measures but transposed Directive obligations wrongly. Thirdly, the cases of bad application concern the cases where the directive was transposed correctly but it is wrongly implemented by national authorities. These three cases represent, in the 19° report,26 80 per cent and more of the letters of formal notice and reasoned opinions for all the 15 Member States, and 80 per cent and more of the referrals to the Court for 13 Member States. Finally, to all these cases, one can add the ones which are not reported but which create real obstacles to free movement. Indeed, transposition within the time prescribed by Community Directives is rare. Quite often, Member States are not transposing on time but only months later after the end of the deadline. Most of the time, the Commission does not start an infringement action because by the time the infringement

23 http://www.europa.eu.int/comm/secretariat_general/sgb/infringements/19report_2001_en. htm. 24 Table 2.2.1. Formal notices sent in 2001 by legal basis and Member State, page 20. 25 See above n 23. 26 See note 23.

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reached the stage of the reasoned opinion, the Directive will be correctly transposed. Therefore, it appears necessary and important to take measures in order to ensure that a solution is found to problems linked to directive transposition. We will analyse the actions taken by Member States and the Commission in order to solve this problem. 2.

The Attitude of the Member States and of the Commission vis-à-vis this Situation

a. Member States They try to overcome difficulties linked to Directive transposition, the main ones being interpretation and monitoring implementation by different ministries. Member States have sometimes to interpret the contents of directives owing to linguistic problems or as a result of the modifications to which the Community texts at the time of the legislative process are submitted. It appears difficult for the relevant ministries in the various Member States to understand clearly all the obligations which arise from Directives. The current solutions promoted by Member States to overcome this problem are the following. They interpret Directive obligations. Another possibility for Member States is to inform the Commission of their questions concerning the interpretation of certain obligations. However, if each Member State has a different interpretation of the Directive obligations, this can lead to a lack of uniformity in the implementation of EC law and then finally lead to multiple infringement procedures. Indeed, the only course of action for the Commission will be to ask the Court of Justice to interpret the litigious articles.27 Secondly, most directives require the implication of several ministries inside the same Member State and the use of various legal tools. This procedure involves difficulties of coordination to transpose directives. Consequently, it happens that certain Directive articles are not transposed or are transposed very late owing to the multiplication of acts aiming at their transposition, despite the various attempts by the Member States to rationalise directive transposition. b. The Commission The Commission is fully aware of the transposition problem. It has recently produced several Communications to overcome this problem, one about infringement procedure,28 one ‘a better way to legislate’ and one about the monitoring of the application of EC law.29 However, I 27 C–392/93, The Queen v H. M. Treasury, ex parte British Telecommunications plc. [1996] ECR I–1631. 28 Communication of the Commission, COM (2002) 141 final 10/10/2002, 5–8. 29 Communication of the Commission, ‘Better Monitoring of the Application of Community Law’ COM (2002) 725 final/3, 20/12/2002.

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will demonstrate that the way things are going, the proposed measures are not enough; the patient does need homeopathic therapy but shock therapy. In order to cope with the problems linked to transposition measures, the Commission has recently promoted in a Communication three sets of measures.30 First, the cooperation between the Commission and the Member States in the field of infringement prevention has to improve. Secondly, the Commission wants to monitor the application of Community law and to take action against infringements. The final set of measures is meant to prevent repetition of infringements. We will analyse the concrete measures proposed by the Commission. 3)

Co-operation between Member States and the Commission in the Field of Infringement Prevention

The Commission wants to increase co-operation. It has based its action on three pivots. The first one aims at prevention, the second intends specifically to monitor transposition directives, the last one promotes increased co-operation before the expiry of the transposition deadline. The first package concerns the improvement of co-operation between the Commission and Member States in the field of prevention. This part shows that the Commission is aware of the importance of ex-ante contact in order to overcome future difficulties. The Communication starts underlining the importance of the ex-ante control mechanism. It states that ‘Preventive action to enforce Community law begins with selecting the best instrument. But once a selection has been made, it continues with cooperation on the implementation of the legislation. A variety of practical cooperation instruments have already been tried out with a view to preventing infringements’.31 Then, it presents several instruments to promote such a mechanism. The Commission will develop interpretative communications on a specific matter of Community law (both the Treaty and secondary legislation).32 Secondly, the Commission will regularly publish transposition statistics in the internal market score-board and in the annual report on monitoring the application of Community law aiming to promote peer pressure between the Member States by creating a form of mutual monitoring of efforts to apply European legislation. Another action will be to anticipate major events, linked, for example, to infrastructure projects: experience shows that when investments have to be made on a

30 The author acknowledges the fact that, in this part of the Article, he is extensively quoting this document. 31 See above n 29. 32 For example, interpretative communications on the major freedoms in the internal market and public procurement or on the removal of tax barriers to the cross-border provision of occupational pensions (OJ C165, 8.6.2001, 4).

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national scale, the national authorities involved are occasionally inclined to take insufficient account of Community regulations.33 This approach has been followed in the field of public procurement. Finally, training, information and transparency campaigns intended for national administrations and judges, along the lines of the Grotius II civil and criminal programmes, or, in connection with enlargement, twinning arrangements between national administrations will be planned and promoted. The second part of its programme aims specifically at monitoring and facilitating the proper transposition of directives. For the purposes of monitoring Community law application, directives require particular attention because of the specific requirements for transposition incumbent on the Member States. The co-operation between the Commission and the national authorities must be developed. The regular publication by the Commission of transposition rates has a beneficial effect by establishing a control point and imposing peer pressure. It is also important to send out reminders two months before reaching such deadlines. This implies a general upgrading or extension of a number of structures for cooperation with the Member States. Therefore, the Commission will publish on-line, via a Community law portal, all the transposition deadlines, the rates of transposition by sector and by Member State, and national transposition measures. The most appropriate media will be used to keep the public up-to-date with transposition deadlines. General measures aimed at increasing co-operation before expiry of the transposition deadline will be developed. Delays in transposing directives are all too often not the result of a deliberate refusal to act on the part of the Member State but of domestic administrative problems and in particular problems of understanding often complex Community legislative texts. To this end the Commission has for several years been developing the practice of ‘package meetings’, so called because they provide an opportunity to discuss with the competent national authorities any problems with transposition and all infringements detected or suspected in a Member State in a given sector. At present, package meetings are held as a rule only after an infringement procedure has been initiated against the Member State. It would be helpful if such meetings were held at an earlier stage. Although greater attention is now paid to the quality of legislative proposals and Community texts in force are periodically reviewed, Community law can still be complex. The Commission is therefore willing to provide Member States with ‘technical assistance’ in transposing legislative texts. Package meetings could be used to examine with the Member State concerned any 33 In

its Green Paper on public procurement, the Commission was thus able to state that the anticipation of certain events was an effective preventive element, limiting considerably the risk of incorrect application (e.g.: dialogue with the Greek authorities about the major works for the 2004 Olympic Games and with the Italian authorities for the Winter Olympics).

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problems it might be encountering in transposing Community texts and to shed light on the matter. Another approach to co-operation at an early stage could be based on the drafting (by the services of the Commission in specific cases) of guidelines for transposition, which would be done by the services of the Commission and recommended to the national authorities. The Member States could be involved in drafting them, though this would have to be made clear in the basic document. Finally, the improvement of the notification of transposition measures has to be ensured by specific measures. The practical arrangements for notifying transposition measures have never been specified. The only obligation lying on the Member States is to notify the Commission. This situation has long been a source of unnecessary delay and difficulty.34 The technical aspect of transposition will be enhanced through an obligation on Member States to include ‘a concordance table’ with the communication of transposal measures. The necessity to create a standard form of electronic communication of transposal measures exists. Furthermore, the Secretariat-General should be appointed as a central communication point. Finally, access to Community law and the monitoring of its conformity will also be made easier by the electronic communication of transposition measures which will be developed as part of the ‘EULEX III’ project, the aim of which is to interconnect the national official publications databases by using a single portal for access to Community law. 4)

Monitoring the Application of Community Law

The second set of instruments concerns ‘monitoring the application of Community law and taking action against infringements’. The actions envisaged will give the Commission the opportunity to apply the priority criteria relating to the seriousness of breaches in order to manage its monitoring work and its action against infringements rapidly and fairly. In addition, the actions will allow complainants to give clear information about the actions taken, in accordance with the commitments given in the Communication to the European Parliament and European Ombudsman. Moreover, Member States will be monitored closely regarding cooperation with the Commission and infringement procedure using more systematic and effective recourse to Article 10 EC in conjunction with other relevant legal bases in the Treaty. Then, in order to encourage better enforcement of Community law, the Commission will promote the development of complementary systems for dealing with cases of non-compliance with Community

34 For

example, unjustified initiation or continuation of the infringement procedure, difficulty of access to transposal measures, problems in monitoring conformity.

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law in cooperation with Member States and in accordance with the specific characteristics of each sector. Finally, there is a necessity to improve the notification and monitoring of national measures implementing directives. Under this action, the Commission wants to show that it must give priority to infringements of non-conformity in acting as guardian of the Treaty. 5)

Repetition of Infringements

Finally, the last set concerns the prevention of infringements being repeated. In this sense, the Commission will link the closure of infringement proceedings in respect of an infringement that has been corrected subject to adoption by the Member State of commitments and measures to prevent repetition of the infringement. In order to facilitate the process of future applicants becoming aware of case law regarding infringements, the Commission will publish a compendium of certain types of infringement case established and closed. The analysis of this Communication leads us to conclude that all these proposals and actions are not enough to overcome the problem of non transposition or late transposition. They are measures d’accompagnement’ but they will not be enough to deal with Member States’ reluctance to transpose Directives on time. It is understandable that the Commission did not propose a revolutionary change through a Communication. However, at the moment there is no real project aimed at developing alternative models. There is a need for a more radical proposal in order to increase the efficiency of Member States’ transposition, once the proposal has been put forward in a working paper of DG Enterprise.35

The Skeleton of a New Mechanism 1)

Development of a New Mechanism

a. The mechanism The system allowing the ex-ante control of national measures transposing Community directives could be set up as it follows. 35 http://www.europa.eu.int/comm/enterprise/index_en.htm.

Improving the Single Market for Industrial Goods: Enterprise DG publishes a list of activities regarding the improvement of the Single Market for Industrial Goods.The findings of an on-line survey of business stakeholders (‘Modernising the Internal Market for Industrial Goods’, 28 June–15 October 2001) pave the way for this text, by highlighting obstacles to trade in specific areas of the internal market for industrial goods under DG Enterprise management. A prior check on draft national measures to transpose directives based on EC Treaty Article 95 would enable the Commission to make a preliminary assessment, with a view to ensuring correct and uniform transposition.

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First of all, it is necessary to state that this system will not be useful for all Directives. It is feasible to target the problematic ones. Another limitation will be to limit the scope of this procedure. For example, each new directive having Article 95 as a legal basis could serve as test cases. This limitation will be intended to allow the gradual introduction of this control. Moreover, the consequences of the non- transposition of these directives directly impede companies and citizens by establishing barriers to the internal market. First, directives should comprise a legal obligation, in the form of a standard article in the part containing the final provisions compelling Member States to notify to the Commission, at the draft stage, their national measures of implementation. If the directive leaves 18 months to transpose the directive, at the end of 18 months following the publication of the directive in the Official Journal of the European Communities, Member States should have the obligation to have already sent most of their transposition measures. Secondly, the Commission should control every transposing national measure at a draft stage. This control will imply that draft national measures of transposition are screened by Commission services. The Commission should act during a certain time limit (three months) to analyse draft national transposition measures. The sending of Commission reactions will require the establishment of a body bringing together national bodies in charge of transposition. Thirdly, Member States should be entitled to participate in the analysis of their own drafts and drafts from other Member States. Member States will be able to react to other Member States’ notifications. The reactions will have to go through the Commission, which will send them to the other Member States and to its services. Fourthly, the Commission should be able to modify drafts and take preventive measures in case Member States do not want to comply. The Commission has to have specific power to propose and to amend draft national transposition measures contrary to EC law. The power given to the Commission could, for example, allows it to ask for a new draft. Finally, companies and citizens should have full access to draft measures. This access can easily be done through a specific website. The transposition measures should be available in every official language and free of charge to EC companies and EC citizens. b. A new body to control transposition measures Member State bodies responsible for transposing Community directives vary depending on the subject under consideration and the way in which each Member State is organised. Often, transposition requires action by more than one administrative and/or judicial body. This proliferation of actors is more pronounced in the case of federal or decentralised States.

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The setting up of appropriate coordination points in Member States which do not already have them would enable these difficulties to be overcome by providing the Commission with a single contact point for questions concerning transposition, for the application of Community law and for coordination with national ministries and regional or local authorities. These ‘horizontal’ contacts would serve as the network of correspondents desired by the Commission. This aspect is already promoted by the Commission in its Communication.36 The unified chairmanship of the package meetings in the Member States is a kind of precursor for such a scheme. The representative of these bodies could meet in order to exchange and share experience concerning the notification procedure of transposition measures. The development of such a body will give the Commission the opportunity to have access to all national bodies in charge of transposing EC Directives. In addition, it will give Member States the possibility to have a central body in charge of controlling transposition. This body exists in the 98/34/EC Directive notification procedure. It allows Member States to have internal control of notifications. 2)

Pros and Cons

a. Pros The arguments ‘for’ are numerous. Not all of them are reproduced in this paper. Firstly, this ex-ante procedure has proven to be effective in protecting internal market rules. It could also potentially be used for the transposition measures for Directives. Secondly, this would allow the Commission the opportunity to check these measures, and where necessary, to propose possible changes at an early stage. In addition, in cases of wrongful transposition, the Commission could compare the different interpretation of Directive obligations, which in turn, would improve the uniform application of EC law. Furthermore, it will reduce the number of infringement cases. EC law will be better applied as a result. Finally, this system will not replace the infringement procedure but it will complement it. Indeed, in the 98/34/EC Directive, even if the Commission clears a draft and gives its assent for its adoption, it remains possible for it to start an infringement action in case national drafts produce unforeseeable side effects to the Internal Market in the future. b. … Cons Of course, this system has several drawbacks. However, we will see that it might be possible to overcome them. The main one is that this procedure is time consuming. Indeed, sending draft transposition measures in advance to the Commission, the dialogue 36 See

above n 30.

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and the analysis of drafts take time. However, at the moment Commission services have the obligation to follow Directive transpositions, so they have to allocate personnel who have to collect every transposition and check the content of these transpositions. In addition, the Commission uses a lot of resources and time when it has to start an infringement action against a Member for non-transposition or wrongful transposition. These resources could be used to set up an ex-ante control mechanism. Even if, the financial implications are equal to the ones linked to the infringement procedure, the Commission will avoid infringements and will protect the development of the Internal Market. Secondly, this system will involve financial implications regarding translation and the exchange of letters between Member States and the Commission. Indeed, it will be costly to ensure such translation. However, if you analyse the current system set up by Directive 98/34/EC, you can see that it translates all documents in all official languages of the European Community. In addition, it has already been upgraded in order to be ready to welcome the accession countries. The system in itself will be difficult to manage. Indeed, the amount of texts will be important. In addition, the Commission will have to deal with hundreds of exchanges of letters. However, on this particular point, the example of Directive 98/34/EC shows that it is possible to manage such a mechanism with in the framework of this Directive. Numerous exchanges are going on at the moment. They are managed electronically by the Commission. Member States have also set up an electronic system to dispatch notifications to competent services. The current system is working perfectly well and can be duplicated to deal with the control of national transposition. Finally, another stumbling block will be that Member States will not so easily welcome the establishment of such a mechanism. The best way to overcome this hurdle is to prove to Member States that this system will lead to less judicial procedures.

CONCLUSION

One has to stress one important point concerning the notification procedure (Directive 98/34/EC). However its main supporter has been the European Court of Justice, which ruled in the CIA Security Case (C–194/94)37 that technical rules contained in national measures which had not been notified to the Commission, were inapplicable to individuals.

37 Case C–194/94, CIA Security International SA v Signalson SA and Securitel SPRL, [1996] ECR I–2201; P J Slot (1996) CML Rev 1035–50.

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This case dealt with a Belgian firm marketing alarm systems, which had failed under Belgian legislation38 requirements to seek prior authorisation from the Home Affairs Ministry. This ruling is a watershed when assessing its consequences: Non-application of an EC procedural step may equate to the non-existence of a national measure. Thus, this case cemented the notification Directive’s enforcement as an automatic sanction for nonnotification. In addition, an infringement procedure is unnecessary as national courts can easily enforce the sanction. It comes as no surprise that companies and lawyers are tempted to use this newly found opportunity extensively. The subsequent jurisprudence39 supported the position of the European Court of Justice in the CIA Security case. This triggered a large increase in the number of notifications by Member States. In 1995,40 Member States notified 439 draft laws, in 1996, Member States sent 523 and this figure reached 900 in 1997 following the judgment of the European Court of Justice. Meanwhile, the European Court of Justice underlined the necessity for Member States to notify and also insisted41 on the strict observance of the status quo period prior the national measure’s adoption. Indeed, the Court’s reasoning behind the CIA security judgment was that the aim behind the notification procedure was to allow time for discussion. Therefore, once a Member State has notified, it must wait until the end of the standstill period to adopt the measure in order to give time for other Member States or the Commission to react. In conclusion, we can say that it might be politically difficult for Member States to accept an ex-ante control of transposition measures. It would be the best solution in an ever broader union; however the problem of non transposition will not be solved using existing tools. There is a necessity to innovate. It does not matter what form the new system takes but it is necessary to revise the current system which has been in place for 50 years.

38 Belgium law of 10 April 1990 on caretaking firms, security firms and internal caretaking services. 39 http://europa.eu.int/comm/enterprise/tris/about/index_en.htm. 40 http://europa.eu.int/comm/enterprise/tris/reps_1995_98/index_EN.pdf. 41 Case C–443/98, Unilever Italia SpA and Central Food SpA [2000] ECR I–7535.

8 The Member States’ Powers to Adopt Emergency Measures in the Context of the Genetically Modified Food/Feed Regulation SARA POLI*

INTRODUCTION

I

N JULY 2003, the EU Institutions completed the reform of the European legislation on genetically modified organisms (‘GMOs’), carried out in order to encourage Member States to lift the four-year moratorium on the marketing of these products. One of the most important pieces of the reformed legislation is the Regulation on genetically modified food and feed (the ‘GM food/feed Regulation’).1 This contribution touches on a specific aspect of the new GM food/feed regime, namely: to what extent do Member States have the power to suspend the circulation of genetically modified food and feed (‘GM food/feed’) within their borders, should the latter be found to pose risks for consumers or the environment. This topic demands attention because most Members States have strongly opposed the placing on the Community market of GMOs, invoking the precautionary principle against such a move. Thus, it is likely that national authorities will not hesitate to make use of the emergency measures, set up by the GM food/feed regime to suspend or limit the circulation of these products,

* The author would like to thank Professor Luigi Daniele for his insightful comments on earlier drafts of this article. The usual disclaimer applies. This article is updated to 2 September 2003. 1 At the time of writing, the final version of the GM food/feed Regulation has not been adopted yet. The Council approved the amendments proposed by the European Parliament at second reading on 24 July 2003. See the Council press release 11598/03 (Presse 215) of 22 July 2003. This contribution examines the common position on the proposal of the Commission (COM(2001)425 final) achieved by the Council in March 2003 (Council document n 5204/3/03) as amended by the European Parliament at second reading.

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should they be found to endanger public/animal health or the environment.2 The recent history of the European GMOs legislation shows that Member States did indeed rely on the existing emergency systems established by the ‘safeguard clauses’ of various pieces of GMOs legislation.3 It is therefore useful to clarify how the Member States’ power to temporarily ban the marketing and use of a given GM food/feed will change under the newborn regime. The contribution is made up of five sections. First, a description will be given of how safeguard clauses were used in the original GMOs legislation. The second section describes the safeguard clause (Article 12) of Regulation 258/97 (the ‘Novel Food Regulation’), the first piece of legislation to deal specifically with GM food. In addition, possible problems that this clause may give rise to will be highlighted. The third section uses the Monsanto case, currently before the Court of Justice, to illustrate the drawbacks of Article 12. Fourthly, the safeguard clause of the GM food/feed Regulation will be described, emphasising the most important differences, if any, with Article 12 of the Novel Food Regulation, which originally established the marketing conditions (and trade restrictions) of genetically modified food. Particular emphasis will be placed on the question of whether or not the Member States will preserve the level of autonomy enjoyed under the previous legislation. I will then consider how Member States are likely to use the emergency system provided by the GM food/feed Regulation. The final section will explore whether Member States draw the power to take protective measures, suspending the circulation of GM food/feed, solely from the Regulation under exam, or if they may also have recourse to the provisions of Article 95 of the TEC. The concluding section will briefly illustrate the Commission’s power to take Community-wide measures, in the event that Member States’ food control systems are proved to be deficient.

MEMBER STATES’ POWERS TO ADOPT PROTECTIVE MEASURES UNDER THE EUROPEAN GMOS LEGISLATION

The Use of Safeguard Clauses in European GMOs Legislation Before looking at the content of individual safeguard clauses, it is appropriate to make a few preliminary remarks on the rationale of these clauses and the 2 It is assumed, although not given for granted, that the completion of the reform of GMOs legislation will lead Member States to resume the process for the authorisation of these organisms. 3 Member States relied on Art 16 (safeguard measure) of the 90/220 Directive on the deliberate release into the environment of (OJ[1990] L 117/15) GMOs to enact temporary bans on the use and marketing of GMOs. Italy also used Art 12 (safeguard measure) of the Novel Food Regulation to prohibit the use and the marketing of a given line of GM maize.

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interests that they are designed to protect, as well as the difficulties that they may create in the context of GMOs legislation. Safeguard clauses are particularly important in European public health and environmental legislation since, in the words of the Court of Justice, ‘they give expression to the precautionary principle’.4 Generally speaking, safeguard clauses allow Member States to derogate from a Community measure, which authorises the marketing of a given product. National measures limit the circulation of GM products for non-economic reasons and are subject to a Community control procedure.5 These clauses are included in all major pieces of GMOs legislation.6 They give Member States the power to unilaterally restrict the circulation of GM products within their territory, when there is plausible evidence that the GM product concerned poses risks for human health or the environment. Subsequent Community controls, carried out through the comitology procedure, assess the validity of the grounds which founded the Member States’ unilateral action. Devising the possibility for Member States to unilaterally suspend the trade of genetically modified food/feed is a politically delicate task for Community institutions. This is for two reasons. The first is that the marketing of genetically modified products implies striking a balance between two important goals of the European Community: the functioning of the internal market on the one hand, and the protection of public health on the other. The former is a task entrusted to the Commission, the latter is an area in which Member States retain important powers. Finding a balance between the two needs is therefore particularly challenging. The second reason relates to the high level of scientific uncertainty surrounding the use of GMOs. This situation makes it very tricky for the Commission to distinguish between scientifically sound national measures, which restrict the marketing of GMOs because of the serious risks that they pose to public health and those measures based on (political) grounds which have nothing to do with consumer welfare. The task of the Commission is made harder by the fact that the Court of Justice allows to ‘Member States [ … ] a significant level of discretion in the determination of the level of protection to be granted to the health of their population. Where there is no international scientific consensus on the potential health hazard posed by a substance, the Court is prepared to grant Member States the benefit of the doubt’.7 4 Case C–6/99 5 The national

Greenpeace France and others [2000] ECR I–1651, para 44. unilateral measures are subject to review by the Commission in the framework of the comitology committee procedure. 6 The first framework directive (90/220) included a safeguard clause in Art 16; the second framework Directive (2001/18) sets out safeguard measures in Art 21; the Novel Food Regulation (258/97) contains a safeguard clause in Art 12. 7 T Hervey, ‘Community and national competence after Tobacco Advertisement’ (2001) CML Rev, 1436.

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In the context of GMOs legislation, safeguard clauses were used (and even abused) by Member States on several occasions:8 they have been without fail9 the triggering factors in the political and legal disputes which have arisen in connection with the trade of GMOs in the European Community. Why have the safeguard clauses in this legislation been used so often? The reason is that national competent authorities used safeguard clauses to opt out of Community measures taken against their will.10 It should be added that there are considerable differences in the attitudes of the Member States towards the use of GMOs.11 This provides another reason for a frequent use of safeguard clauses.12 However, it is not only the differences in attitude towards GMOs in the Member States that contributed to the popularity of the safeguard clauses. Mutual distrust of the findings of Member States’ scientific authorities on the subject has also been a factor. This distrust, all pervasive in the relationship between Member States, is confirmed in the preliminary ruling of a case, currently before the Court of Justice (the Monsanto case, see below). During this case, the Italian Ministry of Health raised objections against an evaluation by the English Advisory Committee on Novel Foods and Processes that a certain type of GM maize was ‘substantially equivalent’13 to its traditional counterpart.

8 It may be recalled that the safeguard clause of Directive 90/220, Art 16, was the legal basis of the moratorium on the approval of GMOs. This clause was invoked by Member States to temporarily prohibit the marketing of a certain type of genetically modified maize. However, national authorities abused Art 16 because instead of adopting temporary measures, as prescribed by this article, they used it to maintain a four year-moratorium. Moreover, it should be added that the Commission’s scientific advisory committees found the grounds invoked by the Member States to justify these measures to be invalid/unjustified. The safeguard clause of the Novel Food Regulation, Art 12, was used by Italy to enact a measure restricting the circulation of a certain type of genetically modified maize. See below the facts of the Monsanto case. 9 The only exception is the Greenpeace case (above n 4) which concerned other aspects of the GMOs authorisation procedure. 10 For example, Member States used Art 16 of Directive 90/220 to suspend the release of GMOs, which were authorised against their will. 11 Most Member States (in particular Austria, Denmark, Italy) are sceptical on the use of GMOs; by contrast two big Member States, Spain and the UK, are moderately in favour of trading GMOs within the Community territory. There was also a time when France did not oppose genetically engineered food. See on this last point: Marris, ‘Swings and roundabouts: French public policy on agricultural GMOs 1996–1999’, Cahier (2000) n 00–02, paper published online by the Centre d’economie et d’ethique pour l’environnement et le développement. 12 It should be made clear that reliance on safeguard clauses is possible only if it can be proved that a given authorised GMO creates serious risks for human health or the environment. 13 The principle of ‘substantial equivalence’ between a food produced from a GMO and its conventional counterpart was introduced by the Novel Food Regulation. Under Art 3(4) of this Regulation, the criteria defining a GM food or food ingredient as ‘substantially equivalent’ to its conventional counterpart concerns the composition, nutritional value, metabolism, intended use and the level of undesirable substances contained therein. Further guidelines on this concept may be found in the Commission Recommendation 97/618, OJ [1997] L 253/1.

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The Safeguard Clause of the Novel Food Regulation (Article 12) and its Drawbacks Both the framework Directives (90/22014 and 2001/18) and the Novel Food Regulation contain safeguard clauses. However, since this contribution focuses on the emergency system of the GM food/feed regime, it is appropriate to dwell exclusively on the safeguard clause of the Novel Food Regulation (Article 12), the piece of legislation which first defined the European authorisation regime as far as GM food is concerned. Any reference to the safeguard clauses of the framework Directives will consequently be omitted.15 Article 12 empowers Member States either to temporarily restrict, or, to suspend, the trade in and use of a given food or food ingredient within its territory when that Member State has detailed grounds for considering that the said food or a food ingredient endangers human health or the environment. The grounds raised by the Member State may arise from new information or a reassessment of existing information. The Member State concerned is required to immediately inform the other Member States and the Commission of its decision; it also has the burden of proving why the Novel Food concerned is dangerous. It is left to the Commission and the Standing Committee for Foodstuffs, a regulatory committee,16 to examine ‘as soon as possible’17 whether the grounds, put forward by the Member State to justify its ban are appropriate. National authorities are allowed to maintain their protective measures until such a time as Community measures, established by the Commission in co-operation with the above-mentioned regulatory committee, have entered into force.18 This implies that the Commission and the regulatory committee have the last word on the legality of unilateral measures introduced by Member States. It is only if these bodies share Member States’ concerns over the risks posed by a certain GM food that national measures will be confirmed and, in all likelihood, extended to the whole territory of the European Community. It should be noted that the text of Articles 12–13 leaves some questions unanswered. For example, it is not clear what happens in a case where the Commission fails to adopt Community measures confirming or repealing national safeguard measures. In this situation, legal certainty is at stake since there is doubt as to whether the national safeguard measures are legal or not under Community law. And this is not a remote possibility, in fact, it 14 This Directive is no 15 On this issue see P.

longer in force, having been replaced by Directive 2001/18. Dabrowska, ‘The division of powers between the EU and the Member States with regard to deliberate release of GMOs (the new Directive 2001/18)’, (2002) 5 German Law Journal, 1 May 2002. 16 Art 13. 17 Art 12.2. 18 Ibid.

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has already occurred as it is shown in the next section.19 In addition, this situation of legal uncertainty is made worse by the fact that Article 12 does not set out precise time limits20 for the Commission’s adoption of Community measures.

The Monsanto Case and the Commission’s Failure to Review National Protective Measures in the Framework of the Novel Food Regulation The Monsanto case, currently before the Court of Justice,21 gives clear examples of the problems that may arise from the application of Article 12. In its preliminary ruling22 an Italian Court, the Tribunale Amministrativo Regionale del Lazio, asked the Court of Justice some questions concerning the compatibility of an Italian decree, which temporarily suspended the marketing of an authorised (emphasis added) GM food—genetically modified maize of the line MON 810—with the Novel Food Regulation. This GM maize was marketed by Monsanto, which had brought an action against the Italian decree at national level. In order to understand the reasons for the Italian decree, it is necessary to recall how the GM maize concerned was placed in the Community market. This product, which contained traces of transgenic organisms, had been approved in late 1998, under the simplified authorisation procedure of the Novel Food Regulation, despite the fact that the Commission and the Member States had in early 1998 agreed a moratorium regarding the further use of this procedure for GM food still containing traces of transgenic protein.23 The simplified procedure (amongst other things) allows biotech firms to place certain categories of food produced from GMOs on the Community market, subject to four conditions: a) that the food is ‘substantially equivalent’ to existing food; b) that an opinion of a competent national authority confirms this substantial equivalence; c) that the Commission is notified of the request for authorisation and forwards the notification to the other Member States; 24 d) that the notification

19 See

the Monsanto case, C–236/01, Monsanto Agricoltura Italia SpA and Others v Presidenza del Consiglio dei ministri and Others, nyr. 20 The Commission is bound by Art 12.2 to take Community measures ‘as soon as possible’. 21 The conclusions of AG Alber were issued on 13 March 2003. The ruling of the Court of justice was not available at the time this article was concluded. 22 Above n 19. 23 As we learn from para 24 of the AG’s opinion, the Commission considered it appropriate to use the simplified procedure for the GM maize concerned, since products derived from similar maize lines had already been placed on the market under the simplified procedure and the applicant had already received a positive opinion from United Kingdom food assessment bodies in February 1997. See also para 149 of the opinion, above n 21. 24 Art 5 of the Novel Food Regulation.

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is published in the Official Journal. The main difference between the simplified procedure and the ordinary authorisation procedure is that the former should be faster. Indeed, evaluating the safety of substantially equivalent GM foods is in principle less complex than carrying out the assessment of a GM food, which is not substantially equivalent to its traditional counterpart. Let us return to the facts of the case under examination. In 1997 the biotech company Monsanto had notified the Commission under the simplified procedure that the foods derived from the genetically modified maize lines in question were substantially equivalent to products from the conventional maize. The required evidence, confirmed by United Kingdom Advisory Committee on Novel Foods and Processes, was included. The authorisation process was successfully concluded in 1998, after the Commission had forwarded the notification to the Member States and published it in the Official Journal. In 2000, the Italian Ministry of Health issued the contested decree, prohibiting the marketing and use of products produced from the maize lines in question.25 The Italian decree was based on Article 12 of the Novel Food Regulation and was justified as follows: the concerned GM maize was not substantially equivalent to its traditional counterpart; it contained traces of transgenic protein, thus casting doubts upon the absolute safety of the products and the use of the simplified procedure. On the basis of the Community-control procedure, set out by Articles 12–13 of the Novel Food Regulation, the Commission should have reviewed the Italian ban, in co-operation with the Standing Committee for Foodstuffs. However, the Commission did not do so as the case in question was controversial. In fact, the Commission ‘did not receive support’26 for its position against the Italian measures from the regulatory committee as several members of the committee had expressed concerns at the use of the simplified procedure for products derived from genetically modified organisms. Since it was felt that clarifications were needed regarding both the use of this procedure and the criterion for substantial equivalence,27 the Commission failed to adopt a position on the Italian measures. It also failed to refer the case to the Council, as stipulated in the regulatory committee procedure. Thus, the Commission did not comply with its duty to review ‘as soon as possible’ the grounds invoked to justify national protective measures (Article 12.2 of the Novel Food Regulation). It is noteworthy that, at the time that Mr Alber wrote its opinion, the Commission had not taken a 25 The

Italian decree was preceded by an exchange of letters between the Italian Government and the Commission. 26 Para 30 of the opinion, above n 21. 27 Ibid.

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position on whether the Italian concerns over the Monsanto GM maize were scientifically substantiated.28 Advocate General Alber concludes that in the absence of a Commission assessment of the grounds justifying the Italian ban, those grounds can be considered as valid. The perverse effect of the Commission’s failure to review the Italian decree under Article 12.2 is that the temporary measures adopted in 2000 are still legal in 2003! The limbo in which the Italian measures have been left jeopardises the principle of legal certainty and is clearly detrimental to Monsanto’s commercial interests. There are no good reasons justifying the long-standing hesitation of the Commission.

The Emergency Measures of the Regulation on GM Food/Feed: Similarities and Differences with Respect to Article 12 of the Novel Food Regulation The safeguard clause of the new GM food/feed Regulation is not worded along the lines of the corresponding clause of the Novel Food Regulation. The Regulation on GM food/feed includes a provision (Article 34)29 governing the adoption of so-called ‘emergency measures’ which reads as follows: ‘Where it is evident that products authorised by or in accordance with this Regulation are likely to constitute a serious risk to human health, animal health or the environment, or where, in the light of an opinion of the [European Food Safety] Authority […], the need to suspend or modify urgently an authorisation arises, measures shall be taken under the procedures provided for in Articles 53 and 54 of Regulation (EC)No 178/2002’. Before examining Articles 53–54 of Regulation 178/2002, the wording of Article 34 deserves a few general comments. First of all, it should be noted that ‘animal health’ has been added to the list of areas of interest30 which can be protected through the enactment of emergency measures. This broadening of the range of interests justifying protective measures, is in line with the list of non-economic interests, enumerated by Article 30 of the TEC. The inclusion of animal health is most likely the result of the food crisis which hit the European Community in the late 1990s. The second item of note is the mention of the European Food Safety Authority (‘EFSA’ or the ‘Food Authority’). Although the support of this body is not necessary to justify the need to suspend or modify a marketing authorisation, it is nonetheless important that the EFSA is involved in the procedure leading to the adoption of safeguard measures. Before the Food Authority was created, 28 This may be understood from para 150 of AG Alber’s opinion, above n 21. 29 See the Council’s common position of 17 March 2003 (Council document n 5204/3/03). 30 The safeguard clause of the Novel Food Regulation only mentions human health and the

environment.

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only the Commission and the Member States had a voice in this procedure. The involvement of this new actor, providing independent scientific expertise, may have the positive effect of ‘depoliticising’ the introduction of emergency measures. Let us turn now to Articles 53–54 of the EFSA Regulation.31 The first Article regulates emergency situations in the Member States. In these circumstances the Commission, in co-operation with the Standing Committee on the Food Chain and Animal Health,32 is empowered to approve protective measures with respect both to food/feed imported from third countries and food/feed of Community origin. These measures can be endorsed by the Commission on its own initiative or at the request of the Member State affected by the emergency. In both cases, the Commission’s decision is taken in the framework of the regulatory committee procedure. The deadline for proposing measures to this Committee is ten working days from the day the Commission was informed of the emergency. It should be added that any interim protective measure adopted by the concerned Member State before informing the Commission of the emergency taking place within its territory, may be maintained until Community measures have been adopted. This means that should the Commission formally decide that the national protective measures in question are no longer necessary, the Member State concerned must withdraw them. In this respect, Article 12 of the Novel Food Regulation and the emergency measures provided for by the GM food/feed Regulation are similar. But what happens if the Commission, in a case as described above, fails to fulfil its obligation to rule on a Member State’s protective measure or to introduce its own? The answer can be found in Article 54, which is complementary to Article 53. Article 54 rules on ‘other protective measures’. The first paragraph of Article 54 states: ‘Where a Member State officially informs the Commission of the need to take emergency measures, and where the Commission has not acted in accordance with Article 53, Member States may adopt interim protective measures’. Article 54.3 states that, within ten working days, these measures must be confirmed, amended or abolished by the Commission in co-operation with the Standing Committee on the Food Chain and Animal Health. Although the text of Article 54 is somewhat ambiguous,33 it is argued that this Article does enable the Member States to introduce protective measures in emergency situations, where the Commission, under Article 53, 31 It

should be noted that these articles are intended to be applied to any sort of food emergency and not only to cases in which GM food/feed are concerned. 32 This is a comitology committee, working according to the regulatory procedure. See Art 35 of the Council’s common position above n 29. 33 Joanne Scott rightly argues that the text of Art 54 is ambiguous since it is unclear what the triggering factor allowing Member States to act under Art 54 actually is. It could be the

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has failed to do so.34 In other words, Article 54 allows Member States to adopt interim protective measures, even if the Commission’s decision-making procedure is blocked. This shows that Article 54 is pervaded by precautionary logic: when the Commission does not react promptly to an emergency, Member States are authorised to go ahead with their own protective measures, although they are subsequently subject to review by the Commission. This last feature actually means that the emergency measures of Articles 53–54 are no different from Article 12 of the Novel Food Regulation, since in order for the Member States to lawfully maintain emergency measures, it is necessary to submit them to the scrutiny of the Commission and the comitology committee, created by the EFSA Regulation. In contrast, one distinctive feature of the emergency measures provided for by the new Regulation is that the Commission now has a strict time limit (ten days) to decide whether unilateral measures, taken by the Member States concerned by the emergency, are lawful (and can thus be maintained) or not. As a result, the Commission is obliged to make a swift decision. The introduction of this narrow time limit is highly appreciated since it ensures the protection of the principle of legal certainty. This makes the procedure detailed in Articles 53–54 of the EFSA Regulation preferable to that of Article 12 of the 1997 Regulation, as the Commission’s decision, confirming or repealing national measures, is framed within a specific time limit, a provision absent in the 1997 Regulation. This is a welcome step which will in the future avoid any situation in which a Member State passes interim protective measures whose legality is uncertain for a lengthy period due to the Commission’s failure to review them within the appropriate comitology committee. Such a situation has been illustrated by the Monsanto case, where the Italian protective measures were abandoned in a legal limbo. How do the new emergency measures affect the Member States’ rights to opt out of a Community decision which authorises the marketing of genetically modified products? Have these powers been enhanced or diminished with respect to the previous Novel Food regime? It has been noted that, under both Articles 53 and 54, the Commission is given the power to review unilateral measures through the comitology procedure. This is similar to the control mechanism (over national measures) set up by Article 12 of the

Commission’s failure to take measures under Art 53 or the Commission’s refusal to authorise protective measures. She concludes that it is more appropriate ‘for Member States to be able to introduce interim unilateral emergency measures merely when the Commission has not acted, subject to the substantive and procedural requirements laid down’. See J Scott, ‘European Regulation of GMOs and the WTO’ (2003) 9 Colum J Eur L 213 (n 39), 239. 34 A

comparison between the English and the French/Italian/Spanish version of Art 54 strengthens this interpretation.

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Novel Food Regulation. Therefore, it may be concluded that, despite minor procedural differences and increased sophistication, the emergency measures of the GM food/feed Regulation leaves Member States with the same degree of autonomy as Article 12 of the Novel Food Regulation. It may be wondered how Member States will use de facto their power to enact emergency measures. In the author’s opinion, Member States will rely on Article 54 not only when the Commission fails to take protective measures but also to enact and maintain measures suspending the marketing of authorised GM food/feed, where Community decisions (i.e. the refusal to adopt protective measures) do not suit them. In theory, the Commission can always review national measures under Article 54 and, where necessary, oblige Member States to abolish them. However, it is uncertain whether the Commission would actually take this step, especially where there is serious disagreement between most Member States and the Community institutions over the risk posed by a given genetically modified food/feed. After all, a conflict between the Commission and several Member States was at the basis of the moratorium! In view of this precedent, it would not be politically wise for the Commission to ‘forcefully’ deny protective measures to Member States that wish to enact them.35 Such a situation invariably touches on the sphere of public health, an area in which Member States are very jealous of their powers. The Commission, with the troubles of the 1996 Ciba-Geigy application which led to the moratorium still fresh in its memory would most likely wish to avoid a direct clash with the Member States in this area of regulation. The danger (or the benefit?) of this situation is that the Commission could well find itself constrained by the level of risk to human health that Member States deem acceptable for their citizens. This last remark leads me to a final conclusion on this issue: Article 34 of the GM food and feed Regulation (and the related Articles 53–54 of the EFSA regulation) lend themselves to the same abusive use36 of emergency measures as experienced with Article 16 of Directive 90/220.

Protective Measures under Article 95 of TEC and the GM Food/Feed Regulation Having analysed the scope of the Member States’ powers to pass emergency measures, it is now appropriate to verify whether the safeguard 35 It

should not be forgotten that although the Court of Justice has recently warned against a purely hypothetical approach to risk in the Alpharma case (T–70/99 Alpharma v Council, [2002], p II–3495, para 156), it has also legitimised competent public authorities to take preventive measures ‘when such measures appear essential given the level of risk to human health which the authority has deemed unacceptable for society’. (para 173). 36 See above n 8.

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clauses are the only source from which the Member States can draw the power to derogate from a Community measure which authorises the marketing of GM food/feed. In particular, is Article 95 an ‘appealing’ legal instrument for Member States who wish to obtain a derogation from a Community decision approving the marketing of a given GM food/feed?37 In principle, the answer is positive since the concerned Regulation is based on, amongst others,38 Article 95. Therefore, paragraphs 4 and 5 of this Article may be used by Member States both to maintain or enact new national measures which differ from the GM food/feed Regulation. In fact, Member States emphasised the possibility of introducing national measures, using Article 95, after the controversial approval of the Ciba-Geigy GM maize.39 Recently, Austria has unsuccessfully invoked Article 95.5 to justify a three-year ban40 to use GMOs which are regulated by Directive 2001/18.41 However, Article 95 may well raise false hopes for Member States at least 42 in the context of the GM food/feed Regulation. This is for two reasons. First of all, paragraphs 4 and 5 of Article 95 set out very restrictive conditions for the maintenance or introduction of national measures, once a Community harmonising measure has been adopted. For example, passing new national measures in contradiction with a Community measure is possible only for environmental reasons and not for public health reasons, and scientific evidence must be provided. Furthermore, national measures must comply with the proportionality principle. These limits should be carefully considered by Member States when applying for a derogation from a Community measure authorising the marketing of a certain genetically modified food/feed. It should be added that the Commission has been quite strict in admitting national derogations and the Court of Justice has in one case upheld the Commission’s refusal to authorise the Member States’ applications.43 Maintaining national derogation is somewhat easier than introducing new measures. In order to successfully apply for such a derogation Member States can rely on broader grounds than in the previous case. National provisions may be enacted on the grounds of major needs referred to in Article 30 (and not exclusively for environmental reasons).

37 See on this issue Scott, above n 33, in particular 223–27. 38 The GM food/feed Regulation has a triple legal basis: Arts 37, 95 and 152.4b). 39 See the minutes of the Environment Council of 25 June 1999. 40 The ban was limited to the territory of Upper Austria. The Commission rejected

Austria’s application for derogation. 41 See the Commission Press release IP/03/1194 of 2 September 2003. 42 Reliance on Art 95 may be possible to derogate from other pieces of GMOs legislation. For example, Directive 2001/18 may leave Member States the possibility to invoke Art 95, as it is shown by the Austrian application for derogation, above n 41. 43 See case C–512/99, Germany v Commission [2003] p I–845.

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However, there is a second and more fundamental reason why Article 95 is only available to Member States in principle. The reason is that in practice, Member States may be precluded from justifying a national measure on the grounds of Article 30 because the GM food/feed Regulation is a measure which harmonises the marketing conditions and restrictions for genetically modified food/feed. Relying on Article 30 to maintain a national derogation is possible only if the Community measure in question does not fully harmonise the area of regulation. It is therefore necessary to carry out a preliminary analysis of the nature of the GM food/feed Regulation, employing the method used by the Court of Justice when dealing with these issues. We need to look at the aims, the content and the legal basis of the GM food/feed Regulation. The answer is in no way straightforward, yet it seems to me that there is more evidence in favour of complete harmonisation. First, because the act in question is a Regulation designed to leave the Member States with as little as possible room for manoeuvre, in respect to both the aims of the Regulation and the instruments used to attain them. Secondly, the intention of the Community institutions to create a complete regulatory framework is obvious from the content of the GM food/feed Regulation. For example, recital 4 states that: ‘Differences between national laws […] concerning the assessment and authorisation of genetically modified food and feed may hinder their free movement, creating conditions of unequal and unfair competition’.44 In the same vein, recital 6, stresses that the GM food/feed Regulation seeks to achieve ‘a harmonised framework for authorisation of genetically modified food’.45 Recitals 19 and 25 respectively emphasise the need for ‘harmonised labelling requirements’ and ‘harmonised procedures for risk assessment and authorisation that are efficient, time-limited and transparent’. The involvement of the EFSA in the provision of ‘[a harmonised] scientific assessment of genetically modified foods and feed,’46 is another indication that the draft Regulation is intended to limit the Member States’ autonomy in carrying out scientific assessments. In the text proper of the Regulation, attention should be drawn to Article 4.5, which states: ‘An authorisation [to market genetically modified food] [ … ] shall not be granted, refused, renewed, modified, suspended or revoked except on the grounds and under the procedures set out in this Regulation’. This provision, which was not included in the Novel Food Regulation, is specifically worded to reduce Member States’ autonomy in the procedure leading to the authorisation of GM food/feed. The legal basis of the Regulation also points to the goal of complete harmonisation. The fact that Article 152.4b and 37 were used in conjunction 44 Recital 45 Recital 46 Recital

4. 6. 26.

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with Article 95 as the legal basis for the Regulation indicates that the latter harmonises the marketing of genetically modified food/feed exhaustively. Indeed, had the authors of the Treaty wanted Article 152.4b to allow for the adoption of more stringent protective measures, they would have made it explicit provision for it: as such is the case for Article 152.4a or as laid down by other Treaty provisions concerning the environmental47 and consumer protection.48 Certainly the Court of Justice would not consider the lack of an explicit minimum harmonisation clause in Article 152.4b) to be a proof of complete harmonisation.49 However, the choice of the legal basis is merely a secondary element which contributes to the hypothesis that together with the objectives and the context of the Regulation, this Regulation is intended to pre-empt Member State action.

THE COMMISSION’S POWER TO SUSPEND THE PLACING ON THE MARKET OF CERTAIN FEED OR FOODSTUFF

The previous sections of this contribution have illustrated Member States’ options in a food safety emergency. In particular, a situation was envisaged where Member States are willing to take protective measures against the possible risks posed by GM food/feed without the support of the Commission. We have seen that Member States have been very proactive in taking protective measures as far as genetically modified organisms are concerned. However, the opposite may also be envisaged where Member States cannot identify the potential risks created by a given food/feed because the ‘Member State’s control system shows serious shortcomings and is inadequate to implement Community law properly thus possibly compromising feed and food safety’.50 What can the Commission do in these circumstances? It should be noted that Regulation 178/2002 does not offer the Commission any legal instrument to remedy this situation; the only possibility for the Commission is to start an infringement procedure against the Member State in question for failure to comply with the EC legislation. However, this is a lengthy procedure which is impractical in emergency situations. For this reason the Commission put forward a proposal aimed at strengthening its own powers, enabling it to act when there is proof that a Member State’s control system is inadequate.51 These measures may include 47 See 48 See 49 On

Art 176 of the EC Treaty. Art 153.5 of the EC Treaty. the contrary, the Court of Justice has on several occasions held Community measures to constitute non-exhaustive standards by process of implication. See M Dougan, ‘Minimum Harmonisation and the Internal Market’, (2000) 37 CML Rev 856. 50 COM (2003) 30. 51 Ibid.

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‘the suspension of the placing on the market of certain feed and foodstuffs, the laying down of special conditions for certain feed or foodstuffs or the taking of any other interim measures required to ensure protection of human health, animal health and animal welfare’.52 Although several food crises in the EC over the last five years have shown the weaknesses of Member States’ control systems, it is unlikely that the Commission has sought to extend its powers of surveillance expressly in order to use them against the current Member States. The Commission is more likely to use these powers against the acceding countries of Central and Eastern Europe. The latter may well face difficulties in ensuring the effective functioning of their control systems and thus compliance with the food safety requirements imposed by EC law.

CONCLUSIONS

This contribution has mainly examined how the GM food/feed Regulation regulates Member States’ powers to take emergency measures when public health, animal’s health and the environment are at stake. On the substantive level, it was found that the interests that may be protected through the enactment of these measures are broader than those safeguarded by the Novel Food Regulation. On the procedural level, the new emergency measures procedure is based on the same Community control system as Article 12 of the Novel Food Regulation. However, greater legal certainty is ensured due to the establishment of precise time-limits on the Commission. As a result, it is expected that the inconveniences of Article 12, which gave rise to the facts of the Monsanto case, will not recur. The analysis of the new emergency measures was concluded with comments on the ways Member States are likely to use these measures. It was claimed that they may use them in an abusive manner in order to maintain ad libitum their own national protective measures, even when judged at Community level to be unjustifiable. In exploring whether other legal means, such as Article 95 of the TEC, were available to Member States in order to introduce protective measures, it was concluded that Member States cannot rely on this Article as the GM food/feed Regulation harmonises the conditions and the restrictions on marketing of GM food/feed.53 Thus, Member States wishing to limit the circulation of a given GM food/feed must rely exclusively on the emergency measures provided for by the text of the Regulation.

52 Ibid. 53 In contrast,

Member States may rely on Art 95 to enact national measures, derogating from Directive 2001/18. See the case of the Austrian application for derogation above n 41.

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Finally, the Commission’s proposal to confer on itself the power to take Community measures where the Member States’ control systems prove to be inadequate was noted. It is submitted that the target of such Community measures are the new acceding countries of Central and Eastern Europe, which in some cases may suffer from structural deficiencies in their food safety systems.

9 At the Borderline between Community and Member States’ Competence: The Triple-Exceptional Character of Article 297 EC* MARTIN TRYBUS

INTRODUCTION

A

CADEMIC DISCOURSE HAS sought to promote an understanding of Community law as a constitutional order.1 Within such an order, the allocation of competencies to regulate various aspects of public life is, as Weiler put it: ‘the most explosive of “federal” battlegrounds’.2 The power to regulate the various aspects of defence is an issue at the borderline between Community and Member State competence, at the centre of the battleground. The EC Treaty, then EEC Treaty, was created in 1957 after a failed attempt to create a European Defence Community in 1954.3 Also for this *Article 297 EC—Article III-16 (Draft) Constitutional Treaty. 1 On the constitutional debate in general see: F Mancini, ‘The Making of a Constitution for Europe’ (1989) 26 CML Rev 595; JHH Weiler, ‘The Transformation of Europe’ (1991) 100 Yale Law Journal 2403, cited from The Constitution of Europe: ‘Do the New Clothes have and Emperor?’ and other Essays on European Integration (Cambridge, CUP, 2002); K Lenaerts, ‘Constitutionalism and the Many Faces of Federalism’, (1990) 38 American Journal of Comparative Law 205; E-U Petersmann, ‘Proposals for a New Constitution for the European Union: Building Blocks for a Constitutional Theory and Constitutional Law of the EU’ (1995) 32 CML Rev 1123; Piris, ‘Does the European Union have a Constitution? Does it need one? (1999) 24 EL Rev 557; N Walker, ‘Flexibility within a Metaconstitutional Frame: Reflections on the Future of Legal Authority in Europe’, in G de Búrca and J Scott (eds), Constitutional Change in the EU: from Uniformity to Flexibility? (Oxford, Hart, 2000), at 9–30; M-P Maduro, ‘Europe and the Constitution: What if this is as Good As It Gets?’, in JHH Weiler and M Wind (eds), Rethinking European Constitutionalism (Cambridge, CUP, 2000); PP Craig, ‘Constitutions, Constitutionalism and the European Union’ (2001) 7 European Law Journal 125. 2 Weiler, above n 1, at 39. 3 France, Italy, Germany, Belgium the Netherlands and Luxembourg had signed the European Defence Community (EDC) Treaty by 1954. All but France and Italy had also ratified the Treaty

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reason it was widely understood as a commercial enterprise, excluding any notion of a common defence. The competence for the regulation of defence seemed to have remained exclusively with the Member States. Community law represents a new legal order of international law. It has unique features through the doctrines of supremacy and direct effect. Defence integration is pursued through the Common Foreign and Security Policy (CFSP) and the European Defence and Security Policy (EDSP). These are intergovernmental frameworks outside the ambit of Community law. Defence, however, has commercial and social implications. Defence procurement,4 competition, merger-control and State aids in the defence industrial sector,5 trade of strategic goods,6 and sex equality in the armed forces 7 are examples. These are areas of regulation where Community and Member State competencies overlap, borderline areas where conflicting interests meet. Therefore Community law requires a mechanism to balance the national security interests of the Member States with the when a coalition of communists and Gaulists prevented ratification in the French parliament in August 1954. Article 1 EDC would have established the supranational character of the Community comprising common institutions, common armed forces and a common budget. The supranational character of the EDC was the most controversial aspect of the project and ultimately the reason for the rejection in the Assemblée Nationale. Another controversial point was the executive organ of the EDC, the Board of Commissioners. On a more detailed account of the reasons for the rejection by the Assembly see: Aron and Lerner, France Defeats EDC (New York, Frederick A Praeger Inc, 1957). See also Fursdon, The European Defence Community: A History (London, The Macmillan Press, 1980). 4 On

defence procurement see: M Trybus, ‘Procurement for the armed forces: balancing security and the internal market’, (2002) 27 EL Rev 692; European Defence Procurement Law: International and National Procurement Systems as Models for a Liberalised Defence Equipment Market (The Hague, Kluwer Law International, 1999), hereinafter ‘European Defence Procurement Law’); ‘National Models for the Regulation of the Acquisition of Armaments: Towards a European Defence Procurement Code’ in S Arrowsmith and M Davies (eds), Public Procurement: Global Revolution, (The Hague, Kluwer Law International, 1998) at 71. 5 On competition law and merger control in the defence sector see: M Trybus, ‘European Defence Procurement: Towards a Comprehensive Approach’, (1998) 4 European Public Law 111, at 117–26. 6 On defence exports see: P Koutrakos, Trade, Foreign Policy & Defence in EU Constitutional Law (Oxford, Hart, 2001), at 93–130; ‘Exports of Dual-Use Goods under the Law of the European Union’ (1998) 23 EL Rev 235; K Eikenberg, ‘Article 296 (ex 223) E.C. and external trade in strategic goods’ (2000) 25 ELRev 117; A Collert, ‘L’Europe des armes, un double démarche’, (1992) 28 RTDE 105; N Emiliou, ‘Strategic Export Controls, National Security and the Common Commercial Policy’ (1996) 1 European Foreign Affairs Review 55; ‘Restrictions on Strategic Exports, Dual Use Goods and the Common Commercial Policy’ (1997) 22 EL Rev 68; O Lhoest ‘La production et la commerce des armes, et l’article 223 du traité constituant la Communauté européene’ (1993) 1 Revue Belge de droit international 176; I Govaere and P Eeckhout, ‘On dual use goods and dualist case law: the Aimé Richardt judgement on export controls’, (1992) 29 CML Rev 956. 7 On sex equality in the armed forces see P Koutrakos, ‘Community law and equal treatment in the armed forces’, (2000) 25 EL Rev 433; Kämmerer, ‘Gleichberechtigung am Gewehr’, (2000) 35 Europarecht 102; M Trybus, ‘Sisters in Arms: European Community Law and Sex Equality in the Armed Forces’ (2003) 9 European Law Journal 631.

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internal market and other interests of the Community for these areas. This mechanism is provided by the security exemptions in the EC Treaty and secondary community law.8 According to the European Court of Justice the exemptions in the Treaty are Articles 30, 39, 46, 296 and 297 EC,9 but Article 58 (1) (b) EC needs to be added to this list.10 The limits of these exemptions are determined by the intensity of scrutiny exercised by the European Court of Justice. The very existence of these exemptions, in other words the mere possibility to derogate from the Treaty for reasons of public security, represents a heavy weight in favour of the Member State interests as an aspect of the balancing mechanism described. If the balancing mechanism is pictured as scales, the exemptions can be interpreted both as weights on the scale of the Member State interests as well as the scales themselves. This chapter will attempt to define the borderline between Community and Member State competence by providing an interpretation of the security exemptions in the Treaty. The emphasis will be on Article 297 EC. The article provides for a special consultation procedure between Member States taking together the steps needed to prevent the functioning of the common market being affected by measures, which a Member State may be 8 For example: Art 2 and 3 Directive 93/36/EEC OJ [1993] L–199/1, Art 4 (1) and (2) Directive 92/50/EEC [1992] OJ L–209/1, Art 4 (b) Directive 93/37/EEC [1993] OJ L–199/54, and Art 10 Directive 93/38/EEC OJ [1993] L–199/84 (on public procurement), Arts 6 and 9 Directive 64/221/EEC OJ Sp Ed 1963–4,117 (on the free movement of persons), Art 21 (3) Regulation 4064/89/EEC OJ [1989] L–395/1 (on merger control), and Art 11 Regulation 2603/69/EEC [1969] OJ L–324/25, [1991] OJ L–372/31 (on exports). There are also security provisions in the EC trade agreements, see S Peers, ‘National Security and European Law’, (1996) 15 YEL 363, at 374–78. 9 Case C–222/84 Marguerite Johnston v Chief Constable of the Royal Ulster Constabulary [1986] ECR 1651, [1986] 3 CMLR 240, at paragraph 26 (hereinafter ‘Johnston’). See also Case C–13/68 SpA Salgoil v Italian Ministry of Foreign Trade [1968] ECR 453, at 463, [1969] CMLR 181, at 192 (hereinafter ‘Salgoil’) and Case C–7/68 Commission v Italy [1968] ECR 633, at 644. 10 The provision allows measures restricting the free movement of capital similar to Arts 30, 39 (3) and 46 (1) EC. The Court, however, never mentioned Art 58 (1) (b) EC when it listed the security exemptions: Case C–285/98 Tanja Kreil v Germany [2000] ECR I–69, at para 26 (hereinafter ‘Kreil’); Case C–414/97 Commission v Spain [1999] ECR I–5585, [2000] 2 CMLR 4, at para 21; Case C–273/97 Angela Maria Sirdar v The Army Board ex parte Secretary of State for Defence [1999] ECR I–7403, [1999] 3 CMLR 559 at para 16 (hereinafter ‘Sirdar’) for details see below). In these cases the Court referred to the judgment in Johnston, which in 1986 could not take the provision, which was adopted in 1994, into account. The fact that the Court did not add the provision to the list in Kreil or Sirdar appears to be an oversight. The advisory opinion of Advocate General Cosmas in Case C–423/98 Alfredo Albore v Italy [2000] ECR I–5965, at para 47 (hereinafter ‘Albore’), seems to support this finding: ‘Nous avons précédement indiqué que les auteurs du traité instituant la Communauté économique européenne utilisent l’expression ‘sécurité publique’ pour traduire une même dimension de l’intérêt public, tant dans le contexte de l’article 73 D [now 58] que dans celui des articles 36, 56 et 66 [now 30, 46 and 55] du traité CE’. The judgment, [1999] ECR I–5965, at para 19, explicitly refers to Article 73d EC as one of the public security derogations to which the Johnston judgement applies. Moreover, Arts 12, 14, 18, 150 and 294 EC can also be connected to national security, see S Peers, above n 8, at 366–67. Arts 64 and 68 EC and 2 (3) sentence 2 of the Protocol Integrating the Schengen Acquis into the Framework of the European Union, OJ [1997] C–340/96 also have to be mentioned.

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called upon to take in a number of situations involving national security. These situations apply: [1] [2] [3] [4]

in the event of serious internal disturbances affecting the maintenance of law and order, in the event of war, serious international tension constituting a threat of war; or in order to carry out obligations it [the Member State] has accepted for the purpose of maintaining peace and international security.

The provision is a typical national security exemption, and it is not unusual in international treaties for this kind of crisis situations to be covered by a special exemption.11 The commercial link of Article 297 EC is weaker than that of Article 296 (1) (b) EC. In contrast to the latter provision, the former does not relate to the free movement of goods, a core regime of the Treaty. Thus the exemption is even closer to the notion of national security as reserved to the sovereignty of the Member States and therefore represents the very borderline between Community and Member State competence. It is the only security exemption the Court avoided to interpret so far, although Member States had invoked it in many cases and the Kirchberg once got very close to a ruling. The analysis will be based on legal principles developed by the Court in the context of the other security exemptions and will evaluate the extent to which these principles apply to Article 297 EC. In order to define the provision this paper will first put it in the context of the other exclusions in the Treaty. Second, the scarce relevant case law of the Court will be analysed in order to provide a workable interpretation.

THE POSITION OF ARTICLE 297 EC IN THE TREATY

The following section will describe the legal principles developed by the Court in relation to the main security exemptions in the Treaty: Articles 30, 39 (3), 46 (3), 58 (1) (b), 296 and 297 EC. This will facilitate the subsequent analysis of the latter provision. First, the common principles governing all

11 See

provisions in multilateral treaties such as Art XXI (b) (iii) and (c) of the General Agreement on Tariffs and Trade (GATT), Art XIV bis of the General Agreement on Trade in Services (GATS), Art 73 of the Agreement on Trade-Related Intellectual Property Rights (TRIPS), Art 15 (1) of the European Convention of Human Rights (ECHR); or provisions in bilateral treaties such as Art XX (1) (d) of the Treaty of Amity, Economic Relations and Consular Rights Between the United States of America and Iran 1955, and Art XXI (1) (d) of the United States-Nicaragua Treaty on Friendship, Commerce and Navigation.

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security exemptions will be discussed. Second, the differences between the provisions will be explained to provide an understanding of the ‘borderline position’ of Article 297 EC.

Common Principles Before locating the position of Article 297 EC in the Treaty, a number of common features of all security exemptions need to be discussed. First, the Court ruled in Johnston, that the exemptions, including Article 297 EC, have a ‘limited character’ and that they do not amount to ‘a general proviso covering all measures taken for reasons of public safety’.12 This ‘limited character’ leads to a narrow interpretation of all exemptions. Moreover, they are exhaustive. The reason for this interpretation was provided in Johnston: ‘If every provision of Community law were held to be subject of a general proviso, regardless of the specific requirements laid down by the provisions of the Treaty, this might impair the binding nature of Community law and its uniform application’.13 This limits the possibilities of Member States to justify measures for reasons of public security as otherwise the functioning of the internal market could be undermined. As an aspect of the balancing mechanism described above, the narrow interpretation represents a heavy weight on the scale of the Community interests. This weight counterbalances the weight on the scale of the Member State interest brought about by the very existence of the exemptions. Secondly, all exemptions, including Article 297 EC, are subject to judicial scrutiny exercised by the Court. For Articles 296 and 297 EC this is emphasised by a specific review procedure in Article 298 (2) EC.14 As will be explained below, the intensity of scrutiny differs depending on the exemption.

12 Case

C–222/84, above n 9, at para 26. The case concerned the exclusion of women from service in the Royal Ulster Constabulary (RUC), now the Police Service of Northern Ireland (PSNI). The Equal Treatment Directive, Council-Directive 76/207/EEC on the implementation of the principle of equal treatment of men and women regards access to employment, vocational training and promotion [1976] OJ L–39/40, contains a ‘quasi-security’ exemption in Art 2 (2) when sex is a determining factor for certain activities. 13 Ibid. 14 Art 298 EC reads: ‘[1] If measures taken in the circumstances referred to in Arts 296 and 297 have the effect of distorting competition in the common market, the Commission shall, together with the State concerned, examine how these measures can be adjusted to the rules in the Treaty. [2] By way of derogation from the procedure laid down in Arts 226 and 227, the Commission or any Member State may bring the matter directly before the Court of Justice if it considers that another Member State is making improper use of the powers provided for in Arts 296 and 297. The Court shall give its ruling in camera’.

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Differences Due to reasons described below, the security type exemptions can be divided into two groups.15 These are Articles 30, 39 (3), 46 (1) and 58 (1) (b) EC on the one hand and Articles 296 and 297 EC on the other hand. The first group of exclusions allows restrictions of the free movement of goods, workers, services, capital, payments, or the freedom of establishment for reasons of public security. They have three characteristics in common. First, they allow restrictions on grounds of ‘public security’. This is a wide concept covering all aspects of security, internal and external, including the concept of national security.16 In contrast, the exemptions in Articles 296 and 297 EC relate to a narrower concept of national security or military security. The term ‘essential interests of [ … ] security’ is used in Article 296 (1) (a) and (b) EC and security is not mentioned explicitly in Article 297 EC. However, the situations described are situations affecting national security. Secondly, the exemptions of the first group are restricted to their respective free movement regimes: goods, workers, services, establishment, payments or capital. In contrast, the national security exclusions of the second group apply to the Treaty as a whole. Thirdly, measures justified by provisions of the first group are subject to strict scrutiny exercised by the European Court of Justice. The crucial element of this scrutiny is the application of the proportionality test. 17 In general terms this involves a reasonable relationship of the relevant interests involved,18 which in the context of this chapter can be identified as the internal market and other interest of the Community on one side and the public security interest of the Member States on the other side. The Member State measure in question has to be suitable to promote public security. Moreover, it needs to be adequate or necessary, meaning that there is no possible measure which is equally effective to promote public security but less detrimental to the internal market. Finally, the measure has to be proportionate in the strict sense, which requires a fine balance between the public security interests of the Member States and the internal 15 M Trybus, ‘The EC Treaty as an instrument of European defence integration: judicial scrutiny of security and defence exclusions’, (2002) 39 CML Rev 1347, at 1350 (hereinafter ‘Instrument’). 16 J Schwarze, European Administrative Law (London, Sweet & Maxwell, 1992), at 778, based on Wägbaur, in v d Groeben, v Boeckh, Thiesing, Ehlermann, Kommentar zum EWG Vertrag (Baden-Baden, Nomos, 3rd ed 1983) Art 36, nos. 18 et seq. defines public security as ‘the entire field of rules, laid down by the sovereign authorities and incapable of being waived, which have been adopted in the interest of the political and social integrity of society’. 17 Other elements of this scrutiny are legitimate expectations, non-discrimination and the emergent principle of transparency. 18 G de Búrca, ‘The Principle of Proportionality and its Application in EC Law’, (1993) 13 YEL 105.

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market interests of the Community.19 Generally, scrutiny is very intense which is appropriate for two reasons. First, in the context of the crucial free movement provisions, all restricting measures have to be proportional to ensure the functioning of the internal market.20 Exemption has to be an exception. Secondly, the military interests of the Member States are sufficiently safeguarded by the exemptions of the second group. Thus there is no need to limit scrutiny in the context of the first group. In the context of the first group the Community and Member State interests can be balanced on three levels: through the existence but narrow interpretation of the provisions, through the proportionality test in general, and if necessary, through proportionality in the strict sense. The second group of exclusions consists of Article 296 and 297 EC. The common feature of these exclusions is that in cases of ‘improper use’ they can be subject to a special procedure under Article 298 EC. Moreover, they apply to the Treaty as a whole. Until recently the Court has shown a great reluctance to deal with these exemptions. Article 296 (1) (b) EC allows a Member State ‘to take such measures as it considers necessary for the protection of the essential interests of its security which are connected with the production or trade in arms, munitions and war material’. In 1958 the Council drew a list of products to which this provision applies according to Article 296 (2) EC. It includes classical military material such as tanks, missiles and submarines.21 The exemption has a strong internal market connection as it relates to trade in goods. Many Member States argued that the provision represents an automatic exclusion of the relevant hard defence material from the application of the Treaty as a whole. Although the Commission advocated a narrow interpretation, the wide Member State interpretation was used in practice, as there was no decision on the provision from the Court. However, in Commission v Spain the Court ruled against a Spanish law exempting armament exports from VAT.22 Spain had invoked Article 296 (1) (b) EC. 19 Formulated

by AG van Gerven in Case C–159/90 SPUC v Grogan [1991] ECR I–4685 as cited by de Búrca, ibid., at 113 including the more controversial third element. Also in favour of the three-part test (based on the same test in German administrative law, see PP Craig and G de Búrca, EU Law (Oxford, OUP, 3rd ed. 2003), at 350); Schwarze, above n 16, at 712. 20 Case C–222/84,above n 9, at para 26. 21 Council-Decision 298/58 of 15 April 1958 (not published). The list was never officially published but in December 2001 the Council provided a shortened version of the list in Response to Written Question E–1324/01 by Bart Staes (Verts/ALE) to the Council, OJ C–364 E, 20 December 2001, at 85–86; reproduced and commented by M Trybus, ‘The List According to Article 296 EC’ (2003) 12 Public Procurement Law Review 15. A more complete version of the list was provided in M Trybus, European Defence Procurement Law, above n 4, at 14; and A Courades Allebeck ‘The European Community: from the EC to the European Union’, in H Wulf (ed), Arms Industry Limited (Oxford, OUP, 1993) at 214. 22 Case C–414/97, [1999] ECR I–5585, [2000] 2 CMLR. 4. See also: M Trybus ‘The Recent Judgment in Commission v Spain and the Procurement of Hard Defence Material’ (2000) 9 Public Procurement Law Review NA99 and ‘On the Application of the E.C.-Treaty to Armaments’, (2000) 25 EL Rev 633.

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The Kirchberg considered exemption to be ‘not necessary in order to achieve the objective of protecting the essential interests of the security of [ … ] Spain’. It is argued that in particular the word ‘necessary’ implies that the Court applied a proportionality test. However, as the case represented a clear case of abuse, the ruling does no represent sufficient authority to assume a proportionality test of an intensity comparable to that applied in the context of, for example, Article 30 EC. As will be explained further below, it is submitted that the test is less intense than in the context of the first group of exemptions. Hence Luxembourg takes the Member State discretion over national security issues into account by adapting the standard of review: scrutiny is less intense and will only overrule a measure if there is a clear case of abuse. Articles 296 (1) (b) and 297 EC are parts of the same group of exemptions. Hence the ruling in Commission v Spain represents an important benchmark for the interpretation of Article 297 EC as there is no ruling on the interpretation of the provision itself. Exceptional Character Another way to describe the position of Articled 297 EC in the Treaty appears from the relevant case law and advisory opinions. The provision has an exceptional character within the framework of the Treaty that is connected to a subsidiary character in relation to the other exemptions. In Salgoil the Court ruled that Article 297 EC has a limited framework and corresponds to a particular, hypothetical and well-defined situation. It is an exceptional provision, calling for a strict interpretation and cannot be invoked to deny the existence of rights created by other provisions of the Treaty.23 In Johnston Advocate General Darmon and in Leifer and Werner Advocate General Jacobs pointed out that Article 297 EC is a safeguard clause of general application that only applies as ultima ratio in the absence of special rules.24 (i)

Double-Exceptional Character

In Albore Advocate General Cosmas attributed a ‘double-exceptional character’ to Article 297 EC.25 First, the provision has an exceptional character 23 Case 24 Case

C–13/68, above n 9, at 192, 198. C–222/84, above n 9, at para 5; Case C–70/94 Fritz Werner Industrie-Ausrüstungen GmbH v Germany [1995] ECR I–3189 (hereinafter ‘Werner’), and Case C–83/94 Criminal Proceedings against Peter Leifer and others [1995] ECR I–3231, at para 63 (hereinafter ‘Leifer’). The Werner and Leifer cases concerned the export of defence-related goods. 25 Advocate General Cosmas in Case C–423/98, above n 10, at para 23. The case concerned an Italian law that required non-Italians purchasing property in certain ‘military areas’ of Italy including all small islands of Italy, to seek the prior consent of the local administration.

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in the framework of the Treaty. Similar to the other security exemptions, it is an established rule that Article 297 EC concerns ‘exceptional, hypothetical cases, which are well defined and do not lend themselves to any extensive interpretation’.26 This refers to the Johnston principle: as these provisions allow derogation from the Treaty, they have to be limited to exceptional cases. Otherwise the functioning of the common market as a whole could be affected. Article 297 EC shares this first aspect of its ‘double-exceptional character’ with the other security exemptions. Secondly, the provision has a ‘wholly exceptional character’27 in the framework of the Treaty. Unlike the other provisions it allows to derogate from the Treaty as a whole. Thus it can only be used as an ‘ultima ratio’ when the other provisions cannot be used.28 This second aspect is shared with Article 296 EC but not with the public security exemptions of the first group. (ii)

Triple-Exceptional Character

It is submitted that, building on the concept of the ‘double-exceptional character’ developed by Advocate General Cosmas, that Article 297 EC actually has a ‘triple-exceptional character’. This is because, in addition to being exceptional within the framework of the Treaty (exceptional) and in relation to the public security exemptions of the first group (double-exceptional), it is also exceptional in comparison to Article 296 EC which also allows derogation from the Treaty as a whole (triple-exceptional). In contrast to the latter, it does not directly relate to the internal market. Moreover, partly because of this missing link to trade, partly because of the highly exceptional character of the crisis situations stipulated therein, the provision was never successfully abused as an automatic exemption the way Article 296 (1) (b) EC was.29 It was never successfully used in practice at all.30 This third aspect of its ‘triple exceptional character’ could also be called the ‘extremely exceptional character’ of Article 297 EC. (iii)

Subsidiary Character

The subsidiary character of Article 297 EC is linked to this ‘triple-exceptional character’. As an exemption the provision does not only have a subsidiary character in relation to the public security exemptions of the free movement 26 Case C–13/68 Salgoil, above n 9; Case C–222/84 Johnston, above n 9, at para 26. 27 Case C–222/84, above n 9, at 1684; Case C–273/97, above n 10, at para 19. 28 Advocate General Cosmas in Case C–423/98, above n 10, at para 24. 29 On this abuse of Art 296 (1) (b) EC see M Trybus, ‘Instrument’, above n 15, at 1355. 30 As far as the case law of the European Court of Justice is concerned. It might have been

used successfully in preliminary proceedings or might have had an indirect effect by convincing the Commission not to act on a particular measure.

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regimes. It also has a subsidiary character in relation to Article 296 EC: it can only be invoked when no other exemption can be used. In Albore Advocate General Cosmas considered Article 297 EC to have a supplementary character to the other exemptions, forming a dividing line between the situations where national and Community institutions function normally and situations of severe national danger. Article 297 EC implied significant modifications according to the nature, the intensity and the understanding of the connection between the legal order of the Community and that of the Member States.31 On the basis of this ‘triple-exceptional’ and subsidiary character as an ultima ratio the possible application of Article 297 EC in practice is very limited. Situations that would justify the use of the provision have been rare over the last five decades. The exceptional character and resulting limited application of Article 297 EC is possibly the strongest safeguard against its abuse.

ARTICLE 297 EC IN THE CASE LAW OF THE COURT

The remainder of this chapter attempts a definition of Article 297 EC on the basis of scarce case law and advisory opinions. The basic rule is that the provision has to be interpreted narrowly.32 Defining means identifying limits. Possible limits are judicial scrutiny, procedural requirements, and time limits.

Jurisdiction A first question in this context is, whether the Court has jurisdiction to review measures taken by Member States under Article 297 EC at all. Going back to the scales metaphor: if answered in the negative, the provision could be seen either as a decisive weight in favour of the Member States interest in national security, or even as a mechanism to exit or veto any balancing operation. In other words, Member States could exclude a measure from review by invoking Article 297 EC. Accommodating the Member State interest further still, the provision could be interpreted as an automatic exemption, without even the necessity to invoke it. The measure would be immune from judicial scrutiny; the rule of law would not apply. This interpretation sees Article 297 EC as a general safeguard clause, a ‘reserve of sovereignty’33 for defence matters that goes well beyond its wording. 31 Case C–423/98, above n 10, at para 27. 32 Case C–222/84 Johnston, above n 9, at para 33 The expression belongs to P Koutrakos, ‘Is

26. Article 297 EC a “Reserve of Sovereignty?” ’ (2000) 37 CML Rev 1339. However, he does not advocate this interpretation.

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The Court’s jurisdiction has been questioned frequently in the past. Some Member States argued the provision generally ‘reserved the field of defence matters to the exclusive competence of the Member State[s]’. The provision made clear that defence matters fall outside the provisions of the Treaty and remain the ‘exclusive competence’ of the Member States. In accordance with the Treaty the Member States have transferred their sovereignty rights only in limited fields other than defence.34 In FYROM, a case on trade sanctions imposed by Greece against the Former Yugoslav Republic of Macedonia (FYROM), the Greek government argued, that questions regarding the external security of a Member State are not matters open to consideration by the Court.35 However, in contradiction to this bold statement, it also submitted that Article 225 EC (now 298) restricts judicial review to cases of ‘improper use’.36 Exclusion and restriction of jurisdiction, however, are two entirely different concepts: a court with restricted jurisdiction still has jurisdiction. Similarly contradictory the Danish government argued in Johnston: ‘a Member State’s discretion in that regard [the use of Article 297 EC] is not subject to judicial review, save in the case of abuse’.37 This line of argument appears to be courtroom tactics: first the Member State argues for the exclusion of jurisdiction. Secondly, in case the Court assumes jurisdiction, they argue for a restriction of review. Nevertheless, these arguments are significant because they show the opinion of the Member States regarding their competence over defence matters. It is clear from the expressly stipulated Article 298 (2) EC that the Court has jurisdiction to review measures taken by Member States under Article 297 EC. It has dealt with cases involving this exemption on numerous occasions. In Salgoil, Kreil, Sirdar, and Johnston the Court considered the scope of the exemption.38 In the latter case Advocate General Darmon and in Aimé Richardt, Leifer and Werner Advocate General Jakobs discussed Article 297 EC but considered it to be irrelevant for the case.39 In Albore, Advocate General Cosmas dealt extensively with the provision but 34 Observations

of the government of the Federal Republic of Germany in Case 15/69 Südmilch v Ugliola [1969] ECR 363, at 367; observations of the United Kingdom, French, and Portuguese governments in Case C–273/97, above n 10, as referred to by AG La Pergola, at para 10. According to the AG the French government in particular takes the view that defence should be treated in the same way as the other functions traditionally reserved to States, such as justice, diplomacy, public finance and police. 35 Case C–120/94 R Commission v Greece (‘FYROM’) [1996] ECR I–1513, at para 56. 36 Ibid., at para 59. 37 See the observations of the representative of the Danish government in Case C–222/84, above n 9, at 1676. 38 Case C–13/68, above n 9, at 192, 198; Case C–285/98, above n 10, at para 16; Case C–273/97, above n 10, at para 16; Case C–222/84, above n 9, at paras 26, 27 and 60. 39 Case C–222/84, ibid., at 1658; Case C–367/89 Aimé Richardt and ‘Les Accessoires Scientifiques’ [1991] ECR I–4621, at 4643–44; Case C–83/94, above n 24, at para 51; Case C–70/94, above n 24, at para 63.

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considered it not to apply to the case.40 The Court agreed.41 Hence the Court clearly has jurisdiction to review measures justified by Article 297 EC. However, there has never been a case where the provision was invoked as the only exemption available and was subsequently rejected or approved by the Court. The jurisdiction of the Court to review measures taken on the basis of Article 297 EC in Article 298 EC represents in itself a considerable limitation of sovereignty. By specifically stipulating judicial review of their decisions to derogate from the Treaty during crisis situations involving national security, the Member States have transferred a part of their competence over defence to the Community. They could have avoided that transfer by creating an automatic exemption or by limiting review to political procedures, for example through the Council. Judicial scrutiny by the Court, however restricted, involves Community institutions in defence related decisions. Within the balancing operation, Article 297 EC represents a weight on the scale of the Member States counterbalanced by the judicial review of Article 298 (2) EC as a weight on the scale of the Community interests.

Consultation Procedure Second, the consultation procedure stipulated in Article 297 EC needs to be mentioned. The Member States in question must engage in consultations prescribed in Articles 297 and 298 (1) EC. They must do so ‘in order to minimise the effects of the national measures on the functioning of the common market, in accordance with the duty of co-operation and genuine assistance imposed on Member States with regard to the Community, the principle enshrined in Article 5 EC [now 10]’. 42 Thus the use of Article 297 EC is subject to procedural requirements and the Court has jurisdiction to determine compliance.43 This consultation must be carried out before the measure in question is adopted. The requirement of a consultation procedure also implies that Article 297 EC needs to be specifically invoked and does not automatically exclude certain measures from the application of the Treaty. The consultation procedure gets the other Member States involved. The procedure is described as ‘taking together the steps needed to prevent the functioning of the common market being affected’. Consultation goes beyond a mere information requirement, it involves discussion, possibly

40 Case C–423/98, above n 10, at para 35. 41 Ibid., at paras 22–24. 42 Case C–120/94 R FYROM, above n 35, at para 47. 43 For details on the consultation procedure with particular

R FYROM, ibid. see Koutrakos, above n 33, at 1356–59.

reference to Case C–120/94

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even attempts by other Member States to convince the derogating Member State to refrain from the measure. The Member States are no Community institution. However, they are constitutional players and their involvement in the national security decisions of each other represents another, yet very limited transfer of sovereignty. Moreover, the consultation’s objective of ‘preventing the common market from being affected’ is significant: it introduces the Community interest in the internal market into the national security decision. Hence the Member States have to balance the Member State’s national security interest with Community interests during consultations. However, there are two reservations. First, the other Member States have no veto power regarding a determined Member State. Within the limits of Article 10 EC, such a Member State can reduce consultation to a mere ritual, leaving her sovereignty ‘intact’. Secondly, the balancing and safeguard mechanism is easily made redundant in practice when the procedure is not followed. Koutrakos pointed out that in FYROM the Greek government failed to follow the procedural requirements of Article 297 EC.44 Moreover, it was never followed in any of the other relevant cases. This raises two issues. First, the fact that Greece did not follow the procedural requirements could be interpreted as an indication that they did not seriously believe that the use of the provision was feasible or even legally possible. Article 297 EC was only used for tactical reasons, as an additional argument. Second, the case raises the question whether the situations described in Article 297 EC, for example war, allow a Member State to follow time-consuming procedures before taking measures. In other words, is it appropriate to impose procedural requirements on a Member State in an extreme crisis situation? Surely, the functioning of the internal market is of secondary importance when a Member State’s existence is at stake. On the other hand the case shows that there is a danger of abuse. Therefore the availability of judicial review is imperative. The urgency of a situation should be taken into account when a Member State did not follow the procedural requirements.

Provisory Measures Third, the question is, whether anticipatory measures are covered by Article 297 EC. Alternatively it is strictly limited to the time the situations actually occur. Examples for anticipatory or permanent measures are the establishment of a military area excluded from the application of Community law, as argued in Albore, or the recognition of the military as a profession to which the Treaty does not apply, as argued in Sirdar. This would add certain lands and certain people to the material allegedly not 44 Ibid.

