THE CAMBRIDGE YEARBOOK OF

EUROPEAN LEGAL STUDIES

Volume 5, 2002–2003

The Cambridge Yearbook of European Legal Studies provides a forum forthe scrutiny of significant issues in European Union Law, the Law of theCouncil of Europe, and Comparative Law with a ‘European’ dimension,and particularly those which have come to the fore during the year preced-ing publication. The contributions appearing in the collection are commis-sioned by the Centre for European Legal Studies (CELS) Cambridge, whichis the research Centre of Cambridge University Law Faculty specialising inEuropean legal issues.

The papers presented are all at the cutting edge of the fields which theyaddress, and reflect the views of recognised experts drawn from theUniversity world, legal practice, and the civil services of both the EU and itsMember States. Inclusion of the comparative dimension brings a fresh per-spective to the study of European law, and highlights the effects of globali-sation of the law more generally, and the resulting cross fertilisation ofnorms and ideas that has occurred among previously sovereign and sepa-rate legal orders.

The Cambridge Yearbook of European Legal Studies is an invaluableresource for those wishing to keep pace with legal developments in the fastmoving world of European integration.

Editorial Advisory Board

PROFESSOR PHILIP ALLOTT, Trinity College CambridgePROFESSOR TONY ARULL, University of BirminghamCATHERINE BARNARD, Trinity College Cambridge

PROFESSOR ALAN DASHWOOD, Barrister, Sidney Sussex College CambridgeMR DAN GOYDER CBE, Consultant Solicitor, Linklaters and Alliance,

Visiting Professor of Law, King’s College LondonPROFESSOR ROSA GREAVES, Durham University

PROFESSOR BOB HEPPLE QC FBA, Clare College CambridgePROFESSOR DAVID O’KEEFFE, University College London

LORD LESTER OF HERNE HILL QCSTEPHANIE PALMER, Girton College, Cambridge

DAVID VAUGHAN QC, CBE, Brick Court ChambersDR ANGELA WARD, Reader in Law, Essex University

PROFESSOR SIR DAVID WILLIAMS QC, Emmanuel College, CambridgePROFESSOR D.A. WYATT QC, St Edmund Hall, Oxford

The Cambridge Yearbook ofEuropean Legal Studies

VOLUME 5, 2002–2003

EDITED BY

John Bell

Alan Dashwood

John Spencer

Angela Ward

OXFORD AND PORTLAND OREGON2004

Published in North America (US and Canada) byHart Publishing

c/o International Specialized Book Services5804 NE Hassalo Street

Portland, Oregon97213-3644

USA

© The editor and contributors severally 2004The Editor and Contributors 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. Toorder 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 e-mail: mail@hartpub.co.uk

WEBSITE: http//:www.hartpub.co.uk

British Library Cataloguing in Publication DataData Available

ISBN 1-84113-361-2 (hardback)

Typeset by Olympus Infotech Pvt., Ltd. India, Sabon10/12ptPrinted and bound in Great Britain byMPG Books Ltd., Bodmin, Cornwall

Contents

List of Contributors viiTable of Cases ixTable of European Legislation xxvTable of International Conventions and Agreements xxxiiiTable of Legislation from Other Jurisdictions xxxvii

1. National Courts—the Powerhouse of Community Law 1David Edward

2. The Responsibility of Judges in France 15Guy Canivet

3. The UK and the Euro: Some Key Economic Issues 35Mic�a Panic�

4. The Introduction of the Euro Banknotes: Some Legal Issues 59Antonio Sáinz de Vicuña

5. The Political Problems of the Euro-Zone 71Helen Thompson

6. The European Model of Agriculture and World Trade: Reconfiguring Domestic Support 77Michael Cardwell

7. European Integration and Globalisation:The Experience of Financial Reporting 105Charlotte Villiers

8. Law, Economics and Politics in the Constitutionalisation of Europe 123Christian Joerges

9. Collective Dominance in EC Competition Law: Trojan Horse or Useful Tool? 151Albertina Albors-Llorens

10. Partial Harmonisation and European Social Policy: A Case Study on the Acquired Rights Directive 173Amandine Garde

11. The European Community’s Anti-Dumping Policy: The Quest for Enhanced Predictability, Rationality, European Solidarity and Legitimacy 195Guy Harpaz

12. The European Convention on Human Rights and International Public Order 237Alexander Orakhelashvili

13. Public Services and European Law: Looking for Boundaries 271Eleanor Spaventa

14. Lay Judges 293John Bell

15. The Race Directive: Recycling Racial Inequality 311Fernne Brennan

16. New Rules of Breach of Contract in Germany 333Wolfgang Ernst

17. European ‘Citizenship’: In its Own Right and in Comparison with the United States 357Thomas C Fischer

18. The Draft EU Constitution—First Impressions 395Alan Dashwood

Index 419

vi Contents

List of Contributors

ALBERTINA ALBORS LLORENS is Lecturer in Law at the University ofCambridge and Fellow of Girton College.

JOHN BELL is Professor of Law and Director of the Centre for EuropeanLegal Studies at the University of Cambridge.

FERNNE BRENNAN is Lecturer in Law at the University of Essex.

GUY CANIVET is Premier Président of the Cour de cassation, the highestcivil and criminal court in France.

MICHAEL CARDWELL is Senior Lecturer in Law at the University ofLeeds.

ALAN DASHWOOD is Professor of European Law at the University ofCambridge, Barrister of the Inner Temple and Fellow of Sidney SussexCollege, Cambridge.

DAVID EDWARD was Judge at the European Court of Justice until 2003.

WOLFGANG ERNST is Professor of Law at the University of Bonn andwas the Goodhart Professor in the University of Cambridge for the aca-demic year 2002–3.

THOMAS FISCHER is Professor of Law and Dean Emeritus at the New England School of Law in Boston. He has held numerous fellowshipsin Europe, including one at the University of Cambridge (Wolfson College)and the Inns of Court (Lincoln’s Inn).

AMANDINE GARDE is a trainee solicitor with Simmons and Simmons inLondon. Previously, she was a Fellow at Selwyn College and lectured inEuropean Union law and French Law in the Faculty of Law in Cambridge.

GUY HARPAZ is a researcher at the Faculty of Law at the University ofHaifa and was a research student at St John’s College, Cambridge.

CHRISTIAN JOERGES is Professor of Economic Law at the EuropeanUniversity Institute in Florence.

MICA PANIC is Fellow in Economics at Selwyn College, Cambridge.

ALEXANDER ORKHELSHVILI is a research student in international lawat Jesus College, Cambridge.

ANTONIO SAINZ DE VICUÑA is Director General of the Legal Serviceof the European Central Bank in Frankfurt.

ELEANOR SPAVENTA is a Fellow in Law at New Hall, Cambridge.

HELEN THOMPSON is Senior Lecturer in the Faculty of Social andPolitical Sciences at the University of Cambridge and a Fellow of ClareCollege.

CHARLOTTE VILLIERS is Reader in Law at the University of Bristol.

viii List of Contributors

Table of Cases

COUNCIL OF EUROPE

European Court of Human Rights

Aksoy 21987/93 ....................................................................................266Alam, Khan and Singh v UK 10 YB ECHR 478 ....................................257Allenet de Ribemont v France Decision of 7 August 1996 ....................264Asker 23185/94 ....................................................................................266Austria v Italy Application 788/60 4 YB ECHR 178–82........239, 251, 253Aydin 23178/94 ....................................................................................266Chrysostomus ........................................................................................245Cruz Varas v Sweden 1992 14 EHRR 1 ................................................243Cyprus v Turkey 6780/74 2 DR 138..............................................252, 253Cyprus v Turkey 6950/75 2 DR 138..............................................252, 253Cyprus v Turkey 8007/77, 13 DR 145 ..................................239, 252, 253Cyprus v Turkey 25781/94 13 DR 154..........................................252, 253Giummara v France 61166/00, 12 June 2001 ..........................................24Golder v UK (1979–80) 1 EHRR 524....................................................243Greece v UK 176/56 , 299/57 2 YB ECHR 184 ....................252, 253, 259Greek 12 YB ECHR 195–6....................................................................248Greek 3321/67 11 YB ECHR 726..................................................252, 253Greek (Additional Allegations) 11 YB ECHR 764 ................................252Ireland v UK 15 5310/71 YB ECHR 178 ..............................248, 252, 253Ireland v UK 19 YB ECHR 756 ....................................248, 249, 253, 263Ireland v UK 58 ILR 188 ......................................................................239Kress v France 39594/98, 7 June 2001 ......................................................3Loizidou v Turkey 15318/89 (1997) 23 EHRR 513 ..............................243Loizidou v Turkey (Preliminary Objections) A/310 (1995)

20 EHRR 99 ....................................................................245, 246, 260Mifsud v France 57220/00, 11 Sept 2002 ................................................24Pfleger, Judgment of 4 April 2000..........................................................257Philis v Greece Decision of 27 August 1991 ECHR (Ser A 209) ............264Second Greek 4448/70 13 YB ECHR 134..............................................253Selcuk 23184/94 ....................................................................................266Selmouni v France 6780/74............................................................243, 264Tekin 22496/93 ....................................................................................266Turkish (Admissibility) 9940–44/82 4 HRLJ 550 ..........248, 252, 253, 258Turkish (Friendly Settlement) 6 HRLJ 1985 ..................................258, 259

Van der Kar & Lissaur van West v France 44952/98, 7 November 2000 ..............................................................................24

Yacoub, Series A No 127-A ..................................................................260

EUROPEAN UNION

European Court of First Instance

NumericalCases T-68/89, T-77/89 and T-78/89 Società Italiana

Vetro v Commission [1992] ECR II-1403..................154, 155, 158, 159Cases T-24, 26 & 28/93 Compagnie Maritime Belge v

Commission [1996] ECR II-1019 ......................................156, 164, 165Case T-102/96 Gencor [1999]

ECR II-753................................158, 159, 160, 161, 162, 165, 167, 169Case T-111/96 ITT Promedia NV v Commission of the European

Communities [1998] ECR II-2937 ....................................................214Case T-213/97 Eurocotton v Council of the European

Union [2000] EC II-3727 ..........................................................224, 225Case T-228/97 Irish Sugar v Commission ......................................163, 164Case T-256/97 BEUC v Commission of the European

Communities [2000] ECR II-101 ......................................................224Case 88/98 Kundan Industries Ltd v Council of the

European Union ................................................................................222Case T-58/99 Mukand Ltd, Isibars Ltd, Ferro Alloys

Corporation Ltd and Viraj Impoexpo Ld v Council of the European Union [2001] ECR II-2521 ..................................196, 214

Case T-188/99 Euroalliages v Commission of the European Communities [2001] ECR II-1757 ....................................................203

Case T-342/99 Airtours plc v Commission ..............................................152, 163, 166, 167, 168, 170

AlphabeticalAirtours plc v Commission Case

T-342/99....................................................152, 163, 166, 167, 168, 170BEUC v Commission of the European Communities

Case T-256/97 [2000] ECR II-101 ....................................................224Compagnie Maritime Belge v Commission Case

T-24/26 & T-28/93 [1996] ECR II-1019............................156, 164, 165Euroalliages v Commission of the European Communities

Case T-188/99 [2001] ECR II-1757 ..................................................203Eurocotton v Council of the European Union

Case T-213/97 [2000] EC II-3727 ............................................224, 225

x Table of Cases

Gencor Case T-102/96 [1999]ECR II-753................................158, 159, 160, 161, 162, 165, 167, 169

Irish Sugar v Commission Case T-228/97 ......................................163, 164ITT Promedia NV v Commission of the European

Communities case T-111/96 [1998] ECR II-2937 ..............................214Kundan Industries Ltd v Council of the European Union Case T-88/98 ..............................................................................222Mukand Ltd, Isibars Ltd, Ferro Alloys Corporation

Ltd and Viraj Impoexpo Ld v Council of the European Union Case T-58/99 [2001] ECR II-2521 ..................................196, 214

Società Italiana Vetro v Commission Joined Cases T-68/89, T-77/89 and T-78/89 [1992] ECR II-1403 ................154, 155, 158, 159

Swedish Match Philippines Inc v Council of the European Union Case T-171/97 [1999] ECR II-3241 ........................211

European Court of Justice

NumericalCase 8/55 Fédéchar v High Authority [1954/56] ECR 245 ......................10Case 26/62 Van Gend en Loos v Netherlands Inland

Revenue Administration [1963] ECR 1 ......3, 5, 11, 127, 235, 362, 379Case 6/64 Costa v ENEL [1964] ECR 1251 ..................127, 378, 379, 416Case 14/68 Wilhelm v Bundeskartellamt [1969] ECR 1 ........................408Case 48/69 ICI v Commission [1972] ECR 619 ....................................152Case 22/70 Commission v Council (AETR)

[1971] ECR 263 ................................................127, 380, 410, 414, 417Case 78/70 Deitsche Grammophon v Metro [1971] ECR 487 ..............152Case C-6/72 Europemballage Corporation and

Continental Can v Commission [1973] ECR 215 ..............................152Cases 40 to 48, 50, 54 to 56, 111, 113 and 114–73

Coöperatieve Vereniging “Suiker Unie” UA v Commission of the European Communities [1975] ECR 1663 ..............................153

Case 36/74 Donà v Mantero [1976] ECR 1333 ....................................273Case 41/74 Van Duyn v Home Office [1974] ECR 1337 ........3, 4, 11, 317Case 48/75 The State v Royer [1976] ECR 497 ....................366, 368, 371Case 87/75 Bresciani v Amministrazione delle

France [1976] ECR 129 ....................................................................380Case 87/75 Commission v UK and Ireland [1976] ECR 129..................380Case 27/76 United Brands v Commission [1978] ECR 207....................153Case 43/76 Defrenne v Sabena [1976] ECR 455....................................386Case 85/76 Hoffman-la-Roche [1979] ECR 461....................................153Case 106/77 Amministrazione delle Finance dello

Stato v Simmenthal SpA (No 2) [1978] ECR 629 ..................................6

Table of Cases xi

Case 120/78 Rewe Zentrale v Bundesmonopolverwaltung für Branntwein (‘Cassis de Dijon’) [1979] ECR 649 ..........................133

Case 149/79 Commission v Belgium [1980] ECR 3881 ........................369Case 53/81 Levin [1982] ECR 1035 ......................................................187Case 65/81 Reina v Landeskreditbank

Baden-Württemberg [1982] ECR 33 ........................................366, 370Case 283/81 CILFIT (Srl) & Lanificio di Gavardo

SpA v MInistry of Health [1982] ECR 3415 ........................................7Case 286/82 Luisi and Carbone v Ministero del

Tesoro [1984] ECR 377 ............................................................272, 369Case 4/83 Von Colson and Kaman v Nordhrein-Westfalen

[1984] ECR 1891 317, [1986] 2 CMLR 430 ....................................317Case 19/83 Wendelboe [1985] ECR 457................................................185Case 238/83 Caisse d’Allocations Familiales de la

Region Parisienne v Mr & Mrs Meade [1984] ECR 2631 ................371Case 152/84 Marshall v Southampton and South-West

Hampshire Health Auhtority (Teaching) [1986] ECR 723 ................369Case 174/84 Bulk Oil (Zug) AG v Sun International

Ltd and Sun oil Company [1986] ECR 559 ......................................202Case 197/84 Steinhauser v City of Biarritz [1985] ECR 1819................274Case 66/85 Lawrie-Blum v Land baden-Württenberg

[1989] ECR 2121 ..............................................................................369Case 104/85 Danmols Inventar [1985] ECR 2639 ........178, 185, 188, 189Case 63/86 Commission v Italy (‘Social Housing’) [1988] ECR I-29......274Case 66/86 Flugreisen v Zentrale zur Bekämpfung

unlauteren Wettbewerbs [1989] ECR 803 ........................................156Case 196/86 Steymann v Staatssecretaris van Justitie

[1988] ECR 2085 ..............................................................................273Case 247/86 Alsatel v Nocasam [1988] ECR 5987................................153Case 263/86 Belgium v Humbel [1988] ECR 5365................................273Case 324/86 Daddy’s Dance Hall [1988] ECR 739................175, 176, 177Case 144 & 145/87 Berg and Busschers [1988] ECR 2559....................177Case 186/87 Cowan v Trésor Public [1989] ECR 195 ..................274, 313Case C-69/89 Nakajima All Precision Co Ltd v

Council of the European Communities [1991] ECR I-2069 ..............203Cases C-213/89, C-221/89 & C-48/93 R v Secretary of

State for Transport, ex parte Factortame Limited [1990] ECR I-2433, [1991] ECR I-3905, [1996] ECR I-1029 ........................11

Case C-6/90 Francovich & Bonifaci v Italy [1991] ECR I-5357 ........................................................11, 317, 362, 369, 386

Case C-159/90 SPUC v Grogan [1991] ECR I-4685 ..............................273Case C-269/90 Technische Universität v Hauptzollamt

München-Mittee [1991] ECR I-5469 ................................................224Case C-311/90 Hierl v Hauptzollamt Regensburg

[1992] ECR I-2061............................................................................101

xii Table of Cases

Case 369/90 Michletti v Delegación del Gobierno en Canatabria [1992] ECR I-4329 ........................................365, 367, 382

Case C-83/91 Wienand Meilicke v ADV/ORGA FA Meyer AG [1992] ECR I-4871 ............................................................11

Cases C-132, 138 & 139/91 Katsikas, Skreb and Schroll [1992] ECR I-6577............175, 176, 177, 178, 179, 180, 181, 182, 184

Cases C-159/91 & C-160/91 Poucet v Assutances Generales de France(AGF) and Caisse Mutuelle Regionale du Languedoc-Roussillon and Pistre v Caisse Autonome Nationale de Compensation de l’Assurance Vieillesse des Artisans [1993] ECR I-637 ........................275

Case C-327/91 France v Commission [1994] ECR I-3641 ....................414Case 91/92 Dori v Recreb Sl [1994] ECR I-3325 ..................................369Case C-102/92 Wirth v Landeshauptstadt

Hannover [1993] ECR I-6447 ..................................................273, 283Case C-393/92 Almelo [1994] ECR I-1477....................................155, 156Case C-431/92 Commission v Germany Case [1995] ECR I-2189 ..........11Case 45/93 Commission v Spain (‘Museum Admission’)

[1994] ECR I-911..............................................................................274Case C-280/93 Germany v Council [1994] ECR I-4793 ........................406Cases C-68/94, C-30/95 Kali und Salz [1998]

ECR I-1375 ......................................................................157, 158, 159Case 96/94 Centro Servizi Spediporto v Spedizione

Maritima del Golfo [1995] ECR I-2883 ............................................156Cases C-140/94, C-141/94 and C-142/94 DIP v Comune di

Bassamo del Grappa and Comune di Chioggia [1995] ECR I-3257 ......................................................................................156

Cases C-172 & 173/94 Merck and Neuhuys [1996] ECR I-1253 ..........180Case C-268/94 Henke [1996] ECR I-4989 ............................................179Case C-305-94 Rotsart de Hertaing [1996] ECR I-5927........................177Case C-28/95 Leur-Bloem v Inspecteur der Belastingdienst/

Ondernemingen Amsterdam [1997] ECR I-4161 ..................................9Case C-70/95 Sodemare SA v Regione Lombardie

[1997] ECR I-3395............................................................................275Case C-72/95 Kraaijeveld [1996] ECR I-5403 ........................................11Case 120/95 Decker v Caise de Maladie des Employes Prives

[1998] 2 CMNLR 879 ......................................................................370Case C-130/95 Giloy v HZA Frankfurt am Main-Ost

[1997] ECR I-4291................................................................................9Case 338/95 Wiener v HZA Emmerich [1997] ECR I-6495 ......................9Case C-53/96 Hèrmes International v FHT Marketin

Choice [1998] ECR I-3603................................................................203Case C-85/96 Martínez Sala v Freistaat Bayern [1998]

ECR I-2691 ........................................................................12, 373, 386Case C-129/96 Inter-Environment Wallonie ASBL

[1997] ECR I-7411..............................................................................11

Table of Cases xiii

Case C-149/96 Portuguese Republic v Council of the European Communities [1999] ECR I-8395..............................................202, 225

Case C-158/96 Kohll v Union des Caisses de Maladie [1998] ECR I-1931............................................275, 276, 277, 288, 370

Case C-355/96 Silhouette International Schmied GmbH & Co KG v Hartlauer Handelsgesellschaft mbh [1998] ECR I-4799 ............12

Case C-367/96 Kefalas v Dimosio and OAE [1998] ECR I-2843 ..............8Cases C-395/96P and C-396/96P Compagnie Maritime

Belge [2000] ECR I-1365 ..........152, 156, 157, 163, 164, 165, 169, 170Case C-399/96 Europièces [1998] ECR I-6965......................................180Case C-87/97 Consorzio per la Tutela del Formaggio

Gorgonzola v Käserei Champignon Hofmeister and Bracharz [1999] ECR I-1301 ..............................................................85

Case C-167/97 Seymour-Smith and Perez [1999] ECR I-623 ....................6Case 323/97 Commission v Belgium [1998] ECR I-4281 ......................371Case C-378/97 Wijsenbeek [1999] ECR I-6207 ......................................12Case C-224/98 D’Hoop v Office national de l’emploi

[2002] ECR I-6191......................................................................12, 369Cases C-300/98 & C-382/98 Parfums Christian Dior SA v Tuk

Consultancy BV [2000] ECR I-11307 ................................................11Case C-343/98 Collino [2000] ECR I-6659 ..........................................179Case C-368/98 Vanbreakel v Alliance nationale des

mutualités chrétiennes [2001] ECR I-5363 ................................275, 281Case C-376/98 Germany v Parliament and Council [2000]

ECR I-8419 ..............................................................................173, 190Case C-392/98 Assco Gerüste GmbH and R van Dijk v Wilhelm

Layher GmbH & Co KG and Layher BV [2000] ECR I-11307 ..........11Case C-467/98 Commission v Denmark, judgment of

5 November 2002 ....................................................................409, 410Case C-35/99 Arduino [2002] ECR I-1529................................................7Case 192/99 The Queen v Secretary of State for the Home

Department, ex parte Manjit Kaur [2001] ECR I-1237 ....................365Case 306/99 Banque internationale pour l’Afrique occidentale

SA (BIAO) v Finanzamt für Grobunternehmen in Hamburg [2003] ECR I-1..................................................................................6, 9

Case 413/99 Bumbast v Secretary of State for the Home Department [2002] 3 CMLR 23........................................................369

Case 459/99 Mouvement contre le Racism, l’Antisémitisme et la Xénophobie ASBL (MRAX) v Belgium [2002] ECR I-6591 ..............369

Case C-89/99 Schieving-Njstad v Groeneveld [2001] ECR I-5851 ..........11Case C-157/99 B S M Garaets-Smits v Stichting Zienkenfonds

VGZ and Peerbooms v Stichting CZ Groep Zorgverzekeringen [2001] ECR I-5473....................275, 276, 283, 285, 286, 288, 290, 370

xiv Table of Cases

Case C-172/99 Oy Liikenne [2001] ECR I-745......................................188Case C-175/99 Mayeur [2000] ECR I-7755 ..........................................179Case C-184/99 Grzelcyzk v Centre public d’aide sociale

d’Ottignies-Louvain, la-Neuve [2001] ECR I-6193 ............12, 366, 370Case C-233/99 Nachi Europe GmbH v Hauptzollamt

Krefeld [2001] ECR I-1197 ..............................................................225Case C-385/99 Müller Fauré v Onderlinge Waarborgmaat-

schappij OZ Zorgverzekeringen UA, judgment of 13 May 2003............................................275, 276, 278, 279, 280, 282,

283, 284, 285, 288, 290Case C-416/99 & Case C-416/99 Davidoff SA v A&G

Imports Limited [2001] ECR I-8691 ..................................................12Case C-453/99 Courage Limited v Crehan [2001] ECR I-6297 ..............11Case C-497/99 Irish Sugar v Commission, 10 July 2001........................163Case 32/00 Idryma Koinonikon Asfaliseon (IKA) v Vasilios

Ioanniais Case 32/00 OJ 2003 C 101/2 (26 April 2003)....................370Case C-51/00 Tecom Case, 24 January 2002 ........................................188Case C-60/00 Carpenter v Secretary of State for the Home

Department [2002] ECR I-6279 ........................................................291Case C-208/00 Überseering BV and Nordic Construction

Companmy Bamanagement GmbH (NCC) [2002] ECR I-9919 ..........12Case C-218/00 Cisal di Battistello Venanzio & C Sas v Istituto

nazionale pe l’assicurazione contro gli infortuni sul lavoro (INAIL) [2002] ECR 691 ..................................................................275

Case C-245/00 SENA v NOS, 6 February 2003 ............................192, 193Case C-253/00 Munoz v Frumar Limited [2002] ECR I-7289 ................11Case 280/00 Altmark Trans GmbH, Regierungspräsidium

Magdeburg v Nahverkehrsgesellschaft Altmark GmbH 280/00 24 July 2003..............................................................................6

Case C-56/01 Inizan v Caisse primaire d’assurance maladie des Hauts de Seine Case C-56/01, judgment of 21 Jan. 2003 ............281

Case C-108/01 Connsorzio del Prosciutto di Parma v Asda Stores Ltd Case C-108/01, 20 May 2003 ............................................85

Case C-189/01 Jippes v Minister van Landbouw, Natuurbeheer en Visserij [2001] ECR I-5689 ............................................................85

Case C-224/01 Köbler v Republic of Austria, 30 Sept. 2003......................8Case C-355/01 AOK Bundesverban v Ichtyol-Gessellschaft

Corder, 22 May 2003 ........................................................................275Case C-388/01 Commission v Italy (‘Italian museums’),

judgment of 16 Jan. 2003..................................................................274Case C-491/01 British American Tobacco (Investments) Ltd

and Imperial Tobacco Ltd [2002] ECR I-1453 ..................................409Case 441/02 Commission v Germany (pending) ....................................367

Table of Cases xv

AlphabeticalAlmelo Case C-393/92 [1994] ECR I-1477....................................155, 156Alsatel v Nocasam Case 247/86 [1988] ECR 5987................................153Altmark Trans GmbH, Regierungspräsidium Magdeburg v

Nahverkehrsgesellschaft Altmark GmbH Case C-280/0024 July 2003..........................................................................................6

Amministrazione delle Finance dello Stato v SimmenthalSpA (No 2) Case 106/77 [1978] ECR 629 ............................................6

AOK Bundesverban v Ichtyol-Gessellschaft CorderCase C-355/01, 22 May 2003 ..........................................................275

Arduino Case C-35/99 [2002] ECR I-1529................................................7Assco Gerüste GmbH and R van Dijk v Wilhelm Layher GmbH &

Co KG and Layher BV Case C-392/98 [2000] ECR I-11307 ..............11B S M Garaets-Smits v Stichting Zienkenfonds VGZ and Peerbooms v

Stichting CZ Groep Zorgverzekeringen Case C-157/99 [2001] ECR I-5473 ..............................275, 276, 283, 285, 286, 288, 290, 370

Banque internationale pour l’Afrique occidentale SA (BIAO) v Finanzamt für Grobunternehmen in Hamburg Case C-306/99 [2003] ECR I-1 ........................................................6, 9

Belgian State v Fatna Mesbah [1999] ECR I-7955 ................................365Belgium v Humbel Case 263/86 [1988] ECR 5365................................273Berg and Busschers Joined Cases 144 & 145/87

[1988] ECR 2559 ..............................................................................177Bond van Adverteenders v The Netherlands [1988]

ECR 2085 ................................................................................273, 286Bresciani v Amministrazione delle France Case 87/75

[1976] ECR 129 ................................................................................380British American Tobacco (Investments) Ltd and Imperial

Tobacco Ltd case C-491/01 [2002] ECR I-1453 ................................409Bulk Oil (Zug) AG v Sun International Ltd and Sun oil

Company Case C-174/84 [1986] ECR 559........................................202Bumbast v Secretary of State for the Home Department Case

413/99 [2002] 3 CMLR 23 ..............................................................369Caisse d’Allocations Familiales de la Region Parisienne v

Mr & Mrs Meade Case 238/83 [1984] ECR 2631 ............................371Carpenter v Secretary of State for the Home Department Case

C-60/00 [2002] ECR I-6279..............................................................291Centro Servizi Spediporto v Spedizione Maritima del Golfo

Case C-96/94 [1995] ECR I-2883 ....................................................156CILFIT (Srl) & Lanificio di Gavardo SpA v Ministry of Health

case 283/81 [1982] ECR 3415 ..............................................................7Cisal di Battistello Venanzio & C Sas v Istituto nazionale pe

l’assicurazione contro gli infortuni sul lavoro (INAIL) Case C-218/00 [2002] ECR 691........................................................275

xvi Table of Cases

Collino Case C-343/98 [2000] ECR I-6659 ..........................................179Commission v Belgium Case 149/79 [1980] ECR 3881 ........................369Commission v Belgium Case 323/97 [1998] ECR I-4281 ......................371Commission v Council (AETR) Case 22/70 [1971]

ECR 263 ..........................................................127, 380, 410, 414, 417Commission v Denmark Case C-467/98, judgment of

5 November 2002 ....................................................................409, 410Commission v Germany case 441/02 (pending) ....................................367Commission v Germany Case C-431/92 [1995] ECR I-2189 ..................11Commission v Italy (‘Italian museums’) Case C-388/01,

judgment of 16 Jan. 2003..................................................................274Commission v Italy (‘Social Housing’) Case 63/86

[1988] ECR I-29................................................................................274Commission v Spain (‘Museum Admission’) Case C-45/93

[1994] ECR I-911..............................................................................274Commission v UK and Ireland Case 87/75 [1976] ECR 129..................380Compagnie Maritime Belge Joined Cases C-395/96P and

C-396/96P [2000] ECR I-1365..152, 156, 157, 163, 164, 165, 169, 170Connsorzio del Prosciutto di Parma v Asda Stores Ltd Case

C-108/01, 20 May 2003......................................................................85Consorzio per la Tutela del Formaggio Gorgonzola v Käserei

Champignon Hofmeister and Bracharz Case C-87/97 [1999] ECR I-1301..............................................................................85

Coöperatieve Vereniging “Suiker Unie” UA v Commission of the European Communities Joined Cases 40 to 48, 50, 54 to 56, 111, 113 and 114-73 [1975] ECR 1663 ............................................153