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covered by the Treaty according to Article 296 (1) (b) EC. There is an important difference between allowing Member States to derogate from the Treaty to react to actual crisis situations and to allow derogation to prepare for these situations, without the requirement that they actually occur. The second interpretation would allow the exclusion of a large percentage of territory, people, or the economy from Community law. This, if abused on a large scale, would undermine the functioning of the internal market. However, based on a narrow interpretation of the provision,45 it is submitted that Article 297 EC only applies within a certain time limit which does exclude anticipatory measures. This considerably limits the application of the provision in practice and prevents its abuse. However, there has been no ruling on the matter so far. In Sirdar Advocate General La Pergola pointed out ‘that the cases envisaged by Article 297 EC concern temporary and non-permanent situations’.46 He also gave an example in the adoption of unilateral measures under Article 297 EC by the United Kingdom in a temporary situation of serious crisis which arose in 1982 when Argentine troops occupied the British Falkland Islands.47 Thus in contrast to Article 296 (1) (b) EC, which refers to the general measures a Member State adopts in ‘normal’ times for the purpose of safeguarding its security, Article 297 EC refers to the special measures which prove necessary in an actual crisis situation which has already developed.48 This limitation seems necessary as the measures which Member States can adopt on the basis of Article 297 EC go far beyond those which can be adopted pursuant to Article 30 EC, precisely in view of the exceptional circumstances envisaged by Article 297 EC.49 In Albore Advocate General Cosmas argued that, because of the exceptional character of the situations described, Article 297 EC only applies to provisory and not permanent measures.50 He therefore considered the requirement under Italian law, for non-nationals to acquire prior consent of 45 Case 46 Case

C–222/84 Johnston, above n 9, at para 26. C–273/97, above n 10, at para 21. The case concerned the exclusion of women from service in the Royal Marines. It was argued by the United Kingdom that Community law did not apply to the armed forces. 47 See the second recital in the preamble to Council Regulation No 877/82 of 16 April 1982 suspending imports of all products originating in Argentina [1982] OJ L–102/1, which states that: ‘[ … ] following the measures already taken by the United Kingdom, the Member States have consulted one another pursuant to Art 224 of the Treaty [now 297] establishing the [E.E.C.]’. 48 Verhoeven, in Commentaire du Traité instituant la CEE, Constantinesco, Jacqué, Kovar and Simon (eds.), (Paris, Economica, 1992), entry dealing with Art 224 EC (now 297), at point 2. One commentator even refers to unilateral measures of ‘strictly necessary duration’ designed to deal with ‘exceptional and particularly serious circumstances’: see Quadri, Monaco, Trabucchi, Commentario al Trattato istitutivo della Communità economica europea, (Milan, Giuffré, 1965), Vol. III, entry dealing with Art 224, at 1633–34 (as cited by AG La Pergola in Sirdar). 49 Kapteyn and Verloren van Themaat, Introduction to the Law of the European Communities, (Deventer, Kluwer, 2nd ed, 1990), at 406 (as cited by AG La Pergola in Sirdar). 50 C–423/98, above n 10, at para 32.

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the local administration before buying property in so called military zones, to be outside the scope of the exemption.51 The Court did not specifically address the problem but ruled that Article 297 EC did not apply to this case. It is submitted that this has to be interpreted as excluding anticipatory measures from the application of the provision.

Situations Article 297 EC can only be invoked in one of the situations stipulated therein. It is submitted that, due to the narrow interpretation of exemptions,52 the list of situations is exhaustive. Hence, as a second stage of judicial scrutiny, 53 the existence of one of the stipulated situations has to be determined. The question is, whether the Court is authorised to make that decision.54 Can it, for example, rule that there is a war or serious internal tension? As the Court never applied the provision, this is still open to debate. The Commission has been advocating a narrow interpretation of the discretion conferred to Member States. It argues that they must demonstrate by reference to objective circumstances that one of the situations outlined in Article 297 EC actually exists.55 If the Member States have to refer to objective circumstances, these circumstances would be subject to review. In FYROM the Court accepted that this view of the Commission was arguable. However, this was only accepted in so far as it proved a prima facie case for the purpose of interim relief.56 The Member States on the other hand have been advocating a wider interpretation of Article 297 EC. For example, the United Kingdom government argued in Johnston that it is for the Member State alone to determine whether one of the situations set out in that provision exists.57 The assessment of the 51 C–423/98,

ibid., at point 35. At para 32 he considers anticipatory measure to be covered in exceptional circumstances. 52 Case C–222/84 Johnston, above n 9, at para 26. 53 After the first stage of deciding on whether the procedural requirements of Art 297 EC have been followed. 54 C Schloemann and O Ohloff, ‘Constitutionalisation and Dispute Settlement in the WTO: National Security as an Issue of Competence’, (1999) 93 American Journal of International Law 424, at 431 call this power the ‘justiciability’ of measures taken under such exemptions with reference to the GATT. See also the more recent D Akande and S Williams, ‘International adjudication on national security issues: What role for the WTO?’ (2003) 43 Virginia Journal of International Law 306. 55 Referred to in Case C–222/84 Johnston, above n 9, at 1674; Case C–120/94 R FYROM, above n 35, at para 47. 56 Case C–12/94 R, ibid., at para 70. 57 See the observations of the United Kingdom government in Case C–222/84, above n 9, at 1673.

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situation in considered subject to the subjective judgement of the Member States. The denial of any competence of the Court to assess whether one of the situations outlined in Article 297 EC actually existed is linked to the denial of jurisdiction. However, according to Article 298 (2) EC the Court has jurisdiction. If the Court did not have the competence to decide whether an Article 297 EC situation existed, this jurisdiction would be very limited. It had to automatically accept the existence of a situation as alleged by the Member State and decide on the proportionality or abuse of the measure taken because of it. However, a decision on the abuse of the provision requires some form of assessment whether one of the situations actually exists.58 Otherwise the Member States as parties to the proceedings autonomously determine the factual background of the assessment. Taken to the extreme, the Court would review a measure taken to react to a situation that actually does not exist. The effective judicial review required in Article 298 (2) EC would be very difficult or even impossible. Moreover, this approach would be open to abuse. Article 297 EC was the subject of the 1999 judgment in Albore.59 The case concerned an Italian law that required foreign buyers of property in military areas to seek prior permission of the local government. All the small islands of Italy were classified as military areas! In his very detailed advisory opinion Advocate General Cosmas pointed out that Article 297 EC dealt with very special situations affecting the relationship between the Community and the Member States. Therefore it would be necessary to determine in every individual case whether the conditions for the application of the provision are met.60 The situations described in Article 297 EC, so the Advocate General citing Advocate General Jacobs in FYROM, are directly related to a political, military and geopolitical appreciation in principle reserved to the Member States. The intensity of scrutiny applied by the Court is diminished due to the absence of appropriate legal criteria susceptible to be applied by the Court in relation to categories like ‘war’.61 Therefore the understanding of the judicial control exercised by the Court under Article 298 EC is very limited, not only because of the terminology of that article but also because of the subject matter.62 In essence he argues against the competence of the judge to determine whether one of the situations exists, as he or she does not have the tools to do it. This argument is not entirely convincing. The intensity of scrutiny applied by the Court might be diminished but review is not entirely impossible. Moreover, the intensity of scrutiny might vary depending on which of 58 Advocate General Jacobs in Case C–120/94 R FYROM, above n 59 Case C–423/98, above n 10. 60 Case C–423/98, ibid., at para 32. 61 Case C–120/94R, above n 35, at para 50. This line of argument

35, at para 50.

is also followed by others: Lord Wilberforce citing the Court of Appeal in Buttes Gas v Hammer [1982] AC 888, at 936. 62 Case C–120/94R, ibid., at para 63.

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the four situations has been invoked by the Member State. The situations in Article 297 EC should be differentiated.

War The first situation is ‘war’. This is predominantly a category of international law the international judge has to handle. The European judge can do so as well. There are two ways to define war in international law. The first way is subject to a formal requirement: a formal declaration of war between States.63 It should be noted, however, that nowadays formal declarations of war are not very common in State practice. Therefore the formal definition of war is largely redundant in international law. The modern definition requires the actual outbreak of hostilities whereas a ‘threat of war’ is tension between States falling short of actual hostilities.64 Under both interpretations there is no reason why the European judge could not decide whether a situation constituting ‘war’ in the sense of Article 297 EC actually exists. This interpretation is based on the fact that with a potentially wide situation ‘serious international tension constituting a threat of war’, the requirement that hostilities have broken out would be the best way to differentiate these two situations. The drafters of the Treaty had an international law background. This is an additional indication that the word ‘war’ in Article 297 EC refers to the notion of war in international law. Reserving these situations to the subjective judgement of the Member States would not make sense when a visible situation such as the actual outbreak of hostilities is the subject matter of the assessment of the Court.

Obligations Accepted for the Purpose of Maintaining Peace and International Security The second situation arising in the context of ‘obligations accepted for the purpose of maintaining peace and international security’ is a category equally susceptible to judicial scrutiny. It covers measures taken in the context of the United Nations or more recently NATO, for example peacekeeping operations. The international or European judge is qualified to evaluate this category simply by interpreting the treaties or other sources that establish these international obligations and by assessing whether they require the measure. Reserving these situations to the subjective judgement the Member States is not necessary. 63 See

in particular Art 3 of the Resolution on the Definition of Aggression, General Assembly Resolution. 3314 (XXIX). 14 December 1974. GAOR 29th Sess., Supp. 31, p 142: (1975) 69 Amercian Journal of International Law 480. 64 Ibid., Arts 1 to 3.

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Serious Internal Disturbances Affecting the Maintenance of Law and Order The third situation of ‘serious internal disturbances affecting the maintenance of law and order’ is also susceptible to review. However, this category requires a wider margin of appreciation for the Member States as it deals with internal affairs. Advocate General Jacobs pointed out in FYROM that the ‘serious internal disturbances affecting the maintenance of law and order’ must be construed as a ‘breakdown of public order on a scale much vaster than the type of civil unrest, which might justify recourse to Article 36 EC [now 30]’.65 It has to be a ‘massive breakdown of public order’.66 The category could include revolutions, coups d’état, civil wars, natural and nuclear disasters, epidemics, and organised crime on a large scale.

Serious International Tension Constituting a Threat to War The fourth and final situation of ‘serious international tension constituting a threat to war’ is potentially very wide as it covers all clear and present dangers to national security falling short of the outbreak of hostilities. However, as Peers pointed out, the comparable Article XXI (b) (iii) GATT speaks of ‘emergencies’. Article 297 EC is based on this provision.67 Hence the use of the words ‘threat to war’ can be interpreted as narrowing the GATT clause.68 In contrast to war, which is normally a visible situation, a ‘threat’ is a very subjective concept, which is difficult to detect. The subjective evaluation of the Member States as, for the time being, the only guardians of their military security in the European Union, is crucial. A wide margin of appreciation has to be left to the political and military deciders in the Member States. The main limitation to this margin would be a time limit, as explained under 3.3. above. However, as the category is potentially very wide there is also a danger of abuse that necessitates judicial scrutiny. The Court as a supranational institution can determine whether this situation is given, just like the international institution UN Security Council can determine a ‘threat to peace’ under Article 39 UN Charter. All these situations are to a certain degree subject to international law. Scrutiny of the European Court of Justice is not excluded ‘due to the absence of appropriate legal criteria susceptible to be applied by the Court’. 65 Case C–120/94 R, above 66 Ibid., at para 49. 67 Peers, above n 8, at 382. 68 Ibid.

n 35, at para 47.

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The Situations in Practice In practice judicial scrutiny could be very effective. There are only a few cases, most notably FYROM, where Member States argued that a situation covered by Article 297 EC existed at the time the measure in question was taken. Normally they simply refer to the provision without arguing the existence of one of the situations. So if the existence of such a situation is not argued, the provision is hard to abuse. The Court can simply note that a Member State does not argue the existence of a situation envisaged by Article 297 EC and reject the use of the provision. In Albore the Court considered the national security interests in the context of the concept of public security in Article 58 (1) (b) EC rather than in that of Article 297 EC. They pointed out that ‘a mere reference to the requirement of defence of the national territory, where the situation of the Member State concerned does not fall within the scope of Article [297 EC,] cannot suffice’ to justify a measure contrary to the Treaty.69 Thus the Court considered Article 297 EC not to apply.

Standard of Review A crucial question that follows is, whether the Court, after having determined that one of the situations stipulated in Article 297 EC exists, will apply a proportionality test to measures taken by the Member State to respond to it. This very strict standard of review is applied to the exemptions of the first group70 and requires the measure to be suitable, necessary, and proportionate in the strict sense in relation to the aim in view, which is public security. If applied, it would represent a considerable limitation of the Member States to use or abuse the provision and, returning to the scales-metaphor, a heavy weight on the scale of the Community interests as part of the balancing operation. The Commission argues that the means used under Article 297 EC must be proportionate to and necessary for the aim in view.71 This describes a proportionality test. In FYROM the Court accepted that this view of the Commission was arguable in so far as it proved a prima facie case for the purpose of interim relief.72 In Aimé Richardt Advocate General Jacobs considered measures taken under Article 297 EC without further explanation to be subject to proportionality.73 The Member States, however,

69 Case C–423/98, above n 10, at para 21. 70 Arts 30, 39 (3), 46, and 58 (1) (b) EC. 71 Referred to in Case C–120/94 R, above n 72 Ibid., at para 70. 73 Case C–367/89, above n 39, at para 33.

35, at para 47.

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argued against a proportionality test in relation to measures taken under Article 297 EC.74 As there has been no judgment in which the Court applied Article 297 EC so far, the precise standard of review is still open to debate. In Albore Advocate General Cosmas argued that Member States retain a margin of appreciation as large as possible to deal with the exceptional and truly dangerous situations. A full proportionality test is not necessary; the requirement of a measure to be directed at one of the situations described in the exemption and to serve the interest of national security is sufficient. A totally restrictive interpretation of Article 297 EC subjecting it to a scrutiny including proportionality might deprive the provision of its effet utile. If a proportionality test is applied to measures taken under Article 297 EC, the existence of this provision is unnecessary as the measure could be justified by the notion of public security in the exemptions of the first group. In Commission v Spain the Court considered the measure for which Spain had invoked Article 296 (1) (b) EC to be ‘not necessary to achieve the objective of protecting the essential interests of the security of Spain’.75 As outlined above, Articles 296 (1) (b) and 297 EC are parts of the same group of exemptions subject to the special review procedure in Article 298 (2) EC and Commission v Spain is the only ruling on these. It is submitted that in relation to Article 297 EC, the Court will apply a test of ‘abuse’ as stipulated in Article 298 EC similar to the test applied to measures taken under Article 296 (1) (b) EC. This involves a larger margin of appreciation for Member States than in the context of measures justified under Article 30 EC. The margin of appreciation allows for their subjective judgement when dealing with the stipulated situations of national security. The Court will only review whether this is wholly unreasonable and disproportionate. This review will look at the suitability and necessity of a measure in a way similar to a proportionality test. The wider margin of appreciation, however, will make it much easier for a Member State to satisfy the test. This test of ‘abuse’ or ‘low intensity proportionality’ does not deprive the provision of its effet utile as the standard of scrutiny differs from that applied to exemptions such as Article 30 EC. Moreover, it takes constitutional considerations into account. As far as the national security situations described in Article 297 EC are concerned, it is the executive branch of government supported by its military staff that has the competence, responsibility, training, and expertise to take the decisions. Their subjective ex ante judgment, which within the time limits of Article 297 EC has to be made quickly, cannot easily be substituted by an objective ex post assessment of a 74 For

example the Hellenic Republic in Case C–120/94 R FYROM, above n 35, at para 56; Case C–70/94 Werner, above n 24. 75 Case C–414/97, above n 10, at para 22.

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court of law. In the context of the extreme crisis situations of Article 297 EC, this dimension is even more prevalent than in the case of Article 296 (1) (b) EC. Furthermore, in the constitutional system of the EU, the Member States and not the Community are responsible for defence and military security. Hence the Court will only overrule a measure in cases of manifestly disproportionate abuse.

CONCLUSIONS

This paper advocates that the borderline between Member State and Community competence over defence issues is determined by the security exemptions in the Treaty. These exemptions form a spectrum with regards to the standard of review applied by the Court. At one end of the spectrum are the security exemptions of the free movement regimes where scrutiny is very intense. At the other end of the spectrum is Article 297 EC where scrutiny is less intense. Nevertheless, the use of this exemption is limited. Similar to all security exclusions, it has a limited character and has to be interpreted narrowly. First, the jurisdiction of the Court to review measures justified by the provision represents a limitation. Secondly, the exemption cannot be used when the required consultation procedure was not followed. Thirdly, Article 297 EC is subject to a time limit: it can only justify measures in response to an actual crisis situation that has already developed. Fourthly, the provision can only be invoked in one of the situations stipulated therein and the Court can determine whether the situation exists. Fifthly, the Court will apply a low-intensity proportionality test to measures taken to respond to these situations. Finally, its exceptional and subsidiary character in the framework of the Treaty limits the provision. Overall it is argued that the scope of application of Article 297 EC is very narrow.

10 Competition and Free Movement: Their Place in the Treaty PETER OLIVER 1

INTRODUCTION

I

N OCTOBER 2002, the then President of the Court concluded his speech inaugurating the FIDE conference with the following words:

… I do hope that the central character of the basic economic provisions of the Treaty, the rules on free movement and competition, will be preserved in the future constitutional Treaty. One should not forget that the Union is based upon them, that they constitute the core and best established layer of the legal order. Indeed, they have a constitutional nature … These constitutional economic provisions should not be overlooked and downgraded as something of secondary importance. Rather, they should be given pride of place within the new constitutional framework. This would secure the lasting value of the decades of case law that gives them their present meaning.

The purpose of this paper is both to consider the current status of the four freedoms and competition2 in the EC Treaty and to examine how they are likely to fare, if the draft Constitution drawn up by the Convention comes into force. Prior to doing so, it should be recalled that recent years have seen an almost frenetic re-positioning of values and policies. Two particular aspects of this trend deserve a mention here. The first and most obvious phenomenon has been the expansion of the express powers of the Community under successive Treaty amendments which came into force during the 1990s. 1 The author wishes to thank his colleagues Clemens Ladenburger, Karolina Mojsezowicz and Wouter Wils for their assistance with earlier drafts. However, the views expressed here are personal to the author. 2 The only competition provisions considered in this chapter are Arts 81 and 82 of the Treaty. Those on State aids will not be covered.

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Suffice it for the present purposes to concentrate on the clauses requiring the Community to respect, or to have regard to, certain policies in all its actions—not just those based on the relevant provisions. For want of an adequate English term, such clauses will be referred to here by the German term ‘Querschnittsklausel’. Most of these clauses were introduced by the Treaty of Amsterdam; prior to that, the Treaty of Maastricht contained just one such provision which related to human health (the third sub-paragraph of Article 129(1)). Today the most prominent clause of this type is Article 6, which reads as follows: Environmental protection requirements must be integrated into the definition and implementation of the Community policies and activities referred to in Article 3, in particular with a view to promoting sustainable development.

This provision has the distinction of being the only Querschnittsklausel in Part I of the EC Treaty, which is entitled ‘Principles’. Article 6 is complemented by Article 174(2), according to which ‘Community environmental policy shall aim at a high level of protection’.3 The combination of these two provisions has led one recent commentator to promote the concept of the ‘environmental common market’.4 Article 152(1) reads as follows: A high level of human health protection shall be ensured in the definition and implementation of all Community policies and activities.

Although the environment has a higher profile by reason of its position at the very beginning of the EC Treaty, in reality public health enjoys priority. Article 152(1) requires the Community to ‘ensure’ a high level of public health protection.5 In contrast, as regards the environment Articles 6 and Article 174(2) fall well short of that mark: Article 6 merely imposes an obligation on the Community to ‘integrate’ environmental protection requirements into all its policies and activities and Article 174(2) obliges it to ‘aim at’ a high level of environmental protection. Surely, this is entirely fitting, despite the undoubted importance of environmental protection. While man is incontrovertibly part of the environment, he is only a small part of it; as a result, not every action taken for the protection of the environment necessarily has any real impact on human 3 The ruling in Case C–284/95 Safety Hi-Tech v S & T [1998] ECR I–4301 suggests that Art 174(2) is justiciable. 4 Wasmeier ‘The Integration of Environmental Protection as a General Rule for Interpreting Community Law’ (2001) CML Rev 159. 5 See generally Case 491/01 The Queen v Secretary of State for Health ex parte British American Tobacco (Invesments) (judgment of 10 December 2002), para 62.

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health. This is recognised in Article 174(1), which lists protection of human health as one of a series of objectives of the Community’s environmental policy. Moreover, the Court of Justice has consistently stressed the exceptional importance of public health protection. For example, since 1976 it has consistently held that the health and life of human beings ‘rank first among the property or interests’ protected by Article 30.6 In another context, the President of the Court has spoken of ‘the paramount importance to be accorded to the protection of health’.7 At all events, the other Querschnittsklausel, Articles 127(2), 151(4) and 153(2), are weaker: they merely require the Community to ‘take into consideration’ or ‘take into account’ the objective of a high level of employment, cultural policy and consumer protection respectively, in its various actions under other Treaty articles. Once again, the language of these provisions corresponds to the fact that, important though these policies are, they cannot match the importance of such a weighty matter as public health. The second major development of recent years is the heightened importance attached by all the Community institutions to fundamental rights. This phenomenon has received a considerable boost through such developments as the promulgation of the (non-binding) Charter of Fundamental Rights of the European Union.8 To some extent, these two developments overlap. In his interim Order in National Farmers’ Union v Commission (BSE), the President of the Court of First Instance stated: ‘ … the protection of public health … is based on requirements of a higher order which have to do with the protection of human rights and which underpin the entire legal system of the Community … ’.9 That the right to life is a fundamental right, indeed the most fundamental of all, is scarcely new10 and the right to good health surely forms part of this. Moreover, Article 35 of the Charter of Fundamental

6 Cases 104/75 De Peijper [1976] ECR 613, C–293/94 Brandsma [1996] ECR I–3159 at para 11; C–400/96 Harpegnies [1998] ECR I–5121 at para 33 and C–473/98 Kemikalieinspektionen v Toolex Alpha [2000] ECR I–5681 at para 38. 7 Case C–180/96R United Kingdom v Commission (ESB)[1996] ECR I–3909, para 93; see also Case C–183/95 Affish [1997] ECR I–4315 para 43. 8 2000 OJ C 364/1; the updated explanations to the Charter provided for the Convention are to be found in CONV 828/1/03 REV 1. Also, specifically as regards certain forms of discrimination, two Directives were adopted for the implementation of Art 13 EC: Directive 2000/43 on equal treatment of persons irrespective of racial and ethnic origin (2000 OJ L180/22) and Directive 2000/78 establishing a general framework for equal treatment in employment and occupation (2000 OJ L303/16). 9 Case T–76/96R [1996] ECR II–815, para 75. See generally Oliver, Free Movement of Goods in the European Community (4th ed, 2003), 257. 10 See Art 3 of the 1948 Universal Declaration of Human Rights, Art 6 of the 1966 International Covenant on Civil and Political Rights, Art 2 of the 1950 European Convention on Human Rights and, more recently, Art 2 of the Charter of Fundamental Rights of the EU (n 8 above).

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Rights of the European Union11 states that a high level of human health protection is to be ensured. Articles 37 and 38 do likewise for environmental and consumer protection respectively. Having said that, such rights are not generally enforceable by individuals; for instance, the individual does not usually enjoy an enforceable right to have a particular product prohibited on public health grounds. Have these important developments dislodged the four freedoms and competition from their central position in the Treaty? We shall now address this question in Part 2, before briefly considering in Part 3 whether the situation will be affected by the draft Constitution.

THE CURRENT SITUATION

The Status of the Four Freedoms In this section, we shall consider the status of the four freedoms and in particular whether they may be assimilated to fundamental rights. Article 2 has always given especial prominence to the establishment of the ‘common market’, which undoubtedly comprises the four freedoms. Since the entry into force of the Single European Act, this has been reinforced by the provision which is now Article 14 EC. One little noticed amendment effected by the Treaty of Maastricht was the merger of the previous Parts II and III of the EC Treaty. The old Part II had been entitled ‘Foundations of the Community’ and covered the four freedoms together with the two common policies (agriculture and transport). The old Part III (‘Policy of the Community’) comprised a broad range of matters such as competition, social policy, the environment and the European Investment Bank. The Treaty of Maastricht merged the two Parts into a new Part III (‘Community Policies’) embracing virtually all the substantive provisions of the Treaty. This step could conceivably have been regarded as ‘downgrading’ the four freedoms so that they were henceforth to be treated as being of no greater importance to Community integration than, say, the provisions relating to consumer protection or education. Yet the Court has implicitly rejected such an approach. This is in itself testifies to the importance which the Court attaches to the four freedoms. Moreover, as long ago as 1983, the Court referred to the free movement of workers as a ‘fundamental right’,12 an honour apparently conferred only 11 Note 8 above. 12 Case 152/82 Forcheri

v Belgium [1983] ECR 2323, para 11; see also Case 222/86 UNCTEF v Heylens [1987] ECR 4097, para 14, and AG Lenz in C–415/93 UEFA v Bosman [1995] ECR I–4921 at 5007–8.

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once on the free movement of goods.13 The Court has bestowed other flattering terms on the four freedoms such as: ‘fundamental freedom’,14 ‘one of the fundamental principles of the Treaty’,15 a ‘fundamental Community provision’16 and ‘one of the foundations of the Community’.17 What significance should be attached to these semantic questions is unclear. Quite probably, it is naïve to construct an entire theory on the basis of one word occurring in an isolated judgement, especially as its use may simply be attributable to a translator’s error; but where a term is used consistently in a series of judgements, that cannot go unheeded. Since they relate to the individual’s right to live and work in the country of his choice and not be separated from his immediate family, the freedoms relating to the movement of natural persons can more readily be seen as fundamental rights of the kind enshrined in the European Convention of Human Rights (ECHR) than can the free movement of goods. In addition, the Court has frequently linked the free movement of workers and other natural persons to Article 12 EC, which prohibits discrimination on the grounds of nationality,18 and Articles 17 and 18 EC on citizenship of the Union.19 Moreover, Articles 7 and 15 of the Charter20 provide for the respect of the individual’s private and family life, and for the freedom to work in any Member State, respectively. This trend goes hand in hand with the fact that we are no longer in the European Economic Community, but in the European Community.

13 Case C–228/98 Dounias v Minister for Economic Affairs [2000] ECR I–577, para 64. 14 Cases C–394/97 Heinonen [1999] ECR I–3599, para 38, C–281/98 Angonese [2000]

ECR I–4139, para 35, C–390/99 Canal Satélite Digital v Spain [2002] ECR I–607, paras 28–30, and most recently C–112/00 Schmidberger v Austria (judgement of 12 June 2003), paras 62 and 74. 15 Cases C–205/89 Commission v Greece (pasteurised butter) [1991] ECR I–1361, para 9, C–265/95 Commission v France (violent action by farmers) [1997] ECR I–6959, para 27. 16 Case C–44/89 Corsica Ferries France v Direction générale des douanes françaises [1989] ECR I–4441, para 8. 17 Case C–194/94 CIA Security v Signalson [1996] ECR I–2201 para 40, and C–443/98 Unilever Italia v Central Food [2000] ECR I–7535, para 40. 18 See eg Case C–411/98, Ferlini [2000] ECR I–8081. 19 Cases C–85/96 Martínez Sala [1998] ECR I–2691 (noted by O’Leary (1999) EL Rev 68), C–135/99 Elsen [2000] ECR I–10409, C–184/99 Grzelczyk [2001] ECR I–6193 and C–148/02 Garcia Avello v Belgium (judgement of 2 October 2003). Even prior to the entry into force of these provisions, Advocate General Jacobs stated: ‘In my opinion, a Community national who goes to another Member State as a worker or self-employed person … is entitled to say “‘civis europeus sum” and to invoke that status in order to oppose any violation of his fundamental rights’ (Case C–168/91 Konstantinidis [1993] ECR I–1198 at 1211–12). In Case C–274/96 Bickel and Franz [1998] ECR I–7637 at p 7645, the same Advocate General stated: ‘The notion of citizenship of the Union implies a commonality of rights and obligations uniting Union citizens by a common bond transcending Member State nationality’. See generally Castro Oliveira ‘Workers and Other Persons: Step by Step from Movement to Citizenship— Case Law 1995–2001’ (2002) CML Rev 77, Scheuing ‘Freizügigkeit als Unionsbürgerrecht’ (2003) Europarecht 744. 20 Note 8 above.

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Whether the Court sees the free movement of goods in the same light is questionable, but such an eventuality can by no means be ruled out: the citizen’s right to purchase the washing-powder of his choice and the corresponding right of another individual to purvey it appear trivial in comparison with human rights such as are bound up with the free movement of workers; but it must not be overlooked that the free movement of goods can be linked to the freedom of expression, as where restrictions are placed on the importation or exportation of books, magazines or videocassettes.21 What is more, the right to import and export goods between Member States might be regarded as part of the freedom to conduct a business (recognised both in the case law22 and in Article 16 of the Charter of Fundamental Rights) or as part of the right to property (Article 1 of Protocol 1 to the ECHR and Article 17 of the Charter).23 However, it should be recalled that in his renowned Opinion in Hünermund,24 Advocate General Tesauro firmly opposed the suggestion that Article 28 is designed to prevent restrictions on the ‘freedom to trade’ or to guarantee the ‘right to the unhindered pursuit of commercial activities’. The Court was by no means deaf to this plea, as paragraph 14 of its judgement in Keck and Mithouard25 shows. There the Court complained of ‘the increasing tendency of traders to invoke Article [28] of the Treaty as a means of challenging any rules whose effect is to limit their commercial freedom even where such rules are not aimed at products from other Member States’—before recasting the scope of Article 28 to bring it back within its proper limits. In addition, the ruling in Schmidberger 25a bears witness to the considerable importance attached by the Court to the four freedoms, even in the face of hard core fundamental rights such as the freedom of expression and assembly—although at the end of the day it is plain that breaches of the latter cannot be countenanced. That ruling will be discussed at length below. Also worthy of note is the third recital in the preamble to the Charter of Fundamental Rights which states inter alia that the Union ‘seeks to promote balanced and sustainable development and ensures free movement of

21 Where

information is distributed in intangible form via the internet and television, the provision of services rather than goods is involved. See Cases 60 and 61/84 Cinéthèque [1985] ECR 2605, [1986] 1 CMLR 365; C–260/89 ERT [1991] ECR I–2925 and C–368/95 Vereinigte Familiapress [1997] ECR I–3689. 22 Cases C–280/93 Germany v Council [1994] ECR I–4973, point 78 and C–200/96 Metronome [1998] ECR I–1953, para 21; see Frenz ‘Grundfreiheiten und Grundrechte’ (2002) Europarecht 606–7. 23 Cases C–4/73 Nold [1974] ECR 491 and C–84/95 Bosphorus [1996] ECR I–3953. 24 Case C–292/92 [1993] ECR I–6787 at 6813. 25 Cases C–267–8/91 [1993] ECR I–6097. 25a Note 14 above.

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persons, goods, services and capital, and the freedom of establishment’. However, this recital does not make any specific link between the four freedoms and fundamental rights; rather, by placing the four freedoms on a level with balanced and sustainable development, it appears to treat the four freedoms as having no fundamental rights character.26 As to the literature, our starting-point should be Bleckmann’s paper published in 1981 under the title ‘Die Freiheiten des Gemeinsamen Marktes als Grundrechte’.27 He acknowledged that the provisions on the four freedoms are not expressed to confer rights on private persons, but to impose obligations on the Member States. Nevertheless, he described the four freedoms as either assimilated or akin to fundamental rights, advocating a radical approach which would involve sweeping away inconvenient limitations on the four freedoms enshrined in the text of the Treaty. Although that paper foreshadowed various developments in the case law,28 few would advocate such a far-reaching conception today.29 More recent commentators have tended to follow a more nuanced approach. Judge Everling sees the four freedoms as part of the freedom of enterprise, even though they apply only to interstate transactions.30 Frenz draws various parallels between the four freedoms and fundamental rights, while insisting on the distinction between the two.31 Müller-Graff concentrates on the differences between the two sets of rights: the four freedoms lie at the core of the aims of the Community and are directed primarily at Member States, in contrast to fundamental rights which are not central to the activities of the Community and are directed first and foremost to the Community institutions.32 Poiares Maduro describes Article 28 as a ‘fundamental political right’ and a ‘fundamental economic freedom’, but warns: ‘There is a risk of giving such fundamental economic freedoms a status higher than that awarded to other fundamental rights and values in the Community legal order’.33 Kingreen refers to the four freedoms as significant ‘subjective public rights’ (subjektiv-öffentliche Rechte).34 This view is broadly endorsed by Baquero Cruz, who regards them as ‘constitutional

26 Frenz, above n 22, at 613. 27 In Das Europa der zweiten Generation—Gedächnisschrift für Christoph Sasse. 28 eg Case C–60/00, Mary Carpenter [2002] ECR I–6279. 29 See however, Nic Shuibhne ‘Free Movement of Persons and the Wholly Internal

Rule: Time to Move On ?’ (2002) CML Rev 731, especially at 770. 30 ‘Wirtschaftsfreiheit im europäischen Binnenmarkt—Anspruch und Realität’ in Schwarze (ed) Wirtschaftsverfassungsrechtliche Garantien für Unternehmen im europäischen Binnnemarkt (2001). 31 Above n 21. 32 ‘Grundfreiheiten und Gemeinschaftsgrundrechte’ in Festschrift for Helmut Steinberger (2002). 33 We the Court—The European Court of Justice & the European Economic Constitution (1998) at 166–68. 34 Die Struktur der Grundfreiheiten des Europäischen Gemeinschaftsrechts (1999), 15.

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rights but not fundamental constitutional rights’.35 Last, Gerkrath speaks of ‘economic constitutional rights’ and ‘the principal elements of the economic Constitution of the Community’.36 In short, whatever their status, the four freedoms are not absolute: they do not apply to measures internal to a Member State; nor do they apply insofar as measures are justified under one of the exceptions. At the end of the day, the essential issue is not whether the four freedoms are to be categorised as fundamental rights, but rather their relative importance in the Treaty.

The Status of Competition Since the Treaty of Maastricht, what is now Article 4 has spoken of ‘the principle of an open market economy with free competition’. The same phrase appears in Articles 98 (economic policy) and 105 (monetary policy).37 The locus classicus on the importance of Article 81 is the ruling in Eco Swiss China Time: ‘ … according to … Article 3(1)(g) EC, Article [81] of the Treaty constitutes a fundamental provision which is essential for the accomplishment of the tasks of entrusted to the Community and, in particular, for the functioning of the internal market’.38 Article 3(1)(g) simply states that ‘a system ensuring that competition in the internal market is not distorted’ is one of the ‘activities’ of the Community. In any event, that ruling was confirmed in Courage v Crehan.39 There can be no doubt that Article 82 enjoys the same status. Another recent ruling of significance in this regard is that in The Queen v Competition Commission ex parte Milk Marque.40 The Court held there that ‘the maintenance of effective competition on the market for agricultural products is one of the objectives of the common agricultural policy and the common organisation of the relevant markets’.41 Yet the Treaty— including Article 33, which sets out the objectives of the common agricultural policy—does not spell this out. Accordingly, this ruling shows once again the Court’s firm attachment to the maintenance of effective competition, as expressed by its President in the speech quoted at the beginning of this paper. 35 Between

Competition and Free Movement: The Economic Constitutional Law of the European Community (2002), 81. 36 L’émergence d’un droit constitutionnel pour l’Europe (1997), 315. 37 The Court has recently drawn inspiration from this language in Arts 4 and 98, when considering the vexed question as to the obligations imposed on national authorities by Art 10 read with Art 81: Case C–198/01 Consorzio Industrie Fiammiferi v Autorità Garante della Concorrenza (judgement of 9 September 2003), para 47. 38 Case C–126/97 [1999] ECR I–3055, para 36. 39 Case C–453/99 [2001] ECR I–6297, paras 20–21. 40 Case C–137/00 (judgment of 9 September 2003). 41 Para 57.

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Finally, the absence of any indication in the case law as to whether the maintenance of effective competition may be viewed as a fundamental right is scarcely surprising, since Articles 81 and 82 are addressed to under takings rather than public authorities.

Exceptions to the Four Freedoms 1)

The Querschnittsklausel

At first sight, it may appear paradoxical that some exceptions to the four freedoms are more important than those freedoms themselves. Since its inception, the Court has had to grapple with this apparent paradox. It has found the solution in the principle of proportionality, whereby restrictions on free movement are only justified insofar as they are necessary and proportionate to the end to be achieved.42 In this regard, the Querschnittsklausel and fundamental rights are no different from any other grounds of justification. The Querschnittsklausel have brought no change to the case law on the four freedoms. The public health exception to the free movement of goods, persons and services has been spelt out in the Treaty from the very beginning in the provisions which are today Articles 30, 39(3), 46 and 55. Only with regard to the free movement of capital is no such express exception laid down—merely, no doubt, because it was thought irrelevant. As to the environment and consumer protection, as long ago as the 1980s the Court added these interests to the list expressly set out in the Treaty.43 The protection of culture has also been recognised as a valid exception,44 although the exact contours of this exception have yet to be determined. Only the protection of employment is in a different position: according to long-standing and consistent case law,45 purely economic objectives cannot be countenanced as exceptions to the four freedoms. This is 42 See eg De Peijper (n 6 above). 43 As to the environment, see eg

Cases 302/86 Commission v Denmark (returnable bottles) [1988] ECR 4607, para 8 of the judgment, Safety Hi-Tech (n 3 above), paras 64–66 and C–379/98 PreussenElektra v Schleswag [2001] ECR I–2099 at para 76. As to consumer protection, see Cases 120/78, REWE—Zentral v Bundesmonopolverwaltung für Branntwein (Cassis de Dijon) [1979] ECR 649, C–362/88 GB-Inno v Confédération du commerce luxembourgeois [1990] ECR I–667 and C–126/91 Schutzverband gegen Unwesen in der Wirtschaft v Yves Rocher [1993] ECR I–2361. 44 Cases C–154/89 Commission v France (tourist guides) [1991] ECR I–649, C–353/89 Commission v Netherlands (broadcasting) [1991] ECR I–4069 and Case C–17/92 Federación de Distribuidores Cinematográficos v Spain [1993] ECR I–2239. 45 Cases 7/61 Commission v Italy [1961] ECR 317 at 329, 95/81 Commission v Italy (import deposits) [1982] ECR 2187, 288/83 Commission v Ireland (Cyprus potatoes) [1985] ECR 1761, C–324/93 R v Secretary of State for the Home Department, ex p Evans Medical [1995] ECR I–563, C–265/95 Commission v France [1997] ECR I–6959 at para 62; C–120/95

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scarcely surprising: if restrictions imposed by public authorities could be justified on protectionist grounds, a coach and horses would be driven through the very principles on which the common market is based.46 The insertion of Article 127(2) into the Treaty has surely not altered this crucial rule. As mentioned earlier, this provision merely requires the Community institutions to ‘take into account’ of the objective of a high level of employment, in the formulation and implementation of its policies and activities. 2)

Fundamental Rights

At least since the Court’s ruling in ERT,47 it has been plain that, when considering the exceptions to the four freedoms, it will have regard to fundamental rights, and particularly the ECHR.48 In Bosman the Court held that, while the freedom of association under Article 11 ECHR is one of the fundamental rights protected in the Community legal order, the rules on the transfer of footballers such as those in question were not necessary to ensure the enjoyment of that freedom by the football clubs or their players, nor could they be seen as an inevitable result thereof.49 In Schmidberger v Austria50 this process was taken a step further. The plaintiff in the main case was a road haulage company engaged in transporting goods between Germany and Italy via the motorway through the Brenner pass. The Austrian authorities had authorised an environmental demonstration, which resulted in that motorway being closed for nearly two days. Schmidberger claimed that this authorisation amounted to a breach of Article 28 of the Treaty and consequently sought to recover damages. Having found that the authorisation of the demonstration fell within Article 28, the Court was called upon to decide whether that restriction was justified. Austria maintained that its authorities had been required to permit the demonstration, as the demonstrators were merely exercising Decker v Caisse de maladie des employés privés [1998] ECR I–1831 at para 39; C–203/96 Chemische Afvalstoffen Dusseldorp BV v VROM [1998] ECR I–4075 at para 44; C–254/98 TK-Heimdienst Sass GmbH [2000] ECR I–151 at para 33. 46 On

the other hand, the improvement of working conditions is recognised by the Court as a valid exception: Cases 155/80 Oebel [1981] ECR 1993, C–272/94 Guiot [1995] ECR I–1907, C–369 and 376/96 Arblade v Leloup [1999] ECR I–8453. 47 Case C–260/89 [1991] ECR I–2925. The Court first ruled to this effect in Case 36/75 Rutili [1975] ECR 1219, but then reversed its stance in Case C–60/84 Cinéthèque [1985] ECR 2605. 48 The ruling in ERT has been confirmed in Cases C–32/90 Commission v Germany (imports of pharmaceuticals) [1992] ECR I–2575, para 23, C–368/95 Vereinigte Familiapress v Heinrich Bauer Verlag [1997] ECR I–3689, Mary Carpenter; see Oliver, above n 9, 238–42. 49 Above n 12, paras 79–80. 50 Note 14 above.

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their freedom of expression and freedom of assembly under Articles 10 and 11 ECHR. Austria relied on the protection of fundamental rights as a discrete ground of justification. Following Advocate General Jacobs, the Court accepted this claim. After setting out its traditional case law as to the place of fundamental rights in Community law, it stated: It follows that measures which are incompatible with observance of the human rights thus recognised are not acceptable in the Community (see, inter alia, ERT, cited above, paragraph 41, and Case C-299/95 Kremzow [1997] ECR I–2629, paragraph 14). Thus, since both the Community and its Member States are required to respect fundamental rights, the protection of those rights is a legitimate interest which, in principle, justifies a restriction of the obligations imposed by Community law, even under a fundamental freedom guaranteed by the Treaty such as the free movement of goods. (paragraphs 73 and 74)

Next, reiterating its time-honoured statement that ‘the free movement of goods constitutes one of the fundamental principles in the scheme of the Treaty’, the Court pointed out that this principle was not absolute, given the existence of Article 30 and ‘the overriding requirements relating to the public interest’. Equally, the Court noted that, unlike certain other fundamental rights enshrined in the ECHR such as the right to life and the prohibition of torture and inhuman or degrading treatment, the freedom of expression and freedom of assembly were subject to various public interest exceptions. These considerations led the Court to find that: In those circumstances, the interests involved must be weighed having regard to all the circumstances of the case in order to determine whether a fair balance was struck between those interests. The competent authorities enjoy a wide margin of discretion in that regard. Nevertheless, it is necessary to determine whether the restrictions placed upon intra-Community trade are proportionate in the light of the legitimate objective pursued, namely, in the present case, the protection of fundamental rights. (paragraphs 81 and 82)

The Court went on to consider all the circumstances of the instant case (notably the duration of the demonstration, its motives and its isolated nature) and concludeds—again like the Advocate General—that the action of the Austrian authorities was compatible with Article 28. The Court was faced with a clash of presumptions, due to the fact that the free movement of goods (Article 28 EC) and the freedoms of expression and assembly (Articles 10 and 11 ECHR) are each fundamental principles under their respective treaties. Consequently, exceptions to each of

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these principles are to be interpreted restrictively.51 Yet, in this instance, the latter two principles were being relied on as exceptions to the free movement of goods. While neither the Court nor the Advocate General referred to this conundrum expressly, the Court made it clear that Member States were in no circumstances required by Article 28 to infringe fundamental rights: that emerges incontrovertibly from its ruling that ‘measures which are incompatible with observance of the human rights … recognised [as part of Community law] are not acceptable in the Community’.52 Attention should also be drawn to the Court’s insistence that only those fundamental rights recognised as such in Community law itself are thus protected. This harks back to the Advocate General’s observation that interests recognised as fundamental rights in the legal system of one Member State may not qualify as such in Community law; and that conceivably they may run even counter to the very scheme of the Treaty.53 This caveat deserves a warm welcome.54 A final question is in point: could this ground of justification not have been subsumed within the concept of public policy, which is expressly spelt out in Article 30 ? Surely, the protection of fundamental rights must rank as one of the ‘fundamental interests of society’55 and can thus be regarded as a matter of public policy.

51 As to the free movement of goods, see in particular, Case 46/76 Bauhuis v Netherlands [1977] ECR 5. As to Art 10(2) ECHR, see EctHR judgements of 26 November 1991, The Observer and The Guardian v United Kingdom, A.216 p. 30, and of 25 November 1996, Wingrove v United Kingdom, 1996-V 1957, paras 58 and 60; the Court expressly recognised in Case C–274/99P Connolly v Commission [2001] ECR I–1611, para 41, that Art 10(2) was to be construed strictly. 52 Para 73 of its judgement (quoted above). In his casenote on Schmidberger (2003) CML Rev 1499, Christopher Brown berates the Court for giving insufficient weight to fundamental rights. In view of this crucial passage of the judgment, this criticism seems somewhat harsh. However, the complaint that the Court’s fundamental rights scrutiny lacks sufficient rigour is by no means new: see Frenz, above n 22, at 611–13. 53 Paras 96–99 of the Opinion. 54 In contrast, some controversy surrounds the possible relevance of the demonstrators’ motives. The Court found that ‘the specific aims of the demonstration are not in themselves material in legal proceedings such as those instituted by Schmidberger’ (para 66 of the judgement). Brown, above n 52, at 1505, questions whether this approach is compatible with the ECHR; in his view, the situation would have been quite different, if the demonstrators had planned to use the motorway to perform drama or to hold a neo-Nazi march. What is more, the Court appeared to contradict itself in a later passage of its ruling (para 86), when it distinguished Case C–265/95 Commission v France (n 15 above) on the grounds that there the farmers’ actions were protectionist in intent! 55 Case 30/77 Bouchereau [1977] ECR 1999 at para 35: ‘ … recourse by a national authority to the concept of public policy presupposes … the existence … of a genuine and sufficiently serious threat to the requirements of public policy affecting one of the fundamental interests of society’. See also para 108 of AG Léger’s Opinion in Case 1/96 Compassion in World Farming [1998] ECR I–1251.

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Exceptions to Articles 81(1) and 82 1)

The Querschnittsklausel

The first positive condition in Article 81(3) is that an agreement must contribute to ‘improving the production or distribution of goods or to promoting technical and economic progress’. It is widely considered that this condition opens the door to public interest considerations.56 Moreover, in its second positive condition Article 81(3) expressly states that an agreement may only qualify for an exemption if it allows consumers ‘a fair share of the benefit’. The Court of First Instance clearly had these two positive conditions in mind when it held that ‘the Commission is entitled to base itself on considerations connected with the pursuit of the public interest’ in order to grant exemption under Article 81(3).57 In view of the Querschnittsklausel, it is not surprising to find that the Community institutions have indeed had regard to these interests covered by those provisions. Indeed, on occasion the institutions did so even before those provisions were inserted into the Treaty. Thus, the Commission has exempted on environmental grounds a joint venture for the production of energy-efficient incandescent and fluorescent lamps, stating: ‘The use of cleaner facilities will result in less air pollution, and consequently direct and indirect benefits for consumers from reduced negative externalities’.58 By the same token, it has exempted the following: an agreement to carry out research for the creation of safer and lighter forms of glass for car windscreens, for the purposes of road safety and fuel efficiency; 59 an agreement amended at avoiding the need to transport ethylene, thereby avoiding the health and environmental risks associated with such transport;60 and an agreement on energy-efficient washing-machines.61 Naturally, however, agreements which serve these ends can only be exempted if the two negative conditions in Article 81(3) are also fulfilled.62 In other words, the agreement must comply with two further principles: the principle of proportionality enshrined in sub-paragraph (a); and the

56 For

a detailed examination of this issue, see Giorgio Monti’ ‘Article 81 EC and Public Policy’ (2002) CML Rev 1057 and Schröter’s commentary on Art 81(3) in Groeben and Schwarze Vertrag über die Europäische Union und Vertrag zur Gründung der Europäischen Gemeinschaft, 6th ed., vol. 2, paras 304ff. 57 Case T–528/93 Métropole v Commission [1996] ECR II–649, para 118. 58 Philips-Osram (1994 OJ L378/44), para 27. 59 Asahi/ Saint-Gobain (1994 OJ L1994/94), paras 24–6. 60 Exxon/ Shell (1994 OJ L 144/36), para 68. 61 CECED (2000 OJ L187/47). 62 Cases 24/76 Metro v Commission [1977] ECR 1873 at 1905, 6/72 Continental Can v Commission [1973] ECR 215 at 245, 209–215/78 van Landewyck v Commission [1980] ECR 3125 at 3276.

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principle whereby the undertakings concerned may not be afforded the ‘possibility of eliminating competition in respect of a substantial part of the products in question’ (sub-paragraph b). In no case may public interest objectives override these essential requirements. As the Court put it in Continental Can,63 [t]he endeavour of the authors of the Treaty to maintain in the market real or potential competition even in cases in which restraints on competition are permitted, was explicitly laid down in Article [81(3)(b)] of the Treaty.

Consequently, it would seem to follow from the Querschnittsklausel that, when applying Article 81(3), the Commission is required to have regard to the interests referred to in them; but it may only do so to the extent that the four conditions laid down in that paragraph so permit. As to Article 82, this provision does not contain any express exception. However, the Court has repeatedly held that a practice which would otherwise constitute an abuse of a dominant position will be saved where objective economic justification is shown.64 Although traditionally this concept is regarded as covering commercial justification of a purely financial nature,65 it might extend to interests such as public health, environmental or consumer protection or culture, on an analogy with the precedents just discussed in relation to Article 81(3). 2)

Fundamental Rights

Plainly, like all other provisions of Community law, Articles 81 and 82 must be interpreted in the light of the body of fundamental rights recognised by the Court. Only in exceptional cases, however, could fundamental rights considerations render compatible with these provisions agreements or abuses which would otherwise breach them. Ever since the epoch-making judgement in Consten and Grundig,66 the Court has set its face against the idea that Articles 81 and 82 must yield to intellectual property rights in all circumstances. At that time, that idea was expressed in terms of Article 295 rather than in terms of the right to property. The Court ruled that that provision merely recognises the power of Member States to define the rules governing the system of property

63 Above n 62. 64 Cases 85/76

Hoffmann-La Roche v Commission [1979] ECR 461, para 90, T–228/97 Irish Sugar v Commission [1999] ECR II–2969, para 218, T–203/01 Michelin v Commission (judgement of 30 September 2003), para 140, and T–219/99 British Airways v Commission (judgement of 17 December 2003), para 247. 65 See Schröter, commentary on Art 82, above n 56, paras 175–9. 66 Cases 56 and 58/64 [1966] ECR 299 at 345.

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ownership and does not exclude any influence whatever of Community law on the exercise of national property rights. Moreover, this ruling has been bolstered by a series of judgements outside the field of competition which stress that, while the right to property: forms part of the general principles of Community law, it is not an absolute right and … its exercise may be restricted, provided that those restrictions in fact correspond to objectives of general interest pursued by the Community and do not constitute a disproportionate and intolerable interference, impairing the very substance of the rights guaranteed.67

The relative importance of the competition rules and the right to property also arose in the two Masterfoods cases. The Court was called upon to decide inter alia whether the right to property precluded the application of Articles 81 and 82 to ‘freezer exclusivity agreements’ whereby the Unilever group supplied ice-cream retailers with freezer cabinets in it retained ownership, on condition that those cabinets were used exclusively for its products. In the first case,68 Advocate General Cosmas stated: There is no doubt that Articles [81 and 82] of the EC Treaty occupy an important position in the system of the Community legal order and serve the general interest which consists in ensuring undistorted competition. Consequently, it is perfectly comprehensible for restrictions to be placed on the right to property ownership pursuant to Articles [81 and 82] of the EC Treaty, to the degree to which they might be necessary to protect competition. Article [295] of the EC Treaty may in no event be used as a shield by economic operators to avoid application of Articles [81 and 82] to their detriment.69

The Court of Justice in that case found it unnecessary to consider the issue, but in the second case70 the Court of First Instance ruled along the same lines.71 Finally, in a recent Decision72 the Commission has stated that, although the freedom of association is fully recognised in Community law,73 that 67 Cases 265/87 Schräder [1989] ECR 2237, para 15, C–280/93 Germany v Council [1994] ECR I–4973, para 78, C–293/97 Standley and Others [1999] ECR I–2603, para 54 and British American Tobacco (n 5 above), para 149. In the latter case, it was held that it was lawful for Community legislation to prohibit the use of the ‘Mild Seven’ trade mark on health grounds. 68 Case C–344/98 Masterfoods v HB Ice Cream [2000] ECR I–11371. 69 At 11408. 70 Case T–65/98 Van den Bergh Foods v Commission (judgement of 23 October 2003). 71 Paras 170ff. 72 2003 OJ L 209/12, paras 111ff. 73 See Art 11 ECHR, Art 12 Charter, and Schmidberger (discussed above). Also, Art 2 of Council Regulation 2679/98 on the functioning of the internal market in relation to the free movement of goods among the Member States (1998 OJ L337/8) provides: ‘This Regulation may not be interpreted as affecting in any way the exercise of fundamental rights as recognised in Member States, including the right to strike’.

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does not entitle undertakings to breach Article 81(1). The case relates to agreements between various French farmers’ and slaughterers’ organisations which restricted imports of beef into France as well as fixing prices. In French law, the farmers’ organisations have the status of ‘syndicats’, a term usually translated as ‘trade unions’. Their claim that their action was covered by the freedom to establish trade unions foundered for the reasons just mentioned.74 The Commission’s stance in this case is comparable to that of the Court in Bosman, which we discussed earlier.

THE CONVENTION ON THE FUTURE OF EUROPE

When the President of the Court pronounced the words quoted at the beginning of this paper, it seemed as though all the substantive provisions of the current Treaty would be inserted in Part II or Part III of the Constitution, which was to have been subject to an alleviated amendment procedure. Unfortunately, that idea fell by the wayside during the course of the Convention’s work. However, the important point for present purposes is that it was envisaged at that stage that the four freedoms and competition would appear in a part of the Constitution which would be subject to an alleviated amendment procedure, and thus would be not be fully entrenched. In any case, as a more or less direct result of President Rodríguez’s speech, the Convention proposed to insert a provision into the opening passage of the draft Constitution to underline the importance of the four freedoms. Draft Article I-4 is entitled ‘Fundamental freedoms and nondiscrimination’ and the first paragraph reads: Free movement of persons, goods, services and capital, and freedom of establishment shall be guaranteed within and by the Union, in accordance with the provisions of this Constitution.75

It is worthy of note that persons are mentioned first. Part II of the draft Constitution follows the same order. This reflects the increased importance accorded to the free movement of persons in recent years, which we noticed earlier. 74 Actions

for the annulment of this Decision are currently pending before the CFI: Cases T–217/03 FNCBV v Commission and T–245/03 FNSEA v Commission. 75 This article is reminiscent of, though broader than, the provision proposed by Mortelmans ‘The Relationship between the Treaty Rules and Community Measures for the Establishment and Functioning of the Internal Market—Towards a Concordance Rule’ (2002) CML Rev 1301 at 1342. Mortelmans’ suggestion reads: ‘When enacting common rules or measures for the approximation of the provisions laid down by law, regulation or administrative action in Member States, the Community shall respect the principle of free movement. In applying this principle, the Community shall take other policy aspects, mentioned in Articles 3 and 4, into account’.

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As to competition, the current draft contains no equivalent provision granting it special status, although Article 3(2) does provide: ‘The Union shall offer its citizens an area of freedom, security and justice without internal frontiers, and a single market where competition is free and undistorted’. Meanwhile, the current Article 4 EC which, as we noticed at the outset, speaks of ‘the principle of an open market economy with free competition’, has been shifted to Article III-66, the first provision in the section on economic policy. What is more, Article I-12 would confer exclusive powers on the Community to establish the competition rules necessary for the functioning of the internal market. Finally, competition is to be brought forward in the Constitution so that as to appear immediately after the four freedoms under the general heading ‘Internal Market’. For completeness, it should be added that these provisions would not in any sense be weakened by other changes to be effected by the draft Constitution. This includes the incorporation of the Charter into Part II of that Constitution, which would confer binding force on the Charter for the first time and would naturally be a most welcome development. From this brief survey of the draft Constitution it appears that the plea of the President of the Court has been fully heeded.76

CONCLUSION

The case law discussed in Part 2 of this paper fully bears out the statement of the President of the Court quoted at the outset: the Court has not wavered in its determination to keep the four freedoms and the maintenance of effective competition at the core of the Community legal system. In these circumstances, whether they are themselves to be assimilated to fundamental rights may be immaterial. The crucial point is that, at a time when so many rights are being repackaged as fundamental rights and other interests are coming to the fore, the four freedoms and the maintenance of effective competition have not been downgraded in importance. At the same time, the Court has shunned laissez-faire liberalism by giving due weight to other interests, including fundamental rights, public health and the environment. As for the draft Convention, all the indications are that it would preserve the core status of the four freedoms, notably by means of Article I-4, as well as the maintenance of effective competition.

76 See

also Schwarze ‘Das wirtschaftverfassungsrechtliche Konzept des Verfassungsentwurfs des Europäischen Konvents’ 2004 EuZW 135, and ‘Grundfragen des Verfassungsentwurfs’ in Der Verfassungsentwurf des Europäischen Konvents (ed Shwarze, 2004).

11 New Directions in EC Competition Law GIORGIO MONTI*

INTRODUCTION

E

C COMPETITION LAW is experiencing a paradigm shift. This is an important occasion for it is the first time that considerable policy changes are emerging.1 This shift has two dimensions: a change in the substantive analysis of competition problems and a procedural aspect, in the form of Regulation 1/2003.2 The latter shifts from a mixed ex ante/ex post to a fully ex post system of competition analysis for Articles 81 and 82 EC (Articles III-50 and III-51 in the Draft Treaty Establishing a Constitution for Europe)3 and delegates enforcement to National Courts and Competition Authorities. The implications of the procedural dimension are well documented.4 However, less attention has been given to changes in substantive assessment of competition problems, which I address in this chapter. I will argue that the EC’s paradigm shift in substantive analysis can be seen in two separate developments. The first is a move towards what the Commission calls an ‘economics-oriented approach’ to competition problems.5 Under this approach, the legality of a practice is determined by its effect on economic welfare. This is evidenced by the Commission’s rhetoric * With thanks to the participants at the Hart Workshop and also to Chris Townley for thoughtful comments on a draft of this chapter. The usual disclaimer applies. 1 In contrast the antitrust history in the US is characterised by a number of paradigm shifts. See WE Kovacic and C Shapiro ‘Antitrust Policy: A Century of Economic and Legal Thinking’ [2000] 14 Journal of Economic Perspectives 43. 2 [2003] OJ L1/1. This will replace Regulation 17/62 and will come into force on 1 May 2004. 3 Reference is made to the Draft Adopted by Consensus by the European Convention on 13 June and 10 July 2003 (hereinafter, the Draft Treaty). 4 For a recent survey see JS Venit ‘Brave New World: The Modernization and Decentralization of the EC Treaty’ [2003] 40 CML Rev 545. 5 The increased use of economics occurred most visibly in the field of vertical restrains. Compare the caution with which economic analysis was greeted in the Green Paper on Vertical

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and practice. In terms of rhetoric a comparison between the speeches of the two most recent competition commissioners reveals a distinct change in emphasis—Karel van Miert envisaged competition policy as a tool to help achieve the fundamental aims of the Treaty, whilst Mario Monti views it as being ultimately about consumer welfare and the maintenance of competitive markets.6 The recent appointment of a chief economist in DG Competition further highlights the commitment to enhanced use of economic methods. I will consider how this reorientation has affected the evaluation of horizontal agreements in Part 2. The second change in substantive analysis is that the Commission is using competition policy not just to prevent market failures, but also to make markets more competitive. This trend is encapsulated and possibly legitimated by a significant amendment of the competition rules in the Draft Treaty. Article 3(1)(g) of the EC Treaty provides that the among the activities of the Community there shall be: a system ensuring that competition in the internal market is not distorted.

Article I-12 of the Draft Treaty instead reads: The Union shall have exclusive competence to establish the competition rules necessary for the functioning of the internal market.

The new Article contains two innovations: procedurally, it grants the Union exclusive competence, and substantively it expresses the role of competition policy in a more positive manner as compared with Article 3(1)(g) EC. In Part 3 I will explore the implications of the substantive innovation, but a few remarks about the procedural point are necessary, for it appears to run against the compromise reached in Article 3 of Regulation 1/2003, whereby Member States remain competent to establish and enforce national competition policy which may be applied alongside Articles 81 and 82 EC, provided that national law is not stricter than Community law; moreover, stricter national competition law designed to control unilateral conduct may apply even if Articles 81 or 82 would not.7 This was the result of strong lobbying by the French and German governments keen to Restraints in EC Competition Policy COM (96)721 para 86 with the more confident assertion about its role in the Guidelines on Vertical Restraints (2000) OJ C291/1 para 7. 6 Compare e.g.: K Van Miert ‘The Competition Policy of the New Commission’ 11/5/1995 and M Monti ‘Does EC competition policy help or hinder the European audiovisual industry?’ 26/11/2001(at: http://europa.eu.int/comm/competition/speeches/). 7 Before the Regulation competence was also shared but was wider in scope. Case 14/68 Walt Wilhelm v Bundeskartellamt [1969] ECR 1, para 9: national law applies except when the Community acts. See generally R Walz ‘Rethinking Walt Wilhelm, or the Supremacy of Community Competition Law over National Law’ (1996) 21 EL Rev 449.

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safeguard unique features of their competition laws.8 Using the terminology of the Draft Treaty, competence in the field of EC competition law is closer to the model of ‘shared’ than ‘exclusive’ competence.9 Moreover, mergers affecting the internal market are regulated by national law when they fall below the thresholds of the EC Merger Regulation—again shared competence.10 The practical answer to this legal puzzle is that pursuant to Article I-11, when the Union has exclusive competence, it may empower Member States to legislate, and under Article 83(e) EC (Article III-52(e) Draft Treaty) the Council shall issue Regulations which ‘determine the relationship between national laws and this Section or the European regulations adopted pursuant to this Article’. Thus, Article 3 of Regulation 1/2003, and Article 1 of the Merger Regulation can be read as empowering national legislators to apply national laws in an area where the Union would otherwise have exclusive competence. That such legal contortions are necessary to reconcile competition law competences with the general provisions of the Draft Treaty is surprising given that one of the aims of the Constitutional Convention was the simplification of the Treaties.11 In what follows I pursue the developments in substantive analysis. Perforce this chapter will review many developments in an impressionistic manner; however by seeing all developments together, I hope to draw some general conclusions about the new directions in EC competition law.

TOWARDS AN ECONOMIC PARADIGM IN HORIZONTAL CO-OPERATION AGREEMENTS

The shift towards a more economics-based analysis can be seen clearly in the application of Article 81 to horizontal co-operative agreements (viz. joint ventures, R&D agreements and the like),12 where parties co-operate

8 s.20(2) GWB; Art L.420–2,line2 of French Commercial Code (as amended by the Law of 15 May 2001). 9 Art I–11(1) provides that where the EU has exclusive competence ‘only the Union may legislate and adopt legally binding acts, the Member States being able to do so themselves only if so empowered by the Union or for the implementation of acts adopted by the Union’ while, pursuant to Art I–11(2) where the EU has shared competence ‘the Union and the Member States shall have the power to legislate and adopt legally binding acts in that area. The Member States shall exercise their competence to the extent that the Union has not exercised, or has decided to cease exercising, its competence’. 10 Art 1, Regulation 4064/89 on the control of concentrations between undertakings [1990] OJ L257/13, as amended. 11 The Future of the European Union—Laeken Declaration 15 December 2001. 12 For a more extensive review of law see PM Roth (ed) Bellamy and Child: European Community Law of Competition 5th ed (London, Sweet & Maxwell 2001) ch 5. The same analysis applies, mutatis mutandis, to vertical restraints. See R Whish ‘Regulation 2790/99: The Commission’s new style Block Exemption for vertical agreements’ [2000] CML Rev 887.

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to share increasingly high research and innovation costs.13 I trace the evolution towards a more economics-oriented framework in four steps: first I outline the Commission’s early case law; secondly, how the ‘new-style’ block exemptions and the Commission Notice on Horizontal Cooperation Agreements embody a more economics-oriented approach than the older case law and evaluate the significance of this new policy direction; thirdly, I consider the practical significance of this change; fourthly, I assess the remaining role, if any, of non-competition factors.

The Commission’s Early Case Law The Commission’s original approach to horizontal agreements is well known and widely criticised: there would be a restriction of competition if the agreement limited the economic freedom of the parties to the agreement and/or third parties. With respect to the economic freedom of the parties, the Commission considered that there would be a restriction of competition when the parties were actual or potential competitors.14 However, from an economic perspective, the fact that competitors decide to co-operate restricts competition between the parties, but does not necessarily lower economic welfare. The Commission’s concern with the restriction of economic freedom of the parties, without any further assessment of welfare effects reflects the ordoliberal roots of EC competition law.15 This approach contrasts sharply with the analysis carried out by US courts—while the inquiry begins with the question of whether the joint venture might eliminate a potential competitor, this is not sufficient; other relevant considerations include: whether the venture raises entry barriers, whether the potential entrant had exerted a procompetitive influence on the market, and the number of other identifiable potential entrants—the more entrants, the less likely that the venture will restrict competition.16 Thus, US law addresses the economic question of whether the cooperation has adverse effects on the market. With respect to third parties, Commission’s concern is that they might be foreclosed from the market. A recent example of this is the Télévision par Satellite (TPS) joint venture. This was a joint venture among a number of French broadcasters and other firms to break into the satellite pay-TV market.

13 FTC

Staff Report Anticipating the 21st Century: Competition Policy in the New High tech Global Marketplace chs.1 & 10 (May 1996) (available at: www.ftc.gov). 14 Vacuum Interrupters [1977] OJ L48/32; since the 1990s a more realistic approach has been taken, see eg Elopak/Metal Box-Odin [1990] OJ L209/15. 15 I have discussed this in G. Monti ‘Article 81 EC and Public Policy’ [2002] 39 CML Rev 1057. 16 eg Yamaha v FTC 657 F.2d 971 (8th Cir 1981).

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The venture created a second competitor in the market for pay-TV in France, to compete against Canal +. Two of its clauses were found to restrict competition: first TPS had the right to first refusal over any special interest channel created by the parents. According to the Commission this clause, lasting for ten years, restricted the supply of special interest channels. By giving TPS priority access to the parties’ special interest channels access by other competitors was more difficult.17 Second TPS would have the exclusive right to transmit the general-interest channels of four parents (TF1, France 2, France 3 and M6) for the duration of the joint venture. The Commission held that this clause constitutes ‘a restriction of competition since it denies TPS’s competitors access to attractive programmes’.18 This assertion is not followed by any analysis as to the welfare effects. There is no indication that by foreclosing access consumers would suffer because TPS and Canal + would form an oligopoly where prices were likely to rise. In fact, the Commission admitted that: far from eliminating competition, the TPS agreements are pro-competitive. Development of the pay-TV market has been strongly stimulated, particularly through the emergence of keen competition between CanalSatellite and TPS … 19

Nevertheless the fact that the agreement restricted the economic freedom of other potential market participants was sufficient to find that the agreement restricted competition, although it was exempted when it was modified to meet the above concerns. The Courts have sometimes encouraged the Commission to adopt a more economics-oriented method of analysis, but have shied away from rebuking the Commission’s approach.20 The significance of this is that the real effects of cooperative agreements are usually reviewed under Article 81(3). From a practical perspective, this has the disadvantage that notification to the Commission is necessary, with the notorious delays this entails. Moreover, the Commission sometimes makes exemptions conditional on modifications which risk upsetting the commercial purpose of the agreement.21 Lastly, there is little legal certainty in the Commission’s

17 [1999]

OJ L90/6 paras 101, 122 where this seems to be the implication. In other words the contract did not mean that the special interest channels would not be broadcast at all. 18 Ibid para 107. 19 Ibid para 135. 20 The most recent illustration is Case T–112/99 Métropole Television v Commission [2001] ECR II–2459 (esp paras 75–79) where the Court was ill at ease with precedents where the Courts had urged a more economic-oriented approach. 21 The reason the parties in TPS appealed against the exemption decision was to challenge the Commission’s conditions. (For other intrusive conditions, see Atlas (1996) OJ L239/23; BiB/Open (1999) OJ L312/1).

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interpretation of Article 81(3) and other non-competition policies might affect the decision to exempt an agreement—eg fostering cooperation among firms in different Member States, or regional policy.22 The ‘New Style’ Block Exemption and Notice on Horizontal Agreements The Commission’s approach led to severe procedural and substantive discomfort for parties to co-operative agreements. The Commission’s first response was to draft block exemption Regulations to allow parties whose agreements were in conformity with their provisions to escape notification. The most recent block exemptions in this field (on research and development and specialisation agreements) evidence a more economics-oriented approach than their earlier incarnations: first the exemption is based on a market power test, rather than merely on the presence or absence of certain clauses.23 This is an acknowledgment that parties are unlikely to lower economic welfare if they lack market power, which is ‘consistent with an economics-based approach which assesses the impact of agreements on the relevant market’.24 Secondly, the more recent block exemptions afford greater contractual freedom: provided that the agreement does not contain any of the ‘black-listed’ clauses it is exempted. The practical benefit of falling within the four corners of a block exemption also makes it unnecessary to know whether their agreement is in fact in breach of Article 81(1).25 Substantively and procedurally, the effect of a block exemption is to make the scope of Article 81(1) purely jurisdictional. For agreements not covered by block exemption the Commission published Guidelines on Horizontal Cooperation Agreements26 whose structure is very different from earlier notices, and which appear to have been heavily influenced by the FTC/DOJ Antitrust Guidelines for Collaboration Among Competitors27 published a few months earlier. The analysis of the anti-competitive risks of horizontal agreements is identical in the two documents, focussing on the risks of collusion and diminution in efficiency. Moreover, the methodology proposed by the EC and US Guidelines is very similar, in spite of different legal texts. Briefly, the US authorities begin 22 Sopelem/Vickers [1978] OJ L70/47; Ford/VW [1993] OJ L20/14. 23 Art 4, Regulation 2658/2000 on the application of Art 81(3) to categories

of specialisation agreements [2000] OJ L304/3; Art 4, Regulation 2659/2000 on the application of Art 81(3) to categories of research and development agreements [2000] OJ L304/7. 24 Recital 5, Reg 2658/2000 (above); Recital 7 Reg 2659/2000 (above). 25 Case C–32/65 Italy v Council [1966] ECR 389, 406. 26 [2001] OJ C3/2. 27Available at http://www.ftc.gov/os/2000/04/ftcdojguidelines.pdf The Guidelines were published in April 2000 in response to criticism that US law was unclear and inconsistent. See FTC Staff Report (above n 13) ch 10.

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by determining whether the agreement is per se unlawful or should be scrutinised under a rule of reason; if a rule of reason analysis is warranted, a ‘quick look’ analysis is performed which focuses on two factors: the nature of the agreement and the extent of market power. This may suggest that the agreements should be challenged, or should not be challenged, or should be subjected to deeper analysis, taking into consideration a wider range of factors to determine whether the agreement is anticompetitive. If the agencies fear anti-competitive effects, they will check whether these are outweighed by efficiencies. The agreement escapes punishment if the efficiencies outweigh the losses of consumer welfare. The Commission’s Guidelines also start with a summary of agreements which will not infringe Article 81(1), those that almost always infringe Article 81(1) and those that may infringe Article 81(1). For the latter, the Commission will determine whether the agreement falls within Article 81(1) by reviewing the nature of the agreement and the market power of the parties. If the agreement is found to fall within Article 81(1), then it may be exempted under Article 81(3), provided that the agreement creates efficiencies which outweigh the restriction on competition. Moreover, there are many points where the detailed substantive analysis is the same—thus when considering market power, both agencies propose to review the market shares of the parties and the concentration of the industry—the former is important for determining whether the parties have, jointly, enough power to behave anti-competitively, while the latter is an indicator of the ease of tacit collusion in the relevant product market. Both show an understanding of innovation markets—ie that anticompetitive risks may materialise if an agreement brings together all research assets in an industry, preventing competition in innovation.28 Both emphasise that the least restrictive means to achieve efficiencies must be deployed, and are conscious that the duration of these agreements must be kept in check. The result of embracing an economic approach is that certain agreements that might earlier have been found to infringe Article 81(1) but deserve exemption under Article 81(3) would now be held not to infringe Article 81(1) at all. Take as an example the analysis of production agreements in the EC Guidelines. These include agreements whereby two parties agree to produce certain goods jointly, or where one party agrees to cease production of one product and purchase it from the other party. The Commission now proclaims that production agreements whereby ‘cooperation is the only commercially justifiable way to enter a new market, to launch a new product or service or to carry out a specific project’ cannot be 28 US

Guidelines ibid § 3.32(c); EC Guidelines (above n 26) paras 50–52 For an analysis of innovation markets, see: R Gilbert and S Sunshine ‘Incorporating Dynamic Efficiency Concerns in Merger Analysis: The Use of Innovation Markets’ [1995] 63 Antitrust LJ 569.

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defined as restricting competition.29 Previously, this kind of agreement would be exempted under Article 81(3) but would now escape scrutiny altogether, indicating a slight move away from the usual interpretation of Article 81(1) with its focus on economic freedom. More generally, the method by which agreements would be evaluated changes considerably. For example, when the Commission analysed the R&D agreement in Vacuum Interrupters in 1977 it was concerned that ‘two major British switchgear manufacturers had chosen to cooperate within a JV rather than compete with each other’.30 Today, the Commission would inquire about the parties’ market power (which on the facts appeared slight given that the main manufacturers were in the US and Japan), before deciding whether the agreement infringes Article 81(1). In its words: ‘without market power there is no incentive to coordinate behaviour on existing markets or to reduce or slow down innovation’.31 These are considerable changes—but with limitations. First, there is little mention of the role of potential entry in the EC Guidelines, compared to the US counterpart. While ease of entry is mentioned at certain points, it does not form part of the overall analytical framework. Secondly, while the Commission now considers the effect of coordination between the parties to the agreement upon the market, the analysis of foreclosure suggests that it is problematic in itself, without the need to determine whether or not foreclosure reduces economic welfare.32 Finally, the retention of black listed clauses in block exemptions means that certain provisions are prohibited per se without analysis of their actual effects, although exceptionally an individual exemption may be available. When assessing the basis for granting an exemption under Article 81(3), the Guidelines indicate that the assessment should be based on economic criteria: As these benefits relate to static or dynamic efficiencies, they can be referred to as ‘economic benefits’. Economic benefits may outweigh restrictive effects on competition. For instance, a cooperation may enable firms to offer goods or services at lower prices, better quality or to launch innovation more quickly. Most efficiencies stem from the combination and integration of different skills or resources.33

The effect of this is to narrow down the open-textured language of Article 81(3), and to reject appeals to industrial policy and other similar public 29 Above n 26 para 87. 30 Sixth Report on Competition Policy (1977) para 175. 31 Above n 26 para 61. 32 The same problem is present in the EC’s analysis of vertical

restraints. See SC Salop ‘Analysis of Foreclosure in the EC Guidelines on Vertical Restraints’ in Hawk (ed) 2000 Fordham Corp Law Inst (2001) 177. 33 Above n 26 para 32.

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interest arguments. The role of industrial policy in Article 81(3) has always been ambiguous. For example, in Vacuum Interrupters the Commission noted with concern that the market was dominated by American and Japanese undertakings, and its exemption might have been influenced by the prospect of creating a European Champion.34 Whatever the ambiguities of the past, the future, according to the Guidelines, is about efficiency.

The Practical Realities of a More Economics-Oriented Approach In what follows, I explore the effects of the change in substantive assessment on the procedural modernisation of EC competition law. In the current system (under Regulation 17/62) where notification is a pre-requisite for an individual exemption, the lack of certainty over the meaning of Article 81(1), plus the Commission’s administrative delays in Article 81(3) and the risk that any exemption could be made conditional, puts pressure on parties to fit their agreements under a block exemption. While in the past it was argued that this skews the commercial intentions of the parties (the ‘straitjacket’ effect), the more flexible block exemptions minimise this risk. Parties whose agreements do not fall within the block exemption continue to feel the procedural defects of the current system, but are now at least assured of an objective, economics-based approach under Article 81 albeit with the risk that their agreement may be modified as a condition for exemption. Once Regulation 1/2003 comes into force, matters may worsen. Parties who benefit from the block exemption are unaffected, however those who do not are now unable to make precautionary notifications to the Commission. They lose the possibility of negotiating ex ante and of modifying the agreement to assuage the Commission’s concerns. Moreover, the agreement may be challenged at domestic level also. Without the benefit of an ex ante exemption these risks might be significant.35 Moreover, assume a joint venture like TPS is created under the new regime: might we see the scenario where a National Competition Authority will ex post require that the parties modify their agreement so that they can benefit from an exemption under Article 81(3)? These potential problems had been noticed in the White Paper on Modernisation and the Commission proposed to resolve this by widening the scope of the Merger Regulation to include production joint ventures.36 This solution would have widened the scope for ex ante control, but even this limited reform is not in the present 34 Above n 26 para 22. 35 Similar concerns are

noted by D Goyder EC Competition Law 4th ed (Oxford, OUP, 2003), 435. 36 [1999] OJ C132/1 paras 79–81.

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draft of the Merger Regulation.37 The upshot is that it still matters whether an agreement infringes Article 81(1), for only agreements which do not will escape any ex post contractual modification by the competition authorities. Thus parties will continue to be advised to fit an agreement within the merger regulation (as the parties in TPS had, unsuccessfully) or within a block exemption,38 and the Community Courts will continue to be pressed by arguments that certain agreements do not breach Article 81(1) by parties who find their agreements modified by application of Article 81(3), either by National Authorities, or by the Commission under Article 9 of Regulation 1/2003. Thus, in my view, parties to horizontal agreements who are unable to benefit from ex ante control under the Merger Regulation, or fall under a Block Exemption are satisfied with the substantive modernisation, but unhappy with the procedural aspect. It would have been preferable if Reg 1/2003 had been less radical and retained the possibility of precautionary notification for horizontal agreements—paradoxically, some in the US saw the EU’s ex ante approach to horizontal agreements as a model!39 Taking Regulation 1/2003 as fait accompli, there is still a way for minimising these problems—the abolition of block exemptions. Block exemptions became necessary because of the Commission’s administrative overload—unable to cope with the flood of notifications, the Commission instituted a system which compromises economic precision in favour of administrative efficiency.40 This is still the case with the current set of block exemptions: while these might be more economically meaningful than their predecessors and grant more commercial freedom to firms,41 they oversimplify and are at once over and under inclusive. But as the administrative burdens of an ex ante notification system will vanish, the original raison d’être for block exemptions disappears. Moreover, in my view the Guidelines for

37 Proposal

for a Council regulation on the control of concentrations between undertakings COM (2002) 711 final. 38 The risk of parties restructuring cooperative transactions as mergers was brought to the attention of the FTC (FTC Staff report above n 13, ch 10); fitting cooperation under a block exemption is ‘the most prudent course’ according to Roth (above n 12) § 5–085. 39 FTC Staff Report above n 13, ch 10. In the US a limited notification procedure (under the National Cooperative Research Act 1984 and the National Cooperative Research and Production Act 1984 15 USC §§ 4301–06) guarantees that, in the event of litigation, parties who have notified their agreements under these Acts will have these scrutinised under a rule of reason standard and will escape imposition of treble damages. These Acts have not been a success, with very few notifications. 40 Recital 3, Regulation 19/65 (which empowers the Commission to draft Block exemptions) provides: ‘in view of the large number of notifications … it is desirable that in order to facilitate the task of the Commission it should be enabled to declare by way of regulation that the provisions of Art 81(1) do not apply to certain categories of agreement … ’ [1965–66] OJ Eng Spec Ed p.35. See also D Goyder above n 35, 47–51. 41 The Commission’s view on the new style block exemptions is explained in the Twenty-eighth Report on Competition Policy (1998), 21–22.

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Horizontal Agreements suggest a methodology which eliminates the need for block exemptions. Recall that the Commission will classify agreements as: — — —

those that do not infringe Article 81(1); those that will almost always infringe Article 81(1); those that may infringe Article 81(1).

For the latter, the Commission will consider the nature of the agreement and the parties’ market power. This framework allows for a preliminary filter to determine which agreements raise competition risks.42 The advantage of using this methodology and excluding block exemptions are as follows: first all kinds of agreements are treated equally—no preferential treatment is given to parties whose agreement happens to fit within a block exemption, so all strait jacketing is eliminated, and an effects based analysis is carried out for all agreements. Secondly, there may well be cases where the block exemption could impose stricter obligations than an analysis under the Guidelines—so parties may be trying to fit an agreement under the block exemption’s umbrella when the Commission might be prepared to decide that the agreement is not in breach of Article 81. Thirdly, the absence of block exemptions may create a new approach to administrative efficiency: rather than guarantee exemption based on certain formal thresholds, it creates a flexible framework based on the presence or absence of market power, increasing economic precision. Fourthly, axing block exemptions gives greater significance to the de minimis rule. This rule should confer absolute contractual freedom to undertakings whose economic significance is too small for anticompetitive effects to result. However, the Commission’s interpretation of the de minimis rule is that it applies to undertakings with a small market share only provided that certain black listed clauses are not included (in the case of vertical restraints, the list is identical to that under the block exemption for Vertical Agreements).43 This renders the de minimis rule virtually redundant.44 Abandoning block exemptions and creating a structured analysis under Article 81 based upon market power would be a forward-looking redirection of EC competition policy that will encourage greater analysis of an agreement’s impact on economic welfare while conferring maximum commercial freedom. This would be in line with a fully economics-based

42 This

is similar to the rule of reason approach in the US Guidelines which, as I have shown before, appear to have influenced the EC significantly. 43 Commission Notice on Agreements of Minor Importance [2001] OJ C368/13 para 11. 44 An undertaking with a market share of 8% who wishes to qualify under the de minimis Notice must not include the same terms that an undertaking with a market share of 25% must omit if it wishes to benefit from the Block Exemption on Vertical Restraints.

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approach and would reduce the number of cases that require scrutiny to those with sufficient market power to make a difference, thereby reducing the number of cases requiring ex post analysis.

It’s Not Yet All Economics in Article 81 Above I argued that the Commission’s analysis of horizontal agreements is more economics-oriented but that there are a few limitations in the use of economics. In this section I challenge the Commission’s commitment to economics in a more fundamental way, by showing how the Draft Treaty, in line with the Court’s jurisprudence,45 compels an interpretation of competition law that embodies non-economic values, and by illustrating, using environmental protection as an example, how the Commission acknowledges this. Part III of the Draft Treaty, which details the policies and functioning of the Union, opens with a general statement proclaiming that the Union ‘shall ensure consistency between the different policies and activities referred to in this Part, taking all of the Union’s objectives into account … ’ (Article III-1). This means that competition law in the EU is not an autonomous policy field but must give expression to other Union policies. Moreover, certain policy fields are given significant weight by the inclusion of clauses of general application in Arts III-2 to III-6 (viz the promotion of equality, non-discrimination, environmental protection, consumer protection, and the provision of services of general interest). These interests must be included in all policies in Part III, including competition policy. Looking specifically at environmental policy, Article III-4 (which is similar to Article 6 EC) provides: Environmental protection requirements must be integrated into the definition and implementation of the Union policies and activities referred to in this Part, in particular with a view to promoting sustainable development.

This is implemented in Part Seven of the Guidelines on Horizontal Agreements which describes the Commission’s policy on environmental agreements.46 The Commission will exempt agreements which ‘reduce environmental pressure’ so long as the ‘net contribution to the improvement of the environmental situation overall outweighs increased costs’.47 Here the Commission takes into account not only economic efficiency, but

45 See eg Case 6/72 Europemballage Corporation and Continental Can Co v Commission [1973] ECR 215 paras 24–25; Case 32/65 Italy v Council (above n 25), 405. 46 Above n 26, para 179. 47 Above n 26, paras 196, 198.

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also principles of sustainability, widening the kinds of benefits that are taken into account in order to grant an exemption. This approach finds its expression in the CECED decision, where the Commission exempted an agreement among washing machine manufacturers to phase out machines with high electricity consumption.48 While this meant that cheaper models would no longer be available and some manufacturers would be at a disadvantage as they lacked the technology to develop the more energy efficient machines, the Commission noted the considerable environmental benefits of this agreement in its reduction of negative externalities. More recently the Commission granted a comfort letter to two similar agreements, and it explained its methodology in this way: first the Commission will consider the cost savings for consumers of the goods in question, and then estimate the ‘benefits which the society at large derives from improved environmental conditions’.49 In the decisions to date, the Commission has found that cost savings for consumers (in the form of lower electricity bills) were greater than the price increase in the electrical goods subject to the agreements, but the Commission’s methodology allows it to decide that an agreement may be exempted solely on the basis of improved environmental conditions, provided that these outweigh the reduction in efficiency.50 Thus, a cleaner environment can be the basis for an exemption: the interests of the citizen may trump those of the consumer. Community competition law seems set to continue upon a path whereby economic and other interests are combined—the welcome feature of Commission’s analysis of environmental agreements is that the methodology for taking environmental factors into account is made transparent, while for other public policy goals there is much less transparency in the way that these are combined with competition policy.51 This makes the Commission’s position confusing: on the one hand the use of an economics-framework is designed to eliminate the relevance of non-economic considerations. The policy behind the commitment to economics is to achieve a degree of consistency in the decision making process of national authorities once Regulation 1/2003 is in force, and to avoid competition law being politicised by national authorities. The language of economics might also be an attempt to pacify American criticism. But the same Guidelines that express a commitment to economics also refer to environmental protection as a basis for exemption; and the Treaty compels a political interpretation of competition policy. The paradox of this position 48 [2000] OJ L187/47. 49 M Martínez López ‘Commission

confirms its policy line in respect of horizontal agreements on energy efficiency of domestic appliances’ (2002) 1 Competition Policy Newsletter 50, 52. 50 See especially CECED above n 48 para 56. 51 eg some argue that pluralism is safeguarded by some merger decisions in the media sector. D Levy Europe’s Digital Revolution (London, Routledge, 1999), 89; for other interests see Monti above n 15.

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remains to be resolved: it is still unclear how exactly economic and other policy aims are reconciled in Article 81.

MAKING MARKETS MORE COMPETITIVE

Not only does the Commission take economics more seriously, in recent decisions it has granted exemptions with conditions designed to make markets more efficient. A graphic illustration is the Simulcasting decision.52 Simulcasting is a process by which a broadcaster places music on line. Given the web’s ubiquity it is important that the broadcaster is able to obtain a licence permitting broadcasts worldwide. In order to reduce the transaction costs of seeking a licence from each collecting society separately, the societies entered into a reciprocal agreement whereby they would allow broadcasters to approach any one collecting society and obtain a multiterritorial licence. The Commission was concerned about the provisions of the agreement, specifically the fact that under the agreement there would be little price competition among collecting societies: the model chosen by the parties for the simulcasting licensing structure results in the society granting a multi-repertoire/multi-territory license being limited in its freedom as to the amount of the global license fee it will charge to a user. In fact, the individual national tariffs determined by each of the participating collecting societies … will be imposed on the grantor society. This means that the global fee charged by the grantor society for a multirepertoire/multi-territory license is to a large extent determined ab initio, which significantly reduces the competition in terms of price between EEAbased collecting societies.53

As a result, the Commission requested that the parties modify the pricing structure to allow a greater degree of price competition. What concerns me about this request is that the Commission had conceded that the agreement improved economic welfare even before this modification. Moreover, a degree of price competition was already present in spite of the limitations imposed, for collecting societies would probably offer discounts to large users. Therefore, if we compare the situation before and after the agreement, the agreement increases economic welfare. While the Commission’s modification aims to improve economic welfare further, is the attempt to create an even more competitive market legitimate? It is submitted that this is a step too far, based on an interpretation of Article 81(3) and Article 3(1)(g). 52 [2003] OJ L107/58. 53 Ibid para 67.

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Article 3(1)(g) provides that the Community shall provide ‘a system ensuring competition in the internal market is not distorted’. This limits the Commission’s mandate—it cannot impose a system where competition is improved, its role is negative, deterrence based, not positive. Moreover, Article 81(3) provides that the Commission may exempt an agreement which brings about certain benefits provided that consumers benefit and that the agreement is the least restrictive way of conferring such benefits. There is no basis for the Commission to specify that the consumers would be even better off if the agreement were modified. The role of Article 81(3) is to exempt agreements which are beneficial provided that those benefits cannot be achieved in any less restrictive way. The fact that additional benefits can be obtained by a less restrictive agreement is irrelevant. Making markets more competitive is the leitmotiv that underpins the EC’s drive to liberalise markets controlled by state monopolies. The policy in liberalising the electricity market for example is that ‘in the internal market, electricity undertakings must be able to operate … with a view to achieving a competitive market in electricity’.54 On the basis of Article 95, it is perfectly legitimate to create a single market in electricity, and thereby improve competition. The Commission has complemented the aim of the Directive in some merger decisions. In EdF/EnBW,55 EdF had proposed to acquire joint control of EnBW, which the Commission considered would have been a potential competitor of EdF on the French market. According to the Commission’s estimates EnBW would have been able to supply between 5 and 15 per cent of the consumption requirements of eligible customers in France (that is customers able to choose an electricity supplier). However, the commitments entered into opened the French market by one third, more than was necessary to restore the market to the status quo ante, but necessary to create more competition in the French market. The same effect was reached in the VEBA/VIAG decision.56 The merger would have created a position of collective dominance in the German market for the supply of electricity at the interconnected level. The parties agreed to divest their shareholding in VEBA—so ‘post-merger, the level of concentration in the market will remain basically the same’.57 But the Commission extracted more commitments, for example to increase the possibility of electricity imports from Scandinavia by VEBA increasing 400MW of capacity, which according to the Commission ‘facilitates access for imports from Scandinavia and, because of the favourable price level in Scandinavia, increases the

54 Directive

96/92/EC concerning common rules for the internal market in electricity [1997] OJ L27/20. 55 [2002] OJ L59/1. 56 [2001] OJ L188/1. 57 Ibid para 229.

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competitive pressure on the large German interconnected companies’.58 In sum, the Commission concluded that: The commitments thus improve conditions on the market for the supply of electricity at the interconnected level in such a way that all market operators are placed on a comparable footing.59

Finally, in EnBW/EDP/Cajastur/Hidrocantábrico,60 the Commission imposed conditions on a merger when there was no causal link between the merger and the dominant position. Three parties acquired joint control of Hidrocantábrico, an electricity operator in Spain; the horizontal overlaps of this merger were minimal,61 and in any other sector, this would have been the end of the enquiry. However the Commission noted that in Spain the wholesale market was dominated by a duopoly, composed of Endesa and Iberdrola: whose combined generating capacity was 83 per cent and share of sales to the wholesale market was 78 per cent.62 This duopoly was safeguarded by high entry barriers: ‘in particular, the limitations stemming from the shortage of existing interconnection capacity between Spain and other European countries outside the Iberian Peninsula prevent exports to the Spanish market from playing an active role in promoting competition on the Spanish electricity market’.63 The merger under consideration would strengthen this duopoly because it would reduce EDF’s incentives to penetrate the Spanish market by increasing the interconnection capacity between France and Spain. Instead, after the merger EDF would take advantage of the oligopoly prices to increase its profits. The Commission thus concluded: EdF will lose … any incentive to promote or accept any further substantial increase in interconnection capacity between France and the Iberian Peninsula. Being the scarcity of such interconnection capacity an unbeatable barrier to entry into the Spanish market, the operation will result in the consolidation of Spain as an ‘electricity island’, preventing operators established in other European (non-peninsular) countries to compete effectively in the Spanish market and therefore reinforcing the current collective dominant position in the said market.64

The merger was cleared when EdF undertook to commence work on increasing the interconnection capacity between Spain and France. 58 Ibid para 59 Ibid para 60 Case No

247. 248. COMP/M.2684 (available at http://europa.eu.int/comm/competition/mergers/

cases/). para 28. para 30. para 32. para 42.

61 Ibid 62 Ibid 63 Ibid 64 Ibid

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The Commission was satisfied that this would ‘make possible an increase in the exports of electricity into the Spanish market, which will positively affect both the level of prices in the pool and the ability of the members of the existing duopoly to determine them’ and ‘prevent the reinforcement of the dominant position of Endesa and Iberdrola that would result, after the merger, from the foreseeable maintenance in the future of the current (clearly insufficient) electrical interconnection capacity between France and Spain’.65 This decision is quite surprising because no accusation was made that the parties to the merger would become dominant, rather their merger consolidated the dominance of other undertakings! It may be questioned whether the Commission has the power to control these kinds of mergers with Article 2 of the Merger Regulation. But the policy is clear—the remedy imposed attempts to resolve one of the Commission’s principal concerns about the creation of the single market in electricity: the lack of interconnection capacity to facilitate the movement of electricity.66 The significance of these decisions is that they do more than restore competition in the market—they try to improve competition. However the aim of commitments in merger control is to ensure that the Conditions for the Application of Article 2(2) of the Merger Regulation are met, thus provided that one commitment removes the creation or strengthening of a dominant position, no additional commitments should be necessary. The decisions reviewed above go beyond this, actually attempting to make the market more competitive. In my view, these decisions overstep the Commission’s current powers and are ultra vires. Moreover, one may also question how the Commission is in a better position than the parties to know how to design the market to improve economic welfare. However, Goyder believes that these decisions are a natural progression in the evolution of EC competition policy—it began by preventing distortions of competition, then evolved to encouraging certain types of agreement through its block exemptions and individual decisions,67 and now promotes competition in its merger decisions.68 The Draft Treaty’s amendment lends support to Goyder’s views and may legitimise these decisions. Recall that Article I-12 calls for the Union to ‘establish the competition rules necessary for the functioning of the internal market’. This phrase is taken from the Eco Swiss judgment where the Court 65 Ibid paras 57 & 58. 66 Communication from

the Commission to the European Parliament and the Council European energy Infrastructure COM (2001) 775 final where the Commission notes that Spain has among the lowest levels of interconnection and where the Commission acknowledges that it has used the competition rules to facilitate the creation of a single market. 67 Eg BNP-Dresdner Bank [1996] OJ L188/37, para 18; BDO Binder International XXIst Report on Competition Policy (1991), 335. 68 Goyder above n 33, 527–31.

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of Justice held that the competition rules were ‘essential for the tasks entrusted to the Community’. 69 This widens the relationship between competition law and market integration—the traditional view is that competition law serves the goal of market integration by preventing private agreements that disintegrate the internal market, but the developments charted above suggest that competition law may also promote market integration by forcing undertakings to improve conditions of competition.

CONCLUSIONS

In this chapter I highlighted new directions in the substantive analysis of competition law cases, and it will be apparent that the relationship between these developments is complex. An optimist would argue that the Commission’s commitment to economic analysis based on the effects of an agreement is a means to facilitate decentralised enforcement of competition law once Regulation 1/2003 is in force. Thus it may be argued that the procedural and substantive innovations complement each other. However, this position is problematic: first the Commission’s use of economics is incomplete and a number of formalistic methods of analysis remain; second the risk of ex post modifications to cooperation agreements creates a new set of problems, moreover these are exacerbated by the trend to exempt agreements on the condition that the parties improve competition, which could lead to a high degree of uncertainty; third the role of non-economic considerations in competition decisions has, if anything, increased, thus the commitment to de-politicise competition law cannot be successful as it would run against the spirit and the text of the Draft Treaty and the Court’s jurisprudence. As a result, the directions outlined in this chapter raise new and exciting challenges to an already broadly successful competition policy: by shifting to an economics-based approach, we may begin to see debates about which economic approach is preferable, and we might, as I suggested here, abandon block exemptions in favour of a market power test so as to shed all formalism from Article 81. But old questions remain, in particular the widening of the role of competition law means that the debate of how competition law can promote the Union’s tasks is set to continue.

69 Case C–126/97 Eco Swiss China Time Ltd v Benetton International NV [1999] ECR I–3055 para 36 (the tasks are not enumerated, suggesting it covers all tasks).

12 The Future of Merger Control in the EC PENELOPE KENT, VICKY ALLSOPP AND PENNY ENGLISH

I

N JUNE AND October 2002 the Commission suffered a series of shocks as three of its decisions to prohibit mergers were overturned by the Court of First Instance (CFI). Surprising as these decisions were, they were not divorced from a broader context in which the need for reform was clear. Proposals for the most far-reaching reform for over a decade were announced by the Commission in December 2002. The reform package, consisting of a number of measures, is not yet complete, although one pivotal piece of the jigsaw is already in place: the appointment has been made of a Chief Competition Economist. This appointment both recognises the general acceptance of the importance of economic analysis of potential mergers and signals the increasing role economics is set to play in the scrutiny of proposed mergers in the future. It is clear that the need for cooperation and understanding between lawyers and economists is paramount. Considering the reform of mergers from the point of view of both disciplines, this paper seeks to consider the reform process from a dual perspective of economics and law. In each of the three cases, Airtours/First Choice,1 Schneider/ Legrand2 and Tetra/Laval3 the decisions were annulled on the basis of serious failures in the economic analysis of the Commission. These cases serve to underline the need for reform. In particular they point to the role of economics in merger control. They show, all too clearly, that the system in place was unable to cope with the growing complexity of contemporary competition. The consequence was an impetus to push the reform process further and faster. 1 Case T–342/99 Airtours plc v Commission [2002] ECR II–2585; [2002] 5 CMLR 7. 2 Cases T–310/01 & T–77/02 Schneider Electric SA v Commission, decisions of 22 October

2002; [2002] ECR II–4071; [2003] 4 CMLR 17. 3 Cases T–5/02 & T–80/02 Tetra Laval BV v Commission, decisions of 25 October 2002; [2002] ECR II–4519; [2002] 5 CMLR 29 (under appeal, Case C–12/03P).

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The three high profile decisions of the CFI brought a sense of urgency to the far-reaching process of review and reform which had been underway for the previous two years. One of the pressures on the system had been the substantial growth of merger activity in the last eight years, with an average growth of nearly 30 per cent annually since 1995 in the number of transactions notified to the Commission. Merger activity began to slow down towards the end of the decade. There was then a downturn in merger notifications around 2000, amplified by recent political events and consequent fears of economic instability. However, this reduction in activity masks a growing number of increasingly complex cases.4 Various interlinked key themes emerge which impact on the nature of the reform. Major changes have taken place in global markets that have placed new demands on the regulators. At the same time there has been a significant shift towards increasing reliance on economics, a trend which has been apparent, for example in the United States, for some time. Both these factors highlight the need to build on the recent developments which have established a framework for greater international collaboration between competition authorities. Demand for change came from both inside and outside the EU. External pressure came from the context of the changes to the market brought about by globalisation together with the development of a climate of increasing co-operation and alignment with other competition regimes, especially the US. Internally, review of the Merger Regulation5 had been prompted by the legal obligation to review the turnover thresholds under Article 1 of the Regulation and the case reference rules under Article 94. In addition, the imminent expansion of the EU will increase its consumer base from 380 million to 450 million citizens, which will inevitably put more pressure on the competition regime. The need for reform of the decision-making process was pulled into sharp focus by the bruising judgments of the CFI as well as the fundamental need to enhance Commission legitimacy, transparency and accountability.6 Mario Monti has been unequivocal in his response to the judgments. This case law, he declared, represents ‘the most far-reaching judicial ‘feedback’ that the Commission has received on its merger enforcement policy since 1990: the judgments deal with fundamental substantive, procedural and systemic aspects of merger review at the EU level. In particular, it is clear that the CFI is now holding the Commission to a high 4 M Monti Speech 03/195 10 April 2003 ‘European Competition Policy: Quo Vadis?’ XX International Forum on European Competition Policy, Brussels http://www.europa.eu.int/ comm/competition/speeches/ (site accessed on 14 March 2003). 5 Council Regulation (EEC) No 4046/89 on the control of concentrations between undertakings. 6 Themes not exclusively applicable to the context of competition law.

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standard of proof, and this has clear implications for the way in which we conduct our investigations and draft our decisions’.7 ‘We should transform them [the judgments] into an opportunity for even deeper reform than originally envisaged’.8 The CFI decisions focused the minds of the Commission, the legal profession and academics on the standard of economic analysis required for mergers. Tensions in EC merger decisions had already been apparent in the previous year as a result of a record number of prohibition decisions (five in 2001, compared with thirteen in the previous decade).9 The prohibition of the GE/Honeywell merger10 contributed to the controversy. The need for a comprehensive review of the EC regulatory framework for mergers was inescapable. THE GLOBAL DIMENSION

There has always been a recognition that decisions taken outside the European Union may have an impact on competition in the internal market. The Commission will take action concerning the activities of nonEuropean companies in such cases, but increasingly global interface means that this is of greater concern now. Globalisation has changed the nature of mergers. Often, they are no longer a straightforward matter of regional consolidation but ‘best described as the worldwide integration and consolidation of such activities’.11 Mergers tend not to happen in isolation, but take place simultaneously or follow in quick succession as part of a sequence. Where mergers are at the international level it is more likely that the result will have far-reaching consequences. This may result in the market being dominated by a few, rather than a single player. Such mergers present problems of global regulation, with the attendant need for analysis of oligopoly and collective dominance. In the past, mergers were often national or regional, but now mergers on a multinational scale may fall under the jurisdiction of several competition authorities which apply different rules. 12 The effective regulation of a global competition market requires an increased level of collaboration 7 Monti Speech, above n 4. 8 M Monti ‘Merger Control

in the European Union: a radical reform’ European Commission/ IBA Conference on Merger Control, Brussels, 7 November 2002 SPEECH/02/545 http:// europa.eu.int/comm/competition/speeches/. 9 A Weitbrecht ‘EU Merger Control in 2001—The Year of Controversy’ [2002] European Competition Law Review 407. 10 See p 198 below. 11 A Schaub (DG for Competition ‘Assessing International Mergers: the Commission’s Approach’ EC Merger Control 10th Anniversary Conference, Brussels 14–15 September 2000 http://europa.eu.int/comm/competition/speeches/. 12 M Monti, ‘A Global Competition Policy?’ SPEECH /02/399European Competition Day, Copenhagen, 17 September 2002 http://europa.eu.int/comm/competition/speeches/.

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between national and regional competition authorities. A growing number of proposed mergers require scrutiny by both EU and US. As the interests of commercial practicality and legal certainty cannot be satisfied when there is substantial divergence between the relevant competition authorities, a high level of co-operation and alignment is essential. Where there is a US dimension to the merger, the rejection of a merger by the Commission has been particularly problematic. In GE/Honeywell13 the EC Commission, for the first time, prohibited a merger between two US-based multinationals which had previously been cleared in the US, causing ‘unprecedented controversy’.14 However, a 1991 EU/US co-operation agreement has led to a sophisticated and steadily increasing level of collaboration between the two competition authorities. More intensive bilateral EU/US co-operation ‘has become an almost daily practice both in antitrust and merger control’,15 which has then proved to be a ‘catalyst for the growing convergence in our substantive approach to competition problems’.16 International influences are indeed increasingly evident in the development of policy. A similar bilateral agreement to the one with the US was concluded with Canada in 1999, and more recently (July 2003) with Japan. However, bilateral agreements are inherently limited. The multinational scope of mergers in the global market requires multinational solutions. The concept of multilateral co-operation is not new,17 but the establishment of practical and effective frameworks for agreed best practice is more recent. The multilateral International Competition Network (ICN) was launched 2001 by 14 antitrust authorities, including the EU. The Commission has ‘devoted substantial energies and a great deal of enthusiasm to the establishment of the ICN’. 18 Its objective is the spread of a common competition culture and the adoption of concrete, non-binding guidelines. As a result, a global approach to competition policy is beginning to take shape. The first annual conference of the ICN took place in Naples 2002, involving a large number of competition authorities around the world.19 The concrete result of this international association has been the adoption of a set of Guiding Principles and Recommended 13 Case No. COMP/M2220, General Electric /Honeywell, decision 14 A Weitbrecht, above n 9, 407. For further comment on this

of 3 July 2001. decision, see A Burnside, ‘GE, Honey, I sunk the merger’ [2002] European Competition Law Review 107 and M Pflanz and C Caffarra, ‘The Economics of GE/Honeywell’ [2002] European Competition Law Review 115. 15 M Monti ‘EU Competition Policy’ Fordham Annual Conference on International Antitrust Law and Policy, New York, 31 October 2002. (Speech/02/533) http://europa.eu.int/comm/ competition/speeches/. 16 Schaub, above n 11. For further comments, see M Hussey, ‘Conflict and Co-operation between the USA and EU in Competition Law Analysis and Enforcement-What does the future hold?’ Lawyers’ Europe, Winter 2003, 2. 17 Ibid at 4. 18 Monti, above n 15. 19 The ICN at the time of writing has 76 members.

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Practices for control of multi-jurisdictional mergers, which are envisaged as the starting point for procedural convergence. They include a number of general principles. Competition authorities are required to respect basic principles such as sovereignty, transparency, non-discrimination on the basis of nationality and procedural fairness. The Network is non-binding, but ICN members are invited to submit their domestic competition practices for screening for compatibility with the Network’s Principles and Recommended Practices. The EC Commission has accordingly submitted its practices for consideration. The EC Merger reforms make explicit reference to ICN recommendations.

THE REFORM PROCESS

The process of reform began with the publication of a Green Paper in 2001 concerning the revision of the Merger Regulation.20 The adverse judgments of the CFI triggered a more comprehensive reform, comprising a package of measures which include organisational restructuring. The result is a series of far-reaching revisions designed to ‘to make our own machine run better’.21 As well as revising the Merger Regulation, guidelines are being adopted for the appraisal of mergers between competing firms in addition to draft best practice guidelines for merger investigations. Non-legislative measures have been taken which are intended to improve the Commission’s decision-making process, including the creation of the post of Chief Competition Economist who will have the task of providing a robust economic viewpoint to decision-makers. The reforms are intended to be in place in May 2004, the date set for the accession of new Member States to the EU. THE GREEN PAPER

A Green Paper was adopted on 11 December 2001 inviting comments on three areas in particular: the operation of turnover thresholds and case referral mechanisms, the substantive test to be applied for the review of concentrations by the Commission, and procedural issues. Consultation took place with the Member States, other Community institutions, business, legal community and other interested parties. The Commission received 114 written comments. The prevailing view was that the Merger Regulation had been a success, but it identified a number of weaknesses. 20 Regulation 4064/89/EEC. 21 P Lowe, D-G for Competition,

‘Review of the Merger Regulation—forging a way ahead’ European Merger Control Conference, 8 November 2002, Brussels. http://europa.eu.int/ comm/competition/speeches/.

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The need to take account of the international dimension and the necessity for sound economic analysis underlie the specific issues that were under detailed consideration. The Green Paper launched reflection on the dominance test, with a view to clarifying it in order to ensure compatibility with the test used in many other jurisdictions, for example, the US. In particular it questioned how the effectiveness of this test compares with the ‘substantial lessening of competition’ (SLC) test that mergers are subject to in the US. The Commission expressed itself to be open minded on this point,22 considering that the difference between the two tests may not be great in practice and that the dominance test, properly interpreted, is capable of dealing with full range of possibilities. As Mario Monti put it ‘I believe that the issue of choice among the two tests, dominance and substantial lessening of competition, has been excessively dramatized’.23 Comments received in response to the Green Paper argued both for and against change. The main argument put forward is that the SLC test is better suited to the range and complexity of modern mergers. Those who considered that change was not needed suggested that the current test is effective and that retaining the present test has the additional advantage of preserving the jurisprudence that the Courts, therefore maintaining a high level of legal certainty’.24 The Green Paper also initiated discussion on efficiency considerations. Most respondents thought that the Commission should take efficiencies into account as part of a sound economics-based analysis of the overall effects that would follow from a proposed merger. The creation of a more efficient company is not in itself reason to consider it to be anti-competitive. Respondents were not unanimous about the scope of any ‘efficiency defence’, but the acceptance of a need for economic analysis was evident. THE REVISED MERGER REGULATION

The aims of the revised Merger Regulation which followed are twofold: first, to clarify the substantive standard for the analysis of mergers on competition grounds, by making it clear in particular that the Regulation can be applied to situations of non-collusive oligopoly. To eliminate any potential ‘gap’ the proposed clarification is consistent with the way the Court has defined dominance in merger cases, but is more closely focused on the economic impact of concentrations. This removes the problem of differences between the application of the EU and US rules. Secondly, to streamline and improve the procedure 22 Speech

by M Monti ‘Review of the EC Merger Regulation—Roadmap for the reform project’ Conference on Reform of European Merger Control. British Chamber of Commerce, Brussels June 4, 2002. Http://europa.eu.int/comm/competition/speeches/. 23 Monti, above n 15. 24 Monti, above n 8.

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involved, in particular by rationalising the timing of notification to increase the flexibility of the timetable, simplifying the system for the referral of merger cases, thereby reducing the incidence of multiple filing, and strengthening the Commission’s fact-finding powers. The aim is to optimise this allocation of cases between the Commission and the national authorities, in line with the principle of subsidiarity, so that the Commission deals with cases having a significant cross-border impact (including cases not currently caught by the turnover thresholds), while the national authorities deal with cases which are primarily of local or national impact. The benefit for the business community should be a reduction in costs and uncertainty. COMMISSION NOTICE ON HORIZONTAL MERGERS

The second element of the reform package is a Commission Notice on horizontal mergers.25 These guidelines on mergers between competing firms aim to improve clarity on the application of the notion of dominance in oligopolistic markets while reflecting the experience of past case law. Guidance is provided on thresholds indicating the levels of post merger concentration by the Hirfindahl-Hirschman Index (HHI)26 below which the Commission is unlikely to intervene. These are only indicators of dominance, but each case will be examined on its merits. The guidelines also cover factors mitigating a finding of likely harm to competition such as buyer power, ease of market entry, failing firm defence, and efficiencies. Efficiency claims will only be accepted when the Commission is in a position to conclude that the efficiencies are substantial, timely and verifiable, and that they will enhance the incentive of the merged entity to act to the benefit of consumers. The guidelines aim to provide transparency and predictability, and therefore increased legal certainty.27 DRAFT BEST PRACTICES ON THE CONDUCT OF MERGER PROCEEDINGS 28

This document is intended to be an integral part of the merger review exercise, making proposals for the day-to-day management of merger cases within the Directorate General for Competition. These cover practical matters such as timing, transparency and due process in merger proceedings. The 25 OJ C331/18 of 31.12.2002. 26 The HHI is calculated as the

sum of the squares of the market shares of all the firms in the market. The HHI must lie between zero (an infinite number of firms with essentially zero market share and 10,000 (100)(100) where one firm has a monopoly with 100% of the market. While a high market share of a correctly defined relevant market may be a necessary condition for yielding market power, it is not sufficient. 27 Monti, above n 4. 28 DG Competition Draft Best Practices on the Conduct of EC Merger Control Proceedings Brussels 19/12/2002.

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document drew on feedback received from discussions with the legal and business community and from submissions received in reply to the Green Paper. It aims to increase understanding of the investigation process, enhance efficiency and improve overall transparency and predictability. The role of the Hearings Officers29 is intended to be further strengthened to enable them to discharge their duties effectively. NON-LEGISLATIVE MEASURES

One of the major problems (confirmed by the CFI judgments) was the need to investigate complex cases requiring in-depth fact finding and rigorous economic and quantitative analysis.30 To meet this need, the Commission proposed to strengthen in-house economic expertise. A Chief Competition Economist has been appointed.31 He will have a dedicated staff of approximately 10 specialised economists. Transparency and reliability in economic assessment is to be enhanced, with the aim of establishing a visibility and discipline comparable to the standard of the Commission’s Legal Service.32 A unit will be created, attached directly to the Director-General, devoted to scrutiny of litigation. It will follow cases throughout their development and organize panels at key moments.33 Members of the panel will be chosen from throughout the D-G and officials from other relevant services of the Commission will be invited to contribute to the discussions when appropriate.34 The panel will have the task of scrutinising the investigating team’s conclusions with a ‘fresh pair of eyes’35 at pivotal points of the enquiry. THE POST OF CHIEF ECONOMIST

Within a month of the decisions on Schneider/Legrand and Tetra Laval/ Sidel, Mario Monti announced his intention to create a new position of Chief Economist36 and to accelerate the recruitment of industrial economists 29 Hearings

Officers were introduced in 1982 to act as ‘independents’ to ensure that competition hearings were properly conducted. The Commission strengthened their terms of reference in 2001. (OJ L 162 OJ 19.6.2001) Further strengthening was called for in many of the responses to the Green Paper. 30 P Lowe, Future directions for EU Competition Policy, Speech for the International Bar Association, Fiesole (Italy), 20 September 2002, 4. http://europa.eu.int/comm/competition/ speeches/. 31 He is L-H Röller, currently Professor of Economics at Humboldt University in Berlin. He is expected to take up the post on 1st September 2003. Commission Press Release IP/01/1027 16/07/2003. 32 P Lowe, above n 30, 4. 33 Monti, above n 8. 34 Ibid. 35 M Monti ‘Competition enforcement reforms in the EU: some comments by the Reformer’ Speech/03/2000 15 04 2003 Georgetown University Washington http://europa.eu.int/comm/ competition/speeches/. 36 Monti, above n 8.

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to the Commission. In particular, he also envisaged that the Commission would more frequently commission its own independent econometric studies in Phase 2 merger investigations.37 As Mario Monti emphasised, ‘I should like to underline that an increased economic approach in the interpretation of our rules was, indeed, one of my main objectives when I took on my new responsibilities as Competition Commissioner three years ago. And we have already substantially increased our economic approach in all areas of competition policy’.38 This includes the overhaul of vertical restrictions, reforms of horizontal agreements or the ‘de minimis’ restrictions. The goal in all is the same, that is, ‘To put a greater weight on the analysis of market structures and the assessment of a transaction’s economic impact, in order to concentrate in cases that pose a real threat to competition’.39 Strengthening the economic input brings the EU closer in line with the US where the institutionalised collaboration between lawyers and economists is well-established. There the regulation of competition in characterised by ‘increasing presence of an economic perspective in law schools, extensive and explicit judicial reliance on economic theory and with a substantial presence of economists in the government anti-trust agencies’.40 In the context of a demand for more rigorous examination of merger cases, the dialogue between the two disciplines needs to exist not just at the level of the practitioner but at all levels. This viewpoint is supported by Philip Lowe who considers that that it would be wrong to divide ‘the troops we have on the ground into the lawyer camp on the one hand and the economist camp on the other … I am convinced that multidisciplinary case teams are the way forward, supplemented by an in-house scrutiny and the independent view of the Chief Economist’.41 The creation of the post of Chief Economist and the positive pronouncements by Mario Monti provide a clear indication of future directions. The creation of this post is intended to improve the quality of decision-making. The Chief Economist’s tasks include supplying guidance on methodological issues of economics and econometrics in the application of EU rules. It will be his responsibility to provide detailed guidance in the most important competition cases involving complex economic issues, in particular those requiring sophisticated quantitative analysis. He will have a visible presence, representing the Commission and defending its position at both Community and international levels.

37 Ibid. 38 M Monti, above n 15. 39 Ibid. 40 WE Kovacic and C Shapiro

‘Antitrust Policy: A Century of Economic and Legal Thinking’ (2000) 14 Journal of Economic Perspectives, 43–60 at 58. 41 P Lowe, above n 21, 14.

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This signals a more economically-oriented approach on the part of the Commission. This will not necessarily provide easy answers to complex real-world issues. As Philip Lowe said in November 2002, ‘We also probably need a Chief Behavioural Psychologist—and maybe a Chief Psychiatrist to help is in the period after we have actually heard from our economists what their analysis of a market actually is’.42

THE NEED FOR ECONOMIC ANALYSIS

The importance of economic analysis in the context of defining the market in relation to merger control has long been apparent. This was the basis for the annulment by the Court of Justice of the Commission’s decision under Article 82 EC (ex Article 86) in Continental Can.43 The Court found that the Commission had failed to demonstrate the basis for its decision and had not identified the product market correctly. Overall, the Commission’s approach to economic analysis in mergers was perceived to be successful in the years between 1972 and 2002. The Merger Regulation44 was adopted in 1989 to provide a mechanism for notification of mergers to the Commission, with appeal to the Court of Justice (now, firstly, to the CFI). Mergers notified stood a high chance of approval. Latterly the position has changed, with complex mergers running the risk of rejection by the Commission. The Commission has given 2212 final decisions on notifications from September 1990 to 31 May 2003.45 Of the 110 cases dealt with at Phase II where a final decision has been made, only 18 mergers were prohibited, a very small proportion, approximately 1 per cent of final decisions. In 2002, three out of the five prohibitions from the year 2001 were overturned. It was not until the three momentous decisions of 2002 that the standard of economic analysis became the focus of serious criticism by the Court. Although the Merger Regulation had been under almost continuous review since its adoption, the focus had been on issues such as threshold levels for notification and on subsidiarity. In 2002, following the three critical rulings by the CFI, it is significant that the emphasis in merger reform shifted towards the degree of economic analysis expected of the Commission. The CFI’s rulings, the first under the expedited procedure for appeals,46 overturning three 42 European

Merger Control Conference, November 2002. http://europa.eu.int/comm/ competition/speeches/. 43 Case 6/72 Europemballage Corp. and Continental Can v Commission [1973] ECR 215; [1973] CMLR 199. 44 Council Regulation (EEC) No.4064 of 21 December 1989 [OJ] 1990 No.L/395/1, as amended. 45 European Merger Control—Council Regulation 4064/89-Statistics http://europa.eu.int/ comm/competition/mergers/cases/stats/ (date accessed 20.6.2003). 46 In force from 1 February 2001.

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Commission decisions to prohibit mergers, pointed in all three to errors and omissions in the economic analysis on the part of the Commission. To understand those errors and omissions it is necessary to explore the caselaw of the Court and decisions of the Commission, particularly in relation to collective dominance in the context of wider economic theory and practice in relation to oligopoly.

COLLECTIVE DOMINANCE: THE DEVELOPING CASE LAW

The concept of collective dominance in EC law developed in response to a perceived need to control oligopolies in the absence of an explicit mechanism in the Treaty. Article 81 requires the existence of more than one undertaking for an agreement or concentration. Article 82, on the other hand, prohibits abuse by ‘one or more undertakings’, but was not in the early days seen by the ECJ as covering oligopolies, with the ECJ instead focusing on single firm dominance.47 The concept of collective dominance was first recognised by the Commission in Italian Flat Glass.48 Operating within a tight, oligopolistic market, the glass producers were relatively independent from outside competitive pressures. Although the CFI found that the Commission had failed to establish that collective dominance applied in the particular case, it approved in principle the existence of the concept under Article 82 . The meaning of collective dominance emerged through a series of judgments in the CFI and ECJ.49 In Compagnie Maritime Belge Transports v Commission50 the ECJ found that a collectively dominant position may be held by two or more economic entities legally independent from each other provided they ‘present themselves together or act together in a particular market as a collective entity’. 51 It is the ‘connective factors’ rather than economic links which are important in determining collective dominance.52 Collective dominance was extended to mergers by the Commission in Gencor/ Lonrho,53 an approach upheld by the CFI on appeal.54 The Court elaborated on the nature of the links amounting to collective dominance, 47 See, for example, the rejection by the ECJ of Art 82 as a means to control oligopolies in Case 85/76 Hoffman-la-Roche [1979] ECR 461, [1979] 3 CMLR 211 [2001] ECLR 227. 48 [1989] OJ 333/44. 49 For analysis of the caselaw on collective dominance, see C Withers and M Jephcott, ‘Where to now for EC Oligopoly control?’[2001] European Competition Law Review, 195. 50 Cases T–24/93 etc. Compagnie Maritime Belge v Commission [1996] ECR II–1201. 51 Paras 28–59 of the judgment. See also R Whish, Competition Law (4th Edition, London, Butterworths, 2001) 478. 52 See also Cases C–68/94 & 30/95 France v Commission [1998] ECR I–1375. 53 Case No IV/M.619/OJ [1977] L/30. 54 Case T–102/96 Gencor v Commission [1999] ECR II–753, [1999] 4 CMLR 971.

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making it clear that they need not be of a ‘structural nature’. The position is set out in unequivocal terms in the judgment: [T]here is no reason whatsoever in legal or economic terms to exclude from the notion of economic links the relationship of interdependence existing between the parties to a tight oligopoly within which, in a market with the appropriate characteristics, in particular in terms of market concentration, transparency and product homogeneity, those parties are in a position to anticipate one another’s behaviour and are strongly encouraged to align their conduct in the market, in particular in such a way as to maximise their profits by restricting production with a view to increasing prices.55

Whish comments that the main issue in establishing collective dominance based on links between firms is whether they ‘facilitate tacit coordination’.56 This question is of particular significance in understanding the approach of the CFI in the Airtours,57 a decision which provided an opportunity for the Court to expand and clarify its caselaw on collective dominance in the context of mergers. Airtours is also notable as the first of three judgments by the CFI against the Commission in 2002, judgments which may be taken as resounding rebuffs over the Commission’s standard of economic analysis. As the Commission has appealed against one of the three judgments,58 it remains open to the Court of Justice to reconsider the CFI’s approach to this area.

EVOLVING ECONOMIC THEORY AND MERGER REGULATION

As the case law above has shown, economic theory provides an underpinning for merger legislation. ‘Competition law is about economics: it is an attempt to establish legal rules that will successfully deliver the benefits that a competitive market can produce for consumer welfare’.59 Over time, economists have provided different perspectives on the nature of competition and the impact of mergers on consumer welfare. Mergers, for example, 55 Case T–102/96, para 276. 56 As such, they could be economic,

ie as a consequence of the conditions of the market, or structural, which, according to Whish (above n 51, 488), would be a ‘sub-species’ of economic links. 57 Case T–342/99 Airtours plc v Commission [2002] 5 CMLR 7. 58 Tetra Laval v Commission, under appeal, Case C–12/03P. 59 R Whish, foreword to S Bishop and Walker The Economics of EC Competition Law (2nd edn, London, Sweet & Maxwell, 2002). Note that economists may generally be unwilling to accept that consumer welfare alone should be the appropriate objective of competition policy with no account taken of profit enhancement. See M de la Mano ‘For the customer’s sake: the competitive effects of efficiencies in European merger control’ Enterprise Papers no 11 (European Commission, Brussels 2002).

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may lead to an increase in market power by the few; but they may not always be detrimental to competition. Mergers motivated by efficiency considerations may improve the use of resources, add to welfare and improve the competitive process. Economic knowledge about the competitive process and the impact of mergers has evolved over a considerable period of time. Early concerns focussed on market definitions; the broader the market, the less the likelihood of dominance. The structure, conduct and performance paradigm60 encouraged researchers to look for relationships between market concentration and performance measures such as price cost margins.61 This paradigm gives the policy-maker and lawyer insights into the nature of competition, but it is a simplification based on critical assumptions of traditional models. For an examination of oligopoly, there are many potentially challenging issues, in particular the definition of the relevant market, measuring market shares and ease of entry. Domination is traditionally defined with reference to market shares so it is essential to have an appropriate definition of this. Caution is required in using measures to provide a basic summary of the level of concentration in the market.62 This does not necessarily indicate the effectiveness of competition in the market. Cross-sectional studies used for this purpose may be limited by data quality.63 Whilst concentration measures may give comfortingly precise numerical data, there are drawbacks in using these to evaluate competitiveness.64 The measures are static but competition is dynamic. The long run performance of an industry is more likely to be affected by innovation than its concentration ratio.65 Economists of the New Chicago School highlighted efficiency as an explanation of industrial concentration.66 Mergers may boost efficiency and increase competition. However, economic analysis may also be used to show how mergers could bring harm to competition. The economic understanding of oligopolistic behaviour has been informed by gametheoretic models. However, such models may give different predictions given different assumptions in a world of imperfect information. 60 Ie,

where the market structure determines the conduct in terms of pricing, research and development, investment and marketing which, in turn, determine performance in terms of profitability and technological advancement. 61 See Kovacic and Shapiro, above n 40, 43–60. 62 One measure sometimes used is the Hirfindahl-Hirschman Index (HHI). See n 78, below. 63 Data inadequacies are a recurring problem. 64 While the calculation is straightforward when the share of all players is known, the measure is more difficult if the value of the market shares of all players is unknown. One firm may have gained a high share by being more efficient—the oligopolistic structure of the market is in part endogenously determined. In addition the calculation of market shares requires a proper definition of the market otherwise the market shares will be inappropriate. Markets that are highly concentrated could be extremely competitive if it were possible for new entrants to move in and out of the market with ease. 65 Kovacic and Shapiro, above n 40, 43–60. 66 Ibid.

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A variety of relatively new approaches to oligopoly include theories of competitive harm. Of particular interest are theories relating to ‘portfolio power’ and ‘leverage’, for the Commission relied on these approaches in the decisions which were overturned by the CFI. These theories were used to assess whether the proposed mergers would lead to the elimination of potential competition, given a resulting extension of the merged firm’s product range. However, ‘ … leveraging concerns often turn out to be unfounded upon rigorous examination’.67 While economic theory has much to offer, using a model that fails to capture the essence of the situation is inappropriate and may lead to the wrong decision. The CFI judgments of 2002 underlined the need for the Commission to be more sensitive in its application of economic models of anti-competitive behaviour.68 Economists may disagree about which is the most appropriate model or models to apply and the selection and interpretation of econometric evidence. Not all potential effects are readily quantifiable. 69 Economic knowledge has evolved and economic theory increasingly informs legal thinking. Oligopolistic scenarios are complex; neither economists nor lawyers have access to a crystal ball. A closer examination of the decisions of the CFI and the judgement on the economic reasoning included therein is illuminating. These cases underscore the importance of an understanding of economic analysis and its limitations. AIRTOURS/FIRST CHOICE

Airtours, a UK company which sold package holidays to short haul destinations in Europe, launched a hostile bid to take over one of its main competitors, First Choice by acquiring all shares in the company.70 Other bidders were Thomas Cook and Thomsons. The Airtours bid was notified to the Commission under the Merger Regulation. The Commission prohibited the concentration on the basis that it would give the merged company, in conjunction with Thomas Cook and Thomsons, collective dominance in the short haul package holiday market, with a market share rising from 68 per cent to 79 per cent.71 It considered that the acquisition would lead to higher prices, increased profits and restricted market capacity. Airtours challenged the decision in the CFI which gave judgment on 2 June 2002.72 67 SB

Volcker ‘Leveraging as a Theory of Competitive Harm in EU Merger Control’ 40 CML Rev (2003) 581–614 gives a detailed examination of this. 68 For example, in the Tetra Laval/ Sidel case ‘The CFI states that the Commission must provide a thorough analysis of the incentives and likely behaviour of the merged entity, taking into account the post-merger market conditions and the position of competitors.’ (See Bishop and Walker, above n 59, 294). 69 For further discussion see, for example, Mano, above n 60. 70 Airtours was renamed ‘MyTravel Group plc’ on 7 February 2002. 71 Case IV/M, Airtours/First Choice [2000] OJ L–93/1; [2000] 5 CMLR 494, under appeal, Case T–342/99, see n 1. 72 See above n 1.

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The CFI overturned the prohibition, roundly rebuking the Commission for a decision which it described as ‘vitiated by a series of errors of assessment’ in the process by which the existence of collective dominance had been established. Fundamental to the errors was the assumption made by the Commission that customers did not switch between short and long haul holidays, leading to a misidentification of the relevant market. The Court identified three conditions which must be satisfied before there can be a finding of collective dominance: 1.

2. 3.

Each member of the dominant oligopoly must know how the other members are behaving in order to monitor whether they are following the common policy. The situation of tacit co-ordination must be sustainable over time.73 This is enforced by means of a ‘punishment mechanism’. The policy must be capable of withstanding the challenge of other competitors (small tour operators), potential competitors (tour operators in other markets) and consumers.74

Clear evidence that all three conditions are satisfied must be produced by the Commission before it may block a merger. The Court found that the Commission had failed to establish that the three leading tour operators would have an incentive to cease competing with each other. Consumers, contrary to the view of the Commission, were still able to switch to other operators or destinations or operators in response to price rises. Further, the complexity of capacity planning made tacit coordination difficult. None of the deterrents identified by the Commission amounted to a credible punishment mechanism. Collective dominance, the Court stated, may arise: [a]s a result of a concentration where, in view of the actual characteristics of the market and of the alteration in its structure that the transaction would entail, the latter would make each member of the dominant oligopoly, as it becomes aware of common interests, consider it possible, economically rational, and hence preferable, to adopt on a lasting basis a common policy on the market with the aim of selling above competitive prices, without having to enter into an agreement or resort to a concerted practice within the meaning of Article 81, and without any actual or potential competitors, let alone customers or consumers, being able to react effectively.75

73 Ie,

members of the oligopoly must be deterred over time from departing from the policy adopted. 74 Para 62. 75 Para 61, cited in S Stroux ‘Collective Dominance under the Merger Regulation: a serious evidentiary reprimand for the Commission’ (2002) 27 EL Rev 736, 740–41.

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Oligopolists are aware of their interdependence; but co-ordinating their behaviour to restrict output and push up prices in order to achieve monopoly profits is by no means a forgone conclusion. As the CFI emphasised in the Airtours case, ‘ It needs to be shown that the markets are such that the adoption of a common policy is both also possible and sustainable’.76 The decision in Airtours marked a watershed in the EC decision-making on mergers. As Nikpay and Hauwen point out,77 ‘[T]he judgment would seem to imply that the CFI is no longer content to allow the Commission the degree of freedom it has traditionally enjoyed in merger cases. In fact, the degree of scrutiny exercised by the CFI in Airtours was tantamount to an appeal on the facts’. The decision provoked a call for further guidance on the assessment of collective dominance under the Merger Regulation.78 As the Commission did not appeal against the decision of the CFI, its response may be seen in the context of the 2002 Reform Package, particularly in the draft Notice on Horizontal Mergers.

SCHNEIDER/LEGRAND 79

Scheider Electric SA (‘Schneider’) and Legrand SA (‘Legrand’), both major French producers of low voltage equipment, notified the Commission in February 2001 of their intention to merge, by means of a bid by Schneider for all publicly owned shares in Legrand. Scheider duly acquired 98 per cent of the shares in Legrand. The Commission instituted second phase proceedings in March 2001, finding that the bid would lead to the creation or strengthening of a dominant position by Schneider in several national markets for low voltage equipment. Despite undertakings offered by Schneider but rejected, the Commission prohibited the merger and ordered the company to divest itself of its shares in Legrand in January 2002. It found that the merger would create competition problems in seven countries including France, where the problems were particularly serious.80 Schneider appealed to the CFI against both decisions, the date for divestiture being postponed to enable the CFI to rule in time. The CFI delivered a strongly worded judgment on 22 October 2002, annulling both decisions, except in relation to the French sectoral markets,81 stating that the Commission’s economic analysis was ‘vitiated by errors and

76 Ibid. 77 A Nikpay

& F Hauwen, ‘Tour de Force or a Little Local Turbulence ? A Heretical View on the Airtours Judgment’ [2003] European Competition Law Review, 193. 78 See, for example, Stroux, above n 75. 79 Case T–310/01 Schneider Electric v Commission, see above n 2. 80 Commission decision C (2002)360 final of 30 January 2002. 81 Sectoral markets for low voltage electrical equipment.

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omissions’. Most of the pleas put forward by Schneider in relation to markets other than France were accepted by the CFI.82 The errors and omissions in the Commission’s economic analysis arose in various ways. For example, the Commission had decided that the product markets (sectoral markets for low voltage equipment) had a national dimension, but based their assessment of the merger on transnational, global considerations, without demonstrating its relevance at national level. The CFI held that the Commission should have carried out a country-bycountry analysis. Data on the effect of the mergers on wholesalers was affected by a similar failure, leading the CFI to decide that the Commission had not proved that the merger would compel wholesalers to trade with the merged entity.83 Likewise, without a country-by-country analysis, the Commission had failed to show that the merged entity would have an unequalled product range, and had overestimated the merged entity’s economic power. Portfolio power (an example of ‘range effects’) may be acquired where a merged entity sells a range of products in several, separate relevant markets. It provides a form of synergy, the market power gained from selling a range of products in separate markets being greater than the sum of the parts. This may result from economies of scale and scope that reduce costs in sales and marketing, thus benefiting the consumer. The merger may bring anti-competitive results if it enhances the possibility of leverage through the portfolio effect. In the absence of competition, the merger may increase the threat of withholding supply. The CFI disagreed with the Commission that the potential portfolio effect of the brands and an unequalled range of products would be anticompetitive.84 All the parties’ major competitors had a full range of panel board components85 and so could compete on the range of products. Range was also identified as a factor in relation to the prospect of a punishment mechanism.86 By contrast, the Commission had underestimated the economic strength of Schneider’s two main competitors, Siemens and ABB, as a result of its failure to take account of internal sales of electrical panels to their subsidiaries. 82 The

CFI, however, rejected Schneider’s plea that the Commission had not acted in time under Art 10(3) of the Merger Regulation which provides for a four month deadline for second phase investigations. 83 Para 238 of the judgment. 84 The Commission was not therefore lawfully entitled, for assessing the merged entity’s power on the national sectoral markets affected … ., to rely on a product range whose alleged superiority to those of its competitors resulted from its being a notional whole based on a combination of the various kinds of low-voltage electrical equipment that will be supplied by the merged entity throughout the EEA (para 255). 85 Para 249. 86However, the CFI rejected the Commission’s plea that ‘The combined entity’s ability to offer a very wide range of products would enable it to direct targeted retaliatory measures against

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Analysis of the Italian and Danish markets was also found to have been faulty. The data did not establish dominance in the relevant markets, or that, in the event of dominance, competition would be impeded. The CFI accepted the Commission’s evidence in relation to the French sectoral market, namely that Schneider was dominant. Competition would be eliminated by the merger. As a result, the Court considered Schneider’s plea solely in the context of French markets affected by the merger that its rights of defence had been infringed by inconsistencies in the Commission’s case between the statement of objections and the final decision. In consequence, the CFI found that Schneider had been unable to put forward appropriate remedial measures. It ordered the Commission to draw up a precise statement of objections in relation to the French market if Schneider continued to seek to acquire Legrand. TETRA LAVAL/SIDEL

The third merger overturned by the CFI arose from its decision in 2001 to prohibit the proposed acquisition of Sidel by Tetra Laval.87 Tetra Laval, the global leader in carton packaging, had sought to merge with Sidel, a French company which is the leading designs and manufactures plastic polyethylene teraphthalate (‘PET’) packaging, particularly in relation to ‘stretch blowing machines’(SBM).88 In its reasoning, the Commission had relied on models of economic analysis with which the CFI found fault, in particular, a theory of competitive harm known as ‘leverage’. Leverage enables the merged undertaking to use its market power in one market as a lever in another (the tied market) through anti-competitive practices such as tying or ‘bundling’. ‘Bundling’ may be either pure89 or mixed.90 Competitive harm will occur if competitors are forced out of the market.91 There are various models to explain the impact of leverage.92 As Bishop and Walker point out, ‘The economics literature on its competitors’. (para 187 of the judgment), as based on an incorrect identification of the geographical market. 87 Case No.Comp/M.2146. 88 SBM machines are used to

finish PET bottles by stretching and blowing the PET pre-forms in a mould. 89 An example of pure bundling would be where customers could only buy product A if they buy A and B together. If the firm has a monopoly over one product and the merged entity produces a second for which there are possibly many competitors, the firm can sometimes obtain market power in the competitive market by tying the sales of the two goods as for example Microsoft has recently done with the internet browser and Microsoft software, gaining market share for a product that was not superior to its rivals. 90 Mixed bundling occurs where products are sold together at a lower price than can be achieved by buying the items separately. 91 However, it may be that the competitors meet the increased competition arising from the bundling and that this benefits the consumer. Other firms may be forced to respond to the lower prices. 92 Such models, start with different underlying assumptions and so provide different explanations about the workings of the anti-competitive effects in interlinked markets (the extension of market power). Whether the bundled products are unrelated, substitute goods or complements make an important difference to the predicted outcome of a merger.

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tying and bundling does not support a presumption either that firms would necessarily tie or bundle complementary products together, or if they did so, that this behaviour would be anti-competitive’.93 The Commission had found that the merger could have anti-competitive repercussions in several markets: PET packaging, in which Sidel was dominant, the market for aseptic production machines and carton packaging, in which Tetra was dominant and one for high density polyethylene plastic (HDPE) plastic and its associated packaging. The CFI confirmed that conglomerate mergers may have anticompetitive effects, but made it clear that clear evidence of these effects is needed. It accepted the Commission’s view that the merged undertaking would be able to engage in leveraging, but found that the Commission had failed to assess the different methods of leveraging adequately. The Commission had not provided enough evidence to show that there would be strong growth in the PET market, or of the potential leveraging methods which might be used by the merged undertaking in relation to the asepetic carton market. There was no evidence that Tetra’s dominant position in aseptic cartons would be strengthened by the merger.94 As Alfter95 points out, ‘In reaching its judgment, it was not necessary for the Court to specify which theoretical model would have been applicable in this case. Rather, the Court identified the failure of the Commission to do so and for the first time placed an explicit obligation on the Commission to spell out which leveraging mechanism is supposed to apply and why the available market evidence supports that theory’.96 The ruling in Tetra clearly flags the need for reform in the process of merger appraisal. The Commission lodged an appeal (the only appeal in the three cases) against the judgment with the Court of Justice on 8 January 2003,97 claiming that the CFI’s decision was based on errors of law relating to factors such as the impact of incentives for the merged undertaking to engage in leveraging, to standards of proof and of judicial review. The appeal remains outstanding. The Commission was required by the CFI in its decision in October 2002 to reassess the merger. It carried out a fresh investigation into the impact of the merger on SBM markets, a wider market than its original investigation which had focused on SBM machines by end-use. In view of Tetra’s undertakings to licence ‘Tetra Fast’ (a new technology developed since the Commission’s original investigation) and further undertakings in relation to the PET pre-forms market, the Commission approved Tetra’s acquisition

93 Bishop & Walker, above n 59, 292. 94 Case T–80/02 arose out of the Commission’s

decision to separate Tetra and Sidel. This second annulment decision followed automatically from the decision in Case T–5/02. 95 In TetraLaval/Sidel and the future of EC Merger Control, Lawyers’ Europe, Winter 2003, 17. 96 Our italics. 97 Case C–12/03P OJ C70/5.

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of Sidel in a decision on 13 January 2003. The Commission stated that it could no longer conclude that the operation would create a dominant position, except in relation to ‘Tetra Fast’ technology.98 Larry Pillard, Chairman of the Tetra Laval Group Board observed that the decision to approve the merger was, ‘highly relevant for European mergers and acquisitions in general, demonstrating that the oversight of the Court of First Instance can have a practical and beneficial impact for companies wishing to expand their scope of business’.99

MERGER REFORM AND INSTITUTIONAL TRUST

Trust in the system of merger control is essential. Stakeholders in merger regulation require institutional or impersonal trust in the Commission and its workings.100 This enables business people, lawyers and consumers to generalise beyond a particular encounter. It is assumed that there are appropriate rules and controls in place. ‘Where ‘shortcuts’ in fact-finding are revealed by courts as they were in Tetra/Laval, they tend to cast doubt over the competition authority’s investigative and analytical rigour in merger control generally’.101 Explicit and appropriate rules reduce uncertainty and complexity. Trust and confidence are required for the sharing and pooling of knowledge. In the real world where individuals face complexity and uncertainty, rules and regulations help to provide essential parameters in the decision making process. Experience over time may confirm and strengthen institutional trust but actions that are perceived as incorrect or unfair will undermine it. Despite its successful track record the Commission’s reputation will have been damaged by the rulings of The Court of First Instance. Institutional trust will have been undermined. The creation of the post of Chief Economist, indeed the overall reform package, is in part a measure to bolster institutional trust. There is a fundamental need to display both internal and external competence. This appointment can be viewed as an essential improvement in the reform of the organisation and its leadership. His professional credentials will help to inspire trust in the system. 98Press release dated 13 January 2003, http://europa.eu.int/rapid/start/guesten.ksh? p_action.gettxt⫽gt&doc⫽IP/03/36. The Commission pointed out that the clearance could be affected by the appeal to the ECJ, if the case is referred back to the Commission. 99 Press release dated 14 January 2003. 100 See for example, N Luhmann Trust and Power (New York John Wiley, 1979). Shapiro ‘The social control of personal trust’ (1987) American Journal of Sociology; LG Zucker, ‘Production of trust: institutional sources of economic structure 1840–1920 (1986) Research in Organisational Behaviour, V Allsopp, ‘Trust, Time and Uncertainty’ in SC Dow and J Hillard (eds) Post Keynesian Econometrics, Microeconomics and The Theory of the Firm (Cheltenham, Edward Elgar, 2002). 101 Volcker, above n 67, 612.

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CONCLUSION

The process of reform is an investment for ensuring a more effective and reliable regime for the regulation of mergers in the future. In its decisions in 2002 the CFI highlighted serious shortcomings in the Commission’s economic analysis. This ‘wake-up’ call strengthened the Commission’s resolve to reform the Merger Regulation within the context of a comprehensive package of measures. The appointment of a Chief Competition Economist is indicative of the primacy afforded to economics in the reforms. He is presented with the demanding task of overseeing the application of appropriate economic models and the wise evaluation of data. Economic knowledge is evolving and new technology is enabling more efficient data collection and interpretation. However, debate will continue about the appropriate models to apply and the apposite interpretation of evidence. In addition, the future of merger control cannot be isolated from increasing global interdependency. International collaboration between competition authorities is set to become the norm, especially in the form of closer links with the US and other major national players. However the future unfolds, economists and lawyers are set to work in closer tandem.

13 State Intervention and the Internal Market ERIKA SZYSZCZAK

CHALLENGES FOR THE TWENTY-FIRST CENTURY

A

N IMPORTANT CHALLENGE has been overlooked in the draft Constitution for the EU: the challenge to provide a pragmatic response to the effects of liberalisation and privatisation on State intervention in the market.1 This chapter explores this challenge of the regulation of State activity in competitive markets by looking at the interrelationship of competition law and the Internal Market rules. That State intervention in the market may distort competition, as well as having an effect on inter-state trade, was recognised in 1957. The development of the Internal Market, alongside the processes of liberalisation, has exposed the weaknesses of the legal structure and the legal tools deployed to regulate such an important area of economic, political and social activity. Sauter notes that the consensus created by the Internal Market programme has allowed competition policy to impose increasingly strict limits on State intervention in the economy.2 Many of the principles were developed before 1992. In a controversial move the Court of Justice applied the competition rules of Articles 81 and 82 EC (in conjunction with Articles 10 and Article 3(f) EC) to State regulatory measures.3 But in doing so the Court has taken on an unruly horse, assuming the role of maintaining a fragile equilibrium between the remorseless drive to create a single market based upon free competition and the reflexive action on the part of some 1 Draft Treaty Establishing a Constitution for Europe, The European Convention, The Secretariat, CONV 850/03 Brussels, 18 July 2003. 2 W Sauter, Competition Law and Industrial Policy in the EU (Oxford, Clarendon Press, 1997) 229. 3 The cases where this principle of State liability has been applied successfully are few and far between but the Court continues to affirm the principle, see Case C–35/96 Commission v Italy [1998] ECR I–3851, para 53; Case C–198/01 CIF v Autorità Garante della Concorrenza e del Mercato, judgment of 9 September 2003, para 45.

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Member States to retain autonomy in the sphere of domestic economic policy.4 At stake is not only the balance of competing interests but also the question of what kind of values are inherent in the EU legal order. The issues are complex and this essay focuses upon just two aspects. First, is there a consistent approach demarcating areas of State activity which remain immune from the EC rules? Secondly, can a coherent approach be found allowing for a derogation, justification or exemption from the EC rules for forms of activity aimed at meeting an overriding public/national interest? The essay explores how far non-State actors may be allowed to claim immunity from the competition and Internal Market rules on the grounds of public interest. This is a new dimension to the operation of the EC rules. The EU has an uncomfortable relationship towards the horizontal application of the free movement provisions5 while grappling with the application of the competition provisions towards uncompetitive behaviour orchestrated by the Member States. These are crucial issues in the twenty-first century as increasingly the regulation of a number of public services is undertaken by sub-State actors, regional authorities, and non-State actors. Similarly the provision of goods and services in the market is undertaken by sub-State, private and new hybrid actors. This in turn creates constitutional issues of the role of the economic and coercive power of the State and the correct balance to be achieved when non-State parties carry out traditional State functions. In particular sectors,6 the application of the Internal Market and competition rules of the EC Treaty creates an uneasy constitutional tension: how to balance the relationship between sovereignty, subsidiarity and competence in the EU. State intervention in the market is a large area of economic activity, involving public finance and private investment. Added to this, on the eve of enlargement, a number of States continue to have fundamental interests at stake in preserving State intervention in the market. The accession States have less experience of new forms of hybridisation, allowing the State to continue to influence the direction of certain sectors through new forms of public-private relationships. These issues have assumed greater significance since the Lisbon Council (March 2000) when competitiveness in the economic agenda was catapulted into greater prominence. At the same time the new century ushered in a greater awareness of the significance of values and citizenship in the EU constitutional agenda.

4 K Bacon, ‘State Regulation of the Market and EC Competition Rules: Articles 85 and 86 Compared’ (1997) 5 European Competition Law Review 283. 5 See S Van den Boggaert, ‘Horizontality’ in C Barnard and J Scott (eds), The Law of the Single Market (Oxford, Hart, 2002). 6 For example the provision of public services, social services and traditional non–market services such as education programmes.

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REGULATING STATE ACTIVITY IN THE EC TREATY

In 1957 it was recognised that State economic activity may create problems for the Common Market but only the extreme forms of State intervention were addressed.7 State intervention in the market has been addressed in a casuistic way, led not so much by the Commission, as triggered through litigation at the national level. The Commission has utilised soft law processes to create coherence and continuity to the Courts’ case law but also used such processes to discuss sensitive areas outside of the Community’s competence. Such activities continue despite the Court of Justice signalling that there are limits to economic integration in the Tobacco ruling.8 Soft law processes have evolved into new forms of economic governance, taking the form of Score Boards, Soft Law, Block Exemptions for State Aid, Press Releases and Speeches by the various Commissioners responsible for competition and the Internal Market.

THE INTERRELATIONSHIP OF COMPETITION AND INTERNAL MARKET POLICY

Mortelmans9 has written of the increasing convergence of competition law and internal market law, arguing that both policies, regarded as fundamental policies of the EU, pursue the same objectives.10 This essay uses the term inter-relationship between the competition rules and free market rules, conceding that this approach can only work at a very generalised level. Snell’s essay in this volume challenges the idea as to whether there should be convergence within the free movement provisions and a case can be made that there is a lack of homogeneity in the competition law rules, given the increasing use of regulation and competition law principles in the liberalised sectors. Similarly in sensitive sectors such as health care and social protection other economic governance tools are being used to handle special pleading for these sectors. In defence of the generalised approach it can be argued that litigants have seen the connection between the competition and

7 Namely State Aids, exclusive rights and monopolies. Public procurement issues have continued to remain outside of a defined Treaty base and gained momentum at the same time as other issues of State activity were activated through litigation in the 1990s. 8 Case C–376/98 Germany v Commission [2000] ECR I–8419. 9 K Mortelmans, ‘Towards Convergence in the Application of the Rules on Free Movement and On Competition’ (2001) 38 CML Rev 613. 10 Case C–202/88 France v Commission (Telecommunications Terminals) [1991] ECR I–1223, para 41 ‘ … Articles 2 and 3 of the Treaty set out to establish a market characterised by the free movement of goods where terms of competition are not distorted … [Article 28] et seq. must therefore be interpreted in the light of that principle, which means that the competition aspect of Article 3 (f) of the Treaty has to be taken into account’.

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free movement rules, arguing for the alternative, as well as the concurrent, application of the two sets of rules. The Court accepted the interconnectedness of the various policies, using Article 10 EC as the twine to bind the Members States’ commitment to market integration. The idea of the interrelationship of the two policies was grasped early on by the national courts involved in the litigation which sparked the controversial emergence of Article 28 EC as the dominant free market constitutional tool, empowering private traders to invoke its (initial) far-reaching provisions in the national courts.11 Many early cases used Article 28 EC and the competition law provisions against the Member States, particularly Article 86 EC, but also the combination of Articles 10, 81 and 82 EC. The Court was hesitant to use the competition law provisions against the Member States perhaps because, with the exception of Article 86(2) EC, there was no scope to allow a State’s economic activity to be justified or exempted from the application of the full force of the rules of the market. This explains why Article 28 EC was the chosen route of the Court in the initial cases exploring the boundaries of the constitutional division of power in the market. In Meng12 the Court asked the intervening parties a number of questions, one being the issue of justifications to the charge that a Member State had violated the competition rules of Articles 81 and 82 EC in combination with Article 10 EC. Could Article 81(3) EC apply to a Member State? Or could the justifications found in the fundamental freedoms provisions be read as justifications to a breach of the competition rules? Most of the Member States answered that both justifications should be available. The German government was more nuanced, arguing that only where the Member States were pursuing Community law objectives and where their behaviour did not affect the system of undistorted competition to an extent contrary to the Community interest should such justifications be read across to aid the State. Only the Irish government argued that anti-competitive State measures could never be justified. The Spanish government prophetically raised the possibility of reading across the justification of Article 86(2) EC where a service of general economic interest was involved. It is noteworthy that the Commission was favourable towards the Member States, arguing that the Member States should be allowed to invoke considerations of public policy going beyond Article 81(3) EC. In particular the Commission was concerned that the Member States should be able to invoke economic considerations and other public objectives as defences to the application of the competition rules. But there was also a limitation to this generous approach. Where it was shown that Article 10 EC had been 11 A

similar form of litigation is occurring using the free movement of services and competition law provisions to challenge the healthcare and social protection schemes organised by the Member States. 12 Case C–2/91 [1993] ECR I–5751.

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infringed, as was the allegation in Meng, there should be no justification.13 Since the Court found no violation of the competition rules in Meng the issue remained dormant. In Vlaamse Reisbureaus14 Advocate General Lenz ruled out the use of Article 81(3) EC by the Member States because it would not usually be possible to show that a minimum degree of competition is possible where the State had infringed the competition rules. In BNIC v Clair15 BNIC argued that the national provisions did not infringe Article 81(1) EC because they were taken for good reasons (to compensate for declining sales and over-production), as well as arguing that the policy was made by a public body which was not subject to the competition rules. The Court held that such factors would only be a basis for an application to the Commission for an exemption for an undertaking under Article 81(3) EC but did not suggest that recourse to Article 81(3) EC might also be an option for the State. The unease felt over a lack of a justification or defence to anti-competitive behaviour by a Member State is articulated in later cases, for example, Advocate General Jacobs in Pavlov states16 In such cases as the present ones it would thus be more satisfactory to accept a prima facie infringement justifiable on public interest grounds. In my view, measures taken by Member States comply with [Article 10(2) EC] where, although they reinforce the restrictive effects of a concertation between undertakings, they are taken in pursuit of a legitimate and clearly defined public interest objective and where Member States actively supervise that concertation.

Subsequently in paragraph 164 the Advocate General reinforces his belief that … even where concertation between private actors (for example in social or environmental matters) analysed in isolation restricts competition within the meaning of [Article 81(1) EC], the State might have legitimate reasons to reinforce and officialise on public interest grounds the effects of that concertation.

In Ahmed Saeed17 the Court addresses the idea of a justification for the Member State through the application of Article 86(2) EC. This reading 13 This

is a significant point in relation to the ruling in the context of free movement of goods in Case C–265/95 Commission v France [1997] ECR I–6959. Council Regulation No 2679/98 (OJ 1998 L337/8) offers a solution by listing exceptions/justifications. 14 Case 311/85 [1987] ECR 3816, para 40. 15 Case 123/83 Bureau national interprofessionnel du cognac v Guy Clair [1985] ECR 391. 16 Joined Cases C–180/98 to C–184/98 Pavel Pavlov and Others v Stichting Pensioenfonds Medische Specialisten [2000] ECR I–6451 para 163. 17 Case 66/86 [1989] ECR 803.

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over of a justification is seen in the area of State Aids 18 and the free movement rules.19 The language used by the Court seeing the interconnection between the competition principles and the fundamental four economic freedoms, particularly the free movement of goods, is pervasive in the judgments during this early period. It is instructive to trace back this case law since little attention has been paid to the significance of these linkages between competition and free trade principles. The importance of this phase in the development of Community constitutional law is noted by Poiares Maduro who argues that in utilising Community law to create the ‘European defence’ to defend, but also indirectly to challenge, national regulation such litigation raised the possibility of developing new trends in Community law. Of significance for our discussion is the fact that cases raised the issue of the inter-connected use of the competition rules and the free movement rules to challenge national regulatory autonomy. The inter-connectedness of the competition rules and the free movement of goods rules is seen earlier in the language of Dassonville20 when the Court gave a broad and authoritative definition of the concept of measures having an equivalent effect to quantitative restrictions in Article 28 EC as All trading rules enacted by Member States which are capable of hindering, directly or indirectly, actually or potentially, intra-Community trade are to be considered as measures having a effect equivalent to quantitative restrictions.21

This wide-ranging definition provided enough breadth to allow the Court to use it not so much as a rule but as a standard to keep under review actions of the Member States which might hinder intra-Community trade.22 The language used is borrowed from competition case law.23 Taking one case, GB-INNO,24 we gain insight into the Court’s thinking during this period. The Court observed that a national court was obliged 18 Case

T–106/95 FFSA and others v Commission [1997] ECR II–229; Case T–46/97 SIC v Commission [2000] ECR II–2125. Later cases use a different approach: Case C–53/00 Ferring [2001] ECR I–9067; Case C–280/00 Altmark [2003] ECR I–7747. Arguably where the compensation exceeds the cost of providing the public service Article 86(2) EC could be used in principle but would be hard to apply in practice. Note Case C–126/01 GEMO SA pending. 19 Case C–266/96 Corsica Ferries III [1998] ECR I–3949; Case C–209/98 FFAD/Københavns Kommune [2000] ECR I–3743; Case C–203/96 Dusseldorp [1998] ECR I–4075. 20 Case 8/74 Procureur du Roi v Dassonville [1974] ECR 837. 21 Ibid., para 5. 22 W Wils, ‘The Search For the Rule in Art 30 EEC: much ado about nothing?’ (1993) 18 EL Rev 475. 23 Cases 56 & 58/64 Établissements Consten SARL and Grundig-Verkaufs-GmbH v Commission [1966] ECR 299, 341 ‘ … what is particularly important is whether the agreement is capable of constituting a threat, either direct or indirect, actual or potential, to freedom of trade between Member States in a manner which might harm the attainment of the objectives of a single market between States.’ 24 Case 13/77 [1977] ECR 2115.

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to take into account all the relevant Treaty Articles: Articles 3(1)(g), 10(2), 28, 29 and 81 to 89 EC. The Court drew a clear parallel between Articles 3(g), 10(2) and 82 EC and the obligations of a Member State under Article 86 EC. But the Court’s ruling is complicated and lacks clarity. The case reveals the Court’s willingness to address the various Treaty provisions which may be infringed, but also its reluctance, or inability, to think through the way in which the various Treaty provisions interact. In its judgment the Court cites the wide statement from Dassonville concerning the scope of Article 28 EC, but moves on to consider Article 3(g) EC and Article 82 EC. The Court also refers to Article 81 EC but dismisses its application since the referring Court had only raised the possibility of the application of Article 82 EC. Reference is made also to Article 86 EC. The Court ruled that each Member State retained sovereignty to choose its own method of fiscal control over manufactured tobacco on sale in its territory.25 What is crucial in GBINNO is the first reference to Article 10(2) EC which will provide the link between Articles 81 and 82 EC and State action: … while it is true that [Article 82] is directed at undertakings, nonetheless it is also true that the Treaty imposes a duty on member states not to adopt or maintain in force and measure which could deprive that provision of its effectiveness.26

Inspired by the formulation of the questions from the national court, the Court creates the idea which will grow into the principle that the competition rules, designed to apply to private economic actors, can also be applied to the actions of the Member States using the conduit of Article 10(2) EC. The Court also suggests that national measures hindering the exercise of the fundamental freedoms and competition law must be justified by overriding requirements in the general interest which are non-discriminatory and proportionate. The GB-INNO case is puzzling from a number of perspectives, the crisscrossing between various Treaty Articles attracting analytical comment. At this early stage the Court had not worked out the scope of the Treaty rules and the various ways in which the Treaty provisions should interact. Hoffman27 argues the reference to Article 28 EC represents the bright line between Member States’ economic policies and the competence of the Community to create a common market. His analysis draws the conclusion that the Member States have not surrendered the sovereignty to regulate 25 Para 14. 26 Para 31. 27 A Hoffman,

‘Anticompetitive State Legislation Condemned Under Articles 5, 85 and 86 of the EEC Treaty: How Far Should the Court Go After Van Eycke?’ (1990) European Competition Law Review 1.

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their own economies but that their powers are now explicitly circumscribed or limited by the application of Article 28 EC where state action interferes with the free movement of goods between the Member States. In contrast Verstrynge28 focuses on Article 86 EC, arguing that this Article is used to give extra weight to the fidelity clause of Article 10(2) EC when the specific conditions of Article 86 EC have been satisfied. It was not until eight years later that the new doctrine came into its own in another case which involved criss-crossing various Treaty provisions: Leclerc v Au Blé Vert.29 In the intervening period the Court was asked to address the legality of State laws which involved regulatory issues such as price fixing. But the Court was unwilling to apply Articles 10(2) and 81 EC.30 In some cases,31 the Court is adamant that Articles 81 and 82 EC are applicable only to undertakings and are not relevant for determining whether national legislation is in conformity with Community law. Similarly in Van de Haar and Kaveka de Meern32 the Court distinguishes the different objectives of Article 28 EC and the competition rules. In some cases during this period Article 28 EC was found to have been infringed.33 In Van Tiggele34 the Court links squarely the loss of a competitive advantage enjoyed by imported goods to a market where a State has retail price maintenance laws as a form of discrimination bringing into play Article 28 EC.35 The classification of such cases as discrimination cases is difficult to justify since often the national measures are being attacked by nationals of the Member State for the simple reason that the regulatory control hinders their commercial freedom to trade on their own terms. Equally, in order to show that there is discrimination there should be evidence that imported goods are at a disadvantage as a result of the national regulation. While Article 28 EC is used as the legal basis to strike down the national law, arguably competition law principles are the underlying rationale for finding the measures to be contrary to the EC Treaty.

28 J-F Verstrynge, ‘The Obligations of Member States As Regards Competition in the EEC Treaty’ in B Hawk (ed), Annual Proceedings of the Fordham Corporate Law Institute (New York, Fordham, 1989). 29 Case 229/83 [1985] ECR 1. See also Case 254/87 Syndicat des libraires de Normandie v L’Aigle distribution SA [1988] ECR 4457. 30 For example, Case 5/79 Procureur Général v Hans Buys, Hans Pesch, Yves Dullieux and Denkavit France Sarl [1979] ECR 3203. 31 For example, Case 238/82 Duphar BV and Others v The Netherlands [1984] ECR 523. See also Joined Cases 177 and 178/82 Criminal Proceedings Against Jan van de Haar and Kaveka de Meern BV [1984] ECR 1797. 32 Joined Cases 177 and 178/82 [1984] ECR 1797 paras 11–12. 33 For example, Case 82/77 Openbaar Ministerie of the Kingdom of the Netherlands v Jacobus Philippus van Tiggele [1978] ECR 25; Case 181/82 Roussel Laboratoria BV and Others v The Netherlands [1983] ECR 3849. 34 Case 82/77 [1978] ECR 25. 35 See L Gormley, ‘Actually or Potentially, Directly or Indirectly? Obstacles to Free Movement of Goods’ (1990) 9 Yearbook of European Law 197.

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Explanations for this case law can be made by viewing the cases from the internal logic of the development of the Court’s role in economic integration. Cassis36 linked with the Dassonville ruling gave an expansionist role to Article 28 EC. In the hands of the Court the authority and impact of Community law had grown, paradoxically at a time when political commitments to economic integration were waning and losing direction. In contrast to the Member States’ resistance to integration the Court did not shy away from subjecting national policies to a European integrationist discipline grounded in market-building objectives based upon the guaranteed economic freedoms contained in the Treaty. The issue now is where to draw the bright line between the reach of the market and the Member States’ autonomy to direct economic policy. TECHNIQUES USED TO CREATE BRIGHT LINES

There is little coherence in the approach of the European Courts when addressing the basic constitutional question of competences between Member State autonomy and the application of Community law to regulate State intervention in the market. While attention has been paid to the demarcation techniques used in the area of free movement,37 less attention has been paid to the techniques used to create bright lines in the area of competition law. It is possible to identify a number of techniques and concepts utilised by the Courts and the Commission. The tools used by the Court are not always clear cut, and are often used in overlapping ways to draw the line between market activity caught by the EC Treaty and the autonomy of the Member States to organise their internal affairs. Imperium and Dominium A classic way of distinguishing State activity which is not subject to the rules of the market is to decide when the State is exercising its core public authority: imperium and dominium. This technique was used by the Commission in Meng38 and is used by some of the Advocates General.39 It is 36 Case

120/78 Rewe-Zentral AG v Bundesmonopolverwaltung für Branntwein [1979] ECR 649. See M Poiares Maduro, ‘Harmony and Dissonance in Free Movement’ (2001) 4 Cambridge Yearbook of European Legal Studies 315. 37 See Snell in this volume. 38 Above n 12. 39 For competition law see Advocate General Tesauro Case C–364/92 SAT Fluggesellschaft v Eurocontrol [1994] ECR I–43; for free movement law see Advocate General Mayras in Case 2/74 Reyners [1974] ECR 631. AG Jacobs in Case C–67/96 Albany [1999] ECR I–5751 para 314 argues that the exercise of official authority and the fact that activities have always been, and are necessarily carried out by, public, or assimilated bodies are the two reasons for shielding a body from the application of the competition rules.

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an important bright line since it takes State activity outside of the ambit of the Treaty and does not entail any justification or use of the proportionality principle by the Member States. In Banchero, for example, the Court held that authorising the way tobacco was to be sold was not an economic activity caught by the EC Treaty but was the exercise of ‘a State right’.40 Similarly where the State has delegated regulatory tasks to public or private bodies the Court has accepted that where such bodies are objective, acting in the public interest and not acting on behalf of, or in the interests of, their own members then the application of Articles 10, 81 and 82 EC can be avoided.41 In contrast the Court has recognised that where a public authority is acting in an economic way, representing special interests then the body will be treated as an undertaking and subject to the EC Treaty rules.42 The Court and the Commission are willing to delve behind the State veil and separate out tasks of imperium from economic activity performed by State bodies, making the latter subject to Community law scrutiny.43 The State may delegate its public authority tasks. For example, in Eurocontrol 44 an international organisation established by the Convention on International Civil Aviation to supervise air traffic was held to be a public authority carrying out tasks in the public interest. The Court states that it is in the exercise of sovereignty that States ensure the supervision of their airspace and the provision of air navigation and control services. In Diego Calì45 the Court finds that anti-pollution supervision is an essential task of the State and in Bodson46 the organisation of communal funeral services. This role for imperium to shield public authority from the rules of the market is explicitly recognised in the soft law Communications on services of general interest.47

40 Case C–387/93 [1995] ECR I–4663 para 48. Cf Case C–323/93 La Crespelle [1994] ECR I–5077; Case C–189/95 Franzèn [1997] ECR I–5909. 41 For example: Case C–96/94 Centro Servizi Spediporto [1995] ECR I–2883; Case C–140/94 DIP v Comune di Bassano [1995] ECR I–3257; Case C–38/97 Librandi [1998] ECR I–5955; Case C–266/96 Corsica Ferries [1998] ECR I–3949; Case C–35/96 Commission v Italy [1998] ECR I–3851. S Harm, ‘Delegation of Regulatory Powers to Private Parties under EC Competition Law: Towards a Procedural Public Interest Test’ (2002) 39 CML Rev 31. 42 Joined Cases C–180/98 to C–184/98 Pavel Pavlov and Others v Stichting Pensioenfonds Medische Specialisten [2000] ECR I–6451. 43 Commission Decision, Airport of Brussels OJ 1995 L216/8; Commission Decision, Spanish Courier Services OJ 1990 L 233/19; Opinion of AG Jacobs in Case C–475/99 Glöckner [2001] ECR I–8089, para 72. 44 Case C–364/92 SAT Fluggesellschaft v Eurocontrol [1994] ECR I–43. 45 Case C–343/95 [1997] ECR I–1547. 46 Case 30/87 [1988] ECR 2479. 47 Communication Services of General Interest in Europe OJ 1996 C 281/12; Report on Services of General Interest COM (2001) 598 final.

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Article 295 EC and the Political Economy of State Intervention Article 295 EC48 is interpreted as being neutral or agnostic about the role of State intervention in the economy, leaving the choice to the Member States of whether to use public resources or private markets to underpin economic growth. In response to the fears over the ever-creeping competence of Community activity the Court has not been sympathetic. It has not allowed Article 295 EC to be used by the Member States to reserve areas of economic organisation and activity from the reach of Community law.49 The idea that there is neutrality over whether to use public or private systems of ownership to deliver goods and services may be illusory given the implications of the goals of the Lisbon Summit of March 2000, committing the EU to becoming the most competitive, dynamic, knowledge based society in the world by the year 2010. Article 4 EC states that the Member States and the Community are to conduct their economic affairs … in accordance with the principle of an open market economy with free competition.

This goal is reinforced in Article 98 EC.50 In the hierarchy of Treaty norms it is assumed that principles established in the early Articles of the Treaty will take precedence over later provisions.51 The important position of Article 4 EC allows free market principles to dominate all policies of the EU, but since the Treaty of Amsterdam the Court is aware of the political need to realign the balance between economic and social goals. It has signalled that the substance of an open market economy is an area where the Court would prefer the lead to be taken by the Institutional decision-making structure, not the Courts.52 48 Art 295 EC states ‘The Treaty shall in no way prejudice the rules governing the system of property ownership’. 49 The scope of Art 295 EC has not received a definitive interpretation by the European Courts: Case C–367/98 Commission v Portugal; Case C–483/99 Commission v France; Case C–503/99 Commission v Belgium [2002] ECR I–4731; Cases C–463/00 and C–98/01 Commission v Spain and Commission v United Kingdom judgment of 13 May 2003. In these cases the AG is willing to see Art 295 EC as a buffer against the internal market rules but the Court refuses to address this argument. See E Szyszczak, ‘Golden Shares and Market Governance’ (2002) 29 Legal Issues of European Integration 255. 50 Art 98 EC reads: ‘Member States shall conduct their economic policies with a view to contributing to the achievement of the objectives of the Community, as defined in Article 2, and in the context of the broad guidelines referred to in Article 99(2). The Member States and the Community shall act in accordance with the principle of an open market economy with free competition, favouring an efficient allocation of resources, and in compliance with the principles set out in Article 4’. 51 See the importance attached to Art 4 EC in Case C–198/01 CIF v Autorità Garante della Concorrenza e del Mercato, judgment of 9 September 2003, para 47. Art 4 EC is used as a ‘fidelity clause’ in this ruling. 52 The Court has stated that Arts 4 and 98 EC establish a ‘general principle whose application calls for complex economic assessments which are a matter for the legislature or the national

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Soft Law During the 1990s soft law processes came into prominence as an important tool, deployed by the Commission, to show the Member States that there were clear lines between State activity which was immune from the market and economic behaviour of the State which was caught by Community law.53 For example, in relation to the use of golden shares in the privatisation processes the Commission issued a warning to the Member States, setting out its position that the use of golden shares could infringe the free movement rules.54 Soft law processes are seen as part of the new governance agenda of the EU although they have existed, in various guises in the area of State intervention in the market. For example soft law was used extensively in the area of State Aid policy-making.55 One of the most influential uses of soft law has been the Commission’s use of Communications and Papers, not only to rationalise the Courts’ case law on services of general economic interest under Article 86 EC, but also to pave the way for European concepts of services of general interest.56 Although the political power to drive the European integration agenda remains in the European Council, with greater emphasis being placed upon the six monthly Summits of the European Council, the Commission uses soft law in the form of Reports, Communications, Non-papers before, and after, these Summits to augment its role in a number of sensitive areas. The Concept of an Undertaking and Economic Activity Louri argues that It is not surprising that the notion of ‘undertaking’ is a core jurisdictional element for the application of the competition rules.57 administration’. Case C–9/99 Echirolles Distribution SA du Dauphiné and others [2000] ECR I–8207, para 25. 53 The

use of such governance processes in an earlier era has been addressed as part of a process of informal rule making, the idea being to use consensus-building models of governance alongside traditional styles: A Lenschow, ‘Transformation of European Environmental Governance’ in B Kohler-Koch and R Eising (eds), The Transformation of Governance in the European Union (London, Routledge, 1999). 54 Communication of the Commission on Certain Legal Aspects Concerning Intra-EU Investment, OJ 1997 C 220/15. 55 Until 1997 there was virtually no Council secondary legislation in the area of State Aid policy, yet this is one of the most controversial and political areas of EU regulatory policy. Policy was made and codified from European Court judgments by the Commission. 56 See E Szyszczak, ‘Public Service Provision in Competitive Markets’ (2002) 20 YEL 5. 57 V Louri, ‘ “Undertaking” as a Jurisdictional Element for the Application of EC Competition Rules’ (2002) 29 (2) Legal Issues of European Integration 143.