Costa v ENEL Case 6/64 [1964] ECR 1251 ..................127, 378, 379, 416Courage Limited v Crehan Case C-453/99 [2001] ECR I-6297 ..............11Cowan v Trésor Public case 186/87 [1989] ECR 195 ....................274, 313Daddy’s Dance Hall Case 324/86 [1988] ECR 739................175, 176, 177Danmols Inventar Case 104/85 [1985] ECR 2639 ........178, 185, 188, 189Davidoff SA v A&G Imports Limited Cases C-414/99,

C-415/99 and C-416/99 [2001] ECR I-8691 ......................................12Decker v Caise de Maladie des Employes Prives Case 120/95

[1998] 2 CMNLR 879 ......................................................................370Defrenne v Sabena Case 43/76 [1976] ECR 455....................................386Deitsche Grammophon v Metro Case 78/70 [1971] ECR 487 ..............152D’Hoop v Office national de l’emploi Case C-224/98

[2002] ECR I-6191......................................................................12, 369DIP v Comune di Bassamo del Grappa and Comune di

Chioggia Joined cases C-140/94, C-141/94 and C-142/94 [1995] ECR I-3257............................................................................156

Donà v Mantero Case 36/74 [1976] ECR 1333 ....................................273Dori v Recreb Sl Case 91/92 [1994] ECR I-3325 ..................................369

Table of Cases xvii

Europemballage Corporation and Continental Can v Commission Case C-6/72 [1973] ECR 215 ......................................152

Europièces Case C-399/96 [1998] ECR I-6965......................................180Fédéchar v High Authority case 8/55 [1954/56] ECR 245 ......................10Flugreisen v Zentrale zur Bekämpfung unlauteren Wettbewerbs

Case 66/86 [1989] ECR 803..............................................................156France v Commission Case C-327/91 [1994] ECR I-3641 ....................414Francovich & Bonifaci v Italy Case C-6/90 [1991]

ECR I-5357 ........................................................11, 317, 362, 369, 386Germany v Council Case C-280/93 [1994] ECR I-4793 ........................406Germany v Parliament and Council Case C-376/98

[2000] ECR I-8419....................................................................173, 190Giloy v HZA Frankfurt am Main-Ost Case C-130/95

[1997] ECR I-4291................................................................................9Grzelcyzk v Centre public d’aide sociale d’Ottignies-Louvain,

la-Neuve Case C-184/99 [2001] ECR I-6193 ......................12, 366, 370Henke Case C-268/94 [1996] ECR I-4989 ............................................179Hèrmes International v FHT Marketin Choice Case C-53/96

[1998] ECR I-3603............................................................................203Hierl v Hauptzollamt Regensburg Case C-311/90 [1992]

ECR I-2061 ......................................................................................101Hoffman-la-Roche Case 85/76 [1979] ECR 461....................................153ICI v Commission Case 48/69 [1972] ECR 619 ....................................152Idryma Koinonikon Asfaliseon (IKA) v Vasilios Ioanniais

Case 32/00 OJ 2003 C 101/2 (26 April 2003) ..................................370Inizan v Caisse primaire d’assurance maladie des Hauts de Seine

Case C-56/01, judgment of 21 Jan.2003............................................281Inter-Environment Wallonie ASBL Case C-129/96 [1997]

ECR I-7411 ........................................................................................11Irish Sugar v Commission Case C-497/99, 10 July 2001........................163Jippes v Minister van Landbouw, Natuurbeheer en Visserij

Case C-189/01 [2001] ECR I-5689 ....................................................85Johnston v Chief Constable of the Royal Ulster Constabulary

Case 222/84 [1986] ECR 1651..................................................369, 386Kali und Salz Joined cases C-68/94, C-30/95 [1998]

ECR I-1375 ......................................................................157, 158, 159Katsikas, Skreb and Schroll Joined Cases C-132, 138 & 139/91

[1992] ECR I-6577............175, 176, 177, 178, 179, 180, 181, 182, 184Kefalas v Dimosio and OAE Case C-367/96 [1998]

ECR I-2843 ..........................................................................................8Köbler v Republic of Austria Case C-224/01, 30 Sept. 2003......................8Kohll v Union des Caisses de Maladie Case C-158/96 [1998]

ECR I-1931 ......................................................275, 276, 277, 288, 370Kraaijeveld Case C-72/95 [1996] ECR I-5403 ........................................11

xviii Table of Cases

Lawrie-Blum v Land baden-Württenberg Case 66/85 [1989] ECR 2121 ........................................................................................369

Leur-Bloem v Inspecteur der Belastingdienst/OndernemingenAmsterdam Case C-28/95 [1997] ECR I-4161 ......................................9

Levin Case 53/81 [1982] ECR 1035 ......................................................187Luisi and Carbone v Ministero del Tesoro Case 286/82

[1984] ECR 377 ........................................................................272, 369Marshall v Southampton and South-West Hampshire Health

Auhtority (Teaching) Case 152/84 [1986] ECR 723 ..........................369Martínez Sala v Freistaat Bayern Case C-85/96 [1998]

ECR I-2691 ........................................................................12, 373, 386Mayeur Case C-175/99 [2000] ECR I-7755 ..........................................179Merck and Neuhuys Joined Cases C-172 & 173/94 [1996]

ECR I-1253 ......................................................................................180Michletti v Delegación del Gobierno en Canatabria

Case 369/90 [1992] ECR I-4329 ......................................365, 367, 382Mouvement contre le Racism, l’Antisémitisme et la Xénophobie

ASBL (MRAX) v Belgium Case 459/99[2002] ECR I-6591 ..............369Müller Fauré v Onderlinge Waarborgmaatschappij OZ

Zorgverzekeringen UA Case C-385/99, judgment of 13 May 2003........................275, 276, 278, 279, 280, 282,

283, 284, 285, 288, 290Munoz v Frumar Limited Case C-253/00 [2002] ECR I-7289 ................11Nachi Europe GmbH v Hauptzollamt Krefeld Case C-233/99

[2001] ECR I-1197............................................................................225Nakajima All Precision Co Ltd v Council of the European

Communities Case C-69/89 [1991] ECR I-2069................................203Oy Liikenne Case C-172/99 [2001] ECR I-745......................................188Parfums Christian Dior SA v Tuk Consultancy BV

Joined cases C-300/98 & C-392/98 [2000] ECR I-11307....................11Petrotub SA and Republica SA v Council of the

European Union [2003] ....................................................................222Portuguese Republic v Council of the European Communities

Case C-149/96 [1999] ECR I-8395 ..........................................202, 225Poucet v Assutances Generales de France (AGF) and Caisse

Mutuelle Regionale du Languedoc-Roussillon and Pistre v Caisse Autonome Nationale de Compensation de l’Assurance Vieillesse des Artisans Joined Cases C-159 and 160/91 [1993] ECR I-637 ..........................................................275

R v Secretary of State for Transport, ex parte Factortame LimitedCases C-213/89, C-221/89 & C-48/93 [1990] ECR I-2433,[1991] ECR I-3905, [1996] ECR I-1029 ............................................11

Reina v Landeskreditbank Baden-Württemberg Case 65/81 [1982] ECR 33 ..........................................................................366, 370

Table of Cases xix

Rewe Zentrale v Bundesmonopolverwaltung für Branntwein (‘Cassis de Dijon’) Case 120/78 [1979] ECR 649 ................................................................................133

Rotsart de Hertaing Case C-305/94 [1996] ECR I-5927........................177Schieving-Njstad v Groeneveld Case C-89/99 [2001]

ECR I-5851 ........................................................................................11SENA v NOS Case C-245/00, 6 February 2003 ............................192, 193Seymour-Smith and Perez Case C-167/97 [1999] ECR I-623 ....................6Silhouette International Schmied GmbH & Co KG v

Hartlauer Handelsgesellschaft mbh Case C-355/96[1998] ECR I-4799..............................................................................12

Sodemare SA v Regione Lombardie Case C-70/95 [1997] ECR I-3395 ......................................................................................275

SPUC v Grogan Case C-159/90 [1991] ECR I-4685 ..............................273Steinhauser v City of Biarritz Case 197/84 [1985] ECR 1819................274Steymann v Staatssecretaris van Justitie Case 196/86 [1988]

ECR 2085 ........................................................................................273Technische Universität v Hauptzollamt München-Mittee

Case C-269/90 [1991] ECR I-5469 ..................................................224Tecom Case C-51/00, 24 January 2002 ................................................188The Queen v Secretary of State for the Home Department,

ex parte Manjit Kaur Case 192/99 [2001] ECR I-1237 ....................365The State v Royer Case 48/75 [1976] ECR 497 ....................366, 368, 371Überseering BV and Nordic Construction Company

Bamanagement GmbH (NCC) Case C-208/00 [2002]ECR I-9919 ........................................................................................12

United Brands v Commission Case 27/76 [1978] ECR 207....................153Van Duyn v Home Office case 41/74 [1974] ECR 1337 ..........3, 4, 11, 317Van Gend en Loos v Netherlands Inland Revenue Administration

Case 26/62 [1963] ECR 1............................3, 5, 11, 127, 235, 362, 379Van riet v Onderlinge Waarborgmaatschappi ZAO

Zorgverzekeringen Case C-385/99, judgment 13 May 2003..............275Vanbreakel v Alliance nationale des mutualités chrétiennes

Case C-368/98 [2001] ECR I-5363 ..........................................275, 281Von Colson and Kaman v Nordhrein-Westfalen Case 4/83

[1984] ECR 1891 317, [1986] 2 CMLR 430 ....................................317Wendelboe Case 19/83 [1985] ECR 457................................................185Wienand Meilicke v ADV/ORGA FA Meyer AG Case C-83/91

[1992] ECR I-4871..............................................................................11Wiener v HZA Emmerich Case C-338/95 [1997] ECR I-6495 ..................9Wijsenbeek Case C-378/97 [1999] ECR I-6207 ......................................12Wilhelm v Bundeskartellamt Case 14/68 [1969] ECR 1 ........................408Wirth v Landeshauptstadt Hannover Case C-102/92 [1993]

ECR I-6447 ..............................................................................273, 283

xx Table of Cases

International Court of Justice

Admission to the United Nations, ICJ reports 1947/48 68 ....................246Aquilina ................................................................................................265Arrest Warrant, General List No 124 (12 February 2002) ....................265Barcelona Traction, ICJ Reports, 1970 para 33 ....................................240Bosnian Genocide [1993] ICJ Reports 408 ............................................269Chorzhow Factory Series A, 1928, No 17..............................262, 263, 267Corfu Channel IJ Reports 1948, 35 ..............................................265, 267Free Zones of Upper Savoy , Series A/B 1934 ........................................237Furundzija (1999) 8 ILM 349................................................................241Haya de la Torre, ICJ Reports 1951 ......................................................267Krusilin..................................................................................................265Kupreskic, Judgment of 14 January 2000 ......................................240, 241La Grand General List No 124 (27 June 2001)......................................265Nicaragua, Merits, ICJ reports 1986, 142..............................................267Papamichalopoulos Series A-330B 56....................................................262Rainbow Warrior, XX RIAA, 275 ........................................................265Reservations, Advisory Opinion on ICJ Reports 1951, 23 ....................239

FRANCE

Dec No 96-373 DC , 9 April 1996 ..........................................................16Gregory, Assemblée Plenaire, 23 February 2001, Bull No 5, 10 ..............23Nicolo [1990] CMLR 173 ........................................................................7

GERMANY

15 February 1984, BAG AP ..................................................................18217 November 1977, BAG AP ................................................................18221, July 1977, BAG Ap..........................................................................18230 October 1986, BAG AP ....................................................................182Aardolie Belange Gemeenschap BV [1972] 2 CMLR D 1 ......................153Brunner v European Union Treaty [1994] 1 CMLR 57 ................8, 137-41Verenigde Bloemenvelingen Aalsmeer v Willing 1994

NJ 1995/51 ........................................................................................65

UNITED KINGDOM

Commission for Racial Equality v Dutton [1989] 1 All ER 306 ............322Continental Can, Re [1972] CMLR D 11..............................................153

Table of Cases xxi

Cooper v British Rail, unreported, The Independent27 November 1986............................................................................322

CRE v Precision Manufacturing Services Ltd caseNo 4106/91 ......................................................................................322

Donoghue v Stevenson [1932] AC 562 ....................................................12J H Walker ltd v Hussain [1996] IRLR 11 ............................................322Mandla (Sewa Singh) v Dowell Lee [1983] 2 AC 548............................322Meade v Baxendale [1998] IRLR 706....................................................177Myazi v Ryamans, EAT, 10 May 1998 (unreported)..............................322Nokes v Doncaster [1940] AC 1014......................................................179Seide v Gillette Industries Ltd [1980] 1 All ER 306................................322Tariq v Young, Birmingham IT, 19 April 1989 (unreported) ..................322Three Rivers District Council v Governor and Company

of the Bank of England (No 3) [2000] 2 WLR 15 (CA), [2000] 2 WLR 1220 (HL) .................................................................... 7

United Brands, Re [1976] CMLR D 28..................................................153Wilson v St Helens Borough Council [1998] IRLR 706 ........................177

UNITED STATES OF AMERICA

Blackmer v United States 284 US 421 (1932) ........................................364Eastern Railroad Presidents Conference v Noerr

365 US 127, 5 LEd 2d 464, 81 SCt 523 (1961) ................................214Elkins v Moreno 435 US 647 (1978) ....................................................364Gitlow v New York 268 US 652 (1925) ................................................364McCulloch v State of Maryland 17 US 316 (1819) ................................358Marbury v Madison 5 US 137 (1803)....................................................379Palkov v Connecticut 302 US 319 (1937) ..............................................364Petruzzi IHHR 744/46 (2000) ..........................................................744-46Plyler v Doe 457 US 202........................................................................364Plyler v Doe 457 US 202 (1982) ............................................................374Rosero 118 ILR 113 ..............................................................................263Scott v Sandford 60 US 393 (1857)........................................................365Shapiro v Thompson 394 US 618 (1969) ......................................364, 374Sosna v Iowa 419 US 393 (1975) ..................................................364, 374Tamayo 116 ILR 435 ....................................................................263, 266United States v Lopez 514 US 549 (1995)..............................................377United States v Morrison 529 US 598 (2000) ........................................377US v Topco Associates Inc 45 US 596 (1972) ........................................236Velasquez-Rodriguex (Compensation) 95 IRL 315 ................................266Yick Wo v Hopkins 1118 US 356 369 (1886)........................................363

xxii Table of Cases

DECISIONS

73/109/EEC ..................................................................................153, 15689/93/EEC ............................................................................................15494/119/EC ............................................................................................15697/26/EC ..............................................................................................1581999/468/EEC ..............................................................................109, 113Airtours/First choice 2000/276/EC ........................................161, 162, 171CEWAL 93/82/EEC ..............................................................................169Irish Sugar 97/624/EC............................................................................164Nestlé-Perrier Case IV/M, OJ [1992] L 356/1 ........................................157

OPINIONS

Opinion 1/75 [1975] ECR 1355 ....................................................202, 414Opinion 11/11/1975 ..............................................................................202Opinion 1/76 [1977] ECR 741 ......................................409, 410, 411, 414Opinion 1/78 [1997] ECR 2871 ............................................................202Opinion 2/91 [1993] ECR I-1061..........................................................410Opinion 1/94 [1994] ECR I-5257..........................202, 409, 410, 411, 415Opinion 2/94 [1996] ECR I-1759..........................................................362

Table of Cases xxiii

Table of European Legislation

Treaties

EC Treaty ..............................................................................314, 399, 403Art 3..................................................................................................147

(1)(b) ....................................................................................201, 380Art 4..........................................................................................127, 147Art 5..........................................................190, 358, 359, 378, 393, 405

(2) ................................................................................................127Art 8..................................................................................................182Art 10................................................................................................408Art 12........................................................................................275, 371Art 13................................................................................314, 371, 378Art 14................................................................................................368

(2) ................................................................................................373Art 17................................................................................367, 393, 394Arts 17–22 ........................................................................367, 368, 371Art 17(1) ..........................................................................................365Art 18................................................................................................393

(1) ................................................................................................366(2) ................................................................................................370(3) ........................................................................................370, 372

Art 19................................................................................361, 364, 393Art 20................................................................................................368Art 21........................................................................................368, 393Art 23........................................................................................369, 389Art 25................................................................................366, 389, 391Arts 25–27 ........................................................................................201Art 26................................................................................................389Art 28................................................................................................133Art 33..................................................................................................80Art 39........................................................187, 188, 313, 366, 369, 371

(1) ................................................................................................388(2) ........................................................................362, 366, 368, 388(4) ........................................................................................187, 369

Art 43........................................................................275, 366, 368, 369Art 46................................................................................................371Art 48................................................................................................273

Art 49 ..............................271, 272, 273, 274, 275, 276, 278, 279, 280, 281, 283, 284, 285, 288, 289, 290, 291, 366, 368, 369, 388

Art 50................................................................................................272Art 55................................................................................................371Art 56........................................................................................366, 369Art 61........................................................................................372, 373Arts 61–63 ................................................................................372, 382Arts 61–69 ................................................................................372, 382Art 62........................................................................................373, 389Art 63........................................................................................373, 389Art 66................................................................................................373Art 67................................................................................................372Art 71................................................................................................390Art 81................................................................154, 155, 164, 213, 275

(1) ................................................................................155, 156, 164(3) ........................................................................................156, 164

Art 82 ......................................151, 152, 154, 155, 156, 157, 158, 159, 160, 164, 165, 167, 169, 172, 275

Art 90................................................................................................391Art 94................................................................................128, 132, 174Art 95................................................................................134, 135, 138Arts 98–124 ......................................................................................380Art 100..............................................................................................132Art 105..............................................................................................390Arts 105–108 ....................................................................................380Art 106..............................................................................................390

(1) ..................................................................................................60(2) ..................................................................................................60

Art 113..............................................................................................414Arts 131–134 ....................................................................................201Art 131(1) ........................................................................................203Art 132..............................................................................................201Art 133......................................................................................204, 389

(1) ........................................................................................201, 202Art 134..............................................................................................201Art 137..............................................................................................378Art 137(1)(g) ....................................................................................388Art 137(3) ........................................................................................183Art 141..............................................................................................314Art 163..............................................................................................390Art 180..............................................................................................380Art 181..............................................................................................380Art 194..............................................................................................368Art 195..............................................................................................368Art 203......................................................................................391, 411

xxvi Table of European Legislation

Art 205(2) ........................................................................................387Art 220......................................................................................379, 391Art 225..............................................................................................391Art 225(1) ........................................................................................390Art 226......................................................................................126, 129Art 227..............................................................................................392Art 228(6) ........................................................................................362Art 230......................................................................................392, 407Art 234..............................................................................127, 354, 392Art 251......................................................................................371, 417Art 255(1) ........................................................................................368Art 269..............................................................................................394Art 300..............................................................................................201

(1) ................................................................................................414(2) ................................................................................................414

Arts 300–304 ....................................................................................380Art 302..............................................................................................201Art 308......................................................................127, 132, 378, 391Art 310..............................................................................................201Art 313..............................................................................................387

ECSC Treaty ............................................................................................10EEC Treaty ............................................130, 200, 204, 366, 367, 368, 377

Art 3B ......................................................................................127, 190Art 12....................................................................................................4Art 48....................................................................................................4Art 30................................................................................................133Art 48................................................................................................187Art 85................................................................................................154Art 86................................................................................................154Art 100..............................................................................128, 132, 174Art 100A ..........................................................................134, 135, 138Art 119..............................................................................................314Art 169..............................................................................................129Art 177..........................................................................................4, 127Art 189..................................................................................................4Art 235..............................................................................127, 132, 314

Euratom Treaty......................................................................................399Treaty on European Union..................41, 42, 48, 51, 57, 71, 74, 119, 124,

131, 136, 137, 367, 382, 399, 403, 405, 412Art 1..................................................................................................377Art 2..........................................................367, 371, 372, 373, 377, 388Art 4..................................................................................................411Art 5..................................................................................................393Art 6..................................................................................................385

(1) ................................................................................................377

Table of European Legislation xxvii

(2) ................................................................362, 367, 371, 393, 416(3) ................................................................................................367(4) ................................................................................................393

Art 8..................................................................................................357Art 10................................................................................................110Art 11................................................................................................391

(2) ................................................................................................416Art 13................................................................................................391Art 17................................................................................................382Art 18................................................................................................382Art 21................................................................................................368Art 24................................................................................................380Art 26................................................................................................382Arts 27a–27e ....................................................................................387Art 29........................................................................................314, 383Arts 29–32 ........................................................................................383Art 31................................................................................................383Art 40................................................................................................387Art 40a..............................................................................................387Art 40b..............................................................................................387Art 46(d) ..........................................................................................367Art 48........................................................................................395, 396Art 49................................................................................................374Art 61................................................................................................373Art 125..............................................................................................144Art 141(1) ........................................................................................362Art 220..................................................................................................8Art 229..............................................................................................314Art 249..............................................................................................111Art 255..............................................................................................368Treaty of Nice ..........................................................................142, 386Art 157(3) ........................................................................................386Art 214(a) ........................................................................................386Art 217..............................................................................................386Art 230..............................................................................................386s 133,

(3) ................................................................................................386(7) ................................................................................................386

Regulations

Reg 459/68/EEC ....................................................................................204Reg 1408/71 ..........................................................................275, 280, 284

xxviii Table of European Legislation

Art 22........................................................................................271, 281Reg 4056/86 ..........................................................................................156

Art 1(3)(b) ........................................................................................156Art 8..................................................................................................156

Reg 3976/87,Art 7(2) ............................................................................................156

Reg 4064/89 ..................................................152, 157, 158, 162, 169, 172Art 2..........................................................................................170, 171

(2) ................................................................................................171(3) ................................................................................................152

Reg 2092/91/EEC ....................................................................................84Reg 1766/92/EEC,

Art 3(1) ..............................................................................................82Reg 3283/94/EC ....................................................................................204Reg 1251/95/EC ....................................................................................204Reg 384/96/EC ......................................................................204, 224, 232

Art 3.4 ..............................................................................................211Art 22(c)............................................................................................205

Reg 2331/96/EC ....................................................................................204Reg 950/97,

Arts 17-19 ..........................................................................................83Reg 1035/97/EC ....................................................................................315Reg 1103/97 ............................................................................................67Reg 974/98,

Art 6(1) ..............................................................................................61Art 8(3) ..............................................................................................63Art 10..................................................................................................60Art 11............................................................................................60, 64Art 15..................................................................................................60

Recital 19 ................................................................................................67Re 1253/99..............................................................................................82Reg 1251/99,

Art 4....................................................................................................82Reg 1256/99/EC,

Art 3....................................................................................................84Reg 1257/99/EC ................................................................................83, 99

Art 13..................................................................................................83Art 16(1) ............................................................................................83Arts 17–20 ..........................................................................................83Art 23(2) ......................................................................................83, 89

Reg 1259/99/EC ................................................................................82, 83Art 3....................................................................................................82Art 4....................................................................................................82

Reg 1804/99/EC ......................................................................................84

Table of European Legislation xxix

Reg 2238/2000/EC ................................................................................204Reg 178/2002/EC ....................................................................................84Reg 1606/2002 ......................................................................................109

Art 4..................................................................................................110Art 5..................................................................................................111Art 6..................................................................................................109

Reg 1972/2002/EC ................................................................................204Reg 1782/2003 ..................................................................................86, 99

Art 10..................................................................................................88Art 11..................................................................................................88Art 12..................................................................................................88Art 66..................................................................................................86Art 71..................................................................................................86Arts 72–78 ..........................................................................................86

Reg 1783/2003 ..................................................................................89, 99

Directives

64/221/EEC,Art 3......................................................................................................4

77/187/EEC ..................173, 174, 179, 180, 181, 183, 184, 185, 191, 192Art 2,

(1)(d) ............................................................................................185(2) ................................................................................................186

Art 3..........................................................................................174, 177(1)....................................176, 177, 180, 183

Art 4..................................................................................................174Art 7..................................................................................................174

78/660/EEC ..........................................................................................10980/987,

Art 2(2) ............................................................................................18983/349/EEC ..........................................................................................10991/674/EEC ..........................................................................................10992/50 ....................................................................................................28692/100/EC ............................................................................................192

Art 8(2) ............................................................................................19293/36 ....................................................................................................28693/38 ....................................................................................................28693/104/EC ....................................................................................190, 19194/33/EC,

Art 2..................................................................................................19094/45/EC Art 2(d)..................................................................................19096/34/EC,

xxx Table of European Legislation

Clause 1(2) ........................................................................................19097/81/EC ..............................................................................................18698/59/EC

Art 1..................................................................................................1891999/44/EC ..........................................................................................3361999/70/EC ..........................................................................................1861999/74/EC ............................................................................................852000/31/EC ..........................................................................................3372000/35/EC ..........................................................................................3372000/43/EC ..........311, 315, 316, 317, 322, 323, 324, 325, 329, 330, 331

Art 1..........................................................................................317, 320Art 2..........................................................................................320, 322

(1) ........................................................................................316, 319(2)(b) ............................................................................................317(3) ........................................................................................319, 322(4) ................................................................................316, 319, 322

Art 3,(1) ................................................................................................316(2) ........................................................................................324, 327

Art 4..........................................................................................319, 322Art 5..................................................................................319, 320, 322Art 6..........................................................................................317, 330

(1) ................................................................................................330Art 7(1) ....................................................................................316, 329Art 8..................................................................................................316Art 9..................................................................................................316Art 10................................................................................................316Art 12................................................................................................316Art 13........................................................................................315, 326Art 14................................................................................................312Art 15................................................................................................316Art 16................................................................................................315

2001/23/EC ..........................................................................................1742001/88/EC ............................................................................................852002/14/EC,

Art 2..................................................................................................1902002/32/EC ..........................................................................................1902002/73/EC ..........................................................................................186

Table of European Legislation xxxi

Table of International Conventionsand Agreements

American Convention of Human Rights ................................................239Brussels Convention on Recognition of Judgments in

Civil Matters 1968 ............................................................................392Charter of Fundamental Rights of the

European Union 2000 ......................................................372, 400, 403Charter of Fundamental Social Rights for Workers,

Art 5..................................................................................................179Convention on the Future of Europe..............................395, 396, 397, 399

Art I-1 ......................................................................................403, 404Art I-1(1) ..........................................................................................416Art I-5(1) ..........................................................................................416Art I-5(2) ..........................................................................................411Art I-9(2) ..........................................................................................416Art I-9(3) ..................................................................................405, 406Art I-10(1) ................................................................................408, 416Art I-11 ....................................................................................400, 407Art I-12 ............................................................................408, 409, 410Art I-12(1) ................................................................................408, 409Art I-12(2) ................................................................................410, 411Art I-13(1) ........................................................................................407Art I-13(2) ........................................................................................407Art I-15 ............................................................................................400Art I-16 ....................................................................................401, 407Art I-18(2) ........................................................................................411Art I-20 ............................................................................................412Art I-20(4) ........................................................................................413Art I-21 ............................................................................................412Art I-21(1) ........................................................................................412Art I-21(2) ........................................................................................412Art I-23(1) ........................................................................................413Art I-23(2) ........................................................................................413Art I-24(5) ........................................................................................413Art I-25 ............................................................................................400Art I-27 ............................................................................................413Art I-28(1) ........................................................................................411Art I-33 ............................................................................................417

Art I-39 ....................................................................................400, 401Art I-40 ....................................................................................400, 401Art I-57 ............................................................................................403Art I-59 ............................................................................................416Art III-59 ..........................................................................................417Art III-195 ........................................................................................415Art III-222 ........................................................................................414Art III-226 ........................................................................................407Art III-297 ........................................................................................406Art IV-6 (2)........................................................................................398

Convention on the International Sale of Goods ....................................335Convention for the Protection of Human Rights and

Fundamental Freedoms ....................................................................362European Convention for Human Rights......237, 242, 243, 244, 247, 258,

263, 266, 268, 269, 313Art 1..........................................................................................250, 251Art 6........................................................................................16, 23, 28Art 15........................................................................................244, 264Art 19................................................................................259, 264, 268Art 26................................................................................................243Art 27................................................................................................252Art 28........................................................................................256, 257

1(b) ..............................................................................................259Art 37................................................................................................255Art 38................................................................................................255Art 39................................................................................................255Art 41........................................................................261, 262, 267, 268Art 46................................................................................................249Protocol 1,Art 1..................................................................................................243Protocol 11................................................................................243, 255

European Social Charter 1961 ..............................................................186Art 4..................................................................................................178

Europol Convention 1995,Art 3..................................................................................................383

Geneva Convention,Art 1A(2) ..........................................................................................328Protocol of 1967 ..............................................................................328

Genocide Convention 1948 ..........................................................239, 240International Convention on Elimination of all Forms of RacialDiscrimination ......................................................................................323

Art 1, para 1......................................................................................323International Covenant on Civil and Political Rights ............................240Universal Declaration of Human Rights, ..............................................242

xxxiv Table of International Conventions and Agreements

Art 23(3) ..........................................................................................178common interests, protection of ....................................................238European integratin ......................................................................237

Vienna Convention on the Law of Treaties 1969 ..................244, 245, 246Art 19................................................................................................245Art 53................................................................................................240

WTO Agreement,Art 15........................................................................................205, 213

Table of International Conventions and Agreements xxxv

Table of Legislation from OtherJurisdictions

BELGIUM

Criminal Code,s 556.4 ............................................................................................62

FRANCE

Act of 4 August 1986 ..............................................................................66Civil Procedure Code 1807......................................................................17Code of Judicial Organisation,

Art L.781 ..........................................................................20, 21, 23, 24Criminal Code 1810 ................................................................................17Criminal Code 1994,

Art 432–1............................................................................................17Art 434–439........................................................................................17Art 437-7-1 ........................................................................................17Art 505–16..........................................................................................17

Criminal Code,R.642–3 ..............................................................................................62

Criminal Procedure Code,Art 149..........................................................................................19, 20Art 624................................................................................................19Art 626................................................................................................21Art 679................................................................................................17

Declaration of the Rights of Man and of the Citizen,Art 16..................................................................................................16