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Public undertakings have been defined in legislation in Article 2 of the Transparency Directive.58 This is a definition for the purposes of the Directive that has been used in a wider context and Buendia Sierra argues that the Commission and the Court have by implication used this definition for the purposes of applying the EC Treaty.59 In Höfner v Macrotron the Court defines an undertaking as … every entity engaged in an economic activity, regardless of the legal status of the entity and the way it is financed.60

This is described as a functional test, the Court looking to the nature of the activity undertaken not the legal form or status. The issue turns upon the scope of an ‘economic activity’. Diego Calì61 is an example where activities carried out by a private company in the public interest, the protection of the marine environment, were held not to be economic activities. Here the Court used the public interest, non-commercial test to shield delegated State activity from the rigours of the market. Such duties could also fall under the nature of exercise of public authority.62 The tougher cases have concerned health care issues,63 social security64 and pension funds.65 Liberalisation has ushered in a mixed role for many State/public undertakings. Partial liberalisation programmes, such as the liberalisation of postal services, have allowed the State to keep a reserved sector which is not opened up to competition alongside providing competitive services/ supplying goods on the liberalised market. Economies of scale, first mover

58 ‘Undertakings

over which public authorities may exercise, directly or indirectly, a dominant influence by virtue of their ownership of it, their financial participation therein or the rules which govern it’. Commission Directive (EEC) 80/723 OJ 1980 L195/35, as amended. 59 JL Buendia Sierra, Exclusive Rights and State Monopolies Under EC Law (Oxford, OUP,1999) 36. 60 Case C–41/90 [1991] ECR I–1979. See also Case C–55/96 Job Centre Coopsarl (II) [1997] ECR I–7119 where similar bodies were regarded as undertakings because of the economic nature of job placement. The fact that the undertakings were non-profit making and acting in the national interest did not over-turn the application of the functional approach to analysing their activities. 61 Case C–343/95 Diego Calì & Figli v Servizi Ecologici del Porto di Genova [1997] ECR I–1547. 62 Cf cases under the procurement rules where the Court has ruled that some activity in the general interest does not necessarily exclude the commercial character of the activity. There is ‘a distinction between needs in the general interest not having an industrial or commercial character and needs in the general interest having an industrial or commercial character’. Case C–223 &260/99 Agora & Excelsior [2001] ECR I–3605, para 32. See also Case 360/96 BFI Holding [1998] ECR I–6821; Case C–44/96 Mannesmann Anlangebau Austria [1998] ECR I–73. 63 Case C–475/99 Ambulanz Glockner [2001] ECR I–8089. Case C–203/99 Henning Veedfald [2001] ECR 3569. Cf Case T–319/99 FENIN [2003] ECR II–357. 64 Pavlov above n 42; Albany above n 39. 65 Albany above n 39.

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advantage, as well as national pride, and trust, in national champions give incumbents a dominant position on the market. By classifying the State’s commercial activities as activities of an undertaking the State is exposed to Article 86 and 82 EC. In GB-Inno-BM66 the Court ruled that the State may not use measures which strengthen or extend an already existing dominant position without sufficient justification.67 The Court has long held the view that it is unlawful encouragement of an abuse of a dominant position under Article 82 EC if a dominant undertaking has a conflict of interest as a result of a State measure.68 Thus a dominant public undertaking may not be authorised to regulate its competitors; one of the components of liberalisation in the EU is the separation or regulatory powers from the provision of goods and services on the market. In Connect Austria69 the Court ruled that a State measure was illegal where it made a new entrant on a market pay the State for a licence when the dominant State-owned undertaking received the licence without payment. This not only reinforced a dominant position but also did not allow for equality on the market. A number of cases, triggered by competitors in the liberalised sector, have alleged breaches of Article 82 EC70 and questioned the use of crosssubsidisation between funds for the reserved sector and the liberalised sector by the State incumbents on the market.71 Other disputes have questioned unfair commercial practices by incumbents72 and the question of how far funding for public service obligations should be notified as a form of State Aid.73

66 Case C–18/88 [1991] ECR I–5980, 5981. 67 See Case C–18/88 RTT [1991] ECR I–5941;

Case T–266/97 Vlaamse Televisie [1999] ECR II–2329; AG Tesauro, Case C–320/91 Corbeau [1993] ECR I–2533, 2555 ‘Provisions extending the scope of an exclusive right are not by their nature different from provisions establishing an exclusive right. They both eliminate, in a given sector, the possibility of the free exercise of economic activity and hence of competition. They may therefore be examined in the light of Articles [86] and [82]. And in both cases what is essential to check is whether or not the provisions are objectively justified’. For justification of abuse of a dominant positions: Case C–340/99 TNT Traco v Poste Italiane [2001] ECR I–4109; Case C–475/99 Ambulanz Glöckner [2001] ECR I–8089. 68 Case 267/86 van Eycke v Aspa [1988] ECR 4769; Case C–202/88 France v Commission [1991] ECR I–1223, para 51; Case C–18/88 RTT v GB-Inno [1991] ECR 5941; Case C–48/90 Netherlands v Commission [1992] ECR I–565 Case C–163/96 Silvano Raso [1998] ECR I–533. 69 Case C–462/99 Connect Austria v Telekom-Control-Kommission [2003] ECR I–5197, paras 80–87. 70 See the chapter by Cahill in this volume. 71 Case T–175/99 UPS Europe SA v Commission [2002] ECR II–1915 ; Case T–253/01 pending. 72 Commission Decision 2001/354/EC of 20 March 2001, O J L 125/27; Commission Decision 2002/180/EC Hays/La Poste O J 2002 L61/32. 73 Case C–280/00 Altmark Trans GmbH, Regierungspräsidium Magdeburg v Nahverrkehrsgesellschaft Altmark GmbH and Oberbundesanwalt beim Bundesverwaltungsgericht, [2003] ECR I–7747. See the chapter by Biondi in this volume.

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‘Not for Profit’ Activity The Court has used the idea that certain activity which is not carried out for profit may escape the reach of the market. Where education is provided on a non-for profit basis but as part of the State’s duty towards the general population in the social, cultural and educational field, then the free market rules do not apply.74 This is reinforced in Wirth75 where the Court states, albeit in an obiter dictum, that educational services provided essentially out of private funds, aiming to make a profit, may be caught by the Treaty rules. In the healthcare cases the Member States argued that in order for services to be caught by the Treaty rules the provider had to make a profit.76 The Court did not address this point.77 There has been more discussion of whether the not-for profit criteria plays a role in taking activity outside of the ambit of the competition law provisions. Exercising economic activity on a not-for profit basis will not exclude an economic activity from the ambit of the EC Treaty.78 Case law confirms that the Court does not link between the provision of services in the general interest and the condition of not-for profit status.79 While ‘notfor profit’ activity is one of the factors present in determining the status of whether a body is caught by the EC Treaty it is not the determining factor. In Sodemare ‘not-for profit’ was a condition of the Italian law for private operators to apply for a certificate of suitability in order to provide the social services. The Court recognised this as part of the Member State’s discretion to organise its own social security system.80 But the case for not applying the free movement rules was made on the principle solidarity, defined as a redistributive principle based upon need: It is clear from the documents before the Court that that system of social welfare, whose implementation is in principle entrusted to the public authorities, 74 Case 263/86 Belgium v Humbel [1988] ECR 5365; Case C–109/92 Wirth v Landeshaupptstadt Hannover [1993] ECR I–6447. Cf Henning Veedfald above n 63. The Court ruled that the manufacture within a hospital of a substance used in the course of a medical service at the hospital constitutes an economic activity even though the service is not paid for directly by the patient and is financed from public funds. 75 Ibid. 76 Case C–157/99 Geraets-Smits v Stichting Ziekenfonds VGZ and Peerbooms v Stichting CZ Groep Zorgverzekeringen [2001] ECR I–5473. 77 See G Davies, ‘Welfare As Service’ (2002) Legal Issues of European Integration 27, 30 who argues that ‘Profit as a marker of economic services, it is suggested, is dead. At most it may serve as a very general indicator of an economic outlook, which may be useful where it is not clear if money changing hands is in fact consideration or not’. See also AG Jacobs in Albany, above n 39 at para 336. Cf T Hervey, ‘Social Solidarity: A Buttress Against Internal Market Law?’ in J Shaw (ed), Social Law and Policy in an Evolving European Union (Oxford, Hart, 2000) 31, 44. ‘It is assumed that social solidarity systems are based on social aims, not on the “economic” goal of profit-making’. 78 FFSA above n 18 , Pavlov above n 42, Ambulanz Glöckner above n 63. 79 Case 240/83 ADBHU [1985] ECR 531; Case C–280/00 Altmark [2003] ECR I–7747. 80 Case 238/82 Duphar and Others v Netherlands State [1984] ECR 523, para 16.

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is based on the principle of solidarity, as reflected by the fact that it is designed as a matter of priority to assist those who are in a state of need owing to insufficient family income, total or partial lack of independence or the risk of being marginalized, and only then, within the limits imposed by the capacity of the establishments and resources available, to assist other persons who are, however, required to bear the costs thereof, to an extent commensurate with their financial means, in accordance with scales determined by reference to family income.81

Wirth lacks precision as to what proportion of private funding would be essential to tip educational provision into the ambit of the EC Treaty. In a world where the State is increasingly looking towards public-private finance initiatives greater clarity may be necessary in order to judge when the threshold is met. In the later healthcare cases the Court was adamant that the special nature of healthcare as part of a State’s social security did not provide an automatic defence to the application of the free market rules. The Court consistently reiterates the point that Member States are free to organise their own social protection systems but, as we have seen in relation to Article 295 EC, the exercise of that choice may involve market activities which then fall within the application of the EC Treaty. In these cases the Court finds that the healthcare services are within the ambit of the free movement rules but looks to the justifications to protect sensitive interests. The Court is following a pattern of widening the net of Community law to bring a State’s activities under scrutiny, and then working within the justifications/exceptions and derogations to the Treaty rules to allow Member States to experiment with different models of providing services which may not hinder the path of integration. This matches the political moves towards regulatory competition especially where the open method of co-ordination is used in sensitive areas.

Solidarity ‘Solidarity’ is used in a number of ways in the draft Constitution and in the case law of the Court. For the purposes of this essay solidarity has been used 81 Case

C–70/95 Sodemare SA and others v Regione Lombardia [1997] ECR I–3395, para 29. This is also a factor in Case C–218/00 Cisal di Battistello Venanzio & C. Sas v Istituto nazionale perl’assicurazione contro gli infortuni sul lavoro (INAIL) [2002] ECR I–691. ‘The absence of any direct link between the contributions paid and the benefits granted thus entails solidarity between better paid workers and those who, given their low earnings, would be deprived of proper social cover if such a link existed’. Para 42. For a discussion of the various ‘faisceau d’indices’ of the concept of solidarity derived from the Court’s case law see V Hatzopoulos, ‘Killing National Health and Insurance Systems But Healing Patients? The European Market for Health Care Services After the Judgments of the ECJ in Vanbraekel and Peerboom’ (2002) 39 CML Rev 683.

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as a concept to limit the application of the competition rules82 and the free movement rules83 to social protection schemes established by the Member States. It has also been deployed by the Court as a justification not to apply the competition rules,84 to economic activity. Hervey has argued that the Court has not made it clear when ‘social solidarity’ should be used as a test for applying or disapplying Community law, arguing that the outcome of the litigation might be the same whichever is the case.85 But when solidarity is used as a justification or derogation for economic activity caught by the EC Treaty Community law imposes a number of conditions: the application of proportionality and non-discrimination and the necessity to show that trade between Member States is not affected.86Arguably there is a difference when the test is applied since if the activity is seen as economic activity and brought within the ambit of the EC Treaty the Member States have lost their autonomy in the organisation of certain activities and must justify the way in which the activities, and may be asked to amend their arrangements in order to comply with the principle of proportionality.87

‘Services of General Economic Interest’ and ‘Services of General Interest’ Article 86(2) EC recognises the challenges faced by public or private undertakings88 which have been given special or exclusive rights to perform services of general economic interest.89 A derogation from the fundamental Treaty provisions of competition law and the Internal Market four freedoms may be obtained if it can be shown that the application of the rules obstructs the performance, in law, or in fact, of the particular tasks assigned to the undertakings and that the development of trade between the Member States must not be affected to such an extent as would be contrary to the interests of the Community. This is a derogation from the

82 Joined Cases C–159/91 and C–160/91 Poucet and Pistre [1993] ECR I–3851; Case C–238/94 Garcia [1996] ECR I–1673; Battistello ibid. 83 Sodemare n 81. 84 Albany n 39. 85 Hervey, above n 77. 86 E Szyszczak, ‘Public Services Provision in Competitive Markets’ (2001) 20 YEL 35, 50, discusses the difference between the use of Art 86(2) EC and the justifications found in the four freedoms of the EC Treaty. 87 For a tough application of proportionality by the CFI see Case T–260/94 Air Inter [1997] ECR II–997. 88 Case C–127/73 BRT v SABAM [1974] ECR 313. 89 Examples of such services include controlling navigation of a major waterway, universal and continuous mooring services, a public telephone network, postal services, supplementary pension schemes, unprofitable air routes, management of environmentally undesirable waste. For a case where a service of general interest was denied see Case C–179/90 Port of Genoa [1991] ECR I–5931.

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fundamental EC Treaty provisions which must be interpreted strictly and in accordance with the principle of proportionality. Article 86(2) EC suggests that such services are provided where there would be a lack of commercial viability in such services if provided according to market principles and the general interest dictates the necessity for such services.90 The wording of Article 86(1) EC accepts that these public services can be entrusted to non-State bodies.91 In a case pending Advocate General Jacobs suggests that bodies delegated with the task of fixing the price of medicines under a statutory health insurance scheme may be able to rely upon Article 86(2) EC where the behaviour is caught by Article 81(1) EC.92 The Court has also been generous in its application of the principle of proportionality, accepting that the State may not be expected to act in the same way as a commercial undertaking when pursuing an economic activity.93 The inclusion of Article 16 EC and also Article 36 in the Charter of Fundamental Rights of the EU has provided a new dimension to services of general interest. Lobbyists of the Convention on the Future of Europe pressed for Article 16 EC to be broadened to provide a legal base for services of general interest in the EC Treaty, as well as greater acknowledgment of the role of services of general interest as values of the Union. The Report from the Working Group on Social Europe revealed differences of opinion on the way services of general interest should be accommodated at European level.94 90 See EC Commission, Notice on Services of General Interest OJ 2001 C 17/4. 91 Case C–66/86 Ahmed Saeed Flugreisen and Silver Line Reiseburo GmbH v

Zentrale zur Bekampfung Unlauteren Wewttbewerbs eV [1989] ECR 803; Case C–266/96 Corsica Ferries France SA v Gruppo Antichi Ormeggiatori del Porto Genovo Coop and others [1998] ECR I–3949. 92 Joined Cases C–264/01, C–306/01, C–354/01 and C–355/01 AOK Bundesverband and others v Ichthyol-Gesellschaft Cordes and Others, Opinion of 22 May 2004; judgment of 16 March 2004. 93 Cases C–157–160/94 Commission v Netherlands, Italian Republic, French Republic and Kingdom of Spain [1997] ECR I–5699. Cf Altmark, above n 18 where tougher conditions are imposed upon an undertaking receiving compensation for providing public services. 94 Final Report on Working Group XI on Social Europe, CONV 516/03, Brussels, 30 January 2003. The Working Group were divided on whether the current Article 16 EC has essentially a declaratory value and therefore should be extended to allow for a legal base for the Union to adopt framework legislation at European level, covering relevant aspects of the provision of services of general interest such as universal access (para 32). Other members of the Group wanted further competence allowing the Council to adopt by co-decision legislative measures for establishing minimum standards of social protection (health care, social security benefits, social services). Some members wanted recognition of the ‘social economy’ in the Constitutional Treaty allowing for its development on the basis of social solidarity. There was so much division within the Working Group that no recommendation was made on Art 16 EC and it was left as a matter to be discussed by the Convention (para 35). The new Art 16 in the draft Constitution (Art III–6) is placed under the heading ‘Clauses of General Application’ and does not provide a legal base for further legislation. The Commission has published a Green Paper, COM (2003) 270 final, which addresses a wide range of questions.

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Inherent Restriction Approach In a number of cases the Court and the Commission have accepted that restrictions on trade or competition may be justified because they are inherently necessary. This idea is used to take activity outside of the scope of the Community rules and also as a justification or derogation from the rules.95 The Court has used this idea in relation to the free movement rules in cases concerning selection rules for participation in international tournaments.96 The rules were seen as part of the inherent nature of organisational rules for major international events. But the CFI has refused to stretch this concept.97 In Wouters98 the Court ruled upon the regulation of The Netherlands’ Bar which prohibited multi-disciplinary practices. The Court found that the regulation did not infringe Article 81(1) EC despite the fact that it would restrict competition as the rule adopted was necessary for the proper practice of the legal profession in The Netherlands. The Court decides this fact by looking at the proportionality of the measure. This case could be read as part of the inherent restriction case law. Wouters raised the infringement of the free movement and the competition rules and the Court, at paragraph 122 of the judgment, states that the justifications relating to the free movement rules may also be used to justify a breach of the competition rules. Although parallels can be drawn between Wouters and the Cassis approach in relation to the free movement of goods, of greater significance is the use of the interrelationship between the free movement justifications and the competition rules. The idea of solidarity, discussed above could also be seen as dimension to the inherent restriction approach.99 In contrast this form of gateway is not used in the healthcare cases.100 The argument in the healthcare cases is about denying choice in seeking healthcare on the grounds that there is a need—an inherent restriction—to restrict that choice for various economic reasons, predominantly maintaining the viability of the national 95 Case C–191/97 Deliège [2000] ECR I–2549; Case C–176/96 Lehtonen [2000] ECR I–2681. 96 Deliege ibid. The competition rules were also raised but the Court did not address the issue.

AG Cosmas took the inherent restriction approach arguing that the rules did restrict competition but were not caught by Article 81) EC because they were indispensable to the achievement of legitimate objectives inherent within the sport of judo. AG Alber adopts a similar approach in Lehtonen. 97 Case T–144/99 Institute of Professional Representatives before the European Patent Office v Commission of the European Communities [2001] ECR II–1087. 98 Case C–309/99 [2002] ECR I–1577. 99 See Joined Cases C–115/97, C–116/97 and C–117/97 Albany, Brentjens [1999] ECR I–6025; Joined Cases C–180/98—C–184/98 Pavlov [2000] ECR I–6451; Case C–222/98 Van der Woude [2000] ECR I–7111. Indeed Wouters would follow the approach of the ruling in Albany which took the agreements made between the social partners outside of the scope of Art 81(1) EC. These cases suggest that the Court is willing to take some non-economic considerations into account when applying the competition rules to sensitive areas. 100 Joined Cases C–267 and C–268/91 [1993] ECR I–637.

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healthcare system. Instead the Court looks to the justifications for a derogation from the free movement principle.

De Minimis The Commission has used a de minimis approach in relation to anticompetitive behaviour by undertakings where there is no appreciable affect upon trade between the Member States.101 De minimis provides little scope for State intervention in the market where the effects upon trade will be significant, especially where monopolies and exclusive rights are concerned. But where the State has delegated powers to an undertaking or an association of undertakings there is the possibility of invoking the de minimis principle, particularly where decisions affect local concerns.102 In relation to the free movement rules the Court has not used the de minimis principle as a tool for taking State activity outside of the scope of Community law.103 Arguably this may be because the Court used a different mechanism, the rule of reason from Cassis104 and the ruling in Keck,105 to create what it saw as a bright line in terms of Community versus Member State competence.106

GENERIC PUBLIC INTEREST JUSTIFICATION

The processes of liberalisation and privatisation have subjected areas of State activity to the rules of the market and, concurrently, the State has handed over more areas of traditional State activity to non- State actors. The Courts and the Commission are attempting to clarify the circumstances when State activity is subject to Community law using a variety of legal tools and techniques. This essay argues that one way forward is to see competition and Internal Market law as intertwined: a continuum of ideas which are consistent in their goals and their application. An argument is made for a simple approach. Where the State, or delegated public or private actors, engage in market activity then the EC Treaty rules should apply. A generic defence/justification should be available for a breach of Community law based upon the ground that there is an overriding requirement of the general interest justifying the behaviour. The compelling argument for the 101 Communication O J 1997 C 372/4. 102 See Pavlov, above n 98. 103 Joined Cases 177/82 and 178/82 Van den Haar [1984] ECR 104 Above n 36. 105 Cases C–267& 268/91 [1993] ECR I–6097. 106 AG Jacobs in Leclerc-TFI suggested a de minimis rule could

C–412/93 [1995] ECR I–179.

1797. be applied to Art 28 EC: Case

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adoption of this approach is seen in the uncertainty caused by the current confused state of the law and the consequences of unravelling huge areas of public finance commitments. The suggested solution fits the logic of the Internal Market, allowing for Community scrutiny, transparency and accountability of the Member States’ policies. A weakness of the current approach is the lack of a defence or justification for anti-competitive behaviour on the part of the State. To date the Court has concocted a rag-bag of techniques to provide relief to the Member States in deserving cases. Article 86(2) EC has been stretched to provide a derogation in State Aid policy but the weaknesses, and illogical consequences of this approach have been exposed in the Opinion of Advocate General Jacobs in GEMO.107 The Court has also deployed new ideas, such as the flexible use of the concept of solidarity to protect social policy programmes from the full thrust of market forces. What is more tantalising is the glimpse of the use of the more versatile and flexible public interest justifications found in the four freedom rules which provide protection for a greater range of national interests and values which can legitimately be protected in the Internal Market.108 These major constitutional questions on the balance of power and determination of values within the EU have not been at the forefront of the current governance agenda. Yet a number of issues need to be addressed. A first issue is that the Treaty based justifications are out-dated. The Cassis approach allows for evolution and flexibility in introducing new ideas of interests to be protected where indistinctly applicable measures are at issue.109 A simpler solution would be to use a generic public interest justification. Within the four freedoms’ case law the Court appears to be moving towards such an approach, utilising the concept of proportionality as a flexible tool to adapt to different situations.110 The use of a generic justification would allow the Court to adapt to new situations and new ideas of policies and values to be protected in the new constitutional order. This 107 Case

C–126/01 Ministre de l’économie, des Finances et de l’industrie v GEMO SA, Opinion of 30 April 2002. 108 Above n 98. See also S Weatherill, ‘The EU Charter of Fundamental Rights and the Internal Market’ Francisco Lucas Pires Working Papers Series on European Constitutionalism, Working Paper 2003/03, Facudade de Direito da Universidade Nova de Lisboa. 109 In some cases the Court does not apply a rigid distinction between justifications to a distinctly applicable and indistinctly applicable measure: Case C–2/90 Commission v Belgium (Walloon Waste) [1992] ECR I–4431; Case C–120/95 Decker [1998] ECR I–1831; Case C–281/98 Angonese [2000] ECR I–4139; Case C–379/98 Preussen Elektra [2001] ECR I–2099. 110 J Jans, ‘Proportionality Re-visited’ (2000) 27 Legal Issues of European Integration 239; M Soriano ‘How Proportionate Should Anti-competitive State Measures Be?’ (2003) 28 EL Rev 112. For a discussion of how the use of proportionality can be differentiated further see J Baquero Cruz, Between Competition and Free Movement (Oxford, Hart, 2002) 161. It is argued that a sliding scale could be implemented depending upon the degree of democratic input into the public measure under review.

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would provide a balance between outlawing overtly protectionist national interests and enhancing the Europeanisation of common policies and values.111 The second issue, currently a stumbling block, would be how far the EU should continue with the Court’s case law in the area of free movement that a valid justification can only be a general interest of a non-economic nature.112 In Campus Oil113 the Court raised a possibility that economic interests might be protected by the use of public policy and public security justifications.114 Kohll takes the Court very close to the edge of where noneconomic interests end.115 Finally, a point not to be overlooked, is that recent case law in the area of the free movement of capital has shown that Member States may continue to have leeway in protecting national interests provided that they observe procedural rights and guarantees.116

111 See O Gerstenberger, ‘Expanding the Constitution Beyond the Court: The case of EuroConsitutionalism’ (2002) 8 ELJ 172. An example of how environmental issues have become a Europeanised value to be protected is Case C–379/98 Preussen Elektra above n 109. For a discussion of how competition law is taking into account a wider range of non-economic issues see G Monti, ‘Article 81 EC and Public Policy’ (2002) 39 CML Rev 1057 and his contribution to this volume. 112 Case 7/61 Commission v Italy ECR 317. Case C–347/88 Commission v Greece [1990] ECR I–4747. In relation to services see: Case C–398/95 SETTG [1997] ECR I–6959; Case 120/95 Decker [1998] ECR I–1831. Cf Art 86(2) EC where economic reasons may be used to justify a measure which is contrary to the competition and free movement provisions. 113 Case 72/83 Campus Oil v Ministry of Industry and Energy [1984] ECR I–2727. 114 The Court missed the opportunity to re-visit this argument in Case C–157/94 Commission v The Netherlands [1997] ECR I–5677 where the Commission had used Arts 28 and 29 EC raising the possibility of invoking the Art 30 justification but the Court chose the more tortuous route of finding an infringement under Art 31 EC and using Art 86(2) EC as grounds for a justification. 115 Case C–158/96 [1998] ECR I–1673. See now Art 137(4) EC. See A Gagliardi, ‘United States and European Union Antitrust versus State Regulation of the Economy: Is There a Better Test?’ (2000) 25 EL Rev 353 who argues that the distinction between economic and noneconomic interests is becoming untenable and that a test of ‘legitimate interest’ would provide a generic justification for State intervention in the market. 116 See E Szyszczak, ‘Golden Shares and Market Governance’ (2002) 29 Legal Issues of European Integration 255.

14 Competition and Protected Services in the EU: Abuse of Dominance by Public Sector Undertakings and the Onward March of Article 86 DERMOT CAHILL

INTRODUCTION

O

VER THE LAST three years, a number of quite interesting Article 86 abuse of dominance European Commission Decisions and European Court of First Instance/European Court of Justice Judgments have been delivered. While no revolution has taken place in Dominance jurisprudence during this period, nevertheless, those Judgments and Decisions have consolidated the extension of Article 82’s1 reach into the Article 862 arena, as well as elaborated on the scope of 1 Article

82 EC: ‘Any abuse by one or more undertakings of a dominant position within the common market or in a substantial part of it shall be prohibited as incompatible with the common market in so far as it may affect trade between Member States. Such abuse may, in particular, consist in: (a)

directly or indirectly imposing unfair purchase or selling prices or other unfair trading conditions; (b) limiting production, markets or technical development to the prejudice of consumers; (c) applying dissimilar conditions to equivalent transactions with other parties, thereby placing them at a competitive disadvantage; (d) making the conclusion of contracts subject to acceptance by the other parties of supplementary obligations which by their nature or according to commercial usage, have no connection with the subject of such contracts’. 2 Article

1.

86 EC:

In the case of public undertakings and undertakings to which Member States grant special or exclusive rights, Member States shall neither enact nor maintain in force any

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Article 86 itself.3 This development is of major policy significance for State-appointed monopolists, historically protected from competition in vast swathes of the economy. Such entities now face increasing competition from private competitors in hitherto protected markets, which are now deemed open to competition.4 While monopolists can still be appointed by the State to exclusively operate Article 86(2) ‘services of general economic interest’ (in which competition may remain prohibited), the terms set by the State under which the monopoly must operate are coming under ever-increasing Article 86 competition scrutiny. The onward march of Article 86 assumes even further significance in this regard, in light of the on-going transfer of ownership of protected monopolists from State to private hands.5 The recent case law attempts to articulate coherent legal principles to govern the parameters within which protected monopolists, granted their special position by law (so-called reserved market monopolists), may legitimately act, and also those parameters beyond which abuse contrary to Article 82 occurs. This chapter focuses on some of the more recent ECJ/CFI case law/Commission Decisions in this arena, several of which concern situations where State appointed monopolists used their statutorily granted dominance in order to unfairly impinge on the activities of measure contrary to the rules contained in this Treaty, in particular to those rules provided for in Article 12 and Articles 81 to 89. 2. Undertakings entrusted with the operation of services of general economic interest or having the character of a revenue-producing monopoly shall be subject to the rules contained in this Treaty, in particular the rules on competition, insofar as the application of such rules does not obstruct the performance, in law or in fact, of the particular tasks assigned to them. The development of trade must not be affected to such an extent as would be contrary to the interests of the Community. 3. The Commission shall ensure the application of the provisions of this Article and shall, where necessary, address appropriate directives or decisions to Member States. 3 For

a review of the case law and issues arising in the initial period of Article 86 (formerly Article 90) jurisprudence, see Ehlermann, ‘Managing Monopolies: The Role of the State in Controlling Market Dominance in the European Community’ [1993] 2 ECLR 61; Pappalardo, ‘State Measures and Public Undertakings: Article 90 of the EEC Treaty Revisited’ [1991] 1 ECLR 29; Bright, ‘Article 90, Economic Policy and the Duties of Member States’; Statutory Monopolies and EC Competition Law: The Belgian Post Monopoly Case [1993] 6 ECLR 279. 4 Such as the telecommunications equipment market: Case 202/88 Commission v France [1991] ECR I–1223 illustrating EC legislation which sought to withdraw State-appointed telecommunications monopolists exclusive rights controlling importation of telecommunications terminal equipment; also Case 18/88 RTT v GB Inno BM [1991] ECR I–5941 where RTT, Belgian telecommunications monopolist failed to convince the ECJ that its exclusive network monopoly rights should extend to telecom equipment and connection markets. 5 As seen, for example, in UPS Europe v Deutche Post AG (Commission Decision 2001/354/EC, OJ 125/27, 5 May 2001) where the Commission found that Deutche Post, which had restructured and separated its reserved postal service and non-reserved business parcel services in order to comply with the parameters set by Arts 82/86, had nevertheless engaged in illegal fidelity price rebates in the parcel market. Also, see further below where Commission Decision La Poste/SNELPD is considered.

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players in neighbouring non-reserved (ie, open competition) markets. A range of issues will be considered. First, whether certain types of reserved market monopolists constitute Article 86 ‘undertakings’?6 Secondly, the extent to which reserved market monopolists are entitled to use their reserved market profits to compete for ownership of private competitors.7 Thirdly, whether a reserved market monopolist may be permitted to impose fees on non-reserved market competitors in order to maintain the economic equilibrium of the reserved market service even though the monopolist does not provide the non-reserved market competitors (or their customers) with any aspect of the service.8 Fourthly, whether the operator of a nation-wide distribution network can be obliged to make access available to others on non-discriminatory terms, even though there is no legal impediment preventing others from constructing their own network.9 Fifthly, whether the State is entitled to escape the application of Article 86 by permitting a formerly public owned monopolist to determine, by way of private contract, the conditions under which a non-reserved ancillary market competitor can access the reserved market.10 Sixthly, whether Article 86 can be invoked where a reserved market monopolist is bundling reserved service and non-reserved market service packages in order to strengthen its position in the non-reserved market.11 Each of these issues will now be considered in turn. T–319/99 FENIN v Commission;12 C–218/00 Cisal v INAIL;13 C–82/ 01P Aéroports de Paris v Commission:14 Are certain entities ‘undertakings’ for the purpose of Article 86? This question is one that has given rise to much argument in recent case law. The approach taken by the ECJ with regard to this issue traditionally has been that whether an entity is an undertaking for the purposes of Article 86 does not depend on the legal status of the entity or the way it is financed, but rather what is determinative is whether the entity’s activities are in the nature of economic activity15 or conversely, whether the activities are 6 T–319/99 FENIN v Commission Unrep. 4 March 2003 (purchase of medical equipment); C–218/00 Cisal v INAIL [2002] ECR I–691 (mandatory employee accident insurance scheme); C–82/01P Aéroports de Paris v Commission [2002] ECR I–9297 (managing airports). 7 T–175/99 UPS Europe v Commission [2002] ECR II–1915. 8 Case C–340/99 TNT Traco SpA v Poste Italiane [2001] ECR I–4109. 9 Case T–139/98 AAMS v Commission [2001] ECR II–3413. 10 La Poste (France)/SNELPD (Comm. Decision 2002/344/EC, OJ L 120/19, 7 May 2002). 11 La Poste/Hays (Comm. Decision 2002/180/EC, OJ L 61/32, 2 March 2002). 12 T–319/99 FENIN v Commission CFI (Unrep.) 4 March 2003. 13 C–218/00 Cisal v INAIL [2002] ECR I–691. 14 C–82/01P Aeroports de Paris v Commission [2002] ECR I–9297. 15 For earlier case law on this issue, see Case C–179/90 Merci Convenzionali Porto di Genova SpA v Siderurgica Gabrielle SpA [1991] ECR I–5889 where a company with exclusive rights to provide port labour services was held to be an undertaking as such activity constituted economic activity, whereas by contrast in Case C–22/98 Re Becu [1999] ECR I–5665, dock

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non-economic in nature, ie, they can be said to serve a purely public interest purpose based on the principle of social solidarity. In particular, it will be seen that entities that engage in apparently commercial activities will not be held to be undertakings where the activities are organised on the basis of the principle of solidarity, on a non-profit-making basis, and where any benefits to be provided bear no relation to the level of citizen contributions.16 This question of what is an undertaking has given rise to robust exchanges in three recent cases. In FENIN v Commission17 FENIN, an association of undertakings which market products and equipment used in Spanish hospitals, alleged that certain Spanish health ministries (the SNS) which run the Spanish national health system in conjunction with other organisations were, contrary to Article 82, systematically late in paying for goods and equipment supplied,18 and furthermore that Article 86(2) was not available to justify such abusive behaviour. The Commission did not consider the FENIN complaint under either Article as it has found that the SNS was not an undertaking on the ground that the SNS and its member associations who purchase medical goods and equipment from FENIN members, were not conducting economic activity as the goods were intended for use in the State-supported national health system. On appeal, the CFI held with the Commission, agreeing that when examining the question of whether the activity of purchasing vast quantities of medical goods conferred the status of undertaking on the SNS, the question could not be artificially divorced from the issue of what use were the purchased goods to be used workers given special and exclusive rights to be selected for employment on the docks, were found not to be undertakings as at all relevant times they would be employees and not business entities in their own right. Also see Joined Cases C–180 & 184/98 Pavlov Stichting Pensioenfonds Medische Specialisten [2001] ECR I–6451 where a professional association consisting of self-employed professionals, which required its members to become members of an occupational pension scheme, was found to be an undertaking, as were its members in their individual capacities as they were self-employed (this can be contrasted with Case C–219/97 Drijvende Bokken [1999] ECR I–6121 where the ECJ held that where employers and employees in the context of a collective labour agreement set up a single pension fund to cover all workers in a particular sector, this action did not fall within the scope of the Treaty’s Competition rules as its objective was to encourage collective action to improve workers conditions, and hence could not be held to constitute economic activity. 16 Joined Cases C–159/91 & C–160/91 Poucet & Pistre v AGF and Concava [1993] ECR I–637. Though note that this assessment is a cumulative one, as in cases such as C–244/94 Fédération Française des Sociétés D’Assurance and Others [1995] ECR I–4015 and Case C–411/98 Ferlini v Centre Hospitalier de Luxembourg [2000] ECR I–8184 Advocates General Tesauro and Cosmas respectively were of the opinion that it does not necessarily follow that all activities pursued on the basis of the principle of solidarity render the entity outside the classification of ‘undertaking’ if there are other aspects to the entity’s operations which might render the entity an undertaking, at least in respect of certain aspects of its operations. See also Case C–41/90 Höfner and Elser v Mactrotron [1991] ECR I–1979. 17 T–319/99 FENIN v Commission CFI (Unrep) 4 March 2003. 18 Effectively the SNS’s members were dominant purchasers in the Spanish market for such goods and equipment.

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for? As the national health system utilised the goods by providing free national health care on a universal basis, funded by social security contributions in pursuit of the principle of solidarity, the SNS was not an undertaking for the purposes of Community Competition law.19 Another recent case where the question of whether an entity was an undertaking arose from the Italian case of Cisal v INAIL.20 All employees were required to be compulsorily insured with INAIL by their employers against accidents at work. On the question of whether INAIL, a body charged by the State with operating the compulsory accident insurance scheme, constituted an undertaking, the ECJ held that because INAIL’s activity was not an economic activity, hence INAIL was not an undertaking. In this regard, the Court observed that INAIL operated on the basis of the solidarity principle, in that the contributions workers were required to make to INAIL bore no economic relation either to their wage levels or to the level of benefits they would receive in the event of an accident. Consequently, held the Court, INAIL’s activity could not be said to be sufficiently economic in character to constitute INAIL as an undertaking. The final case to be considered is that of Aéroports de Paris v Commission21 where the applicant inter alia argued that it was not an undertaking, but rather a body vested with official powers to manage airport infrastructure by the State. The CFI had held that Aéroports de Paris’ activities could be classified into two categories, official administrative activities and airport management activities. It had held that the applicant’s provision of the latter (ie, airport management facilities) to airlines, in return for a rate freely fixed by the applicant, constituted an economic activity and therefore in that context the applicant was an undertaking subject to Articles 82 and 86. Upholding the CFI’s reasoning, the ECJ on appeal observed that merely because a body has official powers conferred by the State is not definitive as to whether or not it is an undertaking. Rather, what is important is whether the provision of the particular goods or services could be described as an economic activity.22 19 As

the CFI stated at para 37: ‘Whilst an entity may wield very considerable economic power, even giving rise to a monopsony, it nevertheless remains the case that, if the activity for which that entity purchases goods is not an economic activity, it is not acting as an undertaking for the purposes of Community competition law and is therefore not subject to the prohibitions laid down in Articles 81 and 82 EC.’ 20 C–218/00 Cisal v INAIL [2002] ECR I–691. 21 C–82/01P Aéroports de Paris v Commission [2002] ECR I–9297. 22 At paras 78–82. Another such example was presented by C–475/99 Ambulanz Glockner v Landkreis Sudwestpfalz and Oths [2001] ECR I–8089 where the provision of ambulance services by non-profit making organisations to the public for remuneration, was held to confer the status of undertaking on the service provider (at para 20). Interestingly in this respect, the ECJ also held (in this case) that the fact that such service providers were subject to public service obligations (which might thereby render their services less competitive than comparable operators not subject to such obligations) did not prevent them from being held to constitute undertakings (para 21).

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T–195/99 UPS Europe v Commission:23 Does Article 86 permit reserved market monopolists to use their reserved market profits to compete for ownership of open market competitors? UPS Europe v Commission on the one hand clarifies that reserved service monopolists may use reserved service profits to buy control of competitors operating in areas of activity open to competition (ie, private competitors in non-reserved markets), and on the other hand makes it clear that Article 82 will be breached where the reserved service monopolist uses profits generated from abusive practices in the reserved market to outbid private undertakings for control of competitors in non-reserved markets. The background to this decision was that UPS, an international courier operation, objected to the Commission’s clearance of the acquisition of control of DHL International by several parties (one of whom was Deutche Post). UPS argued that the Commission had erred in not finding that Deutche Post had abused its dominant position when it employed funds allegedly24 derived from its reserved market activity (postal delivery) to purchase a joint controlling interest in DHL which operated in a neighbouring open competition market (courier services). Essentially, UPS was arguing that it was improper for Deutche Post to use profits generated from its reserved monopoly activities for purposes other than the maintenance of that reserved service. This is an interesting argument—monopolists appointed under law are appointed essentially to perform a valuable service, and funds earned from the provision of that service (UPS argued) should be dedicated to the maintenance and continuation of that service, by way of cross-subsidisation if necessary,25 but that wider use of such funds for purposes such as acquiring assets operating in non-reserved markets (which have no connection with the provision of the reserved service) is improper use of such funds contrary to Article 82.26 The CFI rejected this argument, holding that it is not contrary to Article 82 for an Article 86 appointee (Deutche Post) to employ profits, derived from its reserved activity, for the purpose of acquiring control of operators operating in a neighbouring (competitive) market. It emphasised that 23 T–175/99 UPS Europe v Commission 24 ‘Allegedly’ as there was some conflict

[2002] ECR II–1915. on this point, UPS claiming the funds were generated from Deutche Post’s reserved services activities, and Deutche Post claimed they were generated from real estate sales. 25 Though see Chung, ‘Recent Developments in EC Postal Liberalisation’ [1994] 4 ECLR 217 where the efficiencies gained from cross-subsidisation compared with the making of a direct cash grant to subsidise the universal service provider’s operations, is queried. 26 In a wider context, UPS was arguing that it is unfair competition where a monopoly holder whose right to make monopoly profits is protected by law, is allowed use such funds for purposes unconnected with the monopoly, as this allows the monopolist to acquire control of undertakings operating on competitive markets without having to either generate such funds from ‘normal’ business performance or consider normal risk investment return considerations.

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an Article 86 appointee is not confined to spending its reserved activity profits on cross-subsidising loss-making parts of its reserved activity.27 However, the CFI did indicate that Article 82 would be breached in the event that it was established that Deutche Post had derived its profits from abusive practices in the reserved activity area (such as excessive or predatory pricing). This is a clear indication by the CFI that, where proof can be adduced of reserved service abuses, a reserved service monopolist could be prevented from using its reserved service profits to extend its influence into competitive markets (although UPS itself was unable to adduce any such evidence in the instant case).28 C–340/99 TNT Traco SpA v Poste Italiane29 is of interest because it highlights that while it is ordinarily contrary to Article 82 for a dominant undertaking to charge for a service it does not actually provide, where the dominant undertaking is an Article 86-type undertaking, it may be able to use Article 86(2) to argue successfully that it is necessary (in order for it to carry out its entrusted task under economically acceptable conditions) that it charges for such service provided that such charge does not exceed the amount necessary to maintain the reserved service in the required state of economic stability. This case is fascinating because of the eventual ‘twist’ in the Judgment’s logic, which demonstrates how the Court is attempting to prevent Article 86 appointees from abusing their dominant position contrary to Article 82, while at the same time recognising that Article 86 does not prohibit Member States (provided certain parameters are respected) from requiring non-reserved market competitors to subsidise the operating losses of reserved service providers. 27 Note

that the Court emphasised that cross-subsidisation would however be contrary to Art 82 if it is employed to mask an abusive practice (eg, predatory pricing). While one may have some sympathy for UPS in its vain attempts to stop Deutche Post expanding into the courier sector, a Commission press release (IP/02/890, 19 June 2002) does give some food for thought (particularly as UPS and Deutche Post have been struggling with each other in the Community courts for some years). In June 2002, in a dispute not directly related to the case discussed above, but all part of the on-going struggle, the Commission announced that Deutche Post had undercut prices in non-reserved parcel delivery markets, and in so doing had incurred losses of 572m Euro. A State subsidy was used to cover the losses. The Commission announced it intended ordering the German authorities to recover the 572m Euro subsidy from Deutche Post, because it regarded the State subsidy as, in effect, financing the undercutting. 28 UPS also had argued that if Deutche Post was allowed become a controller of DHL, it feared that Deutche Post would illegally subsidise its competitive activities (DHL) by allocating such costs to its reserved services (in this respect UPS was echoing arguments already upheld by the Commission in UPS/Deutche Post AG (Comm Decision 2001/354/EC, OJ L 125/27) where the Commission had fined Deutche Post 24m Euro for using a fidelity rebate scheme to effect market foreclosure in the German mail order parcel delivery market in Germany). However, the CFI rejected this argument on the ground that it was speculative in the instant case, and that if such occurred, the Commission would be well placed to take action against Deutche Post, as would indeed UPS itself (pursuant to Art 82, it being a ‘directly effective’ Treaty Article). 29 Case C–340/99 TNT Traco SpA v Poste Italiane [2001] ECR I–4109.

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In brief, TNT Traco provided a private express mail service within Italy. Under the Italian Postal Code Articles 1 and 39, express post providers, such as TNT Traco, were subject to a fine unless they paid the ordinary postage rate to Poste Italiane on such deliveries (even though at no time in the course of delivery of a piece of TNT Traco mail, would it be handled by Poste Italiane, the national postal monopoly). Effectively therefore, providers of added value services (such as TNT Traco’s express mail services) were required under Italian law to pay the same postal dues as users of Poste Italiane’s universal reserved postal delivery service. This was so, even though Poste Italiane provided no service to TNT Traco. At first things looked optimistic for TNT. The ECJ was receptive to its argument that the levying of a fine on TNT for contravention of the forgoing regime, constituted an abuse of dominance contrary to Article 86 and 82, on the grounds that the Italian legislation placed Poste Italiane in a position whereby it could not avoid abusing its dominant position (by virtue of being required by law to charge for an unused service).30 However, the ECJ then proceeded to find favour with the Italian Government and Poste Italiane’s fall-back argument, to the effect that Member States should be permitted, pursuant to Article 86(2), to maintain in force regimes otherwise contrary to Article 82 where such is necessary to enable a service of general economic interest be provided under economically acceptable conditions.31 In this regard, the ECJ made it clear that Article 86(2) can be relied upon to vindicate the maintenance of Stateimposed obligations where (i) the service can only be assured by virtue of the maintenance of such obligations,32 and (ii) the development of trade is not affected so as to be detrimental to the objectives of the Community.33 Consolidating what had been held in earlier 1990s Article 86 case law,34 the ECJ held that reliance on Article 86(2) by Member States or their appointed monopolists charged with providing services of general economic interest, is not confined to situations where merely the financial stability of the service is threatened.35 Article 86(2) can also be relied upon in situations where, absent such reliance, it would not be possible for the appointed monopolist to perform the task assigned to it by the State, defined by reference to the obligations and constraints placed on it.36 The Court also found

30 Ibid at paras 41–50. 31 Ibid at paras 54 and 55. 32 Ibid at para 54. 33 Ibid at para 52. 34 Referring to Case C–320/91P Procureur du Roi v Corbeau [1993] ECR I–2533. 35 At para 54 (and as also held in Case C–157–160/94 Commission v Netherlands,

Italian Republic, French Republic and Kingdom of Spain [1997] ECR I–5669). 36 Case C–67/96 Albany International BV v Stichting Bedrifspensioenfonds Textielindustrie [1999] ECR I–5751.

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that a similar argument applies where maintenance of State-imposed obligations or rights in favour of the monopolist is necessary to enable the appointed holder perform its assigned tasks under economically acceptable conditions. The ECJ held that the forgoing necessarily implies that Article 86(2)’s imperative may be relied upon to justify requiring providers of non-reserved express mail services to contribute to the financing of the reserved postal service by paying postal dues, in order to allow the reserved monopolist provide the service of general economic interest under appropriate conditions of economic stability.37 However, the ECJ then proceeded to further add that, because Article 86(2) is a derogation, it must be construed restrictively. Therefore, in an ironic ‘twist’ in its logic, it held that two further conditions have to be respected: First, the postal dues payable by the express mail providers should not exceed the losses incurred by the reserved service monopolist responsible for providing the universal reserved service.38 There was, regrettably, little further judicial elaboration on this point—presumably this is to mean that express mail traffic represents a loss to the universal reserved service, and accordingly this loss must be made up by the express mail provider to the extent that such compensatory sum cannot exceed the actual losses of the reserved service provider. While the ECJ did not elaborate, presumably this means that the reserved monopolist must establish the precise amount of their losses, otherwise the express operator might be excessively subsidising the reserved monopolist.39 Secondly, the ECJ held that the reserved postal service monopolist itself would be required to pay postal dues to itself were it to provide an express mail service itself, and furthermore, it should not permit its reserved service to cross-subsidise its (non reserved) express mail service.40

37 At para 55. 38 At para 57. 39 Note that in

1997, as this case was progressing before the Italian Courts, Directive 97/67 was introduced which effectively required such a regulatory mechanism to be put in place in the Member States to ensure that cross-subsidisation of reserved services by non-reserved services was not exceeding what was necessary to cover losses incurred by the reserved service. However, this Directive does not affect the instant case as it was concerned with the period before the Directive. For an example of a case concerning a Member State found to be in violation of the cross-subsidisation regime mandated by Directive 97/33 (OJ 1997 L 199/32), see Case C–146/00 Commission v France [2001] ECR I–9767 where France was found to be in violation of the Community regime on universal service and open network provision, when it inter alia required private telecom competitors to cross-subsidise the universal service provider (France Telecom) even before the Directive-mandated regime was to come into effect. 40 At para 58. As this was an Article 234 reference for a preliminary ruling, determination of final issues of fact, and application of the ECJ ruling on the points of law (considered immediately above) to the case itself, was ultimately a matter for the Italian courts.

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Case T–139/98 AAMS v Commission:41 Whether an undertaking which historically had legal control of a market, and subsequently de facto control, can make access to infrastructure it controls—and use of which is necessary in order to access that market—subject to discriminatory conditions, in circumstances where the undertaking itself uses that infrastructure to supply competing products This judgment illustrates how the CFI adopted a pragmatic approach when faced with the issue of whether the operator of a national distribution infrastructure is obliged to permit access on non-discriminatory terms to its infrastructure, in circumstances where the infrastructure operator was employing discriminatory access terms in order to favour distribution of its own products over those of its competitors who sought, and required, access to the distribution infrastructure in order to be able to successfully access the national market.42 Historically, AAMS traditionally had an exclusive right, by law, to produce tobacco products in Italy. It also had the exclusive right to govern tobacco products wholesale importation and distribution within Italy, through its system of warehouses. Over time this importation regime was liberalised, in that one could import cigarettes and arrange for their distribution via non-AAMS channels. However, in practice this did not occur to any significant extent, and AAMS continued to control importation and distribution 100 per cent because foreign producers were, for various reasons,43 unable to set up their own independent distribution chains. By virtue therefore of history and distribution economics, AAMS, once a statutory monopolist, was, following liberalisation, a de facto monopolist in the Italian wholesale distribution market for cigarettes. The Commission found that AAMS, an unavoidable trading partner for any foreign cigarette producer, had abused its dominant position because it had made access by foreign cigarette manufacturers to the Italian market subject to unfair distribution contract terms. For example, the Commission 41 Case T–139/98 AAMS v Commission [2001] ECR II–3413. 42 Note that the CFI (para 76) distinguished this case from the

ECJ judgment in Case C–7/97 Oscar Bronner v Mediaprint [1998] ECR I–7791, finding that Bronner was not relevant to the case before it on the grounds that AAMS was, unlike Mediaprint in Bronner, not denying access to its distribution network unless certain conditions were satisfied, but rather was permitting limited access on discriminatory and unfair conditions—see further below. 43 As set out in the CFI judgment, these obstacles ranged from financial to practical: imported foreign brands had less than 10% of the Italian cigarette market, hence on financial grounds alone, the investment required to build a dedicated independent distribution chain was not justified; also, under Italian law, cigarettes have to be held in separate warehouse facilities away from other goods, again making investment expensive; furthermore, as distribution chains for cigarettes have to operate on their own, therefore synergies cannot be gained by including distribution of non-tobacco products in the distribution chain; and finally, an independent distributor distributing foreign cigarettes would not be able to meet retailers demand for Italian cigarette brands, all of which were distributed by AAMS (Italian consumers overwhelmingly preferred domestic cigarettes, than foreign brands).

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found that AAMS in its standard trading terms would only permit a foreign producer to import a maximum of 5,000 kilograms of a new product at initial launch, and that during the first year following introduction of the new product, there was little scope to dramatically increase quantities imported over orders imported the previous month. Apart from the CFI’s finding that this greatly restricted a foreign producer’s commercial freedom when attempting to launch a new product onto the Italian market,44 the Commission had also objected to the fact that AAMS applied no such quantitative restrictions to cigarettes it produced itself (or those it produced under licence). AAMS also imposed other questionable trading terms, such as only allowing new imported products be introduced onto the Italian market twice per year. Also, it required compensation in the event that a foreign producer might want to increase the amount of imported cigarettes they wished AAMS to hold on their behalf. So far as the first term is concerned, the CFI found that it was unreasonable and greatly confined foreign producers ability to launch new products onto the Italian market. With regard to the second, it found it objectionable because AAMS was unable to show it carried significantly increased risk of economic loss in the event of the imported cigarettes not being sold.45 The CFI also rejected AAMS’s argument that it necessarily had to limit the volumes of foreign cigarettes it could handle. AAMS had argued that it would not have excess distribution capacity to handle requests for import increases in the event that several foreign producers requested volume increases simultaneously.46 Looking to the realities of the situation, first the CFI pointed out that AAMS had not been overburdened with import volumes to begin with. Secondly, it pointed out that AAMS had in fact ample excess distribution capacity, and that its fears of being overburdened were unrealistic given the difficulty that foreign brands traditionally had when attempting to penetrate the Italian market.47 While the Court acknowledged that even dominant undertakings can take reasonable steps to protect their commercial interests, nevertheless, AAMS had not proved that the forgoing arrangements were ‘necessary to protect its commercial interests and to avoid both the risk of its distribution network becoming overloaded and the financial risk of cigarettes not ordered by retailers remaining in storage for lengthy periods’.48 Furthermore, the CFI condemned AAMS for its behaviour in warning retailers not to stock excessive supplies of foreign products.49 44 Ibid para 93. 45 Ibid para 78. 46 Ibid para 66. 47 Ibid para 77. 48 Ibid para 79. 49 AAMS attempted

to argue that, as it is charged under Italian law with licensing tobacco retail outlets Italy, it was exercising administrative powers outside the scope of Article 81 or 82 when

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Finally, the CFI also rejected AAMS’s attempts to rely on the ECJ Oscar Bronner Judgment50 (whereby AAMS argued that, following Bronner, it should not be obliged to share its infrastructure). The CFI held AAMS’s situation was vitally different from Bronner—unlike Bronner, where it was claimed that access to a national distribution infrastructure was being refused unless certain terms were accepted, AAMS was not refusing any party access to its infrastructure (and hence to the market), but rather was making access conditional on the foreign cigarette firms accepting unfair trading terms.51

Commission Decision La Poste/SNELPD (Comm Dec 2002/ 344/EC):52 Article 86(1) prohibits the Member States from maintaining in force any measures which are contrary to the competition rules of Articles 81 and 82 (or indeed any other rules of the Treaty, such as the rules on Free Movement of Services, Goods, etc.). The ECJ has interpreted this to include even those State-created regimes which have the knock-on effect of either encouraging appointed undertakings to engage in conduct contrary to the Treaty’s rules (in particular article 81 or 82) or which makes such conduct unavoidable, due to the undertaking being placed in a conflict of interest situation.53 The SNELPD Decision is of interest because the Commission it instructed its inspectors to ensure that retail outlets were not stocking excessive amounts of foreign product (ostensibly on the ground to fraud prevention, such as the need to detect the presence of illegally obtained supplies). The CFI rejected this justification, finding that there was much evidence uncovered by the Commission to suggest that the real motivation of AAMS in deploying its inspectors was to ensure that retailers continued to favour sales of nationally produced cigarettes, rather than of foreign cigarettes. Hence, AAMS’s activities fell outside the scope of administrative activities, and within the clutches of Article 82. 50 Case C–7/97 Oscar Bronner v Mediaprint [1998] ECR I–7791. 51 Para 76 (and also see paras 67/68). 52 La Poste (France)/SNELPD (Comm Decision 2002/344/EC, OJ L 120/19, 7 May 53 For example, in case C–41/90 Höfner & Elser v Macrotron GmbH [1991] ECR

2002). I–1979 at issue was whether national laws were compatible with Art 86 where, by law, an exclusive right to provide corporate executive recruitment services in Germany was given to one undertaking, the Bunsdesanstaldt. In this case (although an Art 234 preliminary ruling) the ECJ clearly took the view that if the national court hearing the case were to determine that the dominant undertaking, the Bundesanstadlt (a State-appointed monopoly) was manifestly unable to meet the market’s demand for its services, then in such event the Member State would perpetuate a classic Art 82 abuse, ie, the limiting of a supply of a service for which there is excess demand, without objective justification. Such an eventuality would render the State’s regime contrary to Art 86; see similarly Case C–258/98 Re Carra [2000] ECR I–4217. In Case 260/89 ERT v DEP and others [1991] ECR I–2925 the ECJ went a step further than it did in Hofner & Elser, finding that it is contrary to Art 86 where the State creates a regime where the appointed monopolist is even liable to abuse its dominant position. In that case, the ECJ held that Art 86 will be violated even where the State puts an exclusive rights holder in the position whereby, merely because of that position, the undertaking is liable to abuse its dominant position (or perhaps otherwise act contrary to other Treaty rules, such as the rules on non-discrimination in the provision of cross-border services). Another example can be found in C–163/96 Criminal proceedings against Raso and others [1998] ECR I–533. In Raso the ECJ was called

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held that a Member State cannot escape the application of Article 86 merely because it permits a State appointed monopolist in a reserved market to control access to that reserved service market from an ancillary market by way of private contract (rather than by way of law). This Commission Decision builds on earlier ECJ Judgments and Commission Decisions from the 1990s which call for two principles to be respected. First, State-appointed reserved market monopolists must not be permitted to control conditions for access to ancillary markets by operators in an ancillary market, when the monopolist itself is also a competitor in the ancillary market.54 Secondly, appropriately transparent and independent regulatory regimes must be set up by the State to ensure that there is no conflict of interest on the part of the State when the supervision of regulatory and commercial standards set for the reserved monopolist in a reserved market are concerned, and also so far as the participation of the reserved monopolist in that market is concerned.55 The French State tried to escape such notions, arguing that all that French law achieved was to grant La Poste a statutory monopoly in the reserved service market (the national postal service)—it did not also grant La Poste the right to determine by law the conditions under which operators in non-reserved markets (mail preparation services56) could access its

upon to consider whether a national law is compatible with Art 82 (via Art 86) where that law authorises an undertaking to have the right to supply temporary labour to port services undertakings, when that provision also permits the undertaking to be a provider of such services itself. The ECJ held that it is a breach of Art 86 for a national provision to put an undertaking in a position whereby the undertaking, merely by exercising the exclusive right granted to it, abused its dominant position, or, where the undertaking is likely to commit such abuse by virtue of the position it has been placed in by the national provision. In the view of the ECJ, the mere exercise of its monopoly to supply temporary labour would lead to the undertaking distorting the conditions of competition between the undertaking and the other providers of services in the port with whom it was competing, as it could impose high labour costs on them, or provide labour not appropriate to certain tasks. 54 Case 18–88 RTT v GB Inno BM [1991] ECR I–5941 where the ECJ held that it was contrary to Art 86 (formerly Art 90) for RTT, the Belgian State telecommunications network operator, to also control conditions for marketing and sale of terminal equipment when, it itself, also operated in such market. According to the ECJ, such a regulatory regime was not in the interests of the Community as it would hinder the free movement of goods and give RTT an unfair advantage over its competitors in the terminal equipment market. Only if there was no other less restrictive means of protecting the integrity of the network or the safety of those using it (ie, ‘objective justifications’) could the monopolist be justified in also being the telecommunications equipment market gatekeeper. RTT had failed to establish such a case. 55 C–69/91 Criminal Proceedings against Decoster [1993] ECR I–5335. 56 Mail preparation firms provide a wide variety of services for customers, including mail sorting, mail enveloping, mail wrapping, mail bundling, and other services to ensure that mail is prepared in accordance with the postal service’s regulations. The mail preparation operator can also become involved in actually taking over, on a formalised basis, the actual operation of the mail room of large businesses, and involve all of the forgoing plus the delivery of mail to the national postal system for onward transmission.

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reserved service. That was a matter for La Poste to arrange under private law.57 The Commission however, as we shall see below, was not prepared to permit France to escape Article 86 in this fashion, and in this Decision, the Commission condemned both La Poste and France for violation of Article 86 (in conjunction with Article 82). La Poste is the monopoly provider of postal services in France, a reserved activity. SNELPD is a trade association whose members are independent mail preparation firms. The national postal operator rewards the mail preparation operator by awarding it preferential postal tariffs, with the mail preparation operator’s customer paying the full postal rate, and the mail preparation operator taking the difference. Mail preparation is not a reserved activity. SNELPD members compete with La Poste and three La Poste’s mail preparation subsidiaries in this market. SNELPD member firms complained to the Commission that La Poste was abusing its dominant position when determining conditions for access to the national postal system by SNELPD member firms. SNELPD alleged that La Poste was in a conflict of interest situation, arising by virtue of La Poste (and its subsidiaries) being present as competitors in the mail preparation market. Furthermore, SNELPD claimed that La Poste was abusing its dominant position as not all SNELPD members were able to qualify for the preferential postal tariffs offered by La Poste.58 La Poste countered, arguing that the discounts it was offering were offered on a non-discriminatory basis. Adopting the approach similar to that taken in earlier case law in the 1990s, the Commission found that France violated Article 86 by adopting and maintaining in force legislation under which La Poste, a statutorily appointed monopolist, could freely, without close supervision by the State, determine commercial terms of access for mail preparation operators seeking access to La Poste’s reserved service, while La Poste itself was simultaneously a competitor in the mail preparation market. In this regard the Commission pointed out that La Poste was dominant by law in the reserved market—for postal services—and given that it had such dominance, it was inevitable that it would use its unequal economic power in that market to distort competition in the upstream non-reserved market (mail preparation) so as to favour its own mail preparation operations (and those of its three subsidiaries). 57 France

had claimed that its role was to monitor La Poste to ensure it respected its public service obligations in the reserved service, whereas responsibility for La Poste determining market access conditions for mail preparation operators was a matter of private law for La Poste to determine when it was made autonomous from the State in the early 1990s, and therefore (argued France) France could not be held responsible for La Poste’s determination of such commercial relations (in matters outside the scope of its reserved service). 58 SNEPLD argued that the qualification criteria, determined by La Poste for the award of preferential postal tariffs, were set at a level not based on objective cost factors, but set at a level that inevitably favoured the operations of La Poste (and its mail preparation subsidiaries), and disqualified many SNELPD members. In this regard, SNELPD argued that La Poste was

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In earlier case law, the ECJ and Commission had found that the mere grant of market access determination rights was sufficient to warrant a breach of Article 86 because the position it placed a reserved monopolist in, meant that it was inevitable that the mere exercise of those rights would make it liable to be led to abuse its dominant position.59 However, the French State tried to escape being similarly so tripped up, arguing that all that the French law did was to grant La Poste a statutory monopoly in the reserved service market (the national postal service)—it did not also grant La Poste the right to determine by law the conditions under which operators in non-reserved markets (mail preparation services) could access its service. That was a matter for La Poste to arrange under private law, and therefore argued France, it fell outside the scope of Article 86.60 However, proceeding to link the inevitability of La Poste’s abuse to the French State, the Commission was not prepared to allow the French State to escape Article 86’s grasp on this account. It found that in allowing La Poste the freedom to determine conditions of market access for mail preparation, La Poste (on account of it also being a competitor in that market) was placed by the State in a conflict of interest situation where abuses of dominance were liable to occur, and, therefore France itself was also in breach of Article 86 on account of it not putting in place an effective monitoring system to ensure that an operator like La Poste does not abuse its dominant position. At para 78 of the Decision, the Commission stated that: Where a public undertaking is faced with a risk of a conflict of interest, it is the responsibility of the State to ensure that an effective monitoring system is in place such as will re-establish equal opportunities between operators.61 setting the commercial terms in such a way as to limit the number of potentially eligible firms, without any objective justification for same. SNELPD also alleged that La Poste had made the preferential terms available to its favourites, even in cases where they were in breach of La Poste’s own mail preparation regulations. 59 Case 18–88 RTT v GB Inno BM [1991] ECR I–5941 where the ECJ held that it was contrary to Art 86 (formerly Art 90) for RTT, the Belgian State telecommunications network operator, to also control conditions for marketing and sale of terminal equipment when, it itself, also operated in such market. According to the ECJ, such a regulatory regime was not in the interests of the Community as it would hinder the free movement of goods and give RTT an unfair advantage over its competitors in the terminal equipment market. 60 France had claimed that its role was to monitor La Poste to ensure it respected its public service obligations in the reserved service, whereas responsibility for La Poste determining market access conditions for mail preparation operators was a matter of private law for La Poste to determine when it was made autonomous from the State in the early 1990s, and therefore (argued France) France could not be held responsible (within the terms of Art 86) for La Poste’s determination of such commercial relations (in matters outside the scope of its reserved service). 61 At para 78. In this regard the Commission cited Case C–69/91 Criminal Proceedings against Decoster [1993] ECR I–5335. Also, for another recent example, see Case C–146/00 Commission v France [2001] ECR I–9767 where the ECJ held France had violated EC Dirs 90/388 and 97/33 which called inter alia for Member States to set up schemes for establishing the extent and basis for subsidisation of universal service provision in the telecom sector by independent competitors. France was found to have failed to set out how it arrived at such calculations in a transparent and objective manner.

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The Commission made it quite clear that, in a situation where the reserved service monopolist also happens to be a competitor in a neighbouring market affected by the monopolist-determined market access regime, then the State must set up independent structures for regulating market access in order to stay on the safe side of Article 86.62 Hence, the Commission found that not only was La Poste conflicted, but so also was the supervisory authority (France). Declaring that ‘The conflict of interest itself constitutes an abuse’,63 the Commission made it clear that Article 86 was breached even without having to adduce evidence of actual abuses having taken place.64 Without examining in detail allegations that La Poste had actually, as a matter of fact, abused its dominant position, the Commission briefly, without going into much detail, concluded that La Poste had failed to demonstrate that the thresholds it specified for mail preparation firms (seeking to qualify for certain beneficial access rates to the public postal service) were based on indisputable economic or technical data. The Commission was of the view therefore, that La Poste was using its dominant position in the reserved market to specify apparently non-discriminatory conditions of access. As the Commission had already found Article 86, in conjunction with Article 82 to be violated, as discussed above, it did not conduct an indepth Article 82 investigation into La Poste market practices, other than to remark that it looked at several recent acts of La Poste concerning the setting of terms for mail preparation providers and found that such terms did affect the business of smaller independent firms appreciably, while leaving La Poste and its subsidiary mail preparation operators unscathed.

62 Para 78. In the instant case, France argued that sufficient neutrality and independence of scrutiny of La Poste did exist, in that different civil service departments individually had responsibility for, on the one hand, monitoring La Poste from a regulatory perspective, and on the other, from a budgetary and strategic policy perspective. However, this did not satisfy the Commission in several respects. First, it found that (at para 77): ‘Legislation that does not provide for an independent monitoring authority with sufficient guarantees of neutrality in relation to a public undertaking placed in a situation of conflict infringes Art 86(1) read in conjunction with Art 82’. Second, it pointed out that the various civil service departments, whether charged with monitoring of La Poste (to ensure it respected the regulatory parameters within which the law required it to operate the reserved service for the public good), or with overseeing the direction of La Poste policy as a public undertaking, were all conducted under the hierarchy of the one Minister. While France did argue that the Minister does not interfere with La Poste’s commercial policy, this did not satisfy the Commission. In a telling comment, the Commission observed: ‘…The Minister’s supervision of La Poste, and in particular the scrutiny of its contracts and scales of charges, is likely to be influenced by considerations relating to the State’s financial interest unrelated to the concerns of equity that should prevail in the monitoring of relations between La Poste and its users and commercial partners. It is clear therefore that, under current French legislation, the Minister cannot be considered to constitute an authority providing sufficient guarantees of independence of La Poste for its monitoring to be effective.’ (para 82). 63 Para 87. 64 Ibid.

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Significantly, La Poste did not rely on Article 86(2) in an attempt to vindicate its regime, and France was invited by the Commission to remedy the regulatory situation without delay. La Poste/Hays (Commission Decision 2002/180/EC):65 Article 82(d) provides that it is an abuse of dominance for a dominant undertaking to make conclusion of a contract subject to commercial terms or supplementary conditions which otherwise have no connection with the subject matter of the contract. In this Decision, we see a classic example of an Article 82(d) breach with an added twist—the dominant player is an Article 86-type undertaking, using its dominance in one market, reserved to it by law, to unfairly extend its influence and weaken competitors in a neighbouring (competitive) market by threatening to withdraw favourable terms of access to the reserved market unless the customer also transacts with it in the competitive market. Hays, a UK company operated a document exchange system in several EU Member States, including Belgium. It provided a document exchange service for Belgian insurance undertakings who are members of the UPEA, an industry association. Over half of the insurance companies operating in Belgium were UPEA members. The service provided by Hays was a closeduser, end-to-end service, guaranteeing next-day, early-morning, delivery at rates up to 40 per cent cheaper than normal postal service rates. La Poste offered UPEA members a preferential tariff rate for accessing its reserved service—the normal postal service. Subsequently, La Poste proposed to operate a similar document exchange system to that operated by Hays. La Poste wrote to UPEA, giving it lengthly advance notice that it intended to withdraw its preferential tariff terms it previously offered UPEA for accessing the postal service. However, it also indicated that, were UPEA to sign up for La Poste’s document exchange service, it would be in a position to continue to offer UPEA the preferential tariff rate for accessing the reserved service. UPEA indicated it wished to remain with Hays for the document exchange service. UPEA ultimately bowed to La Poste pressure, and within a few months 11 of the largest undertakings in Hays document exchange left Hays’ system, and moved to La Poste’s document exchange system. This deprived Hays document exchange system of 40 per cent of the turnover achieved in its document exchange system the previous year. Consequently, Hays document exchange system was rapidly losing its utility and attractiveness for users, because fewer undertakings were participating in it, and consequently other smaller undertaking were departing its system. The Commission defined two separate relevant markets: the business to private market (B2P) (the general postal market) and the business to

65 Commission

Decision 2002/180/EC, OJ L 61/32, 2 March 2002.

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business market (B2B). It found that both markets were not interchangeable, as they met different needs, the B2B market being based on factors that are not key features of the B2P market (eg, reliability, guaranteed collection/ delivery times, preferential tariffs, large mail volumes). It went on to find that La Poste, dominant in the B2P (reserved) market, had abused its dominant position by unfairly affecting competition in the B2B market by ‘encouraging’ UPEA sign up for the B2B service so that UPEA could continue to avail of B2P preferential tariff rates.66 In effect, La Poste had abused its ability to offer discounts on the reserved service (B2P)—a service Hays is prohibited by law from offering— in order to gain unfair advantage in an activity that is open to competition (B2B document exchange deliveries).67 In the opinion of the Commission, trade between Member States will be affected as a cross border document exchange system will no longer operate in Belgium if Hays, a cross-border document exchange operator, was eliminated from the Belgian market (and particularly as La Poste only sought to operate a document exchange system within Belgium). Again, it is interesting to note that just as in the French La Poste/ SNELPD case considered earlier above, Article 86(2) was not invoked by the reserved market monopolist to in an attempt to attempt to justify the monopolist’s regime as no justification could be advanced, and in any event the Community interest could not be said to be served by Hays elimination from the market for cross-border document exchange services. La Poste was fined 2.5m Euro. CONCLUSION

What is interesting about the series of ECJ/CFI Judgments and Commission Decisions reviewed is that a balance is constantly being sought between allowing State appointed monopolists to engage in providing services of general economic interest free from competition, while at the same time the Member State is constantly being reminded that the grant of such exclusive rights must not permit the monopolist to extend its monopoly control beyond the scope of the reserved service. This is to ensure that Member States do not allow their chosen reserved market monopolists to use their dominance in the service of general economic interest market in order to abusively extend their dominance into neighbouring ancillary markets which lie beyond the scope of the reserved service market. In particular, Member States will breach Article 86 where they fail to set up sufficient independent and transparent regulatory and supervision structures, or where they allow the reserved service monopolist determine by way of 66 Para 67 Para

55. 73.

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private law access to the reserved service market from ancillary markets where the monopolist itself also competes (La Poste/SNELPD).68 While much was made in Corbeau69 in the early 1990s of the need for a monopolist to rely on cross-subsidisation in order to maintain its universal service in a state of economic equilibrium, it is now also clear that State appointed monopolists providing reserved services of general economic interest may also use funds, legitimately generated by the reserved service, to acquire control of competitors operating in ancillary competitive markets (UPS Europe v Commission).70 Furthermore, Member States can require ancillary market competitors to subsidise the reserved service provider to the extent that their presence in the ancillary market causes losses to the reserved service provider (TNT Traco SpA v Commission).71 In AAMS v Commission,72 the CFI was prepared curtail the scope of application of the Bronner73 judgment, such that the owner of an essential distribution infrastructure, necessary for market access, violated Article 82 by offering access to other competitors on trading terms far less favourable than those it availed of itself (in circumstances where it itself was a competitor in its own right). The traditional position whereby an entity dominant in one market cannot unfairly use its dominance to leverage control over an ancillary market, was vividly illustrated in (La Poste/Hays).74 Finally, the expanding case law on the meaning of undertaking demonstrates that even an undertaking involved in large scale activity will not be categorised as an undertaking if its activities are mainly motivated by social solidarity considerations, and are conducted as such in a non-commercial fashion.75 In sum, Member States and their chosen Article 86 monopolists, require to pay ever increasing attention to the jurisdiction of Article 86 and the scrutiny it brings to bear on both the monopolists’ business activities as well as the terms and scope of the exclusive rights granted to them by the State.

68 La Poste (France)/SNELPD (Comm Decision 2002/344/EC, OJ L 120/19, 7 69 Case C–320/91P Procureur du Roi v Corbeau [1993] ECR I–2533. 70 T–175/99 UPS Europe SA v Commission [2002] ECR II–1915. 71 Case C–340/99 TNT Traco SpA v Poste Italiane [2001] ECR I–4109. 72 Case T–139/98 AAMS v Commission [2001] ECR II–3413. 73 Case C–7/97 Oscar Bronner v Mediaprint [1998] ECR I–7791. 74 La Poste/Hays (Comm Decision 2002/180/EC, OJ L 61/32, 2 March 2002). 75 T–319/99 FENIN v Commission CFI (Unrep.) 4 March 2003; C–218/00

May 2002).

Cisal v INAIL [2002] ECR I–691; C–82/01P Aeroports de Paris v Commission [2002] ECR I–9297.

15 Justifying State Aid: The Financing of Services of General Economic Interest ANDREA BIONDI

INTRODUCTION

E

VEN THE MOST enthusiastic supporter of the free market and fair competition would perhaps recognise that the provision of subsidies and other forms of support by the State to specific undertakings should be considered to be an acceptable and even beneficial economic policy. The statistics published annually by the European Commission in the ‘state aids scoreboard’ confirm that state intervention is still necessary in crucial economic sectors.1 However, it is equally universally acknowledged that conferring an advantage to a specific undertaking can pose a serious threat to the very idea of market integration and endanger the very basic tenets of free circulation and competition policy. The very success of the European project results in a rather difficult conundrum for national governments as well: on the one hand, the opening up of markets and the dismantling of traditional safety nets provided by public measures does increase the pressure on Member States to introduce mechanisms to alleviate the impact of free competition on national economies yet, on the other hand, a policy of ‘retaliation’ would only create a domino effect across the other states, thus cancelling out any beneficial effects. Therefore the key is to establish how to divide those legitimate public interests that the nationstate can legitimately pursue from the anti-competitive and unlawful polices of financial support. The model adopted by the Treaty as long ago as 1957 is based precisely on this concept: the provision of state aid is clearly designed to reconcile the prohibition on state intervention which may result in distortion within 1 Brussels,

29.10.2003, COM (2003) 636 final.

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the market with the authorisation to fulfil, through financial assistance, certain objectives. Article 87(1) in laying down the necessary criteria for the definition of aid (advantage, selectivity, distortion of competition, use of state resources) clearly requires a strict economic analysis to determine whether certain national measures would be deemed to be incompatible with EC law. In contrast, such economic analysis gives way to a socio-political assessment in the remaining paragraphs: hence the insertion of specific ipso jure exceptions, in paragraph 2 of Article 87 where the proposed aid schemes may be authorised as long as they have a beneficial impact on the whole Community, and in paragraph 3 where the power is conferred to the Commission to introduce specific exceptions in order to pursue those Community aims indicated by the Treaty itself. However, in practice, and with the evolution of market integration, the list of exceptions is rendered somewhat ineffective in its response to the new needs and to the emergence of different values and social concerns. Once again the debate concerning the possible limits to the application of EC rules has been shifted from political to judicial adjudication and, as history always repeat itself, the European Court of Justice2 has again been confronted with the perennial question of how to strike a balance between the need to ensure the effective application of EC law and the powers of Member States to pursue certain public interests. This contribution would therefore focus not on the application of the Treaty exceptions but on the role of the ECJ. In particular a ‘test case’ has been selected to illustrate the problems facing the Court in dealing with possible derogations and justifications. A lively debate has emerged that questions whether support given by the State to enable undertakings entrusted with services of general economic interest to discharge their ‘public’ obligations should be regarded as an aid and if so, whether there may be certain specific justifications available to Member States. This question, which is of course also widely discussed at the political level,3 also produced a jurisprudential clash between the Community Courts and also between Advocate Generals. Without wanting to reiterate the whole debate on the definition of what constitutes ‘a service of general economic interest’,4 the argument will be developed only as far as the issue of justifications is concerned. The modest 2 Thereafter ECJ. 3 See for instance,

Communication on services of general interest in Europe (OJ 2001 C 17/4), Report to the Laeken European Council on services of general interest (Oct 17, 2001; COM (2001) 598 final), and Report to the Seville European Council on the status of work on the guidelines for State aid and services of general economic interest (June 6, 2002; COM (2002) 280 final), The Commission’ s Non -Paper on Services of general economic interest and State aid, 12.11.2002 published on the Commission website. 4 See in general E Szyszczak, ‘Public Service Provision in Competitive Markets’, (2001) YEL, 35, C Quigley & AM Collins, EC State Aid Law and Policy (Oxford, Hart, 2003), 45–48, 118–20, and A Alexis, ‘Services publics et aides d’État: Évolution récente de la jurisprudence’, in Rev D Union Eur, 1/2002, 63.

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suggestion emerging from this very partial analysis is that the area of state aid law bears an increasing resemblance to the internal market acquis and that certain lessons—some good, others bad—are there to be learned. There is nothing particularly new in such an observation as state aid law and free movement provisions (in a somehow much more marked way than the logical state aids-competition coupling) have always been treated by the Court itself as parallel provisions. In several decisions the Court explained that ‘the provisions relating to the free movement of goods, the repeal of discriminatory tax provisions and aid have a common objective, namely to ensure the free movement of goods under normal conditions of competition’.5

JUSTIFYING THE FINANCING OF SERVICES OF GENERAL ECONOMIC INTEREST

The process of market integration has brought to the fore the question of whether certain services which are entrusted with the operation of service of general economic interests can be sheltered from competition rules. Article 86(2) EC in particular, requires undertakings entrusted with the operation of services of general economic interest to generally be subject to the rules of the Treaty and in particular to competition principles. However these rules are not applicable if the performance of the particular tasks assigned to undertakings is liable to be obstructed. This exception is subjected to the further counter objection that development of trade must not be affected to such an extent as to be contrary to the interests of the Community. The special status of services of general interest has been reaffirmed by the insertion in the Treaty of a specific provision, Article 16, which expressly defines certain public services as ‘shared values’, the protection and preservation of which must be acknowledged by both Member States and the Community.6 To turn however to the specific theme of this contribution, the key is to consider whether support provided by the State to enable undertakings to fulfil their public services obligations is in fact an aid and if so whether it may be justified under article 86(2). This is a particularly relevant question as it should be observed that the liberalization process also affects the mechanisms adopted by Member States in operating such services. Member States do not usually grant exclusive rights within a

5 See

Case 18/84 Commission v France [1985] ECR 1339. See further A Biondi & P Eeckhout ‘State Aids and barriers to trade’, in A Biondi, P Eeckhout & J Flynn (eds), The Law of EC State Aid, (Oxford, OUP, 2003), 103. 6 See further M Ross, ‘Article 16 EC and Services of General Interest: From Derogation to Obligation?’ in (2000) 25 EL Rev, 22.

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specific sector of activity but provide instead for some form of financial advantages to the undertakings entrusted with the operation of SGEI.7 As already mentioned the suggested solutions to the legal definition of financing public services are different and it is thus useful to recap the terms of such a debate.

The Compensation Approach and the State Aids Approach There are two main approaches to be taken when analysing financial compensation. The first is to consider financial compensation as a state aid under Article 87(1) EC and then examine whether this compensation could be justified under Article 86(2) EC. This approach has been adopted by the Court of First Instance (FFSSA and SIC) and in the two Opinions of Advocate General Léger in the Altmark case. FFSA dealt with a tax concession granted by the French Government to La Poste. The Commission found that the tax concession granted to La Poste was inferior to the cost that it had to bear for its additional public service and that it therefore did not constitute state aid.8 The Court of First Instance9 although upholding in substance the decision taken by the Commission, chose a different route: the tax concession had to be considered to be state aid. The provision of a service of general interest was not believed to be relevant at this stage. Instead the fact that La Poste had a specific duty to serve the entire national territory, including even the most remote rural areas, became relevant at the stage of possible justification. In particular Article 86(2) was then applicable as the effect of competition law in the area of postal services could have obstructed the development of such a task. In the SIC case, concerning public broadcasting, the CFI reaffirmed that: ‘the cost of public service obligations which that undertaking is claimed to have assumed has no bearing on the classification of that measure as aid within the meaning of Article 87(1) of the Treaty, although that aspect may be taken into account when considering whether the aid in question is compatible with the common market under Article 86(2) of the Treaty’.10 The other approach is instead to consider the financial compensation as a mere contropartie for the public service rendered to the extent that it matches the extra costs incurred by the operation of the SGEI. This compensation

7 See further L Hancher & J Buendia Sierra, ‘Cross Subsidization in the European Community’, in (1998) 35 CML Rev, 901. 8 See Cases T–106/95, FFSA and Others/Commission, [1997] ECR II–229. 9 Thereafter CFI. 10 Case T–46/97, SIC—Sociedade Independente de Comunicação/Commission [2000] ECR II–2125, para 84.

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would not be qualified as state aid within the meaning of Article 87(1) EC because it would not confer any advantage to the undertaking operating the SGEI. This approach originally found support in the Commission’s decisionmaking practice and subsequently in the judgement of the Court of Justice in the Ferring case.11 This case dealt with tax concessions granted to wholesale distributors of medicines. These tax cuts were made because of the specific public obligations that distributors had to bear (stocking at all times a quantity of medicines sufficient to satisfy the needs of regular customers and to deliver within a 24 hour period any medicines required to any location). The Court of Justice maintained that the exemption from tax enjoyed by the wholesalers could be regarded as compensation for the services provided and not as state aid within the context of Article 87 EC. As the Advocate General argued, ‘[ … ] the imposition of the obligation and the provision of compensation cannot be considered as separate matters as they are two sides of the same public measure which is intended, as a whole, to guarantee that public interests of primary importance are satisfied’.12 Thus, since one element of the definition of state aid under Article 87(1) EC was lacking, namely the advantage conferred to the beneficiary of the state aid, the compensation intended to offset the additional costs of the SGEI, could not be qualified as state aid. The ECJ also deemed it necessary to add that if the compensation were to exceed the additional costs incurred by the provision of the SGEI, then this compensation would qualify as state aid. In this case Article 86(2) cannot be applied to the compensation which exceeds the additional costs of the operation of the SGEI. The extra-compensation cannot, in any event, be regarded as necessary to enable the undertakings entrusted with the operation of SGEI to carry out their specific tasks.

The Current Debate Advocate General Jacobs in his Opinion in the GEMO case, on the question of whether exemption of small-scale meat retailers from the payment of meat purchase tax constituted aid, has presented a third approach, the so-called ‘quid pro quo approach’:13 under this approach, the Court would distinguish between two types of situation. Where there is a direct and manifest link between the State financing and clearly defined public service

11 Case

C–53/00 Ferring [2001] ECR I–9067. For an ‘earlier compensation’ approach judgment see also Case 240/83 ADBHU [1985] ECR 531. 12 ‘Ferring, ibid, at paras 60–61. 13 See Opinion delivered on 30 April 2002, in Case C–126/01 Ministere de l’Economie v GEMO, not yet reported. See also Stix-Hackl AG in Joined Cases C–34/01 to C–38/01 Enirisorse v Ministero delle Finanze, Opinion of 7 November 2002, not yet reported.

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obligations, the sums paid by the State would not constitute state aid within the context of Article 87(1) EC. On the other hand, where there is no such link or the public service obligations are not clearly defined, the sums paid by the public authorities would constitute aid within the context of that provision. In GEMO such an indubitable and direct link did exist as the services were awarded through a specific public tender procedure. Finally AG Léger in Altmark, a case that concerned the granting of licences to operate regular bus services through public subsidies, strongly criticised Ferring and reaffirmed that the preferred approach is the state aids one.14 An initial instinctive reaction could be to question the worth of developing two (possibly three!) different approaches, seeing as the result is more or less the same, namely that the advantages guaranteed to SGEI were somehow lawful either because they should not be regarded as state aid or because they were exempt by virtue of Article 86 (2). The answer lies essentially in the various legal and practical differences that arise depending on the approach that is adopted. It has been suggested that the ECJ’s approach in Ferring can be explained as meaning that undertakings entrusted with the operation of a SGEI and undertakings operating under normal market conditions are not set on an equal competitive footing. Due to the provision of public service obligations, competition in the relevant market is distorted; the compensation provided does nothing other than remedy this distortion by resetting the undertakings so that they are once again on an equal competitive footing.15 However—although very attractive in its simplicity—this argument does not resolve all of the doubts. The first obvious problem clearly addressed by AG Léger against Ferring was that this judgement resulted in the exclusion of the application of Article 86(2) EC in the field of state aids. This is the case because if the advantage granted to the undertaking corresponds to the cost of the discharge of the public service, then this advantage is not qualified as state aid and therefore has no need to be justified under Article 86(2) EC. Equally, if the advantage granted exceeds the cost of the discharge of the public service, then the part that exceeds this cost will be qualified as state aid and cannot also benefit from the application of Article 86(2) as it will be per se considered as not fulfilling the proportionality test of Article 86(2) EC. As it has been observed elsewhere this kind of approach bears a resemblance to the rule-of-reason elaborated by the Court in Cassis de Dijon:16 ‘any public service policy may justify what is effectively a subsidy, by conceptualising the subsidy as not constituting a State aid,

14 Opinion

by AG Léger delivered on 19 March 2002 and Opinion delivered on 14 January 2003 in Case C–280/00 Altmark Trans v Nachverkehrsgesellschaft Altmark, not yet reported. Adamantopoulos & D Papakrivopoulos, ‘State Aids and Services of General Economic Interest’ forthcoming. 16 C–120/78 Rewe-Zentrale AG v Bundesmonopolverwaltung fur Branntwein[1979] ECR 649. 15 K

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provided it does not go beyond compensation for the provision of the service in question’.17 In reality Ferring does not precisely match the Cassis de Dijon principle as this also involves an assessment of the proportionality of the possible justifications on which a Member State can rely. Actually—as noted by AG Léger in his first Altmark Opinion—the Ferring approach conflates the existence of the restriction with the question of justification, and excludes any proportionality analysis. In this sense Ferring is reminiscent of other free movement cases such as Preussen Elektra or Deliège.18 The first case dealt with was a German law which imposed an obligation on electricity distributors to purchase electricity produced from renewable energy suppliers within their area at fixed minimum prices, and required upstream suppliers to compensate them. In Deliège the question was whether selection rules for sporting events could be regarded as an obstacle to the freedom to provide a service. In these judgments the Court held that although the measure in question had some restrictive effects on the free movement it could none the less be justified as it was deemed to pursue an objective of public interest (either on environmental grounds or in the interest of fairness of sport). In reality the Court was more ambiguous, merely stating that the national measures in question were not deemed to be incompatible with the Treaty but without subjecting them to any kind of scrutiny. In Preussen Elektra the Court concluded that since growth in the use of renewable energy sources was ‘among the priority objectives’ of the Community and since environmental protection had to be integrated into other Community policies, and since the German measure was also designed to protect the health and life of humans, animals and plants within Article 30 EC, the law was not to be considered as a breach of Article 28 EC. In Deliège, even more succinctly, the Court held that that although selection rules inevitably have the effect of limiting the number of participants in a tournament, ‘such a limitation is inherent in the conduct of an international high-level sports event, which necessarily involves certain selection rules or criteria being adopted’ and therefore could not constitute a restriction on the freedom to provide services prohibited by Article 59 of the Treaty. The parallel with free movement case law can be taken even further as to include also aspects of competition law. In Wouters, in fact, the ECJ, applying the same test to competition and free movement of services, found that rules on multi-disciplinary practices, ‘despite the effects restrictive of competition that are inherent in it’ were deemed necessary for the proper practice of the legal profession, as organised in the Member State concerned.19

17A Biondi & P Eeckhout ‘State Aids and barriers to trade’, above 18 Case C–379/98 PreussenElektra AG v Schleswag AG [2001]

n 5, at 112. ECR I–2099 Joined Cases

C–51/96 and C–191/97 Christelle Deliège [2000] ECR I–2549. 19 Case C–390/99 JCJ Wouters, JW Savelbergh, Price Waterhouse Belastingadviseurs BV v Algemene Raad van de Nederlandse Orde van Advocaten [2002] ECR I–1577. See further

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The Ferring compensation approach has the same disappointing outcome. It indeed confers to Member States a rather considerable degree of discretion, a margin of appreciation confirmed also by the lack of any discussion by the Court on the proportionality of the measure at stake and it seems to suggest that if the compensation does not exceed the cost incurred in the discharge of the public service, then this should be considered inherent within the system. In reality as acutely observed by Ross, Ferring ‘simply assumes what is instead to be proven namely the value of general interest services and their compatibility in their particular execution with the rules of the Treaty’.20 Overcharging Article 87 (1) with a rule of reason scenario may therefore not be such a good idea as values-based assessments do not have a particular place within the strictly economic analysis envisaged by that Article. Moreover, even when proportionality is considered to determine whether the subsidy is purely compensatory, the task might still prove to be complex. Member States may use different criteria to calculate the proportionality of the compensation and of course the calculation becomes more difficult in cases where the compensation does not take the form of a positive contribution, but takes instead the form of a tax exemption to the advantage of the undertaking operating the SGEI.21 A second problem again raised by AG Léger against Ferring is an ‘institutional’ one. The compensation approach in fact has the effect of removing measures for financing public services from the Commission’s control. As a consequence of Ferring, these measures would not be subject to the obligation of notification of Article 88(3) EC, nor subject to constant review by the Commission following Articles 88(1) and (2) EC. Member States will therefore ‘escape’ any form of Community control.22 The Altmark Decision: A More Balanced Approach That was the scenario set before the Court. The Full Court came to a decision on the Altmark case on 24 July 2003.23 The question referred to the ECJ was whether subsidies granted by Germany to an undertaking in order to operate R O’Loughlin. ‘EC Competition rules and free movement rules: an examination of their parallels and their furtherance by the ECJ Wouters decision’, (2003) ECLR, 203. 20 M Ross, ‘State Aid: Decentralisation, Effectiveness and Modernisation-Contradiction in Terms?’ in A Biondi, P Eeckhout, J Flynn (eds), above n 5, at 93. 21 These difficulties are well explained by P Nicolaides Distorsive effects on compensatory aid measures: a note on the economics of the Ferring judgment (2002) ECLR, 313. 22 On this question see Case C–332/98 France v Commission (‘CELF’) [2000] ECR I–4833 and the discussion in C Rizza, ‘The Financial Assistance Granted by Member States to Undertakings Entrusted with the Operation of a Service of General Economic Interest’ in A Biondi, P Eeckhout & J Flynn (eds), above n 5 at 76. 23 C–280/00, Altmark, judgment of 24 July 2003, not yet reported.

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a regular bus service in a specific region had to be considered aid or merely a compensation for the services offered. The Court held that such compensation did not confer an advantage for the undertaking concerned and therefore could not be considered to be state aid within the context of the EC Treaty. The Court clarified that no ‘advantage’ could be established where a State financial measure must be regarded as compensation for the services provided by the recipient undertakings in order to discharge public service obligations. However, so that such compensation is not seen to provide the undertaking with an unfair advantage it should satisfy four conditions. Firstly, the recipient company must have actual public service obligations to discharge and those obligations must be clearly defined. Secondly, the parameters on the basis of which the compensation is calculated must be established in advance in an objective and transparent manner. Thirdly, the compensation cannot exceed what is necessary to cover all or part of the costs incurred in the discharge of the public service obligations, taking into account the relevant revenue and a reasonable profit. Fourthly, when the company is not chosen through a public procurement procedure, the level of compensation must be determined in relation to an analysis of the costs that a typical company in the sector would incur (taking into account its revenues and a reasonable profit for the discharging of the obligations). The judgment is thus a rather successful attempt to find a reasonable compromise between the ‘compensation approach’ and the ‘state aid approach’. It seems very clear that in Altmark—in contrast with Ferring— the focus of the judgment is not on the ‘public services obligation’ but on a strictly economic—one would dare say mathematical—analysis. In fact, although as a matter of form the Ferring approach won the day, the Court has subject it to a number of very stringent economic conditions aimed at ensuring that the ‘compensation approach’ may in reality be used in few specific cases. Only by satisfying the four conditions would Member States be able to prove that a particular financial compensation granted to an undertaking does not go against the economic benchmark laid down in Article 87 (1). In denying that any advantage could be established once an undertaking complies with the four conditions, the Court seems to have been receptive to certain indications contained in AG Jacobs Opinion in GEMO. He suggested that a parallel should be drawn to the situation where a State buys something and pays the price. In this case, there will be aid only if, and only as far as, the price paid exceeds the market price. According to Jacobs ‘the same global analysis must prevail where the link between State funding and the clearly defined general interest obligations imposed is so direct and manifest that financing and obligation must be regarded as a single measure’.24 The assessment is thus a purely technical one.

24 GEMO,

above n 13, para 122.

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It could then be argued that the Court in Altmark adopted a rather restrained attitude reducing the issue at stake by merely calculating the costs of the services in question rather than discussing their public nature. In other words, the four conditions introduced by the Court make the compensation granted by the State compatible with Article 87(1) and there is therefore not even any need to discuss possible justifications. If reconstructed in this way, the judgment may also be reconciled with another recent decision, which on the surface seems to transmit a very different message to that of Altmark. The Chronopost case25 investigated whether the fee that Chronopost—the express mail subsidiary of the French mail—paid to La Poste itself in order to have access to the La Poste network had to be regarded as an aid. The Commission established that the logistical services offered by La Poste did not constitute aid. The CFI annulled such a decision stating that the Commission should at least have checked that the payment received by La Poste was comparable to that demanded by a private holding company or a private group of undertakings not operating in a reserved sector. The Court disagreed and annulled the CFI decision. The issue on which the judgment is based regards not the issue of the presence of a public service obligation but rather the economic status of the postal network. The assessment carried out by the Court therefore only aimed to establish whether or not it was possible to compare the situation of La Poste to that of a private undertaking. The Court very firmly explained that an undertaking such as La Poste is in a very different position to that of a private undertaking acting under normal market conditions, as it is entrusted with a service of general economic interest. Due to the characteristics of the service that the La Poste network had to be able to ensure, the creation and maintenance of that network could not be compared to that of a purely commercial operation. Thus the Court simply applied a market benchmark to determine whether the transaction carried out could be considered consistent with normal market conditions.26 The effect of the Altmark Decision: Introducing Market Elements in the Public Service Obligations Even if strictly circumscribed to an economic assessment, the Altmark decision is bound to have an impact on how Member States may organise 25 Joined

Case C–83/01 P, C–93/01 and C–94/01 P, Judgment of the 3 July 2003, not yet reported. 26 The Court explained that the correct method of assessment to decide whether the fee paid by Chronopost should be regarded as aid would have been to establish whether the price charged actually covered all the additional, variable costs incurred in providing the logistical and commercial assistance, an appropriate contribution to the fixed costs arising from use of the postal network and an adequate return on the capital investment in so far as it is used for Chronopost competitive activity provided that there was nothing to suggest that those elements had been underestimated or fixed in an arbitrary fashion.

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their public services. In this context it seems that the Court has used an extremely well tested technique that is often used in internal market cases. Although the Court does not deny that the Member States might have a specific competence regarding the organisation of the SGEI, this does not mean that Community law cannot have a role to play. Paraphrasing a now standard formula within free movement law it could be said that in those areas, while Member States are entitled to organize and preserve certain public services, ‘Community law sets certain limits to their power, and such legislation may not restrict the fundamental freedoms guaranteed by Community law.27 Or to cite another example drawn from social security law, it could be argued that the special nature of certain services does not remove them from the ambit of the fundamental principle of freedom of movement, so that although the national rules at issue are dealing with SGEI, this cannot exclude the application of Community law.28 Moreover, the organisation and the exercise of a public service may also be reviewed by the Court under the proportionality test. Again, the internal market case law, and in particular that on administrative authorisations, seems to provide a particularly appropriate comparison. For instance in Analir the Court was confronted with the issue of whether a preventive authorisation provision to carry out regular island shipping services, the validity of which is conditioned by the fulfilment of public service, could be considered to be a violation of Article 49 EC.29 The Court abundantly recognized that the authorisation was required in order to ensure a legitimate public interest, namely to ensure the adequacy of regular maritime transport services to, from and between islands. However it also held that a real public service of this kind must be demonstrated. In particular, this type of system had to be proportionate in order to be justified. Moreover such an authorisation ‘should be based on objective, non-discriminatory criteria which are known in advance to the undertakings concerned, in such a way as to circumscribe the exercise of the national authorities’ discretion, so that it is not used arbitrarily’. And finally the nature and the scope of the public service obligations must be specified in advance to the undertakings concerned. In general, and especially when dealing with areas which should theoretically be sheltered from pure market based rules such as public services (and where EC competence is limited … ), the Court limits itself to laying down certain requirements which should in principal not affect the power of Member States to pursue certain public interests but simply ensure that 27 See e.g. C–348/96 Donatella Calfa [1999] ECR I–11 or C–250/95 Futura Investments [1997] ECR I–2471 and Case C–336/96 Gilly [1998] ECR I–2793. 28 Case C–157/99 Geraets - Smits v Stichting Ziekenfords VGZ and Peerbooms v Stichting CZ Groep Zorgverzekeringen [2001] ECR I–5473, Case C–368/98 Vanbraekel and Others [2001] ECR I–5363 and more recently Case C–385/99, V.G. Müller-Fauré, Judgment of the 13 May 2003. 29 Case C–205/99 Analir and Others [2001] ECR I–1271.

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such a power is ‘channelled’ through the fundamental principles of EC law. The Court in Altmark implicitly reaffirmed that the exercise of Member States competence in this area was subject to some form of scrutiny as its influence could affect the application of fundamental Community principles such as fairness of competition. Such an approach can be considered to comply with Article 16 EC requirements whereas the Treaty makes it very clear that both the Community and the Member States should be involved in the preservation of the ‘speciality’ of public services. Another very clear consequence of Altmark is that the four conditions introduced strict market criteria in assessing the performance of public services obligations. In this context, another parallel can be drawn with the now well celebrated health care cases where the Court recognized that Member States are entitled to impose systems of prior authorisation on patients wishing to go to other States to receive treatment, subject, however, to specific conditions laid down by the Court. For instance in the Peerbooms case the Court accepted that such an authorisation could be based on the criteria of normality and of necessity of the treatment requested. As for the proportionality of both conditions the Court spelt out a series of very specific requirements, for instance as far as treatment of the ‘normal’ condition was concerned, not only the national but also the international medical opinion had to be taken into account, while with regard to ‘necessity’, the Court stated that authorisation should be refused only if the patient could receive the same or equally effective treatment without undue delay from an establishment with which his sickness insurance fund had contractual arrangements. Authorities had to take account of all the circumstances, including the patient’s past and present medical records. Only by satisfying these requirements could Member States measures be compatible with EC law. Equally the Altmark judgement indicates the policy that is regarded by the Court as being the best: the allocation of public service obligations through open bid procedures. The fourth condition in particular appears to be difficult to impose, as the definition of what constitutes a reasonable profit might be very difficult to ascertain. The practical outcome may be that a Member State, wanting to avoid any complication, would simply be left with no other option but to recur to a public bid procedure. In both strands of case law, the Court laid down the principle that a public service or health system should be based on market-based criteria from which the most efficient and less costly operator (whether that be an undertaking or a hospital in another Member State) would be the one to be selected. It is thus confirmed that Member States cannot totally shelter certain functions from competition and market forces but should, on the contrary, pursue policies aimed at increasing efficiency and free choice for consumers.30 30 See

further K Hatzolopoluos, Killing national health systems but healing patients? (2002) CML Rev, 683.

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The Scope of Article 86(2) If the introduction of market-based criteria is to be accepted, the role of Article 86(2) becomes even more crucial. In Altmark the Court, by focusing on a strictly economic analysis, did not need to address the question of the relationship between Article 86(2) and State aid. It clearly stated that the cases of pure ‘compensation’ should be regarded as substantially different from those requiring justification under either Article 87(2) and (3) or under Article 86(2). Thus it is still not totally clear how to apply Article 86(2) in those cases where State support in favour of an undertaking entrusted with public service would not benefit from the Altmark test. It is indeed clear however that when a certain advantage is to be considered distinguishable from mere compensation, the Article 86(2) justification should have a role to play. In those cases which would escape the Altmark test, it is suggested that the more coherent state aid scenario should be applied. The usual two-step (obstacle-justification) approach upon which the internal market case law is founded should be applied: firstly by establishing whether the conditions set up by article 87(1) are satisfied and secondly by proceeding to check whether Article 86(2) is applicable. If such state aid is privileged this should not imply a lesser status for SGEI. On the contrary it would reaffirm the centrality of Article 86(2). Although the Court has recently issued the reminder that Member States must set out in detail the reasons for which the removal of a contested measure would jeopardise the performance of a SGEI,31 in reality the case law of the ECJ on Article 86(2) has been rather accommodating towards public services. Almelo is often cited.32 In this case the Court held that in order to apply such a provision it is first necessary to consider the economic conditions under which the undertaking operates, in particular the costs which it has to bear and the legislation regarding the environment to which it is subjected. Similarly in recent cases the ECJ reaffirmed that in order to use Article 86(2) derogation is sufficient to prove that it would not be possible for the undertaking to perform the task entrusted to it or that maintenance of those rights is necessary to enable the holder to perform tasks of general economic interest which have been assigned to it under economically acceptable conditions.33 CONCLUSIONS

It seems clear that even in the area of state aids the Court is reacting to the complexity of the market dynamics and of litigation by developing flexible 31 Case C–463/00 Commission v Spain, Judgment of 13 of May 2003, not yet reported. 32 Case C–393/92 Almelo [1994] ECR I–1477. 33 Case C–157–160/94 Commision v Netherlands, Italian Rebublic French Rebublic

and Kingdom of Spain [1997] ECR I–5699. Case C–67/96 Albany [1999] ECR I–5751. The emphasis

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tools for judicial manoeuvring that aptly accommodate the very sensitive interests of Member States. Once again the role of the Court is vital with regard to litigation-solution and the accommodation of diverging interests. However, litigation and judicial adjudication can never become a substitute for political and legislative action. In this context, the intense political debate and the Commission’s initiatives on the nature and function of services of general economic interest should be pursued and encouraged in order to ensure that it matures into an efficient and fair Constitutional settlement.34

on Article 86(2) does of course makes the role of national courts decisive. In particular it should be questioned whether such a provision should be capable of producing direct effect in the context of state aid rules where the Commission role is institutionally prevalent. See further the Opinion of AG Jacobs in C–261/01, van Calster, Judgment of 21 October 2003. In general see M Ross ‘State Aid: Decentralisation, Effectiveness and Modernisation-Contradiction in Terms?’, above n 20. 34 See the announcement of Commissioner Mario Monti of a new regulation for the applications of exemptions based on the four conditions defined by the Court in Altmark., Agence Europe, 25 July, 2003.

16 State Aids and Bankruptcy DIMITRIS N TRIANTAFYLLOU*

NATIONAL COMPETENCE AND STATE AID SELECTIVITY

B

ANKRUPTCY PROCEDURE HAS until now been regarded as escaping from the regulatory scope of Community law. Recently there has been of course the Regulation 1346/20001 on insolvency proceedings, which governs jurisdiction in cross-border insolvency cases and ensures mutual recognition of judgments, in order to facilitate the functioning of the internal market in those respects. That Regulation confirms that the substantial rules on bankruptcy procedure are governed by national law. However, one should recall that notwithstanding the national competence, in cases in which the simultaneous application of community law is at stake, national rules have to be applied in a non-discriminatory way in relation to purely internal cases 2 and that their application should not hinder the full effect and the uniform application of Community law or, more radically, national rules impeding the full effect the latter should simply be left inapplicable. 3 Only rarely has jurisprudence formulated harmonised general principles of Community law, mainly with regard to some procedural aspects of horizontal interest (state liability, provisional judicial protection etc).4 In the light of these various possibilities, it will be attempted in the following to look at the repercussions of Community State Aid law on national bankruptcy law. State Aid implies by definition some advantage *Member of the Legal Service of the European Commission; Lecturer at Stresbourg and Würzburg Universities. The article reflects only personal views. 1 OJ L 160, 1. 2 ECJ, Case 68/69, Just, [1980] ECR 501; Case 61/79, Denkavit, [1980], ECR 1200: Joined Cases 212–217/80, Salumi, [1980] ECR 1237; Case 826/79, Mireco, [1980] ECR 2559. 3 Case C–312/93, Peterbroek, [1995] ECR I–4559; Case C–5/89, Commission v Germany [1990] ECR I–3437. 4 Cases C–6 &9/90, Francovich, [1991] ECR I–5403; Case C–46& 48/93, Brasserie du Pêcheur, [1996] ECR I–2553; C–143/88 and C–92/89, Zuckerfabrik, [1991] ECR I–415; Joined Cases C–465 & 466/93, Atlanta [1995] ECR I–3761.

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(‘favour’) that is granted by the State and through State resources5 to certain undertakings or economic activities. This last condition makes it ‘specific’ in relation to general legislation. Indeed, if the ‘State Aid’ were not specific, than one could easily consider beforehand the whole insolvency proceedings, in which the State is also normally involved (mainly for taxation and Social Security claims), as potentially containing State aid. Such a conclusion would be excessive, not only because it would not respect the division of powers between EC and its Member States which leave in principle the bankruptcy regulation with the latter, but also because a general measure, i.e. a measure applied to the whole economy, is by nature and by definition not ‘selective’ or ‘specific’ to some undertakings or activities and cannot, therefore, be qualified as State Aid.6 The selectivity criterion is satisfied because a measure either explicitly7 or de facto concerns only a part of the economy.8 This can be due either to the substantial requirements foreseen for its application9 or to the discretion conferred to the competent authorities for its implementation.10 In both cases only some undertakings and not the entire economy have to benefit from the application of the measure11 so that one can regard it as a ‘State Aid’.

STATE AIDS CAUSING OR AVERTING BANKRUPTCY

From a general point of view, State aid and bankruptcy are two concepts of different origin but encountering each other in the field of Community State Aid control. They are dialectically related to each other, since state aid is often awarded by Member States in order to help some domestic operators out of insolvency (aid for rescuing and restructuring), whereas the prohibition of State aids according to Article 87(1) EC and its implementation tend, actually, regardless of the systemic intentions behind it, to 5 The corrective interpretation of Art 87 (1) EC cumulating both State action and State resources has been confirmed in the PreussenElektra judgment of 13 March 2001 (Case C–379/98). 6 Case C–156/98, Germany v Commission [2000] ECR I–6857, point 22. 7 Case 6,11/69, Commission v France [1969], ECR 523; Case 57/86, Commission/Greece [1988] ECR 2871. 8 Case 173/73, Italy v Commission, [1974] ECR 709. 9 Case C–251/97, France v Commission, [1999], ECR I–6639; more disguised selectivity in Case C–75/97, Belgium v Commission [1999] ECR I–3671. 10 C–241/94, France v Commission, [1996] ECR I–4551; T–127/99, T–129/99, T–148/99, Territorio Historico de Alava, judgment of 3 March 2002. 11 Selectivity is understood in a wide manner. Neither the big number nor the variety of the sectors concerned is in principle sufficient to exclude selectivity (and the state aid nature of the measure); see Case 248/84, Germany v Commission, [1987] ECR 4013, point 18; Case C–143/99, Adria-Wien Pipeline, judgment of 11 Nov 2001; Case T–55/99, CETM [2000] ECR II–3207.

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create difficulties to the beneficiaries that can lead them even to bankruptcy. The interference of state aids with bankruptcy law is mainly due to the fact that incompatible state aid, according to constant jurisprudence,12 has to be recovered13 and the respective order, as of direct application in the sense of Article 249 EC, creates a claim of the State against the beneficiary. The State becomes, thus, insofar a creditor of the beneficiary, even if it had not been one in the past because of the particular nature of the aid to be recovered. This will be the case of definitely granted subsidies by contrast to in principle recoverable loans. There are, nevertheless, also special aids that aim at avoiding bankruptcy, which can be approved under certain conditions.

The Overwhelming Recovery Obligation One important case of harmonisation through jurisprudence can be found in the field of recovery of illegally paid State Aids following their declaration by the Commission as incompatible with the common market. In this respect, jurisprudence has repeatedly refused any legitimate expectation on the beneficiary’s behalf that the aid is lawful unless it has been granted in compliance with the procedure laid down in Article 88 of the Treaty. The justification for that refusal is that a diligent businessman is normally able to determine whether that procedure has been followed. The strength of this principle is such, that it evicts all contrary rules and principles of national law: the time-limits foreseen therein in respect to revocation of the decision granting the aid, the principle of good faith that appears to have been created towards the recipient due to some behaviour of the national authorities or the rules governing enrichment that has disappeared in the meantime in absence of bad faith on the part of the recipient of the aid.14 The obvious reason for this vigorous jurisprudence is the importance attached by the Court to the effectiveness of State Aid control and to the re-establishment of the ‘status quo ante’ through the recovery of illegal state aids, which is considered to be the logical consequence of the declaration of their incompatibility.15 The re-establishment of the ‘status quo’ is naturally necessary to saveguard a level playing field for all operators in a common market functioning in healthy competition conditions according to Article 3, lettre g, EC Treaty. Since saveguarding of an undistorted competition order on the market can, nevertheless, mean that insufficient operators might have to leave the market by closing down completely or by transferring their 12 Case C–142/87, Belgium v Commission, [1990] ECR I–959, 13 See Art 14 of the Procedural EC Reg 659/99 (OJ L 83, 1). 14 Case C–24/95 Alcan, [1997], ECR I–1591. 15 Case C–142/87, ibid.

point 65.

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activity (partially or as a whole) to other operators, according to the logic of the market mechanism, it should be of no surprise if the recovery of some State Aid may even entail the bankruptcy of the beneficiary.16 Such a consequence has been admitted by the jurisprudence as being ‘logical’, thus somehow ‘natural’ or inherent (by no way ‘disproportionate’) to the economic system in force. This is, at least in principle, alien to the maintenance alive of undertakings through State Aids, if the market forces do not allow such a survival. Indeed, the logic behind it goes back to Adam Smith’s ‘invisible hand’ regulating in a free market the correct allocation of resources.

State Aids for Firms in Difficulty The general assumptions on undistorted competition are, of course, not followed in an absolute manner. It goes without saying that State Aids may be granted to ailing undertakings in order to allow their survival (escape from bankruptcy) and/or restructuring. The objectives of such State Aids dictates a set of conditions that have to be respected for the aid to be authorized. These conditions aim at striking a compromise between the pure market competition logic and the economic and social reality in the Member States concerned. The Commission’s practice on this issue,17 which has not been contested by the jurisprudence,18 identifies first the firms that can be considered as being in difficulty either by reference to national bankruptcy law (fulfilment of the criteria for a collective insolvency procedure) or by reference to the capital losses, which must account for more than half of the initial capital, whereby more than one quarter of that capital has been lost over the preceding 12 months.19 For those firms State Aid may be awarded, either as a temporary assistance which allows the ailing firm to continue operating for the time needed to work out a restructuring or liquidation plan (‘rescue aid’) or as a restructuring aid based on a feasible, coherent and far reaching plan to restore a firm’s longterm viability.20 The general Commission’s practice in this respect allows, though, in cases of real or virtual bankruptcy and under certain conditions the situation to be inverted and the firm to escape from final liquidation. This positive

16 Commission

v Belgium, Case 52/84, Rep 1986, 89, para 14 (inevitable liquidation); confirmed by Case C–499/99, Commission v Spain (Magefesa), judgment of 2 July 2002, para 38. 17 Community Guidelines on State Aid for rescuing and restructuring Firms in Difficulty, OJ 1999, C 288, 2. 18 Case T–123/97, Salomon [1999] ECR II–2925. 19 Point 2.1 of the Guidelines. 20 Point 2.2 of the Guidelines. The various conditions dealt with in the Guidelines do not need to be analysed at present.

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attitude is, nevertheless, without prejudice to the consequences of the order for recovery of some incompatible State Aid. The non-execution of such an order must be taken into account and will normally impede the authorisation by the Commission of any new aid to the same firm, in order that a cumulated distortion is avoided.21 More importantly, even if such a recovery may lead the beneficiary of the aid to insolvency, this doesn’t make him automatically eligible for more aid. Indeed, the Commission’s practice excludes repeated ‘restructuring aid’ by excluding a new restructuring aid before ten years elapse since the (previous) restructuring plan came to its end, unless there are exceptional and unforeseeable circumstances for which the company is not responsible.22 It should thus not be possible to award a second restructuring aid during the same decade.

Loss Making Public Undertakings: To be Privatised or Liquidated? Since the concept of ‘State Aids’ requires the presence of State resources, these will be regularly present in the case of public undertakings. The question arises not only in their initial capitalisation, which is left, in principle, with the discretion of Member States (Article 295 EC), but also in the subsequent behaviour of the State towards its undertakings. In particular, if the latter are in difficulty, then the State faces the dilemma to either sell them to some private investor or to liquidate them. The choice is not an easy one. In the first case, since no private investor will want to buy a firm ‘in difficulty’ assuming, thus, more liabilities than assets, some financing by the public owner of the firm will be needed in order to make it attractive for sale. In the second case, the State will have to go through a bankruptcy proceeding, but might then be tempted to cover as much as possible the creditors of the firm, its employees included, in order to avoid protests and losing face (its ‘image’) before its citizens. Member States do their own calculations in this respect and usually claim that it costs them less to refinance the firm by covering at least part of its debts in order to have it sold rather than to proceed to liquidation entailing the coverage of the various outstanding debts. Since they often opt for the first alternative (refinancing before privatising), they then claim to have behaved like a private investor, that spares money by avoiding the second, allegedly more expensive solution (liquidation). Such an argument must be assessed with the greatest caution. The jurisprudence strikes a delicate distinction between the obligations which the State must assume as owner of the share capital of a company and its 21 Case C–355/95 P Deggendorf, 22 Point 3.2.3 of the Guidelines.

[1997] ECR I–2549.

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obligations as a public authority. In the case of limited companies, in particular, the State, as owner of the share capital, would only be liable for their debts up to the liquidation value of the assets. This means that the often alleged coverage of various liabilities concerning redundancies, unemployment benefits, restructuring of the infrastructure, cleaning of the site etc. do not have to be taken fully into account when comparing the two alternatives.23 Therefore, it is sufficient to compare the amount injected by the State in its company in view of some privatisation to the predictable liquidation value of its assets in order to conclude that, in case the first amount is higher, the injection in question constitutes State Aid.

STATE AID WITHIN INSOLVENCY PROCEEDINGS

If State Aid can save from bankruptcy, its recovery may make such a blow inevitable. The State Aid concept is also important in the framework of the insolvency proceedings themselves, once they have been launched. This aspect will be examined in the following.

Insolvency Status does not Exclude Granting of New State Aid It is of common experience that the mere fact of a firm having been declared insolvent does not impede it from continuing operating and trading. This being a typical case in which restructuring aid might be given, in order to prevent the winding-up of the firm. What has to be avoided is the fiction that the mere declaration of insolvency would mean that the firm is not active any more; on the contrary, in most cases it will still be operating and, thus, affecting competition on interstate trade. The consequence of this would be that any State resources from which the firm might benefit even during that period could fall under the State Aid concept, since they will also create real distortion of competition.24 It has to be also noted that, because of the overwhelming recovery obligation, the Member States have to do everything that is in their power in order to have their recovery claims satisfied. They have therefore, not only to register their claims to the competent authority, but also have to pursue their fulfilment by eventually lodging applications, appeals etc. Otherwise, it would be possible for the competent authority to refuse registration (for whatever reasons), and still consider that the State has complied with its

23 Case 24 Case

C–278/92, Spain v Commission, [1994], ECR I–4103, points 21 ff. C–480/98, Spain v Commission, [2000], ECR I–8717, Commission/Spain, C–499/99, judgment of 2 July 2002, para 26–27.

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recovery obligation. Such behaviour would obviously be negligent and could not be assimilated to the one of a private creditor. In that sense, it may be concluded that the State makes some additional favours to the insolvent undertaking and its creditors by not pursuing its claims to the end25 through a diligent use of the possible legal remedies26 and infringes, thereby, its recovery obligation. Seizing the assets of the bankrupt is the first step to be taken in order to secure the fulfilment of the claims of the public authorities.27 Only the absence of seizable assets could justify the State renouncing to such a measure, since it would be of no avail (absolute impossibility).28

The State as Creditor in the Insolvency Proceedings The previous point concerning the behaviour of the State during the insolvency proceedings implies already the ‘market creditor principle’. This is nothing more than a variation of the old ‘market investor principle’ applied by jurisprudence as an instrument for qualifying the investments of the State as State Aid (‘favouring’ its beneficiary) or not by reference to the hypothetical behaviour of a normal market investor acting under similar circumstances. This jurisprudence has evolved for cases in which the State does not ‘invest’ but does have some claims against an undertaking and therefore acts as a creditor . In such cases, it is only reasonable that its behaviour is compared to that of a normal market creditor. The jurisprudence admits that payment facilities awarded by the State or other public bodies (like Social Security) can constitute aid. This would be the case if, having regard to the size of the economic advantage conferred, the undertaking would manifestly have been unable to comparable facilities from an hypothetical private creditor. The latter should, nevertheless, be imagined in as far as possible, the same situation vis-à-vis that undertaking.29 The development of this new criterion paves the way for the application of the State Aid discipline within bankruptcy procedures, in which the State will be one of the creditors, whether he claims for recovery of past illegal State Aid or for other payment of various taxes or Social Security contributions or both. Of course, it is not sufficient to have the State as creditor to assess its behaviour as State aid by comparison to the private creditors. 25 Case

C–499/99, Commission v Spain (Magefesa), AG Mischo’s Conclusions of 24 Jan 2002. 26 Case C–499/99, Commission v Spain (Magefesa), judgment of 2 July 2002, para 39. 27 Ibid., para 33. 28 Ibid., para 37. 29 Case C–256/97, DMT, [1999] ECR I–3913, in particular point 25; compare also Case C–480/98, Spain v Commission, (Tubacex) [2000], I–8717, point 36 ff on the interest rate to be applied for such claims.

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The presence of claims of the State means only that state resources are at stake, according to one of the definition requirements of Article 87(1) EC. The measure of the State to be scrutinised must also be ‘specific’ to certain undertakings or economic activities, according to the requirement mentioned in the introduction. Having said this, one should also recall that traditionally, bankruptcy law aimed only at the satisfaction of creditors, through liquidation of the assets or creditor’s composition aiming at the optimisation of their claims. On the contrary, in recent times bankruptcy law has often been amended in order to also, if not mainly, accommodate the continuation of the economic activity on behalf mainly of the employees of the undertaking concerned. This trend is deemed to be beneficial also for the rest of the Economy (suppliers, clients) and Society as a whole. This development is reflected in either exceptional rules for some categories of undertakings or in some delegation of powers to the competent authorities to award personalized (and discretional) treatment to the undertakings concerned. By doing so, recent legislation, far from being mechanical, contains selectivity elements that, added to the presence of claims of the State, can lead to the award of State aids, as it will be explained below. The Court has had to deal with (a) some national legislation dealing with a special administration procedure applied only to highly indebted large industrial undertakings in difficulties. Once the undertakings in question had been declared insolvent by courts, the application of the special procedure was decided by ministerial decree. This triggered, in addition to the features of the general insolvency proceeding (interdiction to dispose of assets, suspension of interest on existing debts, interdiction of any action on enforcement), the extension of the suspension of any action for enforcement to tax debts and, possibly, a State guarantee for new loans financing current operations, as well as the application of a flat-rate registration charge for eventual sale of premises and the exemption from payment of fines and financial penalties to the State. In other words, the selective application of that specific procedure to some big undertakings put them under additional protection allowing them to continue operating and making losses, which might affect the priority of the existing creditor’s debts. To the extent that the State or public bodies were among the principal creditors of such undertakings, the ‘umbrella’ in question could mean that the special advantage awarded to them would be borne to a larger extent by the Public Sector as chief creditor. In particular, beside the State guarantee for the continuation of the activity, the extension of the prohibition and suspension of all individual actions for enforcement to tax debts, penalties and interest, as well as the release from the obligation to pay fines and penalties for failing to pay social security contributions and the application of a preferential rate in case of transfer of the assets entailed an additional burden to the public authorities. This not only in the form of guarantee but also in the

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form of a waiver de facto of thereby affected past public debts30 and other exemptions from charges. Compared to the financial burden borne by the State in the generally applied insolvency proceedings, the application of the specific regime could give rise to the grant of additional State aid.31 The same could be said for (b) the apparently general procedures that enable some competent authority, usually the national judge, to regulate a kind of composition of creditors which aims aimly at the continuation of the economic activity concerned, even if it takes into account to a lesser extent, the interest of the creditors. In fact, the national judge is also an organ of the State. Thus, in case he exercises some judicial discretion in accordance with wider criteria of social or industrial policy in order to sustain the threatened economic activity even against the interests of the creditors, than his action may also give rise to State aid, where the State or other public bodies are the main creditors and, thus, incur bigger losses in absolute and relative terms than the private creditors.32 This approach might have important repercussions on some national procedures foreseeing a special discretionary role for the national judge, like the ‘procédure de redressement’ in French law. If the creditors’ agreement is not a free one but is dictated by other wider interests and, thus, contains State aid, to the extent that the State is the majority creditor, then the existence of State aid affects the validity of the agreement in question, as well as the validity of the judgment approving it. Indeed, according to the FNCE-jurisprudence,33 national acts granting aid that has not been notified and authorised by the European Commission suffer a procedural error invalidating them. Of course, the jurisprudence has not had yet the opportunity to pronounce itself on such bankruptcy cases, since the granting of State aid there is much less obvious than in the abovementioned Italian regime. Nevertheless, judicial discretion according to wider interests should actually be sufficient for an analogous application of the jurisprudence in question. Even in the general insolvency procedure the mere fact that a measure is taken in the framework of some insolvency proceedings ruled by general legislation does obviously not a priori exclude its State aid nature, as long as that measure does not result automatically from the application of that legislation34 (c). Indeed, it seems possible to apply the market creditor principle in order to assess the behaviour of the State by comparing the

30 See Conclusions of AG Fennelly in Case C–200/97 [1998] ECR I–7907. 31 Case C–200/97, Ecotrade [1998] ECR I–7907, points 36 ff; Case C–295/97,

Piaggio [1999] ECR, I–3735, points 37 ff. 32 AG Fennelly, above n 30, point 32. 33 Case C–354/90, FNCE (‘saumon’) [1991] ECR I–5505. 34 Case T–152/99, Hijos de Andres Molina SA (HAMSA) v Commission, judgment of 11 July 2002, para 157 ff.

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sacrifices that both it and the private creditors accept in terms of waiver of debts.35 Is the sacrifice for the State much larger, in absolute and relative terms (i.e. because of the involved ranking of the claims or the privileges attached to some public claims) and can it be assumed that the State as majority creditor dictated or determined the final outcome in a way that would not have otherwise been accepted by the private creditors, then it would be reasonable to admit the presence of State Aid in the creditors agreement (and in the subsequent judicial approval).36 The Court of First Instance has recently confirmed that the apparent disproportion (in absolute and relative, as well as in qualitative terms) between the particularly important waivers of debt by public creditors and the rather cosmetic ones of the private can constitute an ‘indicator’ for the existence of State aid.37 In that respect, the Court of First Instance has rightly focussed on the private creditor principle, on the basis of which the behaviour of the public bodies has to be measured. In particular, according to the Court, in a creditors’ agreement, every creditor has to decide whether he can be satisfied with the amount offered to him, compared to the amount he hopes to recover through the liquidation of the undertaking. The various securities that may be attached to his claims, as well as the future perspectives of the undertaking have to be taken into account; in particular, an ordinary creditor might have no chance of recovering anything through the liquidation, if the value of the assets would actually be exhausted by other privileged claims. In such a case, a private ordinary creditor would not be sacrifying anything of real value by waiving great part of his claims in a creditors’ agreement.38 This would indicate, by contrast, that the State waiving privileged claims would then make a substantial sacrifice aiding the undertaking. Of course, the comparison between the precise public and the normal private behaviour is a delicate issue. Recent jurisprudence has criticized the Commission for having presumed the existence of State aid by just comparing the total amount of the public claims with the one of the private claims, as well as the average proportions of the respective waivers, along with the fact that, generally speaking, the public claims were secured by mortgages and other privileges specific to the public (tax, local and Social Security) authorities. While confirming that such a global comparison could indicate the existence of aid, the Court stressed the necessity to proceed to an individual analysis of the claims, the securities and the expectations of each public creditor before qualifying their waivers as State aid.39

35 For the ‘concomitance’ criteria see EC Bulletin 9–1984, 36 Cf AG Fennely, above n 30. 37 Case T–152/99 (HAMSA), above n 34, para 171. 38 T–152/99 (HAMSA), above n 34, para 168. 39 T–152/99 (HAMSA), ibid, para 169–72.

point 3.2.

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Nevertheless, the detailed analysis sought for by the Court is of rather theoretical interest. There is no doubt that comparisons between public and private behaviours must be detailed in order to conclude on the existence of State aid.40 However, a comparison on an individual basis, which is of relevance in the case of, let’s say two, concurrent individual claims, makes much less sense in the case of a collective agreement of creditors, in which much more than two claims (one public and one private) have to be settled. In such agreements, not withstanding the varying positions of at least some of the creditors, the development of group reactions is usual. The most important creditors, whose claims (because of their privileged position) would probably exhaust the liquidation entries, would often trigger a ‘follow-me’ reaction; the State would very often give the signal.41 Thereby it is the external behaviour of the creditors, not their will or motivation that matters for State aid purposes.42 The more individualistic view of the jurisprudence seems, however, to be underpinned by the allegedly lacking proof for the aiding ‘will’ or the ‘motivation’ of each public body,43 although such considerations are alien to the ‘state aid’ effectoriented doctrine.44 More generally, it seems unrealistic to examine just hypothetical individual behaviours, since the positioning of the individual creditors is determined not only by an introspective analysis of their own possibilities, but also, if not primarily, by the stance of the other parties. This is inherent in the nature of the agreement that has to be negotiated. The respective powers of negotiation depend, of course, to a great extent on the existing securities and their ranking. If the public creditors are strongly privileged,45 it appears all the more justified to compare their global behaviour to the one of the private creditors, as far as the latter are not in principle privileged. The privileges of the State would then be a qualifying element distinguishing the public from the private claims subject to comparison. For these reasons, it is not clear at all that a more ‘nuanced’ analysis at individual level would be closer to reality,46 since it misses the overview of 40 See 41 See

‘DMT’ case, above n 29. para 161 of the ‘HAMSA’ judgment, which tries to minimise these effects by reminding that the waiver by the ‘Instituto de Fomento de Andalucia’ had not been double-counted (para 162), which is irrelevant for the assessment of the public behaviour at the moment of the agreement. 42 As the Court of First Instance seems to suggest in its ‘HAMSA’ judgment (para 169, 171), which paves the way for its more ‘individualistic’ approach (see below). 43 See para 169–71 of the ‘HAMSA’ judgment. 44 Banco Exterior, C–387/92, [1994] ECR I–877, para 13; Belgium v Commission, C–75/97, 1999 [ECR] I–3671, para 23; Case C–241/94, France v Commission [1996] ECR I–4551, Para 20. 45 As was the case in ‘HAMSA’. 46 Para 172 of the ‘HAMSA’ judgment. Indeed, since the public creditors are in principle the ones that were privileged, it would make all the less sense to compare them to some other ‘privileged’ ones. On the contrary, they should be compared to the private ones, who were in principle non-privileged.

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the creditors’ agreement integrating the synthesis of the interests and positions at stake and the underlying carrying forces. In other words, the standard proposed by the Court of First Instance is one of an hypothetical creditor who is not in a situation ‘comparable’ to the one of the parties of a creditors’ agreement, as required by the jurisprudence of the Court of Justice. In any case, it can be assumed that the presence of aid would affect the validity of the creditors agreement. Whether this means partial or total invalidity of the acts involved is a question for the national judge and would normally depend on whether the global ‘package’ would have been agreed upon in absence of the State Aid, according to general principles.47 Since such agreements strike normally a difficult equilibrium among different claims, it might be easy to argue that in case of State Aid the whole agreement would fall.

Pursuit of Claims following Bankruptcy As a general rule, bankruptcy serves the satisfaction, to the greatest extent possible, of the creditors’ claims through (either composition, allowing the firm to continue operating, or, more frequently,) the winding up of the firm. Thus, the bankruptcy clears the situation and the sold assets can be used by their buyer(s) for a new start, either separately or jointly. The clearance through the bankruptcy should also concern, in principle, the recovery claim of the State; as mentioned above, seizing the assets is the first necessary step to be taken by public authorities to secure the effectiveness of the liquidation procedure.48 Nevertheless, in view of the abovementioned overwhelming recovery obligation, the recovery may lead to difficult situations. Generally speaking, recovery should take place at the level of the undertaking that is causing the distortion; a recovery claim raised against a third person (for instance a management company) is normally not the appropriate way to recover, since it does not put an end to the distortion caused by the aid.49 Nevertheless, in its recent decisions, the Commission is regularly distinguishing between the cases in which the undertaking is normally ‘wound up’ through transparent and publicised procedures, which lead to ‘asset deals’ through which some (part or all) assets are transferred to a new investor, and cases, in which the undertaking is transferred entirely as a 47 On

this question see D Triantafyllou, ‘Europäisierte Privatrechtsgestaltung im Bereich der Beihilfenaufsicht’, (1999) Die öffentliche Verwaltung, 51 ff.; more radically Pechstein, ‘Nichtigkeit beihilfegewährender Verträge nach Art 93 Abs.3 EGV’, (1998) Europäische Zeitschrift fuer Wirtschaftsrecht, 495. 48 See Commission v Spain, C–499/99, judgment of 2 July 2002, points 33 and 44. 49 See Commission v Spain, C–499/99, judgment of 2 July 2002, point 27.

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legal person (‘share deal’). In the first case, the transfer of assets is the outcome of the bankruptcy proceedings that clear all the past debts of the bankrupt firm, since the sale price serves the creditors of the liquidated firm50 in proportion to their claims; in the second case, on the contrary, the legal person continues to exist, with both its assets and liabilities. Consequently, in the first case the eventual recovery claim of the State will have been proportionally satisfied through the revenue from the sale of the assets, whereas in the second case the recovery claim remains against the transferred company, since it is that company that received the aid, regardless of its shareholders that may have changed.51 These findings are coherent with the general clearing function of the insolvency proceedings, on one hand, and with the meaning of the transfer of one and the same company, on the other.52 Some continuity of the undertaking can also be detected in cases in which the assets in question are transferred together with some liabilities, typically the maintenance of employment or the carrying out some outstanding contracts. In such cases, the continuity of the economic activity is quite obvious53 and the Commission would normally uphold the recovery order against the successor company, since the transfer would then resemble to a ‘share deal’. The complication results from intermediary solutions, in which the assets are transferred organised in ‘going concern’, normally cleared of debts, under circumstances implying that the transfer aims at or results in the neutralisation of the recovery claim. This can be the case when the group of assets is transferred to another firm of the same group or to a person linked to the initial investor or when the transfer took place after the opening of the formal proceedings in the sense of Article 88(2) announcing an imminent recovery order or when the bidding at the liquidation phase was not open, transparent and unconditional. In other words, no matter the sale of the group of assets, under such peculiar conditions the bankruptcy does not necessarily interrupt the underlying real continuity of the undertaking. More generally speaking, it is important to examine whether the transfer reflects some economic logic other than the invalidation of the recovery order. In case the transfer doesn’t seem otherwise justified but results just 50 In that sense, the aid is reimbursed by the seller, see Case C–305/89, Italy v Commission (Alfa Romeo), [ECR] 1991, I–1603. On the contrary, the judgment of 20 Sept 2001 in Case C–390/98, Banks, point 78 (not yet published) seems, in a redundant obiter, to apply this principle (aid resting with the seller) in the case of a ‘share deal’, which is not correct, because in such case the legal personality continues. 51 Case C–303/88, Italy v Commission (ENI-Lanerossi), [ECR] 1991, I–1433, point 57. 52 AG Geelhoed has agreed to this approach in his Conclusions of 27 Sept of 2001 in the Case C–328/99 and C–399/00. 53 According to Fn 9 of the restructuring guidelines (see above), the creation by a firm of a subsidiary with the sole aim to transfer to it assets and, possibly, liabilities, is not considered to be a creation of a new undertaking.

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into emptying the initial company from its valuable assets, on which recovery could claw back at least a part of the aid amount, then it makes sense to consider that the assets transferred in ‘going concern’ and incorporated in some new legal person can still serve the reimbursement of the illegal state aid.54 This approach has been fully endorsed by the Court of Justice, which has recently approved the elements that have to be taken into account (transferred items including staff, price, identity of the shareholders/owners of the purchasing company, timing in relation to the opening of the formal investigation, economic logic of the transfer) in order to pursue the purchaser for recovery purposes.55 This ‘anti-circumvention’ approach represents a modern version of the old ‘actio pauliana’ known in ancient roman law. This legal remedy was open to the creditors in case a debtor divested himself of assets in order to curtail the satisfaction of creditors and allowed the pursuit of the claims of the latter against those who benefited from the disposal of assets, the result of the prejudicial legal transactions becoming part of the bankrupt’s estate.56 Freed from its initial subjective elements (intention of the seller, knowledge of the buyer), the underlying principle was also to be found in the German civil code, according to which a burden on a group of assets followed these assets in case of transfer.57 Even if the precise formulation of this principle may differ in the different Member States and is influenced by civil law reasoning, which attaches much more value to the intentions and moods of the individuals, one could deduce from the fundamental underlying concept that a transfer of assets should not make the recovery of State aid impossible, especially when the surrounding circumstances imply that the transfer aims at and results in rendering the recovery impossible (‘empty shell’ effect). The inspiration from historical precedents and comparative law has, of course, to be adapted to the Community law objective in order to be used by some analogy. The declared objective of the recovery order is the reestablishment of the level playing field for competition in the internal market. This level playing field seems re-established in the case of a real winding up through transparent procedures leading to the elimination of the old firm, in case the assets are dispersed, or to the replacement of the old investor by one of his previous competitors, in case the assets are transferred as a group ‘in going concern’. This can be seen as repairing the distortion caused by the aid. On the contrary, the distortion remains 54 Commission

Dec 1999/720/EC, ECSC (Groeditzer) of 8 July 1999, OJ L 292, 13.11.1999, 27, para 102; Commission Dec 2000/536/EC (Seleco) of 2 June 1999, OJ 2000 L 227, 24; Commission Dec 2000 of 11 April 2000. 55 ECJ, Italian Republic and SIM v Commission, Joined cases C–328/99 and C–399/00, judgment of 8 May 2003 (paras 69 ff, 77 ff). 56 See Windscheid, Lehrbuch des Pandektenrechts, Vol 2, 6th edition (1887) 775 ff. 57 Old s 419 of the Civil Code (BGB) to be also found in the Greek civil code.

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for sure if the economic activity remains linked somehow to the old investor or his group. 58 This is why in the last case the aid has to be recovered from the connected buyers of the assets. Nevertheless, the Commission has not gone so far as to consider that in the case of transfer of assets as a ‘going concern’ (with or without some liabilities), some functional understanding of the undertaking concept implies that recovery can always be claimed against the successor. Even if in general competition law it is the undertaking in functional sense that matters,59 it is indeed important to generally uphold the reference to the legal personality, in order to determine the person that is liable for the recovery of the illegal aid. It is only against (legal) persons that insolvency proceedings are possible, not against economic activities as such. This is why the rule must be to address the recovery order to the persons that benefited from the aid.60 Only exceptionally, in ‘circumvention’ cases in which through some unnatural transfer of assets the recovery is deprived of its efficiency the pursuit of the assets group beyond the boundaries of the aid beneficiary becomes necessary in order to maintain the ‘effet utile’ of the recovery obligation. The claw back at purchaser’s level remains normally linked to the real benefit accruing on him from the State Aid depending on the purchase price of the asset.60a In this way, the Commission’s decisions are establishing a kind of a new liability principle deriving from the public law obligation to recover State aid.61 The confirmation of this principle by the jurisprudence will be essential for the efficiency of State Aid discipline, which can otherwise be seriously damaged by timely transfers of the assets of the beneficiaries to undertakings of their choice for the pursuit of the same already favoured activities in total impunity to the detriment of sound competition.

58 This argument is used in the above mentioned Commission decisions. 59 Case C–41/90, Hoefner [1991] ECR 1979, para 21; Case 118/85, Commission/Italy

[1987] 2620 f. 60 For a functional understanding of the undertaking even regardless of special circumstances see C Koenig, ‘Bestimmung des passivlegitimierten Adressaten einer Beihilfenrückforderung nach der Veräusserung eines begünstigten “Unternehmens”’ (2001) Europäische Zeitschrift für Wirtschaftsrecht, 37 ff. According to this radical view, any transfer of assets to third parties risks being followed by recovery claims, which would dissuade operators from such transfers or, at least, lead to a significant reduction of the sale price, since the purchasers will have to take the recovery risk into account. This view aims at ensuring the effectiveness of a decentralised state aid control even by private parties who would pay less for liable assets and thus contribute to the reestablishment of competition conditions at the level of the initial beneficiary, but is quite detrimental to the winding up process and may even penalize some uninformed purchasers. 60a See Case C–277/00, Germany/Commission (SIMI) judgment of 29 April 2004, para 86ff, showing the limits of the claw back. 61 In such cases, German lawyers talk about ‘öffentlichrechtliche Schuldverhältnisse’ and apply general principles of (private) law by free analogy.

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The application of the State aid discipline has proven to be of significant relevance for bankruptcy law. The application of the State Aid discipline cannot only cause bankruptcy (in case of recovery orders) or avert it (in case of legitimate rescue and restructuring aid). More importantly, national bankruptcy law is subject to alterations, in order to allow the recovery orders to be efficiently implemented. Such alterations can consist of [TT], not to talk about possible extension or misapplication of the strict deadlines of national insolvency proceedings, if this proves to be justified to enforce the recovery claim of the State.62 Would jurisprudence not be sufficient to have such alterations affirmed, some legislative action coordinating national bankruptcy laws also from this point of view would be welcome. The first step has already been taken by Regulation 1346/00 on insolvency proceedings. The next one could be taken on the basis of Article 89 EC, like the Procedural Regulation 659/99, as being necessary for the correct implementation of the recovery orders contained in the State Aid decisions according to Article 88 (2). Last but not least, the more favourable situation of enterprises whose legal form rules out bankruptcy or other insolvency proceedings or provides an explicit guarantee or coverage of losses through the State is also regarded as State Aid.63 Therefore, State Aid discipline may require the abolishment of some explicit or implicit exemptions64 from bankruptcy benefiting in some Member States some public undertakings with special status, like the regional and saving banks or the local utilities (‘Anstalten’) in Germany or the ‘Etablissements publics industriels et commerciaux’ in France , whose liabilities have always been fully guaranteed by the State.65 These undertakings are actually not subject to bankruptcy for the sake of the continuation of their activity. The abolishment of such privileges as an appropriate

62 See jurisprudence above 63 Commission Notice on

notes 2 (‘Peterbroek’) and 13 (‘Alcan’), to be applied by analogy. State Aid in the form of guarantees, OJ C 71 of 11 March 2000,

point 2.1.3. 64 General principles of law. 65 So called ‘Anstaltslast’, guaranteeing the existence of such undertakings, complemented by another specific guarantee arrangement (‘Gewährträgerhaftung’). On this subject see König, EWS (1998)149; Kruse, Neue Zeitschrift für Verwaltungsrecht, Niemeyer/Hirsbrunner, (2000) Europäische Zeitschrift fur Wirtschaftsrecht, 364. Cf the ‘continuity’ principle for the ‘service public’ in French administrative law, the assets of which cannot be seized, (see Hamel, Lagarde, Jauffret, (1980) Dalloz, 747 and (2000) Jurisclasseur, fasc 157, 23, according to a Decree of 10 December 1953) as well the French law of 16 July 1980 on penalty payments of the State (Art 1, Section II), foreseeing the ultimate liability of the State for the claims against the ‘établissements publics’ (Julien/Taormina, ‘Voies d’ exécution’, (2000) LGDJ , 84). Bankruptcy law is not applicable to public law persons (Law of 25 January 1985, see Colson, ‘Droit public economique’, (2001) LGDJ, 306, 335). See also the old case law ‘Ducornot’, of the ‘Tribunal des Conflits’, of 9 Dec 1899, Rep Conseil d’ Etat, 731.

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measure on the basis of Article 88(1)66 is due to bring about important changes in the landscape of the public sector of the Economy in the Member States concerned. Indeed, the public undertakings having to comply with competition rules as far as they compete with other undertakings and their privileges cannot be justified by special tasks of public interest in the sense of Article 86(2) EC.67 This will have as consequence the application, to them, of normal bankruptcy rules, the scope of which will thus be extended to them. This perspective demonstrates that State Aid control does not only require substantial modifications of the normal rules but also, in some cases, the extension of the application of these rules to the whole merchant economy.

66 Their

original proposal was to be found in Commission Dec of 8 May 2001 addressed to Germany. For the content of the final agreement between Commission and the German Government see Commission’s press release of 28 Feb 2002 (IP/02/343). 67 D Triantafyllou, ‘L’ encadrement communautaire du financement du service public’ (1999) Revue trimestrielle de Droit européen, 21 ff; the relevant conditions have been specified by the Court in its Altmark judgment of 24 July 2003, case C–280/00.

17 Public Procurement and the Internal Market of the Twenty-first Century: Economic Exercise versus Policy Choice CHRISTOPHER BOVIS

INTRODUCTION

P

UBLIC PROCUREMENT 1 IN the European Union has been significantly influenced by the internal market project. The White Paper for the Completion of the Internal Market2 and the Single European Act represent the conceptual foundations of the regulation of public markets of the Member States. The identification of public procurement as a major non-tariff barrier has revealed the economic importance of its regulation.3 Savings and price convergence appeared as the main arguments

1 See

The Public Supplies Directive 93/36/EEC, OJ L 199, 9.8.1993 as amended by Dir 97/52/EC OJ L 328, 28.11.1997; The Public Works Directive 93/37/EEC, OJ L 199, 9.8.1993 as amended by Dir 97/52/EC OJ L 328, 28.11.1997; The Utilities Directives 93/38/EEC OJ L 199, 9.8.1993 as amended by Dir 98/4/EC OJ L 101, 1.4.1998; The Public Services Directive 92/50/EEC, OJ L 209, 24.7.1992 as last amended by Dir 97/52/EC OJ L 328, 28.11.1997; The Remedies Utilities Directive 92/13/EEC OJ L 076, 23.03.1992; The Public Remedies Directive 89/665/EEC OJ L 395, 30.12.1989. The Public Procurement Directives have been recently amended by Directive 2004/18, OJ L 134, 30.4.2004 on the coordination of procedures for the award of public works contracts, public supply contracts and public service contracts and Directive 2004/17, OJ L 134, 30.4.2004 coordinating the procurement procedures of entities operating in the water, energy, transport and postal service sectors. 2 See European Commission, White Paper for the Completion of the Internal Market, (COM) 85 310 FIN, 985. 3 See Commission of the European Communities, The Cost of Non-Europe, Basic Findings, Vol 5, Part A; The Cost of Non-Europe in Public Sector Procurement, (Official Publications of the European Communities, Luxembourg, 1988). Also the Cechinni Report 1992 The European Challenge, (Aldershot, Wildwood House, 1988).

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for liberalising the trade patterns of the demand (the public and utilities sectors) and supply (the industry) side of the public procurement equation.4 The economic approach to the regulation of public procurement aims at the integration of public markets across the EU. Through the principles of transparency, non-discrimination and objectivity in the award of public contracts, it is envisaged that the regulatory system will bring about competitiveness in the relevant product and geographical markets, will increase import penetration of products and services destined for the public sector, will enhance the tradability of public contracts across the common market, will result in significant price convergence and finally it will be the catalyst for the needed rationalisation and industrial restructuring of the European industrial base.5 In parallel with the economic arguments, legal arguments emerged supporting the regulation of public procurement as a necessary ingredient of the fundamental principles of the Treaties such as the free movement of goods and services, the right of establishment and the prohibition of discrimination of nationality grounds.6 The legal significance of the regulation of public procurement in the common market has been well documented. Public procurement liberalisation reflects the wish of European Institutions to eliminate preferential and discriminatory purchasing patterns by the public sector and create seamless intra-community trade patterns between the public and private sectors. Procurement by Member States and their contracting authorities is often susceptible to a rationale and policy that favours indigenous undertakings and national champions7 at the expense of more efficient competitors (domestic or Community-wide). As the relevant markets (product and geographical) have been sheltered from competition, distorted patterns emerge in the trade of goods, works and services destined for the pubic sector. These trade patterns represent a serious impediment in the functioning of the common market and inhibit the fulfillment of the principles enshrined in the Treaties.8 Legislation, policy guidelines and jurisprudence have all played their role in determining the need for integrated public markets in the European 4 The

European Commission has claimed that the regulation of public procurement could bring substantial savings of ECU 20 bn or 0.5% of GDP to the (European) public sector. See European Communities, The Cost of Non-Europe, above n 3. 5 See Commission of the European Communities, Statistical Performance for keeping watch over public procurement, (1992). Also The Cost of Non-Europe, Basic Findings, Vol.5, Part.A, above n 3; The Cost of Non-Europe in Public Sector Procurement, above n 3. 6 See C Bovis, ‘Recent case law relating to public procurement: A beacon for the integration of public markets’, (2002) 39 CML Rev. 7 The term implies a firm with more than a third of its turnover made in its own country and has enjoyed formal or informal government protection. The term has been defined by Abravanel and Ernst, Alliance and acquisition strategies for European national champions, (1992) The McKinsey Quarterly, no. 2, 45–62. 8 See Nicolaides (ed), Industrial Policy in the European Community: A Necessary Response to Economic Integration, (Martinus Nijhoff, 1993).

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Union, where sufficient levels of competition influence the most optimal patterns in resource allocation for supplying the public sector as well as the public utilities with goods, works and services. Public procurement has now been elevated as a key objective of the EU’s vision in becoming the most competitive economy in the world by 2010.9 A NEO-CLASSICAL PERSPECTIVE TO PUBLIC PROCUREMENT REGULATION

Conceptual Elements of Public Procurement: The Distinctiveness of Public Markets From an economic perspective, the state and its organs enter the market in pursuit of public interest.10 Such activity does not resemble the commercial characteristics of private entrepreneurship, in as much as the aim of the public sector is not the maximisation of profits but the observance of public interest.11 This fundamental factor provides the differential ground for the creation of public markets where public interest substitutes profit maximisation.12 Further variances distinguish private from public markets. These focus on structural elements of the market place, competitiveness, demand conditions, supply conditions, the production process, and finally pricing and risk. They also provide for an indication as to the different methods and approaches employed in their regulation.13 Private markets are generally structured as a result of competitive pressures originating in the buyer/supplier interaction and their configuration can vary from monopoly/oligopoly to perfect competition. Demand arises from heterogeneous buyers with a variety of specific needs. It is based on expectations and is multiple for each product. Supply, on the other hand, is offered through various product ranges, where products are standardised using known technology, but constantly improved 9 See Communication from the European Commission to the Council, the European Parliament, the Economic and Social Committee, and the Committee of the Regions, ‘Working together to maintain momentum’ (2001) Review of the Internal Market Strategy, Brussels, 11 April 2001, COM (2001)198 final. Also European Commission, Commission Communication, (1998) Public procurement in the European Union, Brussels, 11 March, COM (98) 143. 10 See Valadou, ‘La notion de pouvoir adjudicateur en matière de marchés de travaux’, (1991) (3) Semaine Juridique; Bovis, ‘La notion et les attributions d’organisme de droit public comme pouvoirs adjudicateurs dans le régime des marchés publics’, (2003) Contrats Publics. 11 Flamme et Flamme, ‘Enfin l’ Europe des Marchés Publics’,(1989) Actualité Juridique-Droit Administratif, 1989. 12 On the issue of public interest and its relation with profit, see Cases C–223/99, Agora Srl v Ente Autonomo Fiera Internazionale di Milano and C–260/99 Excelsior Snc di Pedrotti Runa & C v Ente Autonomo Fiera Internazionale di Milano, [2001] ECR 3605; C–360/96, Gemeente Arnhem Gemeente Rheden v BFI Holding BV, [1998] ECR 6821; C–44/96, Mannesmann Anlangenbau Austria AG et al v Strohal Rotationsdurck GesmbH, [1998] ECR 73. 13 See C Bovis, The Liberalisation of Public Procurement in the European Union and its Effects on the Common Market (Ashgate, 1998) chapter 1.

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through research and development processes. The production process is based on mass-production patterns and the product range represents a large choice including substitutes, whereas the critical production factor is cost level. The development cycle appears to be short to medium-term and finally, the technology of products destined for the private markets is evolutionary. Purchases are made when an acceptable balance between price and quality is achieved. Purchase orders are multitude and at limited intervals. Pricing policy in private markets is determined by competitive forces and the purchasing decision is focused on the price-quality relation. The risk factor is highly present. On the other hand, public markets tend to be structured and function in a different way. The market structure often reveals monopsony characteristics.14 In terms of its origins, demand in public markets is institutionalized and operates mainly under budgetary considerations rather than price mechanisms. It is also based on fulfillment of tasks (pursuit of public interest) and it is single for many products. Supply also has limited origins, in terms of the establishment of close ties between the public sector and industries supplying it and there is often a limited product range. Products are rarely innovative and technologically advanced and pricing is determined through tendering and negotiations. The purchasing decision is primarily based upon the life-time cycle, reliability, price and political considerations. Purchasing patterns follow tendering and negotiations and often purchases are dictated by policy rather than price/quality considerations.

Procurement Regulation as an Economic Exercise Viewing public procurement from the prism of an economic exercise, its regulation displays strong neo-classical influences. Such influences embrace the merit of efficiency in the relevant market and the presence of competition, mainly price competition, which would create optimal conditions for welfare gains. The connection between public procurement regulation and the neo-classical approach to economic integration in the common market is reflected upon the criterion for awarding public contracts based on the lowest offer.15 This feature of the legal framework focuses on price competition being inserted into the relevant markets and, assisted by the transparency requirement to advertise public contracts above certain thresholds16 would 14 Monopsony

is the reverse of monopoly power. The state and its organs often appear as the sole outlet for an industry’s output. 15 See Art 26(1)(a) of Dir 93/36; Art 30(1)(a) of Dir 93/37; Art 34(1)(b) of Dir 93/38; Art 36(1)(b) of Dir 92/50. 16 The thresholds laid down by the Directives are as follows: EURO 5m for all work and construction projects (Art 3(1) of Dir 93/37; Art 14(c) of Dir 93/38). EURO 200,000 for supplies contracts within the European Union (Art 5(1)(a)

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result in production and distribution efficiencies and drive the market towards an optimal allocation of resources. Removing protectionism and preferential treatment and inserting an environment of competition in public markets will bring about allocative efficiencies, which in turn will result in social welfare gains at European and national levels through the emergence of three major effects that would primarily influence the supply side.17 These gains include a trade effect, a competition effect and a restructuring effect. The trade effect is associated with the actual and potential savings that the public sector would be able to achieve through lower cost purchasing. This effect appears to have a static dimension, since it emerges as a consequence of enhanced market access of the relevant sectors or industries. The trade effect emanates from the principle of transparency18 in public markets (compulsory advertisement of public contracts above certain thresholds). On the other hand, the competition effect relates to the changes of industrial performance as a result of changes in the price behaviour of national firms which had previously been protected from competition by means of preferential and discriminatory procurement practices. The competition effect derives also from the principle of transparency and appears to possess dynamic characteristics. The competition effect comes as a natural sequence to price competitiveness and inserts an element of long-term competitiveness in the relevant sectors or industries in aspects other than price (e.g. research and development, innovation, customer care). The competition effect would materialise in the form of price convergence, at both national and Community-wide levels, of goods, works and services destined for the public sector. Finally, the third effect (the restructuring effect) reflects upon the restructuring dimension of the supply side as a result of increased competition in the relevant markets. The restructuring effect possesses dynamic characteristics and refers to the long-term industrial and sectoral adjustment through strategic investment, takeovers and mergers and acquisitions. The restructuring effect attempts to capture the reaction of Dir 93/36) and EURO 136,000 for supplies contracts from third countries (Art 5(1)(c) of Dir 93/36) which participate in the WTO Government Procurement Agreement. EURO 600,000 for supplies of telecommunication equipment under the Utilities Dir (Art 14(b) of Dir 93/38) and EURO 400,000 for all other supplies contracts awarded by public utilities (Art 14(a) of Dir 93/38). EURO 200,000 for services contracts (Art 7(1) of Dir 92/50). 17 See

C Bovis, ‘An Impact Assessment of the European Community’s Public Procurement Law and Policy’ (1999) (5) Journal of Business Law. 18 See the recital of Dir 89/440, OJ L 210/1 1989 amending the original works Dir 71/305 concerning co-ordination of procedures for the award of public works contracts, stating that ‘it is necessary to improve and extend the safeguards in the directives that are designed to introduce transparency into the procedures and practices for the award of such contracts, in order to be able to monitor compliance with the prohibition of restrictions more closely and at the same time to reduce disparities in the competitive conditions faced by nationals of different Member States’.

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of the relevant sector or industry vis-à-vis the competitive regime imposed upon the demand and supply sides, as a result of openness and transparency and the sequential trade and competition effects. The lowest offer as an award criterion of public contracts is a quantitative method of achieving market equilibrium between the demand and supply sides. The supply side competes in costs terms to deliver standardised (at least in theory) works, services and goods to the public sector. Price competition is bound to result in innovation in the relevant industries, where through investment and technological improvements, firms could reduce production and/or distribution costs. The lowest offer criterion could be seen as the necessary stimulus in the relevant market participants in order to improve their competitive advantages. The lowest offer award criterion reflects on, and presupposes low barriers to entry in a market and provides for a type of predictable accessibility for product or geographical markets. This is a desirable characteristic in a system such as public procurement regulation which is charged with integrating national markets and creating an homogenous and transparent common market for public contracts. In addition, the low barriers to enter a market, together with the transparent price benchmarking for awarding public contracts through the lowest offer criterion would inevitably attract new undertakings in public procurement markets. This can be seen as an increase of the supply-side pool, a fact which would provide the comfort and the confidence to the demand side (the public sector) in relation to the competitive structure of an industry. Nevertheless, the increased number of participants in public tenders could have adverse effects. Assuming that the financial and technical capacity of firms is not an issue,19 the demand side (the public sector) will have to bear the cost of tendering and in particular the costs relating to the evaluation of offers. The more participants enter the market for the award of public contracts, the bigger the costs attributed to the tendering process would have to be born by the public sector. However, competitiveness in an industry is not reflected solely by reference to low production costs.20 Efficiencies which might result through production or distribution innovations are bound to have a short term effect on the market for two reasons: if the market is bound to clear with 19 The

demand side often omits risk assessment tests during the evaluation process. The Directives remain vague as to the methods for assessing financial risk, leaving a great deal of discretion in the hands of contracting authorities. Evidence of financial and economic standing may be provided by means of references including: i) appropriate statements from bankers; ii) the presentation of the firm’s balance sheets or extracts from the balance sheets where these are published under company law provisions; and iii) a statement of the firm’s annual turnover and the turnover on construction works for the three previous financial years. See Case C–27/86, Constructions et Enterprises Industrielles SA (CEI) v Association Intercommunale pour les Autoroutes des Ardennes; Case C–28/86, Ing A Bellini & Co SpA v Regie de Betiments; Case C–29/86, Ing A Bellini & Co SpA v Belgian State, [1987] ECR 3347. 20 See Lawton (ed), Industrial Policy and Competitiveness in Europe, (Macmillan, 1998).

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reference to the lowest price, there would be a point where the quality of deliverables is compromised (assuming a product or service remains standardized). Secondly, the viability of industries which tend to compete primarily on cost basis is questionable. Corporate mortality will increase and the market could revert to oligopolistic structures. The welfare gains emanating from a neo-classical approach of public procurement regulation encapsulate the actual and potential savings the public sector (and consumers of public services at large) would enjoy through a system that forces the supply side to compete on costs (and price). These gains, however, must be counterbalanced with the costs of tendering (administrative and evaluative costs born by the public sector), the costs of competition (costs related to the preparation and submission of tender offers born by the private sector) and litigation costs (costs relevant to prospective litigation born by both aggrieved tenderes and the public sector). If the cumulative costs exceed any savings attributed to lowest offer criterion, the welfare gains are negative. A neo-classical perspective of public procurement regulation reveals the zest of policy makers to establish conditions which calibrate market clearance on price grounds. Price competitiveness in public procurement raises a number of issues with anti-trust law and policy. If the maximisation of savings is the only (or the primary) achievable objective for the demand side in the public procurement process, the transparent/competitive pattern cannot provide any safeguards in relation to underpriced (and anti-competitive) offers. The price competitive tendering reflects on the dimension of public procurement regulation as an economic exercise. On the one hand, when the supply side responds to the perpetually competitive purchasing patterns by lowering prices, the public sector could face a dilemma: what would be the lowest offer it can accept. The public sector faces a considerable challenge in evaluating and assessing low offers other than ‘abnormally low’ ones.21 It is difficult to identify dumping or predatory pricing disguised behind a low offer for a public contract. On the other hand, even if there is an indication of anti-competitive price fixing, the European public procurement rules do not provide for any kind of procedure to address the problem. 21 The European rules provide for an automatic disqualification of an ‘obviously abnormally low offer’. The term has not been interpreted in detail by the judiciary at European and domestic levels and serves rather as a ‘lower bottom limit’. The contracting authorities are under duty to seek from the tenderer an explanation for the price submitted or to inform him that his tender appears to be abnormally low and to allow a reasonable time within which to submit further details, before making any decision as to the award of the contract. See Case 76/81, SA Transporoute et Travaux v Minister of Public Works, [1982] ECR 457; Case 103/88, Fratelli Costanzo SpA v Comune di Milano, [1989] ECR 1839; Case 296/89, Impresa Dona Alfonso di Dona Alfonso & Figli snc v Consorzio per lo Sviluppo Industriale del Comune di Monfalcone, [1991] ECR 2967; Case C–285/99 & 286/99, Impresa Lombardini SpA v ANAS, [2001] ECR 9233.

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The anti-trust rules take over and the suspension of the award procedures (or even the suspension of the contract itself) would be subject to a thorough and exhaustive investigation by the competent anti-trust authorities. Evidence of the neo-classical approach in public procurement regulation can be found in Guidelines22 issued by the European Commission. The Commission adopted a strict interpretation of the rules and focused Member States on an economic approach in the application of the public procurement Directives. The Commission has championed the neo-classical approach for two reasons: first, to bring an acceptable level of compliance of Member States with the public procurement regime and secondly, to follow the assumptions made through the internal market process that procurement represents a significant non-tariff barrier and its regulation can result in substantial savings for the public sector. It is interesting to follow the Commission’s approach23 in litigation before the European Court of Justice, where as an applicant in compliance procedures, or as an intervening party in reference procedures, it consistently regarded public procurement regulation as an economic exercise. The backbone of such approach has been the price approach to the award of public contracts, predominately through the lowest offer award criterion, but also through the most economically advantageous offer criterion, where factors other than price can play a role in the award process. Even in the latter category, where some degree of flexibility is envisaged by the legal regime, the Commission has been skeptical of any attempts to apply socalled ‘qualitative’ factors in the award process. Along these lines, the European Court of Justice pursued a neo-classical approach of public procurement regulation through its rulings relating to i) compliance procedures against Member States for not observing the publicity and mandatory advertisement requirements, ii) procedures concerning standardisation and technical specifications24 and iii) procedures relating to the notion of abnormally low offers.25

22 See Commission Communication, Public 23 See the Commission’s arguments in the

Procurement, 22 Sept 1989, C 311 89. Beentjes (Case Case 31/87, Gebroeders Beentjes BV v State of Netherlands [1988] ECR 4635), Nord-Pas-de-Calais (Case C–225/98, Commission v French Republic, [2000] ECR 7445), and The Concordia C–513/99, Concordia Bus Finlandia v Helsingin Kaupunki et HKL-Bussiliikenne, [2002] ECR 7213. 24 See Case C–45/87, Commission v Ireland, [1988] ECR 4929; also Case C–359/93, Commission v The Netherlands, [1995] ECR 151. 25 Case 76/81, SA Transporoute et Travaux v Minister of Public Works, [1982] ECR 457; Case 103/88, Fratelli Costanzo SpA v Comune di Milano, [1989] ECR 1839; Case 296/89, Impresa Dona Alfonso di Dona Alfonso & Figli snc v Consorzio per lo Sviluppo Industriale del Comune di Monfalcone, [1991] ECR 2967; Case C–285/99 & 286/99, Impresa Lombardini SpA v ANAS, [2001] ECR 9233.

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Anti-trust and Public Procurement Regulation The regulatory weaponry for private markets evolves around anti-trust law and policy, where the influence of the neo-classical economic approach has been evident.26 Public markets are fora where the structural and behavioural remedial tools of competition law also apply. However, they focus on the supply side (the industry) which ipso facto is subject to the relevant rules relating to cartels and abusive dominance. There is a conceptual difference relating to the application of anti-trust in public markets. The demand side (the public sector and its organs) can hardly be embraced by its remit, except in the case of state aids and illegal subsidies. In private markets, anti-trust law and policy seek to punish cartels and the abusive dominance of undertakings. The focus of the remedial instruments is the supply side, which is conceived as the commanding part in the supply / demand equation due to the fact that it instigates and often controls demand for a product. In private markets, the demand side of the equation (the consumers at large) is susceptible to exploitation and the market equilibria are prone to distortion as a result of collusive behaviour of undertakings or abusive monopoly position. On the other hand, the structure of public markets reveals a different picture. In the supply / demand equation, the dominant part appears to be the demand side (the state and its organs as purchasers), which initialises demand through purchasing, where the supply side (the industry) fights for access to the relevant markets. In public markets, market segmentation occurs as a result of concerted practices attributed to the demand side. Since such concerted practices of Member States and their contracting authorities (e.g. excluding foreign competition, application of buy-national policies, and application of national standards policies) focus on the origin of a product or a service or the nationality of a contractor, market segmentation in public markets tends to have geographical characteristics and results in the division of the European public market into different national public markets. The regulation of public markets requires more than the control of the supply side through anti-trust. The primary objective is market access and the abolition of barriers and obstacles to trade. Therefore, the regulation aims at the demand side, which effectively controls access and can segment the relevant market. Whereas price competition is the main characteristic of anti-trust,27 public procurement regulation pursues firstly market access. 26 See 27 See

R Posner, Antitrust Law, 2nd edn, (Chicago, 2000). G Monti, ‘Article 81 EC and Public Policy’, (2002) 39 Common Market Law Review, where it is argued that public policy considerations balance the legality test of ab initio illegal restrictive agreements by virtue of Art 81(1)(2) EC with a set of requirements contained in Art 81(3) EC and also developed by the EC Commission in its jurisdictional capacity to provide individual exemptions.

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This perspective reflects on the sui generis nature of public markets and has provided ground for developing a regulatory system which is strongly influenced by neo-classical economics, whilst at the same time integrating the relevant market. Such system has also strong public law characteristics, to the extent that it has been branded as droit public de la concurrence.28

THE ORDO-LIBERAL APPROACH TO PUBLIC PROCUREMENT REGULATION

The vehicle of harmonisation has been entrusted to carry the progress of public procurement regulation. Directives, as legal instruments, have been utilized to provide the framework of the acquis communautaire, but at the same time afford the necessary discretion to the Member States as to the forms and methods of their implementation. This is where the first deviation from the traditional economic approach of public procurement occurs. Anti-trust law and policy is enacted through the principle of uniformity across the common market, utilizing directly applicable regulations. By allowing for discretion to the Member States, an element of public policy is inserted in the equation, which often has decentralized features. Traditionally, discretion afforded by Directives takes into account national particularities and sensitivities as well as the readiness of domestic administrations to implement acquis within a certain deadline. In addition, individuals, who are also subjects of the rights and duties envisaged by the Directives, do not have access to justices, unless provisions of Directives produce direct effect. However, the public policy dimension of public procurement regulation is not exhausted in the nature of the legal instruments of the regime. The genuine connection of an ordo-liberal perspective29 with public procurement regulation is reflected in the award criterion relating to the most economically advantageous offer. The public sector can award contracts by reference to ‘qualitative’ criteria, in conjunction with price, and thus can legitimately deviate from the strict price competition environment set by the lowest offer criterion.30 There are three themes emanating from such approach: one reflects on public procurement as a complimentary tool of 28 See Bazex, Le droit public de la concurrence, (RFDA, 1998); Arcelin, L’enterprise en droit interne et communautaire de la concurrence, (Paris, Litec, 2003); Guézou, ‘Droit de la concurrence et droit des marches publics: vers une notion transverale de mise en libre concurrence’ (2003) Contrats Publics. 29 See Jacquemin and de Jong, European Industrial Organization, (Macmillan, 1997); Möschel, Competition Law from an Ordo-Liberal Point of View, in Peacock and Willgerodt (eds) German Neo-Liberals and the Social Market Economy, (Macmillan, 1989). 30 See Commission Interpretative Communication on the Community law applicable to public procurement and the possibilities for integrating social considerations into public procurement, COM (2001) 566, 15 Oct 2001. Also, Commission Interpretative Communication on

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the European Integration process; the second regards public procurement as an instrument of contract compliance; last, the ordo-liberal perspective can reveal a rule of reason in public procurement, where the integration of public markets in the European Union serves as a conveyer belt of common policies, such as environmental policy, consumer policy, social policy, industrial policy and takes into account a flexible and wider view of national and community priorities, and a type of ‘European public policy’. Public Procurement as Part of the European Integration Procurement rules and the public markets do not operate in a vacuum. Irrespective of the often publicized nature of public procurement as the most significant non-tariff barrier for the functioning of the common market and the clinical presentation of the arguments in favour of an integrated public market across the EU,31 public purchasing is indissolubly linked with national policies and priorities.32 In the history of European economic integration, public procurement has been an important part of the Member States’ industrial policies. It has been utilised as a policy tool33 in order to support indigenous suppliers and contractors and preserve national industries and the related workforce. There has been a great deal of controversy over the issue of the compatibility of preferential procurement with EU law. Preference schemes have been linked with regional development policies, a fact that indicates the close interplay between public procurement and state aids.34 Protectionist public procurement practices, when strategically exercised has resulted in the evolution of vital industries for the state in question.35 The sustainability

the Community law applicable to public procurement and the possibilities for integrating environmental considerations into public procurement, COM (2001) 274, 4 July 2001. 31 See European Commission, Special Sectoral Report no 1, Public Procurement, Brussels, (Nov 1997). 32 See European Commission, Public Procurement: Regional and Social Aspects (COM(89) 400. 33 The legislation on public procurement in the early days clearly allowed for ‘preference schemes’ in less favoured regions of the common market which were experiencing industrial decline. See Arts 29(4) and 29(a) of the EC Public Works Directive 71/305; also Art 26 of EC Public Supplies Directive 77/62. Such schemes required the application of award criteria based on considerations other than the lowest price or the most economically advantageous offer, subject to their compatibility with Community Law in as much as they did not run contrary to the principle of free movement of goods and to competition law considerations with respect to state aids. Since the completion of the Internal market (1992) they have been abolished, as they have been deemed capable in contravening directly or indirectly the basic principle of non-discrimination on grounds of nationality stipulated in the Treaty of Rome. 34 For a thorough analysis see, Fernandez-Martin and Stehmann, ‘Product Market Integration versus Regional Cohesion in the Community’, (1991) 16 EL Rev. 35 See Bovis, The Liberalisation of Public Procurement in the European Union and its Effects on the Common Market, above n 13.