Decree no 58–1270, 22 December 1958,Art 43..................................................................................................29Art 49..................................................................................................28Art 50–2..............................................................................................27Art 57..................................................................................................28Art 65..................................................................................................28

Labour Code,Art L 120–3 ......................................................................................189

Law of 5 July 1972..................................................................................21

Law of 8 June 1985,Art 443................................................................................................19

Law of 12 February 1993,Art 7....................................................................................................18

Law of 29 July 1881,para 2..................................................................................................28

Law no 70–643, 17 July 1970,Art 1....................................................................................................19

Law no 72-626, 5 July 1972,Art 11..................................................................................................18

Law No 93–2, 4 January 1997 ................................................................17Law no 2000/154, 30 December,

Art 6....................................................................................................21Law no 2001–259, 25 June 2001 ............................................................27Madelin Act 1994..................................................................................189

GERMANY

Act on Civil Servants’ Pension ................................................................65Act on Civil Servants’ Remuneration ......................................................65Act on the Promotion of Education ........................................................65BGBl I 1990,

s 1477 ..............................................................................................335BGBL I 2001,

s 3138 ..............................................................................................335BGBl I 2002,

s 42 ..................................................................................................333BGBl II 1989,

s 586 ................................................................................................335BGBl II,

s 586 ................................................................................................335Civil Code (BGB) ..................................................................................335Art 613a,

s 1 ....................................................................................................182s 2 ....................................................................................................182s 13 ..................................................................................................337s 14 ..................................................................................................337s 195 ........................................................................................350, 351s 199 ................................................................................................350s 241 ................................................................................................350s 275 ........................................................346, 347, 348, 349, 351, 353s 276 ........................................................................341, 342, 344, 348s 277 ................................................................................................348

xxxviii Table of Legislation from Other Jurisdictions

s 278 ................................................................................................348s 279 ................................................................................................342s 280 ................339, 340, 341, 342, 343, 344, 348, 349, 350, 351, 352ss 280–285 ........................................................................................333ss 280–304 ........................................................................................334s 281 ................................................340, 343, 344, 347, 350, 351, 354

s 323 ............................................................................................350s 282 ................................................................................................340s 283 ........................................................346, 347, 348, 351, 352, 354s 284 ................................................................................................343s 285 ................................................................................................339s 286 ........................................................................337, 340, 352, 354s 288 ........................................................................................337, 354s 293 ..................................................................................................64ss 305–10 337s..................................................................................312s 311a........................................................................347, 348, 351, 353s 312 ................................................................................................337ss 312b–312d ....................................................................................337s 312e................................................................................................337s 313 ................................................................................................348s 314 ................................................................................................348s 320 ................................................................................................333ss 320–326 ........................................................................................334s 323 ........................................333, 339, 340, 344, 347, 349, 351, 353s 324 ................................................................................................340s 325 ................................................................................................345s 326 ........................................339, 340, 344, 345, 347, 351, 352, 353s 346 ................................................................................................350ss 346–352 ........................................................................................345ss 351c–651g ....................................................................................350s 355 ................................................................................................337s 361a................................................................................................337s 361b ..............................................................................................337s 434 ................................................................................334, 349, 350ss 434–445 ........................................................................................350s 435 ................................................................................................349s 436 ................................................................................................349s 437 ........................................................................................342, 352s 438 ........................................................................................349, 350s 439 ................................................................................................351s 440 ................................................................................................350s 441 ................................................................................................349s 459 ................................................................................................342ss 474–479 ........................................................................................334

Table of Legislation from Other Jurisdictions xxxix

s 476 ................................................................................................353ss 481–487 ........................................................................................337s 491 ................................................................................................337ss 536–536d ......................................................................................350s 633 ................................................................................................334ss 633–639 ........................................................................................350s 634a........................................................................................350, 352s 635 ................................................................................................351s 636 ................................................................................................350s 638 ................................................................................................349

Constitution of Courts Law,s 35 ..................................................................................................302s 42 ..................................................................................................301

Federal Bank Act,Art 88(2) ..........................................................................................141

Gesetz über Allgemeine Geschäftsbedeingungen ....................................333Law of 13 July 2001..............................................................................303Modernisation of the Law of Obligations

(SMG) ..............................................................333, 334, 336, 337, 338s 275 ................................................................................................338

Tax Code ................................................................................................65

GREECE

Civil Code,s 281 ..................................................................................................64

Penal Code,s 452 ..................................................................................................62

ITALY

Civil Code,s 1277 ................................................................................................63

Law no 91 of 5 February 1992 ..............................................................327Penal Code,

s 693 ..................................................................................................62

LUXEMBOURG

Criminal Code,s 556–4................................................................................................62

Civil Code................................................................................................63

xl Table of Legislation from Other Jurisdictions

NETHERLANDS

Civil Code,s 6 114 ................................................................................................63

2 ....................................................................................................64Constitution,

Art 65....................................................................................................3Art 66....................................................................................................3

PORTUGAL

Civil Code,s 762(2) ..............................................................................................64

SPAIN

Constitution,Art 117,

s 3 ................................................................................................297Law on the Organisation of Judicial Procedure 1985 ............................297

Art 101..............................................................................................298Art 102..............................................................................................297

UNITED KINGDOM

Statutes

British Nationality Act 1981..................................................................327Human Rights Act 1998................................................................313, 319Race Relations Act 1976........................................................311, 312, 319Single European Act 1987..............................................................124, 328

Art 102A ..........................................................................................136Trade Union Reform and Employment Rights Act 1993,

s 33(4)(c) ......................................................................................181Statutory instruments

Common Agricultural Policy Support Schemes (Modulation) Regulations 2000 (SI 2000/3127) ........................................................83

Transfer of Undertakings (Protection of Employment) Regulations 1981,Reg 5(4B) ..........................................................................................181

Table of Legislation from Other Jurisdictions xli

UNITED STATES OF AMERICA

Bill of Rights..........................................................................363, 364, 388Constitution (1868),

Amendment I ............................................................................368, 393Amendments I-X ..............................................................................363Amendment V ..................................................................................363Amendment IX..................................................................358, 378, 393Amendments IX to XI ......................................................................358Amendment X ..................................................................358, 378, 393Amendment XIII ..............................................................................365Amendment XIV ..............................................357, 363, 364, 387, 394Amendment XV ........................................................................361, 363Amendment XVI ......................................................................384, 394Amendment XIX ......................................................................361, 363Amendment XXIV ............................................................................363Amendment XXVI ............................................................................363Amendment XVI ..............................................................................376Art I,

s 2(2) ............................................................................................361s 3(2) ............................................................................................361s 8 ........................................................376, 378, 379, 383, 389, 390s 9 ........................................................................................376, 382s 10 ......................................................................................376, 391

Art II......................................................................................................361s 1 ................................................................................................391

Art III,s 1 ................................................................................................391s 2 ........................................................................................386, 392

Art IV,s 1 ................................................................................376, 392, 393s 2 ................................................................................................393

Art VI ....................................................................................................379Immigration and Nationality Act,

s 301 ................................................................................................363Restatement (Third) of Foreign Relations,

s 212 ................................................................................................363

xlii Table of Legislation from Other Jurisdictions

1

National Courts—the Powerhouse of Community Law

DAVID EDWARD*

I. INTRODUCTION

IT IS ALWAYS an honour to be invited to give a named lecture andespecially to be invited to do so in this University. But it is an addedprivilege and also a pleasure to be invited to do so when one has known

the person in whose honour the lecture has been named. It is particularlydelightful to be able to do so with Lady Mackenzie-Stuart among us.

My recollections of Lord Mackenzie-Stuart go back to 1959 and my ear-liest days as a law student in Edinburgh. In those days we studied for thelaw degree, with lectures in the morning and evening, while acting as asolicitor’s apprentice during the day. We went to court and in the Scottishcustom sat behind counsel. The solicitors for whom I worked acted for theNational Union of Mineworkers while Jack Mackenzie-Stuart acted for theNational Coal Board. So, as an opponent, I saw this rather debonair anddashing young man who had been in the army during the War and was nowa leading junior. Not only did he act for the Coal Board, he was alsoStanding Junior Counsel to the Inland Revenue. Moreover, following in hisfather’s footsteps, he knew all about trusts which, in the very early days ofvariation of trusts, was where serious money was to be earned. Later, as ajunior advocate, I learned my trade from him, amongst others, as my leader.

There was a particular delight in being junior to Jack Mackenzie-Stuart.In those days Scottish advocates held their consultations in their houses,and Jack’s house in Doune Terrace was one of the great welcoming housesof Edinburgh. After a consultation with Jack, learned senior would say tolearned junior, and sometimes to the solicitor, ‘There’s a small matter I’d

* The Mackenzie-Stuart Lecture, 18 October 2002. The lecture owed much to brain-stormingwith my Legal Secretaries at the Court of Justice, Dieter Kraus, Joxe Bengoetxea and AnneliHoward. Fiona Young did sterling work in preparing the lecture for publication. They bear noresponsibility for errors, omissions or improprieties.

like to discuss with you. Perhaps, when you have shown our client out, youcould stay behind for a few minutes’. The ‘small matter’ was to sit down bythe fire with a gin and tonic and talk about anything but law. It was a greatfamily house and I’ll always remember it in that way. Jack, of course, hadwide interests outside the law, being particularly versed in old master draw-ings, of which he had a great collection. He also wrote a delightful little bookcalled A French King at Holyrood about the Comte d’Artois (brother ofLouis XVI and later King Charles X) who on more than one occasion wasaccommodated in the debtors’ sanctuary at Holyrood Palace in Edinburgh.

The topic suggested to me by John Bell for tonight is one to which JackMackenzie-Stuart attached great importance—the nature of the relation-ship between the Court of Justice and national courts. I remember himreacting very strongly at a conference when someone suggested that thereshould be a right of appeal from national supreme courts to the Court ofJustice. He insisted that the relationship should not be hierarchical or verti-cal but should remain horizontal—a relationship of judicial cooperation.

In this context ‘judicial cooperation’ is more than a euphemism. I admitthat the media, and even some national judges, talk about ‘appealing toLuxembourg’, and I suppose the Court of Justice might be accused ofencouraging that point of view from time to time. But I do believe thatunderlying the success of Community law as a system is the willing accept-ance of the Court’s judgments by all (or perhaps virtually all) nationaljudges in all (or perhaps virtually all) member states—the willing accept-ance that the judgments of the Court provide appropriate legal criteria inthe light of which to judge the case before them.

At its best, the relationship is one of mutual trust, respect and coopera-tion. But I think it is more, and that is why the word ‘powerhouse’ appearsin the title of this lecture.

II. WHY ‘THE POWERHOUSE’?

It may seem paradoxical to say that the national courts are the powerhouseof Community law. Surely it is the Court of Justice that is the powerhouse.But there is a good reason why it is truly the national courts that generatethe electricity.

A judge may be very enthusiastic about making law but cannot actuallydo so until there is a case to make it in, and judges cannot normally decidewhat cases they get. Occasionally, when they are Presidents of Divisions inthe courts in the Strand, they may be entitled to select. (It is often said thatLord Denning chose the cases he liked best). But if you are a judge inGermany, you cannot choose. The principle of the gesetzlicher Richter (‘thelegal judge’) means that you can do only those cases that are assigned toyou. The corollary is that you must hear and decide those cases.

2 D AV I D E D WA R D

This is illustrated in a very recent judgment of the European Court ofHuman Rights, where the Court was considering the status of the commis-saire du gouvernement in the French Conseil d’État—the model, it is said,for the Advocate General in the Court of Justice. The question was whetherthe commissaire du gouvernement is a ‘judge’ and the argument turned inparticular on whether he can vote. The Court of Human Rights said:

The Court considers that by forbidding him to vote, on the ground that thesecrecy of the deliberations must be preserved, domestic law considerablyweakens the Government’s argument that the commissaire du gouvernementis truly a judge, as a judge cannot abstain from voting unless he stands down.1

If the case comes, the judge must judge, however unattractive or unpopularthe result. Having given judgment, he (or she) cannot withdraw, apologiseor explain. On the other hand, however keen he may be to make new law,he is powerless if no suitable case comes before him. That is the essentialpoint of difference between the legislator or administrator on the one handand the judge on the other. The suggestion that judges lack legitimacybecause they are unelected and unaccountable rests on a false premise. In asense, the essence of the judge’s position is not to be ‘accountable’ to any-one other than the appeal court (if any).

So, although the Court of Justice has been accused of being ‘activist’ inthe development of Community law, it has been able to be so only becausenational courts have provided it with the material for activism. I can illus-trate the point by reference to two famously (or notoriously) ‘activist’ judgments—Van Gend en Loos and Van Duyn.2

In Van Gend en Loos the Court held that certain Treaty provisions havedirect effect and create rights that national courts must protect. The Courtdid not produce this idea like a rabbit out of a hat. The direct effect ofTreaty obligations had been an issue in the Netherlands for more than 50 years.3 In 1953, in the slightly euphoric post-war period, the Dutchamended Article 66 of their Constitution to provide that ‘[International] agree-ments shall be binding on anyone insofar as they will have been published’. At the same time, Article 65 was amended to read:

Legal provisions in force within the Kingdom shall not apply if the applicationwould be incompatible with agreements which have been published in accor-dance with Article 66 either before or after the enactment of the provisions.

National Courts—the Powerhouse of Community Law 3

1 Kress v France (application n° 39594/98), judgment of 7 June 2001, para 79 (emphasisadded).2 Case 26/62 Van Gend en Loos v Netherlands Inland Revenue Administration [1963] ECR 1;Case 41/74 Van Duyn v Home Office [1974] ECR 1337.3See Claes, M, and de Witte, B, ‘Report on the Netherlands’, in Slaughter, A-M, Stone Sweet, A,and Weiler, JHH (eds), The European Court and National Courts, Doctrine and Jurisprudence(Hart Publishing 1998) ch 6.

Three years later Article 65 was again amended to read ‘Provisions of agreements which, according to their terms, can be binding on anyone shallhave binding force after having been published’, thus bringing in the idea ofa provision which creates an individual right or an individual obligation.

So, when the Dutch Court asked the Court of Justice whether Article 12of the EEC Treaty had direct effect, it was raising a live problem which hadbeen discussed in Dutch legal writing for more than 50 years and hadalready been the subject of two constitutional amendments.

Van Duyn, which first decided that directives could have direct effect,arose in a different way. It was heard in the Chancery Division by the ViceChancellor, Sir John Pennycuick. He approached the case in a strictly com-mon law fashion as a pure question of interpretation.4 ‘The pleadings’, hesaid:

raise two broad issues, namely (i) was the refusal of entry based on Miss VanDuyn’s personal conduct within the meaning of Article 48 and the 1964Directive, and (ii) does Article 48 confer on Miss Van Duyn a right of actionenforceable in the courts in this country?

Rather charmingly, he went on,

I will not attempt any introductory statements as to the Treaty of Rome orthe European Court of Justice. For a convenient general review of these mat-ters, see Parry and Hardy’s EEC Law.

He then went straight to the terms of the provisions at issue, citing Article 48,Article 177 and, in particular, Article 189 for the definition of a Directiveas a measure which ‘shall be binding, as to the result to be achieved, … butshall leave to the national authorities the choice of form and methods’.Then he cited the 1964 Directive, Article 3 of which provides that‘Measures taken on grounds of public policy or of public security shall bebased exclusively on the personal conduct of the individual concerned.’

Against that background, he came at once to his conclusion:

Article 3, paragraphs 1 and 2 in that directive clearly I think go to the ‘resultto be achieved’ within the meaning of Article 189 of the Treaty of Rome, andnot to the ‘form and methods’, which are left to the national authorities.

On the basis of that classically common law approach to interpretation heconcluded that Article 3 of the Directive probably had direct effect. But hefelt that he should nevertheless refer the case to Luxembourg to make sure,

4 D AV I D E D WA R D

4 For a report of the proceedings in the Chancery Division, see Van Duyn v Home Office[1974] 1 CMLR 347.

so illustrating my point that the national courts are the powerhouse wherethe electricity of Community law is generated.

A. How References have Evolved

Van Gend en Loos was referred in 1962. At that stage there had been onlysix references and there were six more in 1963. By the time Jack Mackenzie-Stuart became a judge in 1973, there had been a total of 184 references, 40 of them in 1972. European Court Reports for 1972 ran to 1,400 pages.In his judgment in Van Duyn, the Vice Chancellor narrates the submissionsof Mr Peter Gibson QC, now Gibson LJ, in which he tried to persuade theVice Chancellor not to make a reference because, as he said, ‘nationalcourts should not overburden the already overburdened European Courtwith a deluge of references’.

Well, the deluge happened and, by the time Lord Mackenzie-Stuartretired in 1988, the average number of references per annum had risen fromabout 40 to 140. European Court Reports for 1988 ran to 6,500 pages. Weare now getting up towards 250 references a year and European CourtReports for 2001 was 14,000 pages—10,000 for the Court of Justice and4,000 for the Court of First Instance.

That is against the background of ‘self-restraint’ on the part of nationalcourts. It is said that if the Supreme Finance Court in Germany (theBundesfinanzhof) referred all the cases that, on a strict reading of Article 234,it ought to refer, we would be doing nothing but German tax cases. When Imentioned that to a member of the German Supreme Civil Court (theBundesgerichtshof), he said that, if we had all of his cases, then we couldn’tdo any of the tax cases.

References now account numerically for about 50 per cent of the caseload of the Court of Justice and far more in terms of the work load. This ispartly because of the novelty, variety and technical complexity of the legis-lation enacted to fulfil the 1992 programme. In 1997, environment andconsumer affairs accounted for only eight cases, but 53 new cases on thesetopics have already been introduced in the nine months to September ofthis year. In 1997, free movement of goods, once the staple diet of theCourt, accounted for 20 cases, but up to September of this year for onlynine. Services and establishment have produced 30 cases this year and taxa-tion nearly 25.

It is inevitable that, in the 40 years since Van Gend en Loos, and the 30 years since Lord Mackenzie-Stuart became a member of the Court, thepattern of the relationship between the Court of Justice and the nationalcourts should itself have become both more complicated and more varied.Lest your professors ask you to say what is the model of the relationship,let me give you some examples to show why it is not a simple model.

National Courts—the Powerhouse of Community Law 5

B. The Approach of National Courts

Much depends on the status and attitudes of national judges, the extent towhich the courts of the country concerned rely on arguments presented bycounsel for the parties and the extent to which the judge has to limit con-sideration of a case to the arguments presented. So in some cases, such asTelemarsicabruzzo,5 you will find national judges raising questions whichneither party before them appears to have suggested might be raised. A cur-rent example is Altmark,6 where, of its own motion, the German FederalAdministrative Court (Bundesverwaltungsgericht) raised the questionwhether a subsidy to a bus company constituted a state aid, although neitherthe bus company nor its competitor seems to have wanted to be involved inlitigation before the Court of Justice.

By contrast, some judges appear simply to rubber-stamp orders for refer-ence drawn up by counsel for the parties. Because each party wants to intro-duce a question that might produce an answer in their favour, the result isan examination paper. Question 1 is a general question. Question 2 thenbegins ‘If the answer to Question 1 is Yes …’, and it is not until Question 6that we reach ‘If the answer to Question 1 is No …’. That is not very help-ful particularly if Question 1 is based on a false premise.

Some courts make references early, particularly nowadays tribunals likethe British Employment and VAT Tribunals, who are sufficiently versed inCommunity law to spot the point from the beginning. But some referencesthat could usefully have been made earlier are not made until the case hasreached the highest court. Seymour-Smith7 took five years before it wasreferred on a point which one might have thought was pretty obvious fromthe start. By the time it reached Luxembourg, there were said to be 10,000pending cases awaiting the result.

Some judges make long references—for example, 80 pages on a questionof company accounting.8 Some are very short—two pages without theslightest indication why the reference is being made. Some are handwrittenand some are almost unintelligible.

Sometimes the judge in a lower court uses the reference procedure tochallenge the jurisprudence of a higher court. The Simmenthal case,9 on thequestion whether national judges are required to set aside national provisions

6 D AV I D E D WA R D

5 Cases C–320/90, C–321/90 and C–322/90 Telemarsicabruzzo SpA and Others v Circosteland Others [1993] ECR I–393.6 Case C–280/00 Altmark Trans GmbH, Regierungspräsidium Magdeburg vNahverkehrsgesellschaft Altmark GmbH, judgment of 24 July 2003, nyr.7 Case C–167/97 Seymour-Smith and Laura Perez [1999] ECR I–623.8 Case C–306/99 Banque internationale pour l’Afrique occidentale SA (BIAO) v Finanzamtfür Großunternehmen in Hamburg [2003] ECR I–1.9 Case 106/77 Amministrazione delle Finanze dello Stato v Simmenthal SpA (No 2) [1978]ECR 629.

in favour of Community law, arose precisely because the local judge wantedto challenge the jurisprudence of the Italian Constitutional Court.

In a very recent example, Arduino,10 the Italian Corte di Cassazionequashed a decision of a lower court which had refused to apply the Italiantariff for lawyer’s fees. The judge in the lower court then referred the case tothe Court of Justice suggesting that the tariff as such might be illegal underthe competition rules of the Treaty. In fact the Court held that the tariff didnot contravene the competition rules, but the case illustrates the willingnessof lower courts to use the reference system to challenge decisions of the highercourts that they do not like. Sometimes, as in Simmenthal, it works.

Then, of course, there are cases of refusal to refer—witness the long sagaof the refusal of the French Conseil d’État to accept the direct effect ofdirectives while the Cour de Cassation accepted it. Eventually the Conseild’État gave in without referring.11

Sometimes higher courts apply the doctrine of acte clair as a reason fornot making a reference. It has even been known for judges to differ on thequestion of whether (or sometimes why) there is acte clair but it is held nev-ertheless that there is acte clair and no reference is made.12 Occasionally,one is tempted to wonder whether some of the courts that have refused torefer knew the answer they would get and didn’t want to hear it. It waspartly to counteract such deliberate deafness that the Court of Justice pro-duced the much criticised decision in CILFIT.13

CILFIT, so it seems to me, is no more than a counsel of common sense.The Treaty, after all, is unambiguous: a court of last resort must refer if thequestion of Community law is necessary to enable it to give judgment. Butit would be absurd to do so if the answer to the point is already clear. Onthe other hand, in deciding whether the point is clear, the court has to takeaccount of the fact that Community law is different in character fromnational law. That, in essence, is all that CILFIT says, and it does seem veryodd to suggest that the Court should ‘relax’ CILFIT when that judgmentalready represents a substantial (even ‘activist’) relaxation of what theTreaty requires.

‘Relaxation’ of CILFIT is, in any case, unnecessary now. Article 104 ofthe Court’s Rules of Procedure have been amended to allow the Court todecide a case by Order:

where a question referred to the Court for a preliminary ruling is identical toa question on which the Court has already ruled, where the answer to such a

National Courts—the Powerhouse of Community Law 7

10 Case C–35/99 Manuele Arduino [2002] ECR I–1529.11 Case of Raoul Georges Nicolo [1990] 1 CMLR 173.12 See for example Three Rivers District Council and others v Governor and Company of theBank of England (No 3) [2000] 2 WLR 15 (CA), [2000] 2 WLR 1220 (HL).13 Case 283/81 CILFIT (Srl) & Lanificio di Gavardo SpA v Ministry of Health [1982] ECR3415.

question may be clearly deduced from existing case-law or where the answerto the question admits of no reasonable doubt.

A national court which is in doubt whether there is acte clair can make areference indicating the answer it would give and suggesting that, if theCourt agrees, it would be appropriate to decide by Order. Honour will besatisfied, time saved and the requirements of the Treaty respected unless, ofcourse, the Court disagrees which will show that the reference was neces-sary after all.

Parallel to cases of refusal to refer, there is the phenomenon of constitu-tional courts questioning the primacy of Community law by reference totheir own constitution, particularly on the basis of the protection of funda-mental rights.14 I may be naïve, but I suspect that, for the practical lawyer,this particular dispute is about as real as the dispute about sovereignty—‘that dusty desert of abstractions through which successive generations ofpolitical philosophers have thought it necessary to lead their disciples’.15

There are also examples, fortunately very rare, of courts refusing toaccept the answer given by the Court of Justice, or where, a reference having been made and an answer received, another route is found to bypassthe decision of the Court of Justice.16 This problem and its possible conse-quences (state liability for court decisions) are raised acutely in a recent reference from Austria.17

C. The Approach of the Court of Justice

Just as there is a wide range of approaches from the national courts, there isa wide range of responses from the Court of Justice and I would have toadmit that they are not always consistent. Sometimes the Court will givevery abstract replies, simply saying how the provision in question is to beinterpreted, and sometimes very specific replies which leave very little dis-cretion to the national judge. The latter type of reply has been criticised asgoing beyond the Court’s competence, but it should be remembered thatArticle 220 requires the Court to ‘ensure that, in the interpretation andapplication of this Treaty, the law is observed’.

Sometimes the Court answers all the questions as put, sometimes theyare reformulated and some of the questions may not be answered at all. Inabout one per cent of cases the reference is rejected as inadmissible, and in

8 D AV I D E D WA R D

14 See Brunner v European Union Treaty (the ‘Maastricht Judgment’) [1994] 1 CMLR 57.15 James Bryce, Studies in History and Jurisprudence, (Oxford University Press, 1901) 504.16 Case C–367/96 Kefalas and others v Elliniko Dimosio and OAE [1998] ECR I–2843 andthe subsequent decision of Efeteio Athinon, Tmima 1, judgment of 9 May 2000, n 3841/2000.17 Case C–224/01 Köbler v Republic of Austria, judgment delivered 30 September 2003, notyet reported.

other cases, in spite of the urging of Advocates General,18 the Court refusesto reject references.

I plead guilty to occasional inconsistency and it is not surprising that,with 250 judgments a year, more than half of which are decided byChambers of three or five judges, there should not be total consistency. ButI would not plead guilty to any failure on the part of the Court genuinely tocooperate with the national courts. What is surprising is not how badly thesystem works, or how difficult it is to make it work, but how well it works.

D. Enlargement

With enlargement there will be a new dimension. The number of cases com-ing to the Court will inevitably increase (for other reasons as well) and theCourt will be dealing with countries with very little experience of the sys-tem. What are the conditions for future success?

First, as far as the national courts are concerned, it will be important toremember that a reference should be made only when a decision on thepoint is necessary to enable the national court to give judgment. That leadsto the second point that, from the point of view of the Court of Justice, thenational court should explain why the reference is necessary. Quantityinevitably affects quality and national judges must do more than rubber-stamp what the parties produce. If the Court of Justice has to process casesthat are unnecessary, or the point of which is difficult to understand, qual-ity will inevitably be affected.

Third, the Court must continue to make every effort to ensure that cases are processed in a reasonable time, although the importance of speed is sometimes exaggerated. Speed is essential if the system is to work, but a quick answer is not necessarily a good answer or an answerthat will last. It may be worth waiting another three, four or five months to get a good answer. In that connection it is worth remembering that thelanguage regime adds seven to nine months to the time taken to process acase.

It is sometimes suggested that the Court should operate only in one, twoor three main languages. But judgments that are to be followed must beunderstandable in all languages, workable in all legal systems, and consum-able and acceptable in all countries by judges, lawyers and litigants. Theexperience of the EFTA countries (Norway, Iceland and Liechtenstein) isinstructive. The EFTA Court operates only in English and the judgments of

National Courts—the Powerhouse of Community Law 9

18 Case C–28/95 Leur-Bloem v Inspecteur der Belastingdienst/Ondernemingen Amsterdam 2[1997]. ECR I–4161 and Case C–130/95 Giloy v HZA Frankfurt am Main-Ost [1997]. ECRI–4291; Case C–338/95 Wiener v HZA Emmerich [1997] ECR I–6495; and Case C–306/99BIAO, above n 8.

the Court of Justice (many of which apply in the EEA) are not available inNorwegian or Icelandic. There is said to be a reluctance to apply this jurispru-dence because ‘it’s not in my language’. If Community law is to be applieduniformly by national judges, they must have access to the law in their ownlanguage, otherwise it will be ‘foreign law’, to be resisted, mistrusted andeventually not applied.

Fourth, confidence in the system requires adequate resources and arational allocation of resources—financial and human. The Court cannotoperate to maximum efficiency in a procedural and financial straitjacketimposed by the Member States and the political institutions. At present, the simplest amendment to the Rules of Procedure takes about a year to achieve, and the budget of the Court, amounting to 0.15 per cent of the total expenditure of the European Union, is examined line by line by the Commission, the Council and the Parliament as well as beingaudited by the Court of Auditors. That is neither rational nor a recipe forefficiency.

E. The Effect on the Development of Law

Up to now I have been talking about the working of the relationshipbetween the Court of Justice and the national courts. But it seems to methat the process of interaction between the Community Courts and thenational courts is of much wider interest for the development of the law ingeneral.

In one of the very earliest cases under the Coal and Steel Treaty,Advocate General Lagrange was discussing the sources of law ofCommunity law. He said:

Although the Treaty which the Court has the task of applying was concludedin the form of an international treaty and although it unquestionably is one, itis nevertheless, from a material point of view, the charter of the Community,since the rules of law which derive from it constitute the internal law of thatCommunity.

As regards the sources of that law, there is obviously nothing to preventthem being sought, where appropriate, in international law, but normally andin most cases they will be found rather in the internal law of the differentMember States. Have the applicants themselves not followed that latter pathin the present action with regard, for example, to the concept of misuse ofpowers, of which it has become apparent that the national laws constitute aninfinitely richer source than the really rather summary theory of ‘abuse ofpower’?19

10 D AV I D E D WA R D

19 Case 8/55 Fédéchar v High Authority [1954–56] ECR 245 at 277.

Thus, it was recognised at the very beginning that national law would be animportant and indeed fundamental source of Community law. The idea ofdirect effect begins with Dutch law but it now goes beyond the issue thatwas foremost in Van Gend en Loos and Van Duyn—the issue of individualrights. As two Dutch authors have said, ‘the rights issue obscures the directeffect issue, and this may, in the beginning, have been a direct consequenceof the Dutch legal thinking on the subject’.20 In cases beginning withGrosskrotzenburg,21 Kraaijeveld22 and Inter-Environnement Wallonie23

and, more recently, Dior24 and Schieving-Nijstad,25 we see the discussionof direct effect moving from the question of individual rights into a muchmore general question about the nature of Treaty obligations and the obli-gation of the organs of the state (whichever organ is responsible) to complywith the international obligations of the state. The jurisprudence of theCourt has emphasised that, lying behind all this, there is a general theory ofobligations which clearly comes from national and ultimately from Romanlaw. (As a Scots lawyer, I am comforted to see that ‘obligations’ seem tohave entered the vocabulary of English law.26)

Another example of the interaction is the evolution of remedies in nationallaw—compensating for failure of the legal system (Francovich27), extendingthe boundaries of judicial control (Factortame),28 extending the range ofnational remedies (Francovich, Factortame and, very recently, Muñoz,29 a caseabout a rather banal regulation on the nomenclature of seedless grapes).

Again, the system has been used to kill some sacred cows—Crownimmunity (Factortame) and, again very recently, the rule that excluded anaction of damages between parties to an illegal contract (Courage vCrehan).30 The attitude of two divisions of the Court of Appeal, one ofwhich did not refer and the other did refer, shows that there was a trulydoctrinal issue that Community law was being used to break open.

In one reference from Germany, Dr Meilicke used, or tried to use,Community law to find out whether a particular provision of German taxlaw was compatible with the second Company Law Directive.31 The Court

National Courts—the Powerhouse of Community Law 11

20 Claes & de Witte, above n 3 at 179.21 Case C–431/92 Commission v Germany [1995] ECR I–2189.22 Case C–72/95 Kraaijeveld [1996] ECR I–5403.23 Case C–129/96 Inter-Environnement Wallonie ASBL [1997] ECR I–7411.24 Cases C–300/98 and C–392/98 Parfums Christian Dior SA v Tuk Consultancy BV; AsscoGerüste GmbH and R van Dijk v Wilhelm Layher GmbH & Co KG and Layher BV [2000]ECR I–11307.25 Case C–89/99 Schieving-Nijstad v Groeneveld [2001] ECR I–5851.26 See the title of Volume II of Birks English Private Law (Oxford University Press, 2000).27 Cases C–6/90 and C–9/90 Francovich & Bonifaci v Italy [1991] ECR I–5357.28 Cases C–213/89, C–221/89 and C–48/93 R v Secretary of State for Transport, ex parteFactortame Limited and others [1990] ECR I–2433, [1991] ECR I–3905, [1996] ECR I–1029.29 Case C–253/00 Muñoz v Frumar Limited [2002] ECR I–7289.30 Case C–453/99 Courage Limited v Crehan [2001] ECR I–6297.31 Case C–83/91 Wienand Meilicke v ADV/ORGA FA Meyer AG [1992] ECR I–4871.

detected that his real purpose was not to answer a question of Communitylaw, but to prove a point about German company law. We now have a veryreal doctrinal dispute in Germany between the Sitztheorie and theGründungstheorie in company law. Is a company’s personality to be judgedby reference to the place where it is incorporated or the place where it hasits Sitz or seat (Überseering32)?

Then there are cases that test the economic consequences of the law. InDavidoff and Levi,33 following Silhouette,34 the real underlying issue waswhether protection of intellectual property rights worked ultimately to thedisadvantage of consumers—a major issue of law, economics and socialpolicy which in truth is a matter for the legislator to solve rather than thejudge.

Finally, there are references designed to put clothes on skeletons—to givesubstantive legal content to the words of the Treaties which are, after all,only ‘framework treaties’.

In a sense, that is the essence of the history of Community law, begin-ning with Van Gend en Loos. Community citizenship is the most recentexample. According to the submissions of the Member States appearing inMartínez Sala and Wijsenbeek,35 the provisions on citizenship included inthe Maastricht Treaty were intended to be no more than a general declara-tion of existing but limited rights with no autonomous legal significance. Inlegal terms it was no more than a skeleton without practical effect. The Courthas been prepared to put legal skin and clothes on the political skeleton.36

This rather complex interpenetration of the legal systems seems to me toproduce a new dimension of legal thought. Some of you may regret the lossof purity of national legal systems that goes with it. I comfort myself withan experience long ago, before I even started in the law, when I was invitedto meet Mr Justice Finnemore, who said to me ‘Humph, you come fromScotland. The Scots ruined the English law of tort with Donoghue vStevenson’. You must make your choice whether you want to stay in thatmode or move on. For my part, I believe that the law is more exciting nowthan it used to be, though it is also more complex. Lawyers have to get usedto raising their eyes above the immediate horizon and, as the developmentof CELS shows, that is not too difficult, even in the Fen Country.

12 D AV I D E D WA R D

32 Case C–208/00 Überseering BV and Nordic Construction Company BaumanagementGmbH (NCC) [2002] ECR I–9919.33 Cases C–414/99, C–415/99 and C–416/99 Zino Davidoff SA v A&G Imports Limited[2001] ECR I–8691.34 Case C–355/96 Silhouette International Schmied GmbH & Co KG v HartlauerHandelsgesellschaft mbH [1998] ECR I–4799.35 See summaries of arguments in the Opinion of Advocate General La Pergola in CaseC–85/96 Martínez Sala v Freistaat Bayern [1998] ECR I–2691, para 15, and the Opinion ofAdvocate General Cosmas in Case C–378/97 Wijsenbeek [1999] ECR I–6207, para 76.36 Case C–85/96 Martínez Sala above n 35; Case C–184/99 Grzelczyk v Centre public d’aidesociale d’Ottignies-Louvain-la-Neuve [2001] ECR I–6193; and Case C–224/98 D’Hoop vOffice national de l’emploi [2002] ECR I–6191.

The development of Community law and, with it, of national law is aprocess in which all lawyers have a part to play—judges, certainly, but alsobarristers, solicitors and in-house counsel, not forgetting students who helpin advice centres. If national courts are the powerhouse of Community law,because it is there that Community law really happens for the individual,they are also where it doesn’t happen when those who should have done sohave failed to spot the point or failed to raise it. Most crucially—and this isa new development in Britain since the days when I was watching JackMackenzie-Stuart as a very raw solicitor’s apprentice—we need the help ofacademic lawyers as teachers, as writers and as critics.

Let me close with a quotation from an academic lawyer who profoundlyinfluenced both Jack Mackenzie-Stuart and myself—Professor JDB Mitchell,my predecessor in the Chair of European Institutions at Edinburgh:

Governments and governmental bodies have as many reasons for connivingamongst themselves as they have for opposing each other and, in the evolu-tion of government, it is important that within acceptable limits individualsshould be able to participate through the neutral mechanism of courts, notmerely in maintaining the framework of rules, but also in advancing its con-struction. I think it is not unreasonable to assert that the role of courts has, orshould have, something to do with the realities of democracy. Properly organ-ised, it is through them that the individual can play a larger and more significantpart in government while gaining a greater sense of security.37

National Courts—the Powerhouse of Community Law 13

37 Mitchell, JDB, ‘Why European Institutions?’, Edinburgh University Inaugural Lecture,1968, 13–14.

2

The Responsibility of Judges1 in France

GUY CANIVET*

In the mountains of Kashmir lived a Sultan, the Sultan of Salamandragore, soconcerned that the laws he had prescribed were strictly observed that hefound good reasons for his judges to condemn all his subjects to death, and tohave them dispatched by his executioner. Deprived of sleep by remorse andhaunted by his victims, he blamed his judges, and had them decapitated intheir turn.

THUS BEGINS A cruel Oriental tale, freely adapted in a poem byJacques Prévert,2 which is, it seems to me, quite a good illustrationof the paradox of the judge’s responsibility comparing the extraor-

dinary nature of their power to their relationship to politics. Nevertheless,from this point of view, there is indeed in France a question, that is to say ademocratic debate, a conflict of opinion generally perceived to be the resultof the growing role of law in the regulation of social relationships and theincreasing power of judges in the private domain as well as in the public,economic and social spheres. According to this vision, the new dimensionto the judicial office, which has become all the more apparent now that thecourts are obliged to try cases of great social significance, cannot remainwithout a counterbalance. Among the most important of these are, forexample, the trials against Nazi war criminals and the highest ranking offi-cials accused of collaboration under the Vichy regime, terrorist trials, majorfinancial corruption and public health cases, those following from ecologi-cal disasters, those implicating politicians or the directors of big companies,and trials relating to the financing of political parties. Nowadays, more-over, judges have the power to make far-reaching decisions, which will have

* Senior president of the Cour de cassation.1 Although many points about the liability of judges arise from legal provisions applicable toall magistrats, a term that in France includes public prosecutors as well as judges, this articledeals with the position of judges only.2 ‘Le Sultan’, Prévert, J, Paroles 1945. This poem appeared for the first time in Poésie 1944, no 21.

considerable repercussions on social affairs, eg on issues of asylum,immigration, the environment, public health, bioethics, the restructuring ofbusinesses, the regulation of markets and the opening up of public servicesto competition. At the same time, the right of access to a judge has beenestablished by Article 6 of the European Convention for Human Rights,and has been raised to the rank of a constitutional principle.3 Because ofthis cumulation of factors, the law covers an ever expanding field, and thecourts intervene more and more in all areas of social life, to create, inter-pret and apply the law.

Parties, proceedings and judgments are inevitably affected by these devel-opments concerning the role of law as well as by the judge’s institutionalposition within the State by means of several important phenomena: thepriority of European law, the progressive emergence of a constitutionalreview, the growing interference of the courts in public affairs, the criminal-isation of acts of negligence by State officials and by important public decision-makers. At the same time, the last few decades have seen rates oflitigation rocket to such an extent that we now talk about the ‘judicialisa-tion’ of social life, a neologism describing a trend which affects all groupsof society, from the powerless to the most powerful, including politicians,and from which, naturally, the judges themselves are not spared.

‘Justice thus becomes a new stage for democracy’.4 In France, the conse-quence of judges’ entry into the political and social spheres has been to drawthe attention of the masses as well as that of the élite to the question of judges’responsibility. ‘To be responsible,’ said the philosopher Comte-Sponville, ‘isto be able and obliged to answer for one’s actions. It is therefore to assumeone’s own power, even in failure, and to accept the consequences’.5 To put itplainly, there is no power without responsibility, and the stronger the former,the greater the latter. However, popular demands to make judges directly andpersonally responsible for their actions in return for their power are nothingnew. They date back to the Middle Ages, a period in which no judicial codecould be conceived ‘without necessary reference to ideal justice, by definitiondivine, and to a common moral code, necessarily religious’.6 To be a judge, itwas supposed at that time, was to usurp a divine power, a usurpation whichonly became legitimate if its possessor bound up his own salvation with his

16 G U Y C A N I V E T

3 CC decision no 96–373 DC of 9 April 1996: ‘Considering that in the terms of Art 16 of theDeclaration of the Rights of Man and of the Citizen: ‘Any society in which in which theseRights are not guaranteed, and in which the separation of powers is not established, has noConstitution’; the result of this provision is that in principle the right of interested parties tohave an effective appeal before a court must not be seriously undermined.’, Rec 1996,43 con-sidérant no 83.4 Rosanvallon, P, cited in Garapon, A, ‘La question de la juge’, Pouvoirs no 74.5 Comte-Sponville, A, Dictionnaire philosophique, (Presses Universitaires de France 2001), 624.6 Jacob, R, ‘Les fondements symboliques de la responsabilité des juges; l’heritage de la culturejudiciaire médiévale’, in Juger les juges, du Moyen âge au Conseil Supérieure de la magistra-ture Documentation française, collection histoire de la justice no 12, 2000, 7.

actions; if, in making himself a judge, he agreed to be answerable for theseactions.

More secular is the sixteenth century royal edict which, coming afternumerous other exhortations to virtue addressed to judges, decrees thatroyal officers responsible for justice should not accept gifts from litigants,and forbids them from keeping company with notorious wrongdoers andfrom indulging in gambling. On being refined, the business of discipliningjudges, at first a summary and pragmatic process, as the cited text demon-strates, wavered between the internal disciplinary system of a hierarchicalbody of judges over itself and a prerogative of political power, generallyfrom the minister of justice, or indeed a system juxtaposing or combiningthese corporatist and political means of control.

In addition to criminal responsibility and civil liability, disciplinaryresponsibility should also be considered. Indeed, from the time of theAncien Régime disciplinary sanctions taken against judges did not preventcriminal punishment being meted out. A judge guilty of misappropriationof public funds, corruption or other wrongdoing, could be dismissed, with-out prejudice of a sentence which was at the time exemplary and public:death, the galleys, the stocks. The Criminal Code of 1810 modified judges’criminal responsibility in order to punish such acts as abuse of authority,misappropriation of public funds, corruption, abuse of power and denial ofjustice. This criminal responsibility still exists today, in a renewed, less vio-lent form. Since the law of 4 January 1993,7 judges no longer benefit fromany vestige of privilege and are subject to the ordinary law, both in theircapacity as French citizens, and in their capacity as public sector employees.That everyone is equal in the eyes of the law is thus guaranteed and, in viewof their particular duties, judges are even specially targeted by the provi-sions of the Criminal Code which relate specifically to their office, forexample corruption,8 the denial of justice9 or the abuse of authority.10

As for civil liability, for a long time this was linked to the procedure forlodging a claim for damages against a judge for miscarriage of justice, aprocedure which was strongly rooted in the French legal system, after theedict of Blois in 1498. It was very clearly structured by the Civil ProcedureCode of 1807, which reverted to the system introduced by the edict of 1667as it was interpreted and applied in a very restrictive way by Parliament.Ranked among the exceptional legal remedies,11 the procedure for lodging aclaim for damages against a judge for miscarriage of justice does not aim tooverrule a verdict, but instead is concerned with sentencing judges to paydamages. Civilly liable for its representatives, the State was made responsible

The Responsibility of Judges in France 17

7 Law no 93–2 of 4 January 1993, repealing Art 679 onwards of the Criminal Procedure Code.8 Art 434–9 of the Criminal Code, which came into force on 1 March 1994.9 Art 437–7–1 of the Criminal Code.

10 Art 432–1 of the Criminal Code.11 Arts 505–16 of the Criminal Code.

for their behaviour by the law of 7 February 1933,12 which also focusedattention on the conduct of judges because of their wrongdoing. Before thistime, the procedure for lodging a claim for damages against a judge for mis-carriage of justice had been limited to denial of justice, extortion and fraud,but then it was extended to cover cases of gross professional misconduct.Complicated and inconvenient, this procedure was dependent on priorauthorisation from the president of the Cour d’appel. This authorisationbeing given, the petition was taken before a formal hearing of the appealcourt. In successful cases, it allowed the victim to receive damages, and theState, civilly liable for judgments finding in favour of the plaintiff, had thechance to file a lawsuit against the judge concerned. Overly burdensomeand complicated, the procedure for lodging a claim for damages against ajudge for miscarriage of justice was understandably inefficient. Which iswhy, in 1972,13 the legislator chose a system of indirect responsibility, inte-grating the errors made by judges, who were considered to be State officials,into a system where the public service of justice had ultimate responsibility.The procedure for lodging a claim for damages against a judge for miscar-riage of justice was only applicable to certain courts, whose legislation didnot specify the status of judges.

The historical context thus traced, a clear pattern of change emerges, inwhich judges’ personal liability is progressively eroded by the State’sresponsibility (I). However, as a reaction against this, a counter-movementdemanding the direct liability of judges as a factor to regulate their ownconduct also developed (II.)

I. THE EROSION OF JUDGES’ LIABILITY BY THAT OF THE STATE

The erosion of judges’ liability by that of the State can take an extreme formin cases of strict liability for injury caused by the operation of the justice sys-tem. In this type of case, a judge’s liability is totally absorbed by that of theState, the latter being obliged to compensate for any injury where no wrong-doing has been established (A). It can take on a less radical form in whichjudges’ wrongdoing seems to blend into that of the public justice system (B).

Paradoxically, systems of no fault liability for the State over judges’actions have been introduced in all cases where the victims suffer the most

18 G U Y C A N I V E T

12 Law of 12 February 1933 on the guarantee of personal freedom, Art 7, JO, 9 Feb 1933,Duverger collection des lois 1933, 44.13 Law no 72–626 of 5 July 1972, Official Journal of 9 July 1972, 7181, Art 11: ‘The State isliable for injury caused by the defective functioning of the justice system. This liability is onlyincurred in cases of gross fault (faute lourde) or of denial of justice. For the magistrats du corps judiciaire, liability, due to their personal misconduct, is governed by the magistra-ture’s statutes, and for juges composant les juridictions d’attribution, their liability is governedby the special laws that apply to them.

serious attacks, either due to wrongful detention, or because of recognisedmiscarriages of justice. Thus, no fault liability was established from 1895to redress miscarriages of justice.14 In 1970 this system was extended tocover compensation for detention in custody not followed by a conviction,whilst the law of 15 June 2000 on the presumption of innocence aimed totransform it into an indemnification against the risk of error.

A. Compensation for Detention in Custody not Followed by Conviction for an Offence

In 1970, under the influence of daring case-law solutions and of criticismby many doctrinal writers, a law aimed to introduce a mechanism of com-pensation for custody was first introduced.15 The system created was basedon the idea:

that even in the absence of wrongdoing imputable to its officials, in certaincases the community must put up with the prejudicial consequences of therisk created by the operation of its services—in particular the justice system—inorder to avoid a breach of equality between citizens in the face of public burdensimposed by the State.16

As a condition for the indemnity suit, open to any person who had been thesubject of proceedings which ended in the dismissal of the case for lack ofevidence or an acquittal, the legislator imposed the requirement that beingremanded in custody had caused this person to suffer ‘a manifestly abnor-mal and particularly serious injury’. The drafting of the new Article 149 ofthe Criminal Procedure Code, arising from the law of 17 July 1970 thusreproduced the prevailing principles relating to no fault liability for thebreach of equality before public burdens. According to this hypothesis,

the right to compensation does not simply hinge on injury. The damage has tobe both special and extraordinary. Extraordinary, in terms of scope anddegree, because members of a community must endure the ordinary incon-veniences of life as part of society without seeking compensation.17

And in certain cases, being remanded in custody could be seen as one of theordinary inconveniences of living in society.

The Responsibility of Judges in France 19

14 Law of 8 June 1895 Arts 443 ff of the previous Code of Criminal Procedure (Code d’instruction criminelle), Art 624 ff of the current Code of Criminal Procedure (Code de procédure pénale) on the review of criminal convictions and compensation for the victims ofmiscarriages of justice Official Journal of 11 June 1895: Duverger, collection des lois 1895, 213. 15 Law no 70–643 of 17 July 1970, aimed at reinforcing the guarantee of citizens’ personalrights, Art 1 (Art 149 onwards of the Criminal Procedure Code) (JO 19 July 1970), 6753.16 National Assembly, 28 May 1970, JO 29 May 1970, 1148.17 Chapus, A, Droit administratif général, 15th edn 2001 (Montchrestian), 1337 ff.

The practical application of this enactment proved to be more complicatedthan was envisaged when it was drafted. One of the first difficulties was indefining the objective criteria for manifestly abnormal and particularly seri-ous injury. Shortly after came the idea that the benefits of this provisionshould only apply to people for whom the absence of guilt was unquestion-able, as opposed to those who had their cases dismissed for lack of evi-dence, or received an acquittal due to the benefit of the doubt or lack ofsufficient evidence. In fact, except in cases of manifest innocence, thenational commission of the Cour de cassation, specially established to bethe sole court dealing with this litigation, was inclined to blame legal mal-functioning: lack of objective reasons for the investigating judge to placesomeone in custody, taking into account the nature of the offence, thecharges brought against the accused, and the guarantees of representationof the person indicted or the abnormal length of the investigation. As aresult, there was soon confusion between the criteria establishing the State’sliability by applying Article L.781–1 of the Code of Judicial Organisation,that is between responsibility for fault and no fault liability, when even thebasis of these different proceedings were as diverse as the conditions of theirimplementation.

Furthermore, judging the criteria of extraordinariness of this type ofinjury had become so restrictive that it became necessary to water down theenactment. This was achieved, firstly by the law of 30 December 199618

which abolished the requirement that the injury should be extraordinary orparticularly serious, then by the Law of 15 June 2000,19 which establisheda right to full, obligatory compensation. From that point onwards, com-pensation for material damage and mental distress caused by detention incustody became a right and no longer an option left to judges’ discretion.Only three restrictive grounds set out by Article 149 of the Code ofCriminal Procedure could justify the absence of compensation: firstly, whenthe dismissal of the case for lack of evidence or the acquittal is solely basedon either the recognition of the defendant’s lack of criminal responsibilitydue to psychiatric or neuropsychic problems which have affected his or herjudgement or his or her control over his or her actions, secondly, caseswhere an amnesty has been granted subsequent to the person beingremanded in custody, or thirdly, in cases where the person has beenremanded in custody for freely and willingly wrongly accusing himself orherself or letting himself or herself be wrongly accused with the aim of let-ting the real perpetrator of the offence evade justice.20

20 G U Y C A N I V E T

18 Law no 96–1235 of 30 December 1996.19 Law no 2000–516 of 15 June 2000 relating to the presumption of innocence and to victims’rights.20 On this question/issue, Karsenty, D La réparation des détentions, Juris-Classeur Périodiqueno 6, 5 February 2003.

B. Compensating Persons Acknowledged to be Innocent After a Review of Proceedings

The same aim was behind the adoption of the current system of compensationfor persons found innocent as a result of a review of cases which had orig-inally resulted in a prison sentence. According to the terms of Article 626of the Code of Criminal Procedure which came out of the law of 30 December 2000,21 compensation for the applicant is as of right afteran acquittal ruling, unless the person has been remanded in custody forfreely and willingly wrongly accusing himself or herself or letting himselfor herself be wrongly accused with the aim of letting the real perpetratorof the offence evade justice

Thus in all these cases the judge’s wrongdoing, despite possibly being atthe root of the injury, is not even investigated for purposes of compensa-tion. In cases where this breach is due to the defective running of the publicjustice system, this deficiency is being investigated less and less.

1. The Defective Running of the Public Justice System

Under the system where the State is responsible for recognised wrongdoingin the running of the justice system, the judge’s error is progressively mergedinto this aforesaid defective running of the justice system to such an extentthat the individual wrongdoing is of no consequence.

The law of 5 July 1972 both generalised the judge’s liability for fault inestablishing the victim’s right to compensation, and merged it into theState’s responsibility. Case law then went on to expand this generalisation.From then on, under the terms of Article 781–1 of the Code of JudicialOrganisation, the State was obliged to compensate for the loss caused bythe dysfunction of the judicial apparatus. The State’s direct liability can,however, only be incurred in cases of gross fault (faute lourde) on the partof the public service or of a miscarriage of justice. Even if an individual isgrossly at fault, the members of the justice system are protected, the indi-vidual’s wrongdoing being absorbed by the service. The failure of the serv-ice is emphasised by analogy with the law on the liability of public sectorworkers. In the first place, it is the State which must be accountable forjudicial dysfunction when in fact it is the judges who are implicated. This isbecause it is considered necessary to establish a balance between the consti-tutional principle of independence and the duty of every public body toaccount for its administration, forcing the State to compensate for the injurythat its default has caused to citizens. The clearly stated aim of the law is,effectively, to improve the lot of victims of injury caused by the dysfunctionof the public justice system and who were formerly denied effective means

The Responsibility of Judges in France 21

21 Law no 2000–154 of 30 December 2000, Art 6, JO 31 Dec 2000.

of compensation. In theory, this brought to an end a century of particularismcharacterised by the non liability, in principle, of the State and a reinforcedprotection for the judges. As a matter of substantive law, the State was fromnow on directly and effectively accountable for gross fault (faute lourde)committed in the service of justice. This text thus marked a radical changein the State’s de facto liability in legal matters. Until then, effectively, it wasthe case of a derived imputability, in the sense that it was dependent on thesuccess, greatly uncertain, of the procedure for lodging a claim for damagesagainst a judge for miscarriage of justice. The current system, however, isone where the State has primary responsibility for the defective operationof the justice system, including judges’ actions, with compensation howeveronly being granted for cases of gross fault (faute lourde) or miscarriage ofjustice.

In the absence of a legal definition of gross fault (faute lourde), it fell tocase-law to clarify the terms of this liability. It was the legislator’s intentionthat this gross fault (faute lourde) was defined as a wrong committed in afactual situation which forced it to be considered as particularly grave,indeed inexcusable. This latter condition is required for the State’s responsi-bility to be incurred whenever the injury is the result of activities which pres-ent particular difficulties. But this is always the case with justice. In order toexplain this resolutely restrictive interpretation, it is generally maintainedthat judges’ independence needs a certain immunity against litigants:

there is no question of applying the ordinary law of tort for liability for dam-age due to misfeasance or nonfeasance to the judge, at least when this error isconnected to the public service of justice.

What is more, in relation to judicial activities, it was not accepted that ‘theworkings of justice could, in themselves and without any other conditions,lead to the State’s liability’ because otherwise ‘every error of judgmentcould become a source of liability, which would be unthinkable’.22

According to a fairly large consensus, it is agreed that public interest, theimpartiality of justice necessary for legal certainty and social harmony, jus-tify the restrictive conditions which aim to make vicarious liability actionsless frequent. Many people think it reasonable to limit such lawsuits and,according to these positions, litigants cannot be permitted to use each over-ruling of a precedent as an excuse to call all previous judgments into questionby means of an action for compensation, at the risk of paralysing judicialactivity. For this reason, the system of de facto responsibility of the publicjustice service must of necessity be a unique system. The exercise of legalremedies being the classic route by which the judicial decision can be con-tested, the judgment cannot in itself be the source of responsibility.

22 G U Y C A N I V E T

22 Perrot, R, Institutions judiciaire, 5th edn (Montchrestien 1994), n 84.

However grave it may be, an error of judgment is, from this point of view,of no consequence for the judge.

In the same vein, case law reverted to a very rigid definition of gross fault(faute lourde) (faute lourde) in the first few years after this law was applied,which extended to ‘that which was committed under the influence of anerror so grave that a judge, appropriately concerned with his or her duties,would not have been led to make’,23 or again, to that which involved‘demonstrating a serious and inexcusable lack of knowledge about theessential duties of a judge in the exercise of his or her office’.24 In the fieldof criminal procedure, it has, for example, been decided that mistakes madeby an investigating judge about the identity of a person named in an arrestwarrant constitute gross fault (faute lourde).

In implementing the notion of gross fault (faute lourde), a necessaryadjustment has been made to ensure the effective compensation of victims.It was in the context of this development of case-law by the lower courtsthat the Cour de cassation’s Assemblée Plénière gave its important decisionconcerning the sadly famous ‘Gregory’ case.25 In this case, serious mistakeshad been committed in investigating the murder of a child in the 1980s. Bythis decision, the Cour de cassation considerably softened the key elementsof ‘gross fault (faute lourde)’. Reversing the restrictive approach in earliercase-law, it declared that a gross fault (faute lourde) consists in ‘any defi-ciency characterised by a fact or series of facts demonstrating the unsuitabil-ity of the public service to fulfil the mission with which it is entrusted’. In thelight of this significant softening, which was a response to an argument thatthe rules on State liability were incompatible with Article 6–1 of theEuropean Convention on Human Rights, the Cour de cassation consideredthat for the future the grounds for the newly redefined liability action nolonger constitute a substantive obstacle to the right of access to a judge.

Until this ruling, the Cour de cassation defined gross fault (faute lourde)by reference to subjective criteria. It was the extent of the established dispar-ity between the actual conduct of the implicated person or persons and theconduct they should have exhibited which betrayed the existence of gravemisconduct or, what is more, the enormity and the inexcusable nature of the wrongdoing. In its decision of 23 February 2001, the approach taken bythe court made the notion of the serious fault within Article L.781–1 of theCode of Judicial Organisation more specific and undeniably led to a widen-ing of the grounds for implementation of the liability decreed by this text.Under this analysis, there is a tendency to get closer to the concept of denialof justice as the State is breaching its duty of legal protection.26 Due to this

The Responsibility of Judges in France 23

23 1er Chambre civile, 20 February 1973, Bull Civ I n 67, 63; 1er Chambre civile, 20 February1996, Bull Civ I n 94, 63.24 1er Chambre civile, 10 May 1995, Bull Civ n 202, 144.25 Assemblée Plenaire, 23 February 2001, Bull No 5, 10.26 R Vincent & S Guinchard, Institutions judiciaires, 6th edn (Dalloz 2001), §§ 224 ff.

new case law, the European Court of Human Rights, going back on itsprevious position, has now accepted that Article L.781–1 of the Code ofJudicial Organisation establishes an internal, efficient and adequate legalremedy which should be exercised prior to the introduction of an individ-ual petition in the sense of Article 35§1 of the Convention.27 Thus, themost recent legal definitions of gross fault (faute lourde) and the denial ofjustice testify to the will to facilitate the implementation of the State’sresponsibility whilst respecting the peculiarities of the justice system. A fewmonths later, the administrative courts adopted a similar position. TheConseil d’Etat , in its ruling of 28 June 2002,28 effectively found the Stateliable for the defective operation of the administrative justice system in acase where a reasonable time limit for a verdict had expired.

In practice, the result of this relaxation of the rules governing gross fault(faute lourde) by State representatives has been a sharp increase in the num-ber of lawsuits based on so-called legal dysfunction. Between 1989 and1992 only 15 cases of legal proceedings were instituted on these grounds.From 1993 to 1998, 161 rulings were made, of which 28 resulted in a find-ing of liability.29

2. The Ineffectiveness of Judges’ Liability for Personal Misconduct

In terms of their position, ordinary judges are only liable for their profes-sional misconduct,30 and when such misconduct is linked to public serviceof justice their personal liability lies only at the instance of the State by wayof an indemnity action.31 In other words, if a judge’s misconduct is not con-nected with the carrying out of his or her duties, he or she is liable for anymisconduct according to ordinary law. Otherwise, where the personal mis-conduct is connected to the public service of justice the litigant can onlytake action against the State. In such a case, the law prevents him or herfrom suing the judge directly. If it is found liable, the State has the option of

24 G U Y C A N I V E T

27 This results from the rulings in the cases of Van der Kar & Lissaur van West v France of 7 November 2000 petitions no 44952/98 and 44953/98, declared to be admissible andGiummara and others v France of 12 June 2001 petition no 61166/00, declared inadmissibleand finally the inadmissibility ruling delivered in relation to the case of Mifsud v France on 11 September 2002 petition no 57220/00; from then on any grounds for complaint about theduration of legal proceedings brought before the CEDH after 20 September 1999, withoutpreviously having been submitted to national courts in the context of an appeal is inadmissi-ble, whatever the state of the proceedings in national law.28 CE, 28 June 2002, Garde des Sceaux v M Magiera petition no 239575.29 Information bulletin from the Cour de Cassation BICC 518 of 15 July 2000.30 Art 11–1 of edict n 58–1270 of 22 December 1958: ‘Ordinary judges are only liable fortheir professional misconduct. The liability of judges who are guilty of professional miscon-duct linked to the public justice system can only be activated under the indemnity actionbrought by the State …’31 In applying para 2 of Art L.781–1 of the Code of Judicial Organisation: ‘For judges attachedto the corps judiciaire, their liability for personal error is governed by the statutes of the magistrature’.

filing a lawsuit against the judge whom it had financially covered in relation to the victim.