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of ‘national champions’ has brought about benefits for a sector or an industry, which, when protected from competition in the short-run, managed to achieve specialisation and internationalisation. Preferential public procurement reveals a double dimension. First, it appears in the form of an exercise which aims at preserving some domestic sectors or industries at the expense of the principles of the European integration process. In such format, there is obviously no exit plan. Impact assessment studies undertaken by the European Commission showed that the operation of preference schemes had a minimal effect on the economies of the regions where they had been applied, both in terms of the volume of procurement contracts, as well as in terms of real economic growth attributed to the operation of such schemes.36 Thus, in such format, preferential public procurement perpetuates the sub-optimal allocation of resources and represents a welfare loss for the economy of the relevant state. On the other hand, preferential purchasing in the format of strategic investment to the sustainability of selected industries might represent a viable instrument of industrial policy, to the extent that the infant industry, when specialised and internationalised, would be in a position to counterbalance any welfare losses during its protected period. In the above form, preferential public procurement, as an integral part of industrial policy could possibly result in welfare gains.37 Although the utilisation of public procurement as a tool of regional development policy in the form of state aids may breach directly or indirectly primary Treaty provisions on free movement of goods, the right of establishment and the freedom to provide services, it is far from clear whether the European Commission or the Court could accept the legitimate use of public procurement as a means of state aids. Prior notification to the European Commission of the measures or policies intended to be used as state aid does not, apparently, legitimise such measures and absolve them from the well established framework of the four freedoms. The parallel applicability of rules relating to state aids and the free movement of goods, in the sense that national measures conceived as state aids must not violate the principle of free movement of goods, renders the thrust of regional policies through state aids practically ineffective. It appears that the Court of Justice have experimented with the question of the compatibility between state aids and free movement of goods in a number of cases where, initially, it was held that the two regimes are mutually exclusive, to the extent that the principle of free movement of goods could not apply to measures relating to state aids.38 The acid test for such mutual exclusivity was the prior 36 European Commission, Public Procurement: Regional and Social Aspects (COM(89) 400). 37 Commission of the European Communities, Statistical Performance for keeping watch over

public procurement, (1992). 38 See Case C–74/76, Ianelli & Volpi Spa v Ditta Paola Meroni, [1977] 2 CMLR 688.

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notification of such measures to the European Commission. However, the Court departed from such a position, when it applied free movement of goods provisions to a number of cases concerning state aids, which had not been notified to the Commission.39 Surprisingly, the Court also brought notified state aids measures under the remit of the provision of free movement of goods and reconsidered the whole framework of the mutual exclusivity of states aids and free movement of goods.40 Preferential procurement does contradict directly the fundamental principles of free movement of goods and services. However, the notification of Member States intention to utilise it as a form of state aids aims at moving the focus of potential disputes towards the anti-trust remit of the acquis. Two reasons seem to support the above assumption. First, the public procurement legal framework is positively in favour of strategic subcontracting. 41 The nomination of regional or national firms in the award process of public contracts under such premises could, legitimately, elevate preferential procurement as an instrument of industrial policy. This might shift the debate from the potential violation of internal market provisions towards the overall compatibility of the regime with national or common market-wide industrial policies, thus positioning preferential public procurement in the remit of anti-trust. Secondly, there is a fundamental change in perceptions about the role and responsibilities expected from governments in delivering public services. The public sector not only initiates and facilitates the delivery of public services but also can actively be involved in the actual delivery process. Such changes, in practical terms viewed through the evolution of public-private partnerships,42 are translated

39 See

Case C–18/84, Commission v France, [1985], ECR 1339; Case 103/84, Commission v Italy, [1986], ECR 1759; also, Case C–244/81, Commission v Ireland, [1982], ECR 4005. 40 See Bovis, Public Procurement as an Instrument of Industrial Policy in the European Union, Ch 7, in T Lawton (ed), Industrial Policy and Competitiveness in Europe, (MacMillan, 1998); Fernandez Martin and Stehmann, Product Market Integration versus Regional Cohesion in the Community, above n 34. 41 Sub-contracting plays a major role in the opening up of public markets as it is the most effective way of small and medium sized enterprises’ participation in public procurement. All Directives on Public Procurement, influenced by Commission’s Communications on subcontracting and small and medium enterprises encourage the use of sub-contracting in the award of public contracts. Particularly, in public supplies contracts, the contracting entity in the invitation to tender may ask the tenderers on their intention to sub-contract to third parties part of the contract. In public works contracts, contracting authorities awarding the principal contract to a concessionaire may require the subcontracting to third parties of at least 30% of the total work provided for by the principal contract. 42 An example of such approach is the views of the UK Government in relation to the involvement of the private sector in delivering public services. The so-called Private Finance Initiative (PFI) has been utilised as a procurement and contractual system in order to create a framework between the public and private sectors working together in delivering public services. See in particular, Working Together—Private Finance and Public Money, (Department of Environment, 1993). Private Opportunity, Public Benefit—Progressing the Private Finance Initiative, (Private Finance Panel and HM Treasury, 1995).

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into a new contractual interface between public and private sectors,43 which in turn encapsulates an era of contractualised governance.

Contract Compliance and Public Procurement The most economically advantageous offer as an award criterion has provided the Court for the opportunity to balance the economic considerations of public procurement with policy choices. Although in numerous instances the Court has maintained the importance of the economic approach44 to the regulation of public sector contracts, it has also recognised the relative discretion of contracting authorities to utilise non-economic considerations as award criteria. The term contract compliance45 could be best defined as the range of secondary policies relevant to public procurement, which aim at combating discrimination on grounds of sex, race, religion or disability.46 When utilised in public contracts, contract compliance is a system whereby, unless the supply side (the industry) complies with certain conditions relating to social policy measures, contracting authorities can lawfully exclude tenderers from selection, qualification and award procedures. The concept is well known and practiced in North American jurisdictions and in particular in the United States,47 as it has been in operation for some time in an attempt to reduce racial and ethnic minority inequalities in the market and to achieve equilibrium in the work-force market. Apparently, the potential of public purchasing as a tool capable of promoting social policies has been met with considerable scepticism. Policies relevant to affirmative action or positive discrimination have caused a great 43 Of

interest is the recent case ARGE (paras 26 et seq of the Court’s judgment), where even the receipt of aid or subsidies incompatible with the Treaty by an entity may be a reason for disqualification from the selection process, as an obligation to repay an illegal aid would threaten the financial stability of the tenderer in question. See Case C–94/99, ARGE Gewässerschutzt v Bundesministerium für Land-und Forstwirtschaft, judgment of 7 Dec 2000, where the Court concluded that if the legislature wanted to preclude subsidized entities from participating in tendering procedures for public contracts, it should have said so explicitly in the relevant Directives. 44 See Case C–380/98, The Queen and HM Treasury, ex p University of Cambridge, [2000] ECR 8035 at para 17; Case C–44/96, C–44/96, Mannesmann Anlangenbau Austria AG et al v Strohal Rotationsdurck GesmbH, [1998] ECR 73, para 33; Case C–360/96, Gemeente Arnhem Gemeente Rheden v BFI Holding BV [1998] ECR 6821at paras 42 and 43; C–237/99, Commission v France, [2001] ECR 934, at paras 41 and 42. 45 See Bovis, ‘The Compatibility of Compulsory Tendering with Transfer of Undertakings: The Case of Contract Compliance and the Acquired Rights Directive’, in Collins, Davies and Rideout (eds) The Legal Regulation of Employment Relations (Kluwer, 2000). 46 See ILEA Contract Compliance Equal Opportunities Unit, Contract Compliance: a brief history, (London, 1990). 47 For a detailed analysis see PE Morris, ‘Legal Regulation of Contract Compliance: an Anglo-American Comparison’, (1990) 19 Anglo-American Law Review, 87.

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deal of controversy, as they practically accomplish very little in rectifying labour market equilibria. In addition to the practicality and effectiveness of such policies, serious reservations have been expressed with regard to their constitutionality,48 since they could limit, actually and potentially, the principles of economic freedom and freedom of transactions.49 Contract compliance legislation and policy is familiar to most European Member States, although the enactment of public procurement Directives has changed the situation dramatically.50 The position of European Institutions on contract compliance has been addressed in three instances before the European Court of Justice.51 The Court maintained that contract compliance with reference to domestic or local employment cannot be used as a selection criterion in tendering procedures for the award of public contracts. The selection of tenderers is a process which is based on an exhaustive list of technical and financial requirements expressly stipulated in the relevant Directives and the insertion of contract compliance as a selection and qualification requirement would be considered ultra vires. The Court ruled that social policy considerations can only be part of award criteria in public procurement, and especially in cases where the most economically advantageous offer is selected, provided that they do not run contrary to the basic principles of the Treaty and that they have been mentioned in the tender notice. The Court’s approach has also opened an interesting debate on the integral dimensions of contract compliance and the differentiation between the positive and negative approaches. The concept of positive approach within contract compliance encompasses all measures and policies imposed by contracting authorities on tenderers as suitability criteria for their selection in public procurement contracts. Such positive action measures and policies intend to complement the actual objectives of public procurement which are confined in economic and financial parameters and 48 In

particular in the US, see Case 93–1841 Adarand Constructors v Pena, (1995) US Sup Ct. The United States Supreme Court questioned the constitutionality in the application of contract compliance as a potential violation of the equal protection component of the Fifth Amendment’s Due Process Clause and ordered the Court of Appeal to re-consider the employment of socio-economic policy objectives in the award of federal public procurement contracts. 49 For an overview of the Social Policy in North American systems, see Cnossen and Bovis, ‘The framework of social policy in federal states: An analysis of the law and policy on industrial relations in USA and Canada’, (1996) 12, International Journal of Comparative Labour Law and Industrial Relations. 50 For example, in United Kingdom, every initiative relating to contract compliance has been outlawed by virtue of the Local Government Act 1988. Contract compliance from a public law perspective has been examined by T Daintith, in ‘Regulation by Contract: the New Prerogative’, (1979) 32 Current Legal Problems, 41. For a comprehensive analysis of the issue of contract compliance in relation to public contracts across the European Community, see C McCrudden, Contract Compliance and Equal Opportunities, (OUP, 1997). 51 See Case 31/87, Gebroeders Beentjes BV v The Netherlands, [1989] ECR 4365. Also see Case C–360/89, Commission v Italy, [1992] ECR 3401.

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are based on a transparent and predictable legal background. Although the complementarity of contract compliance with the actual aims and objectives of the public procurement regime was acknowledged, the Court (and the European Commission) were reluctant in accepting such an overflexible interpretation of the Directives and based on the literal interpretation of the relevant provisions disallowed positive actions of a social policy dimension as part of the selection criteria for tendering procedures in public procurement. However, contract compliance can incorporate not only unemployment considerations, but also promote equality of opportunities and eliminate sex or race discrimination in the relevant market. 52 Indeed, the Directives on public procurement stipulate that the contracting authority may require tenderers to observe national provisions of employment legislation when they submit their offers. The ability to observe and conform to national employment laws in a Member State may constitute a ground of disqualification and exclusion of the defaulting firm from public procurement contracts. 53 In fact, under such interpretation, contract compliance may be a factor of selection criteria specified in the directives, as it contains a negative approach to legislation and measures relating to social policy. There are arguments in favour and against incorporating social policy considerations in public procurement.54 The most important argument in favour focuses on the ability of public procurement to promote parts of the Member States’ social policy, with particular reference to long-term unemployment, equal distribution of income, social exclusion and the protection of minorities. Under such a positively oriented approach, public purchasing could be regarded as an instrument of policy in the hands of national 52 There are a number of legal instruments relevant to social policy at Community level that may apply to public procurement. They include, in particular, Directives on safety and health at work (for example, Council Dir 89/391 on the introduction of measures to encourage improvements in the safety and health of workers at work, and Dir 92/57 on the implementation of minimum safety and health requirements at temporary or mobile construction sites), working conditions and the application of employment law (for example, Dir 96/71/EC of the European Parliament and of the Council concerning the posting of workers in the framework of the provision of services, OJ L 18/1 of 21.1.1997, and Dir 2001/23 on the safeguarding of employees’ rights in the event of transfers of undertakings, businesses or parts of undertakings or businesses, OJ L 82/16 of 22.3.2001, codifying Dir 77/187/EEC), Dir 2000/43/EC of 29.6.2000 implementing the principle of equal treatment between persons irrespective of racial or ethnic origin (OJ 2000 L 180/22) and Dir 2000/78/EC of 27.11.2000 establishing a general framework for equal treatment in employment and occupation (OJ 2000 L 303/16). 53 It should be mentioned that adherence to health and safety laws have been considered by a British court as part of the technical requirements specified in the Works Directive for the process of selection of tenderers; see General Building and Maintenance v Greenwich Borough Council, [1993] IRLR 535. Along these lines, see the Commission’s Interpretative Communication on the Community law applicable to public procurement and the possibilities for integrating social considerations into public procurement, COM (2001) 566, 15/10/01. 54 See Kruger, Nielsen, and Brunn, European Public Contracts in a Labour Law Perspective (DJOF Publishing, 1997).

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administrations with a view to rectifying social equilibria. Contract compliance in public procurement could also cancel the stipulated aims and objectives of the liberalisation of the public sector. The regulation of public markets focuses on economic considerations and competition. Adherence to social policy factors could derail the whole process, as the public sector will pay more for its procurement by extra or hidden cost for the implementation of contract compliance in purchasing policies.55

A Rule of Reason In European Union law, the rule of reason serves as an expansion of the determined exemptions from a prohibition principle.56 The rule of reason is a juridical development where the Court interprets the margins of discretion allotted to an executive authority (Member States and/or the Commission), as well as the grounds, the limits and the levels of deviation from a prohibition’s exemptions. For public procurement, a rule of reason has emerged through the application of the most economically advantageous offer criterion. The Court, through a steady accumulation of case law, adopted a bifocal stance: positive yet restrictive. Where the rules allow for discretion, the Court did not claw back any margin of appreciation from Member States and their contracting authorities; in fact, in many instances, it gradually expanded the grounds of flexibility in the award procedures. The meaning of the most economically advantageous offer includes a series of factors chosen by the contracting authority, including price, delivery or completion date, running costs, cost-effectiveness, profitability, technical merit, product or work quality, aesthetic and functional characteristics, aftersales service and technical assistance, commitment with regard to spare parts and components and maintenance costs, security of supplies. The above list is not exhaustive, and the factors listed therein serve as a guideline for contracting authorities in the weighted evaluation process of the contract award. The Court reiterated the flexible and wide interpretation of the relevant award criterion57 and had no difficulty in declaring that contracting authorities may use the most economically advantageous offer as award criterion by choosing the factors which they want to apply in evaluating tenders,58 provided these factors are mentioned, in hierarchical order or 55 See

Bovis, ‘Social Policy Considerations and the European Public Procurement regime’, (1998) 3 International Journal of Comparative Labour Law and Industrial Relations. the application of the rule of reason to the principle of free movement of goods and also the competition law principle prohibiting cartels and collusive behaviour. 57 Case 31/87, Gebroeders Beentjes v The Netherlands, para 19. 58 Case C–324/93, R v The Secretary of State for the Home Department, ex p Evans Medical Ltd and Macfarlane Smith Ltd [1995] ECR 563, where the national court asked whether factors concerning continuity and reliability as well as security of supplies fall under the framework of the most economically advantageous offer, when the latter is being evaluated. 56 See

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descending sequence in the invitation to tender or the contract documents,59 so tenderers and interested parties can clearly ascertain the relative weight of factors other than price for the evaluation process. However, factors, which have no strict relevance in determining the most economically advantageous offer by reference to objective criteria do involve an element of arbitrary choice and therefore should be considered as incompatible with the public procurement Directives.60 A question arises whether, under the most economically advantageous offer, each individual award factor has to provide an economic advantage which directly benefits the contracting authority, or it is sufficient that each individual factor has to be measurable in economic terms, without the requirement that it directly provides an economic advantage for the contracting authority in the given contract. This question intends to assess the integral function of the factors that comprise the most economically advantageous offer for contracting authorities. Although there is wide discretion conferred to them in compiling the relevant factors, subject to the requirements of relevance to the contract in question and their publicity, their relative importance, in economic terms, remains somehow unknown. If the second interpretation were accepted, the discretion conferred to contracting authorities would permit a wide range of factors to feature as part of award criteria in public contracts, without the need to demonstrate a direct economic advantage to a contracting authority which is attributable to each of these factors. On the contrary, if each individual factor has to establish a measurable (in quantifiable terms) economic advantage to the contracting authority, which is directly attributed to its inclusion as part of the award criterion, the discretion of contracting authorities is curtailed, since they would be required to undertake and publicise in the tender or contract documents a clear cost-benefit analysis of the relevant factors that comprise in their view the most economically advantageous offer. There are two instances where the rule of reason as applied in public procurement brought the relevant regime in line with European policy. The first is the case of transfer of undertakings, where the Court expanded the remit of the Acquired Rights Directive to the public procurement contractual relations.61 The second instance is the permissibility of environmental 59 See 60 See 61 See

para 22 of Beentjes. para 37 of Beentjes. Dir 77/62, OJ C 61/26, [1977], as amended by Dir 98/50, OJ L 132 [1998] and consolidated by Dir 2001/23 OJ L 82/16 [2001]. For a comprehensive analysis of the implications of transfer of undertakings in public procurement see Case C 29/91, Dr Sophie Redmond Stichting v Bartol, [1992] ECR 3189; Case C 382/92, Commission v United Kingdom, [1994] ECR 2435; Case 24/85, Spijkers v Gebroders Benedik Abbatoir CV [1986] ECR 1123; Case C 209/91, Rask v ISS Kantinservice, [1993] ECR 5735; Case C 392/92, Schmidt v Spar und Leihkasse der fruherer Amter Bordersholm, Kiel und Cronshagen, [1994] ECR 1320; Case C 392/92, Schmidt v Spar und Leihkasse der fruherer Amter Bordersholm, Kiel und Cronshagen, [1994] ECR 1320;

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factors62 as part of the award criteria for public contract and the explicit recognition of the environmental policy of the European Union as being complimentary to all legal and policy activities of the common market. The latter development reveals also the importance of public procurement in relation to harmonisation and even standardisation of national policies. Public procurement in such cases serves as a conveyer belt for transferring homogenous legal or policy standards across the common market. The protection of the environment as an award criterion in public contracts is a classic example of the potential of public procurement regulation as an instrument of public policy. There will be instances in the future where positive integration will be required by European Institutions and Member States equally in areas such as social security, business ethics and anti-corruption policies. Harmonisation of laws and policies within the common market has traditionally sought a common denominator amongst divergences and differences of national administrations. Under an ordo-liberal approach, the rule of reason seems an essential tool to convey effectively rights and obligations of Community law. There is no attempt yet to instill a type of European public policy across the common market. Not only the legal and political differences of Member States have dictated that such approach would face considerable resistance, the very need for a common denominator of public policy in the European Union has been questionable. However, if the European Union is to become a serious competitor to major trading forces in the world, perhaps the introduction of such common denominator is something that requires further consideration. Productivity rises, competitiveness, industrial restructuring exercises, privatization, employment relations, taxation, and corporate governance are mere examples of the features which the European Union and its Member States will be facing in a post-enlargement era. Public procurement could play a role in carrying over the European legal and policy standards into national systems.

CONCLUSIONS

The influence of neo-classical economic theory on public procurement regulation has taken the relevant regime through the paces of the liberalization of public markets within the European Union and with reference to the World Trade Organisation. Anti-trust and its remedies have played a seemingly important role in determining the necessary competitive conditions Case C 48/94, Rygaard v Stro Molle Akustik, [1995] ECR 2745; Case C–324/86, Tellerup, [1998] ECR 739. 62 See Case C–513/99, Concordia Bus Filandia Oy Ab v Helsingin Kaupunki et HKL-Bussiliikenne, [2002] ECR 7213.

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for the supply side to service the public sector. However, we have seen the emergence of a sui generis market place where the mere existence and functioning of anti-trust is not sufficient to achieve the envisaged objectives. Public markets require a positive regulatory approach in order to enhance market access. Whereas anti-trust and the neo-classical approach to economic integration depend heavily on price competition, public procurement regulation requires a system which primarily safeguards market access. Such regulatory system could be described as public competition law. The above represents the first departure from the stricto sensu neo-classical perspective of public procurement. A policy orientation has emerged mainly through the jurisprudential approach of the regime and the willingness of the Court to expand on the element of flexibility that is inherent in the public procurement Directives. The neo-classical versus the ordo approach reflects the frequently rehearsed debate about the origins of anti-trust law and policy per se. The European integration has benefited from a system where the neo-classical approach has contributed to the functioning of an environment of workable competition. However, consistently the rigidity of the neo-classical influence has been diluted with policy considerations, often attributed to national policy requirements. The reflection of the above picture is presented in public procurement regulation, although there are certain differences: the Court has allowed for a flexible—policy oriented application of public procurement, where in anti-trust the Commission has eroded the strict neo-classical approach of Article 81(1) EC with the plethora of policy considerations under 81(3) EC. Nevertheless, the similarity of balancing an economic exercise with policy choice is remarkable. Public procurement regulation is an essential instrument of the internal market. With the European Union in an expansion mode, European Institutions need to provide for a hint as to what public procurement stands for. There is a new generation of legal instruments currently through the legislative process which intend to simplify and modernize the regime. In addition, there is strong evidence that the existence of competitive conditions within public markets would disengage the applicability of the relevant Directives. This development indicates the referral of public markets to anti-trust, perhaps as the ultimate regulatory regime. Public procurement remains one of the most influential instruments of policy choice in the hands of Member States and also the European Commission. Its complementarity and compatibility with common policies is recognized and accepted by European Institutions and Member States. Public procurement in the common market of the twenty-first century could embrace more public policy considerations and depart from the premises of being a mere economic exercise.

18 The Institutional Architecture of the European Social Model BRIAN BERCUSSON

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HE THEME OF the institutional architecture of the European social model brings together a number of issues of central importance to the fifteen Member States of the European Union (EU)1 and the three associated states of the European Economic Area,2 of immediate concern to the acceding countries of the EU,3 and potential future candidate countries,4 but also of potential interest to the rest of the world. The central importance to Europe arises because of the current constitutional moment of institutional changes and enlargement of the EU. The interest for the rest of the world arises because of the clear contrast the American experience presents when compared with the European social model, and in particular, its institutional architecture. Its importance arises precisely because, while there may be no or little military competition in a uni-polar world dominated by the USA, the economic5 and political stature of the EU makes the European economic and social model the subject of considerable attention elsewhere.6 I am not suggesting that the institutional architecture of the European social model can or should be exported, but certain of its features provide a basis for reflection, if not emulation in other parts of the world.

1 Austria,

Belgium, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, the Netherlands, Portugal, Spain, Sweden and the United Kingdom. 2 Iceland, Liechtenstein and Norway. 3 Ten countries will become Member States in May 2004: Cyprus, the Czech Republic, Estonia, Hungary, Lithuania, Latvia, Poland, Slovakia, Slovenia and Malta. 4 Accession of Romania and Bulgaria, and possibly Turkey, is planned for the end of the decade. By 2010, the EU could contain up to 28 Member States, leaving aside the former Yugoslav Republics and Albania. 5 The largest single unit in the world economy, the EU in 1997 had a nominal GNP of about $6 trillion, compared with $5 trillion for the US and $3 trillion for Japan and a population approaching that of the USA and Japan combined. 6 For example, the Japanese interest in the European social model. See the 3-page headlined dossier in Le Monde Economie of 28 May 2002, entitled ‘Le Japon en crise s’intéresse au modèle social européen’.

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This chapter begins with some reflections on the current constitutional moment in the EU and its implications for the European social model (I), explores certain structural features of the European social model, in contrast with American experience (II), and proposes an outline of the principal features of the emerging institutional architecture of the European social model (III).

THE CONSTITUTIONAL CONTEXT OF THE EUROPEAN SOCIAL MODEL

The EU Social Model and Fundamental Rights of Employment and Industrial Relations The Commission’s 1994 White Paper on Social Policy described a ‘European Social Model’ in terms of values which ‘include democracy and individual rights, free collective bargaining, the market economy, equality of opportunity for all and social welfare and solidarity’.7 The model is based on the conviction that economic and social progress are inseparable: ‘Competitiveness and solidarity have both been taken into account in building a successful Europe for the future’. The European social model has a number of dimensions. For example, in a Communication on ‘Employment and Social Policies: A Framework for Investing in Quality’, the Commission contrasts the ‘European social model’ of public social spending with the ‘US model’ which relies on private expenditure, highlighting that 40 per cent of the US population lacks access to primary health care even though per capita expenditure as a proportion of GDP is higher in the US than in Europe.8 The Commission goes on to emphasise that it is not only the existence of jobs but the characteristics of employment which are important to the European social model. A ‘Convention on the Future of Europe’, comprising representatives of the European Parliament, the parliaments of the Member States of the EU, of the Member State governments and the European Commission, as well as with the participation of representatives of the accession countries and others, was formally inaugurated on 28 February 2002. 9 The perceived failures of the IGC preceding the European Council meeting at Nice in December 2000 contrasted with the perceived success of the body (self-denominated the ‘Convention’) established by the Cologne Council of June 1999 with the mandate to produce an EU Charter of Fundamental Rights for consideration by the European Council at Nice. That EU 7 COM (94) 333, para 3. 8 COM (2001) 313. 9 Documentation relating

http://europa.int.

to the Convention may be accessed through the EU’s website at:

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Charter was duly produced, and unanimously approved as a political declaration at Nice in December 2000. The EU social model of employment and industrial relations is exemplified by the EU Charter of Fundamental Rights. On the one hand, the Charter breaks new ground by including in a single list of fundamental rights not only traditional civil and political rights, but also a long list of social and economic rights. Of particular interest to employment and industrial relations are provisions on protection of personal data (Article 8), freedom of association (Article 12), freedom to choose an occupation and right to engage in work (Article 15), non-discrimination (Article 21), equality between men and women (Article 23), workers’ right to information and consultation within the undertaking (Article 27), right of collective bargaining and collective action (Article 28), protection in the event of unjustified dismissal (Article 30), fair and just working conditions (Article 31), prohibition of child labour and protection of young people at work (Article 32) and reconciliation of family and professional life (Article 33).10 On the other hand, although the EU Charter was approved by the European Council, it was limited to a political declaration. It was not given a formal legal status. However, the inclusion of social and economic rights in the EU Charter takes on greater significance due to the proposal of the Convention on the Future of Europe to incorporate the EU Charter as Part II of the Constitutional Treaty of the European Union. In particular, its current actual legal effects, and the potential future effects of attributing to it a formal legal status will have consequences in a constitutional context; specifically, its implications for the concept of EU citizenship. Article 8 of the Maastricht Treaty on European Union, as amended by the Amsterdam Treaty, now in Article 17 of the EC Treaty, created a new status of EU citizenship.11 As currently stated in the EC Treaty, the rights of EU citizens are meagre by contrast with citizenship of Member States. Does citizenship have meaning in EU law going beyond nationality of a Member State, a substantive content separate from nationality? The issue has been explored by Norbert Reich, who puts forward two respects in which EU citizenship could go beyond nationality.12 First, the EU confers rights on Member State nationals under EC law which go beyond what nationals obtain under Member State law. With reference to a European social model, much depends on whether these extra rights may be characterised 10 B

Bercusson (ed), European Labour Law and the EU Charter of Fundamental Rights, (European Trade Union Institute, Brussels, 2002) (summary version, 102 pp available in Dutch, French, German, Greek, Italian, Spanish and Swedish). 11 ‘1. Citizenship of the Union is hereby established. Every person holding the nationality of a Member State shall be a citizen of the Union. Citizenship of the Union shall complement and not replace national citizenship. 2.Citizens of the Union shall enjoy the rights conferred by this Treaty and shall be subject to the duties imposed thereby’. 12 N Reich, ‘Union Citizenship—Metaphor or Source of Rights?’, (2001) 7 European Law Journal, 4–23.

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as ‘citizenship’ rights, in particular, when they go beyond the traditional civil and political content to embrace a wider set of ‘social’ rights. Secondly, the EU confers rights on individuals irrespective of Member State nationality. Individuals possess specifically EU rights when they are EU residents, workers, consumers and so on. National citizenship is not the criterion for entitlement to ‘EU citizenship’ rights of a worker to equal pay (Article 141), to rights as a consumer to information, education and organisation (Article 153(1)), to a resident’s rights to petition the European Parliament (Article 194), of any person’s right of access to EU documents (Article 255), or to protection of personal data (Article 286). Taken together, EU citizenship thereby includes (social) rights wider than rights attached to Member State nationality, the EU grants these rights not only to Member State citizens, but also to third country nationals; and, therefore, EU ‘citizenship’ means something different from Member State nationality. In his discussion of the concept of EU citizenship, Reich addresses an issue which has aroused considerable debate: the difficulties the EU encounters in attributing ‘citizenship’ to individuals which contrasts with traditional ‘nationality’ based concepts of citizenship. In brief, the problem stems from the lack of perception of the EU as a nation, in the alleged absence of a commonality of history, polity, language or law. Joseph Weiler has argued that a nationality based concept of citizenship contradicts the supranational essence of the EU: the telos of European integration as an ever closer union of ‘peoples’, not the creating of one ‘people’ (demos) . This entails a de-coupling of nationality and citizenship.13 For Reich, national citizenship becomes a residual category, a matter of historical contingency. A preferable understanding of EU citizenship would look to residence as a central criterion for EU citizenship rights. As with much else, the question of ‘what’ can best, or only be answered by asking why and how. Why is there a search for ‘EU citizenship’? Weiler suggests the reasons for the striving to create a concept of EU citizenship lie in the exhaustion of the original EU project: peace and prosperity produce the paradox of success. An anxiety related to manifestations of modernity similar to the fin-de-siècle atmosphere conducive to the rise of fascism as the early twentieth century response, currently aggravated by the post-modern attack on truth, reality and coherence leads to a search for meaning. The nation provides the comfort of belonging, a shield against existential aloneness. To this is contrasted the banal offer of bread and circuses by the EU as a market culture, as if the EU is a brand, an image, a product to which the individual is a consumer, not a citizen. Weiler argues for de-coupling nationality and citizenship, but then re-coupling them so that the State becomes merely an instrument, the 13 JHH Weiler, ‘To Be A European Citizen: Eros and Civilization’, in The Constitution of Europe, (Cambridge, CUP, 1999) 324–57.

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organisational framework for the nation. The EU is to control state excesses but preserve nations: the essence of the supranational vision. By separating nation and state, differences expressed in other than state forms, national cultures, will be protected, not national states. This allows for maintaining the European telos without looking for a European demos, the de-coupling of nationality and citizenship allows for co-citizenship of individuals who do not share same nationality. Or, another way of putting it, multiple demoi: Member State nationals and EU citizens. He hints at an EU specificity rooted in mutual social responsibility embodied in the welfare state and human rights. There is a complex commitment to diversity, coupled with acceptance that a larger (European) demos has the right to make decisions binding all, but conditional on a commitment to maintaining diversity. In a phrase, substantive values of multicultural diversity, a welfare state and human rights are coupled with decisional procedures in a European political framework. Reich also hints at developments which could legitimise EU institutions through a political and social concept of citizenship, contingent on evolution of the EU. The question posed by Reich is that, if not ‘nationality’ based, how would one characterise EU citizenship: as ‘economic’ (bourgeois), participatory (citoyen), or some other? What would it mean for EU citizenship to change from the ‘market citizen’ (bourgeois) to citizenship without an exclusively economic role? The concept of ‘European social citizenship’ was the basis of a project organised by a group of academics from a number of Member States who in 1996, and again in 2000, put forward a Manifesto which aimed to construct EU citizenship on the basis of the concept of ‘social citizenship’.14 As developed by TH Marshall, the levels of citizenship rights begin with civil rights (legal equality), political rights (to participate in the exercise of national sovereignty) and evolve towards social rights (manifested in welfare state solidarity). The Manifesto of 1996 elaborated a concept of European ‘social’ citizenship as the defining telos of the European project, and the meaning of EU citizenship. Citizenship is not just about voting a few times a year, worshipping if you happen to believe, marrying and founding a family if you so choose. A central aspect of EU social citizenship is about that very large part of almost everybody’s life: working. The inclusion in the EU Charter of social and economic rights related to working life confirmed that these are to be considered fundamental to the EU social model, what it means to be an EU citizen. 14 B

Bercusson, et al, A Manifesto for Social Europe, (Brussels, European Trade Union Institute, 1996); U Mükenberger (ed), Manifesto Social Europe, (Brussels, ETUI, 2001). See also B Bercusson et al, ‘A Manifesto for Social Europe’, (1997) 3 European Law Journal 189–205. Comments by A Lo Faro, ‘The Social Manifesto: Demystifying the Spectre Haunting Europe’, and A Larsson, ‘A Comment on the ‘Manifesto for Social Europe’, (1997) 3 European Law Journal, 300–3, 304–7.

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Brian Bercusson THE EU MODEL OF EMPLOYMENT AND INDUSTRIAL RELATIONS

The EU model of employment and industrial relations is determined by the organisational forms of workers and employers at EU and national levels; specifically, their interactions in a variety of ways and at different levels, often characterised as ‘social partnership’. Perhaps the most familiar is collective bargaining between an employer and a union at sectoral level in most countries, though also company or enterprise level. But in the EU, this is only one of three institutional forms of interaction. The other two are processes at national level (macro-level) and at the workplace (micro-level). It is the existence of all three levels and their inter-relationship which define the specific character of the European model of employment and industrial relations. The EU ‘Social Partnership’ Model At EU level, the creation of a European social dialogue beginning in 1985 has led to agreements translated into legally binding directives on parental leave, part-time workers and fixed-term work.15 The ‘social partners’ are also involved in institutional frameworks engaging both EU institutions and the Member States, including the ‘macro-economic dialogue’ where the peak organisations meet at regular intervals with the Member States, the Commission and the European Central Bank. These macro-level arrangements are a reflection of practices in most Member States, in a variety of forms of tripartite or bipartite ‘Economic and Social Councils’ dealing with a variety of social and economic matters of concern to the members of the social partner organisations. The UK stands out as having few such institutional arrangements. In this, as in other features, it shares the absence of a tradition of bipartite or tripartite dialogue at national level with the USA. Collective bargaining is the familiar process by which organisations of workers and employers settle the central issues of pay, hours of work, and other elements of the terms on which work is to be performed. This has not yet developed at EU level. However, while as yet absent from the EU level, there is emerging an important trend towards EU level coordination of collective bargaining in the Member States. 15 Council

Dir 96/34/EC of 3 June 1996 on the Framework Agreement on parental leave concluded by UNICE, CEEP and the ETUC, OJ L 145/4 of 19.6.96; Council Dir 97/81/EC of 15 Dec 1997 concerning the Framework Agreement on part-time work concluded by UNICE, CEEP and the ETUC, OJ L 14/9 of 20.1.98; Council Dir 1999/70/EC of 28 June 1999 concerning the framework agreement on fixed-term work concluded by ETUC, UNICE and CEEP, OJ L175/43 of 10.7.1999.

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It is in the Member States where collective bargaining is evident as the most important process regulating working life, and much besides. On the key issue of pay determination, the most important, dominant level of bargaining is at the intersectoral level in three countries (Belgium, Finland and Ireland) and at the sectoral level in eight others (Austria, Germany, Greece, Italy, the Netherlands, Portugal, Spain and Sweden). The degree of centralisation of collective bargaining in most Member States is, therefore, in striking contrast to the USA, where, like the UK, the individual company level is predominant. Even the clear predominance of centralised bargaining on pay does not adequately convey the importance of collective bargaining. An even more powerful indicator of its role is its coverage: the proportion of workers whose pay is determined by collective agreements. Centralisation, intersectoral and sectoral, means that collective agreements will cover all employers in the sector or the country, even where workers are not members of trade unions and employers are not members of employers’ organisations and not parties to the collective agreement, as the following table illustrates: Table 3. Collective Bargaining Coverage, Europe, Japan and USA Country

Coverage

Austria France Belgium Sweden Finland Italy Netherlands Portugal Denmark Spain Average of 13 EU Member States Germany Luxembourg Average of 9 candidate countries UK Japan USA

98% 90%–95% 90%+ 90%+ 90% 90% 88% 87% 83% 81% c. 80% 67% 58% c. 40% 36% 21% 15%

Sources: figures for EU Member States and candidate countries—referring to various years from 1999–2002, and in some cases estimates—are in most cases as calculated by EIRO for TN0301102S and TN0207104F; figure for Japan (2001) is from JIL; figure for USA (2001) from BLS. (cf: http://www.eiro.eurofound.eu.int/2002/12/feature/TN0212101F.html)

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Macro-level consultation and dialogue influences major issues of social and economic policy, and collective bargaining determines pay and other terms and conditions of employment. But the day-to-day working life of most people in the office, shop or factory is subject to a myriad of decisions concerning, for example, working practices (performance), conduct at work (disciplinary matters), health and safety, and many others. Rather than these decisions being taken unilaterally by management, there has developed in the Member States of the EU a mandatory system of participation by workers in such decisions through representative structures of ‘works councils’, ‘enterprise committees’, trade union bodies and similar forms. These exist in almost all Member States (13: Austria, Belgium, Denmark, Finland, France, Germany, Greece, Italy, Luxembourg, the Netherlands, Portugal, Spain and Sweden). Only in Ireland and the UK is such a general and permanent system lacking, as is the case, again, also in the USA. The EU has now taken a decisive step towards establishing the practice of information and consultation of employee representatives as part of the European social model. On 18 February 2002, the Council of Ministers adopted Directive 2002/14 establishing a general framework for improving information and consultation rights of employees in the European Community.16 The objective was ‘to make the essential changes to the existing legal framework … appropriate for the new European context’.17 Contrasting the presence and role of trade unions and workers’ representative organisations in the USA with European experience illustrates the singularity of the European model of employment and industrial relations. Its manifestation, in all its diversity, at both EU and Member State levels, in the form of macro-level national dialogue, collective bargaining at intersectoral and sectoral levels, and collective participation in decision-making at the workplace is the most salient quality distinguishing the European model of employment and industrial relations.

The Role of Collective Organisations of Workers and of Employers Critical to the success of this specific EU model of employment and industrial relations is collective organisation in the form of collective organisations of workers and employers, the central actors in a ‘social partnership’ model. 16 Council

Dir No 2002/14 establishing a framework for informing and consulting employees in the European Community, OJ 2002, L80/29. 17 Proposal for a Council Dir establishing a general framework for informing and consulting employees in the European Community, COM/98/612, 11 November 1998; Preamble, Recitals 15–16. See now the Preamble to the final directive, particularly Recital 17: ‘ … the object is to establish a framework for employee information and consultation appropriate for the new European context described above [in Recitals 6–16] … ’.

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This defining feature of the European model may be more easily perceived by comparing it with the American model. The comparison of models can be illustrated by starting with trade union density, for substantial trade union membership is a pre-condition for the emergence of social partnership. Trade union density, union membership as a proportion of the working population in the EU Member States, is extremely variable. However, despite the general downward trend of recent years, there is a pattern: a group of four countries with a high union membership density (ranging from 69.2 per cent in Belgium up through the Nordic countries to 87.5 per cent in Denmark). A second larger group of countries has a medium union density hovering around the 29–40 per cent level, and including the three big economies of Italy (35.4 %), Germany (29.7 %) and the UK (29 %). In between these are two small countries: Luxembourg with 50 per cent and Ireland with 44.5 per cent. Finally, two big countries with low levels of union density: Spain with 13.5 per cent and France, the lowest with only 9.1 per cent union density. The combination of size and density means that though the unweighted average union density of the 15 countries is 43.5 per cent, the largest countries have considerably lower density so that the weighted EU average is only 30.4 per cent. The median figure was Italy at 35.4 per cent. In contrast, trade union density in the USA in 2000 was 13.5 per cent, lower than any EU country except France. Union membership and density, though fundamental, is only part of the picture, and, from the institutional point of view, arguably the less important part. The trade union membership figures have to be translated into institutional or organisational forms, trade unions, and the importance of these organisational forms depends on their regulatory functions, which in turn depend on their relations with employers, their organisations, and the State, and the outcomes of these relationships in terms of regulatory instruments, such as collective agreements. As regards trade unions, there is a marked contrast between the unity of organisation at EU level and the diversity at national level. The strongly marked features of centralisation and sectoral organisation at EU level are reflected in different combinations at national level: more or less centralisation and more or less sectoral organisation. The similarity (centralised, few, industrial) may be noted between the EU level structures (the European Trade Union Confederation, ETUC) and those in Austria and Germany, on the one hand, and those of Ireland and the UK (centralised, many, mixed) with the USA on the other. Most continental EU Member States have multiple centres organised on sectoral lines. As regards employers’ organisations, at EU level, employers’ organisations reflect one of the dimensions which marks trade union organisation: they are highly centralised in the UNICE (Union des Confédérations de l’Industrie et des Employeurs d’Europe), which engages with the European Trade Union Confederation in social dialogue and negotiations at EU level.

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However, the second dimension, sectoral organisation, is lacking on the employers’ side. While there are many organisations representing business at EU level, they do not engage with their equivalent organisations, the European industry federations affiliated to the ETUC. The European Commission has sought to promote such engagement by establishing sectoral social dialogue committees.18 Once again, it is striking how the EU level interaction of employers’ and trade union organisations at intersectoral level, and, though to a lesser extent, at sectoral level, reflects a pattern at the national level evident in most Member States. The exception again is the UK at intersectoral level and the UK, Ireland and Luxembourg at the sectoral level. These latter Member States are more similar to the American formula or little or no bargaining with trade unions at national-intersectoral or sectoral levels, but focus on the company or enterprise level. In sum, in understanding the EU employment and industrial relations model, it is impossible to ignore the predominance of certain actors and levels in most Member States. Organisations of employers and trade unions, at intersectoral and sectoral levels, play a major role. This role can be further traced through the interaction of these actors at different levels and the institutional forms of this interaction. Their presence reveals the extent to which these organisations influence social life in general, and working life in particular. These institutional forms determine the EU model of employment and industrial relations.

THE EMERGING INSTITUTIONAL ARCHITECTURE OF THE EUROPEAN SOCIAL MODEL

The current constitutional moment offers the prospect of developing an institutional design for a European social model reflecting these elements of macro-level national dialogue, collective bargaining at intersectoral and sectoral levels, and collective participation in decision-making at the workplace. Some of the elements are in place, others are missing or compromised, and the whole requires a degree of co-ordination. Fundamental Rights: In Place The political initiative for an EU Charter of Fundamental Rights aimed to balance the social policy vacuum in the agenda of the IGC which 18 As reported in the Commission’s Communication, ‘The European social dialogue, a force for innovation and change’ (COM (2002) 341 final, Brussels, 16 June 2002), 27 sectoral social dialogue committees have been set up at the joint request of the social partners in the sectors concerned. Annex 2 of the Communication contains a list.

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preceded the European Council of Nice in December 2000. The debate over fundamental social rights brought two legal perspectives into conflict. On one side were those who wanted to exclude social rights entirely, or minimise their content, or marginalise them into a separate ‘programmatic’ section, or make them purely declaratory, or subject them to special ‘horizontal’ conditions to prevent the EU acquiring any further social competences. On the other side were those who wanted to include social rights, maximise their content, grant them the same status as civil and political rights, make them justiciable or otherwise enforceable, and not limit them by reference to existing EU competences. As indicated earlier, the outcome gave something to each side. Though only a political declaration, the Charter broke new ground by incorporating social and economic rights, including collective labour rights. It remains to be seen whether and how declaring social and economic rights will affect the EU’s economic policy, in particular, the EU’s strategy on employment, and whether the enshrining of fundamental rights of association, information and consultation, and collective bargaining and action will influence the institutional operation of the EU where the social partners have major roles to play in the spheres of social policy and employment policy (the open method of co-ordination).19 The outstanding questions are two-fold. First, in the short term, what are the legal prospects of the political declaration by the European Council of an EU Charter of Fundamental Rights? Secondly, in the longer term, what are the legal effects of an EU Charter which is given formal legal status by being incorporated into the Constitutional Treaty? Trade union rights will most likely become part of EU law as a result of the EU Charter. As EU law, they will affect Member States’ laws on trade unions. The meaning of the rights contained in the EU Charter will probably be contested when, in a Member State, a complaint is made that trade union rights guaranteed by the EU Charter are being violated. An appeal to the national courts to respect the EU Charter should allow for the issue to be referred to the European Court of Justice. The European Court will be faced with the need to elucidate the content of the rights provided for in the EU Charter. In this situation, there would 19 Art

12: Freedom of assembly and of association: 1. Everyone has the right to freedom of peaceful assembly and to freedom of association at all levels, in particular in political, trade union and civic matters, which implies the right of everyone to form and to join trade unions for the protection of his or her interests … Art 27: Workers’ right to information and consultation within the undertaking: Workers or their representatives must, at the appropriate levels, be guaranteed information and consultation in good time in the cases and under the conditions provided for by Community law and national laws and practices. Art 28: Right of collective bargaining and action: Workers and employers, or their respective organisations, have, in accordance with Community law and national laws and practices, the right to negotiate and conclude collective agreements at the appropriate levels and, in cases of conflicts of interest, to take collective action to defend their interests, including strike action.

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probably be submissions from all or a majority of Member States confirming that certain trade union rights form part of their national law and practice. The European Court will have to decide how to respond to these submissions. Should it interpret the EU Charter’s provisions as including trade union rights recognised in all or a majority of Member States? The European Court could take different approaches to identifying this common tradition. At least four alternative approaches may be envisaged: a.

a narrow formulation of trade union rights, which might accommodate all or a majority of Member States where such a narrowly defined scope of fundamental trade union rights is acceptable; b. conversely, a wider range of trade union rights, though these would include a lesser number, albeit still a majority of Member States which accept that those rights are within the scope of fundamental trade union rights; c. alternatively, rather than adopt a single interpretation of trade union rights, the European Court could allow them to be applied differently in the different Member States, by leaving their detailed content to be interpreted and applied by national courts;20 d. finally, the Court could confine trade union rights to claims raising issues of a transnational nature which were not covered by national laws. It is proposed that the Court’s approach should be to adopt a formulation which includes fundamental trade union rights recognised in all, or a majority of Member States. On the one hand, this approach has the disadvantage that it might require a minority of certain Member States to recognise certain trade union rights which their political and industrial traditions have not confirmed. However, it is suggested that such a minority of Member States should be able to accommodate such rights. On the other hand, it is suggested that the Court risks much more if it denies the fundamental character of certain trade union rights recognised by all or a majority of Member States.21

20 For

an example in the case of the right to strike, see Art 2 of Council Reg (EC) No 2679/98 of 7 Dec 1998 on the functioning of the internal market in relation to the free movement of goods among the Member States. OJ L337/8 of 12.12.98 (the ‘Monti’ Regulation’). 21 Compare the judgment of the Court with the Opinion of AG Jacobs in a case referred to the ECJ by the Netherlands courts (Case C–67/96, Albany International BV v Stichting Bedrijfspensionenfonds Textielindustrie, Joined Cases C–115/97, C–116/97 and C–117/97, Brentjens’ Handelsonderneming BV v Stichting Bedrijfspensionenfonds voor de Handel in Bouwmaterialen and Case C–219/97, BV Maatschappij Drijvende Bokken v Stichting Pensioenfonds voor de Vervoer- en Havenbedrijven, [1999] ECR I–5751.

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The challenge is to establish clearly justiciable trade union rights: e.g. trade union freedom of association, information and consultation, collective bargaining and collective action. The social and economic rights in the EU Charter go beyond trade unions and include fundamental individual rights in employment. The tasks of an implementation strategy are threefold. First, with respect to justiciable rights, to develop effective implementation, looking to effective sanctions, preventing regressions, removing qualifications, thresholds, exclusions, modifications. Secondly, moving more social and economic rights towards justiciability; formulating them as positive and enforceable rights; including effective sanctions. Thirdly, with respect to programmatic rights, implementation through effective monitoring of government policy and actions, with possible judicial review of consistency and powers of nullification.

Macro-Economic Dialogue and Collective Bargaining: The Need for Co-ordination There are two well-known frameworks for collective bargaining at EU level: the EU social dialogue and EU level co-ordination of collective bargaining. The EU Social Dialogue The EC Treaty contains the legal framework for the EU social dialogue in the Social Chapter: Articles 138–139. The social dialogue legislative process begins with the obligatory consultation of the social partners by the Commission in two stages: first, when the social policy is first being developed, and, secondly, at the stage of an actual proposal. There follows the possibility of the EU social partners undertaking a social dialogue. This EU social dialogue may produce an agreement. This agreement may be proposed by the Commission to the Council for a decision, usually transforming the framework agreement into a directive. At EU inter-sectoral level, the results so far include: —

—

three framework agreements have been concluded and transformed into EC directives: on parental leave (1996), part-time work (1997) and fixed-term work (1999); following negotiations over some eight months, the EU social partners concluded a framework agreement on the regulation of telework on 23 May 2002, formally signed on 16 July 2002. The agreement is to be implemented by the members of the signatory parties ‘in accordance with the national procedures and practices specific to management and labour’ (Article 139(2) EC);

324 —

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Brian Bercusson two negotiations have failed to produce an agreement: that on European works councils led to the 1994 directive;22 that on agency work has recently ended; a draft directive is still under consideration;23 on one issue, UNICE refused to negotiate: information and consultation at national level. Political agreement on a proposed directive was reached at the Social Affairs Council of June 2001 and the directive was adopted in February 2002.24

Problems with the EU social dialogue include, first, that employers will only negotiate if there is a credible prospect that failure to reach agreement will result in Community legislation (‘bargaining in the shadow of the law’). However, the political conditions are not present for the Commission and Member States to embrace a legislative agenda. Secondly, employers are reluctant to negotiate agreements which are transformed into the generally binding form of EC directives. They want a more flexible result of the social dialogue process. This presents risks in terms of the effective implementation of such ‘non-binding’ agreements. Co-ordinated Collective Bargaining Coordination of European collective bargaining is the consequence of a political rationale resulting from European Monetary Union and aims to counter downwards pressure on wage costs. It parallels the co-ordinated national bargaining which has been practiced in some Member States where centralised national bargaining has been replaced by more decentralised systems of bargaining, but there is still a role for the national level. The process is sometimes called centrally co-ordinated decentralisation, or organised decentralisation. The coordination of European collective bargaining reflects this Member State experience by attempting at EU level to coordinate national and sub-national levels of collective bargaining. 22 Council Dir 94/45/EC of 22 September 1994 on the establishment of a European Works Council or a procedure in Community-scale undertakings and Community-scale groups of undertakings for the purposes of informing and consulting employees. OJ L 254/64 of 30.9.94. 23 Following the failure of attempts to achieve regulation of temporary agency work through the European social dialogue, the Commission introduced a Proposal for a Dir of the European Parliament and the Council on working conditions for temporary workers (COM(2002) 149 final, Brussels, 20 March 2002). However, despite a drastic revision of the text of the proposed directive in November 2002, the last attempt in June 2003 in the Council of Ministers to achieve a consensus allowing for the proposed directive to progress though the legislative procedure failed. 24 Council Directive No. 2002/14 establishing a framework for informing and consulting employees in the European Community. OJ 2002, L80/29.

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At its 9th Congress in Helsinki in June–July 1999, the ETUC set up a ‘committee for the coordination of collective bargaining’ to develop strategies. The committee formulated a guideline on the coordination of collective bargaining, endorsed at an ETUC Executive Committee meeting on 14–15 December 2000. The guideline’s three main objectives are: —

— —

to allow trade unions at European level to provide a general indication of wage bargaining developments in response to the European Commission’s broad economic policy guidelines and the European Central Bank (ECB) guidelines, and generally to influence the macroeconomic dialogue at European level; to avoid situations which may lead to social and wage ‘dumping’ and wage divergence in Europe; and to coordinate wage claims in Europe, and especially in those countries which are part of the euro single currency area, and to encourage an ‘upward convergence’ of living standards in Europe.

The guideline contains a formula for pay claims: —

—

nominal wage increases should at least exceed inflation, while maximising the proportion of productivity allocated to the rise in gross wages in order to secure a better balance between profits and wages; and any remaining part of productivity should be used to fund other aspects in collective agreements, such as ‘qualitative aspects of work where these are quantifiable and calculable in terms of cost’.

As part of the implementation procedures of this guideline, the ETUC Executive Committee proposed to review wage developments each year and progress on qualitative aspects of work every two years through a common analysis of the situation in the EU Member States and Member States of the European Economic Area (EEA). The annual report at the end of 2002 shows that wage increases were consistently below the level indicated by the guideline’s formula, though closer to it than in previous years. Another example on the sectoral level is the co-ordination rule of the European Metalworkers’ Federation (EMF), proposed by the EMF’s 3rd Collective Bargaining Conference in 1998 and confirmed by the EMF Executive Committee and EMF Congress in 1999. The rule states: ‘that the main reference point for the EMF affiliates must be to maintain purchasing power and achieve a balanced participation in productivity increases.’

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A number of significant developments are worth emphasising.25 Most interesting is the conclusion that wage increases in 2000 were in line with the European Central Bank’s (ECB) definition of price stability, with implications for the ECB’s policy on interest rates. This opens up the prospect of a dialogue with the institutions responsible for EU macroeconomic policy, including the ECB, promoting an agenda of job-creation and growth. The EMF’s role is particularly important in the European context since the metalworking sector often sets the pattern for collective bargaining in Member States. The problem is that, so far, this is a wholly unilateral initiative. There is no evidence of an employer response to engage with such an exercise in wage, or any other form of coordination. As with the social dialogue, the question is how to stimulate an employer response with a view to developing an operational EU industrial relations system of coordinated bargaining. Adapting Institutional Frameworks: The European Employment Strategy and the EU Social Dialogue The EU is a new supranational political formation. Its social model will include features which are unique to it. It is part of the task of building an EU social model to creatively exploit some of the unusual, even unique features of the EU system. Employment and labour market policy are a major concern of the EU, the Member States and the social partners at EU and national levels. The development of the European Employment Strategy (EES) is currently one of the most dynamic areas of EU policy in the economic and social field. Despite its close relation to social policy, when the EES was incorporated into the EC Treaty by the Treaty of Amsterdam, it was placed in a separate Employment Title (Articles 125–130) quite removed from the Social Chapter (Articles 136 ff.).26 The Employment Title embodies the ‘open method of co-ordination’, implementing the EES in Article 128 EC: — —

The Council and Commission formulate an annual joint report, put to the European Council. The European Council adopts conclusions and the Council, after consulting other EU institutions, acting by a qualified majority on a proposal from the Commission, draws up Guidelines which the Member States ‘shall take into account in their employment policies’.

25 Report

on the European Coordination Rule to the 4th EMF Collective Bargaining Conference, Oslo, 20–21 June 2001. 26 The draft Constitutional Treaty, however, places them one following the other.

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Each Member State is to make an annual report on ‘the principal measures taken to implement its employment policy in the light of the guidelines for employment’ (the National Action Plan: NAP). The NAPs go to the Council and Commission which prepare a joint report to the European Council of that year on implementation of the guidelines. The Council, acting by a qualified majority on a recommendation from the Commission, may make (non-binding) recommendations to Member States concerning their employment policies.

However, the ‘open method of co-ordination’ suffers from a serious problem. The social dialogue and the social partners feature regularly in the political rhetoric of the EU institutions and the Member States when promoting the EES. An active role of the social partners is accepted as an essential political condition for its success. However, the social dialogue is not institutionally integrated or even mentioned in the Employment Title of the EC Treaty. The social partners are only marginally situated in the institutional structure of the EES. In sum, social policy and employment policy in the EU are presently managed through separate institutional frameworks: the social dialogue and the EES. Can they be combined in a framework for their mutual reinforcement? The EU social dialogue, both inter-sectoral or sectoral, could make a major contribution to the EES. The EU intersectoral framework agreements on part-time and fixed-term work, and sectoral agreements on working time in the sectors excluded from the Working Time Directive, demonstrate the potential of the social partners to regulate the labour market consistently with the Community’s employment policy objectives.27

27 Council

Dir 93/104/EC of 23 November 1993 concerning certain aspects of the organisation of working time (OJ L307/18 of 13.12.93) adopted in 1993 excluded most transport sectors (‘air, rail, road, sea, inland waterway and lake transport’). The intention was never that this should be a permanent exclusion, but that these sectors should reach social dialogue agreements at EU level adopting working time arrangements tailored to their exigencies. For example, this was accomplished by an agreement in the maritime sector on 30 September 1998, given legal effect by Directive 1999/63/EC concerning the Agreement on the organisation of working time of seafarers concluded by the European Community Shipowners’ Association (ECSA) and the Federation of Transport Workers’ Unions in the European Union (FST) (OJ 1999, L/167/33), and for the civil aviation sector by an agreement in March 2000, given legal effect by Dir 2000/79/EC concerning the European Agreement on the Organisation of Working Time of Mobile Workers in Civil Aviation concluded by the Association of European Airlines (AEA), the European Transport Workers’ Federation (FTF), the European Cockpit Association (ECA), the European Regions Airline Association (ERA) and the International Air Carrier Association (IACA) (OJ 2000, L302/57). In the rail sector, an agreement to apply the directive was reached also on 30 September 1998. However, its translation into a directive was delayed because the EU social partners in the rail sector were unwilling to proceed unless and

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The ‘open method of co-ordination’ of the EES offers an institutional framework that could reinforce EU social dialogue. It avoids Member States’ reluctance to adopt legislative solutions, and substitutes Guidelines. But these are mandatory. They must be adopted every year. It removes employers’ resistance to negotiating agreements which lead to binding directives and substitutes framework agreements which may be implemented in the form of Guidelines. An institutional design could integrate the best features of the EU social dialogue and of the open method of coordination: 1.

2.

3.

Mandatory annual Guidelines take the form of framework agreements which emerge from an EU-level social dialogue between EU social partners. These framework agreements/Guidelines are supported by affiliated social partners. They draw on the experience of national employment pacts, and/or reflect proposals by the Commission. Affiliated social partners at Member State level produce mandatory annual National Action Plans to implement the EU framework agreements/Guidelines. The Commission and Council review and report on implementation of the framework agreements/Guidelines. Where necessary, they issue recommendations where implementation is inadequate. If recommendations are ignored, the Commission and Council take measures in the form of specific decisions or general directives.

Adding Coordination of Collective Bargaining: Towards ‘Cooperative Corporatism’ The development of a co-ordinated collective bargaining system at EU level faces the same problem as the EU social dialogue: employers are not engaged. In the case of the EU social dialogue, it was proposed that the EES might be used to stimulate an employer response. It aimed to focus the institutional pressures on to employers of the Commission and Council formulating annual Guidelines and Recommendations and national administrations formulating annual National Action Plans. Similarly, the trade unions’ development of a co-ordinated bargaining policy at EU level could become of interest to EU institutions and Member States. until a similar arrangement was made in the road transport sector. They feared competition should lower (or no) standards in road transport give that sector an unfair competitive advantage. However, the EU social dialogue in the road transport sector remained deadlocked, mainly over the issue of whether it should cover self-employed drivers. The deadlock was broken in the road transport sector only in February 2002 and took the form of Dir 2002/15/EC of 11 March 2002 (OJ 2002, L80 of 23 March 2002).

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There is growing awareness of the advantages of tripartite ‘employment pacts’ at national level, bolstered by various institutional constellations involving the social partners. On the one hand, there is a thesis of ‘competitive corporatism’. This argues that such corporatist national pacts are concerned with seeking a national competitive advantage. On the other hand, coordinated collective bargaining at EU level raises the prospect that a form of regulatory co-operation at EU level, ‘co-operative corporatism’, could emerge. The objective would be for the protagonists of coordinated collective bargaining to achieve a response from institutions responsible for macroeconomic policy: Member State governments and the European Central Bank. This is a form of reinforced macro-economic dialogue. If the ECB, Member State governments and trade unions at EU level could agree on a coordinated wage policy, this would remove a major threat of inflation and promote monetary stability. In return, trade unions could demand commitments on a range of policies involving employment and related social policy areas. The institutional price demanded by trade unions would require governments to pressure employers—at Member State and EU level—to enter into social dialogue. However, the institutional response of governments and the ECB could, by itself, act as a pressure on employers to engage, so as not to be left out of the policy exchanges between EU trade unions and national and EU public authorities. This is exactly the kind of pressure which has been lacking to stimulate the social dialogue. The social dialogue dynamic of ‘bargaining in the shadow of the law’ becomes more sophisticated; not just law, but a combination of coordinated bargaining and macro-economic dialogue. Even the employment policy of EES becomes a means of pressuring employers to come to the bargaining table. The proposal is for an EU social model combining coordinated collective bargaining and elements of the EES and the EU social dialogue: exchanges of employment policy and social policy with wages policy. The architecture of the European social model is a form of regulatory co-operation at EU level. ‘Co-operative corporatism’ builds on coordinated collective bargaining and the institutional machinery of the EES and the EU social dialogue. There is some evidence that this architecture may not be confined to the drawing board. In accordance with a Council Decision of 6 March 2003, the Tripartite Social Summit for Growth and Employment was established (Article 1), bringing together the Council Presidency and the two subsequent Presidencies, the Commission and representatives of the social partners (Article 3) at least once a year (Article 4(1)) with the task ‘to ensure … that there is continuous concertation between the Council, the Commission and the social partners in order to enable the social partners to contribute, on the basis of their social dialogue, to the various components of the integrated economic and social strategy launched at the Lisbon European

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Council in March 2000 and supplemented by the Gothenburg European Council in June 2001’ (Article 2).28 This Council Decision was in line with the Contribution by the social partners to the Laeken European Council of 7 December 2001. That contribution stated that the ETUC, UNICE and CEEP ‘believe it necessary to reaffirm … the distinction between bipartite social dialogue and tripartite concertation [and] the need better to articulate tripartite concertation around the different aspects of the Lisbon strategy’ (Section 1). Accordingly, in Section 4 of their contribution, the European social partners proposed to articulate concertation on the Lisbon strategy in a single forum. This tripartite concertation committee for growth and employment ‘would examine the Community’s overall economic and social strategy ahead of the spring European Council’.29

The Micro-Level: Industrial Democracy and Social Citizenship Compromised? A Council meeting of Ministers of Agriculture (including fisheries) held in Brussels on 18 February 2002 finally adopted the long-awaited directive establishing a general framework for improving information and consultation rights of employees in the European Community. A fishy result in more than one sense. Since the original proposal of the Commission in November 1998, the United Kingdom government had been actively blocking adoption of the directive in the Council. When the blocking minority of Member States finally collapsed under pressure from the Swedish Presidency of the Council in June 2001, the UK government persisted in its objective of weakening the directive’s stated purpose in Article 1(1): ‘to establish a general framework setting out minimum requirements for the right to 28 Initially

proposed in the Commission’s Communication, ‘The European social dialogue, a force for innovation and change’ (COM)(2002) 341 final, Brussels, 26 June 2002). In Section 2.1 on ‘Organising tripartite concertation’, the Commission’s Communication stated that ‘Fruit of the political desire closely to associate the social partners in the advances made in European integration, concertation is firmly rooted in Community practice’ (p 12). It stated that the proposed new Tripartite Social Summit for Growth and Employment ‘will provide for an informal discussion on the social partners’ contribution to the Lisbon strategy’. It added, however, that ‘Economic and monetary matters are dealt with in the context of the macroeconomic dialogue which should be pursued in accordance with its own procedures. The macroeconomic dialogue is thus not affected by this decision’ (p 13). 29 The first formal tripartite social summit for growth and employment took place on 20 March 2003, co-chaired by the Greek Prime Minister, then current President of the EU Council of Ministers, and the President of the European Commission and attended by highlevel representatives of the social partners, the Social Affairs Commissioner and the Ministers of Labour from Greece and those of the Member States holding the next two Presidencies (Italy and Ireland).

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information and consultation of employees in undertakings or establishments within the Community’. The Commission, almost all the other Member States where there is already a statutory right to employee representation in all companies above a certain work-force size, and the European Parliament actively promote the role of employee representatives in general and trade unions in particular. The UK New Labour government’s resistance to the bitter end is recognised in the highly unusual joint declaration of the European Parliament, the Council and the Commission attached to the Minutes of the Council which adopted the directive on 18 February 2002. This declaration recalled the judgements of the European Court of Justice of 8 June 1994 with regard to employee representation.30 Those judgments had condemned the then UK Conservative government for its failure to provide for information and consultation of employee representatives in the cases of collective dismissals or transfers of undertakings, as required by EC directives of 1975 and 1977. The final tortured text of the framework directive approved in February 2002 on information and consultation at national level reflects the UK’s government’s unrelenting campaign of resistance. It is a minefield of ambiguities.31

CONCLUSION

The EU Charter of Fundamental Rights is an important milestone in the development of Social Europe. It can be of value in developing the social dimension by putting pressure on EU institutions to promote a European social model. The EU Charter can be used to support a concept of European social citizenship which overcomes the division between classical human rights and social and economic rights. The distinctive role of trade unions in the European social model is manifest at all levels of economy and society, from the level of macro-economic policy making down to the lived experience of the workplace. The task of designing the institutional architecture of the European social model presents an enormous opportunity in the constitutional moment which will culminate in 2004. It has potential implications reaching beyond the EU Member States: to the accession countries of central and eastern Europe and the Mediterranean, and others queuing up, to those benefiting from the world’s largest source of foreign aid, and to the trading partners of the world’s largest trade bloc. 30 Commission of the European Communities v United Kingdom, Cases C–382/92 and C–383/92, [1994] ECR 2435, 2479. 31 B. Bercusson, ‘The European Social Model Comes to Britain’, (2002) 31 Industrial Law Journal (September) 209–44.

19 The Future of Sex Equality E CARACCIOLO DI TORELLA AND A MASSELOT

INTRODUCTION

T

HE SHAPE OF the European Community (EC) has changed considerably since its creation in 1957. From being merely an economic union aiming at establishing ‘an area without internal frontiers in which the free movement of good, persons, services and capital [was] ensured’,1 it has gradually become a more wide-ranging organisation that covers a variety of areas. Not only has the EU2 scope of application expanded, new Member States have joined the original six, each one bringing different cultural and legal perspectives as well as new challenges. The enlargement planned for 2004 will create a space within which over 500 million people will be able to settle, move, work and study in any of the 25 Member States. A Europe with these dimensions needs to rely on clear and precise principles. This chapter focuses on one principle— sex/gender equality.3 Over the years it has increasingly transpired that ‘equality’ is an essential element of European law and, as such, it should be interpreted in a broad way.4 The prohibition of non-discrimination on the grounds of sex has been part of EU law since 1957 (Article 119 of the Treaty of Rome), where it was conceived as an instrument to guarantee fair market competition.5 The Treaty of Rome was, in fact, market-making rather than market-correcting—it 1 Art 14 (2) EC. 2 The European Union

(EU), created by the Treaty of Maastricht in 1992, is a general organisation which is formed by three pillars, namely the European Community (EC), the Common Foreign and Security Policy (CFSP) and the Justice and Home Affairs (JAH) (after the Treaty of Amsterdam, Police and Judicial Co-operation in Criminal Matters). In this article, ‘EC’ is used to indicate measures prior to 1992 and ‘EU’ to indicate the measures adopted after that year. However, when referring generally to ‘European law’ the term ‘EU’ is often used. 3 T Wobbe, ‘From Protecting to Promoting. Evolving EU Sex Equality Norms in an Organisational Field’ (2003) 9 Maastricht Journal of European and Comparative Law. 4 See opinion of Advocate General Stix-Hackl in Case C–186/01 Alexander Dory v Bundesrepublik Deutschland, Judgment of the Court of 11 March 2003. 5 Ohlin, ‘Social Aspects of European Economic Co-operation: Report by a Group of Experts’ (1956) 102 International Labour Review 99, further discussed in C Barnard, ‘The Economic

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aimed to create an integrated labour market and enabled it to function efficiently rather than correcting it outcomes in line with political standards of social justice.6 Recent social and legal changes have highlighted the shortcomings inherent in this status quo. First, the prohibition of discrimination was confined to sex and did not include gender,7 secondly, non-discrimination on the grounds of sex certainly did not impose an obligation to achieve and promote equality;8 and thirdly, such a prohibition was confined to employmentrelated situations, since outside this field the EC was not competent.9 This narrow formulation has constantly evolved over the years10 thanks in large part to the enthusiasm of the European Court of Justice (the ECJ)11 and to the fresh impetus brought about by the Treaty of Amsterdam. Indeed, Article 2 EC recognises equality of men and women as a fundamental principle and one of the objectives and tasks of the Community. Moreover, Article 3(2) EC confers to the Commission the specific duty to mainstream the gender dimension in all activities of the Community. Furthermore, Article 13 EC (and the Directives adopted to pursue it) not only extends the prohibition of non-discrimination to eight grounds, but it also aims to bring about equality outside the workplace. In addition to the framework provided by the Treaty, there are several soft law measures that promote equality between women and men in many areas of policy. This promising framework has been further pursued by initiatives taken by the Commission in this area. Finally, the Treaty establishing a Constitution for Europe12 has also, prima facie, improved the position of gender in the EU. These developments will shape the outcome of the ongoing debate on gender equality in the EU and will determine whether the principle is

Objectives of Article 119’, in Hervey and O’Keeffe (eds) Sex Equality Law in the European Union, (Chichester, Wiley, 1996), 321. 6 W Streeck, ‘Neo-Voluntarism: a New Social Policy Regime’ (1995) 1 European Law Journal, 31. 7 In Grant, the Court held that discrimination on the grounds of sexual orientation is not sex

discrimination prohibited by the Equal Treatment Directive, Case C–249/96, Grant, [1998] ECR I–621, at para 42. Similar conclusions were reached in D; Joined Cases C–122/99 and C–125/99 D and Sweden v Council [2001] ECR I–4319, at para 51. However, see P v S where the ECJ found that discrimination on the grounds of gender reassignment was ‘based essentially, if not exclusively, on the sex of the person concerned’, Case C–13/94, P v S, [1996] ECR I–2143, at para 19 et seq. 8 As highlighted in Cases C–450/93, Kalanke [1995] ECR I–3051, C–158/97, C–409/95, Marschall, [1997] ECR I–6363, C–158/97, Badeck, [2000] ECR I–1875 and C–407/98, Abrahamsson, [2000] ECR I– 5539. 9 In Hoffmann, the Court held that the Equal Treatment Directive was not designed to settle questions concerned with the organisation of the family or to alter the division of responsibility between parents; Case 184/83, Hoffmann, [1984] ECR 3047. 10 G More, ‘The Principle of Equal Treatment: from Market Unifier to Fundamental Right?’, in Craig and de Búrca (eds) The Evolution of EU Law, (OUP, 1999) 517. 11 GF Mancini and S O’Leary, ‘The New Frontiers of Sex Equality Law in the European Union’, (1999) 24 EL Rev, 331. 12 CONV 820/1/03.

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structured in such a way as to successfully face the challenges of an enlarged EU. This chapter analyses the recent developments in this area. It argues that, despite the increasingly acknowledgement of the pivotal role of gender equality and the host of initiatives adopted in this area, gender equality in the EU is still not afforded an adequate legal status. Indeed, since these initiatives are not underpinned by a coherent strategy, rather than strengthening the position of gender equality, they have actually increased the uncertainties surrounding it. This chapter is divided into two main sections. The first looks at three projects undertaken by the European Commission in this area. The first project is the revision of the Equal Treatment Directive. The second project is aimed at the simplification and improvement of legislation in the area of equal treatment between men and women. Finally, the third Commission’s project is a proposal for an Equality Directive based on Article 13 EC. These three projects are complemented by the work in this area undertaken by the Convention leading to a Constitutional Treaty that is the focus of the second section of this chapter. THE WORK OF THE EC COMMISSION

A New Equal Treatment Directive The first Commission project in the area of gender equality concerns the revision of the Equal Treatment Directive.13 For this purpose, Directive 2002/7314 on equal treatment was adopted in September 2002. The amendments reflect thirty years of ECJ case law and take into account the new Treaty provisions such as Article 141(3) and (4) and Article 13 EC, as well as the relevant secondary legislation.15 Although the original proposal of the Commission16 was criticised for being too cautious,17 thanks to the 13 Council

Dir 76/207/EEC of 9 February 1976 on the implementation of the principle of equal treatment for men and women as regards access to employment, vocational training and promotion, and working conditions (OJ 14.02.76, L 039, p 40). 14 Dir 2002/73/EC of the European Parliament and of the Council of 23 September 2002 amending Council Dir 76/207/EEC on the implementation of the principle of equal treatment for men and women as regards access to employment, vocational training and promotion, and working conditions. (OJ 05.10.2002, L 269, p 15). 15 Council Dir 2000/43/EC of 29 June 2000 implementing the principle of equal treatment between persons irrespective of racial or ethnic origin (OJ 19.07.2000, L180, p 22); Council Dir 2000/78/EC of 27 November 2000 establishing a general framework for equal treatment in employment and occupation (OJ 02.12.2000, L 303, p 16). 16 Proposal of the European Commission of 7 June 2000, for amending Dir 76/207/EEC on the implementation of the principle of equal treatment for men and women as regards access to employment, vocational training and promotion, and working conditions, COM(2000)334 final, OJ 2000 C337 E/204. 17 S Koukoulis-Spiliotopoulos, From Formal to Substantive Gender Equality: the Proposed Amendment of Directive 76/207—Comments and Suggestions, (Bruylant, 2001); D Schieck,

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contribution of the European Parliament the final text of the Directive has been substantially improved. Directive 2002/73 introduces both substantial and procedural amendments. Problems, however, still exist. Arguably, a first drawback is that Directive 2002/73, as Directive 76/207 before it, still refers to the prohibition of sex rather than gender discrimination. With the exclusion of gender reassignment,18 in fact, gender is still excluded from the scope of the Directive. As for the substantive amendments, Directive 2002/73 provides inter alia for the definition of important concepts such as direct and indirect discrimination and harassment and sexual harassment. In both cases, the contribution of the Directive is welcomed as it clarifies issues which, in the past, had been addressed by the ECJ19 and by soft law.20 As for harassment and sexual harassment, Article 2(2) provides that ‘there is harassment where an unwanted conduct related to the sex of a person occurs with the purpose or effect of violating the dignity of a person, and of creating an intimidating, hostile, degrading, humiliating or offensive environment’ and that ‘there is sexual harassment where any form of unwanted verbal, non-verbal or physical conduct of a sexual nature occurs, with the purpose or effect of violating the dignity of a person, in particular when creating an intimidating, hostile, degrading, humiliating or offensive environment’. Both harassment and sexual harassment are considered to be sex discrimination prohibited by the Directive. Article 2.2 (a) holds that direct discrimination occurs where ‘one person is treated less favourably on grounds of sex than another is, has been or would be treated in a comparable situation’. 21 Indirect discrimination occurs where ‘an apparently neutral provision, criterion or practice would put persons of one sex at a particular disadvantage compared with persons of the other sex, unless that provision, criterion or practice is objectively justified by a legitimate aim, and the means of achieving that aim are appropriate and necessary’ (our emphasis). Although this definition has to be welcomed, it has to be reconciled with other, less generous EU legislation in this area. The Burden of Proof Directive,22 in fact, states that ‘indirect ‘A New Framework on Equal Treatment of Persons in EC Law? Directives 2000/43/EC, 2000/78/EC and 2002/EC: changing Directive 76/207/EEC in context’, (2002) 8 European Law Journal 290. 18 Case

C–13/94, P v S [1996] ECR I–2143. See also the opinion of AG Colomer of 10 June 2003 in Case 117/01, K B. Sexual orientation is covered by Dir 2000/78 EC, OJ [2000] L 303/16. 19 Most notably, Case 43/75, Defrenne v Sabena (No II), [1976] ECR 455. 20 The European Commission Recommendation on the Protection of the Dignity of Men and Women at Work, 92/131/EEC, OJ 1992, C 27. 21 The emphasis on the prohibition of both direct and indirect discrimination is reiterated also in Art 3(1) Dir 2002/73. 22 Council Dir 97/80/EC of 15 Dec 1997 on the burden of proof in cases of discrimination based on sex, OJ 20.01.98, L014, p 6, Amended by OJ 22.07.98, L205, p 66.

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discrimination shall exist where an apparently neutral provision, criterion or practice disadvantages a substantially higher proportion of the members of one sex unless that provision, criterion or practice is appropriate and necessary and can be justified by objective factors unrelated to sex’ (our emphasis). Directive 2002/73 also attempts to regulate—more comprehensively than its predecessor—the delicate issue of pregnancy and maternity. However, the extent to which it achieves this is unclear. To start with, the Directive fails to address the delicate relationship between pregnancy/ maternity and equal treatment. The cryptic formula of the Directive 76/207—notably that ‘this Directive shall be without prejudice to provisions concerning the protection of women, particularly as regards pregnancy and maternity’—that led to confusion in the past,23 rather than being amended or clarified, has been codified in the amended Directive by Article 2(7). The re-introduction of this formula is disappointing because it reinforces the idea that pregnancy and maternity rights are exceptions to, rather than part of, the concept of equality. Moreover, exceptions must normally be interpreted strictly. Therefore, it appears that the European legislator has missed a good opportunity to define and balance the needs of the market on the one hand and those of gender equality and human rights on the other. Despite the disappointing start, however, Article 2(7) goes further as to provide for the right of a woman on maternity leave to return to her job or to an equivalent post after the end of her period of maternity leave. This provision is particularly welcomed since before Directive 2002/73 was adopted, the right to return to the same or similar work was guaranteed only after parental leave24 and not after maternity leave. Not surprisingly, the lack of such provision caused a plethora of litigation in the Member States.25 Furthermore, Directive 2002/73 ‘almost’ fully implements the Dekker principle.26 Indeed, it states that less favourable treatment on the grounds of pregnancy or maternity is to be regarded as sex discrimination. However, unlike Dekker, Article 2(7) does not state that discrimination on the grounds of pregnancy and maternity is direct discrimination. This could 23 See

the extensive national and European case law on pregnancy and maternity. See E Caracciolo di Torella and A Masselot, ‘The ECJ Case Law on Issues Related to Pregnancy, Maternity and the Organisation of Family Life: an Attempt at Classification’, (2001) 26 European Law Review 239–60. 24 Council Dir 96/34 EC OJ (1996) L 145/4–9, Clause 2(5). 25 This was the case for example in France. See Cass soc, 22 May 1997, n° 94–40.297, Habitat, Juris Actua n° 7759 of 13 November 1997; Cass soc, 7 October 1997, pourvoi n 95–41.857, arrêt n° 3446 D; Court of Appeal of Douai, 31 January 2002, Mahieux v SA Sergic Flandres and Cass Soc 4 March 2003 Mme El Madouri v Sté EGNS. See M-T Lanquetin, in Bulletin Legal Issues in Equality, n°3/2002, Commission Web page: http://europa.eu.int/comm/ employment_social/equ_opp/rights_en.html. 26 Case 177/88 Dekker, [1990] ECR I–3941.

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potentially lead to support the argument that unfavourable treatment of an employee on the grounds of her pregnancy or maternity is indirect discrimination and, therefore, objectively justifiable.27 In addition to the provisions addressing pregnancy and maternity, Article 2(7) introduces the wider concept of reconciliation between work and family life into the Equal Treatment Directive. In fact, it guarantees the application of the Parental Leave Directive and provisions on paternity leave (however, the latter is guaranteed only where Member States have already introduced such rules). Arguably, however, the most important changes brought by Directive 2002/73 to the Equal Treatment Directive are procedural. Under Article 8a, Member States are under an obligation to create bodies for the promotion, analysis, monitoring and support of equal treatment. The aim of these bodies is to facilitate the application of the principle of equal treatment by providing independent assistance to victims of discrimination in pursuing their complaints; conducting independent surveys concerning discrimination; and publishing independent reports and making recommendations on any issue relating to such discrimination. Member States are also requested to take measures to promote social dialogue between the social partners with a view to fostering equal treatment, through the monitoring of workplace practices, collective agreements, codes of conduct, research or exchange of experiences and good practices (Article 8b). In this context, employers should be encouraged to apply equal treatment and to provide, at appropriate and regular intervals, employees with appropriate information on equal treatment for men and women in the undertaking (Article 8b(3–4)). Finally, Member States are encouraged to engage in a dialogue with non-governmental organisations (NGOs) that have a legitimate interest in contributing to the fight against discrimination on the grounds of sex with a view to promoting the principle of equal treatment (Article 8c). Furthermore, the Directive now provides for better access to courts and remedies, and a number of preventive measures against discriminatory situations. It generally reinforces the legal protection against victims of discrimination. Member States must ensure that judicial and/or administrative procedures (they can include conciliation procedures) for the enforcement of equal treatment are available to all persons who consider themselves discriminated against on the grounds of sex (new Article 6(1)). Member States have the obligation to introduce into their national legal system measures to ensure real and effective compensation or reparation. Compensation and reparation measures must be dissuasive and proportionate to the damage suffered (Article 6(2)). Furthermore, in accordance 27 See

the arguments put forward by the British Government in Case C–32/93, Webb [1994] ECR I–3567. See also R Wintemute, ‘When is Pregnancy Discrimination Indirect Discrimination?’ (1998) 27 Industrial Law Journal 23.

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with the ECJ case law,28 compensation or reparation may not be restricted by the fixing of a prior upper limit (Article 6(2)). Finally, associations, organisations or other legal entities that have a legitimate interest in equal treatment between men and women may engage, either on behalf of or in support of the complainants, in any judicial and/or administrative procedure (Article 6(3)). The ‘Refonte’ Project The second project undertaken by the Commission is the so-called refonte or recast of the gender equality directives. This refonte project was introduced as part of the European Commission’s better legislation programme.29 The programme was introduce in 2003 and aims to overcome the difficulties created by the plurality and complexity of European legislation and enact transparent, visible and user-friendly legislation. In this context, refonte is defined as: a new legal act which incorporates in a single text both the amendments it makes to the previous act and the provisions of that previous act which remain unchanged, the new legal act replacing and repealing the previous act. The new legal act therefore amounts to a codification of the pre-existing basic act and all its amendments, but at the same time it provides the possibility for changes to the existing law, which is not possible in the case of codification.30

The refonte, therefore, is not merely a compilation or codification of existing directives. Rather, it is a simplification and a ‘modernisation’ of the existing legislation. In this specific case, its aim is to simplify and improve: the legislative environment [as] to ensure, in the interest of men and women, that Community legislation is more attuned to the problem posed, to the challenge of enlargement and to technical and local conditions. This aim is relevant in the case of equality legislation as individual men and women are directly concerned and need to have their individual rights clearly set out.31

Furthermore, the refonte should also integrate all areas of gender equality. 28 In particular, Case C–180/95 Draehmpaehl 29 Communication from the Commission to

[1997] ECR I–2195. the Council, the European Parliament and the Economic and Social Committee of 24.01.2003 ‘Updating and simplifying the Community acquis’, COM (2003) 71 final. 30 Commission’s ‘Options Paper’, July 2003 at 3. http://europa.eu.int/comm/employment_ social/news/2003/jul/consultation_en.html. 31 Communication from the Commission to the Council, the European Parliament and the Economic and Social Committee of 24.01.2003 ‘Updating and Simplifying the Community Acquis’, COM (2003) 71 final.