However, since 1970, the date from which this system came into force,that is to say for more than 30 years, no such indemnity action has beenbrought by the State against any judge. This lack of legal action needs to beexplained. As a result, recognised wrongdoing on the part of a judge incursno sanctions at all, financial or otherwise. This is doubtlessly because, whenit is applied, this particular system of responsibility offers the victims of thewrongdoing no direct handle on the indicted perpetrator of the offence.Perceived to be a system of irresponsibility by public opinion as well as bythe political classes, it has been the object of criticism and numerousattempts at reform since the 1990s.

II. THE CASE FOR MAKING JUDGES DIRECTLY LIABLE FOR THEIR ACTIONS

The need for a reform which made judges answer for their faults becameclear essentially in the sphere of discipline. In a society which willingly givesin to the temptation of ‘victimisation’, the hunt for the guilty partiesbecomes ever more pressing. Judges are not exempt from this movement, aslitigants have become aware of the power they wield. Reassuringly or oth-erwise, their judicial role calls for them to weigh up their actions carefullyto avoid a proliferation of negligence and errors, which acts as more of adeterrent for wrongdoing than the mere threat that they have to compensatefor any injuries they cause. At first it seemed necessary to prevent mistakesby using discipline in such a way that less emphasis was put on establishingcriminal liability, which only concerned the extreme cases, reducing thescope for regulating conduct, and more on implementing a form of discipli-nary liability, whose aims, incidentally, were linked to repressive action.Thus the increase in the ethical obligations of judges was translated into adisciplinary process and the development of a case-law which sets out amore rigorous ethical system.

A. The Creation of a Disciplinary System for Judges

From 1999, notably under the influence of a strongly expressed current ofcriticism inside Parliament, often expressed in a pejorative manner, the dis-ciplinary system for judges was strengthened, especially in relation to theinitiation of such proceedings and to the publicity given to them and to theoutcome. Under the Constitution, the Conseil supérieur de la magistrature(CSM) assists the President of the Republic, who guarantees the independ-ence of the judiciary. It is mainly composed of judges elected by their peers

The Responsibility of Judges in France 25

reflecting the various constituencies of the judicial hierarchy, and of asmaller number of members nominated by political or other authoritiesexternal to the judiciary, the President of the Republic, the presidents of theparliamentary assemblies and the Conseil d’Etat.32 In disciplinary matters,it is presided over by the President the Court de cassation. Its proceedingsfollow the classic rules governing the discipline of public sector employees,essentially governed by the principle of adversariality and the rights of thedefence, guarantees notably of legal assistance and of access to the case file.Sensitive to appeals to public opinion, the Conseil supérieur de la magistra-ture, at the time of a ‘Reflection on the future and the direction of a reform’included in its annual report of 1999 a connection between an assertion ofthe independence of judges and the strengthening of their responsibility andin consequence of their disciplinary system.

1. Diversifying the Power to Start Disciplinary Proceedings

The will to reinforce disciplinary control principally manifested itselfthrough the strengthening of disciplinary proceedings. Until a recentreform, the Minister of Justice had the exclusive right to initiate and deter-mine the conduct of proceedings, and he or she could request that a judgebe temporarily suspended by the disciplinary authority, as well as imposingsanctions up to the judge’s removal from office. In the report previouslycited, the Conseil supérieur de la magistrature said that the provisionswhich grant the Minister of Justice the exclusive right to submit cases tocourt in disciplinary proceedings should be complemented by granting thesame power to the presiding judges in appeal courts. A similar proposalhad already been made in 1996 by a judicial review committee set up by theFrench President and headed by the First President of the Cour de cassa-tion. Hierarchically superior to the judges in their court and responsible forappraising their performance, the heads of the appeal courts seemed, onthis view, to notice and then expose action or conduct worthy of disciplinaryproceedings. There are other grounds for such an innovation. Reinforcingthe role of the senior presiding judges of the appeal courts in conduct mat-ters, who up to this point only had the power to issue a warning,33 wouldrender disciplinary action less dependent on political power and give more

26 G U Y C A N I V E T

32 The make-up of the CSM is determined by Art 65 of the Constitution (ch VIII, de l’autoritéjudiciaire).33 A warning is governed by Art 44 of edict n 58–1270 of 22 December 1958. Warning doesnot constitute a disciplinary sanction and is a procedure independent of any disciplinaryaction. It is automatically erased from the person’s file after 3 years if no new warning or sanc-tion has been imposed during this period. However, this erasure does not prevent the hierar-chical superior from taking the facts which led to this warning into account in a subsequentassessment.

coherence to the system as a whole. Thus, inspired by these ideas, theorganic law of 25 June 2001,34 altering the position of judges henceforthprovides that ‘The Conseil supérieur de la magistrature can also be seisedby a declaration of facts justifying disciplinary proceedings, presented to itby the presidents of the cours d’appel’.35 This ended the monopoly of refer-ence by the Minister of Justice without giving a real prosecutorial role tothe presidents of the cours d’appel, which one might regret. The Minister ofJustice remains responsible for the accusation and prosecution before theConseil.

Should we go further and give each citizen the right to submit their caseto the Conseil supérieur de la magistrature? An attempt was made to intro-duce a mechanism directly taking into account the complaints of litigants ina reform Bill which was not implemented. The Bill, passed by both assem-blies, provided in effect for the creation of a national committee to examinethe complaints of litigants, and this would have been composed of a seniorjudge of the Cour de cassation a conseiller or president of chamber, a per-son appointed by the Médiateur of the Republic the Ombudsman, and aperson appointed by the presidents of the Senate and the NationalAssembly. Receiving complaints from anyone who considered themselves tobe harmed by the malfunctioning of the justice system or by an act capableof giving rise to a disciplinary penalty committed by a judge in the exerciseof his or her functions, this organ would have constituted in effect a cham-ber of requests. It would have given an unappealable decision, under whichit would have decided not to pursue a complaint when it was not consid-ered to be well founded, or to transmit it for consideration by the Ministerof Justice or by the head of the relevant court, whose role it would havebeen to begin proceedings in appropriate cases. Hostile to this reform, likethe judiciary as a whole, the Conseil supérieur de la magistrature opinedthat the creation of such a commission would ‘lay the burden of suspicionof wrongful conduct on judges which the objective facts did not in realityconfirm’.

Once the process of Constitutional reform had been halted, the desire toextend the right to bring disciplinary proceedings has not, thus far, pro-duced many results. The presidents of the appeal courts seem hesitant touse their new power of denunciation. Only one of them has referred chargesrelating to actions by a judge in his or her court to the Conseil supérieur dela magistrature, and indeed did so at the same time as the Minister ofJustice. On the other hand, the measures designed to increase the publicitygiven to disciplinary proceedings against judges have been more effective,indeed spectacularly so.

The Responsibility of Judges in France 27

34Organic law n 2001–539 of 25 June 2001 relating to the status of judges and the French CSM.35 Art 50–2 of decree n 58–1270 of 22 December 1958, constituting the organic law relatingto the status of judges.

B. Publicising Disciplinary Proceedings Brought Against Judges

Before the recent statutory reform, it was provided that the Conseilsupérieur de la magistrature36 would hear disciplinary cases in camera.37

However, believing that this absence of publicity was incompatible with therequirements of the fair trial set by Article 6–1 of the European Conventionon Human Rights, it was decided to make the sessions public from 1994onwards, except when this was opposed by the judge being prosecuted.Although the European Court of Human Rights, reverting to earlier caselaw, had considered that Article 6–1 of the Convention did not apply topublic officials who participate in the exercise of public authority, judges inparticular, the practice of public hearings of the CSM was established bythe organic law of June 2001. The goal of this provision was not only toeffectively reinforce the legitimacy of the Conseil as a disciplinary body, butequally to guarantee respect for the rights and freedom of individuals in thecontext of a democratic society, in accordance with the expression of theserights and liberties established by the European authorities. In fact,although they can surrender this right, the majority of judges under prose-cution nonetheless want the hearings to be public. Some of them even usethis new procedural option to develop systems of defence with intensemedia coverage, claiming that the proceedings taken out against them bythe Minister of Justice are political by nature and aim to crush their rulings.

The lack of publicity about the disciplinary rulings concerning judgeswas another significant difficulty. Apart from the confidential nature of theproceedings and the judgments, it was the law on freedom of the press38

that limited the possibility of publicising the judgments made by the disci-plinary body. It forbade the publication of all information relating to itsworkings and its deliberations, under pain of a large fine. For this reason,the preventive and pedagogical impact of disciplinary jurisprudence withregard to judges was limited. The secrecy of the proceedings gave rise to thepopular impression that the use of disciplinary action against judges waslimited, even, perhaps, that there was total impunity. In revoking the banon information about hearings and judgments in cases of disciplinary pro-ceedings against judges, the legislator was responding to the wishes of theConseil supérieur de la magistrature as well as the review committee on thejudiciary. Based until recently on maintaining secrecy about the judges’wrongdoing, the credibility of justice now rests on the transparency of theproceedings and the sanctions pronounced against judges due to theirbreaches of the code of conduct. Publicising disciplinary judgments has,

28 G U Y C A N I V E T

36 Le Conseil supérieur de la magistrature is then called a disciplinary council, Art 49 of edict n 58–1270 of 22 December 1958, ruling on the judiciary.37 Arts 57 and 65 of decree n 58–1270 of 22 December 1958, ruling on the judiciary.38 Art 38, para 2 of the law of 29 July 1881 on the freedom of the press.

moreover, allowed the Conseil supérieur de la magistrature, to clarify therules governing the conduct of judges by exploring the boundaries of disci-plinary misconduct. These rules serve as a reference point for judges whileat the same time informing the public about the service they have a right toexpect from the courts.

C. Deepening Judges’ Ethical Obligations

The law on the judiciary (le statut de la magistrature) loosely defines disci-plinary misconduct relating to judges as any breach ‘of the duties of thejudge’s office, honour, scruples, or dignity.’39 Until recently, the terms ofjudges’ ethical obligations were only made known through the decisions ofthe Conseil d’Etat, the latter having the jurisdiction to deal with appealslodged against rulings made by the Conseil supérieur de la magistratureand, on that occasion, to define judges’ ethical obligations. From thenonwards, the publicity given to its own decisions allowed the disciplinarycommittee itself to specify the content of judges’ moral obligations in a pre-cise and pragmatic way, in the course of the cases referred before it. To thisend, extracts from the reasons for their decisions published anonymously intheir annual reports were initially held up as an example by the committee.Then, from 1999, the whole text on it was published. This step coincidedwith the development of the notion of disciplinary misconduct. From thispoint onwards, the body of case-law from the CSM gives the genuine rea-sons of principle with judicial education in mind, allowing the Minister ofJustice to compile a compendium of all the reported and punished misdeeds.The judicial body thus has at its disposal a whole collection of the prece-dents which precisely trace the boundaries of disciplinary wrongdoing, andconsequently of the judges’ ethical obligations.

The duties underlined by the Conseil’s case law can be divided into twocategories. On the one hand, they are concerned with the obligations whichare vital to the execution of the judge’s office, and also in the context of thejudge’s relationship with his or her colleagues. On the other hand, there arethose responsibilities incumbent on their personal lives.

1. The Ethical Duties Relating to the Professional Conduct of Judges

The code of professional conduct for judges is primarily concerned with theattitude of impartiality which a judge should always follow in the exerciseof his or her functions. In the second place, it concerns the obligation tosubordinate themselves to the requirements of the law. Judging accordingto law, the judge cannot rescind from the requirement of respect for legality

The Responsibility of Judges in France 29

39 Art 43 of decree n 58–1270 of 22 December 1958 on the judiciary.

which he or she is formulating for others. Furthermore, the judge has a generalduty of care towards the parties. The inability to make decisions within areasonable time, which the user of the legal service has a right to expect,constitutes the frequent ground for complaints, however much one mightwish to improve the consideration of professional carelessness in discipli-nary matters. Delicacy, dignity and loyalty are also required towards otherjudges, all of whom are urged to foster an atmosphere of mutual respect.Verbal abuse, insulting behaviour, but also immoderate language withindocuments, whether aimed at the heads of courts, colleagues, court clerks,or at legal representatives, all constitute a lack of delicacy or reserve.Furthermore, the behaviour of a judge towards those who are broughtbefore him or her requires complete dignity. For this reason, the disciplinaryproceedings make frequent reminders of the respect owed to each personinvolved in court, whatever their role in the civil or criminal proceedings:litigant, defendant, victim or witness. In reality, it is the user, even if he orshe is not as such represented in the disciplinary proceedings courts, whomakes up the essential purpose of judicial ethics. This is underlined by theEuropean Convention for Human Rights which sets out the principles forthe good functioning of justice, basing itself simply on the fundamentalrights of all persons to access to the courts. Finally, the duty to preservesecrecy is considered of vital importance as much by the Conseil supérieurde la magistrature as by the Conseil d’Etat.

The most sensitive matter is that of judgment in disputed matters. Inprinciple, the Conseil supérieur de la magistrature refuses to:

deliver any kind of judgment on judicial acts which come under the soleauthority of said judges and should not be challenged except by the implemen-tation of legal remedies provided for by the law in favour of the litigants.40

Consequently, it refrains from judging the thought processes of judges inthe handling of proceedings and in the reasoning behind decisions. All thesame, it avoids what might be seen as an immunity:

when it is clear from the authority of the decision finally reached that a judgehas grossly and systematically exceeded his or her competence or ignored theframework of the litigation submitted to him, so that, despite appearances, heor she has committed an act extraneous to the judicial function.41

This is, according to one writer, the liability of the judge ‘outside himself’.42

That is the limit of the independence of the judge, but it is also the weakness

30 G U Y C A N I V E T

40 CSM 27/06/91, 02/07/1993 & 20/07/1994 cited by D Commaret, La responsabilité du juge(Ecole Nationale de la Magistrature 1999), 6.41 CSM 8 February 1981, GP 21 Feb 1981, 115, cited by Commaret n 33, 6.42 MA Frison-Roche, ‘La responsabilité des magistrats: l’évolution d’une idée’ Juris-ClasseurPériodique, 20 Oct 1999.

of the system. In the course of 2002, political authorities considered twicethat the limit had been crossed, and members of the government used thepress to address public criticism to the judges. In the first case, a collegialcriminal court had ruled in a procedural issue that a person should be setfree who was being prosecuted for a serious offence that raised concernsabout his dangerousness. A few days later, he was involved in a burglaryduring which two policemen were killed. In the second case, again for pro-cedural reasons, a judge refused to detain a person under investigation formajor drug trafficking. In both cases, the public announcement of discipli-nary proceedings, made in the height of a media debate, was not followedthrough. But, with a certain anxiousness among the judicial body, the pos-sibility of disciplinary action against a judge or judges who were part of acollegial court due to the content or consequences of their judgment wasraised.

The case law of the criminal chamber of the Cour de cassation is res-olutely restrictive in relation to criminal responsibility which could resultfrom actions carried out by a judge fulfilling his or her duties. It firmlyreminds us that a court order can only be challenged by exercising the legalremedies provided for by the law.43

2. The Ethical Obligations which Relate to Judges’ Private Lives

In their behaviour in private, judges benefit from the freedoms constitution-ally guaranteed to every citizen, in particular the protection of the privacyof their private life, freedom of thought, expression and the right of associ-ation. The disciplinary body thus considers that ‘actions carried out in theprivate life of a judge, as such, are not a matter for disciplinary action’.44

But this is limited when grievances drawn up ‘even if they concern severalaspects of a judge’s private life, all the same have external repercus-sions … undermining the image that he or she is called on to reflect in judg-ing others and, as a result, undermining the institution itself’ and when‘their perpetrator can no longer appear to be trustworthy in his or her roleas judge and arbitrator’.45 It is thus held that:

a judge is obliged at all times, notably in the actions carried out in his or hercivil life, to ensure that the responsibilities and duties of his or her office arenot debased by actions and behaviour that are likely to damage his or her

The Responsibility of Judges in France 31

43 ‘Whereas in virtue of the constitutional principle which guarantees the independence ofjudges, their judicial rulings may only be challenged, either in terms of their grounds or theirpronouncements, solely by means of the legal remedies provided for by the law; unless, for thisprinciple as well as that of the secrecy of deliberation prevent a court ruling being consideredas constituting an offence or a misdemeanour …’ Appeal n 81–94.848 Bull Crim n° 327.44 CSM sitting of 28 March 1996, in the 1996 annual report of the CSM, part III.45 CSM sitting of 20 July 1994, cited in Commaret n 33.

credibility and the confidence of litigants, the judge’s colleagues, court registry employees, and legal representatives in him or her as judge.46

Thus, as several precedents show, freedom of choice in a judge’s private lifeyields before the more important demands of, in particular, fulfilling theobligation to be impartial, the responsibility for not neglecting the judge’soffice, or indeed the duty of caution towards any attitude liable to damagethe credibility and the image of the institution. This applies to the very dif-ferent domains of their personal, economic, business or contractual rela-tionships, or indeed their religious, trade union or political affiliation.Within this delicate area, the ethical question of judges belonging to aMasonic lodge is one that has recurred several times in recent years.

III. CONCLUSION

Situated in the common ground between the two contradictory require-ments, the need to avoid and compensate for judges’ wrongdoing and topreserve their independence and the risk-taking that necessarily is involvedin a judicial ruling, the question of judges’ responsibility resolves itselfeither in tradition or in balance. Thus, it seems that in France there hasindeed never been a strong tradition of making judges responsible for theiractions, but that on the contrary the matter has been subjected to develop-ments likely to arouse popular demands or the reactions of the politicalclasses. Making judges responsible for their actions is thus seen as a protec-tion against their arbitrariness. Indeed it is a limit to their power as much asa reaction against a system of impunity that is unacceptable nowadays.However, it is a question that deserves calm reflection, perhaps leading, forexample, as with several other major systems, to the meticulously planneddevelopment of a code of conduct precise enough to guide the conduct ofjudges in their private lives as well as in their professional behaviour, andthereby to instil in them an ethical reflex. Constantly faced with the realityof declining standards of behaviour and of liberties being taken with clearduties, experience shows that, contrary to what we claim to believe with acertain naïve optimism, nowadays in ethical matters or in general impreca-tions it is not enough to leave it up to the free will of each judge. Rather, eth-ical conduct is usually made up of concrete behaviour in precise situations.

Thus we can now clarify judges’ obligations with regard to the press andpolitical power or to their adherence to current trends of thought. The basicrules governing the behaviour of judges during hearings, as much towardsthose awaiting trial as towards legal representatives, need to be considered.It is, after all, a question of creating an ethic of independence and impartiality.

32 G U Y C A N I V E T

46 CSM decision of 27 June 1996.

Anything different would damage judges’ credibility. The reactions of publicopinion towards them should incite judges to be more conscientious. Eventhose who campaign to weaken judges’ authority should watch out for this.

There are two endings to the original tale with which I started this Article.The executioner, appearing before the Sultan of Salamandragore to accountfor the execution of the judges, said to him, placing his hand on his sword:‘I am at your service, my lord!…’ A society without judges is a society givenover to force.

More enigmatic, but more conducive to reflection, is that offered byJacques Prévert’s poem:

‘It is fine like this’Said the Sultan of Salamandragore‘But stay there executionerThere next to meAnd kill meIf I ever fall asleep again’.

The Responsibility of Judges in France 33

3

The UK and the Euro: Some KeyEconomic Issues

MIC’A PANIC’*

I. INTRODUCTION

THE MOST IMPORTANT conclusion to emerge so far from theinterminable debate whether the UK should join European MonetaryUnion (EMU) is that, as things stand at the moment, neither side

appears to be winning the economic argument! It is perfectly true, as sup-porters of the membership argue, that the country’s economy is so closelylinked with those of other nations in Western Europe that the delay inadopting the single currency would be costly in the long term. However, theopponents are also correct when they point out that joining EMU woulddeprive the UK of important benefits that arise from the ability to pursue‘independent’ macroeconomic policies.

There are three important reasons for this impasse.First, most of the arguments in favour of the membership are based on

microeconomic considerations. Now that British short-term economic per-formance has become superior to that of most members of EMU, little isheard from the supporters about macroeconomic benefits (lower unem-ployment and inflation) that could follow the country’s adoption of the sin-gle currency. The opponents have, not surprisingly, seized on this change inthe country’s relative performance as a convincing proof that the loss ofnational economic sovereignty caused by membership of the monetaryunion would inevitably lead to lower growth and higher unemployment.

Second, the internationalists (ie the supporters) tend to underestimate seri-ously the unique nature of EMU and the policy constraints that it imposes onmember countries. On the other hand, the nationalists (ie most of the oppo-nents) invariably ignore the extent to which changes in EU treaties, laws and

* Fellow of Selwyn College, University of Cambridge, and Visiting Professor of InternationalEconomics, University of Milan. Fellow of the Royal Society for the Arts, Manufactures andCommerce. Member of the UN Committee for Development Policy.

regulations have—together with globalisation—reduced the ability of individual countries to pursue independent macroeconomic policies.

Third, both sides seem anxious, for political reasons, to avoid drawingattention to the importance of creating the institutional framework withoutwhich a full economic and monetary union is unsustainable. Historicalexperience shows that such a framework is of critical importance for thesuccess of both national and international unions of this kind. In spite ofthis, the internationalists seem to hope that existing national institutionswill be able, with some assistance from the Commission, to cope success-fully with the problems created by imposing a common policy on countrieswith markedly different economic and social needs and priorities. Thenationalists’ hope, on the other hand, is that a group of sovereign stateswith a diversity of economic problems, and dissimilar traditions, will neverbe able to agree on a common, supranational framework of institutionsthat would operate to the advantage of all of them. The reason for this, asthey have always made it clear, is that they are opposed, as a matter of prin-ciple, to any form of political union of EU countries. Such a union would,in their view, mean a permanent loss of national institutions and identity—which they find unacceptable.

Hence, while the supporters are right about certain benefits of member-ship at the microeconomic level, they are in danger of ignoring macroeco-nomic costs that could be substantial in the absence of major institutionalchanges within the EU. The opponents have a similar problem. Some of thecosts to which they draw attention are not as serious as they believe; andthose which are serious could be reduced significantly, even eliminated intime, within a more appropriate institutional framework than the one cre-ated at Maastricht in 1991.

This paper examines some of the key issues raised in the debate—withspecial emphasis on important macroeconomic problems that a complete(single currency) international monetary union is likely to create and howthey might be solved in the EU context.

However, before considering these problems and their possible solutions itis necessary to start at the beginning: why the monetary union that EU coun-tries are trying to create is quite different from any other international mone-tary union attempted in the past. This is essential because many of the mostdifficult economic problems and political obstacles to ensuring that the unionsucceeds have their origin in the unique nature and modus operandi of EMU.

A. Why EMU is Unique

There is a fundamental difference between the international monetary unionthat EU countries are trying to create and similar unions in the past. The lat-ter were regarded as no more than a means to an important economic end.

36 M IC’A PA N I C’

In contrast, the real, long term, intention behind EMU has always beenmore than that: it represents one of the economic means to a political end.It is a serious mistake, therefore, to treat EMU as just another in a fairlylong line of attempted and (without exception!) failed international mone-tary unions.

The raison d’être of all the past unions was to promote international spe-cialisation and trade by agreeing on a regime of fixed exchange rates inorder to eliminate financial risks and uncertainties that hinder internationaltransactions. Countries that participated in such unions had no intention ofgiving up any more of their national economic sovereignty than was neces-sary to achieve this particular objective. That was as true of the ‘global’unions like the Classical Gold Standard (1880–1914) and the BrettonWoods System (1948–1973) as of the regional unions in Europe such as theLatin Monetary Union (1865–1926) or the Scandinavian Monetary Union(1872–1931).1 All countries that joined these unions retained their currencies,central banks as well as a certain degree of national monetary autonomy.No attempt was made to impose on member states a uniform trade or anyother economic and social policy.

The main objective of the founders of the European Economic Communityin the 1950s was different. They wanted to ensure that the Second World Warwas the last major war to be fought in Europe. Such an outcome was mostlikely if European countries were to achieve a high level of economic prosper-ity through cooperation within an economic and monetary union. Greaterprosperity, widely shared, would make the cost of a future war unacceptableto all concerned. That would ensure that they all had a genuine, commoninterest in preserving peace. In other words, as the post-war advocates ofEuropean unity saw it, the best way to preserve peace on the continent lay inachieving a high degree of economic integration and interdependence.

An important reason for this was their hope that the benefits of closeeconomic integration would lead eventually to a fundamental change in thepolitical map of Europe. A high degree of economic interdependence makesa political union difficult to avoid in the long term, as the constituent stateslose progressively the ability to solve independently even their specificallynational problems. That, effectively, deprives individual nation states oftheir economic sovereignty. As a result, it becomes impossible for any oneof them to pursue in isolation, like Germany in the 1930s, a programme ofre-armament in order to wage wars against other European countries.2

The UK and the Euro: Some Key Economic Issues 37

1 See Panic’, M, European Monetary Union—Lessons from the Classical Gold Standard(Macmillan and St Martin’s Press 1992); Panic’, M, Globalization and National EconomicWelfare (Palgrave Macmillan 2003); Vanthoor, WFV, European Monetary Union since 1848—APolitical and Historical Analysis (Edward Edgar 1996); Einaudi, L, Money and Politics—European Monetary Unification and the International Gold Standard (Oxford UP 2001).2 Milward, AS, The Reconstruction of Western Europe, 1945–51 (Methuen 1984); ibid, TheEuropean Reconstruction of the Nation State (Routledge 1992).

This is a noble aim based on a logically consistent argument. The problemis that the kind of economic integration that the founding fathers had inmind is normally achieved within a political union; and that happens to beone of the distinctive characteristics of nation states—which is preciselywhat the European Community is not! It is an economic union of politi-cally independent, sovereign states. That makes EMU also different fromnational monetary unions.

In the latter case, the creation of an integrated economy with a singlecurrency is made possible by the political union that, among other things,abolishes interregional obstacles to greater mobility of labour and capital,specialisation and trade. The state achieves this (a) by imposing uniformlaws, rules and regulations, and (b) by creating an institutional frameworkthat ensures that these are observed throughout its domain. A single currency becomes then one of the instruments of imposing national unifor-mity, and the central bank becomes that part of the institutional frameworkwhose responsibility it is to manage the national currency. Not surprisingly,national currencies become as much a symbol of national independenceand sovereignty as the flags and the anthems!

What the European Community has done over the last 50 years is to turnthis whole process on its head. Instead of creating a political union in orderto achieve a highly integrated economic and monetary union it is trying toachieve the latter as a precondition for making realisation of the objectivethat led to its formation in the first place—a political union of Europeanstates—unavoidable.

The founding fathers may have dreamed of a united, prosperous andpeaceful Europe. But they were also realists. Having fought innumerablewars to preserve their national identity and sovereignty—the Europeanswere unlikely to give them up without a compelling reason for doing so.Few of ‘the fathers’ expressed these sentiments as clearly and forcefully asRobert Schuman. He argued that existing nation states in Europe were toosmall to solve their domestic economic problems without collaborationwith the neighbouring countries. National divisions in Europe had there-fore, as he put it, become ‘an anachronism, a nonsense, a heresy’.3 At thesame time, while advocating supranational solutions to national problems,he was conscious of the fact that the nation state in Europe was ‘a historicalreality; it would be psychologically impossible to make it disappear’. As aresult, national sovereignty could only be emasculated gradually over a longperiod rather than taken away explicitly and formally in a single treaty,such as the Treaty of Paris that set the process of European integration inmotion.

In other words, a political union would have to be negotiated by mem-ber states at some future date—after a European economic and monetary

38 M IC’A PA N I C’

3 Quoted by Milward, European Reconstruction, above n 2 at 326.

union had reached the stage that required common political institutionswithout which the Union would be unmanageable. The alternative wouldbe economic disintegration, lower economic welfare and the danger thatEuropeans could revert to their centuries old habit of trying to resolve con-flicts of interest through wars.

The history of the European Community has therefore seen, for most ofthe last 50 years, a gradual transformation of international economic andother relations within Western Europe. Each change has tended to followlogically from those preceding it, appearing to represent nothing more thanyet another step towards the common goal of greater economic prosperitythrough freer trade and economic integration. In fact, each of them hasbrought imperceptibly the ultimate, political, goal closer.

All countries are required, on joining the European Community (EC), toabolish administrative barriers to trade (tariffs and quotas) within theCommunity and to adopt common tariffs on extra-EC trade by the end of aclearly specified period. In addition, they have to remove non-tariff barriersto trade in order to create a single market for goods and services. Thisincludes harmonisation of the national health and safety regulations, tech-nical standards, VAT and certain excise taxes and frontier procedures. Aspart of the same goal of creating a single European market, restrictions onfree movement of labour and capital are not allowed within the Union.

However, all these measures still fail to make the EU a genuinely freetrade area so long as national governments are allowed to use subsidies andpurchasing policies that discriminate in favour of their domestic producers—giving them an ‘unfair’ advantage in competition with firms from othermember states. The main purpose of the Community’s competition policyis, ostensibly, to eliminate these hidden ‘protective’ policies by applying acommon competitive standard throughout the Union. But the real impactof this particular policy harmonisation is, in fact, much wider. It depriveseffectively national governments of two more (in addition to controls ontrade and factor movements) policy instruments that they have tradition-ally used to assist structural adjustments in declining industries and highunemployment regions: those of industrial and incomes/prices policies. Noother international trading regime or monetary union has ever made a sim-ilar attempt to restrict the economic sovereignty of member states.

These restrictions on the range of economic policies at the disposal ofnational governments may increase further freedom of trade within the EU.But the freedom is still not comparable to that which exists within a nationstate. Independent countries which have their own currency, central bankand consequently the capacity to pursue the monetary policy that safe-guards and promotes their national interests can use this freedom to imposebarriers on trade with other members of the EU indirectly: by devaluingtheir exchange rate. That is equivalent to imposing an equal tax on allimports and of providing an equal subsidy to all exports. As a result,

The UK and the Euro: Some Key Economic Issues 39

if effective, exchange rate depreciation is an even more protective policyinstrument than tariffs and subsidies, both of which, like quotas, arerestricted to some industries only.

In theory, the problem could be avoided by requiring all EU members toobserve strictly a regime of ‘irrevocably’ fixed exchange rates. In practice,as experience under the Classical Gold Standard and the Bretton WoodsSystem shows, such a regime is no guarantee that a country experiencingeconomic stagnation, rising unemployment and/or rapidly deterioratingexternal account will observe the rules instead of devaluing its currency.Under the Gold Standard a country in this position abandoned the stan-dard and let its currency depreciate; and under the Bretton Woods Systemcountries experiencing similar problems devalued, as the IMF Articles ofAgreement allowed individual countries to do if they were in ‘fundamentaldisequilibrium’.4

Hence, the only way to eliminate the risk of protection through compet-itive devaluations is to create a complete monetary union of the kind thatexists in an independent state: a single currency, one central bank, a singlemonetary policy and, as a result of this, a single exchange rate. That isexactly what the EU is trying to achieve with the creation of EMU. Inagreeing to such a fundamental change, countries that join EMU are, ineffect, transferring the authority to manage their single, national monetarysystem—with all its institutional trappings—to a common, supranationalinstitution at the Community level. There are no provisions for a countryadversely affected by the new arrangements to leave the monetary union—something that was possible even under the Classical Gold Standard, nor-mally regarded as the most rigid and demanding of all the past internationalmonetary systems. For all these reasons, with the creation of EMU theCommunity’s pursuit of ‘free trade’ has crossed the line that separates pre-dominantly sectoral concerns that characterise the four semi-macro policyinstruments mentioned so far (trade, exchange controls, industrial,incomes/prices) from macroeconomic institutions and policies.

Monetary policy has a broad sweep. It affects everyone within thedomain of a particular currency: the real disposable income of lenders andborrowers, aggregate demand and, as a result of this, output, income andprices. The effect is either direct or via the exchange rate if the rates areallowed to float.

The problem is that it is also a highly indiscriminate policy instrument.Exactly the same monetary policy will affect very differently dissimilar indi-viduals, social groups, sectors and regions. As a result, it may have unfore-seen, far-reaching economic and social consequences. Ceteris paribus, if itspurpose is to reduce a high or accelerating rate of inflation, it may result in

40 M IC’A PA N I C’

4 See Panic’ European Monetary Union, above n 1, and Globalization, above n 1 at ch 10.

unemployment, increase in poverty and inequality, social divisions and, ultimately, political instability. If its purpose is to reduce a high or risinglevel of unemployment, it may generate rapid increases in prices. The resultwill be lower real value of earned incomes, savings and wealth—again cre-ating poverty, inequality, social divisions and, if this persists long enough,political instability. The effect of either contractionary or expansionarymonetary policies will invariably be felt widely and unequally.

Hence, the greater the inequality in unemployment rates, efficiency andincome levels, and distribution of income and wealth within a monetaryunion the greater the danger that the impact of a particular monetary stancewill vary markedly between countries and regions. This is highly relevant inthe European context, as regional inequality in all these respects is greaterin the EU as a whole than in any of the 15 countries that comprise it.5

Inequalities within the EU are also higher than in a large national economicunion like the US,6 even though the inequality of income distribution isgreater in the US than in any country in Western Europe for which compa-rable data exist.7

One of the most important reasons for the relatively low levels of incomeand social inequality in individual EU countries is the extensive use thatthey have made in their fiscal policy of progressive taxation and socialtransfers.8 Fiscal policy is a powerful instrument for minimising, throughthe management of aggregate demand and resource transfers, problems ofunemployment, inflation, structural adjustment, and inequalities in per-sonal and regional income. But to employ fiscal policy successfully, it isessential to have an effective central government with the authority to pur-sue a coherent, comprehensive economic and social policy.

No central bank, irrespective of how ‘correct’ and ‘credible’ its monetarypolicies are, has either the authority or the means to redistribute theresources and in this way to reconcile sectional and regional conflicts ofinterests. It is for this reason that, by concentrating almost exclusively onmonetary institutions and policy, the Treaty of Maastricht has left the coun-tries that have joined EMU with a fundamental institutional imbalance.They have been drawn into a complete monetary union with the EuropeanCentral Bank (ECB) as the only fully developed and officially empoweredsupranational macroeconomic institution at their disposal. The obviousweakness of this arrangement is that the ECB, like all central banks, is

The UK and the Euro: Some Key Economic Issues 41

5 EC Commission, The Regions in the 1990s (1990); Panic’, European Monetary Union, above n 1.6 Galbraith, JK and Berner, M, Inequality and Industrial Change—A Global View (CambridgeUP 2001).7 Cf Atkinson, AB, Rainwater, L and Smeeding, TM, Income Distribution in OECD Countries:Evidence from the Luxembourg Study (OECD 1995); Goodin, RE, Heady, B, Muffels, R andDriven, HJ, The Real Worlds of Welfare Capitalism (Cambridge UP 1999).8 Goodin above n 7.

responsible for a single, monetary, policy that is incapable of solving on itsown a wide range of economic and social problems common, as nationalexperiences show, to all such unions. There is no European Governmentwith the responsibility, power and resources equivalent to those enjoyed bynational governments; and while that is the case, the EU cannot have aneffective Community-wide fiscal policy that could be employed in tandemwith the ECB’s monetary policy.

Those who ratified the Treaty in 1991 knew, of course, that 40 yearsafter the creation of the European Coal and Steel Community members ofthe EU were still not ready for a political union. To ignore that would havemade it impossible to agree on the establishment of European MonetaryUnion; and having agreed to go ahead with the Union they had no alterna-tive but to accept a risky division of responsibility for macroeconomic pol-icy between the Community and the member states. The states delegatedthe responsibility for a common monetary and exchange rate policy to theECB. At the same time, the Treaty left explicitly the responsibility for fiscalpolicy to individual countries. In this way, each of them retained the rightto pursue an independent fiscal policy.

However, although this is still true in principle, the Stabilisation andGrowth Pact agreed in 1997 has made it difficult to implement effectivelythe 1991 institutional compromise in practice. As specified by the Treaty,the Pact restricts the extent to which member states are allowed to runbudget deficits to 3 per cent of GDP even in conditions of stagnant outputand rising unemployment. But it goes beyond the Treaty in making theserestrictions, in effect, mandatory. The Pact does this by strengthening theCommission’s power of surveillance over government finances of memberstates—authorising it, through the Council of Ministers, to impose fineson governments whose budget deficits exceed the 3 per cent ceiling.National governments are left, therefore, without the means to tackle aserious deterioration in their domestic socio-economic conditions createdeither by short-term economic instability or unequally shared benefits oflong term growth. At the same time, no institutions have been created atthe Community level to take over these responsibilities from the nationstate.

The threat to the whole idea of European unity is made potentially evenworse by the fact that the European Central Bank is given only one respon-sibility: to keep the rate of inflation low (below 2 per cent). As its policiessince 1999 demonstrate, the Bank has done its best to discharge this respon-sibility irrespective of what has been happening to unemployment, poverty,income inequality, social tensions and divisions, all of which invariably fol-low economic failure. Unfortunately, in doing so, the ECB has made amajor contribution to exacerbating precisely those problems that theEuropean Community was created to eradicate and, in this way, ensure per-manent peace on the continent! However, although the Bank is increasingly

42 M IC’A PA N I C’

criticised for its priorities and policies, the fault for its shortcomings lies notso much with ECB officials as with the Governments that created it, leavingthe responsibility for ‘macroeconomic’ policy almost entirely to the centralbank.

The issue of institutional imbalance in the EU cannot be ignored indefi-nitely for the simple fact that what happens in some of its member countriesis likely to have a significant effect on countries both within and outside theCommunity.

Economies of the existing member states are highly integrated and, there-fore, highly interdependent. This means that uncoordinated, conflictingpolicy approaches, especially by the largest economies, are bound to have amarked effect on other member states. That will happen even if the latterare outside EMU, contrary to expectations of the nationalists that thepreservation of an independent, national monetary system would give thecountries that opt for such ‘independence’ a significant degree of autonomyin the management of their economies. There is, for instance, growing con-cern in the UK at the moment (2003) that the country’s recent rates of eco-nomic growth and falling unemployment cannot be sustained for muchlonger. An important reason for this is the expectation that a combinationof the constraints on growth imposed by the Stability and Growth Pact andrestrictive monetary policy of the European Central Bank will deepen eco-nomic stagnation in the 11 countries that comprise EMU. Given its closeeconomic links with these countries, their slow growth and high unemploy-ment would make it impossible for the UK to avoid a significant deteriorationin its own economic performance even if it remained outside the monetaryunion.

In fact, even this example underestimates the overall effect of economicdevelopments in the 11 countries. EMU may be no more than a regionalunion, but it is a very large regional union—especially when the UK,Denmark and Sweden join it—much larger than comparable monetaryunions in the past. Collectively, the 15 countries that comprise the EU areone of the two largest economic entities in the world. In the late 1990s theEU produced 30 per cent of world output compared to the US share of 27 per cent. The United States still had much larger capital markets, but itsshare of world trade was lower than the EU’s (excluding intra-EU trade):17 compared to 20 per cent trade.9

The 15 EU countries have, therefore, the potential to exercise consider-able economic influence not only on each other but also, when they act inunison, on the global economy. The relative stagnation of many of theseeconomies since the early 1990s and its causes are, not surprisingly, a mat-ter of more than ‘local’ importance and interest.

The UK and the Euro: Some Key Economic Issues 43

9 Pilbeam, K, International Finance, 2nd edn (Macmillan 1998) 473.

The same is also true of the uncertainty concerning the Community’slong-standing institutional dilemma whose resolution cannot be delayed forlong following the creation of EMU: is it going to continue as an economicunion of independent, sovereign states or as a supranational politicalunion?

The enlargement in 2004, when 10 new members join the EU, willincrease the urgency with which the old dilemma has to be resolved oneway or another. The combined population of the 10 new members, around80 million, is almost equal to that of Germany. A significant proportion ofthis population is employed in agriculture and is expecting to benefit sig-nificantly from the subsidies provided under the Common AgriculturalPolicy. Moreover, with one or two exceptions, even the most prosperous ofthese states have efficiency and income levels below those of the poorestcountries in the EU. That will increase considerably claims on theStructural and Social Funds both of which have very limited resources attheir disposal.

Unless the Community can increase the two Funds well beyond what ithas been able to do so far, either the new or some of the poorest existingmembers may begin to feel that they are markedly worse off within the newEU than they would be outside it. Pressure on the most affluent members toincrease their financial contributions to the Community funds could easilyprovoke a similar reaction from them. Whatever the existing treaties maystipulate, realistically, there would be no effective means to prevent thesecountries from abandoning the Euro, destabilising the EU and, conse-quently, threatening the progress towards European unity made since the1950s.

The alternative solution, a large-scale migration from the poorest to therichest EU regions is unlikely to be more acceptable to the latter than largeclaims by the Community on their financial resources. After all, many ofthe wealthiest countries have serious economic and social problems of theirown as well as a limited fiscal capacity to solve them.

Historical experience shows that there is no greater threat to interna-tional economic and monetary unions than large, persistent internationalinequalities in economic and social welfare.10

How far does the debate on British membership of EMU reflect theserealities and concerns?

B. Arguments in Favour of European Monetary Union

Arguments in favour of a single international currency are fairly standard,as they have been rehearsed many times since the debate on ‘universal

44 M IC’A PA N I C’

10 Panic’, M, National Management of the International Economy (Macmillan 1988) at Part III.

money’ in the 1860s. In this and the following section each of these isdescribed briefly, with specific references to what it would mean in the EUcontext.

Single currency eliminates transactions costs that arise in exchanging dif-ferent currencies. Bank transfers are also more expensive between thanwithin countries. The extra costs are equivalent to a tax imposed on thoseinvolved in international transactions. The introduction of the Euro abol-ishes the tax and, in this way, is expected to stimulate trade, financial trans-actions and travel within the Community.

Absence of exchange rate fluctuations, together with the existence of asingle European market, makes possible a more efficient allocation ofresources within the EU. Firms are able to rationalise production by locat-ing different stages of their activity in those regions that offer the greatestcomparative or absolute advantage—without the risk that these advantageswill be wiped out by adverse movements in exchange rates.

There is a significant saving in the administrative costs to firms, as theynow need to hold only one European currency: the Euro. As a result, theyrequire fewer resources to perform hedging and other financial operationsrequired to minimise losses on their portfolio of foreign currencies.

There is greater price transparency when all goods and services arepriced in one currency. This increases competition and thus leads to priceequalisation (when transport costs are taken into account) between EUregions and countries. Price equalisation occurs because the transparencyenables individuals and firms to purchase what they need in the regionwhere a particular good or service is cheapest and sell what they produce inthe region where the price is highest. The expectation is that this will elimi-nate extensive price discrimination that still exists in the EU.11

The size of the EU market has enabled some of the member countries toattract large inflows of foreign direct investment. Staying out of EMUcould, therefore, be very costly for these countries, as they would fail toshare in the advantages described above. In the short run this would proba-bly mean no more than that transnational enterprises (TNEs) would reducethe volume of their investment in these economies. In the long run, how-ever, it is almost certain that TNEs would switch their operations to thecountries that had adopted the Euro.

Given the combined size of the economies in which it is used as the legaltender, the Euro is bound to become a major world currency. As such, itwill be used increasingly as the international medium of exchange (as a sig-nificant proportion of world trade will be transacted in the currency), storeof value (as the risk of holding wealth in the Euro will be small relative to

The UK and the Euro: Some Key Economic Issues 45

11 See Emerson, M, Anjean, M, Catinat, M, Goybet, P and Jacqueman, A, The Economics of1992, (Oxford UP 1988) and, for reasons behind the discrimination, Panic’, Globalization,above n 1 at ch 6.

that of doing the same in most other currencies) and the unit of account (asit will be used as a measure for comparing the value of goods and servicespriced in different currencies).

Extensive use of the Euro by countries outside the Euro Area benefits thelatter in a number of ways. The ECB will earn higher profits than if the cur-rency were used only within EMU. This should enable national govern-ments, to the extent that the profits are distributed to them, to finance aparticular level of expenditure at lower taxes. Moreover, thanks to theEuro’s global status, the ECB will be able to acquire foreign assets morecheaply because it will not have to pay high interest rates to holders of othercurrencies to induce them to acquire the Euro. This will also make it easierfor the Euro Area to finance its balance of payments deficits than any of itsconstituent members would be able to do on its own.

All these ‘gains’ from the single currency are obviously important. But,apart from the last, they are by their very nature specific rather than gen-eral. They accrue to particular individuals and enterprises directly engagedin international transactions. The expectation that they will bring about ageneral, widely shared, improvement in welfare rests on the assumptionthat the ‘gains’ will lead to a more rapid economic growth, which is notnecessarily the case. The vast majority of countries in the world have theirown monetary unions with a single national currency. Yet their economicperformances vary greatly over time; and even in the most successfulamong these economies the benefits are distributed unequally between theregions, groups and individuals. It is hardly surprising, therefore, thatempirical studies confirm that there is little relationship between exchangerate instability and uncertainty, and international trade and investment.12

If global income and demand are increasing rapidly, levels of unemploy-ment are low and economic prospects point to a strong continuation ofthese trends—world trade will grow fast, as it did in the 1960s, irrespec-tive of the uncertainty that surrounds the existing regime of exchangerates.

As for the profits that the Euro Area would derive from the Euro’s globalrole, they are very unlikely to have a significant effect on public financeswithin the Community. The profits earned by the US Federal Reserve fromthe international use of its currency amount to less than 1 per cent of thecountry’s GDP.

In fact, the greatest benefits that the Community could derive from thesingle currency would arise from something that few supporters of the Eurodare mention in public: integration of EMU into an effective, commonmacroeconomic policy framework under the responsibility and control of asingle, supranational political authority.

46 M IC’A PA N I C’

12 For a survey of the literature see IMF (1984) ‘Exchange Rate Volatility and World Trade’,Occasional Paper No 28 (IMF 1984).

The world political and economic environment at the beginning of thetwenty-first century is becoming increasingly unstable and unpredictable.The spirit of internationalism and cooperation that existed in the thirdquarter of the last century have been replaced by adversarial attitudes com-mon before 1950, when large states and economies exploited their advan-tage of size at the expense of the rest of the world.

It is this new environment that gives the Community an opportunity toutilise collectively its considerable potential for at least safeguarding theeconomic and social achievements of member countries over the last 50 years. Separately, none of the 15 countries is capable of protecting effec-tively its economic and social welfare against external shocks. But, collec-tively, they are in a completely different position. In addition to beingpotentially the largest economic entity in the world, the EU is also highlyself-sufficient. The proportion of trade in its GDP is lower than that of theUS. This means that, in principle, a democratically controlled federal eco-nomic authority could pursue a common macroeconomic policy with adegree of success that no existing economic and monetary union in theworld would be likely to match. It would be able to do this by reconcilingmonetary objectives and policies of the ECB with management of the aggre-gate demand and fiscal transfers (both social and structural) by a commonEU economic and financial authority.

In this way, the Community would be able to satisfy much more easilysocial democratic preferences that seem to be shared widely in Europe.Comparative surveys of social attitudes show that social democratic values,and the cooperative approach to realising them, enjoy strong popular sup-port in all EU countries. In those cases where similar data are available, thesame also appears to be true of the nations that are joining the Communitynext year.13

The problem is, of course, that whatever the potential benefits of a polit-ical union may be it is still unacceptable to most Europeans. The vastmajority of them simply do not trust supranational, Community-wide insti-tutions to act in their interest; and until they are provided with a convinc-ing reason to think otherwise they are unlikely to give up the nation state.

C. Arguments against European Monetary Union

The fact that the prospect of a political union of EU countries seems veryremote at present makes it relatively easy to use a number of importantmacroeconomic arguments to show why the UK should not adopt the Euro.

The UK and the Euro: Some Key Economic Issues 47

13Cf Taylor-Gooby, P, ‘What Citizens Want from the State’, International Social Attitudes—10thBSA Report (Dartmouth 1993); Johnston, M, ‘Disengaging from Democracy’, InternationalSocial Attitudes—10th BSA Report (Dartmouth 1993).

The problem is that not all of them are as convincing when examined in thelight of empirical evidence as they are in theory. Even more important, themost serious failings of the existing EMU arrangements are neitherinevitable nor insoluble!

Most of those who oppose the Euro do so because they regard the loss ofnational currency as the first step in the process that leads to an eventualloss of national identity. As this is not an economic objection to Britishmembership of the monetary union, the argument is clearly outside thescope of a paper concerned with a number of important economic issuesraised by the Euro. It is worth pointing out, however, that after centuries ofbelonging to the same economic, monetary and political union—the nationsthat form the United Kingdom are still highly conscious and proud of theirnational identity.

The cost of losing national monetary sovereignty, on the other hand, is astandard economic criticism of international monetary unions. The criticism rests, essentially, on two arguments. First, if there are significantstructural differences between economies that belong to such a union theirbusiness cycles will not be synchronised. That means that no single short-term stabilisation policy can be appropriate to all of them at the same time.Second, the problem will be accentuated if they happen also to be at differ-ent stages of development, with very different levels of efficiency, income,unemployment and inflation. Countries at lower levels of efficiency andincome will, normally, expect membership of a monetary union to helpthem raise their living standards to those enjoyed by the union’s most pros-perous countries. The problem is that in the process of transforming theireconomies they are likely to experience greater instability than countries athigher levels of development. In other words, they will tend to have, both,higher rates of unemployment (because of structural changes in the econ-omy) and inflation (caused by imbalances and shortages in commodity andfactor markets).

Outside an international monetary union a country whose economy isgrowing rapidly can raise its real short-term interest rates to prevent theeconomy from overheating. In contrast, a country with a stagnant economycan reduce its real short-term interest rates to help boost economic activityand reduce unemployment. Neither will be able to do this after joining amonetary union, especially a complete monetary union like EMU. With asingle currency and no restrictions on international capital movements therewill be a single real interest rate throughout the union.

As EMU consists of countries whose economies differ both structurallyand in their efficiency and income levels, the ECB is confronted with a seri-ous dilemma. If it raises its short-term rates of interest to levels appropriateto the countries with inflationary problems it will exacerbate stagnationand unemployment in the rest of the Euro Area; and vice versa if it tries toaccommodate countries with stagnant economies. The Treaty of Maastricht

48 M IC’A PA N I C’

entrusted the ECB with the responsibility of keeping the rate of inflation inthe Euro Area close to zero (ie at less than 2 per cent).

The Bank’s policy can be expected, therefore, to have a strong anti-inflationary (ie deflationary) bias on the Union as a whole because, historically, large differences in inflation rates were common among EMUcountries before they adopted the convergence criteria agreed at Maastricht.This means that, as EU countries are highly integrated, the deflationary biasis bound to affect adversely growth and unemployment in all of them. That,of course, is exactly what has happened in the Euro Area (including theunified Germany!) since the early 1990s when the Treaty of Maastrichtimposed rigid conditions that all EU countries had to satisfy in order toqualify for EMU membership.

However, although EMU, as presently constituted, has an inbuilt defla-tionary bias14 which would affect adversely growth and employment in theUK—it does not necessarily follow that the UK could avoid the conse-quences of economic stagnation in Europe by refusing to adopt the singlecurrency. To argue otherwise is to ignore the extent of economic and finan-cial integration in Western Europe and, in this way, to confuse nominal forreal monetary independence. As discovered by the Thatcher Government atconsiderable economic and social cost in the early 1980s, a truly independ-ent monetary policy is impossible under these conditions in a country withhighly developed capital markets and no exchange controls.

The important difference between joining the single currency regime andstaying out is, therefore, one of degree. It is undeniable that within EMUthe Bank of England would be in no position to adopt a monetary stancethat deviated from the one adopted by the ECB. However, as experiencesince the early 1980s shows, the Bank’s scope for an independent monetarypolicy outside EMU is also highly restricted by the size and sophisticationof the UK’s financial sector and its integration into the global capital markets.Moreover, even if the UK was able to pursue a truly independent monetarypolicy, empirical evidence does not support the belief that changes in theinterest rates would have a significant effect on its investment and output.15

In that respect, not much seems to have changed since the nineteenth cen-tury when investment in the UK also showed little sensitivity to changes ininterest rates.16

The importance of national ‘independence’ in respect of specific macro-economic policy instruments can be even more exaggerated in the case ofexchange rates. By joining EMU the UK would, obviously, be in no positionto have a separate exchange rate policy. In theory, this would deprive it of an

The UK and the Euro: Some Key Economic Issues 49

14 See De Grauwe, P Economics of Monetary Union, 4th edn (Oxford UP 2000).15 See Barrell, R and Weale, M, ‘Designing and Choosing Macroeconomic Frameworks: ThePosition of the UK after 4 Years of the Euro’, NIESR Discussion Paper No 212 (NationalInstitute of Economic and Social Research 2003).16 Tinbergen, J, Business Cycles in the United Kingdom 1870–1914 (North-Holland 1951).

important policy instrument. However, in reality, liberalisation of trade andcapital flows, high degree of international specialisation and interdependenceand the ubiquity of transnational enterprises—make it highly unlikely thatthe UK could gain long term competitive advantage over its most importanttrading partners, other EU countries, by allowing its currency to depreciatesignificantly in real terms against the Euro.17 The most likely result would bean unsustainable rate of inflation in the country, making depreciation of ster-ling ineffective (ibid, pp 87–91). In the unlikely event that this did not hap-pen, it is highly improbable that EMU countries would let the UK increaseoutput and reduce unemployment at their expense, especially at a time whenmany of them were experiencing slow growth and high unemployment. Theirmost likely reaction, if the UK tried to gain competitive advantage over theirtradable sectors, would be to retaliate. British Government would, of course,react in exactly the same way in similar circumstances.

In contrast, it is difficult to exaggerate the importance of fiscal policy. Itmay not be as effective in open as in closed economies, as its overall impactbecomes dependent on policies pursued by other countries. Nevertheless, itstill plays a major role in improving and sustaining economic welfare ofindividual countries; and historical experience shows that what happens toeconomic welfare is, ultimately, one of the key factors in determining thesuccess and long-term survival of a complete monetary union. This was themain conclusion of the MacDougall Report, one of the most important eco-nomic documents published by the European Community.18

Yet this was ignored by EU Governments 20 years later, in 1997, whenthey approved the Stability and Growth Pact. In doing so, they managed toprovide opponents of EMU with their most powerful argument against thesingle currency.

One of the most important roles of fiscal policy in national economies isto maintain economic, social and political stability by redistributing incomefrom high to low income groups and by mitigating the worst effects of busi-ness cycles through resource transfers from low to high unemploymentregions. Governments achieve this by using the revenue raised from taxa-tion and borrowing from the public to pay unemployment and other socialbenefits. Resource transfers, in the form of regional and structural funds,are also used to assist restructuring and modernisation of declining indus-tries and regions.

According to the MacDougall Report, in industrial countries as much asone-half to two-thirds of a short-term loss of income by a region (followinga fall in its sales of goods and services to other regions and countries) maybe offset through fiscal transfers.19 The transfers ensure that ‘small, poor

50 M IC’A PA N I C’

17 See Panic’ 2003, Globalization, 168–170.18 EC Commission, Report of the Study Group on the Role of Public Finance in EuropeanIntegration (1977).19 Ibid, at 35.

and peripheral regions [are] generously aided by the centre’ and, in thisway, play an important part ‘in the formation and holding together of thenations’.19a

The only way for the Community to achieve such a system is through thecreation of a supranational authority (replicating at this level the functionand responsibilities of a ‘national’ ministry of finance). If this is not possi-ble, the second best solution is to make certain that national fiscal policiesare compatible.

As the first solution is still unacceptable to members of the Community,the Treaty of Maastricht had to leave the responsibility for fiscal policy tonational governments in order to enable them to agree to the creation of amonetary union in Europe. The Stability and Growth Pact represents anattempt to achieve compatibility of independently determined national poli-cies by enforcing a limit on government borrowing even in conditions ofstagnant output and rising unemployment.

As pointed out earlier, according to the Pact, governments of the coun-tries comprising EMU risk sanctions if their budget deficits exceed 3 per centof GDP. The figure represents the maximum allowed in any one year, notan average over the business cycle. The states whose governments fail tokeep annual budget deficits below the agreed maximum will have to pay afine of up to 0.5 per cent of the GDP. The exception will be those countrieswhose GDP falls in any one year by more than 2 per cent. If a country’sGDP declines at a rate of between �0.75 and �2.0 per cent the fine will beimposed only if EU ministers of finance approve it.

The extraordinary thing about these rules is that they ignore completelythe two well-known cyclical effects on national economies and governmentfinances. First, output and income may fall significantly and the level ofunemployment rise sharply before the rate of growth falls by more than 2.0per cent. Suppose, for instance, that the annual rate of growth of a coun-try’s productive potential (the combined rates of growth of its labour forceand labour productivity) is around 2.5–3.0 per cent, as seems to be the casein many EU countries. Then even if the rate of growth is between �0.7 and�2.0 per cent there will be a decline in the country’s economic welfare as,assuming that there is no change in the growth of its labour force andlabour productivity, unemployment will rise. Deterioration in the levels ofunemployment and income will, of course, be much greater if the rate ofgrowth is negative—even if the rate of decline does not exceed �2.0 percent. The longer this persists the more difficult is the decline to reverse andthe greater the loss in national economic welfare.

Second, government income and expenditure vary a good deal over thebusiness cycle. In the conditions just described, government income will be

The UK and the Euro: Some Key Economic Issues 51

19a Ibid, at 32 and 40.

lower as the fall in output, increase in unemployment and lower consumerexpenditure reduce its revenue from taxation. At the same time, govern-ment expenditure will increase, as spending on unemployment and othersocial benefits goes up. This explains why budget deficits in virtually all EUcountries tend to exceed 3.0 per cent of GDP in recession, making it neces-sary for the government borrowing to increase. Higher taxes to finance thedeficit would exacerbate the problem by reducing aggregate demand andincreasing unemployment further.

The rule imposed by the Pact means that governments are not only pre-vented from borrowing to stimulate a recovery in aggregate demand, butmay not be able to meet even their social obligations! Their ability to doeither will be restricted further if they are, in addition to all this, alsorequired to pay up to 0.5 per cent of GDP in fines to the Commission. It isdifficult to think of anything that is more likely to turn member countriesnot just against the single currency but against EU institutions and, in thisway, against the great European ideal which inspired the creation of theEuropean Community!

D. The Government’s Five Tests

It is concerns of the kind described in the previous section that promptedthe present British Government to publish in October 1997 its ‘five eco-nomic tests that have to be met before Britain enters’ EMU.20 The aim ofthe exercise, which is still in progress, is to find out whether theGovernment’s ‘central economic objective … to achieve high and stable lev-els of growth and employment’ would be jeopardised by adopting the singlecurrency. The Prime Minister set subsequently an even more exacting crite-rion by stating more than once that the decision would be made on the basisof ‘clear and unambiguous’ evidence that entry into EMU would be eco-nomically beneficial to the country.

The problem is that, although undoubtedly important, these tests are bytheir very nature incapable of producing the ‘clear and unambiguous’ evidence that the Government is seeking.