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In addition to these aims, the EC Commission should also achieve a ‘sustainable legislative development’.32 In other words, the Commission must abstain from creating unnecessary legislation and must justify the adoption of any further legislation. The Commission is under the obligation to draft better and simpler legislation (hence the refonte) but, at the same time, it must justify its working method. For this purpose, the Commission is required to conduct an impact assessment33 of the existing equality directives as well as an open consultation on the refonte project.34 The impact assessment35 is a report that covers economic and legal aspects of the existing Directives as well as the foreseeable shape of future legislation. It identifies the positive and negative impacts of proposed policy actions and enabling trade-offs and synergies. It aims at improving the quality and coherence of the EU measures and, ultimately, contributes to a more coherent implementation of the European Strategy for Sustainable Development. Being a novel requirement, the drafting of the Legal Impact Assessment has encountered some difficulties, namely its short time limit (three to six months) and its methodology. In particular, the methodology used is not suitable to produce the best result. In fact, the Commission’s guidelines are generic and addressed to legislation reform in any area.36 No formal

32 The

concept of Sustainable Development was first given real political momentum in the United Nations Brundtland Commission report of 1987 (‘Our Common Future’). A Sustainable Development perspective tends to highlight the fact that many current policies often do not pay enough attention to long term issues, or the inter-linkages between different policy areas (such as between energy and environment). Achieving Sustainable Development therefore means improving the quality of policy making. The transition towards more Sustainable Development is a strategic goal for the EU. In June 2001, the European Council at Göteborg discussed a strategy for Sustainable Development proposed by the European Commission (‘A sustainable Europe for a better world: A European strategy for Sustainable Development’ COM (2001) 264 final/2). This strategy proposed measures to deal with important threats to our well being, such as climate change, poverty, and emerging health risks, that had been identified in a consultation paper in March 2001. 33 As from 2003, an impact assessment is required prior to the adoption of all major decision making processes (Communication of the Commission on Impact Assessment of May 2002 COM (2002) 276 Final) such as the recast of gender equality directives (Communication from the Commission to the European Parliament, the Council, the Economic and Social Committee and the Committee of the Regions on the Commission’s legislative and work programme for 2003 (COM (2002) 590 final)). 34 The European Commission’s Options Paper has set out a number of possible approaches that could be followed in the simplification and improvement of the legislation in the area of equal treatment between men and women. Interested groups and individuals were invited to public consultation and to present their comments by 24/09/2003. See http://europa.eu.int/ comm/employment_social/news/2003/jul/consultation_en.html. 35 S Prechal and A Masselot, Legal Impact Assessment of the Equality Directives A Report to the Commission, (Tilburg/Leeds, 2003). See also J Rubery, D. Grimshaw and H Figueiredo, ‘The costs of non equality: the socio-economic impact of EU legislation on equality for women and men’ July 2003. 36 ‘Impact Assessment in the Commission—A guideline’, October 2002, see: http://europa. eu.int/comm/sustainable/docs/ia_guidelines_en.pdf.

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or specific rules were designed to assess the specific impact of gender equality in the Member States. The impact assessment intends to quantify the benefit of a given legislation. How could one quantify the effect of gender equality law? There is no agreement on basic values. In other words, equality was not set as a social good and could therefore be questioned as a value. Finally, the impact assessment could, arguably, be used as an argument for deregulation in the field of equality. From a substantive point of view, the problem faced by the EC Commission was to decide whether all and, if not, which of the equality directives were to be included in the refonte. At the time of writing, it is only possible to speculate on the outcome of the project. And indeed, it is likely that not all gender equality directives will be considered in the refonte project. It can be assumed that the amended Equal Treatment Directive, the Equal Pay Directive,37 together with the Burden of Proof Directive38 will all be part of the project. Prima facie the integration of these three directives does not create many difficulties. However, potential difficulties have already been acknowledged. For example, the Equal Pay Directive contains a number of shortcomings that should be addressed. For instance, the Directive does not prohibit pay discrimination on the grounds of gender, as such—it merely requires employers not to discriminate when a man and a woman are performing the same work or work of equal value. As it stands now, the Directive is an insufficient instrument to tackle pay segregation. In order to address the shortcomings of the Equal Pay Directive, the Commission will need to take into account issues such as the relevant ECJ case law, changes in undertakings’ pay systems and the introduction of the hypothetical comparator in Directive 2002/73.39 Another problematic issue is the definition of indirect discrimination which differs in the Burden of Proof Directive and the Amended Equal Treatment Directive. It is also likely that the Pregnant Workers Directive40 and the Parental Leave Directive41 will be excluded from the refonte. The main reason given by the Commission is that these directives do not have the same legal base as the Equal Treatment, Equal Pay and Burden of Proof Directive. Indeed, the Pregnant Workers Directive was adopted on the basis of health and safety concerns (ex Article 118A EC) and the Parental Leave Directive resulted from a social partners’ agreement. 42 Arguably, the exclusion of these two directives from the refonte sends out the wrong message. Yet again 37 Council Dir 75/117 EEC, OJ L 045, 19.02.75. 38 Council Dir 97/80 EEC, OJ L 014, 20.01.98. 39 Art 2(2) of the amended Equal Treatment Dir. 40 Council Dir 92/85 EEC, OJ L 348, 28.11.92. 41 Council Dir 96/34 EC OJ (1996). 42 The Parental Leave Dir was adopted on the basis

of the Agreement on social policy, annexed to Protocol no 14 on social policy, annexed to the Maastricht Treaty (in particular Art 4 para 2 thereof, now Art 139 EC).

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(as was the case in the amended Equal Treatment Directive) pregnancy and maternity rights are excluded from the principle of gender equality rather than being integrated into it. This can only entrench the idea that pregnancy and maternity provisions constitute exceptions that should be addressed separately from the issue of gender equality. The same can be said about the reconciliation of work and family life. Ultimately, this would clash with the EU commitment to furthering all aspects of equal opportunities.43 Furthermore the exclusion of the Pregnant Workers and the Parental Leave Directive creates also a paradox. In fact, the relevant rights are addressed by the amended Equal Treatment Directive that is part of the recaste project. Also, the Equal Treatment Directive for Self-employed and their Assisting Spouse44 is likely to be excluded from the refonte on the basis that it ‘concerns a specific category of persons and therefore would require a more specific approach’.45 Finally, no agreement has been reached as to the Statutory Social Security Directive46 and the Occupational Social Security Directive.47 The European Commission would like to explore the possibility of abolishing the exceptions contained in the Occupational Social Security Directive—in particular the references to actuarial factors—and the Statutory Social Security Directive—in particular the limit on pensionable age. It does, however, recognises that the latter is a specific Directive requiring a specific approach due to the statutory nature of the schemes. Directive 2002/73 could extend the scope of the Equal Treatment Directive to the areas of pay, social security and occupational social security. Furthermore, the refonte could extend the application of the Burden of Proof Directive to the Occupational Social Security Directive and the Statutory Social Security Directive. However, in light of the difficulties that the Commission is facing in its third project—the Proposed Equality Directive based on Article 13 EC48— it seems unlikely that the Directives on social security and statutory 43 Council

Resolution of 29 June 2000 on the balanced participation of women and men in family and working life (OJ 31.07.00, C218, p 5–7) provides that the balanced participation of women and men in both the labour market and in family life is an essential aspect of the development of the society, and that maternity, paternity and the rights of children are current social values to be protected by society, the Member States and the European Community. This was also stated by the ECJ in a number of cases, such as, for instance, Cases C–243/95 Hill [1998] ECR I–3739 and C–1/95 Gerster [1997] ECR I–5253. 44 Dir 86/613/EEC of 11 December 1986 on the application of the principle of equal treatment between men and women engaged in an activity, including agriculture, in a self-employed capacity, an on the protection of self-employed women during pregnancy and motherhood (OJ 19.12.1986, L359, p 56). 45 Commission’s ‘Options Paper’ of July 2003 p 9. 46 Council Dir 79/7/EEC of 19 December 1978 on the progressive implementation of the principle of equal treatment for men and women in matters of social security (OJ 10.01.79, L6, p 24). 47 Council Dir 86/378/EEC of 24 July 1986 on the implementation of the principle of equal treatment for men and women in occupational social security schemes. (OJ L 225 12.08.86 p 40, as amended by OJ L 046 17.02.97 p 20). 48 See discussion p 343.

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pensions will be incorporated into the refonte. Yet, if the refonte is going to include only the basic Equality Directives, the impact of the reform would be severely limited and, arguably, almost unnecessary.

Gender Equality Outside the Workplace? The third Commission project in this area contemplates the possibility of bringing the prohibition of discrimination on the grounds of sex outside the workplace. The idea has been discussed since the introduction in the Treaty of Article 13 EC. This provision provides that the Council, acting on a proposal of the Commission and after consulting the European Parliament,49 can take actions to combat discrimination on eight grounds, inter alia, sex. In fact, using Article 13 as a legal base, two directives have already been adopted addressing discrimination on the grounds of race50 and disabilities.51 The potential use of Article 13 has also been highlighted by the European Social Agenda which expressly encourages the Commission to initiate work with this purpose.52 Indeed, a Draft proposal for a Directive was in preparation during the summer of 2003. The scope of the draft proposal covered access to services, social assistance, education, media and advertising, and taxes. Although a number of sensitive issues, such as domestic violence and violence against women in general, had been removed, the Directive was perceived as too broad and was duly criticised. One of the main problems was that it prohibited any forms of discrimination on the grounds of sex without exception in the areas of access to services and goods and media and advertising. This was perceived as curtailing the freedom of choice to the detriment of some (economic) interests. The insurance industry contested the obligation to erase actuarial factors in the calculation of insurance premiums, the advertising industry argued against the removal of all sexist features from all methods of communication and Member States did not want to revise their tax system in order to take into account gender equality.53 Following the heated debated amongst Member States and lobbies, the Draft Directive, that should have been presented to the Commissioners on 9 July 2003, was withdrawn. The adoption of another draft proposal has been postponed until late 2003 at the earliest. Hopefully this will not be 49 It

should be noted that a proposal of the Commission in this area would not be able to benefit from the influence of the European Parliament as the procedure under Art 13 Directive necessitates the unanimity of the Council. 50 Dir 2000/43 EC OJ 2000 L 180/22. 51 Dir 2000/78 EC OJ 2000 L 303/16. 52 European Social Agenda approved by the Nice European Council meeting on 7–9 December 2000 [2001] OJ C157/4. 53 ‘EU Plan for Law against Sexism Draws Fire’, Financial Times 4 July 2003.

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an indication that the whole project has been abandoned all together.54 It would, in fact, be regrettable if the Commission would reach such a decision as it would ultimately send out the message that equality between men and women is less important than other forms of equality, such as race and disability. Indeed, since the adoption of Article 13 Directives, it is prohibited to discriminate on certain grounds, such as race or disability, both inside and outside the workplace. On the contrary, to date, it is not in breach of EC law to discriminate against a person on grounds of sex outside the workplace. Therefore, despite the Commission’s statement that ‘the different forms of discriminations cannot be ranked: all are equally intolerable’,55 it appears that gender equality is loosing ground. Abandoning the directive would only reinforce the idea that there is a hierarchy of equalities. Furthermore, to abandon the idea of having a general Equal Treatment Directive would signal that the Commission is unable to guarantee such a fundamental right as the right of equality between men and women. At a time when Europe is rapidly enlarging and needs clear legal principles, it is perhaps a paradox to rely on the ECJ for the enforcement of basic human rights. THE IMPACT OF THE CONVENTION ON THE PRINCIPLE OF EQUALITY

The project of the Commission must be analysed together with the relevant provisions of the Treaty establishing a Constitution for Europe.56 In other words, what is the role and the status accorded to gender in the EU Constitutional Treaty? The idea of a Constitutional Treaty stems from the Laeken Declaration of December 2001 when the European Council decided to assemble a Convention to discuss the future the of Europe. The work of the Convention resulted in a Constitution that was presented to an Inter Governmental Conference in 2003.57 This document provides a basic constitutional framework that will extend and replace the existing Treaty on the European Union. It is divided into three main parts: Part one contains the principles underpinning European Law; Part two incorporates the Charter; and Part three deals with the substantive provisions. 54 See,

for instance, ‘Bruxelles ne trouve pas très “sexy” l’égalité hommes-femmes’, (2003) 85 Liaison Social Europe, 1. 55 Council Decision (EC) 2000/750 of 27 November 2000 establishing a Community action programme to combat discrimination (2001 to 2006) [2000] OJ L303/23, Recital 5. 56 CONV 850/03, Brussels, 18 July 2003. 57 L Hoffmann, ‘The Convention on the Future of Europe—Thoughts on the ConventionModel’, Jean Monnet Working Papers, 11/02 (http://www.jeanmonnetprogram.org/papers/ 02/021101.html).

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During the negotiations, the position of gender equality sparked a heated debate. In the versions presented in October 200258 and February 2003,59 gender equality was not mentioned in either the values or the objectives of the Union and there was not a clear gender mainstreaming obligation.60 Although in the final version, the status of gender equality seems to have considerably improved, concern still remain. The main problem is the organisation of the relevant provisions in the EU Constitution. The wording, the emphasis and even the content of the gender equality provisions seem to be different in the three parts of the Constitution. This has led to the fear that this document will not be able to guarantee the aquis communautaire in this area. Part I of the Constitution adds ‘equality’ (but not equality specifically between men and women) and non-discrimination (but not the achievement of equality), amongst the value of the Union (Article I-2).61 The values are important as they establish what the Union is committed to. Accordingly, decisions in suspending a State will be made by reference to whether the State is respecting the values (Article I-58). On the same lines, States who wish to join the Union will have to demonstrate that they respect and support these values (Article I-57). Amongst the objective (Article I-3) there is the ‘promotion of equality between women and men’. At the same time, however, the reference to ‘equal opportunities’ has been deleted. The objectives identify the main orientations for the EU policy—essentially they set the key priorities. Unfortunately, the objectives do not create any independent competencies. This gap has been addressed by Part III of the EU Constitution. Title I (Clauses of General Application) Article III-1 states that the Union ‘shall aim to eliminate inequalities, and to promote equality between men and women’. This principle—a reminder of the obligations set in Article 3 (2) of the Treaty of Amsterdam—is to be welcomed as it strengthens the concept of gender mainstreaming. It will apply to all the policies of the EU. Furthermore, the important principles of Article 141of the Treaty of Amsterdam, such as positive action, has been confirmed by Article 103. Within this context, Part I and III strengthen the gender equality provisions. However, it is a different story with Part II. As mentioned above, Part II incorporates the text of the Charter of Fundamental Rights in the main body of the Constitution (Article I-7). The Charter is a double-edged sword. Although it is undeniable that it has improved the position of certain rights, for example children’s rights,62 this seems hardly the case for equality. 58 Draft of 28 October 2002 (CONV 369/02). 59 Draft of 6 February 2003 (CONV 528/03). 60 ‘Final Report of Working Group XI on Social Europe’, CONV 516/03. 61 CONV 820/1/03. 62 C McGlynn, ‘Rights for Children? The Potential Impact of the European

Fundamental Rights’ (2002) 8 European Public Law, 387.

Union Charter of

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Despite the fact that equality is heralded as one of the main principles underpinning the Charter, its application in the specific provisions is arguably disappointing. The provisions of Title III (Equality) seem to lack direct applicability, and the measures seem to be more programmatic rather than conferring rights. As such, they do not seem to match the set of sex equality provisions already existing in the Treaty. Article 21 contains a general anti-discrimination clause, including discrimination on the grounds of sex. Article II-23 provides for a watered-down version of Article 141(4) EC, notably that ‘the principle of equality shall not prevent the maintenance or adoption of measures providing for specific advantages in favour of the under-represented sex’. These ‘positive measures’ are in fact drafted as an exception to the principle of equality rather than establishing a positive obligation to promote equality. Furthermore, the provision of the Charter does not have ensure ‘full equality in practice between men and women’, as stated in Article 141(4) EC. Doubts also surround Article II-33(2) on the reconciliation of work and family life. By providing merely for paid maternity leave rather than paid paternity and parental leave, it falls short of the acquis communautaire laid down in the Equal Treatment Directive, the Pregnant Workers Directive, the Parental Leave Directive as well as the ECJ jurisprudence. This narrow approach is also confirmed by Article II-34 (Social Security and Social Assistance) that refers to ‘maternity illness’. Therefore, the gender equality provisions of the Charter provisions not only fail to match the gender equality provisions in the rest of the Constitution, or the jurisprudence of the ECJ but, arguably, they also hinder the coherency of the overall structure of the Treaty.

CONCLUSION: GENDER EQUALITY IN BITS AND PIECES?

This chapter has sought to analyse the recent developments in the area of sex/gender equality with a view to assess whether the current structure of EU gender equality is able to face the challenges of an enlarged Europe. If there is clearly a strong will to further the gender dimension of the EU, this seems to be happening outside the framework of a coherent plan. Both the work of the Commission and the relevant provisions of the EU Constitution send out mixed signals. On the one hand, the work undertaken by the Commission still has lacunas. The amended Equal Treatment Directive, inter alia, still refers to sex rather than gender, introduces a definition of indirect discrimination that potentially clashes with that provided by other EC legislative acts, and reinforces the idea that pregnancy and maternity are exceptions rather than inclusive of the principle of equality. The precise extent and impact of the

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refonte project are still unclear. Furthermore which Directives will be included? The EC Commission is almost certain to include only the traditional gender equality Directives as part of the refonte project. Will this not make the whole project superfluous? Finally, the—hopefully provisional—failure of the Draft Article 13 Directive seems to imply that amongst the equality directives, there is an inherent hierarchy of equalities, with gender equality at the bottom. On the other hand, the place of gender equality in the EU Constitution is uncertain.63 Although Part I and Part III of the Constitution seem to rank the principle of gender equality as one of the leading values of the EU, the inclusion of the EU Charter in Part II casts doubt upon this suggestion. Overall, the status of gender in the Draft Constitution is out of sync with the existing acquis communautaire and, potentially, with the projects of the Commission. In light of these considerations, this paper has questioned whether the status of gender equality as it is structured at the moment, is able to effectively face the imminent challenge of enlargement. Moreover, if the EU political actors fail to provide for a coherent structure, should the principle of sex/gender equality, once again, be a concern solely for an enthusiastic ECJ?

63 M León, M Mateo Diaz and S Millns, (En)gendering the Convention: Women and the Future of the European Union, (EUI, Florence, Policy Papers), RSC n 03/1.

20 Partnership Rights, Migration and EC Law* HELEN TONER

INTRODUCTION

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HIS CHAPTER WILL examine the development of partnership rights in EC family reunification law, with particular emphasis on the definition of the family and whether it includes partners other than the ‘traditional’ heterosexual married spouse.1 The particular focus will be on the discussions surrounding two particular Directives—the first relating to EU citizens and the second relating to family reunification of third-country nationals (TCNs). THE CURRENT LAW

Migrant EU citizens are entitled2 to bring with them their spouses, subject to having available adequate housing. This legislation stems initially from Regulation 1612/68,3 although it has been adopted without significant alteration in later legislation.4 The only significant difference is that economically inactive EU Citizens are subject to a requirement to have sufficient means and medical insurance for the spouse. ‘Spouse’ currently * This contribution draws particularly on ch 2 of the author’s forthcoming book Partnership Rights, Free Movement, and EU Law. 1 For a more comprehensive description and analysis of EU family reunification law and policy in the light of international human rights norms, see S Van Der Velde The Development of the EU Right to Family Reunification in the Context of International Human Rights Protection (PhD Thesis, EUI Florence, 2003). 2 It has traditionally been assumed that this enables the individual to bypass restrictive provisions of national law, whether or not the spouse has been lawfully admitted under national immigration law in any Member State. This orthodoxy has, however, recently been challenged in the troubling Opinion of AG Geelhoed in case C–109/01 Akrich. 3 Council Reg 1612/68 [1968/9] OJ Sp Ed (II) 475, Article 10(1). 4 Council Dir 1973/148 [1973] OJ L172/14, Council Dir 90/364 [1990] OJ L180/26, Council Dir 90/365 [1990] OJ L180/28 and Council Dir 1993/96 [1993] OJ L317/59.

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means exactly this and nothing more: registered partners5 and cohabitants6 are excluded. In Netherlands v Reed,7 the ECJ held that a residence permit for an unmarried partner was a ‘social advantage’ within the meaning of Article 7(2) of Regulation 1612/68. It cannot therefore be denied to migrant EU workers if it is granted to the Host State’s own Nationals, nor granted on a basis which discriminates indirectly against migrant workers from other MS. Nonetheless, the prevailing consensus is that this does not confer any right where the domestic host state law does not yet recognise immigration rights for cohabitants.8 Now, it seems likely that all legally resident EU Citizens could use Reed9 to require the Host MS to extend the same family reunification rights in relation to partners available to its own Nationals. The benefit is likely to be seen as within the material scope of the Treaty for such individuals as well as being a social advantage for a worker. This has not yet been confirmed by any case in the ECJ, but it seems a sound assumption to make after Martínez Sala and Grzelczyk10 in which the status of lawfully resident EU Citizen is used as a link to ensure the guarantee of equal treatment under Article 12 EC. The only possible exception to this is that the position of workseekers is uncertain,11 and reading recent AG Opinions suggests that ECJ may possibly be moving towards a more limited and incremental approach to equality not just for workseekers but also for other economically inactive EU Citizens who are not established long-term residents.12

5 Cases C–122 and C–125/99P D & Sweden v Council [2001] ECR I–4319. 6 Case 59/85 Netherlands v Reed [1986] ECR 1283. 7 Above n 4. 8 To this effect, see G Barrett ‘Family Matters: European Community Law and

Third Country National Family Members’ (2003) 40 CML Rev 369. 9 Above n 7. 10 Martínez Sala (below n 11) and Case C–184/99 Grzelczyk v Centre Public D’Aide Sociale D’Ottignies/Louvain-La-Neuve [2001] ECR I–6193. 11 Case C–370/89 Ex p Antonissen [1992] ECR I–745 establishes that workseekers have rights to enter and remain temporarily in the Host State to look for work. However, in Case 316/85 Centre Public d’aide sociale de Courcelles v Lebon [1987] ECR 2811 it was held that workseekers rights were limited and in particular that Article 7(2) of Regulation 1612/68 did not apply, but it has been suggested that this principle must now be open to question in the light of later cases, particularly Case C–85/96 Martínez Sala v Friestaat Bayern [1998] ECR I–2692— M Dougan ‘The Workseeker as Citizen’ (2001) 4 Cambridge Yearbook of European Legal Studies, 94. Whether workseekers enjoy family residence rights under Art 10 of Reg 1612/68 is not clear, although note the comments of AG Ruiz-Jarabo Colomer in Case C–138/02, Collins denying that Martinez Sala has overruled Lebon, and excluding workseekers from Arts 7 et seq of Reg 1612/68—seemingly (although this point is obiter) this would include family rights in Arts 10 et seq. 12 Opinions in Collins (above n 11) and Case C–413/01 Ninni-Orasche This issue is discussed by C Barnard in M Dougan and E Spaventa (eds) Social Welfare and EU Law (Oxford, Hart, forthcoming 2004) and in her The Substantive Law of the EU; The Four Freedoms (Oxford, OUP, 2004).

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The Commission Officials who drafted the latest Proposal13 on the rights of EU Citizens take this view and incorporated a requirement of equal treatment with the Host State’s own nationals in relation to all Community Migrants, not just workers. The difficulty with this approach, however, welcome though it is, is that the substantive and procedural protection available under Community law is not necessarily available to protect individual’s rights modelled on national law which are sometimes less advantageous.14 Workers under Regulation 1612/68 may also benefit from the provisions of Article 10(2) which provides that the MS must ‘facilitate’ the admission of other members of the family who are dependent on or living under the same roof as the worker. However, both ‘family member’ and ‘facilitation’ remain highly uncertain concepts, and the first attempt to rely on this provision15 failed on the basis that it created no directly effective right for the worker’s same-sex partner. Although regrettable (particularly that the case was not referred to the ECJ) the outcome is probably correct with respect to ‘facilitation’ not giving rise to directly effective rights,16 but more dubious and arguably wrong with respect to the concept of ‘family member’. Directive 73/148 contains a similar provision in Article 1(2). These regulations however only apply to migrant EU Citizens, not to those in a purely internal situation because they are not exercising Treaty rights. The two limited exceptions to this are those who have exercised their Treaty Rights and subsequently returned to their State of origin, and after Carpenter17 those who remain in their State of origin but travel to and provide services in other MS as a significant part of their business. As we will see, Proposals have been made to extend these rights to resident TCNs and to non-migrant EU Citizens, but have not yet been adopted.

MIGRANT COMMUNITY NATIONALS

There have been several occasions which might have presented opportunities to modernise the concept of partnership in EC migration law. Amendments were proposed to Regulation 1612/68 in 1989/90; the general residence rights directives were introduced in 1990 and 1993, and further suggestions for amendments to Regulation 1612/68 were made in 1998. 13 COM (2001) 257 [2001] OJ C270/150. 14 See eg McCollum v SSHD [2001] EWHC

Admin 40 [2001] Admin Ct Digest 58 where Community law was used (although unsucessfully) to try to avoid particular restrictions in the UK rules on same-sex partners. 15 McCollum (above n 14). 16 O De Schutter ‘Le Droit au Regroupement Familial au Croisement des Ordres Juridiques Européens’ (1996) 90 RDE 531, 536. 17 Case C–60/00 Carpenter v SSHD [2002] 2 CMLR 64.

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These are now of historical interest, 18 and have been overtaken by the current Proposal for a consolidatory EU Citizens Directive. It will be sufficient here to note that although some suggestions were made that the heterosexual married couple was an outdated and inappropriate model of partnership, nothing came of this. For now, as we have seen, the ‘family’ remains distinctively heterosexual and married.

Proposal—COM(2001)257 There has been discussion for some time about the possibility and desirability of consolidation of the measures dealing with the residence rights of MS Nationals in the light of Article 18 EC.19 A proposal to complete this task was presented by the Commission in May 2001.20 It contained proposals to eliminate some of the differences between categories of residents, measures to reduce the administrative formalities for all,21 and, perhaps most controversially, contained what is described (largely accurately) as a permanent residence status,22 removing the remaining power of MS to expel EU Citizens and their family members who have been lawfully resident for more than four years. As well as all of this, it clearly offers an opportunity to rethink and modernise the definition of ‘family member’, and to move decisively away from the existing ‘married couples only—unless the Host State wishes’ model of partnership. The Proposal is disappointing on this question of modernising partnership rights. The Commission’s draft aims to preserve a large degree of discretion for MS. It follows a pattern similar to those discussed above, including the unmarried partner, but only if the Host MS assimilates such couples to the position of married couples. Article 2 provides that the ‘family member’ for this Directive means the spouse, or: The unmarried partner, if the legislation of the host Member State treats unmarried couples as equivalent to married couples and in accordance with the conditions laid down in any such legislation.

Certainly, a degree of discretion and flexibility was intended in this wording— in particular the possibility of using existing equal treatment in other areas 18 For a more detailed discussion of this see Toner Modernising Partnership Rights in EC Family Reunification Law (DPhil thesis, Oxford, 2003). 19 Report of the High Level Panel. First, Second and Third Commission Reports on Citizenship COM (1993) 710, COM (1997) 230, COM (2001) 506. 20 COM (2001) 257 (n 13). 21 Chapters II and II. 22 Chapter IV establishing the right of permanent residence, and Chapter VI concerning expulsions.

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of law as the basis for a claim that equal treatment in immigration law might be required under the Directive.23 It is however equally clear that the discretion of a MS not to permit settlement of unmarried couples is to be preserved. The same criticisms can be made of this as of earlier similar suggestions24—although requiring equal treatment is welcome, this in itself does not necessarily go any further than what is already required by Reed. In so far as it may do so, and may require equal treatment to be extended to immigration law on the basis of recognition of equality of unmarried partners in other areas of Member State law, it lacks precision and certainty. It is also notable that although the prevalence of registered partnerships of various kinds has increased dramatically over the last few years since previous Proposals were published, this was not taken into account. The prime reason for this caution is political pragmatism on the part of the Commission. The officials involved in drafting the document were clearly of the opinion that any further extension of the concept of family member would be politically unacceptable to certain MS. Despite this pragmatism, however, they remain willing to take on board the possibility and desirability of such change if agreement could be reached in the Council, even if not persuaded that such change is in fact necessary.25 There are two other Provisions of note in the Proposal. The obligation derived from Article 10(2) of Regulation 1612/68 to ‘facilitate’ entry of ‘other family members’ is retained in a simplified form (dependants or members of the household of the Union Citizen) and now extended from workers to all migrant EU Citizens. The Proposal also contains in Article 4 a general ‘non-discrimination’ clause, and of crucial importance is the prohibition of sexual orientation discrimination. It seems obvious that this has implications for MS who do not grant same-sex couples any possibility of immigration rights in their implementation of the Directive, but few involved in discussing the Proposal seem to accept this logic. In scrutinising the progress of the Proposal, it is important to note the legislative procedure used, as this influences the institutional dynamics of the discussions, and the relative positions of power of the different institutions. The procedure used is co-decision with Parliament, together with unanimity in the Council initially, although now Qualified Majority Voting (QMV) after the entry into force of the Nice Treaty in February 2003. Parliament is thus in a strong position, able to block the legislation entirely on an issue about which it feels sufficiently strongly. The unanimity

23 Discussion

with Alain Bruin and other Commission officials in December 2001. See also the Commission’s comments on the suggestion of one or more delegations that the assimilation of unmarried and married partners should be specifically tied to immigration law. The Commission considered this too narrow—Council Document 10572/02, page 11. 24 See Toner n 18 above. 25 Meeting in December 2001 with Commission officials on behalf of ILPA.

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procedure gave a strong hand to MS wishing to block progress or object to particular issues, but the final vote will now inevitably be taken under QMV. However, accession of new MS is now firmly planned for mid2004,26 which complicates the ‘arithmetic’ of obtaining a qualified majority vote in the Council even further, as some of the accession states are more socially conservative and heavily influenced by Catholic tradition than many of the current Member States. However, it remains to be seen whether the final vote will come before or after accession.

Discussions in Council The Proposal had a first reading in November and December 2001,27 and a second reading in February, March, April and June 2002,28 in the Working Party on Free Movement of Persons. The exact content of the discussions is somewhat difficult to extract from the documentation that is publicly available, beyond that the definition of ‘family member’ was perceived as problematic. However, a few further observations may be made. It is striking that no delegation seems to have questioned the omission of registered partnerships from Article 2(2)a, alongside spouses with a right to enter, although this issue was raised by Sweden in the discussion of the Family Reunification Directive.29 The question of same-sex spouses was raised, and different solutions suggested. Some delegations were uneasy about any obligation to admit ‘homosexual spouses’ if they did not have provision for this in their own laws.30 Suggestions were even made that the definition of spouse should explicitly be referred to national law, or that the ‘heterosexual’ spouse should be dealt with in Article 2(2)a and the ‘homosexual’ spouse in Article 2(2)b—thereby removing any obligation to admit. The Commission and several MS preferred the latter option. The concept of assimilation or equal treatment of unmarried couples in Article 2(2)b was also the subject of some discussion and criticism on the basis that it needed further specification, and one or more delegations preferred the wording of the Family Reunification Directive.31 The Commission was unwilling to

26 Accession

Treaties were signed in April 2003 with ten Member States who will become EU Members in mid-2004. 27 Council Document 15380/ 01. 28 Council Document 10572/02. 29 See discussion below section 2.2. 30 It is not clear whether this means their own marriage laws, or their own conflict of laws rules relating to recognition of marriages, or immigration laws. 31 Given the timing of the discussions, this is almost certainly a reference to the first Amended Proposal—COM (2000) 624 [2000] OJ C62/99 not the subsequent Amended Proposal COM (2002) 225 [2002] OJ C203/136 in which admission of unmarried partners is entirely at the discretion of the MS.

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restrict the concept of assimilation by reference to immigration law only, but indicated that it would consider alternative more precise wording. One or more delegations questioned whether the equality clause contained in Article 4 of the Directive would have any impact on the concept of family member contained in Article 2, and whether it ‘might entail an obligation to alter the civil code.’ The Commission considered that it did not alter current law. The cautious approach of the Commission seems to have been based on sound reading of the attitudes of MS to these issues. Some are clearly reluctant to accept any concept of family other than the heterosexual married couple and are using to the full their initially strong bargaining position. Even those States whose laws do have a considerably wider concept of family have seemingly been reluctant to speak out strongly on the issue.

Views of the European Parliament The Committee on Citizens’ Rights and Freedoms (LIBE Committee) is the lead committee preparing the report, and initially appointed Ana Palacio as rapporteur. It is clear from available information32 that the question of how to define the family prompted lively debate. Palacio was apparently willing to take these views on board and make what might be seen as a ‘progressive’ recommendation in her report. She was interested in an approach based on ‘mutual recognition’,33 at its simplest probably meaning that a Host MS would be obliged to recognise immigration rights for those in registered partnerships from another MS. Although welcome, several cautionary comments may be made. 1. 2. 3. 4.

32 See

It does not deal with couples currently resident in a MS with no registered partnership. It does nothing for couples moving from outside the EU. It does nothing for those unwilling for whatever reason to register or formalise their relationship. It also does not seem to assist in the limited way of enabling in a general way a lawfully resident TCN in one MS to move with a partner to another MS, as it envisages mutual recognition of the partnership for the limited purpose of immigration law, rather than mutual recognition or transferability of the residence status of the partner as such.

the discussion of the free movement campaign in the ILGA-Europe Newsletters, and the LIBE Committee Working Document of 14 March 2002, Document PE 311.026. 33 Personal communication from Mark Bell, expert commenting on the Proposal for ILGAEurope, at conference in Turin, June 2002, see also ILGA-Europe Newsletters.

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Discussion continued throughout the summer and autumn of 2002.34 It is clear that the issue of registered partnerships and unmarried couples was a significant part of the agenda. Palacio repeated her concern to pursue a form of mutual recognition. Some (Baroness Ludford, Joke Swiebel) spoke forcefully in favour of legal rights for registered and unmarried partners. No conclusion was reached but a timetable was drawn up which included a meeting with the Danish Presidency of the Council on 5 July, a draft report in September and a discussion of that report in the Parliament in October. The tone of the discussion indicates that there were considerably divergent views on the question, with some support for granting explicit legal rights to legally registered or recognised partnerships, but less support for and more concern about any move to include unmarried partners. It also indicates that the basis of discussion seems to be a search for political consensus on the question, without little explicit (or implicit) recognition or discussion of the possibility that some or all of these changes might be required by general principles of Community law. In July 2002 Palacio was appointed as Foreign Minister in Spain, and this resulted in some delay. Giacomo Santini succeeded her, and a very conservative draft report was eventually produced in November 2002.35 Relying on the ECJ case of D & Sweden,36 the draft suggested amending the Proposal to make clear that only heterosexual spouses are to benefit from its provisions, and there is no attempt to include registered partners. The wording relating to unmarried partners is altered to provide for admission of an unmarried partner if the Host State recognises de facto couples, although the gist remains the same. Santini himself was clearly against extending the scope of the Proposal. However, other more generous amendments were proposed37 and approved at a LIBE Committee meeting in January 2003.38 In particular these amendments would include same-sex spouses and registered partners as well as umarried partners if the legislation of the home or host state recognises them.39 A more generous amendment (providing that unmarried partners in stable long-term relationships to be admitted together with a non-exhaustive list of factors relevant to determining the existence of the relationship) was proposed by

34 I

am grateful to Mette Vadstrup, Information Officer at ILGA-Europe, for assisting me with a note of the discussion—email of 26 June 2002, on file with author. 35 Draft Report of the LIBE Committee on the Proposal COM (2001) 257 Document PE319.238, 25 November 2002. 36 Above n 5. 37 Meeting Document, LIBE Committee, 9 December 2002, PE319.238/47–103, amendments 53–58. 38 Press release, LIBE Committee, 21 January. 39 Amendment 53, accepted. The reference to home or host state would be useful for those wishing to move form a State where unmarried couples were recognised to one where they were not, but will provoke more opposition from sceptical Member States in the Council.

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Gianni Vattimo40 but not accepted. The report was adopted by Parliament in Plenary session in February. Further Response by the Commission: COM(2003)199 Since then, the Commission has produced an Amended Proposal41 to take account of the views of the EP, but the wider concept of the family is one of the most significant issues on which it could not accept the EP’s views. Its suggestion was contained in 2(2)b—‘the partner to whom the Union Citizen is linked by a Registered Partnership or with whom he/she has a duly attested stable relationship if the legislation of the host Member State recognises the situation of unmarried couples and in accordance with conditions laid down in any such legislation’. This seems slightly more beneficial as there is no specific mention that there has to be recognition of unmarried couples in a comparable or equal way to married couples, but the rights still remain dependent on the Host State recognition (in some form or other) of unmarried partners. On further discussion in June in the Council Working Party on Free Movement of Persons,42 it was clear that the issue remains contentious. There is a further potentially significant amendment to Article 3, which would provide (new Article 3(2)b) that the Host Member State must facilitate the admission of the registered partner or partner in a duly attested stable relationship if the Host State does not recognise the situation of unmarried couples. There is some assistance as to the meaning of ‘facilitation’ with a provision at the end that ‘the Member State undertakes (sic) an extensive examination of the personal circumstances and justifies an eventual denial of residence to these people’. Two questions immediately present themselves—first, whether this addition to Article 3 will give the concept of ‘facilitation’ a sufficiently strong and robust character to be of any use to couples (although one may be somewhat sceptical about this) and second, whether justification of an eventual denial of residence to an unmarried partner may be based not on grounds of personal conduct but on one or more general policy grounds. It certainly seems unlikely that those drafting this document intended ‘facilitation’ or the requirement for justification to be given a meaning such that that it would equate to a right to admission. There are a number of other suggestions and scrutiny reservations alluded to in the document: these are mostly cautionary, with only one delegation expressing the view that registered partners should be treated like spouses. 40 Amendment 56, rejected. 41 Amended Proposal Proposal

for a European Parliament and Council Directive on the Right of Citizens of the Union and their Family Members to Move and Reside Freely throughout the Territory of the Member States COM (2003) 199. 42 Council Document (10945/03).

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A further Council working document was produced in July,43 which would restrict the definition even further—by Article 2(2)b, the registered partner is to be admitted ‘if the legislation of the Host State recognises the status of registered partner’, and the obligation to ‘facilitate’ (still with the rather badly worded addition at the end of Article 3) applies to registered partners if the Host State does not recognise such a status, and to all other partners in duly attested durable relationships. It does however remove the statutory expression of the principle in Reed that equal treatment must be granted to migrants in respect of whatever family reunification rights are available under domestic law. The Reed judgment would therefore retain more significance. Other Institutions ECOSOC44 and the COR45 have welcomed the 2001 Proposal, and comment favourably on the limited extension of family member beyond married couples. No specific mention is made of the possibility of extending the definition of the family further than it is already in the Proposal, or of any difficulties foreseen by the Committee in the application and implementation of the Proposal as it stands. Conclusion There is much at stake in these discussions. ILGA-Europe notes: A major directive such as this is extremely rare—the previous Directive has been in force since the 1960s. So there will probably not be another opportunity to bring about these changes for many years. Therefore, we face an historic opportunity to bring about major changes in recognition of same-sex partners and their families for immigration purposes across a high proportion of Europe.46

It is quite true that there is much at stake, but it seems overly pessimistic to comment that ‘there will probably not be another opportunity … for many years’. I have argued elsewhere47 that Community law contains a number of rights-based principles that could be used, inter alia, to mount a challenge 43 Council Document 11807/03. 44 Opinion of the Economic and

Social Committee on Proposal COM (2001) 257 [2002] OJ C149/46. 45 Opinion of the Committee of the Regions on Proposal COM (2001) 257 [2002] OJ C192/17. 46 (2002) 2(1) ILGA-Europe Newsletter 3. 47 Above n 18.

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in court against a marriage-only immigration policy. This could of course be done at any time, and gay rights campaigning groups are certainly wellequipped to back such a claim. Any successful litigation could then prompt further legislative action. However, it is certainly true that there is an unrivalled opportunity to make these changes now through the legislative process. If they are not made at this stage, the political legitimacy of any favourable court ruling will certainly be undermined. The timing of the final vote and the final view taken by Parliament in relation to the amended Proposal will be crucial, as will the attitudes to other aspects of the Proposal. The creation of a truly permanent residence status is controversial enough, with early indications that virtually all Member States had concerns.48 In the latest meeting documents49 the Council Working Party has included proposed a highly unsatisfactory and messy compromise (put forward by the Greek Presidency). The absolute protection against expulsion for those with permanent residence status would go, other than for those who are still minors and those who were born in the country50 and are thus ‘second-generation’ migrants highly integrated into the Host State. Others—permanent residents and those with ten consecutive years of residence—are given somewhat more protection that is normally accorded to EU Citizens, although it is not at all clear (in the light of the already demanding principles of personal conduct and proportionality before an expulsion may take place) that this would add anything. Defending the absolute protection of Permanent Residents may ultimately be a higher priority and command more widespread support in the EP than redefining the family.

LEGALLY RESIDENT THIRD-COUNTRY NATIONALS

There have been sustained calls for action to improve the situation of TCNs who are legally resident in the EU MS. The major difficulty was the issue of competence. The first major step towards general competence and a coherent basis for action on TCNs was taken in Maastricht. This was based in the ‘Third Pillar’ and dealt with by intergovernmental co-operation rather than the traditional Community method. A non-binding resolution was agreed in 1993,51 using the term ‘spouse’, although this predates the 48 MS

seem uneasy about losing the residual discretion to expel those convicted of serious criminal offences. See Council Documents 13492/02 and 14451/02. 49 Council Documents 10945/03 and 11807/03. 50 The position of those not born in the country but nevertheless raised and educated there is less protected. 51 Resolution on the Harmonisation of National Policies on Family Reunification, SN 2828/1/93 REV 1. Never published but reproduced in R Plender, Basic Documents on International Migration Law (Martinus Nijhoff The Hague 1997), at p 487.

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Maastricht Treaty. Before long the next IGC was underway, which eventually resulted in the Treaty of Amsterdam. Amongst other things, this moved issues of immigration and asylum law into the Community Treaty. A new Title IV of the EC Treaty was drawn up (Articles 61–69 EC), giving the Community competence to enact measures in these areas—although the UK, Ireland and Denmark negotiated opt-outs and will not be bound by such decisions. Since 1999 the issue of how and when this competence will be exercised has been high on the agenda. The prospects for developing measures to tackle more generally the rights of TCNs are being studied and measures are slowly being developed—including general proposals to regulate the legal status of long term resident TCNs, giving them greater mobility around the EU.52 The development of these measures is an issue of significant importance and interest, but for the present I shall concentrate on the development of family reunification rights of legally resident TCNs. Towards A Family Reunification Directive In December 1999, the Commission adopted a Proposal for a Family Reunification Directive,53 based on Article 63 EC. The consultation process began in February 2000. ECOSOC was consulted and gave its opinion in May 2000.54 Parliament was also consulted,55 approving the Proposal subject to amendments in September 2000. The Commission has amended its Proposal twice, in October 2000,56 and May 2002.57 The legislative process used for this Proposal is different from that used in the EU Citizens Directive, with consultation of Parliament (rather than co-decision) and no move to QMV. The First Proposal & Early Discussions In its personal scope the initial Proposal is quite generous, although it has gone through some changes and restrictions in the process of discussion.58 Those legal residents on permits of more than one year are included, as are recognised refugees regardless of the duration of the permit. Asylum-seekers and those benefiting from temporary protection are excluded. 52 COM(2001)127 [2001] OJ C240/79. 53 COM (1999) 638 [2000] OJ 116/66. 54 Opinion of the Economic and Social Committee [2000] OJ C204/40. 55 Committee on Citizens’ Freedoms and Rights, Justice and Home Affairs

on 13 July 2000, Document A5–201/2000. 56 COM (2000) 624 (above n 31). 57 COM (2002) 225 (above n 31). 58 See the changing wording of Art 3 through the different Proposals.

adopted a report

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As to the definition of the spouse, the Proposal would give residence rights to the spouse, or: … An unmarried partner living in a durable relationship with the Applicant, if the legislation of the MS concerned treats the situation of unmarried couples as corresponding to that of married couples.

The ECOSOC Opinion Comments that: In the Committee’s view, the concept of ‘corresponding to’ should be interpreted in the light of the Article 2(e) mentioned in the previous point (forming or preserving the family unit) and Article 7(5) (the best interests of the children). What counts is that the non-married couples are free to live together, support each other, secure legal recognition for, raise and educate their children, and exercise the rights and duties of parents. Restrictive interpretations are therefore to be avoided, and for that reason, the Committee calls upon the Commission to monitor the transposal of the Directive into National Legislation and report back as provided under Article 18.59

This approach is laudable in its flexibility, and in its sentiments that ‘broad interpretations’ are to be favoured. However, I have already noted above the difficulties that this would cause in terms of legal certainty. The better way to avoid narrow interpretations and restrictive practices by MS has to be an alteration of the Proposal. The European Parliament discussion of this Proposal also considered the definition of the family. The rapporteur initially appointed, Ewa Klampt, produced a draft Report on 1 May 2000.60 One of the striking features of this report is what the emphasis on the ‘nuclear family’, in particular, the married couple. It proposed several amendments to eliminate even the limited recognition of reunification envisaged—ie where the legislation of the Host State treats the unmarried couples as corresponding to married couples. However, after the Committee had considered the draft in July 2000, voted on the amendments, and adopted the draft legislative resolution, Klampt requested that her name be removed from the report, and it was finally submitted in the name of the Committee Chairman, Graham Watson. In the final Report,61 all of the amendments deleting the limited reference to unmarried partners are removed—although no strengthening of the Proposal is suggested, and the limitations on the obligation to admit

59 Para 3.2. There is here an interesting discrepancy between this and its Opinion on COM (2001) 257 (above n 44), which does not seem objectively justified by the different provisions contained in the two Proposals. 60 Meting document for the meeting of the LIBE committee on 6 June 2000. 61 Report of the LIBE Committee on Proposal COM (1999) 638, PE//285892, A5/2000/201.

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unmarried partners remain unchallenged. The Report was then adopted by Parliament.62 Amended Proposals The initial Proposal has been amended twice,63 and significantly weakened in response to MS concerns.64 The personal scope of the Proposal has been limited, and in particular in the most recent version the TCN with a legal residence permit will have to show a reasonable prospect of gaining permanent residence status before enjoying the benefit of its provisions. No significant progress has been made on the definition of partners. The first amended Proposal in 2000 used exactly the same wording as the initial Proposal, and in fact in the most recent Proposal in 2002, there is a retrograde step. The Commission explains tersely that: Given the diversity in national legislation concerning those enjoying the right to family reunification, it does not seem possible for the moment to extend the obligation to allow entry and residence beyond the spouse and minor children. There is therefore a possibility but not an obligation, as regards relatives in the ascending line, dependent adult children and unmarried partners. The rules applicable to unmarried partners are similar to those for relatives in the ascending line and adult children described above. The third paragraph distinguishes between unmarried partners, who must be in a long term stable relationship with the applicant, and registered partners, to whom this condition does not apply precisely because the partnership is registered. Entry and residence are extended to their unmarried minor children, including adopted children.

The Proposal itself as amended states in Article 4 that: 1 3

The Member States shall authorise the entry of … the applicant’s spouse. Member States may, by law or regulation, authorise the entry and residence, pursuant to this Directive and subject to compliance with the conditions laid down in Chapter IV, of the unmarried partner, being a third country national, with whom the applicant is in a duly attested stable relationship, or of a third country national who is bound to the applicant by a registered partnership in accordance with Article 5(2), and the unmarried minor children, including adopted children, of such persons.

62 OJ [2001] C135/178. 63 Above n 31. 64 So much so that the ‘European

Co-ordination for the rights of foreigners to family life’, (an NGO concerned with family reunification issues) no longer supports it—Press release 17.6.2002, http://members.aol.com/coordeurop/indexce.html.

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The Commission produces little explanation for this reversal of the previous limited recognition of unmarried partners, other than a simple statement that agreement ‘does not seem possible’ at the present time. Such concession to the intransigence of MS is disappointing, if perhaps inevitable. The consequence of this is that discrimination against TCNs may be perpetuated, as they will not even be guaranteed the same treatment as the Host State’s own nationals. The unmarried couple will remain reliant on national law or the ECHR to protect their rights. Both of these are of concern—the first in the light of the Tampere Conclusions and the commitment to develop rights for TCNs comparable to those of EU Citizens,65 and the second in the light of the EC’s clear commitment to human rights and the ECHR. It is perhaps of greatest concern that this Proposal, like all the others which exclude unmarried partners totally or leave the issue to the discretion of the MS, may well permit breaches of the standards required by Articles 8 and 14 ECHR. This is the case most obviously in relation to couples with children who may continue to have battles to obtain residence for a second parent or de facto step-parent, and in relation to same-sex couples, but is also arguably the case more generally.66 Once again pragmatism prevails over principle and protection of the individual and the family, and reality fails to live up to rhetoric.

Discussions in Council The depth of some MS’ hostility to the details of this Proposal is revealed by the subsequent discussions of the text after the second amendments from the Commission.67 The suggestion of the Swedish delegation to grant registered partners the same rights as spouses, although supported by two others, was clearly opposed by a majority of delegations. Spain, Greece and Portugal were still hostile to the limited possibility of MS being expressly permitted to admit unmarried partners, being concerned that this should not force MS who did not have such rules to admit migrants and their partners from States which did.68 65 Conclusions of the European Council in Tampere, October 1999. 66 See the more detailed discussion of this issue in the author’s D Phil thesis, above 67 Council Working documents 10857/02 and 11787/02, recording discussions

n 18. held in the summer of 2002. I am grateful to Steve Peers for drawing my attention to the full version of working document 10857/02 on the internet, unusually revealing the identity of the delegations making particular points. Other Council working documents referred to are partially accessible with the identity of delegations deleted. 68 Council Document 10857/02 p 8. See also Council Document 14272/02 noting that a recital had been agreed to suggest that this Directive would be without prejudice to the possibility of other Member States granting family reunification to those whose admission was not required under this Directive, particularly unmarried partners, although four delegations maintained scrutiny reservations on this point. This reservation is confirmed in the most recent Council Document 5881/03 p 8.

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Debate in the European Parliament There is now a Draft Report from the LIBE Committee69 on the most recent Proposal. It suggests70 re-introducing express mention of unmarried partners but maintaining the basic position that their admission would be discretionary unless the Host State already treats them as having equivalent status. The report was adopted after a lively debate in the Parliament.71 It was clear that, although there was a majority in favour of a more liberal position, there were still a number of MEPs prepared to speak out and vote against such a position.

The Final Text Political agreement was reached on the final text of the Directive in February and it awaits formal adoption shortly. No move was made to accommodate the views of the EP, and the definition of partnership remains tied to marriage and otherwise in the discretion of the Member States.

Improving the Position of Long Term Residents The position of the bi-national migrant couple will be substantially improved by the passage of the Long Term Residents Directive.72 It extends free movement rights of Long Term resident TCNs, which will allow a Long Term Resident TCN to follow his or her partner (whether or not an EU Citizen) around the EU. This is obviously in some ways more advantageous than a right which is dependent on that of the partner and will allow more security for the individual. Nonetheless, it is not a complete solution to the problem, as it it only applies to those who have been resident in the EU for five years. Of more concern is that Member States who do not admit unmarried partners are unwilling to allow this Directive to require them to do so.73

69 Draft

Report of the LIBE Committee on Proposal COM (2002) 225 on the Right to Family Reunification, Document PE319.245. 70 Amendment 10 concerning Recital 11, Amendment 22 concerning Art 4(1)a. 71 8 April 2003. 72 COM (2001) 127[2001] OJ C/240 E/79. See the final agreed text Council Doc 10501/03, 7 July 2003. 73 Of particular concern was the provision that the family as constituted in the first State could migrate to the second State. Logically, this would have to be the case—such concerns could only apply where the accompanying partner did not yet have independent status as a Long Term Resident (in which case they would have independent rights) but it is still a worrying sign of the caution, almost paranoia, of some Member States over this issue.

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EU CITIZENS IN INTERNAL SITUATIONS

Community law has traditionally held back from regulating the legal position of the National of a MS withing that State,74 subject to the judiciallydeveloped proviso that the migrant who has used his or her free movement rights then returned to his state of origin can be assimilated to position of the migrant still exercising the right in another country. This concept of non-intervention in the ‘wholly internal situation’ also applies to the Community rules on family reunification—indeed this is one of the classic cases in which this principle appears in sharp relief.75 Carpenter76 makes some inroad into this in the situation of an individual exporting services to another Member State, but any major change will in all likelihood have to come about through legislation.77 Such legislation may be on its way however. The first two drafts78 of the Family Reunification Proposal would apply the new rules also to EU Citizens in their State of origin and not otherwise protected by Community law. This would be a major development, although why it is included in the Title IV Proposal on TCNs rather than under the consolidatory provision on EU Citizens residence rights is unclear. The legal basis of this seems rather questionable, as Nic Shuibhne points out,79 noting that Article 18 EC seems to provide a sounder legal basis than Title IV. However logical and compelling this argument might be, there may be a more pragmatic subtext. Perhaps adopting this measure under Title IV would be less overtly disruptive to the principle of the ‘internal situation’ than would adopting it under Article 18 EC.80 The most recent Proposal81 removes this element. The Commission still expresses its intention to proceed with this project, but at a later stage, once the streamlining and consolidation of the rights of EU Citizens and their families is completed, but there is no specific timetable. Reaching agreement over family reunification rules for resident TCNs and 74 There

is a considerable literature on this. Most recently, see N Nic Shuibhne ‘Free Movement of Persons and the Wholly Internal Rule—Time to Move On?’ (2002) 39 CML Rev 731, and for a judicial defence of the traditional Community law view, see the Opinion of AG Léger in Case C–192/99 Ex p Manjit Kaur [2001] ECR I–1237. 75 Cases 35 and 36/82 Morson & Jhanjhan v Netherlands [1982] ECR 3723, Case C–370/90 Ex p Surinder Singh [1992] ECR I–4265. 76 Carpenter (above n 17). 77 On the choice of legislative vs judicial means of tacking the issue of Community law’s reluctance to intervene in ‘internal situations’ in the context of free movement of persons, see Nic Shuibhne (above n 74). 78 COM (1999) 638 (above n 53) and COM (2000) 624 (n 31). 79 Nic Shuibhne (above n 74). 80 By this I mean that proceeding with a measure like this under Art 18 might be seen to have more far reaching effects on the ‘internal situation’ rule, in that it might be seen as an acceptance in general terms that such non-migrant Citizens come within the personal scope of Community law in a way that enacting specific regulations for their family members under the competence in Title IV might not be. 81 COM (2002) 225 (above n 31).

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streamlining and improving the residence rights of migrant EU Citizens are sufficiently complex projects in themselves without adding the issue of ‘domestic’ immigration law. The Commission also links the issue with the consolidation of the legal rights of EU Citizens, hinting (although not clarifying expressly) that any future Proposal on this might be adopted under Article 18 EC rather than Title IV.

LEGISLATION AND JUDICIAL DEVELOPMENT

In considering the most appropriate way to secure modernisation of partners migration rights there is clearly a tension between the democratic process taking its course, and the task of the Court in protecting basic fundamental rights—whether those of free movement, equality or family and private life. An in-depth discussion of the proper scope and limits of the ECJ’s role and a critique or defence of its approach is impossible here. However a few comments may be made to highlight the main issues. A forceful articulation of the desirability and indeed the necessity for judicial intervention in the face of social change and outdated legislation comes in the opinion of AG Geelhoed in Baumbast. 82 Speaking in the context of the increasing prevalence of family break-up and the increasing possibilities for work and family life to be separated geographically, he emphasises the legitimacy of the ECJ taking a proactive robust view of the application of Community law to deal with these situations in order that undesirable lacunae in the protection of Community law do not develop. Without making specific reference to this, the ECJ adopted the substance of his suggestions in that case. One may agree with him, and this approach might seem convincing in itself in the absence of any legislative proposals. I have argued elsewhere83 that there are convincing rights-based arguments which could support judicial intervention. Indeed some of these arguments were raised (albeit unsuccessfully) in the UK High Court in 2001 in the case of McCollum. Yet this alone does not seem enough to address the complexities of the problem. We have seen the complex and difficult process of this point in the current legislative proposals. The prospect of significant progress at the present time seems at best indifferent—the final text of the Family Reunification Directive leaves everything to the Member States, and discussions on the EU Citizens Directive continue heading in this direction, with little enthusiasm for a wider definition of the family except from the European Parliament. What may be desirable filling of lacunae in old outdated legislation, might be

82 Case C–413/99 83 Above n 18.

Baumbast & R v SSHD.

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seen as undesirable and illegitimate intrusion by the judiciary where the political process of putting together legislation is underway, or has recently been completed without agreement on a particular point. However, what is most striking on reading the primary materials referred to—documents relating to the legislative process and cases from the ECJ (particularly those relating to equality) is the vicious circle that seems to be developing to block progress on this issue. In Grant84 it is quite clear that the ECJ considers judicial deference to the legislative process appropriate. It concludes that discrimination on the grounds of sex is not in the current state of Community law to sbe interpreted as including discrimination on the grounds of sexual orientation. It then goes on to add that: It should be observed however that the Treaty of Amsterdam provides for the insertion in the EC Treaty of an Art 6(a) which, once the Treaty of Amsterdam comes into force, will allow the EU Council under certain conditions (a unanimous vote on a proposal from the Commission after consulting the European Parliament) to take appropriate action to eliminate various forms of discrimination, including discrimination based on sexual orientation.85

In D & Sweden86 a similar view emerges. The Swedish government had, when the Regulation87 was adopted, suggested the assimilation of Registered Partnerships with marriages in the Regulation for the purposes of the family allowance and other benefits. This specific suggestion, which would have helped the couple and confirmed the entitlement to the benefit in question, was rejected. The ECJ considers the arguments of the couple and at the suggestion of the Council88 it comes to the following conclusion: Only the legislature can, where appropriate adopt measures to alter that situation, for example by amending the provisions of the Staff Regulations. However, not only has the Community legislature not shown any intention of adopting such measures, it has even (see paragraph 32) ruled out at this stage any idea of other forms of partnership being assimilated to marriage for the purposes of granting the benefits reserved under the Staff Regulations for married officials, choosing instead to maintain the existing arrangements until the various consequences of such assimilation become clear.89

Again judicial deference to legislative judgment prevails, if anything more clearly than in Grant. The implications of this approach for immigration law are all too obvious given the apparent reluctance of most involved in 84 Case C–249/96 Grant v Southwest Trains [1998] ECR I–0621. 85 Para 48. 86 Cases C–122 and 125/99P D & Sweden v Council [2001] ECR 87 781/98. 88 Para 32. 89 Para 38.

I–4319.

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the process of discussing the two Proposals to make any significant move on this issue. The deeply worrying thing is that this caution seems to be feeding into the current legislative process. The Commission officials seem, implicitly if not explicitly, to be relying on the fact that D & Sweden and Grant do not require any action in this area, despite both the obvious shortcomings in the reasoning in D & Sweden and the fact that some issues of critical importance to the question of immigration rights were simply not addressed. Most striking however is the draft Santini report of November 2002:90 Definition of ‘spouse’: in line with the case law of the Court of Justice, with particular reference to the judgment of 31 May 2001 in D and Kingdom of Sweden against the Council of the European Union, according to the definition generally accepted by the MS, the term ‘marriage’ means a union between two persons of the opposite sex. Unmarried partner: in the same case, the Court of Justice found that ‘the fact that, in a limited number of MS, a registered partnership is assimilated, although incompletely, to marriage cannot have the consequence that, by mere interpretation, persons whose legal status is distinct from that of marriage can be covered by the term “married official” as used in the Staff Regulations’. This means that the situation of an unmarried partner cannot be treated as ‘equivalent’ to that of a married partner and that national law must be applied to unmarried partners in accordance with the principle of non-discrimination between other Community citizens and the citizens of the Host State.

The use of the judgment in D & Sweden to justify the explicit removal of same-sex spouses from the scope of Article 2(2)a (guaranteed entry), is striking and worrying. The ECJ may indeed have been quite clear about its perception of the proper limits of its role in statutory interpretation and the application of the principle of equal treatment to existing legislation. But to suggest, which is what this passage seems to, that this might constrain the Council and Parliament when adopting the new Directive and might provide any reason to justify the position taken is another matter altogether, and seems entirely unjustified. It turns a judgment which indicates that action is not necessarily required and seems to suggests that this means that there is a requirement not to act—which does not follow logically. Although the Draft Report was amended before the LIBE Committee adopted it, and discussions have continued since then, the sentiments expressed remain worrying.

90 Draft

Report of the LIBE Committee on the Proposal COM (2001)257 Document PE319.238, 25 November 2002.

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Judicial caution is feeding into the legislative process and being used to justify continued legislative conservatism. The danger is that this may later feed back into yet more cautious judgments in the ECJ when it sees the cautious approach of the legislature and once again feels it appropriate to defer to the legislative process—in particular on questions that the legislature could not settle by agreement. If Community legislation remains conservative and restricted to married couples, any subsequent judicial decision requiring greater residence rights would certainly be a bold and ambitious one. However, the fundamental nature of the basic rights involved is a telling point in favour of judicial intervention.91 The ECJ should not ignore its role in ensuring that the law is observed. The apparent unwillingness of those involved in the legislative process to recognise that a more specific justification is required than simply stating that ‘agreement is impossible at the present time’ is disappointing and provides another justification for judicial intervention. As it stands any decision in favour of the current position seems incomplete and ill-reasoned and should arguably not prevent the Court from intervening to ensure that basic principles of Community law are observed.

CONCLUSION

Legislation to modernise partners migration rights would be the most desirable way to proceed, and the opportunities have rarely been better, with two Directives on the legislative agenda since 1999 and 2001. However, conservatism prevails and it is not at all certain that this will happen. Legislative and judicial caution seem to be fuelling each other. Consequently, there is a risk that basic principles of Community law will be sidelined and abandoned along the way, getting little or no serious consideration. This is indeed an unenviable dilemma for any court. Yet despite the intransigence of the Community institutions and MS in the legislative process, while they remain unwilling or unable both to address these basic principles of Community law and to acknowledge the need for and articulate specific justifications for maintaining marriage-only immigration policies, judicial intervention seems defensible. Looking more widely, it seems clear that the question of family status is likely to become increasingly problematic. Two EU Member States (Netherlands and Belgium) now permit same-sex marriage, and registered partnerships of various kinds are recognised in a number of others (Finland, Sweden, Denmark, Netherlands, Germany, France, together with Norway 91 For

a recent discussion and defence of the legitimacy of the judicial role in upholding basic (especially equality) rights and using a robust standard of scrutiny in doing so, see Ghaidan v Mendoza [2002] EWCA Civ 1533 [2002] 4 All ER 1162.

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and Iceland in the EEA and plans to introduce legislation, either separately in England and Wales and Scotland, or throughout the UK). Yet, some remain resolutely opposed, and the Catholic Church is becoming increasingly vocal in its opposition to any move to weaken the legal position of heterosexual marriage as the uniquely favoured (and preferably the only legally recognised) family form. The accession of new Member States will do nothing to make this an easier issue—if anything, it will deepen divisions by introducing several new Member States whose conservative views on such matters will provide a counterbalance to the trend towards samesex partnership recognition. If the views expressed during the discussion of this issue in the context of the EU’s well established competence in free movement and migration law persist, and any significant moves to tackle this at the EU level seem unlikely to emerge soon, however compelling the argument may seem for taking some limited action.

POSTSCRIPT

Since completing the text of this chapter several legislative developments have occurred. The EU Citizen’s Directive has been adopted (Directive 2004/38, [2004] OJ L158/77). Amidst some concern to get the Directive passed before the accession of new Member States and the European Parliamentary Elections in summer 2004, the Parliament eventually agreed to the adoption of the Common Position, (5 December 2003, [2004] OJ C54/23) which contained neither the more generous rights for partners that it had previously backed, nor the complete protection against expulsion that had been in the initial Proposal. As finalised, the Directive will only guarantee entry to Registered Partners if the Host State to which the couple move recognise such partnerships already, and unmarried couples in stable relationships remain in the uncertain position that the Host State must merely ‘facilitate’ their entry. It remains to be seen whether the wording of the Directive (Article 3(2)b) and the preamble (recital 6) might persuade the Court of Justice to create something akin to a right of entry out of this provision. The Directive on Family Reunification been formally adopted by the Council (Directive 2003/86, [2003] OJ L251/12). Various provisions of it have been challenged by the Parliament in case C–540/03, ([2004] OJ C47/21) although the definition of partnership is not one of these. Finally, the Long term Resident’s Directive has also been adopted (Directive 2003/109 [2004] OJ L16/44).

21 The Race Directive, Institutional Racism and Third Country Nationals FERNNE BRENNAN*

T

HIRD COUNTRY NATIONALS have been the victims of Institutional racism in a number of member states of the EU. 1 In current vogue this phenomena is understood as ‘the collective failure of an organisation to provide an appropriate and professional service to people because of their colour, culture, or ethnic origin….it can be seen or detected in processes, attitudes and behaviour which amount to discrimination through unwitting prejudice, ignorance, thoughtlessness and racist stereotyping which disadvantage minority ethnic people’.2 In order to eradicate racism in general in the member states the EU has brought forth measures such as the European Council Directive 2000/43/EC (Race Directive). However, this paper argues that this legislation does not go far enough in meeting the European unions’ concern to combat racism in the market and related areas. Rather the measure tends to perpetuate double standards in relation to third country nationals. This may be a travesty if a more purposive interpretation of the directive is not developed in the transposition and/or application of this essential measure. * This paper arises out of a WG Hart Workshop that took place at the Institute of Advanced Legal Studies London, 27 June 2003, and a paper published in Cambridge Yearbook of European Legal Studies, 2004 (forthcoming). Thanks to Professor Evelyn Ellis for her useful comments at the Workshop and Professor Janet Dine for her continued support, and AHRB. Responsibility for the article remains with the author. 1 M Kamali, ‘Conceptualising the “Other”, Institutionalized Discrimination and Cultural Racism’, European Commission, Improving Human Research Potential and the Socio-economic Knowledge Base, Socio-Economic Research, Racism and Xenophobia: Key Issues, Mechanisms and Policy Opportunities, 5-6 April 2001, (Centre Brochette, Rue Froissart 36, Brussels), also see I F Haney Lopez, ‘Institutional Racism: Judicial Conduct and a New Theory of Racial Discrimination’, (2000) 109 Yale Law Journal. 2 See Sir William Macpherson of Cluny, The Stephen Lawrence Inquiry. Report of an Inquiry (London, Stationery Office, 1999) CM 4264–1, para 6.34.

372

Fernne Brennan INTRODUCTION

This millennium witnessed a turning point in the European Union’s legislative commitment to combating racism with the adoption of Council Directive 2000/43/EC (Race Directive). The Race Directive endeavours to proscribe discrimination aligned to racial or ethnic origin3 against people in the EU. Innovatively, the provision also prohibits racial harassment.4 The latter reflects growing recognition that harassment, e.g., name calling, veiled threats, body language and the like are often the kind of tort that tend to remain outside the paradigm of legal prohibition.5 For instance, in Luxembourg it is reported that the concept of harassment as defined in the directive does not exist in the law of Luxembourg. Legislation would be required to accommodate it whilst Swedish law does employ this concept but it is not deemed to be discrimination.6 Such discrepancies do not bode well for the Community in its commitment to provide the same general level of protection for victims of racism within the EC. Thus the measure obligates Member States to establish a ‘common minimum level of legal protection from discrimination in public and private sectors’.7 The justification for bringing forward this directive lies in the fact that people are discriminated against on the basis of the aforementioned criteria. This prejudice is the antithesis of the principle of equal treatment,8 a principle the EU has strived to achieve in the context for instance of workers, goods, services and capital.9 The Race Directive applies to a variety of areas where such discrimination is likely to occur including employment and occupation, training and education, membership of work related organisations and professions, healthcare, social advantages and goods and services including housing.10 Until recently11 the EU has not 3 Art 1 Council Directive 2000/43/EC, OJ, L180/24. 4 Art 2(3) Council Directive 2000/43/EC, OJ, L180 L180/24. 5 In relation to racial harassment and crime see F Brennan, ‘Racially

Motivated Crime: the Response of the Criminal Justice System, [1999] Crim LR, 17–35. Also see EUMC Project 2000–200, Study on the comparison of the adopted Article 13 Council Directives with existing national legislation in the EU Member States. 6 See Report on Luxembourg prepared by A Fatholhazadeh and O Lang, in J Niessen and I Chopin (eds) Migration Policy Group, (Vienna, 2002, EUMC). Compare Luxembourg’s position with that of Sweden where there exists legislative provision dealing with ethnic harassment, however the directive may improve on this position in that harassment is stated as a ground of discrimination and not just an issue related to racial discrimination, see Report on Finland prepared by P Lappalainen in Niessen and Chopin (eds) ibid. 7 See M O’Brien ‘The European Race Directive—Our plans for implementation’, (2000) 3 European Lookout, 2. 8 Art 1 and Preamble 3 Council Dir 2000/43/EC/ OJ, L180/24, which deals with the right to equality before the law and protection against discrimination as enshrined in international law. 9 See EC Treaty generally and decisions of the ECJ. 10 Art 3 Council Dir 2000/43/EC, OJ, L180/24. 11 Council Dir 2000/43/EC, OJ L180/24 adopted on 29 June 2000 implementing the principle of equal treatment between persons irrespective of racial or ethnic origin, Council Dir 2000/78/EC, OJ L303/16, establishing a general framework for equal treatment in employment

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demonstrated any legislative commitment to anti-racist discrimination. Instead the unsatisfactory state by state approach has left a yawning gap in this area.12 In Austria, for instance, there is specific legislation prohibiting incitement to hatred on racial or religious grounds and general constitutional provisions, whilst the British Race Relations Act 1976 is broader but does not include health or social security, or participation in political, economic, social or cultural spheres.13 Moreover, many of the legal instruments that exist at Member State level are rarely used.14 This paper maintains despite the European Union’s well intentioned commitment to the eradication of racial discrimination, including institutional forms, there may be a serious shortfall in the achievement of its goal. This deficit relates to third country nationals and institutional racism. It is argued that the exclusion of ‘ … a difference of treatment based on nationality from the Race Directive … ’15 may present a major stumbling block and is illogical whatever the political justification might be. One way in which institutional racism manifests itself is by discrimination on the grounds of nationality, moreover it is often difficult to know whether the motivation for unfair treatment is race, ethnicity or nationality. The EU has produced a relatively proactive instrument which can be used to remove the rot caused by institutional racism but success is likely to be partial and unsatisfactory until this hurdle has been dealt for all persons. and occupation and an Action Programme. It may be useful to add that this directive was rushed through, precipitated by fears over the human rights situation in Austria due to the rise of the Far Right Freedom Party in 2000. See S Douglas-Scott, Constitutional Law of the European Union (Harlow, Longman, 2002) 435, n 21 and M Bell ‘Beyond European Labour Law? Reflections on the EU Racial Equality Directive’ 8 (2002) European Law Journal 384, 385, originally referred to in F Brennan, ‘The Race Directive: Recycling Racial Inequality’ [2004] Cambridge Yearbook of European Legal Studies. The European Parliament, Council, Representatives of Member States and the Commission agreed the 1986 Declaration Against Racism and Xenophobia. A number of organisations have been actively engaged in compiling draft instruments aimed at the enhancement of the EC’s competence in dealing with racial discrimination on a Community-wide basis. These have included the CRE, the Dutch National Bureau against Racism, Belgian Centre for Equal Opportunities, Churches Commission for Migrants in Europe, the Migrants Forum and Starting Line. Another amendment to the Treaties relating to racism was Art 29 EU aimed at preventing and combating racism and xenophobia in the provision on police and judicial cooperation in criminal matters. 12 International

influence on racial discrimination has tended to come from the jurisprudence of the European Court of Human Rights in interpreting the ECHR, however, racial discrimination is not an autonomous right and the remedy relies on the willingness of member states governments to comply with court rulings. Also see I Forbes and G Mead Measure for Measure: a comparative analysis of measures to combat racial discrimination in the Member Countries of the European Community, Equal Opportunities Study Group, University of Southampton, 1992, Research Series No 1 (London, Department of Employment). 13 The Human Rights Act 1998, incorporating the European Convention on Human Rights is likely to have an impact in these areas. 14 See M Bell above n 11, 384. Also see Forbes and Mead above n 12. 15 Art 3(2) Council Dir 2000/43/EC, OJ L180/24.

374

Fernne Brennan TRANSPOSITION OF THE RACE DIRECTIVE INTO THE DOMESTIC LAW OF MEMBER STATES

As of 19 July 2003 the Race Directive required Member States to bring its provisions into their domestic legal systems.16 At the time of writing there has been relatively little movement in this direction. Anna Diamantopoulou, Employment and Social Affairs Commissioner, commented that ‘I am dismayed that most Member States have failed to integrate the Racial Equality Directive into national law. Let us not forget that this Directive was agreed unanimously by the Council three years ago’.17 Furthermore, this sluggishness sets a poor example for new Member States to follow.18 Below is the position regarding implementation of the Directive in the legal systems of Member States. Member State

Stage Reached in Transposition

Potential problems

Austria

Draft anti-discrimination law presented to main Parliamentary committee March 2001. No time found to discuss draft. Government has considered transposing the Race Directive through existing legislation such as the Federal Equal Treatment Act and Equal Treatment Act. In December 2002 the law was adopted to implement the Race Directive. Expert Committee overseeing the work and has proposed changes to existing law. There is no draft bill. Draft law was submitted to Parliament in December 2002 but dropped due the elections in March 2003. The draft law changes existing legislation. The Directive has been brought into force through laws of 16-11-2001 (employment) and 17-01-2002 (Housing).

Will not be fully transposed

Belgium Denmark

Finland

France

Germany Greece

In the process of preparing a new proposal after the first one was dropped. No information available.

16 Art 16 Council Dir 2000/43/EC, OJ 17 Commission concerned at Member

Only 80% of the content of the Directive has been covered by this law. Independent bodies are unlikely to be given the legal competence to bring cases before the courts. Standards proposed only bring protection against racial discrimination to the level required by the Directive. The scope of the Directive is not allencompassing. Powers of associations to bring action on behalf of victims is limited and indirect discrimination is not generally recognised. Racism is not considered a major problem thus the proposal may reflect this. Does not associate negative practices with racism. Table Continued …

L180/24. States’ failure to implement new racial equality rules,

DN: IP/03/1047 Date: 18/07/2003. Member States were required to change their domestic law by May 2004 in order to incorporate the Race Directive before they join the EU. Czech Republic, Cyprus, Estonia, Hungary, Latvia, Lithuania, Malta, Poland, Slovakia, Slovenia, see IP/03/1047, Brussels, 18 July 2003, also see European Commission, Enlargement Strategy Paper. Report on progress towards accession by each of the candidate countries (Com (2000) 700 final).

18 New

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Table Continued … Ireland

Discussion on implementation by way of regulation

Italy

An unofficial draft exists.

Luxemburg The Netherlands Portugal Spain

No information available. A bill was proposed that is in the process of discussion No information available. There is a working group but no proposal from Government. There are proposals from the Government that will be presented to Parliament in July 2003. There are also inquiries that are considering whether to have one all-embracing law or to combine existing legislation. Race Relations Act 1976 (Amendment) Regulations 2003 laid before Parliament 8 May 2003 for discussion in June.19 Made 20 June and in force 19 July 2003.

Sweden

United Kingdom

Need for primary, rather than secondary. legislation to avoid damage to the Race Relations (NI) Order 1997. The draft regulation adopts minimalist approach and restrictive approach, directly conflicting with the Single Equality Bill for N.I. that aims to protect and build on existing provisions. May lag behind and do little to transpose the Directive. Whilst the bill is fairly comprehensive sive some areas remain unclear.

Whilst the proposals appear to encompass higher standards than required by the Directive, it is too early to determine how comprehensive the law will be.

One of the difficulties will be the possibility of inconsistencies between the Draft Regulation, existing Race Relations Act 1976 (amended to impose positive duties on institutions) and the Human Rights Act 1998. Moreover, it is difficult to assess the impact of the proposal for a Single Equalities Commission.

THIRD COUNTRY NATIONALS AS VICTIMS OF INSTITUTIONAL RACISM

The term ‘third country national’ is used in a variety of ways depending on the particular circumstances. Thus ‘alien’,20 ‘Other’21 and ‘undesirable immigrants’22 are words used to describe those people who are subject to a process proliferated by member states in their dealings with third country

19 Source:

Department of Trade and Industry, Equality and Diversity, 9 June 2003, www.dit.gov.uk/er/equality The full text can be found at http://www.dti.gov.uk/er/equality/ raceregs.pdf. 20 Blanca Vila Costa, ‘The Quest for a Consistent Set of Rules Governing the Status of non-Community Nationals’, in P Alston (ed) The EU and Human Rights (Oxford, OUP, 1999) 411–12. 21 S Douglas-Scott, ‘The Common Foreign and Security Policy of the EU: Reinforcing the European Identity? in P Fitzpatrick and JH Bergeron (eds) Europe’s Other: European Law Between Modernity and Postmodernity (Aldershot, Ashgate, 1998), 131–33. 22 A Geddes, Immigration and European Integration. Towards Fortress Europe? (Manchester, Manchester University Press, 2000) 6.

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nationals that tends to produce varieties of economic and political exclusion and poor social integration.23 This works against Community policy geared towards the racial desegregation of markets in labour, services and goods. Within this process institutional racism tends to be perpetuated. The plight of third country nationals has been the subject matter of much scholarly work24 however there has been insufficient analysis of the impact of institutional racism in this area. It has been argued that this form of racism can be seen or detected in processes.25 What precisely does this mean and what are the implications for third country nationals? Is the Race Directive comprehensive enough to deal with this problem? It is also argued that institutional racism can be seen in attitudes and behaviour which amount to discrimination. 26 The question must be asked, what does it mean to say that an institution has a racist attitude or demonstrates racist behaviour? Moreover, how do such attitudes and behaviour impinge on third country nationals and what are the implications for the operation of the Race Directive?

INSTITUTIONAL RACISM AS DETECTED IN PROCESSES

The allocation of public services in member states such as housing, education and health are areas of concern to the EU in relation to its commitment to equality in the field of race relations. This is indicated by Article 12 of the preamble to the Race Directive that states the need for ‘ … specific action in the field of….areas such as education….and access to the supply of goods and services’.27 To this end Article 3 of the directive provides that the concept of discrimination28 ‘shall apply to….public bodies … ’29 in relation to education30 and ‘access to and supply of goods and services which are available to the public, including housing’.31 The EU appears to have taken account of international human rights obligations32 in relation to these areas recognising that equality before the law cannot come about if

23 Ibid., 21–27; Douglas Scott above n 21, 132–33. 24 Fitzpatrick and Bergeron (eds) above n 21 and Douglas-Scott above n 21. 25 See Macpherson above n 2. 26 See MacPherson, above n 2. 27 Preamble 12 Council Dir 2000/43/EC. 28 Defined in Art 2 Council Dir 2000/43/EC. 29 Art 3(1) Council Dir 2000/43/EC. 30 Art 3(1)(g) Council Dir 2000/43/EC. 31 Art 3(1)(h) Council Dir 2000/43/EC. 32 Thus Preamble 2 and 3 of Council Dir 2000/43/EC refers to human rights,

the Universal Declaration of Human Rights, the International Covenant on the Elimination of all forms of Racial Discrimination, the United Nations Covenants on Civil and Political Rights and Economic, Social and Cultural Rights and the European Convention for the Protection of Human Rights and Fundamental Freedoms.

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areas where racial discrimination is manifest but are beyond traditional notions of the discrimination in the employment market, are not simultaneously addressed.33 This is an area of great concern especially given the presence of racism and prejudices in public institutions that the ECRI has deplored and has expressed regret that not enough energy has been invested in combating this area of racism.34 Although there is nothing explicit in the Race Directive in regard to dealing with institutional racism, it is argued that the focus on public institutions is an important step in developing mechanisms to tackle this phenomenon.35 This is because institutional racism may be endemic in an organisation in terms of its policies and practices, and, more critically, appear as a ‘normal’ part of institutional culture. This type of racism cannot be adequately handled by focusing on individual fault primarily because it takes little account of the fact that individuals are ‘ … clothed with the attributes of the dominant culture … ’.36 This means that individual discriminatory behaviour may be a manifestation of discriminatory processes at work in institutions.37 It is argued that access to public housing for third country nationals may be an area where institutional racism can be detected in the processes. For instance, the process of public housing allocation in some member states may serve to keep people ‘ … locked in dilapidated slum [housing]’,38 and subject to the dangers that arise from being placed in residential areas where third country nationals may fall prey to racist attacks and general hostility.39 This may be due to a policy that specifically allocates housing for vulnerable groups or it may arise from a lack of awareness of the impact on third country nationals of placing them in particular areas. This type of process has been termed ‘unwitting’ racism40 because there is little evidence to suggest that conscious racism is at play, rather, it can be argued that this type or racism operates in ‘respected and established forces in the society, and thus receives far less … ’41 attention. Disproportionately high 33 See Preamble 12 Council Dir 2000/43/EC. 34 CRI (2003) 23 Annual report on ECRI’S activities

covering the period from 1 January to 31 December 2002 Strasbourg, 20 March 2003. 35 In Britain the Race Relations (Amendment) Act 2000 has imposed legal obligations on public bodies to promote equality of opportunity, further, it is unlawful for such bodies to discrimination whilst carrying out their functions and it is a duty that such bodies promote equality of opportunity and good race relations. 36 S Fredman, Discrimination Law (Oxford, OUP, 2002) 16. 37 Macpherson above n 2; also see A Hieronymus and M Moses, ENAR Shadow Report 2002, Talking ‘Race’ in Germany, April 2003, part 3, p 14. 38 S Carmichael and CV Hamilton, Black Power. The Politics of Liberation (New York, Vintage Books, 1967) 4. 39 See EUMC Annual Report 1998, Looking Reality in the Face. The Situation Regarding Racism and Xenophobia in the European Community (Vienna, EUMC, 1988) 7–17. 40 Macpherson above n 2, 6.34. 41 Carmichael and Hamilton, above n 38.

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numbers of immigrants and people of immigrant origin live in disadvantaged areas and in inadequate private and public accommodations. Although this is partially due to a lack of resources, which are often more modest among this category of persons, racial discrimination also contributes to this situation. In France, the ECRI has urged the French authorities to strengthen their efforts to combat discrimination in this field. Furthermore, although ECRI realises that housing policies are primarily designed to help those who are economically disadvantaged, it suggests that the need of immigrants could be better met by making provision for the additional obstacles they encounter.42 Whilst in Denmark it is reported that the dispersal system where third country nationals are sent to live in various areas on the basis of a quota system is problematic. Penalties are imposed if the person dispersed moves from the area for which they are designated, further, they are expected to ‘become Danish’ without any acknowledgement by state municipalities of the need to be housed in areas where they would obtain strength from being able to identify with cultural, linguistic and religious communities similar to their own.43 Similar articles describe the German situation where cases of discrimination are not taken seriously—which may account for the dearth on reported cases in this area—and where those who do complain are seen as either ‘hypersensitive’ or ‘psychotic’.44 In the UK housing patterns show that third country nationals tend to live in the most deprived areas compared to their ‘white’ counterparts. This problem is particularly prevalent amongst the Pakistani and Bangladeshi communities.45 Whilst it might be argued that access to housing that enables people from similar communities to live together may be a positive thing for the well being of third country nationals, and for social integration more generally, thus in this sense this is a preferable situation to the Danish one, it should not follow that housing need results in occupying the most undesirable of housing stock. More recently, access to decent housing has been an issue of concern for the global community.46 In international human rights terms poor access to this resource raises questions of state commitment to non discrimination and equality in housing provision,47 which is of particular importance given state commitment to international human rights legal instruments

42 CRI (2000) 31 Second Report on France, Adopted on 10 December 1999. 43 B Qurashy, ENAR Shadow Report 2002, Racism and Discriminatory Practices in Denmark. 44 Hieronymus and Moses, above n 37. 45 G Moon, ENAR Shadow Report 2002, Racism and Race Relations in the UK. 46 United Nations Centre for Human Settlements, Cities in a Globalising World. Global

Report on Human Settlements 2001 (UN-HABITAT 2001). Thiele and M Gomez, Non-discrimination and Equality in the Cities. Applying Internationals Human Rights and Housing Rights Standards, (Human Rights Tribune, Winter 2002, Vol. 8, No 3).

47 B

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such as Article 25 of the Universal Declaration of Human Rights 48 and Article 11(1) of the International Covenant on Economic, Social and Cultural Rights.49 In the context of the Race Directive the focus on areas such as housing, that go beyond discrimination in the employment market demonstrates that the EU takes human rights obligations seriously and is committed to ensuring member states meet their international legal obligations. The Race Directive, which may be understood as a mechanism for implementing international legal obligations,50 should ensure that institutions examine their internal processes and cultural practices with a view to wiping out this form of racism. However the provision as it stands presents difficulties for third country nationals to challenge institutional racism. This is not because the provision in itself could not incorporate this form of discrimination. If one considers the concept of discrimination as defined in Article 2(2) of the Race Directive the measure it states that: Direct discrimination shall be taken to occur where one person is treated less favourably than another is, has been of would be treated in a comparable situation on grounds of racial or ethnic origin.51

It is not improbable that public institutions will have to take account of institutionally racist processes in relation to matters such as access to housing and education. Indeed, Article 3 (1) makes particular reference to the public sector and public bodies as coming within the perimeters of the directive.52 Furthermore, the instrument covers indirect discrimination— ‘… where an apparently neutral provision, criterion or practice would put persons of a racial or ethnic origin at a particular disadvantage, compared with

48 Art

25 of the Universal Declaration of Human Rights reads that ‘Everyone has the right to a standard of living adequate for the health and well-being of himself and of his family, including food, clothing, housing and medical care and necessary social services, and the right to security in the event of unemployment, sickness, disability, widowhood, old age or other lack of livelihood in circumstances beyond his control’. 49 Art 11 (1) of the International Covenant on Economic, Social and Cultural Rights provides: ‘The States Parties to the present Covenant recognize the right of everyone to an adequate standard of living for himself and his family, including adequate food, clothing and housing, and to the continuous improvement of living conditions. The States Parties will take appropriate steps to ensure the realization of this right, recognizing to this effect the essential importance of international co-operation … ’ 50 See preamble 2,3 and 4 Council Dir 2000/43/EC where reference to international legal obligations are made. 51 Art 2(2) Council Dir 2000/43/EC. 52 Art 3(1) Council Dir 2000/43/EC dealing with the scope of the provisions states that, ‘Within the limits of the powers conferred upon the Community, this directive shall apply to all persons, as regards both the public and private sectors, including public bodies … ’.

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other persons … ’53 and harassment which is stated to relate to ‘ … an unwanted conduct related to racial or ethnic origin….with the purpose or effect of violating the dignity of a person and of creating an intimidating, hostile, degrading, humiliating or offensive environment. 54 The same argument would apply to public institutions in relation to this form of discrimination. What is problematic is the fact that unless a third country national could show that the institutional process was racially discriminatory (and not based on nationality) they would not be able to rely on the provision. Article 3(2) of the Race Directive states that ‘the Directive does not cover differences of treatment based on nationality … ’.55 As scholars have pointed out this is likely to be a troublesome area because it is difficult to determine whether discrimination occurred on the basis of nationality or race.56 Since the two are often intertwined some Member States have encompassed discrimination on the grounds of nationality as a ground of racial discrimination.57 It is argued that such inclusive analysis might avoid the kind of problems that have plagued the American courts where the question of motivation is difficult to prove.58 Taking the Dutch example referred to above, it would be hard for an African59 subject to the dispersal system for residential purposes to establish (even as a prima facie case)60 that they have been treated less favourably on the grounds of racial discrimination by the Dutch municipality in comparison with other persons. This is likely to be because the process of dispersal is geared to third country nationals who have narrowly defined rights of residence. It is not explicitly based on race but has a disproportionate impact on third country nationals who are not ‘traditional Danes’.61 Furthermore, since the Race Directive does not rely on motivation but can determine racial discrimination on the basis of indirect discrimination, not to include nationality as a 53 Art

2(2)(b) Council Dir 2000/43/EC which also further states ‘… unless that provision, criterion or practice is objectively justified by a legitimate aim and the means of achieving that aim are appropriate and necessary’. 54 Art 2(3) Council Dir 2000/43/EC. 55 Art 3(2) Council Directive 2000/43/EC. 56 JA Goldston, The European Union Race Directive (Open Society Justice Initiative, 2003) http://www.justiceinitiative.org/publications/russia_ec/moscow_workshop/goldston_ 57 For instance Section 3(1) Race Relations Act 1976 refers to ‘racial grounds’ as including colour, race or national group and ‘racial group’ as persons defined by reference to colour, race, nationality or ethnic or national origins. 58 See Goldston, above n 56. 59 There are 38,000 Africans in Denmark; the highest proportion are Somalian followed by Moroccans. See B Quraishy, Racism and Discriminatory Practices in Denmark, ENAR Shadow Report 2000, 5. 60 Art 8 Council Dir 2000/43/EC dealing with the burden of proof affords a lesser burden of proof on the complainant. Providing a prima facie case is made out the burden shifts to the respondent to prove that there has been no breach of the equal treatment principle. 61 As opposed to ‘new Danes’ that is refugees and immigrants united with refugees or other immigrants through family reunification, see Quraishy, above n 59, 5.

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ground of racial discrimination is a missed opportunity to hold institutions to account. Since this is precisely the type of complaint that is difficult to prove otherwise. Moreover, it is suggested that the Race Directive appears to create a false premise namely, that only discrimination on the grounds of race or ethnicity constitutes racial discrimination. Such a paradigm will make it seem as though institutions have complied with the obligation to ‘part-company’ with institutionally racist practices, when in fact, this might only be partially accurate.

INSTITUTIONAL RACISM AS DETECTED IN ATTITUDE AND BEHAVIOUR

One particular intellectual discourse on institutional racism has raised the issue of institutional attitude or behaviour towards non-dominant ethnic minorities.62 Such behaviour is replicated in institutional dealings with third country nationals more generally,63 reflecting a disturbing pattern of ‘deep-seated discriminatory structures’64 that domestic legislation has, hitherto, found hard to address.65 The type of attitude or behaviour may be discernible in the manner, for instance, in which police forces in many member states ‘handle’ certain categories of persons perceived by the institutional culture as lacking the credentials that would entitle them to fair and just treatment.66 Employing institutions may encourage an employment culture that favours ‘home’ nationals compared to those from third countries. For example the presumption that third country nationals do not want to work for organisations, or that they are an unknown quantity and thus a potential economic risk, that their loyalties might not lie with the organisation or that employing them may lead to a cultural clash within the organisation. None of this is borne out with hard fact, but conjecture, fed no doubt by the institutional habit of ‘what looks “good’’’. The difficulty with such a climate of opinion is that it has historical roots based on notions of ‘outsiders’ as being inferior to the dominant group. Such a sense of group position ‘ … guides, incites, cows and coerces … ’67 individual behaviour. 62 See

Macpherson above n 2, 6.34. Also see S Carmichael and Hamilton, above n 38 and PJ Williams, Seeing a Colour-Blind Future. The Paradox of Race. The 1997 Reith Lecture (London, Virago, 1997). 63 See ECRI Second Report on Spain, CRI (2003) 40, para J and M, ECRI Second Report on France, CRI (2000) 31, 2000, para M, ECRI Second Report on Germany, CRI (2001) 36, para K and M, 2001, ECRI Second Report on Italy, CRI (2002) 4, para I and ECRI Second Report on the UK, CRI (2001) 6, 2000, para K. 64 S Fredman, Discrimination Law (Oxford, OUP, 2002) 6. 65 Fredman, at 6. 66 See ECRI Second Report on Spain, CRI (2003) 40, ECRI Second Report on France, CRI (2000) 31, 2000, ECRI Second Report on Germany, CRI (2001) 36, 2001, ECRI Second Report on Italy, CRI (2002) 4, and ECRI Second Report on the UK, CRI (2001) 6, 2000. 67 H Blumer, ‘Race Prejudice as a Sense of Group Position’ (1958) Pacific Sociological Review.

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Yet, recent reports show that this institutional attitude defies logic. In labour market terms there is often a shortage of people with the skills that third country nationals may possess.68 Consequently, this can lead to a skewering of the labour market to the detriment of third country nationals who are unlikely to participate in the labour market at the rate one might expect.69 Institutional attitudes are also reinforced by ‘blindness’ to structural and historical inequalities that they may have had a hand in creating. When patterns of inequality are detected where there are disproportionate numbers of third country nationals occupying the lowest rungs in terms of employment, and poor access to education and health services, it is often the individual that is blamed.70 However, it can be argued that ‘blaming the victim’71 loses sight of some of the institutional attitudes that are really the source of complaint. Moreover, it is difficult to make complaints that will be taken seriously if the pathogen is perceived by institutions at the level of the individual psyche. 72 A relevant example can be seen in the case of Hakunila73 where the defendant (a Somalian) was forced to reverse his car, injuring one Finn, after he had been attacked by several Finnish youths wielding base ball bats. The perpetrators had attacked the windscreen of the car with an axe and completely smashed the side windows. The defendant unsuccessfully pleaded that his conduct was caused by a ‘forced situation, in which he was in panic because of the threatening attack, and was therefore unable to do anything, but to escape from the scene by all means necessary’. He was found guilty of attempted assault, sentence to a term of imprisonment of four years and required to pay an indemnity of 80,000 marks.74 Equally critical of the Hakunila’s response to the situation he faced were the Local Court of Vantaa and the Court of Appeal of Helsinki. The local court focused on what it saw as lack of pity and deliberate and cruel motive whilst the Court of Appeal thought there were no circumstances that warranted the defendant’s behaviour.76 The decision has raised public disquiet because of the judiciary’s apparent failure to recognise the general racist and xenophobic context as well as the particular circumstances within which Hakunila reacted.77 It is argued that where justice fails to 68 Quraishy, above 69 In Denmark, for

n 59. example, only 47% of third country nationals were employed compared to 80% Danes, see Quraishy, above n 59. 70 S Isal, Racism and Race Relations in the UK, ENAR Shadow Report, April 2002. 71 S Pinto, ‘Padded Walls’, (2002) Autumn, Connections. 72 This clinical approach to racism has been discussed in relation to perpetrators; see F Brennan, ‘Can the Institutions of the EC Transcend Liberal Tendencies in the Pursuit of Racial Equality? in B Brecher, J Halliday and K Kolinska (eds), Nationalism and Racism and the Liberal Order, (Aldershot, Ashgate, 1998), 108–23. 73 Vantaa Local Court R 00/3085, p 16. 74 The sentence was reduced on appeal to two and a half years imprisonment. 76 For a full account of this case see ENAR Shadow Report for Finland 2001, March 2002. 77 ENAR Shadow Report for Finland 201, March 2002, p 8.

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pierce the veil of ‘colour blindness’78 it compounds the institutional attitude that determines matters according to the dominant culture norm.79 This colour blindness now requires understanding in the context of xenoracism, a ‘natural fear’ of strangers which goes beyond dark skin colour, because racism is ‘ … meted out to impoverished strangers even it they are white.80 This ‘ … new racism….marries up the worst practices throughout the Western World’.81 This is one way in which … ’racism continue[s] to evolve….post-equality….legislation, across….geographic, temporal and political distance’.82

THE NEED FOR INSTITUTIONAL ACTIVISM

The extent to which the Race Directive will be able to pick up on institutional racism in terms of process, attitude, behaviour, raises some concern about the effectiveness of the measure. Whilst the concept of discrimination can take account of individual conduct and the conduct of a group for instance, this is unlikely to penetrate racism at the institutional level how is this issue to be dealt with?

READING THE ‘SPIRIT’ OF THE PROVISION

There are a number of ways in which a healthier approach to the eradication of institutional racism in relation to the protection of third country nationals could be afforded through the Race Directive. One is to read the provisions when transposed at the national level as if they covered all persons regardless of nationality. The Race Directive provides a minimum not maximum playing field. A perusal of the text shows that ‘Member States may introduce or maintain provisions that are more favourable to the protection of the principle of equal treatment than those laid down … ’83 The strength in this approach lies in breaking the hypocrisy that would otherwise be maintained if people of similar nationalities were treated differently on the basis of nationality for the purpose of the directive. For instance, the new British Race Relations Act 1976 (Amendment) Regulations 2003, includes reference to discrimination on the basis of national origins as a 78 Williams, above n 62. 79 M. Kamali, above n 1and Haney Lopez, above n 1. 80 A Sivinandan, IRR European Race Bulletin (No 37,

June 2001) from a workshop paper for the Institute of Race Relations. 81 L Fekete, ‘The Emergence of Xeno-Racism’ in The Three Faces of British Racism: a Special Report, (2001) 43 Race and Class, 23–40. 82 Williams, above n 62,13. 83 Art 6 Council Dir 2000/43/EC.

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prohibited ground of discrimination (the inclusion of third country nationals is not new since the Race Relations Act 1976 included nationality). Thus if an applicant applies for credit from an institution, and as a condition of the loan, the applicant is required to be registered on the electoral roll, so that the institution can carry out credit checks. This may discriminate indirectly against non-UK nationals who are not eligible to vote.84 The British approach may be used as an example of ‘good practice’ that other Member States might be persuaded to follow, particularly, the judiciary in determining whether or not a third country national should, as a matter of the principle of equality and fairness, be able to rely on the transposed provisions. A more purposive approach might also meet the concerns of the Khan Commission, a body that recommended the use of EU law in combating racism in the EU. According to the Commission, this law should preserve international principles that, ‘all individuals, regardless of their colour, race, nationality, ethnic or national origin, or religion, should have the right of equal access to employment, equal pay and fair treatment’. 85 Furthermore, the Commission was adamant that the right to equal treatment should apply whether or not a person was a Community citizen.86 Unfortunately, this is likely to be a slow process. As things stand the rate of progress in Member States implementation of the Race Directive, given the 19 July 2003 deadline is deplorable. Political commentators have said, ‘This foot-dragging is a betrayal of one of the most progressive and essential steps forward in anti-discrimination taken by the European Union in recent years. It’s clear that many governments are only prepared to pay lip service to their basic obligation to protect millions of their citizens from racism’. 87 They point out that only three of the fifteen member states—the UK, Sweden and Belgium might meet their obligations in terms of implementation. Nevertheless, slothfulness in the implementation of instruments concerning social law is not uncommon. The argument remains that third country nationals should be protected by the provisions of the directive. This would give more meaning to the human rights framework to tackle racism addressed in the preamble to the directive. This approach would also give better meaning to the idea that the Race Directive is a mechanism for transposing international anti-racist human rights obligations that states have signed up to but which fail to adequately protect individuals. 84 See CRE at http://www.cre.gov.uk/legaladv/rra_regs_indirect.html. 85 European Council Consultative Commission (1995) Final Report,

Ref. 6906/1/95 Rev 1 Limite RAXEN 24. 86 Ibid, 59. 87 Mel Read & Phillip Whitehead, East Midlands Labour MEPs, the site for European, National & Local Government and Politics, 11 June 2003 http://www.labmeps-emids.fsnet. co.uk/index.htm.

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LINKING NATIONALITY TO INSTITUTION RACISM THROUGH POSITIVE ACTION

Another area where activism is possible is in relation to Article 5 which covers positive action. According to this article: With a view to ensuring full equality in practice, the principle of equal treatment shall not prevent any Member State from maintaining or adopting specific measures to prevent or compensate for disadvantages linked to racial or ethnic origin.88

This could prove a very useful provision because it prepares the legislature and those key actors seized with the duty to implement the Race Directive, with an opportunity to ensure full equality in practice. A principle that should not be applied in an ad hoc manner based on race or ethnicity (rather than nationality) but determined despite it. The possibility lies in the language of Article 5 itself: to adopt specific measures to prevent or compensate for disadvantage linked to racial or ethnic origin. The key word here is ‘linked’. This word may be ambiguous in that it is unclear what is meant but herein lies its strength. It could be argued that not using the words ‘of a racial or ethnic group’ which is found elsewhere in the directive,89 but instead importing the term linked to racial or ethnic origin’90 makes the use of the Race Directive as a weapon in the fight against institutional racism in relation to third country nationals potentially strong. Member States are not obligated to use positive action as a means for addressing institutional racism. Article 5 states that ‘the principle of equal treatment shall not prevent any Member State from maintaining or adopting specific measures … ’91 Nevertheless, such measures are recommended as a way of addressing ‘ … structural and institutional discrimination based on race’.92

CONCLUSION

If one takes a literal reading of the Race Directive it appears to expressly exclude third country nationals from its ambit. This may raise general

88 Art 5 of Council Dir 2000/43/EC. 89 For instance see Art 2 Council Dir 2000/43/EC. 90 Art 5 of Council Dir 2000/43/EC. 91 Council Dir 2000/43/EC. 92 M Martiniello, Affirmative Action and Racism:

Affirmation Action as a Tool or Hinder, Socio-Economic Research, Racism and Xenophobia, Key Issues, Mechanisms and Policy Opportunities Socio-economic Research, Racism and Xenophobia as Challenges to the European Integration Process, 5-6 April 2001, (Centre Borchette, Rue Froissart 36, Brussels).

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problems for third country nationals as victims of racial discrimination, particularly because national legislation in this area (where it exists) is not particularly strong,93 and has very little bearing when the issue is one of institutional racism. All the same it is argued that activism is essential at Member State level from the judiciary, polity and civil society if the directive in its transposed form is to have any bearing on the position of third country nationals. It is hoped that ‘tinkering’ with some of the provisions such as positive action under Article 5 may go a long way to addressing some of the concerns raised in this paper.

93 Forbes,

I and Mead, G Measure for Measure: a comparative analysis of measures to combat racial discrimination in the Member Countries of the European Community, Equal Opportunities Study Group, University of Southampton, 1992, Research Series No.1 (London, Department of Employment).

22 Bio-Rights, Common Values and Constitutional Strategies

1

SUSAN MILLNS

T

HE IMPLICATIONS OF biotechnological developments for human rights law in Europe are profound. This chapter investigates the evolution of constitutional strategies for dealing with such developments seeking to identify the core and common values (e.g. human dignity and respect for fundamental rights) which influence legal responses to biotechnological innovation and the possible consolidation at the European level of a generation of ‘bio-rights’ which flow from these values and which are capable of being invoked by the protagonists of the biotechnological revolution. The research is carried out within the context of the constitutional pluralism which characterises European law and government. Thus, it analyses the interplay of the protection of human rights at national and European levels and as set out in a multiplicity of sources, notably national Constitutions and the EU’s Charter of Fundamental Rights.

INTRODUCTION: MAPPING EU BIOLAW—FROM ECONOMIC TO CONSTITUTIONAL STRATEGIES

The regulation of biotechnology2 in Europe is at once a matter of national and European Union concern. While this chapter is concerned primarily with the latter perspective, the compatibility between national and European 1 The research for this chapter has been funded by the European Commission in the framework of the research and technological programme ‘Improving the Human Research Potential and the Socio-Economic Knowledge Base’ and under the Marie Curie Individual Fellowship scheme (contract no. HPMF-CT2001-01208). The Commission bears no responsibility for the views here communicated. The project has been carried out at the Robert Schuman Centre for Advanced Studies, European University Institute, Florence. 2 Biotechnology is understood to mean the conjunction of biological and technological processes or the industrial application of a biological system. It comprises many components ranging from human gene surgery, the fabrication of human organs, new reproductive technologies, human and animal cloning and the creation of transgenic plant and animal species.

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regulation in the area deserves initial consideration given the globalising commercial tendencies of new technologies and their capacity to impact across national borders. Thus, the prospects for convergence and harmonisation of different approaches towards biotechnological phenomena may be viewed within the context of the search for a common European response to the difficulties, both practical and ethical, to which the use and development of such technologies give rise.3 This presupposes a certain inter-penetration between a plurality of competing legal systems, a degree of borrowing of concepts and strategies for dealing with and responding to biotechnological developments, and an awareness of the benefits of legal transplantation or learning from best practices.4 At a basic level, national and European responses to biotechnological developments do already have a number of things in common. In both spheres the pace of scientific and technological progress has meant that regulation has been largely reflective and reactive in its responses. Law has typically been required to ‘catch-up’ with new developments and universally appears never quite adequate to deal with scientific advances often unimagined when existing regulatory schemes were put in place. Furthermore, both sets of legal responses—national and European—have typically manifested a dual objective: on the one hand, to support the development of the biotechnology industry and promote the benefits of scientific research and progress, and, on the other, to address the underlying ethical issues which progress in the area demands. The subject matter is, of course, notoriously controversial in ethical terms.5 It is also fairly slippery in legal terms in that it escapes any kind of See further, J Rifkin, The Biotech Century: How Genetic Commerce Will Change the World (London, Phoenix, 1998) chapter 1. 3 A common European response to biotechnologies does not, however, imply agreement upon a universal global response. A notable opposition has developed between European and US approaches which can be crudely characterised as as a stand-off between American technophiles (in favour of scientific progress at whatever cost) and European technophobes (more cautious with regard to technological development to the point of being anti-progressive). See DL Kershen, ‘Innovations in Biotechnology—Public Perceptions and Cultural Attitudes. An American’s Viewpoint’ (2003) 3/1 Global Jurist Topics (http://www.bepress.com/ gj/topics/vol3/iss1/art1). 4 In this respect it is suggested that national legal systems are not so inherently incompatible or plagued by irreconcilable cultural differences as to make the quest for common responses a fruitless exercise (cf P Legrand ‘European Legal Systems are not Converging’ (1996) 45 International and Comparative Law Quarterly 52–81; P Legrand, ‘How to Compare Now’ (1996) 16 Legal Studies 232–42). Instead, the search for commonality implies a quest for coherence and basic agreement upon the important fundamental premises which should guide legal responses to biotechnological developments in Europe. For a more positive account of successful attempts at forging common positions across different legal cultures, see D Nelken and J Feest (eds), Adapting Legal Cultures (Oxford, Hart Publishing, 2001). 5 For two full and contrasting discussions of ethical arguments see F Fukuyama, Our Posthuman Future: Consequences of the Biotechnology Revolution (London, Profile Books, 2003) and J Habermas, The Future of Human Nature (Cambridge, Polity, 2003) 16–100.

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easy categorisation or classification. Particularly as a matter of European concern, the response to biotechnological innovation is not easy to position squarely within EU law. The evolution of an EU policy on biotechnology has to be viewed within the context of other policy areas such as agriculture, the environment, science and technology, consumer welfare, healthcare, intellectual property, the internal market and fundamental rights. The study of the emergence of a new area of ‘biolaw’,6 therefore, needs to be multi-focused in its identification of appropriate bases for EU action. That said, the need to consolidate a common European approach in this area has become particularly pressing given the implications it holds for the operation of the internal market of which there have been two important and high profile illustrations. The first of these is the European initiative to harmonise national patent laws through the introduction of the Directive on the legal protection of biotechnological inventions which was adopted by the European Parliament and Council under Article 100a (now 95) EC on the approximation of member states’ laws with the aim of establishing the internal market.7 The Directive requires member states, through their patent laws, to protect biotechnological inventions and determines which inventions involving plants, animals or the human body may or may not be patented with a view to ensuring the free movement of patented biotechnological products. Following its long and controversial introduction, the Directive became the object of an application for annulment brought by the Netherlands which put forward six reasons for its illegality. Importantly for present purposes, the first of these was that it had been adopted incorrectly under Article 100a (now 95) EC in that it was not an internal market issue and should have been adopted under Article 235 (now 308) EC instead.8 The ECJ, dismissing the application on all counts, insisted in particular on count number one that Article 100a and the Directive were aimed at the elimination of obstacles to trade arising from the many and varied developments of national laws in this area.9 The ECJ found that national provisions on the patenting of biotechnological innovations were open and varied and liable to give rise to divergences of practice which would

6 For an indication of the scope and contents of biolaw see D Beyleveld and R Brownsword, Human Dignity in Bioethics and Biolaw (Oxford, OUP, 2001); C Neirink (ed), De la bioéthique au biodroit (Paris, LGDJ, 1994). 7 Dir 98/44/EC of the European Parliament and Council of 6 July 1998 on the legal protection of biotechnological inventions (OJ 1998 L 213, p 13). See ER Gold and A Gallochat, ‘The European Biotech Directive: Past as Prologue’ (2001) 7/3 European Law Journal 331–66. 8 It was also argued that the Directive breached the principles of subsidiarity and legal certainty, obligations under international law and the fundamental right to respect for human dignity. It was suggested, furthermore, that there had been a breach of procedural rules in the adoption of the Commission’s proposal. 9 Case C–377/98 Netherlands v European Parliament and Council [2001] ECR I–7079. For a more thorough consideration of the issues involved see the opinion of Advocate General Jacobs (14 June 2001).

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undermine the single market.10 The Community was, therefore, lawfully entitled to have recourse to harmonisation measures being competent in the field of intellectual property to bring about a convergence of national laws.11 The second instance of an application of internal market law and logic to new technological developments is the utilisation of EC free movement provisions to facilitate the provision and receipt of new (reproductive) technology services in other member states. This facet of the relationship between biotechnologies and the single market was notoriously demonstrated by the English Court of Appeal in the case of Diane Blood who, exercising her right as a European citizen to receive services in another member state, was enabled to take her dead husband’s sperm to Belgium for the purposes of using assisted conception services there when national regulatory measures in the UK prevented her from seeking treatment in her home country.12 These two examples illustrate the emergence of an EU biolaw and policy domain which is crystallising around internal market considerations. In this chapter, however, the focus is somewhat widened to consider the interface between biotechnologies, the Community’s economic paradigm and another emerging area of EU law and policy, that is fundamental or human rights. This broadening of perspective is prompted by recent developments in EU constitutionalism, notably the debate on the future of the Union,13 the elaboration of a Constitution for Europe14 and the showcasing of human rights as one aspect of this. It is also informed by an observation of 10 Ibid, para 16. 11 More convergence

is on the way in this regard following the European Council’s agreement in March 2003 upon a common political approach to the European Community patent which is likely to be available from 2007–08 with a central patent court to be set up in Luxembourg by 2010 (EU Council document 7159/03 and proposal for a Council Regulation of 16 April 2003, EU Council document 8539/03 (see OJ EPO 5/2003)). On European patent protection more generally, see H Ullrich, ‘Patent Protection in Europe: Integrating Europe into the Community or the Community into Europe?’ (2002) 8/4 EL Rev 433–91. 12 R v Human Fertilisation and Embryology Authority, ex parte Blood [1996] 3 WLR 1176 (QBD); [1997] 2 All ER 687 (CA). See TK Hervey, ‘Buy Baby: The European Union and Regulation of Human Reproduction’ (1998) 18 Oxford Journal of Legal Studies 207–33. 13 Laeken Declaration on the Future of the European Union, Annex I to the Conclusions of the Laeken European Council, 14–15 December 2001, SN 300/1/01 REV 1. 14 References in this chapter to the Constitution for Europe cite the final numbering of the draft handed by the President of the Convention to the President of the European Council on 18 July 2003 (CONV 850) which draws on the following preceding documents: CONV 820/1/03 REV 1, CONV 847/03, CONV 848/03. The draft text is available on the website of the European Convention until at least July 2008 (http://european-convention.eu.int/). While it still has to be discussed and approved (or rejected/amended) by the next IGC which should meet under the Italian presidency of the Union before the end of 2003, it was presented by the President of the Convention, former President of the Republic of France, Valéry Giscard d’Estaing, on 20 June 2003 to the European Council meeting in Thessaloniki ‘in the hope’, as the President put it, ‘that it will constitute the foundation of a future Treaty establishing the European Constitution’.

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national constitutional strategies dealing with biotechnological developments which likewise have begun to stress the fundamental rights concerns which arise from the use of new technologies.15 It is suggested that these may prove a source of inspiration in informing debate at the European level in the development of a (common) European biolaw and policy area, just as national constitutional traditions have provided a reference point for the development of an EU response to fundamental rights protection.16 As such, the context of the discussion is one of ‘constitutional pluralism’ to the extent that this characterises the European legal and political orders and denotes an increasingly intricate interplay between national and European constitutional systems.17 Locating the discussion of legal responses to biotechnology within the framework of the ongoing constitutionalisation process in Europe, therefore, this chapter explores two aspects of the interaction between biotechnological and constitutional developments in the European Union. In doing so it uses two concepts as lenses through which to view European and national constitutional responses to biotechnological innovations. These are, moreover, two core components of constitutionalism, being first of all the foundational and symbolic values enshrined in national and European constitutional texts which might provide a common basis for ethical responses to biotechnological development in Europe and, secondly, the fundamental rights which are arguably a part of, or at least flow from, these values and which may in turn be threatened or engaged by biotechnological advances.

15 For example, see the decision of the French Constitutional Council no. 94–343–344 DC of 27 July 1994, Bioethics (discussed in more detail below). It may be noted, however, that this type of approach is much less apparent in the UK, due perhaps to the historic lack of a culture of rights. In this respect UK perspectives have tended instead to focus upon regulation rather than rights. See, for example, E Jackson, Regulating Reproduction (Oxford, Hart Publishing, 2001), in particular ch 5 on ‘Reproductive Technologies’, and R Brownsword, WR Cornish & M Llewelyn (eds), Law and Human Genetics: Regulating a Revolution (Oxford, Hart Publishing, 1998). 16 From the early pronouncements of the ECJ in Case 11/70 Internationale Handelsgesellschaft v Einfuhr und Vorratstelle für Getreide und Futtermittel [1970] ECR 1125 and Case 4/73 Nold v Commission [1974] ECR 491 that respect for fundamental rights forms part of the general principles of Community law drawing upon ‘the constitutional traditions common to the member states’, to the inclusion of this formula in Art 6-2 TEU and repeated in Art 7-3 of the Constitution for Europe, it has become clear that the inspiration for fundamental rights protection in the EU has roots which are firmly embedded in the national systems. Furthermore, the collaborative exercise which constituted the drafting process of the EU’s Charter of Fundamental Rights also demonstrates a degree of pan-European consensus on the standard and content of human rights protection in Europe. On the development of the protection of fundamental rights in the EU see P Alston and JHH Weiler, ‘An “Ever Closer Union” in Need of a Human Rights Policy: The European Union and Human Rights’ in P Alston, with M Bustelo and J Heenan (eds), The EU and Human Rights (Oxford, OUP, 1999) 3–97. 17 N Walker, ‘The Idea of Constitutional Pluralism’ (2002) 65 Modern Law Review 317–59.

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The Constitutional Convention, charged with deliberating upon the future of the European Union and rapidly engaged in the more concrete task of elaborating a Constitution for Europe, has worked towards the consolidation of a set of common values which purport to establish the ethical foundation upon which the EU is constructed. These concepts are being embedded at the constitutional level, having found a home in the Preamble to the EU’s Charter of Fundamental Rights and, more recently, in the Preamble and Article 2 of the Constitution for Europe. This process suggests that the constitutional framework of the EU is being constructed upon a set of foundational values which represent a consensus among member and candidate states of their vision of the Union. Moreover, these values have both symbolic and legal importance. Symbolically, as the accompanying explanatory text to the draft of Articles 1 to 16 of the Constitutional Treaty of 6 February 2003 noted, the basic values which are to be embedded in Article 2 are those which make the peoples of Europe feel part of the same Union and thus create a sense of belonging to a peaceful, pan-European society.18 They are a manifestation of the ties that bind us together and an acknowledgement of mutual expectations and commitments with regard to the European integration project. Described as ‘universal’ in the Preamble of the Charter, they derive from a common heritage and harbour the potential to consolidate the hitherto elusive formation of a European political identity while also maintaining respect for cultural diversity. Furthermore, in legal terms, their importance lies in the fact that any ‘clear risk of a serious breach by a member state’ would trigger the initiation of the procedure for alerting and sanctioning that member state as provided by Article 58 of the draft Constitution. That said, while the Union’s foundational values are habitually referred to as ‘common’ or ‘universal’, what has been immediately apparent in the present constitutional debates is the heated contest over their range and meaning. The final result is that the Constitution for Europe consolidates the EU’s constitutional values in its Preamble and Article 2 with the former asserting that the inhabitants of the European continent have ‘gradually developed the values underlying humanism: equality of persons, freedom, respect for reason’ and the latter identifying the foundation of the Union upon the values of respect for human dignity, liberty, democracy, equality, the rule of law and respect for human rights. These values, it is reiterated, are common to the member states ‘in a society of pluralism, tolerance, justice, solidarity and non-discrimination’.19 When placed within the context 18 CONV 528/03, 6 19 Art 2 of the Draft

February 2003. Constitutional Treaty, Revised Text of Part One (CONV 724/03) like that of the final version (CONV 850) apart from its refusal to recognise the full value status of

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of the development of an EU biolaw and policy area the outcome of the debate on values in the Union can be seen for all its importance. These values will undoubtedly provide the navigational map with which to formulate European responses to the challenges of scientific and technological progress and, in so far as this outstrips legal provisions, they should offer a measure of how the Union may legitimately respond to new developments which steer it into previously uncharted waters. Of prime consideration in this regard is the rise to prominence of one particular value—human dignity—which has repeatedly topped the list both in the Charter and in the draft Constitution. The consensus on the importance of respect for human dignity may well reflect the fact that, as a value, it is regarded as first among equals, being found in express or implied forms throughout the constitutional traditions of all present and future member states.20 What is of particular note, though, is the way in which the concept of respect for dignity has been specifically linked to developments in the biotechnological sphere. This has been the case in both the national context and at the European level with its invocation being used alternatively to challenge and defend biotechnological developments.

equality, identified the Union’s foundation upon the values of ‘respect for human dignity, liberty, democracy, the rule of law and respect for human rights.’ These values, it continued, ‘are common to the Member States in a society of pluralism, tolerance, justice, equality, solidarity and non-discrimination.’ Previous versions of Art 2 provided different accounts. The draft of Arts 1–16 presented on 6 February 2003, while stating similarly that the Union is founded upon the values of ‘respect for human dignity, liberty, democracy, the rule of law and respect for human rights’, added that its aim is a ‘society at peace, through the practice of tolerance, justice and solidarity’ (CONV 528/03). Previously, the preliminary draft presented on 28 October 2002 had articulated the Union’s values as ‘human dignity, fundamental rights, democracy, the rule of law, tolerance, respect for obligations and international law’ (CONV 369/02). Compare too these versions with the identification in the Preamble to the Charter of four ‘indivisible, universal values of human dignity, freedom, equality and solidarity’ and the expression of the foundational principles of the Union as set out in Art 6 TEU comprising ‘liberty, democracy, respect for human rights and fundamental freedoms, and the rule of law’. See further, S Millns, ‘Unravelling the Ties that Bind: National Constitutions in the Light of the Values, Principles and Objectives of the New European Constitution’ in J Ziller,(ed), The Europeanisation of Constitutional Law in the Light of the Constitutional Treaty for the Union (Paris, L’Harmattan, 2003) 97–120. 20 For

example, many of the constitutions of the present member states refer to the value of respect for human dignity either as a foundational aspect or primary obligation of the state (eg the Constitutions of Portugal, Art 1, Sweden, Art 2, Finland, Art 1, Greece, Art 2) or as a core component of the system of protection of fundamental rights (eg the German Basic Law, Art 1). With regard to the future members states see, for example, the discussion by Catherine Dupré of the importation of human dignity from German into Hungarian constitutional law: C Dupré, Importing the Law in Post-Communist Transitions: The Hungarian Constitutional Court and the Right to Human Dignity (Oxford, Hart Publishing, 2003). Worth noting too in terms of the pan-European consensus on the vital significance of human dignity is the view of the European Court of Human Rights that ‘the very essence’ of the European Convention on Human Rights is ‘respect for human dignity and human freedom’ (SW v United Kingdom and CR v United Kingdom (1995) 21 EHRR 363, paras 44 and 42 respectively).

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Learning from National Example An illuminating example of the causal nexus between bioethics and respect for human dignity may be found in the French constitutional context, suggesting a model for the future framing of similar considerations at the European level. In 1994 France introduced three legislative proposals on bioethics following a number of high profile assisted conception cases, one of which—the Parpalaix case—was not dissimilar from that of Diane Blood.21 Two of these laws were subsequently submitted to the Constitutional Council in order for their compatibility with the Constitution, particularly its fundamental rights requirements, to be verified.22 The decision rendered by the Constitutional Council on the bioethics laws is interesting for a number of reasons but especially so in the context of an exploration of the relationship between respect for human dignity and biotechnologies. First, the request for a ruling itself was somewhat unusual. While references to the Council for constitutional review of ordinary legislation may be made by only a limited number of political actors (the president of the Republic, the prime minister, the president of either the National Assembly or Senate and a group of 60 deputies or senators),23 they are normally made by a single person or group. In the Bioethics case, however, there were two requests, one by Philippe Séguin, president of the National Assembly and the other by a group of deputies, showing immediately how seriously the matter of the constitutionality of the legislative proposals was viewed. The first reference, however, made no specific allegation of unconstitutionality. Rather, Séguin asked for a ruling on the overall compatibility of the proposals with the Constitution and particularly its human rights requirements, given their significance for the exercise of basic rights and freedoms and the concern that their constitutionality should be the object of no uncertainty and that the most appropriate principles for future reference should be elicited.24 21 Parpalaix

c Centre d’études et de conservation du sperme (CECOS), TGI de Créteil (1re ch. civ.), 1 August 1984, Gazette du Palais, 18 Sept. 1984, 560. In this case, the Tribunal de grande instance de Créteil, basing its decision on the conditions necessary to establish a valid contract in French law, held that the sperm of Corinne Parpalaix’s dead husband should be handed over to his widow for assisted conception purposes. This finding was made on the grounds that a lawful contract had existed between Alain Parpalaix and CECOS, the national centre for storage of gametes, the object of which was CECOS’s obligation to give back the sperm either to Alain or a third person ‘to whom it was destined’ in the light of the couple’s ‘parental project’ agreed upon before Alain’s death. 22 French Constitutional Council Decision no 94–343/344 DC of 27 July 1994 (Bioethics) on the constitutionality of proposed legislation on respect for the human body (Law no 94–653 of 29 July 1994) and on the donation and use of elements and products of the human body, medically assisted conception and prenatal diagnosis (Law no 94–654 of 29 July 1994). 23 Art 61–2, Constitution of 1958. 24 As Roland Dumas, former President of the French Conseil Constitutionnel, remarked, this request shows precisely the important role of constitutional courts in ensuring that human

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The second request was more specific in its allegations arguing that a number of the provisions of the two laws were unconstitutional, particularly Articles 8 and 9 of the proposed law on assisted conception which set out the conditions for access to new reproductive technologies and provide that when embryos are created, stored and not used they may, after 5 years, be destroyed or more euphemistically ‘thawed without transfer’. According to the group of deputies who brought the challenge the legislation was contrary to the right to life of the embryo (viewed as a person from the point of conception), contrary to the principle of equality (as some embryos would be chosen for implantation and others not), in violation of the right to respect for the integrity of the human body (as genetic testing could be carried out on the embryo) and a violation of a so-called principle of constitutional value of protecting the genetic patrimony of humanity.25 It was also suggested that there was an interference in the rights of the family given that children of donor insemination would be unable to trace their genetic identity and a violation of the principle of separation of powers. What to make of such a list of alleged constitutional incompatibilities? In response, the Constitutional Council adopted a novel solution and herein lies the importance of the case in terms of the development of French constitutional law. The Council found that the ensemble of the texts were constitutional because they were specifically in conformity with the constitutional principle of safeguarding human dignity. This statement, representing the pinnacle of the decision, was a revelation in so far as prior to this case the French Constitution (or ‘block of constitutionality’ against which legislation is checked)26 was not known to include any such principle. Nevertheless, despite this lack of textual reference, the Constitutional Council gave a new reading to the opening sentence of the Preamble to the 1946 Constitution (the proclamation by the French people, following their victory over regimes which sought to make servile and degrade the human person, that all human being possess inalienable and sacred rights)27 and from this constructed a new principle of constitutional value of safeguarding human dignity. The discovery of this principle in national law precisely in order to address the biotechnological revolution (where dignity is rights are respected in the biotechnological era: ‘Allocution de Roland Dumas’ in N Lenoir, B Mathieu and D Maus (eds), Constitution et éthique biomédicale (Paris, La Documentation Française, 1998) 11–15, p 12. 25 The Council found that no such 26 The bloc de constitutionnalité

constitutional principle existed. includes the Constitution of 1958, the preamble to the Constitution of 1946, the Declaration of the Rights of Man and the Citizen of 1789 and those fundamental principles recognised by the laws of the Republic: see Decision no 71–44 DC of 16 July 1971, Freedom of Association. 27 ‘Au lendemain de la victoire remportée par les peuples libres sur les régimes qui ont tenté d’asservir et de dégrader la personne humaine, le peuple français proclame à nouveau que tout être humain, sans distinction de race, de religion ni de croyance, possède des droits inaliénables et sacrés. …’ (emphasis added).

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apparently in so much danger of being compromised) has since been mirrored at the European level.

Developing Dignity at the European Level Before even the present EU constitutional debates began, in the alternative framework of the Council of Europe, the link between biotechnologies, human dignity and fundamental rights had been made in its Convention on Biomedicine.28 This Convention, which specifically considers biomedicine within a human rights framework containing provisions on patients’ rights, medical research, new reproductive technologies and medically assisted procreation, gene therapy and organ transplantation, explicitly does so from the perspective of protecting human dignity. The Convention has been cited as ‘exemplary’ in the area to the extent that it is the first legal instrument to establish the relationship between fundamental rights and biomedicine.29 In addition, it is remarkable in its explicit reference to the obligation to protect human dignity, not only mentioned in its full title but on four further occasions in the text, including the first Article which states that the parties ‘shall protect the dignity and identity of all human beings’. Building upon this example, in the domain of EU law, the Charter of Fundamental Rights (now incorporated into Part II of the Constitution for Europe) makes an explicit connection between the protection of human dignity (the object of its first Title) and developments in the area of biomedicine. Particularly, Article II-3-2 on the right to integrity of the person in the fields of medicine and biology, provides four key principles which are to be respected in the name of dignity: free and informed consent; the prohibition of eugenic practices, especially those aimed at the selection of persons; the prohibition on commercialisation of the human body; and the prohibition on reproductive cloning of human beings. Likewise, Directive 98/44 EC on the legal protection of biotechnological inventions, when reviewed by the ECJ for its legality, was examined specifically for its compatibility with respect for human dignity—a violation of this principle being one of the arguments put forward by the Netherlands in its application for annulment.30 The alleged violation regarded the patentability of parts of the human body (Article 5(2) of the Directive) which it was suggested undermined fundamental rights and notably human

28 Convention

on Human Rights and Dignity of the Human Being with regard to the Application of Biology and Medicine, signed on 4 April 1997. Maurer, Le principe de la dignité humaine et la Convention européenne des droits de l’homme (Paris, La Documentation Française, 1999), 83. 30 Case C–377/98 Netherlands v European Parliament and Council [2001] ECR I–7079. 29 B

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dignity in treating human matter as a means to an end rather than as an end in itself.31 Interesting in the Court’s response on this matter is the stony silence it maintained with regard to the Charter provisions on dignity (despite the fact that its decision of 9 October 2001 postdated the solemn declaration of the Charter in December 2000).32 This is despite the fact too that Advocate General Jacobs in his Opinion on the case had made explicit reference to the Charter stating that: ‘[t]he right to human dignity is perhaps the most fundamental right of all, and is now expressed in Article 1 of the Charter … It must be accepted that any Community instrument infringing those rights would be unlawful’.33 Instead, however, in line with its history of the development of the relationship between fundamental rights and EC law, the ECJ referred to the competence of the Court to review the compatibility of acts of the institutions with the general principles of Community law to ensure that the fundamental right to human dignity and integrity was observed. Thus, rather like the rise to prominence of dignity in the French constitutional context, the principle was read into existing EC human rights guarantees—there all along and simply waiting for the biotechnological revolution to bring it to light. As a result, in applying the principle of respect for human dignity to the Biotech Directive the ECJ found, as had the Advocate General, that there was no violation of the principle. Instead, again as in the French Constitutional Council’s Bioethics decision, it was positively affirmed that human dignity was respected by the Directive. This finding resulted from a consideration of its Article 5(1) which provides that the human body (at the various stages of its formation and development, and the partial discovery of one of its elements including the sequence of a gene) cannot constitute a patentable invention.34 Nor are elements of the human body patentable in themselves unless they are capable of being isolated and combined with a technical process for industrial application (Article 5(2)).35 Also ensuring respect for human dignity, Article 6 of the Directive offers extra security in rendering contrary to ordre public or morality—and therefore excluded from patentability—processes for cloning human beings, for modifying the

31 This

reflects the Kantian view that ‘[h]umanity itself is a dignity: for a human being cannot be used merely as a means by any human being (either by others or even by himself) but must always be used at the same time as an end’ (E Kant, The Metaphysics of Morals trans M Gregor (Cambridge, Cambridge University Press, 1991, first published 1797) 255). 32 [2000] OJ C364/8. The Court’s reluctance to mention the Charter can be viewed as a refusal to give credibility to the political compromise which its ‘solemn proclamation’ constitutes: JHH Weiler, ‘A Constitution for Europe? Some Hard Choices’ (2002) 40/4 Journal of Common Market Studies, 563–80, at 575. 33 Opinion of Advocate General Jacobs of 14 June 2001 on Case C–377/98 Netherlands v European Parliament and Council [2001] ECR I–7079, para 197. 34 Case C–377/98 Netherlands v European Parliament and Council [2001] ECR I–7079, para 71. 35 Ibid, para 72.

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genetic identity of human beings, and the use of human embryos for industrial or commercial purposes.36 In sum, it may be concluded that respect for human dignity is now a recognised common value in Europe and that it has specific repercussions in the area of biotechnologies which are beginning to be explored at both national and European levels. Yet, recognition of a value is, of course, one thing while its meaning and scope are quite another. Reflecting back upon the constitutional traditions of the member states, it is evident that expressions of national constitutional values like dignity are capable of producing very different interpretations once they are fleshed out by judicial interpretation. It is highly likely that a similar problem will present itself at the European level with competing versions of the content of ‘common’ values being put forward. A particularly telling example in this regard is the variation in national constitutional court responses to the question of how far human dignity extends in the context of their review of the constitutionality of legislation on abortion. This example is mentioned as it has clear implications for the legal response to biotechnological advances given that the regulation of new reproductive technologies, like abortion, is linked to the status of the foetus and embryo as an object of constitutional protection. Thus, a stark contrast can be seen in the approach of the French Constitutional Council in its Decision no. 2001–446 DC of 27 June 2001 and the view of the German Constitutional Court in cases BVerGE 39,1 (1975) and BverGE 88, 203 (1993) both regarding liberalising changes to national laws on abortion. In the French case it was found that the new abortion law (extending the timelimit for abortions where the woman is in a state of distress from 10 to 12 weeks) did not disrupt the balance imposed by the Constitution between safeguarding human dignity (interpreted to mean that of the foetus) and respecting the liberty of the pregnant woman.37 In the German cases, however, the state’s obligation to protect any form of human life, born or unborn, which shares fundamental human dignity whether or not it is conscious of this dignity and capable of defending it, was held to take precedence over the woman’s right to self-fulfillment irrespective of any time-limit.38 The fact that human dignity is a fuzzy and malleable concept 36 Unsurprisingly,

the exclusion of certain patents on ethical grounds proved one of the most controversial questions to be addressed by the Biotech Directive. See further, D Beyleveld, R Brownsword and M Llewelyn, ‘The Morality Clauses of the Directive on the Legal Protection of Biotechnological Inventions: Conflict, Compromise and the Patent Community’ in R Goldberg and J Lonbay (eds) Pharmaceutical Medicine, Biotechnology and European Law (Cambridge, Cambridge University Press, 2000) 157–81. 37 B Mathieu, ‘Une jurisprudence selon Ponce Pilate (constitutionnalité de la loi sur l’interruption volontaire de grossesse et la contraception)’ Dalloz jur 2001, 31, 2533–37. 38 S Walter ‘Thou Shalt Not (But Thou Mayest): Abortion after the German Constitutional Court’s 1993 Landmark Decision’ (1993) 36 German Yearbook of International Law 385–404.

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with no clear outer limits suggests that much discussion will be needed in order to flesh out its contents at the European level. The reconciliation of diverging national perspectives on the appropriate response to biotechnological advances will provide an exciting challenge for EU law in the twenty-first century and will clearly put the ethical outer limits of Article 2 to the test.

BIO-RIGHTS

Along with human dignity (or probably more accurately an aspect of it), another core value uniformly articulated in both European and national constitutional discourse is respect for fundamental rights. 39 A crucial question for the consolidation of a European approach to biotechnological development, therefore, is the potential impact of the new technologies upon fundamental rights, both their protection and their exercise. It has been noted above how this link is specifically brought to the fore by Article II-3-2 of the EU’s Charter of Fundamental, meaning that consideration needs now to be given to fleshing out at the European level a new set of ‘bio-rights’, described by the human rights lawyer, Jean-François Renucci, as constituting a fourth generation of rights.40 The idea of biorights thus denotes those (fundamental) rights which intersect with the use of new technologies and have as their objective the protection of human beings (particularly their dignity) from the dangers of scientific excess while seeking to balance this against other values, rights and interests such as freedom and equality. The link between biotechnology and respect for human dignity was mentioned above in the context of discussion on the legality of the Biotech Directive. Following on from the dignity dimension of the question, however, the Netherlands in its legal challenge to the Directive raised a second concern regarding fundamental rights violations, suggesting that there was a violation of the right to human integrity, understood in the context of medicine and biology as including the need for free and informed consent of donors and recipients. Demonstrating the limits of a human rights approach in EC law to such matters, the ECJ in its response held that reliance on this right was misplaced because the Directive concerned only the granting of patents and did not extend to activities before or after they had been awarded.41 Thus, in a particularly constrained interpretation of the scope of Community law, it was found that the grant of a patent under EC law did not preclude national legal limits on research into, or exploitation of, a 39 On the commonality of this value see S Millns above n 19. 40 J-F Renucci, Droit européen des droits de l’homme 2nd ed (Paris, LGDJ, 2001) 57. 41 Case C–377/98 Netherlands v European Parliament and Council [2001] ECR

para 79.

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patentable product, the ethical rules on which were beyond the scope of the Directive.42 What is interesting to note in the presentation of arguments in this case is the slippage from the discussion of dignity to that of rights. Looking at the value of respect for human dignity through the lens of rights has already produced much food for thought for national constitutional lawyers and will continue to do so in the EU context too as a bridge is sought between Article 2 and Part II of the Constitution for Europe. In France, for example, there has been a good deal of discussion amongst constitutional scholars as to whether human dignity can be properly viewed as a fundamental right (as opposed to a value, constitutional principle or objective).43 A helpful way of conceptualising the problem has been put forward by Betrand Mathieu who suggests that safeguarding dignity can be best viewed as a sort of meta-value or ‘matrix’ providing a guiding pathway for the configuration and engendering of other more specific rights and duties.44 In this way all rights need to be considered in the light of the primary need to respect dignity. In a rather similar vein, David Feldman, looking at the matter from a UK constitutionalist perspective, has argued that dignity is not a right per se but a value underpinning all fundamental rights and constitutional principles.45 Viewed from an EU perspective, however, the relationship between respect for human dignity and respect for fundamental bio-rights may not be quite as extensive as that envisaged in national law. This is because, as noted at the beginning of the chapter, EU interventions in the area of biotechnologies have, for reasons of the limitations on EU competence, tended to crystallise around internal market and harmonisation considerations. This does not mean, however, that no fundamental rights issues are raised in such instances, as the Biotech Directive case clearly shows. Similarly, the example of Diane Blood’s use of EC free movement provisions to enable her to seek assisted conception services in another member state may overshadow, but does not efface, the fundamental rights issues which were at stake in her case (such as the right to found a family) even though these were not at that stage articulated in EU law.46 The move 42 Ibid, para 80. 43 B Mathieu, ‘Pour

une reconnaissance de “principes matriciels” en matière de protection constitutionnelle des droits de l’homme’ Dalloz chron 1995, 27, 211–12. 44 Ibid. See also B Mathieu, Génome humain et droits fondamentaux (Paris, Economica, 2000), ch 2. 45 D Feldman, ‘Human Dignity as a Legal Value—Part I’ [1999] Public Law 682–702; D Feldman, ‘Human Dignity as a Legal Value—Part II’ [2000] Public Law 61–76. 46 Art II-9 of the Charter of Fundamental Rights now provides: ‘The right to marry and the right to found a family shall be guaranteed in accordance with the national laws governing the exercise of these rights.’ The potential clash or consolidation of economic rights and fundamental rights in the area of biotechnology has resonances with previous debates on the construction of abortion as a service under EC law and its potential undermining of national

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towards a constitutionalisation of human rights within EU law suggests that a shift in perspective is now required to reposition the economic rights of EU citizens within the context of a more comprehensive system of rights protection based not only upon the Charter provisions but also the EU’s likely accession to the European Convention on Human Rights. It suggests too that prevailing constitutional trends demand a consideration of EU law measures regarding biotechnological advances (indeed all EU policy developments) within the broader framework of constitutional pluralism and human rights mainstreaming. In this regard there are many other Charter rights which intersect with the development of biotechnologies outside the first Title on Dignity. For example, Article II-7’s right to respect for private and family life, Article II-8’s protection of personal data, Article II-9’s right to marry and found a family, Article 11’s freedom of expression, Article 13’s freedom of scientific research and Article 17’s right to property. Also likely to be of particular future relevance, however, notably in the employment sector and the provision of services, is Article II-21. This sets out a prohibition on discrimination on the grounds of ‘genetic features’ and should be taken to mean that as individuals become more aware of information regarding their genetic make-up allowing them to look into their own biological futures, employers, insurance companies, schools and governments must be prevented from discriminating against them on the grounds of their genetic profile.47 Combined with Article II-7 this might even suggest the need to develop a right to genetic privacy at the European level. Bio-rights, therefore, are beginning to emerge at both national and European levels. With regard to the latter, the extent to which their fundamental character will begin to take precedence over the economic, harmonisation and internal market paradigms which have so far characterised EU law has yet to be fully considered but undoubtedly new biotechnological developments will give the opportunity for just such exploration in the not too distant future. Certainly this should ensure a continuing and lively debate between national constitutional courts, the ECJ and also the European Court of Human Rights,48 allowing each to pay attention to the

constitutional provisions protecting the unborn child. See DR Phelan, ‘Right to Life of the Unborn v Promotion of Trade in Services: The European Court of Justice and the Normative Shaping of the European Union’ (1992) 55 Modern Law Review 670–89. 47 Similar

legal measures are being taken in the United States where the Senate has sought to introduce legislation prohibiting genetic discrimination, thus preventing insurance companies and employers from using the results of genetic testing to deny insurance coverage, raise insurance premiums or make hiring and other employment decisions. See BioNews, 209, 27 May 2003 and ‘Panel breaks logjam for bill on employees’ genetic history’, The New York Times, 22 May 2003. 48 See, for example, the case of X, Y and Z v United Kingdom (1997) 24 EHRR 143 with regard to the ECtHR’s (conservative) views on the meaning of de facto and de jure family life in the context of a family created through the use of assisted conception services.

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way in which other jurisdictions have interpreted the exercise and protection of bio-rights thus far. This mutual judicial dialogue, following on from the plurality of constitutional texts and fundamental rights provisions, will go some way towards the potential consolidation of a pan-European approach to biotechnology. While being inevitably inspired by a multiplicity of cultural and ethical perspectives, it should pursue a common goal of finding the appropriate balance between promoting the benefits of scientific progress and paying due respect to the dignity of all.

23 Biomedicine, Bioethics and the European Union MELANIE LATHAM

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IOETHICS, BIOMEDICINE AND biotechnology involve social, civil and human as well as economic rights. It is essential for national and international policy actors to recognise the importance of this. The European Union for its part is currently elaborating a framework that may begin to take it into account. This chapter sets out to make a step towards understanding the importance of biomedicine and biomedical rights to the European Union. I attempt to assess how far EU citizens are protected by the regulation of biomedicine and to what extent the EU is as committed to ‘bio-rights’ as much as human rights. In the chapter I concentrate on one aspect of biomedical rights. These are reproductive rights. Rights in relation to reproduction cover areas such as contraception, abortion and sterilization. Here I concentrate on reproductive rights in relation to assisted conception or treatment for infertility. Why are reproductive rights important to us as Europeans? Because many people use new biomedical technologies both in their nation states, where they may not be protected by their own law, and also as European ‘procreative tourists’ seeking assisted conception treatment in another member state. Should nation states be able to prevent their citizens from having access to the treatments they demand or is fundamental supranational regulation more appropriate to these times?

BIOMEDICINE, BIOETHICS, AND BIOTECHNOLOGY

What do we mean by the concepts biomedicine or bioethics or biotechnology? Biotechnology is concerned with research involving living organisms which might have industrial or commercial potential. Biotechnology is a growing industry with increasing importance on the economic world stage. Biotechnological products range from vaccines, gene therapy, drug delivery systems, and diagnostics, to agriculture, and food processing. In 2001

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accountants Ernst and Young reported that the total value of the 105 European biotechnology firms was 74 billion euros. The two leading companies, Serono (Switzerland) and Elan (Irelan) had market values of 16 billion and 14 billion euros respectively.1 Biomedicine, on the other hand, involves new medical techniques relating to the human body and body parts, many of which treat problems with human reproduction. Ethical or bioethical issues arise from both. Each has a direct impact on human beings, posing questions that concern us all, as individuals and as a society. In relation to the growing use of biomedical techniques, particularly, questions have been raised about the qualifications of medical personnel; the testing of gametes or donors for all known transmissible diseases, including HIV; the availability of counselling for patients; and the proper use of informed consent to treatment.2 Discrimination by insurers, or indeed by health providers, might result from the detection of genetic disease in patients. Sex selection of human embryos involved in gene therapy raises questions of gender discrimination. In the face of growing patient demand for new biomedical techniques the issue of the fair and reasonable allocation of limited health care resources has also been high on the bioethical agenda.3 Bioethics can provide fundamental, universal and democratic principles which take social needs into account. These can provide a template for society which does not favour the rules of the competitive economic market. If such principles are set out in the form of a convention or treaty, they also set an agenda for reflection and debate. This can help legislators on the national and international stage to respond to the diverse demands of human society whilst safeguarding the rights of their populations.4 History shows us that such rights need to be protected and enforced.

PROCREATIVE TOURISM

Yet researchers in biotechnology and practitioners of biomedicine have never yet groaned under the weight of rigorous government guidelines. In some European states where biomedical practices are carried out these treatments even remain largely unregulated. Many patients undergoing biomedical treatments are still venturing into largely uncharted waters. 1 ‘European

biotech growth’, in (2001) 6 July The European Life Scientist Organisation Gazette. 2 L Nielsen, ‘Procreative Tourism, Genetic Testing and the Law’, in N Lowe & G Douglas (eds) Families Across Frontiers (Deventer, Kluwer, 1996). 3 N Vuckovic and M Nichter, ‘Changing patterns of pharmaceutical practice in the United States’, (1997) 44 Social Science and Medicine,1285–1302. 4 For further background information on this issue see P Riis, ‘Medical Ethics in the European Community’, (1993) 19, Journal of Medical Ethics, 7–12.

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Bioethical problems also know no territorial boundaries.5 This lack of coordination of national regulation has contributed to the growing phenomenon of procreative tourism. ‘Procreative tourists’ are travelling abroad for medical assistance with reproduction. There are many and varied treatments which come under the rubric of ‘assisted conception’ and include in vitro fertilisation, surrogacy, gamete and embryo donation, and genetic diagnosis. Demand for such treatments remains high across the developed world, and no less so in European Union member states themselves. Figures published by the European Society of Human Reproduction and Embryology in 1999 reveal the extent of treatment practised in Europe. In the 22 Western and Central European countries surveyed there were over a quarter of a million treatment cycles carried out (258, 460) during 1999. (The percentage of infants born was 1.6 per cent.)6 Each treatment is regulated according to diverse ethical and cultural standards across Europe which range from conservative to liberal. It is these divergent rules on assisted conception treatments that has led to a growth in this ‘procreative tourism’ whereby a person who is not able to find the treatments she desires in her own country attempts to travel abroad for treatment.7 This might be because that treatment is prohibited in her own country, or only available in another country. It may also be that a treatment provided elsewhere is more successful or available from a better qualified or more experienced medical professional. Thus, German couples who are carriers of genetic diseases travel to Belgium for assisted conception treatment using preimplantation genetic diagnosis (PID) in order to be able to select and reject any embryos found to be carriers of a genetic disease before they are transferred to the woman patient’s uterus. They cannot have such treatment in their own country as it is prohibited on ethical and moral grounds under the German Embryo Protection Law. Exact figures on the extent of procreative tourism are difficult to come by. One English case involving procreative tourism illustrates the potential legal pitfalls. In U v W (Attorney-General Interverning)8 a British couple received infertility treatment in Italy and gave birth to twins. Unfortunately the relationship broke down after the birth. The couple were not married, and the twins were the result of donated sperm. The man refused paternal responsibility. He could not be forced to accept it as no Italian legislation covered the status of a child who was foreign (not resident) but born in Italy. Had the couple sought treatment together in the UK then this man would have been deemed to be the father as the couple had received 5 Nielsen, above n 2. 6 KG Nygren and A Nyboe

Andersen, ‘The European IVF-monitoring programme (EIM), for the European Society of Human Reproduction and Embryology (ESHRE), (2002) 17 Human Reproduction, 3260–74. 7 Nielsen, above n 2. 8 [1992] FLR 282.

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treatment together.9 All the judge could do in this case however was stress the importance of patients being properly informed about the current implications of procreative tourism for the status of their own offspring. Patients must realise that there was a possibility that a child might be left with an unsatisfactory legal relationship with its parent(s). Procreative tourism creates legal complications in private international law. In general, laws defining parenthood are limited in their application either to a State’s own nationals or to treatments occurring within the boundaries of a particular jurisdiction. In some states, the mother’s nationality or domicile may be more important than that of the child. Nielsen has pointed out the dangers of cross-border assisted conception treatment in relation to parental rights.10 These apply particularly where there are contradictions between the parental rights offered by one country which prohibits treatment and that of another country which allows those treatment services. This can lead to complications where a procreative tourist returns home with a child. If the home country, in which that child will be resident, prohibits anonymous gamete donation, can the paternity of the anonymous foreign donor be established?11 If the child develops a genetic disease, parents may find it difficult to gain any relevant information on the donor in the country which permits donor anonymity. There are also problems associated particularly with patients seeking treatment in non-regulated or less well-regulated countries, such as Italy. There might be a lack of testing of donated and stored gametes or embryos; a lack of record keeping of donors’ details or treatment information; or no guarantee that medical professionals administering treatment are suitably qualified. In response to the problems raised by procreative tourism, Nielsen has proposed harmonisation by European states of their different regulation.12 This appears to be rather elusive. Is it possible to reach any sort of consensus of harmonisation between the differing cultural solutions to assisted conception regulation found across Europe? Their shared history and politics notwithstanding, European member states have produced strikingly different forms of regulationin this area as in many others.13 Attempts at harmonization carry the risks of creating guidelines or regulations that are a result of compromise or are the result of agreements on the least controversial elements. The fundamental importance of the protection of the human embryo in more conservative countries in Central Europe, for 9 Human Fertilisation and Embryology Act 10 Nielsen, above n 2. 11 Ibid. 12 L Nielsen, ‘From Bioethics to Biolaw’ in

1990, s 28(3).

C Marco Mazzoni (ed), A Legal Framework for Bioethics (Deventer, Kluwer, 1998). Latham, ‘European Assisted Conception Regulation: the Centrality of the Embryo’, in A Morris and S Nott (eds) Well Woman: The gendered nature of health care provision (Aldershot, Ashgate, 2002).

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example, might ensure that any mutually agreed legislation elevates the rights of the embryo and diminishes those of the adult patient. Perhaps, then, mutual recognition of national regulation on assisted conception might more reliably promote the interests of European procreative tourists. This too would require lengthy negotiation. Assisted conception is also in an area that is extremely morally and politically sensitive. Mutual recognition of laws on parental status, or on assisted conception more generally, is thus highly unlikely in the short term. Alternatively, EU member states could agree on principles or negotiate mutual recognition of national laws. This would aim to prevent harm to children and to monitor standards and ensure health professionals provide sufficient information to enable them to make sensible and informed choices. PROCREATIVE TOURISM AND THE EU

Not all cases of procreative tourism end badly. In October 2003 a British woman travelled to Spain to conceive a female child and gave birth to twin girls. Nicola Chenery underwent IVF treatment with genetic testing to determine the gender of the resulting embryos. The use of preimplantation genetic diagnosis to determine the sex of an IVF embryo is prohibited by The Human Fertilisation and Embryology Act 1990 unless it is carried out to avoid a serious gender-linked condition. The UK Human Fertilisation and Embryology Authority is due to report on this issue. In Spain sex selection is already permitted for non-medical reasons such as ‘family balancing’. Ms Chenery’s doctor has therefore been sending his patients to Spain and the United States for such treatment for the last five years.14 A particularly famous English case involving procreative tourism considered EU law, rather than private international law. This was the Diane Blood case.15 Diane Blood attempted to travel abroad for postmortem insemination, having transgressed rules of consent embedded in the Human Fertilisation and Embryology Act and so not able to have treatment in the UK. Mrs Blood sought judicial review of this decision arguing that Mr Blood had intimated his consent. In October 1996 the High Court agreed with the HFEA.16 At the Court of Appeal in February 1997, however, Mrs Blood was accorded the right to take the sperm abroad under European Community law, under Articles 49 and 50 EC, and to receive medical treatment in another member state.17 14 Daily Telegraph 3 November 2003. 15 R v Human Fertilisation and Embryology

Authority, ex parte Blood [1997] 2 FLR 742, QBD and CA. 16 Ibid. 17 Following a further ruling in the Court of Appeal that the removal of sperm from a comatose man without his consent was unlawful under the terms of the 1990 Act in this case, it is now unlawful to use sperm without written consent, unless fresh sperm is used.

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The Blood case was concerned with the free movement of services. Diane Blood travelled abroad as a procreative tourist and was inseminated with her late husband’s sperm at a fertility clinic in another member state of the European Union, Belgium. Such treatment would normally come under the heading of ‘services’ as defined by Article 50 EC. These include, ‘activities of an industrial character, of a commercial character, of craftsmen, and of the professions’. Thus medical treatment given by a medical professional can be classified as a service under Article 50. Indeed, if a member state does not provide a certain medical service and a citizen must seek treatment in another member state, the member state cannot prevent that citizen from travelling abroad. That state must also pay for the treatment on their national health scheme, though only where that patient would have received that treatment in their own member state and only at the same rate.18 This will apply unless the member state has prohibited the treatment on ethical grounds. This follows the case of Pierik No. 2 where the European Court of Justice considered the issue of the public funding of a treatment prohibited on ethical grounds.19 There is also a growing awareness among European citizens themselves of their rights to seek treatment elsewhere in the EU.20 A service provider must respect the regulations and guidelines of the member state he is established in.21 Can a member state prevent a practitioner from establishing himself in a state and offering prohibited treatments, thus preventing their own citizens from receiving that treatment in their own country? Under Article 46 EC, a member state is only able to limit treatment given in its own country on grounds of, ‘public policy, public security or public health’, as long as these are clear, objective and proportionate,22 whether or not they apply equally to their own and foreign citizens (are ‘indistinctly applicable’). The member state could also argue, however, that they are not just protecting ‘consumers’ of services, but that the regulations are necessary, and therefore proportionate, in order to preserve, ‘(moral and legal) principles 18 Reg 1408/71/EEC (OJ Sp Ed 1971 II, 416). 19 Tamara Hervery has pointed out that it was

submissions to the Court from the European Commission that suggest that member states are, ‘permitted to refuse authorization for treatments “seriously contrary to the ethical rules prevailing” in its jurisdiction’, on the grounds that member states retain competence to regulate public morality’: ‘Buy Baby: The European Union and Regulation of Human Reproduction’ I (1998) 18 Oxford Journal of Legal Studies, 207–33. 20 This might be of more interest to patients in a member state whose health service has been subsidised less by their national government, such as the UK. A recent High Court judge underlined the entitlement of UK citizens to travel to EU member states for health treatment where they were suffering from ‘undue delay’ on an NHS waiting list. (‘Hip op ruling: Freedom to travel?’, BBC News Website, 1 October 2003). 21 For a discussion of the ramifications of European law determining how far member states are able to set guidelines, and thus the possibility that nation states will lose sovereignty over such important social policy, see Tamara Hervey, above n 19. 22 Art 39 (3) EC; Case 36/75 Rutili [1975] ECR 1219, para 32.

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underpinning family and kinship relations, the protection of human dignity and liberty and autonomy over one’s body and body parts … or the protection of ‘human life’.23 Thus a country such as Germany may well be able to restrict the delivery of services such as preimplantation genetic diagnosis which involves embryo destruction on such grounds. Diane Blood and other procreative tourists are now able to take advantage of jurisprudence on services that has been logically extended to recipients of services, as a provider of services must not be restricted in his free movement through the prohibition on the travelling of his customers, here patients. Article 50 EC also stipulates that, ‘Services shall be considered to be ‘services’ within the meaning of this Treaty where they are normally provided for remuneration’ for which there must be an economic link between the service provider and the recipient.24 This only governs treatment provided on a private basis, not treatment paid for by publicly-funded national health schemes. This raises questions about the fairness of allowing those wealthy enough to pay for treatment to have treatment that they want (or, perhaps, need in the case of carriers of genetic disease), when those on low incomes who cannot afford to travel and pay for treatment abroad are prevented from having such treatment. HEALTH, BIOMEDICINE AND THE EU

The freedom of procreative tourists has been ensured by the importance of the free movement of services. There have also been relevant developments in other areas of EC law and policy. The EU has begun to concern itself with health, bioethics and biomedicine more generally. Alongside other socio-economic and human rights, the right to health care is receiving an increasing amount of attention in European quarters. But how far is the EU genuinely interested in the biomedical rights of its citizens? Does the EU see its future responsibilities as lying in this area? Over the past 50 years members of the Council of Europe have overseen the implementation of their own collective endeavour on human rights, the European Convention on Human Rights. As signatories of this document they debated and elaborated something that could represent norms and values common to all European cultures. In December 1996 the Council of Europe went further and attempted to establish new minimum European ethical standards in biotechnology and biomedicine with the Convention on Biomedicine. Both documents are overseen by the European Court of Human Rights (ECHR). The Council of Europe has also seized the initiative in the field of biomedicine, publishing the Biomedicine Convention in December 1996, an 23 Tamara Hervey, above n 19. 24 Case C–159/90 SPUC v Grogan

[1991] ECR I–4685.

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instrument with potentially far reaching powers, that individuals can utilise to protect their rights where these are infringed by medicine or the biotechnology industry. Signatories to the Convention have been slow to ratify it, however. It was also the culmination of many heated debates. This resulted in a Convention that refers in ambiguous terms to the rights it purports to protect and allows much discretion in interpretation and enforcement to signatory states.25 The jurisdiction of the European Court of Justice, for its part, has been concerned traditionally with establishing and enforcing obligations of a primarily economic nature, and has consequently given health and related social issues a lower priority. However, many cases which on the face of it were thought to address wholly economic issues have nonetheless had social implications. Such cases lie at the heart of the growth in importance of human rights to the European Union. For example, the free movement of medicines across Europe serves the economic interests of industry. This then impinges on the social policy of the EU as it broadens patient choice and necessitates commonly agreed safety and quality standards for patient care.26 EU health policy is only in its infancy and member states wish to retain a high level of autonomy in relation to health matters, particularly in the areas of health care systems and resource allocation.27 In May 1995 the European Commission produced its first comprehensive annual report on the health implications of all areas of EU activity, the Report on integration of health protection requirements in community policies.28 This was followed in 1997 by changes to the Amsterdam Treaty, which amended and renumbered the title on Public Health, originally introduced by the Treaty on European Union, Article G paragraph 38. Further moves toward co-ordination and co-operation on public health are now apparent in the Convention Draft of the Constitutional Treaty (Articles III-174.2). A consultative group of bioethicists, the Biotechnology Coordination Committee (GAEIB), has examined biotechnology since 1992. The group has undertaken the tasks of, identifying and defining ethical questions raised by biotechnology and with providing an evaluation of ethical aspects arising from the activities of the 25 M

Latham and S Leonard, ‘The European Convention on Biomedicine and the Human Rights Act: Grasping the Nettle of Biomedicine?’ in A Garwood-Gowers, et al. (eds), Healthcare Law: The Impact of the Human Rights Act 1998 (London, Cavendish, 2001). 26 HD Roscamm Abbing, (1997) 3:1 Eurohealth, 14–15. 27 The Treaty of Amsterdam sees the virtual overhaul of the European Union’s pre-existing policy on public health, and gives the Council wider decision-making powers in this area. It still affirms the sovereign interests of states in this field, in that it claims ‘… to fully respect the responsibility of the member states for the organisation and delivery of health services and medical care.’ See P Craig and G De Búrca, EU Law, Text, Cases and Materials, 2nd edn, (Oxford, OUP, 1998) 37. 28 COM (95) 196 final of 26 May 1995, British Medical Journal, 311, 29 July 1995, at 282.

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Community in this area and of studying the potential impact for society and individuals of such activities.29

The group issued opinions advising the European Commission on, inter alia, the use of bovine somatropin, products derived from human blood or human plasma, legal protection for biotechnological inventions, transgenic animals and gene therapy.30 However, this Committee only ever had an advisory role. In 1998 the GAEIB was replaced by the European Group on Ethics in Science and New Technologies (EGE). During its first mandate the EGE (1998–2000) provided Opinions on subjects as diverse as human tissue banking, human embryo research, personal health data in the information society, doping in sport and human stem cell research. At a specific request of the President of the Commission, Romano Prodi, the Group also wrote the ‘Report on the Charter on Fundamental Rights’ in relation to bioethical issues. Since its inception the EGE has campaigned for its role to become more formalised in recognition of the growing importance to the EU institutions of bioethical policy decisions. Public health is now being taken much more seriously by the EU. The ‘Programme of Community action in the field of public health’ (2003–2008) is based on Article 152 of the EC Treaty. EU action has now been refocused along three strands: improving health information to citizens, professionals and policy-makers; strengthening the rapid response capacity for coordinated reactions to major public health threats; and targeting actions to promote health and prevent disease. The programme is an ‘incentive measure designed to protect and improve human health’, though explicitly ‘excluding any harmonisation of the laws and regulations of the Member States’. With a relatively large budget of P312 million, the Commission implements the public health programme assisted by a Committee, which is composed of representatives of the EU Member States. The Committee had its first meeting in November 2002. The EU is particularly concerned with several areas of public health. These include such cross-border issues as communicable diseases and consumption of alcohol and tobacco. More importantly for procreative tourists, the issue of patient mobility is also gaining in strength on the EU health policy agenda. The Commission is set to report further on this at the end of 2003. Already Commissioners have emphasised the importance of the use of resources, confidentiality, access and quality. Here the reconciling of national policy with European obligations on free movement is seen to be necessary. Co-operation rather than pan-European health services is being emphasised. This would be in addition to rights already provided by EC law on free movement and currently exercised by procreative tourists. 29 European Commission 30 Hervey above n 19.

press release IP/94/153.

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There are also two ongoing initiatives relating to human tissues and cells at the EU level. First, a new Directive establishing the quality and safety standards for handling human tissues and cells is currently being discussed by the EU institutions. Secondly, in September 2002, DG Enterprise concluded a consultation on the framework for a new legislation on human tissue engineering and tissue-engineered products. This Directive will not be applicable to the use of reproductive tissues and cells and thus will not apply to assisted conception treatment sought by procreative tourists. An important piece of EU legislation relating to biotechnology was the Biotech Directive of 1998. This was an attempt, “to clarify certain principles of patent law applied to biotechnological inventions whilst ensuring that strict ethical rules are respected”. In this way it only allowed the patenting of a new application of new knowledge and not new information for its own sake. It also prohibited cloning, human genetic modification, and the industrial use of human embryos.31 It came in for criticism, however, by several member states, such as Germany, France, Italy, Sweden, Luxembourg and the Netherlands, for permitting the patenting of processes involving DNA, genetically modified organisms, and materials derived from the human body and for breaching other national and European laws such as the original European Patent Convention and the French bioethics laws of 1994.32 Of course, the principle of supremacy dictates that the Directive must take precedence, and these member states are currently the subject of an Article 226 action.33 The Council of Europe has also announced its concerns over the Directive for possibly overriding human rights and dignity.34 The value of biotechnology for the European Union has secured its support by the Commission, however.

THE CHARTER OF FUNDAMENTAL RIGHTS

The EU may at last be making more positive moves toward biomedical regulation with the new Charter of Fundamental Rights. This was officially proclaimed by way of a ‘solemn declaration’ and signed by the Presidents of the Council, the European Parliament and the Commission as representatives of their respective institutions at Nice on 7 December 2000. This sets out a series of classical fundamental rights. These sit alongside more contemporary aspirations of European citizens such as the right to good 31 Dir

98/44/EC of the European Parliament and of the Council of 6 July 1998 on the legal protection of biotechnological inventions. 32 Art 2 of the French Statute on respect of the human body states that ‘the law ensures the primacy of the person, prohibits any violation of the dignity of the person and guarantees respect of the human being from the beginning of life’. 33 ‘European court action over biotech patents’, The Scientist, 17 July 2003. 34 Council of Europe Press Service, 29.6.2000.

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administration, workers’ social rights and bioethics. The fundamental rights were already enforceable as general principles of Union law as laid down by Treaties (Article 6 TEU) and resulting from the constitutional traditions common to member states. This principle has been recognised in a large amount of jurisprudence coming out of the ECJ in response to challenges coming from national constitutional courts, particularly the German Constitutional Court.35 The Charter does not establish any new rights in this respect but does aspire to make them more visible to European citizens. The Charter is concerned with the activities of the institutions and member states in so far as they are involved in the execution of European Union law as defined in Article 51(1) of the text. The Charter contains both rights and principles. Whereas individuals can claim their rights in a court of law, they cannot pursue a specific legal action to enforce a principle. Principles indicate that the Union must respect certain circumstances, such as cultural, religious and linguistic diversity. They bind authorities in exercising their powers, and the former can be censured if they fail to apply them. The distinction will become clearer through jurisprudence if and when the Charter becomes a legally binding instrument. Several sections of the Charter deal with biomedical rights and principles. Many if not all of these could be relied on in the future by those, including procreative tourists, who are seeking positive biomedical rights or seeking protection or compensation from biotechnology or biomedicine. Other principles referred to in the Charter are that of respect for private and family life (Article 7); access to preventive health care (Article 35); on consumer protection (Article 38); and the protection of personal data (Article 8). Again, case law will need to clarify the importance of these principles, but in the context of assisted conception treatment such issues as confidentiality, equitable access for patients seeking treatment, and clinic safety are all raised by these principles. The very first Article underlines the principle of the inviolability of human dignity. Article 2 sets out the right to life. Article 3 refers to the right to integrity of the person referring in particular the need to respect: free and informed consent; and the prohibition of eugenics, commercialisation of the body, and human reproductive cloning. Article 9 speaks of the right to marry and found a family. Finally, Article 24 (2) alludes to the right of the child and its best interests. These more substantial rights are of particular importance to persons seeking treatment with reproduction. Article 24 on the rights of the child and its best interests might be put to good use in order to improve the status of the child of an infertile couple who is currently left without a legal parent. Whilst remaining cautious, procreative tourists may well look forward to favourable judgments coming from the ECJ.

35 Case

29/69 Stauder v City of Ulm; Case 11/70 Internationale Handelsgesellschaft.

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There are nevertheless problems with the Charter and the extent to which it may be relied upon. States will enjoy high levels of discretion in the interpretation and application of the rights the Charter might in future provide. Its wording is also ambiguous and it only applies when EU law is being implemented, as outlined above. However, EU institutions are already seriously considering the Charter when looking at policy issues. Moreover, Advocate General Léger has argued: (W)hether or not the Charter is explicity mentioned in Artice 6(2) TEU or inserted in extenso in the Treaties on which the Union is founded, it belongs to the acquis judiciaire, and can be enforced by the ECJ as the most reliable expression of the binding general principles of EU law that relate to fundamental rights protection.36

A draft Treaty establishing a Union Constitution was published by the Praesidium of the Convention on the Future of Europe in May 2003. This set out the fundamental rights recognised in Part II of the Constitution as those rights, freedoms and principles set out in the Charter of Fundamental Rights.37 The legal status of the Charter remains to be decided by the member states at the IGC in 2004, where consensus about its more politically sensitive aspects may be difficult to attain. Negotiation and compromise may result in its text remaining ambiguous, opaque and vague. However, the Constitutional Treaty has at least formally incorporated the Charter of Fundamental Rights as a legally binding instrument and has expressed commitment to accession to the European Convention on Human Rights and Fundamental Freedoms (ECHR). It will not enter into force until it is ratified by all member states according to their own national constitutional requirements. EU lawyers, and specifically the Advocates General at the ECJ, now regularly cite the Charter in decisions—although they emphasise that it is not mandatory. In this way, the Charter is already achieving its first objective of making fundamental rights visible. The conclusions of the Advocates General do not bind the ECJ, but suggest legal solutions that can influence them. If EU institutions and national authorities actively receive and implement the Charter between now and 2004, though, this will add further weight to the argument for integration. The European Commission’s human rights agenda for the future is clear: immediate implementation of the Charter, its integration into the EU Treaties or into a constitutional text, and finally, the Union’s accession to the European Convention on Human Rights. In its short life, the EU Charter of Fundamental Rights has already 36 Council v Hautala, quoted in K Lenaerts and M Desomer, ‘Bricks for a Constitutional Treaty of the European Union: Values, Objectives and Means’, (2002) 27 EL Rev, 377–407, at 380. 37 Draft Treaty establishing a Union Constitution, Part One, Title II, Art I–7, May 2003.

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made an impact on the European courts. By early 2002, the Advocates General had referred to the Charter in 14 of the 23 cases they handled concerning human rights since the Charter’s proclamation in December 2000.38 The Court of First Instance has also acted on the Charter. In a significant judgment of 3 May 2002 it changed the rules governing individual access to the European courts, making reference to Article 47, which guarantees individuals whose rights are violated ‘the right to an effective remedy before a tribunal’.39 On 11 July 2002, the European Court of Human Rights also established a precedent by referring to the Charter in a ruling on the right of transsexual people to marry.40 This important judgment shows that the Court of Human Rights is starting to use the EU Charter as a source for interpreting the European Convention. Questions have been raised for at least the last three decades about whether the growing recognition of the EU via ECT jurisprudence should culminate in the EU becoming a signatory of the ECHR itself. Since the publication by the ECJ of Opinion 2/94 the prospect of this has diminished somewhat. The drafting of the EU Charter and Constitution have now, however, added a new impetus to the issue. The Draft Treaty establishing a Union Constitution, for example, formally refers to the EU seeking accession to the ECHR, though it adds that such accession shall not affect the Union’s competences as defined in the Constitution. Limits are hereby set in the Charter and the Constitution for the competences of the EU in relation to policies and to human rights and fundamental freedoms.41 Whether or not judgments coming from the European Court of Human Rights itself would benefit those in the particular position of seeking a right to seek infertility treatment is open to question, however. The Charter does not operate in competition with the ECHR. Article 52/3 makes clear that the Charter respects the ECHR, its protocols, and the case law developed by the European Court of Human Rights. Basically, the rights mentioned in both the Convention and the Charter have the same meaning in both texts, whether or not each refers to those rights slightly differently. The Commission is in favour of amending the treaties in order to allow the European Community to sign up to the Convention. If the European Community did so, the European Court of Human Rights would be in charge of examining how the European Union respects fundamental rights. Thus the Court of Justice of the European Communities would be subject to the control of the European Court of Human Rights, just like the

38 See

for example, Case C–340/99, Case C–173/99, joined Cases C–122/99 and C–125/99, Case C–377/98, Case C–353/99. 39 The JQ case. 40 Goodwin v UK. 41 See Draft Treaty establishing a Union Constitution Part Two, Title VII, Art II–51, May 2003.

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supreme courts of all the Member States. For the EU, having its own charter of rights would put it in the same situation as individual States.

CONCLUSIONS

Biotechnology and biomedicine are of growing economic importance. Each has human and social ramifications. Across Europe people are seeking treatments that involve both. Many of these are in search of health care services as ‘procreative tourists’. Health care which they do not have access to in their country of residence. A lack of regulation has posed legal risks to these patients and left a legal hiatus. The ECHR, the Biomedical Convention and other attempts at negotiated regulations have often led to compromise and ambiguity. But now biorights, assisted conception and procreative tourism are gaining ground on the EU’s political agenda. Human, social and ethical rights are now sitting alongside economic rights in the EU treaty provision. The EU has issued directives relating to biotechnological inventions; has developed mutual recognition of the quality control of health professionals and services involved in the provision of assisted conception; and is promoting a shared vision of health care amongst member states. This is in addition to the rights already provided under EC law on equal access to services and health care. Most significantly, the Charter for Fundamental Rights has a central position in the new EU Draft Constitutional Treaty. Biomedicine is becoming a force to be reckoned with. At the same time the EU is demonstrating its acceptance of the central importance of policies and law around human and social as well as economic rights. Procreative tourists are simply Europeans with a shared heritage and shared interests in receiving the assisted conception treatment they require. Others in the EU will avail themselves of biomedical health care. Their own state health care service may well not provide for this. Pan-European organisations appear to be intent on developing appropriate regulatory frameworks to enable them to.

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