The five tests can be divided into three distinct categories: the two thatcould threaten the Government’s ‘central economic objective’ inside EMU(cyclical divergence and growth), the one that is essential to deal with thesethreats (‘flexibility’) and the two potential threats to ‘high and stable levelsof growth and employment’ if the country stays out of EMU (inward directinvestment and financial services). Arranged in this way, they illustrate theGovernment’s dilemma. It needs time to consider the first two threats

52 M IC’A PA N I C’

20 HM Treasury, UK Membership of the Single Currency—An Assessment of the FiveEconomic Tests (1997) 5.

because of the institutional obstacles, created within the EMU, to its abilityto deal with them. At the same time, it cannot delay its decision for toolong because of the adverse effect that this is likely to have on the remain-ing two tests.

In fact, it turns out on closer examination that the whole decision reallyhinges on one of these five tests: ‘flexibility’, ie the ability to pursue requiredmacroeconomic policies. If the conclusion that emerges from this test weresatisfactory, it would be difficult for any of the other tests to ‘fail’.Unfortunately, this is not something that can be ascertained with confidencein the short run. To make the whole exercise even more difficult, the finalanswer is not entirely, or even mainly, dependent on actions of the UKGovernment alone.

Take, for instance the test concerning cyclical convergence to which thegovernment attaches particular importance. ‘Sustainable and durable con-vergence is the touchstone’ without which ‘we cannot reap benefits of asuccessful EMU’.21 The first test is, therefore, whether ‘business cycles andeconomic structures’ in the UK and other EU countries are ‘compatible sothat we and others could live comfortably with Euro interest rates on a per-manent basis’. The conclusion reached by the Treasury was that the UK’sbusiness cycle was different from those in ‘the rest of our European part-ners’. It was also ‘more volatile’. The decision was, therefore, to wait untilthe UK achieved cyclical convergence with other EU economies beforeentering EMU.

The problem with the conclusion on which this decision is based is thatit does not distinguish cyclical divergence caused by dissimilar nationalpolicies from the divergence which is the result of real, structural differencebetween national economies. Convergence in the first case can be achievedin the short to medium term. As economies become more integrated thegovernments have no alternative but to pursue compatible policies—unless,like the first two Thatcher Governments, they disregard the extent of theireconomic interdependence with other countries irrespective of economicand social costs that follow from such a decision. Convergence of the eco-nomic structures, on the other hand, is extremely unlikely even in the longrun. Countries, like regions within them, have different absolute and com-parative advantages. As a result, they produce different goods and servicesand their business cycles diverge.

Recent empirical research in this area shows that important changes havetaken place over the last 30 years in the UK’s cyclical convergence with EUeconomies. With much greater awareness of British Governments since theearly 1990s of the constraints imposed on their ability to pursue independ-ent policies because of the country’s close economic links with othereconomies, especially those in Western Europe, the UK business cycles show

The UK and the Euro: Some Key Economic Issues 53

21 Ibid.

now greater stability as well as greater similarity with the cycles in twoother large EU countries, those of France and Italy.22 On this evidence, it isvery likely that the policy-initiated cyclical divergence between the UK andother EU economies would be reduced further if the country adopted thesingle currency.

Consequently, provided that a clear distinction is made between policyand structural causes of cyclical divergence, there is no reason according tothis criterion on its own why the UK should stay out of EMU. To wait for‘total convergence before joining EMU’ would be to set ‘an impossible con-dition’ that neither the UK nor ‘present EMU members’ can be expected tofulfil.23

Unlike in the case of cyclical convergence, it is impossible to establishwith any certainty whether the UK passes the test on growth and employ-ment. The Government is, rightly, concerned about the effect that the mem-bership of EMU might have on ‘prospects for British employment’.24 Morespecifically, the test is expected to determine whether ‘joining EMU’ would‘promote higher growth, stability and a lasting increase in jobs’.25 The snagis that there is no reliable, scientific way of answering such a question. Thetest concerns the long-term consequences of joining EMU; and, by defini-tion, anything can happen in the long term! Whatever the answer, it canonly be based on speculation and judgement of those providing it as ‘longterm effects … cannot be known with certainty in advance’.26

The only indication of what might happen could be gleaned by scrutinisingclosely whether EMU, as presently constituted, contained any features—enshrined in the Treaty of Maastricht and the Stabilization and GrowthPact—that could prevent the UK from achieving the Government’s ‘centraleconomic objective’ inside the union. However, even if the scrutiny were toshow that this was the case, it would not necessarily provide the reason forstaying out of the monetary union indefinitely. The decision when to enterEMU would depend in this case on how long the existing members wereprepared to tolerate certain aspects of the Treaty and the Pact despite thefact that they were affecting adversely their own growth and employment.

Considerations of this kind are particularly important in case of the thirdand, as already suggested, in many ways the most important of the tests:‘flexibility’. For reasons given earlier, real cyclical divergence is unavoidable.Economic growth is a highly complex process that involves interaction of a

54 M IC’A PA N I C’

22 Barrell and Weale above n 15; Hall, SG and Yhap, B, ‘Measuring the Correlation of Shocksbetween the UK and the Core of Europe’, NIESR Discussion Paper No 213 (National Instituteof Economic and Social Research 2003).23 The (House of Commons) Treasury Committee: The UK and the Euro: Sixth Report ofSession 2002–03, Vol I (Stationery Office 2003) (hereafter ‘the Treasury Committee’).24 HM Treasury above n 20 at 8.25 Ibid at 5.26 The Treasury Committee at 38–39.

multitude of economic, social and political factors—all undergoing continuousand, over time, fundamental changes. There is no single institutional frame-work or a single package of policies that can achieve and sustain high levels ofgrowth and employment. What matters, therefore, is whether the authoritieshave the institutions and policies with which to respond quickly to major,unanticipated macroeconomic developments. Or, as the 1997 Treasury paperput it: ‘If problems emerge is there sufficient flexibility to deal with them?’27

The difficulty of giving a meaningful, let alone a ‘clear and unambiguous’,answer to this question is that ‘sufficient flexibility’ is one of those conceptsthat obscure rather than enlighten economic debate. Most economists takeit to mean wage flexibility: responsiveness of wages to changes in demandfor labour. Some may include also labour mobility, both occupational andgeographical. The two interpretations feature prominently in the 1997paper by the Treasury and in the recent (2003) Report by the CommonsTreasury Committee.

Nobody disputes the importance of realistic wage demands or the needfor continuous structural changes in a dynamic economy. It is also widelyrecognised that the latter require continuous acquisition of new skills andgeographical mobility. However, to expect wages and prices to respond toshort term changes in demand, as they do in highly abstract competitivetheoretical models, is to misunderstand the nature and modus operandi ofmodern industrial enterprises. That kind of ‘flexibility’ would create suffi-cient uncertainty to make it too risky for enterprises to undertake long terminvestment. The result would be low growth and high, chronic levels ofunemployment and poverty, exactly the reverse of what the Government’s‘main economic strategy’ is supposed to achieve.

As for labour mobility, it is far more limited within the EU than in any ofthe 15 national economies. This fact, mentioned earlier, is also recognisedin the Treasury document.28 Moreover, no amount of ‘labour flexibility’will achieve ‘high and stable levels of growth and employment’ if the aggre-gate demand is low. To state the obvious, demand for labour is derived: itdepends on demand for the goods and services that it produces.

The ‘flexibility’ that made possible unprecedented structural changesand economic progress for a quarter of a century after the Second WorldWar was achieved through radical changes in national economic institu-tions and policies.29 National governments acquired a whole battery of pol-icy instruments which made it possible for them to sustain the required levelof aggregate demand in order to achieve rapid growth, full employmentand unprecedented, widely shared improvements in living standards.

The UK and the Euro: Some Key Economic Issues 55

27 HM Treasury above n 20.28 Ibid at 22.29 Panic’ above n 1.

The last two tests are concerned with the consequences for the UK ofstaying out of EMU.

The fourth, investment, test is the only one where it is possible to give areasonably accurate overall assessment of the effect of EMU membershipon two important types of investment in the UK: private (long term) andpublic. Transnational enterprises have made it clear both to the KingsdownInquiry in 199630 and to the Commons Treasury Committee seven yearslater that if the UK stays out of EMU ‘over time [their] investment decisionswould increasingly favour the eurozone at the expense of the UK’.31 Ceterisparibus, the effect would be lower levels of growth and employment in thecountry.

However, that is not the only form of long-term investment that wouldbe affected. One has also to take into account public investment where theeffect could be exactly the reverse. Unlike the Chancellor’s ‘golden rule’, theStability and Growth Pact fails to make a distinction between public cur-rent (short-term) and capital (long-term) expenditure. Hence, as recognisedby the Commons Treasury Committee, the rigid limit placed on govern-ment borrowing by the Pact could prevent the UK Government from realisingits planned investment in the country’s run down public services which isessential to bring them up to the standard required by an advanced indus-trial economy. The long term social cost of this failure could be very high.

If the negative effect of the Pact on public services is expected to be sig-nificant, the conclusion that emerges from this particular test is clearenough. The UK will benefit from EMU membership provided that the rulesunder the Pact are altered so that they do not apply to capital expenditure.The country’s investment would benefit further if the Treaty was alsoamended so that the ceiling on government borrowing refers to full employ-ment budget deficit, ie what the deficit would be at full employment, ratherthan to an arbitrary maximum irrespective of the state of the cycle. Thatwould enable the Government to stabilise the economy within EMU, whichis an important factor in stimulating both private and public investment.

The decision in this case should, therefore, depend on the willingness ofEU Governments to change those aspects of the Treaty of Maastricht whichare costly in terms of welfare not only to this country but also, as recentexperience suggests, to existing members of the monetary union.

The final test, on the impact of EMU membership on the City and finan-cial services, is much more difficult to assess. The question posed by theGovernment is important: ‘What impact would entry into EMU have onthe competitive position of the UK’s financial services industry … ?’ Given itslong experience of serving the global financial needs, it would be surprising

56 M IC’A PA N I C’

30 See Davidson, I and Taylor, C, European Monetary Union—The Kingsdown Inquiry(Macmillan 1996) 67–71.31 The Treasury Committee at 36.

if the creation of EMU and the UK’s reluctance to join it have been costly tothe City so far. The evidence submitted to the Commons Treasury Committeeconfirms this: ‘non-membership of the eurozone has not damaged the City in any way …’.32 However, there is little doubt that in the long run‘non-membership of the eurozone’ would, as in the case of direct invest-ment, put the country ‘at a unique disadvantage’ in relation to other largeEuropean economies. The conclusion reached by the Treasury in 1997seems, therefore, to be still valid:

EMU offers benefits to the UK financial sector whether the UK is in or out.But the benefits and opportunities from the single currency will probably beeasier to tap from within the eurozone.33

The overall conclusion if one considers each of the five tests separately is,obviously, mixed and far from being ‘clear and unambiguous’. Put together,however, it is clear that the overall verdict depends on the flexibility of insti-tutions and policies at, both, Community and national levels—somethingthat does not exist at the moment.

E. Conclusions

From the bankers’ point of view, European Monetary Union has been anundoubted success so far. But the whole episode has been anything but asuccess as far as economies of the countries involved in the process are con-cerned. This has nothing to do with supposedly inherent failings of an inter-national monetary system. Contrary to the claims of opponents of EMUthe success or failure of monetary systems, both national and international,depends critically on the institutional framework within which they operate.

That is where fundamental weaknesses of EMU, as presently constituted,lie. Institutionally, its creation has left the EU with a serious macroeconomicproblem. It has a powerful central bank, effectively unaccountable to any-one, and no coherent fiscal system. To make things worse, the EuropeanCentral Bank’s main responsibility, according to the Treaty of Maastricht,is to ensure that the rate of inflation is low. That has given the Bank’s policya highly deflationary bias. The bias was reinforced subsequently from thefiscal side by the Stabilization and Growth Pact, making it virtually impos-sible for national governments to pursue effective counter-cyclical policies.The result is economic stagnation and unnecessary sacrifices in economicwelfare, both, in the countries that join EMU and in the countries whoseeconomies are closely linked with those of the members. That is exactly

The UK and the Euro: Some Key Economic Issues 57

32 The Treasury Committee at 37.33 HM Treasury above n 20 at 35.

what the creators of the European Community were anxious to avoid.Experience had taught them that economic stagnation was the greatestthreat to the kind of economic, social and political achievements that WestEuropean countries have accomplished collectively over the last 50 years.

Economic consequences of the Treaty and the Pact also make it difficultfor the EU countries outside EMU, like the UK, to adopt the single cur-rency. As things stand at the moment, the UK is confronted with a highlyunattractive choice. Outside EMU it is likely to experience welfare costs(relative economic stagnation, higher unemployment, relatively lowerincome) in the long run. Inside EMU, in its present form, experience of theexisting members shows that it will experience welfare losses in the short tomedium term. The problem is not ‘cyclical convergence’, to which the gov-ernment seems to attach so much importance. What really matters is theabsence of the institutions and policies—such as those that exist withinindividual countries—to deal with consequences of the divergence.

The exact timing of UK’s entry into EMU is likely to be determined bywhether it is prepared to wait until the existing members solve this problemor whether it is prepared to play an active role in finding the solution.Experience over the last 50 years shows that choosing the first option is noguarantee that the outcome will take into account the country’s main con-cerns. Equally important, the UK is locked into the Community economi-cally and institutionally to such an extent that it is going to be affected bydecisions and policies of other members whether it joins the single currencyor not.

58 M IC’A PA N I C’

4

The Introduction of the EuroBanknotes: Some Legal Issues

ANTONIO SÁINZ DE VICUÑA*

I. INTRODUCTION

THIS PAPER ADDRESSES two legal issues regarding the euro banknotes, in circulation since zero hours 1 January 2002, the currency of some 300 million Europeans. These are the physical rep-

resentation of the single currency introduced 1 January 1999. Followingthe introduction of such banknotes, monetary debts may be discharged in aterritory that extends from Faro in Portugal to Rovaniemi in Finland, fromthe Aran Islands in the Atlantic to the island of Crete in the Aegean. Nodoubt a major and a historical event for Europe.

The two legal topics that this paper addresses are (i) the legal capacity ofsuch banknotes to discharge monetary debts throughout the eurozone, and(ii) who issues such banknotes.

II. THE LEGAL TENDER STATUS OF EURO BANKNOTES

A common euro banknote asks for a common legal regime applying to it.Citizens in Finland holding euro banknotes should have the same set ofrights with it as the citizens of Portugal. It is the same and identical cur-rency. It may travel along with its holder and be spent in several countries.The most basic concept of the legal regime of the euro banknote is stated inthe Treaty itself: euro banknotes are ‘legal tender’. If there is somethingcommon and intrinsic to the euro banknotes is that they are the only legaltender in the euro area.

One would think that, as a consequence, the notion of ‘legal tender’ is aCommunity notion. And one would instinctively agree to the consequential

* The author is the General Counsel of the European Central Bank (ECB). The views in thispaper are personal and cannot be deemed to be the views of the ECB.

proposition that the regulation of legal tender status of the euro banknotesand coins is a matter of Community competence, since the legal tender sta-tus of euro banknotes is laid down in both primary and secondaryCommunity law.

Article 106(1) of the Treaty, and Article 16 of the Statute of the ECB andof the ESCB read as follows:

The ECB shall have the exclusive right to authorise the issue of bank noteswithin the Community. The ECB and national central banks may issue suchnotes. The bank notes issued by the ECB and the national central banks shallbe the only such notes to have the status of legal tender within theCommunity.

Article 10 of the Council Regulation (EC) No 974/98 of 3 May 1998 on theintroduction of the euro (the ‘Euro Regulation’) further confirms that the euro banknotes put in circulation by the ECB and the NCBs ‘shall bethe only banknotes which have the status of legal tender’ in the participatingMember States.

Article 106(2) of the Treaty deals with euro coins and reads as follows:

Member States may issue coins subject to the approval by the ECB of the vol-ume of the issue. The Council may, acting in accordance with the procedurereferred to in Article 252 and after consulting the ECB, adopt measures toharmonise the denominations and technical specifications of all coinsintended for circulation to the extent necessary to permit their smooth circu-lation within the Community.

It is to be noted that, whereas Article 106(1) of the Treaty says that eurobanknotes shall have the status of legal tender within the Community,Article 106(2) of the Treaty is silent on the legal status of euro coins. Butthis is remedied by Article 11 of the Euro Regulation which states inter alia:

Without prejudice to Article 15,1 these [euro or cent] coins shall be the onlycoins which have the status of legal tender in all these Member States. Exceptfor the issuing authority and for those persons specifically designated bynational legislation of the issuing Member State, no party shall be obliged toaccept more than 50 coins in any single payment.

Based on the aforementioned Articles one could conclude that the legal ten-der status of euro banknotes and coins is laid down in Community law. Oncethe national banknotes and coins denominated in national currency unitshave been withdrawn from circulation, or at the termination of their legal

60 A N T O N I O S Á I N Z D E V I C U Ñ A

1 Art 15 of the Council Regulation refers to the maximum period of six months during whichbanknotes and coins denominated in euro and in the national currency units will jointly circulatein euro area Member States.

tender status according to national legislation adopted under Article 15 ofthe Euro Regulation, the competence to regulate on legal tender status isexclusively that of the Community. Article 6.1 of the Euro Regulation,states that the national monetary law provisions ‘shall continue to apply’during the transitional period. A contrario this means that upon the termi-nation of the transitional period such national monetary law provisionscease to apply. Legal tender status being one of the basic components of thenotion of monetary law, the consequence is that as from 1 January 2002the status of legal tender of euro banknotes is no longer a matter of nationallaw but of Community law.

The problem arises due to the fact that Community law does not definethe notion of ‘legal tender’. It may be said that it is not necessary to definean elephant: you know a priori what an elephant is. And the same reason-ing would apply to the notion of ‘legal tender’.

Turning to legal doctrine, the following two basic characteristics havebeen used to define the concept of legal tender of banknotes and coins:

(a) The first element to characterise legal tender is the need to stan-dardise general means of payment. ‘Legal tender’ would thenmean the physical form of money designated by the monetaryauthority to serve as means of payment in a standardised manner2. In the words of FA Mann,

(l)egal tender is such money in the legal sense as the legislator has so definedin the statutes organizing the monetary system. Chattels which are legal ten-der have, therefore, necessarily the quality of money, but, logically, the con-verse is not true—not all money is necessarily legal tender.3

That not all money is legal tender is proven by the fact thatmoney is also the deposit held at the bank, the so-called scrip-tural money, which may be used by cheques, debit and creditcards or by electronic transfers. The purpose of standardisationis, since the start of monetary union on 1 January 1999, clearly aCommunity competence. The Council standardised the eurocoins, allowing for a ‘national design’ on one of its two faces,and the ECB standardised the euro banknotes. A Council regula-tion decided the termination of the national legal tender.

(b) The second characteristic of legal tender status of bank notesand coins is that they are invested with the power of discharging

The Introduction of the Euro Banknotes: Some Legal Issues 61

2 Stephen Silard, Senior Counsel, IMF, has suggested that such standardisation is in the interestof smooth uniform usage, similar to the laws establishing standards of weights and measures,in International Encyclopaedia of Comparative Law vol XVII, ch 20, ‘Money’ (Kluwer 1975).3 Mann, FA, The Legal Aspect of Money 5th edn, (Oxford UP 1992) 42 and Cranston, R,Principles of Banking Law (Clarendon Press 1997) 116.

a monetary obligation. In the absence of a Community ruleregarding the second element of the notion of legal tender,national law applies. However, this paper shows that the waythat legal tender and its discharging power is enforced differsacross the Member States. Conceptually whenever a debtor useslegal tender, this should result in a full and valid discharge ofpecuniary debts.4 This second part of the definition of legal ten-der requires a closer analysis.

First, some national provisions impose by way of Penal law the generalacceptance of ‘legal tender’. France, Belgium, Italy, Greece and Luxembourgretain provisions in their Criminal Codes that penalise the refusal of notesor coins having legal tender in payment. These provisions are as follows:

— Section 556.4 of the Belgian Criminal Code punishes with a fineof five francs to 15 francs those who, unless otherwise agreed,refuse to accept real and undamaged coins at the value at whichthey are legally valid in Belgium (the BF amounts have beenadjusted for inflation over the past years).

— Section R.642–3 of the French Criminal Code punishes the factof refusing coins or banknotes having legal tender in payment.

— Section 556–4 of the Luxembourg Criminal Code sanctions natural/legal persons who refuse (in the absence of contractualarrangements stipulating otherwise) to accept notes and coinsthat are legal tender in Luxembourg in the discharge of paymentobligations.

— Section 452 of the Greek Penal Code punishes with a fine anyonewho refuses to accept for payment money which is legal tenderin Greece.

— Section 693 of the Italian Penal Code provides for an administra-tive fine to be imposed in all cases when someone refuses toaccept, for their value, coins and banknotes (Section 458 of theItalian Penal Code equalises banknotes and coins) having legaltender status.

It is noted that there is case law in Italy according to which a refusal to accept money with legal tender status can be penalised only if the refusalis unjustified.5 In practice, these kind of penal provisions have seldom,

62 A N T O N I O S Á I N Z D E V I C U Ñ A

4 See Carreau, D, ‘Le système monétaire international privé’, in (1998) Recueil des CoursAcadémie de Droit International, 274 § 36. Van Ommeslaghe, P, Droit des obligations(Bruylant 1985), vol 4, 971.5 Pretura Genova, 20 September 1981.

if ever, been applied.6 Penal law remains in the competence of the MemberStates. However, by way of ‘third pillar’ framework legislation, some har-monisation could be introduced.

Second, Civil law also substantially affects the second element of thenotion of ‘legal tender’. Freedom of contract is a common feature of CivilLaw, and the parties to a contract may have agreed to use an alternativemeans of payment. Several national provisions explicitly permit the agreeduse of alternative payment means (see for example section 61 of the FederalAct on the Oesterreichische Nationalbank and section 1277, paragraph 1of the Italian Civil Code) by saying that bank notes must be accepted attheir full nominal value, unless a liability is to be met by an otherwiseagreed means of payment. Civil and contract law are areas of the law stillin the domain of competence of the Member States.

One interesting example refers to the Civil Code of The Netherlands.Over the years, bank transfers have grown spectacularly compared to cashpayments. To meet with this new reality section 6:114 of the NetherlandsCivil Code provides that payment through the banking system is a legallyvalid means of discharge of a monetary debt unless the creditor has explic-itly excluded this method of payment. This is sometimes referred to as giv-ing book money legal tender (at least in the Netherlands).7 Can MemberStates legislate in this domain and give ‘legal tender’ status to credit trans-fers through the banking system, or to pre-paid electronic purses, or otherforms of electronic money? Or is this a competence of the Community?

Let us have a closer look at the relationship between legal tender andcontractual freedom.

The principle of contractual freedom means that contractual parties canagree to accept other means of payment (cheques, bank transfers, banknotes denominated in foreign currency) to validly discharge payment obli-gations between them.8 Once contractually agreed, this other means of payment is binding for the contractual parties concerned and therefore pay-ment in legal tender cannot be enforced.

One could say that the notion of ‘legal tender’ contains a subsidiary ruleonly, applying if there is no explicit agreement between the parties. In casecontractual parties have not specified inter se the means of payment to be used, a contractual party wanting to discharge a payment obligation is

The Introduction of the Euro Banknotes: Some Legal Issues 63

6 Silard above n 3 has written: ‘It appears clear from the historical record that legal tender lawsthat go beyond an effort to assure uniformity of the payment medium in actual circulation andseek to force the acceptance by creditors of an asset of dubious quality have a rather mixedrecord of success.’7 It is recalled that Art 8(3)—which applies during the transitional period—of CouncilRegulation 974/98 holds that any amount denominated in either the euro unit or national cur-rency units and payable within a euro area Member State by crediting an account of the credi-tor, can be paid by the debtor in either the euro unit or the national currency unit.8 See eg Hijma, J, and Olthof, MM, Compendium Nederlands Vermogensrecht (Kluwer 1993)§344a.

entitled by Law to offer legal tender banknotes and coins. Legal tenderwould mean in this case a legally established subsidiary rule applying whencontractual parties are silent about settlement. If the creditor refuses thislegal tender, he will incur in mora credendi. A creditor who refuses to acceptlegal tender runs the risk of being prejudiced in certain respects. For exam-ple, under German law such a refusal could be seen as an (unjustified) delayin accepting payment,9 and under English law a creditor who refuses toaccept legal tender will not be able to sue for recovery of the debt. However,not even this approach is totally correct. A payment can be of such a nature(eg in large bills or small change) that it would be considered unreasonablein relation to the obligation and therefore may be refused. A taxi driver mayrefuse to accept payment with a large EUR 500 banknote, and civil law mayprotect him in his refusal. The explanation is that customary law, the usagesapplying to certain trades or markets, are also subsidiary sources of contrac-tual obligations, and may encompass rules on settlement of debts. Customsare supplementary to written clauses but are, in the end, equally binding,provided that they do not contradict the principle of good faith. Customarylaw may indicate what is the amount of cash reasonable and adequate forspecific payments. This necessary respect for customs and practices—whichwould permit parties not to accept legal tender in certain cases—could alsobe rooted in the civil law requirement of good faith in the interpretation andimplementation of contracts, contained in most European codes (Section 6:2of the Netherlands Civil Code,10 Section 281 of the Greek Civil Code,Section 762(2) of the Portuguese Civil Code, etc). This domain, with its veryextensive and rich case law, remains an area of national competence.

Third, Consumer protection and Competition laws may also affect thescope of legal tender. These areas of law are still, to a great extent, in thedomain of national authorities. Both consumer protection and competitionlaw restrict the scope of freedom of contract.

When a supplier of services or goods announces ex ante that he/she is notprepared to accept large bills, or small coins in payment, or even that pay-ment obligations will have to be performed by way of cheques, credit cards,bank transfers or electronic money, no contractual agreement regarding pay-ment obligations has yet been concluded. In the transition period of dual cir-culation of ‘legal tender’ that was necessary for the beginning of 2002, therehave been many occasions where we have seen retailers announcing that set-tlement could only be done in one of the two currencies and not in both thetwo kinds of ‘legal tender’. In principle, this situation would not have to beseen as illegal because the provider of a service or of goods is within his rightsto unilaterally determine how, and in what manner he wants to be paid if anagreement is concluded with a counterpart. The service or goods have not yet

64 A N T O N I O S Á I N Z D E V I C U Ñ A

9 HJ Hahn, Währungsrecht (Nomos 1990), 60 quotes § 293 BGB in this respect(‘Annahmeverzug’).10 This is also the rationale of the provision of Art 11 of the Council Regulation No 974/98.

been provided and no debt has yet been incurred. Nothing obliges a counterpart of buy such services or goods, but if he/she proceeds to the acqui-sition, implicitly there is acceptance of payment conditions set out ex ante bythe supplier, and therefore both would freely agree to abide by this.

However, national legal systems might give different answers to this situ-ation. The right of one party to ex ante declare which means of payment areacceptable or unacceptable may be affected by legislation on consumer protection; or by competition rules prohibiting abuse of a dominant/monop-olistic situation; or by administrative rules regarding public services. Forexample, in 1994 a Dutch Court ruled that the provider of services couldindeed unilaterally determine how, and in what manner he wants to be paidif an agreement is concluded with a counterpart. At the same time the courtruled that the said competence was not unlimited as restrictions of a dispro-portionate nature could, under certain circumstances, be deemed to beunreasonable.11 Similarly, the Italian Anti-Trust Authority has held that a decision to refuse cash payments by a company managing a motorway bypublic concession, and to accept only pre-paid cards issued by the companyitself, was an abuse of the company’s monopolistic situation (also on thebasis that people paying cash could be asked to pay an additional sum).

Fourth, Administrative and Taxation laws have also addressed settle-ment of monetary debts.

A number of Member States (Finland, Greece, Belgium, France, Italy,The Netherlands and Spain) have legislative provisions that prescribe thedischarge of specific payment obligations by means of bank transfers,cheques etc (and therefore not by means of legal tender). In this respect itcan be noted that recital No 19 of the Euro Regulation contains the follow-ing justification for such legislative provisions:

whereas limitations on payments in notes and coins, established by MemberStates for public reasons, are not incompatible with the status of legal tenderof euro banknotes and coins, provided that other lawful means for the settle-ment of monetary debts are available.

As an example, legislative provisions12 limiting payments in legal tenderthat have been found in Finland, Greece, Belgium, France, Italy, Spain, andThe Netherlands are as follows:

— In Belgium, the Royal Decree No 56 of 10 November 1967obliges merchants to accept payment by cheque or credit transfer

The Introduction of the Euro Banknotes: Some Legal Issues 65

11 Hof Amsterdam, judgment 3 February 1994 in the case of Verenigde BloemenvelingenAalsmeer v Willing, 1994 NJ 1995/51.12 In Germany citizens are de facto required to make payments via bank transfers to the compe-tent authority. Also, to receive payments from public authorities, citizens are de facto obliged tohave a bank account (see eg the Tax Code, the Act on Civil Servants’ Remuneration, the Act onthe Promotion of Education and the Act on Civil Servants’ Pension. Only in exceptionalCircumstances may citizens ask for cash payments.

for amounts exceeding 10.000 francs.13 The Act of 4 August 1986on fiscal matters enables the King to determine the conditions forthe obligation of paying the State’s income (taxes etc) by meansof credit transfer.

— In France, the Code Monétaire et Financier limits the use of cashin payments exceeding an amount of FF 5000 for transactionsengaged in by commercial professionals; the use of cash in salarypayments that exceed an amount fixed in a separate Decree; andfor individuals the use of cash in payments for goods or servicesthat exceed an amount of FF 20.000. As from 1 January 2002these limits are expressed in euros. These are limited exceptionsto these rules.

— In Greece, payment of debts by the public to the State, to themunicipalities and public entities for amounts exceeding 250.000drachmas (or 500.000 drachmas in specific cases) can only bemade by cheque. In addition, debt payments by the Greek Stateto the public for amounts exceeding 300.000 drachmas are alsomade by cheque.

— In Finland, the Tenancy Act prescribes rent payments by non-cash means.

— In Spain, civil servants’ salaries are legally only paid by way ofcredit transfers. Also, payment of Income and Corporate Taxescan only be effected by written means through a bank.

— In The Netherlands, Ministries are required by law to promotepayments to the State by way of bank transfers, and they have todiscourage the use of credit cards, cash payments and chequesfor the discharge of these debts.

— In Italy the law combating money laundering prohibits any directcash transfer above 20 million lire, making an exception for cashtransfers between authorised intermediaries. All other personswanting to transfer cash in excess of 20 million lire have to usethe above-mentioned intermediaries. These intermediaries haveto record the identity of the payer, the amount, date and consid-eration of the cash payment. It is noted that this case is differentfrom the legislative provisions dealt with above as Italian lawdoes not actually prevent the use of cash as a means of payment;instead, it merely prescribes a procedure that has to be followedwhen cash payments above a certain threshold are made.

The above list does not purport to be exhaustive. It can be noted that allthe above legislative provisions limit the use of cash for discharging debts

66 A N T O N I O S Á I N Z D E V I C U Ñ A

13 This national currency amount and the others mentioned in this section will of course haveto be replaced by euro amounts.

for reasons that are public in nature (ie in order to limit money launderingor tax evasion, enhance the efficiency of public administration, etc). It istherefore submitted that the above limitations are not based on the mone-tary powers of issuers of legal tender, but on other public law grounds.Therefore they are in line with the requirements laid down for such limita-tions in recital No 19 of the Euro Regulation and pertain to the domain ofnational competence.

Another way through which Administrative Law has eroded the uniformdefinition of ‘legal tender’ throughout the Community is by the establish-ment of regulatory rounding rules.

Some Member States’ legislative provisions contain rules that round cashpayments downwards or upwards for efficiency reasons. For example:

— In Finland, an Act on the rounding of euro denominated pay-ments was enacted in 2001 and is currently in place. According tothis Act, euro cash payments effected in Finland shall be roundeddownwards or upwards to the nearest multiple of five euro cents.This follows a pre-existing provision regarding the Markka. TheFinnish Government has defended the view that such a law per-tains to the domain of contract, a national competence, and notto monetary law (a Community competence); it argued thatrounded amounts may be settled by all kinds of legal tender coins,thus it did not alter the Community competence in this regard.

— In Sweden, the Law Concerning Rounding of Certain amountson Öre states that if an amount that shall be paid contains anumber of öre that is not divisible by 50, that amount shall berounded to a number divisible by 50. There is also a SwedishLaw Concerning Rounding of Certain Claims to Whole Numbersof Kronor (please note that the following comments relating tothe compatibility of rounding rules with the Treaty do not applyto these Swedish Laws).

Neither the Treaty, nor the Statute and the Euro Regulation contain anycomparable rounding rules.14 The reasons advanced for such nationalrounding rules are that the use of small coins would increase the costs ofhandling for both the public at large and the retailers. Thus, it is a matter ofthe general efficiency of the economy.

As we can see from the above, there are several reasons that cast doubtabout the notion of legal tender as being a Community concept. The idea of

The Introduction of the Euro Banknotes: Some Legal Issues 67

14 Council Regulation (EC) No 1103/97 of 17 June 1997 on certain provisions relating to theintroduction of the euro contains rounding rules that apply to the conversion of monetaryamounts denominated in national currency units in euro amounts, but this is conceptually dif-ferent from legislative provisions that round amounts payable in euro cents off to a certainminimum.

having a common euro banknote giving exactly the same uniform rights tothe noteholders irrespective of the place in Europe where such banknotesare used is still far away. It is a shared common uniform banknote, but itslegal regime and use differs from Member State to Member State. Whatremains clearly a Community competence is the first element of the notionof ‘legal tender’: the setting of the uniform specifications for banknotes andfor coins so that these are the ‘standard’ for cash payments.

III. THE ISSUER OF EURO BANKNOTES

The second legal topic addressed in this paper relates to the issuer of theeuro banknote. Who is the issuer? Who takes responsibility for it? Goingback to history, the central bank monopoly of issuance of banknotes is atwentieth century innovation. Before such legal monopoly, some commer-cial banks were authorised to issue banknotes.15 In the case of the FederalReserve System, there are 12 separate Reserve Banks, each with their owndifferentiated legal personality, all of them being statutorily authorised toissue dollar banknotes. Whilst there is a standardised dollar banknotedesign each banknote carries a letter that identifies the issuing bank.Therefore, in all cases before the introduction of the euro, monetary historyshowed a common feature: each banknote had a clearly identified issuer,who would account for the issued banknote as a liability on its balancesheet. The central banks are the only entities in the world where currency isnot an asset but a liability.

The euro has also innovated in this domain. The Treaty has provided forthe maintenance of the national central banks with separate legal personality,has established that the ECB would have its own personality and that theESCB (European System of Central Banks) would not have such legal per-sonality. At the same time, the Treaty provided for a ‘single currency’, andallowed both the ECB and the NCBs to issue single currency banknotes.Moreover, such banknotes would have legal tender status throughout theseveral participating Member States. The Governing Council of the ECBintentionally decided on a common single design for the euro banknotes, sothat no national identification would be visible and the euro banknotecould be seen as a ‘European’ currency. Arguments favouring a single designwere not only political, but also to ensure the recognition and recycling of thebanknotes throughout the currency area, both by persons and by machinery,

68 A N T O N I O S Á I N Z D E V I C U Ñ A

15 The United Kingdom still retains the tradition of banknotes issued by non-central banks,such as the privilege given to some Scottish and Northern Irish banks to issue sterling poundbanknotes. In Hong Kong, such privileged issuance has also been maintained in three localbanks. In Luxembourg, two private commercial banks had been given issuance rights, butthese were terminated upon the introduction of the euro and the creation in 1998 of theBanque Centrale du Luxembourg.

and hinder possibilities of counterfeiting. A multiplicity of designs for multi-jurisdictional banknotes would facilitate their counterfeiting. It decidedtherefore on a banknote that would be 100 per cent identical throughout theeuro zone whoever its issuer was. On the design only the name of the ECBwould appear, together with the signature of its President; no name of othercentral banks and no other signatures.

Thus, for the first time in monetary history, a single currency banknotewould:

— Be issued by a plurality of issuers,— Be totally identical in its design and technical features,— And without identification of its issuer,— Represent the same and single currency, and— Circulate with legal tender throughout several national jurisdictions.

The question for lawyers and accountants was how to implement such anoriginal construction. Banknotes issued, say, by the Deutsche Bundesbankwould migrate to, say, Spain, and after a period of local use which mightentail going to branches of Banco de España so as to credit commercialbanks’ accounts with it, and subsequently being re-issued, again in circula-tion until finally replaced by a brand new banknote issued by a Eurosystemcentral bank. Thus, banknotes would have movement and migrationthroughout the area, be issued by one NCB and re-issued by another, andfinally be replaced by a new banknote issued by another NCB.

The idea of maintaining the traditional construction whereby each banknote has an identified issuer in whose ‘liabilities’ would appear wasimpractical even if possible. Therefore, a new system was put in place inDecember 2001, whereby the plurality of issuers issue banknotes underwhat a lawyer would term a ‘joint and several liability’ scheme. The ECBDecision of 6 December 200116 imposes on each Eurosystem member theobligation to ‘treat all euro banknotes as liabilities and process them in anidentical manner’. This means that, in the example above, a banknoteissued by the Deutsche Bundesbank would be considered by the Banco deEspaña as a banknote issued by itself, and vice-versa. The practice, existinguntil 1 January 2002, of repatriation of banknotes (Banco de España wouldsend to the Deutsche Bundesbank for re-issue the DM banknotes collectedin Spain), was henceforth prohibited. For accounting purposes, the totalamount of banknotes in circulation would be allocated to Eurosystemmembers in accordance with a pre-established and fixed key. Any differenceof the allocated amounts with the amount of banknotes issued by each NCBto its counterparties is to be accounted for as ‘intra-Eurosystem’ balance,

The Introduction of the Euro Banknotes: Some Legal Issues 69

16 ECB 2001/15, OJ L 337, 20.12.2001.

which means from a legal perspective that such difference represents banknotes issued by that NCB on behalf of the Eurosystem.

The solution given to the situation of a plurality of issuers putting in circulation a common and fungible banknote enhances the solidity andcredibility of the institutional set up: behind each banknote stands thewhole membership of the Eurosystem, all 12 NCBs plus the ECB, instead ofa single issuing central bank.

If not yet in its ‘legal tender’ regime, as seen above, at least in its issuancethe euro banknote is a truly European concept.

70 A N T O N I O S Á I N Z D E V I C U Ñ A

5

The Political Problems of the Euro-Zone

HELEN THOMPSON

AT THE END of 1991, after the Maastricht summit, we could reasonably have predicted that there would be two kinds of politicalproblem generated by the euro. First, that if the euro-zone were in

1997, the first date at which it could have been launched, or 1999, when itdid indeed begin, to spread beyond Germany, France, Belgium, Netherlands,Luxembourg and Denmark, then there would be good reason to wonderwhether all members of the zone could withstand a single monetary policy.Meeting the convergence criteria specified in the Maastricht Treatywould not necessarily mean that there was sufficient convergence inmacro-economic cycles to warrant having the same interest rates over thewhole of the euro area. The poorer states, especially those with a history ofhigh inflation and weak currencies, most assumed, ran the risk in joiningmonetary union of having to accept interest rates set by the EuropeanCentral Bank at too high a level for their domestic economy, with all theensuing consequences for growth and employment. Governments in thesestates left with such economic problems would expect to find themselves onthe back-foot against opposition parties able to attack not only the eco-nomic outcomes themselves but responsibility for them lying with foreign-ers in Frankfurt. Second, that having had to accept defeat at the hands ofthe German government and the Bundesbank over much of their raison d’etrefor the monetary union project, French governments, socialist or Gaullist,would keep looking for a means to dilute the independence of the EuropeanCentral Bank and create some self-consciously political counterweight, butnot in ways that jeopardised the Franco-German relationship. Once theEuropean Union states had added, at German insistence, the Stability andGrowth Pact to the rules of the euro-zone in 1997, many could spot morepotential political difficulties ahead.1 Members of the euro that were

1 Eichengreen, B and Wyplosz, A ‘Instability pact?’ (1998) European Economic Perspectives 4.

already committed to dealing with economic crisis without recourse todevaluations or national interest rate adjustments would now have to eschewsome degree of fiscal latitude. This was likely to exacerbate the difficultiesgovernments would have in defending their economic performance, especiallyin times of recession. In doing so, it was likely to incite the German govern-ment to push either for a common fiscal policy, or for rather tighter enforce-ment of the pact than the provisions of the 1997 law that effectivelyallowed a state to break the 3 per cent budget deficit for four years in a rowbefore being fined.

At least in some ways things have, since 1999, turned out rather differ-ently. At least one of the poorer states, Portugal, has endured difficulties ofinterest rates set by the European Central Bank. Its problem, however, wasthat in the first instance interest rates were too low, rather than too highwhich prompted an inflationary consumer and borrowing boom that in2000 plunged the current account into a 10 per cent current account deficit.And since the problem took this form, membership of the euro was adefence, not a weakness, for the Portugese government. As the PortugeseFinance Minister said in late 2002, ‘If it hadn’t been for the euro, the inter-national Monetary Fund would have been in here by now’.2 At the sametime, the present burden of the European Central Bank’s monetary policyfalls on Germany, the state which insisted that the European Central Bankhave a statutory responsibility to pursue price stability. With the Germaneconomy having only just recovered from recession, growing by less than 1 per cent, inflation at 1 per cent and unemployment above 4 million again,it did not need interest rates at 3.25 per cent. Neither could the Schroedergovernment have been expected to appreciate the remarks of the Presidentof the European Central Bank, Wim Duisenberg, in November 2002 as heexplained why the Bank had not cut interest rates as the Federal ReserveBoard had done the same day with the American economy in a far less pre-carious position, that it wasn’t for monetary policy to stimulate growth.

The medium- to long-term political consequences of this state of affairs,especially if it persists, are at the moment unclear. The French governmentwould, of course, welcome the kind of rhetoric from the German FinanceMinister that Oskar Lafontaine indulged in during his short-lived tenure inoffice because it would give them a political basis from which to fight forthe kind of ‘economic government’ for which they have long called. Yet,however, hard it was for the Kohl government to sell the euro to the Germanelectorate and, for all Schroeder’s recent attacks on the Commission, forfailing, as he alleges, to see that the Europe’s common interests are funda-mentally bound up with Germany’s economic performance, a directGerman challenge to the authority of the European Central Bank would bea very radical move. If a poorer state were to find itself in this position, as

72 H E L E N T H O M P S O N

2 ‘Euro-land frays at the edges’ The Economist, 28 November 2002.

might Portugal if the present recession were to persist for any length oftime, then the kinds of political arguments that would resonate are fairlyobvious, regardless of the previous Portugese government’s at least partialresponsibility for the original boom that has now bust. Schroeder or anysuccessor, by contrast, would have to attack decisions made in Frankfurtaccording to criteria insisted up on by Germans, and let loose fierce domes-tic political criticism from those who still believe that taking inflationaryrisks is never worth it.

The Stability and Growth Pact has thrown up similar ironies. The firststate to breach the 3 per cent budget deficit requirement was Portugalwhich ran a deficit of 4.1 per cent in 2001, but it was followed, a year later,by Germany with France close behind. Neither does there seem much polit-ical will in some states to balance budgets in the medium-term as the Pactdemands. After its re-election, the Schroeder government announced that itwould not be in a position to balance its budget until 2006. PresidentChirac, meanwhile, has made it clear that he has no intention of balancingthe French budget without higher growth. Once it became clear in Februarythis year that the Commission would reprimand the French governmentand ask it to reduce spending, the French prime minister, Jean-PierreRaffarin, retorted: ‘I won’t conduct a policy of austerity’.3

All those governments in difficulties with the 3 per cent limit havebrought political trouble on themselves in taking the actions they have totry to deal with the problem. The Schroeder government has plummeted inthe opinion polls and suffered disastrous defeat in the Länder elections inHesse and Lower Saxony after it announced the very tax increases that dur-ing the election campaign it had promised not to introduce and is still bor-rowing new money. During 2002, French public sector workers joinedfarmers and lorry drivers in industrial action, Italian trade unions orches-trated a successful one-day general strike over pensions reform, andPortugal endured two one-day general strikes. The Berlusconi government’slast budget ignited, once again, the territorial political tensions which allItalian governments have had to try to contain, when it proposed savagecuts in public expenditure in the south at the insistence of the secessionist-minded Northern League on which Berlusconi’s coalition depends. TheItalian government’s success in meeting the Maastricht convergence criteriaon inflation, budget deficits and interest rates and qualifying for monetaryunion did much to undermine the political strategy of the Northern League,whose leader, Umberto Bossi, had been hoping failure would provide a jus-tification for secession.4 If Italy does become a Stability and Growth Pactoffender, and the Berlusconi government can’t secure for itself the same

The Political Problems of the Euro-Zone 73

3 ‘France refused to take steps to curb budget deficit’ Financial Times, 26 November 2003.4 Ginsbourg, P, Italy and its discontents: family, civil society, and state 1980–2001 (Allen Lane2002).

leniency as the German and French have, the Northern League may yet bepresented with another opportunity out of monetary union to press itsclaims for separation.

Beyond these domestic difficulties, the Stability and Growth Pact is alsobeginning to expose the fraility of the European Union’s international aspi-rations at least for those, like the French government, who are determinedthat the European Union must be a military and political power in theworld to rival the United States. At Maastricht, the European Union statescould still, at least if they turned their eyes from quite what they were doingin acquiescing to Germany’s demand to recognise Slovenia and Croatia,believe that there was a peace dividend. And when the Stability and GrowthPact was agreed in 1997, even the French could see the point to NATO’smilitary wing. Now, the fiscal austerity demanded by the pact has a highprice. In 1999, at Helsinki, the member-states agreed that by 2003 theEuropean Union should be able up to deploy up to 60,000 men with airand sea cover within 60 days and keep them deployed for at least a year.Rather than find the funds to honour this commitment, the Schroeder gov-ernment is looking for cuts in defence expenditure to try to reduce thedeficit, whilst in 2002 the Portugese government sacked the head of thearmed forces after he complained about budget cuts. Chirac, by contrast, ishaving none of it, announcing last year, regardless of the implications forFrench borrowing, a five-year expenditure-rich defence programme toenable France to assume the role of leading state in any coalition for mili-tary action. Much of Chirac’s recent wrath against the pact can beexplained precisely by this issue. It can’t make sense, he argues, to tie theEuropean Union states’ hands on defence expenditure when they need toincrease it at a time when the United States is asserting itself and massivelyincreasing its military capacity; if the euro gives the European Union statessome macro-economic autonomy viz-a-viz the United States, it shouldn’tsimultaneously be an instrument of self-restraint in that relationship.

In these circumstances, there has been no significant political pressurefor more punitive measures for states that break the rules, or to movetowards a common fiscal policy. Only the German government wouldhave had the interest and the influence to force that kind of debate, and ithas needed as much latitude as almost any other state. Nonetheless, it isclear that the present rules and the sanctions attached to breaking them donot impose the same incentives for fiscal discipline on all states at least inthe medium term. Whilst the Portugese government will not be fined unlessit breaches the 3 per limit for three more years, it does face losing cohesionfunds rather sooner. The German or French governments will not have toworry about such matters. Moreover, the difficulties of the German andFrench governments since the end of 2002 have prompted a rather differentresponse from the Commission than the Portugese problems earlier thatyear. Faced with these problems, the Commission President, Romano Prodi,

74 H E L E N T H O M P S O N

denounced the Pact as ‘stupid’, and in November last year the Commissionproposed to modify the rules to allow the less debt-ridden states more timeto balance their budgets, although the 3 per cent annual limit remains.Those governments which have paid the domestic political price for fiscaldiscipline—the Spanish government, for example, has secured a law requir-ing a balanced budget—can only smart under the power relationships thatfirst produced the Pact and now ensure that they are applied neither imper-sonally nor fairly.

Germany’s economic performance since reunification has been the pri-mary reason why the politics of the euro has been different from that whichcould have been predicted in December 1991. The European Central Bankhas acted, since 1999, much as the Bundesbank probably would have done,but the Schroeder government has not been in a position to absorb the con-sequences, or to use them to its advantage in its relations with the otherEuropean Union governments as the Kohl governments were able to in the1980s. Schroeder does appear to have concluded, since his re-election inSeptember 2002, that there can be no alternative general European strategyfor his government than repairing the relationship with Paris, even if thatmeans swallowing much that is unpalatable, but whether this includesembracing the French agenda on the euro and subordinating macro-economic priorities, including long-term price stability, to funding a directchallenge to American supremacy would seem at least for the momentdoubtful.

Internally, the euro-zone has to work on certain political premises thatremain uncertain and contested. The case for the euro, and with it theEuropean Central Bank, is in part the case against representative democ-racy understood as the agency of the directly accountable representatives ofthe people: national politicians can’t be trusted to take decisions aboutinterest rates because they are too likely to sacrifice the long-term commongood to short-term sectional interests. But for the euro-zone to work onthese terms, there has to be an enduring belief amongst the constituentnational electorates in the euro-zone as a singular political community andthat the consequences of a European monetary policy do not favour anyparticular set of interests over any other in the long term. In other words,voters in different parts of the euro-zone need to accept that they can beshort-term political losers, as the Portugese and German electorates havesome reason to conclude now, without fearing that there are structuralpolitical reasons why they will always be so. There must be somethingwhich blocks, consciously or unconsciously, any desire to secede from aunion at moments when authoritative decisions damage the interests of par-ticular groups within that political community. It is difficult to concludethat this will be possible without the belief that the European Union is terri-torially the appropriate political community for its citizens at least in somepolicy areas because alternatives to the present configuration of political

The Political Problems of the Euro-Zone 75

authority in monetary, and indeed through the Stability and Growth Pactfiscal, policy and the substantive outcomes to which those institutions arecommitted, have not been decisively discredited.5 The political argumentthat it is irrational to trade-off a moderate short- to medium-term rise ininflation for other gains, whether that be short- to medium term growthand employment, or non-economic ends, such as defence, is not an a prioritruth beyond politics and circumstances. It is not an argument that is win-ning within the euro-zone at the moment, and it is not at all clear that itsprimary advocate of old, the German government, has the interest, or evenperhaps the power, to fight as successfully for it as it did in 1991 or 1997.

Helen Thompson is a senior lecturer in Politics in the Faculty of Socialand Political Sciences. She is currently working on a book on the historicalrelationship between the representative democratic state and the externalpolitical and economic world.

76 H E L E N T H O M P S O N

5 Thompson, H, ‘The modern state, political choice and an open international economy’(1999) Government and Opposition 34.

6

The European Model of Agricultureand World Trade: Reconfiguring

Domestic Support

MICHAEL CARDWELL*

I. INTRODUCTION

THE LEVEL OF support to agricultural producers in the Communityhas remained high notwithstanding the commitments imposed underthe Uruguay Round Agreement on Agriculture (‘URAA’). Thus,

according to the Organisation for Economic Co-operation and Development(‘OECD’), the ‘producer support estimate’ for the period 1986–1988amounted to 44 per cent of gross farm receipts and the proportion rosemarginally to 45 per cent in 1998.1 It may also be noted that, while theproportion in the case of the United States was approximately half that ofthe Community, the figure for 1998 was likewise not dissimilar from thatfor the period 1986–1988 (respectively 22 and 25 per cent).2 As a result,Cairns Group countries have felt able to direct strong criticism against thetwo great exporters of agricultural produce.3 This state of affairs was notunanticipated.4 As shall be seen, the URAA offered much scope for the

* University of Leeds.1 OECD, Agricultural Policies in OECD Countries: Monitoring and Evaluation 2000 (OECD2000), Table III, 29. For these purposes the ‘producer support estimate’ is defined as ‘an indi-cator of the annual monetary value of gross transfers from consumers and taxpayers to agri-cultural producers, measured at the farm-gate level, arising from policy measures that supportagriculture, regardless of their nature, objectives or impacts on farm production or income’:ibid, 20. See also, eg, Kennedy, KC, ‘Reforming Farm Trade in the Next Round of WTOMultilateral Trade Negotiations’ (2001) 35 Journal of World Trade 1061.2 OECD, Agricultural Policies in OECD Countries: Monitoring and Evaluation 2000,Table III, 62.3 See, eg, ABARE, ‘Multilateral Trade Negotiations: What is Required to Reform DomesticAgricultural Support Through the WTO?’ [2000] 3 ABARE Current Issues 1–7.4 See, eg, Scott, J, ‘Tragic Triumph: Agricultural Trade, the Common Agricultural Policy andthe Uruguay Round’ in Emiliou, N and O’Keefe, D (eds), The European Union and WorldTrade Law: After the GATT Uruguay Round (John Wiley 1996), 165.

continuation of support regimes. However, with the advent of theMillennium Round of the World Trade Organization (‘WTO’) negotiations,a challenge for the Community has been to determine, and justify, the futurelevel of agricultural support. In this context, the European Model ofAgriculture has played a central role.

Indeed, the stance adopted by the Community in the current WTO agri-culture negotiations has been characterised by a defence of that model.Thus, in the words of Commissioner Fischler, ‘while the EU will play a con-structive role, this does by no way mean that the EU would be prepared tosacrifice the European Model of Agriculture on the altar of liberalisation’.5

Moreover, the Commission has expressly acknowledged that the WTO agri-culture negotiations have constituted a driving force behind the Agenda2000 reforms to the Common Agricultural Policy, and consequent develop-ment of the European Model of Agriculture. There was a clear concern notto repeat the relative lack of preparation prior to the Uruguay Round. Notleast, in the Explanatory Memorandum (‘1998 Explanatory Memorandum’)which accompanied the legislation proposed on 18 March 1998, it wasstated as follows:

The Union has to prepare its agriculture sector for these negotiations. Thishas two vital consequences.

First, with this reform the Union has to lay down the agricultural policythat it intends carrying out in the years ahead in a way that satisfies its owninterests and takes a realistic view of developments in the international context. This needs to be done before the opening of the WTO negotiationsso that the Union can negotiate on a solid basis and knows where it wants to go.

Secondly, it must be made quite clear to all that the reform to be adoptedwill outline the limits of what the Union is able to agree in the forthcominginternational negotiations.6

That having been said, it must also be highlighted that world trade consid-erations were by far from the only pressure driving reform. Indeed, the1998 Explanatory Memorandum saw them as but one of five factors, threeinternal and two external (the three internal factors being the need to pro-mote competitiveness, to render the Common Agricultural Policy moreacceptable to the citizen and the consumer and to decentralise administra-tion; and the other external factor being the need to accommodate

78 M I C H A E L C A R D W E L L

5 IP/00/295, WTO Farm Negotiations: ‘EU Constructive but Firm’, Franz Fischler Says,Brussels, 24 March 2000.6 (http://europa.eu.int/en/comm/dg06/ag2000/agprop/mot_en.htm, visited on 3 June 1998),para 1. See also, eg, European Commission, Agenda 2000: For a Stronger and Wider Union,COM(1997)2000, Part One, III, 2: the proposed measures would ‘enhance the Union’s negotiating stance in the New Round’.

Eastward enlargement). Besides, the same document saw the internal factorsas of greater importance than the external.7

In this context, four aspects may be considered: first, the development ofthe European Model of Agriculture, with particular reference to domesticsupport; secondly, the WTO framework governing domestic support foragriculture as established by the URAA; thirdly, the treatment of suchdomestic support in the current WTO agriculture negotiations; and, in conclusion, certain observations on the stance adopted by the Community.

II. THE DEVELOPMENT OF THE EUROPEAN MODEL OF AGRICULTURE

A. General

The concept of a European Model of Agriculture may be detected longbefore the Agenda 2000 reforms. Thus, as early as the Stresa Conferenceof 1958 emphasis could be laid upon a more multifunctional role for agri-culture. In particular, great importance was attached to the preservationof family farms and, indeed, an increase in their economic and competi-tive capacity.8 Such sentiments were echoed in the Reflections Paperissued at the commencement of the MacSharry reforms of 1992, whichasserted that:

Sufficient numbers of farmers must be kept on the land. There is no otherway to preserve the natural environment, traditional landscapes and amodel of agriculture based on the family farm as favoured by the societygenerally.9

At a theoretical level, French influence has been considerable.10

However, a discernible shift under the Agenda 2000 reforms has beenfrequent affirmation that these reforms implement the European Model ofAgriculture in ‘concrete form’. Thus, the 1998 Explanatory Memorandumstated that the proposed legislation had ‘the aim of giving concrete form toa European model for agriculture in the years ahead’11; and the Mid-termReview of the Common Agricultural Policy, issued on 10 July 2002,

The European Model of Agriculture and World Trade 79

7 (http://europa.eu.int/en/comm/dg06/ag2000/agprop/mot_en.htm, visited on 3 June 1998),para 1.

8 [1958] JO p 281. The Stresa Conference was convened under Art 43(1) of the EEC Treaty(now Art 37(1) EC) to ‘evolve the broad lines of a common agricultural policy’ through com-parison of the agricultural policies of Member States.

9 European Commission, The Development and Future of the CAP: Reflections Paper of theCommission, COM(91)100, 9–10.10 See, eg, Pisani, E, Pour une Agriculture Marchande et Ménagère (Éditions de l’Aube 1994).11 (http://europa.eu.int/en/comm/dg06/ag2000/agprop/mot_en.htm, visited on 3 June 1998),para 3.

likewise saw the aim of the Agenda 2000 reforms as ‘giving concrete formto a European Model of Agriculture and preserving the diversity of farmingsystems spread throughout Europe, including regions with specific problems,in the years ahead’.12

The same two documents also provided a clear outline of the objectivesof this European Model of Agriculture; and the continuity of policy overthe reform process has been emphasised. Thus, the Mid-term Review of theCommon Agricultural Policy, after declaring that the objectives ‘essentiallyremain today the same as those established’ at the Berlin Summit of 24 and25 March 1999, as enhanced at the Göteborg Summit of 15 and 16 June2001, re-affirmed these to be as follows:

— a competitive agricultural sector;— production methods that support environmentally friendly, quality prod-

ucts that the public wants;— a fair standard of living and income stability for the agricultural

community;— diversity in forms of agriculture, maintaining visual amenities and sup-

porting rural communities;— simplicity in agricultural policy and the sharing of responsibilities among

Commission and member-states;— justification of support through the provision of services that the public

expects farmers to provide.13

In the context of domestic support and world trade, two matters may ini-tially be noted. First, the objectives of the European Model of Agricultureare wide-ranging, even wider than the objectives of the CommonAgricultural Policy set out in Article 33 EC (formerly Article 39). Theyundoubtedly extend beyond notions of agriculture as traditionally under-stood and, as a result, there has always been the likelihood that issues ofdomestic support would attach to more than one of the objectives of theEuropean Model of Agriculture. The most immediately relevant objectivewould seem to be the provision of ‘a fair standard of living and income sta-bility for the agricultural community’ and, indeed, the Mid-term Review ofthe Common Agricultural Policy characterised support and stabilisation ofagricultural incomes as ‘essential’.14 However, also of relevance would seemto be, not least, the objectives of ‘production methods that support environmentally friendly, quality products that the public wants’ and thejustification of support.

80 M I C H A E L C A R D W E L L

12 COM(2002)394, 5.13 Ibid, 2. See also, eg, Commissioner Fischler, Speech/02/342, Presentation of the CAP Mid-termReview at the Agricultural Council, Brussels, 15 July 2002: ‘The European model of agricultureis identical with the goals of Agenda 2000. The Commission continue to believe in this model’.14 COM(2002)394, 11.

Secondly, this European Model of Agriculture has been consciously contrasted with that of rival exporters. Thus, the 1998 ExplanatoryMemorandum stated that:

This is not the same model as pursued by our major competitors elsewhere.There are many differences between ours and theirs. Seeking to be competitiveshould not be confused with blindly following the dictates of a market that isfar from perfect. The European model is designed to safeguard the earnings offarmers, above all keeping them stable, using the machinery of the marketorganisations and compensatory payments.15

That having been said, it is impossible to ignore major similarities with UnitedStates policy. In the view of the Commission on 21st Century ProductionAgriculture, United States farm policy goals should include ‘Maintenance ofthe family farm organization as a dominant part of the production system’;and an appropriate role for Government was considered to be the promotionand enhancement of food safety, a clean environment and animal and planthealth and safety.16 More broadly, this approach accorded with Jeffersonianagrarian ideals, with great weight being attached to the ability of independentfarmers to forge strong communities and generate a distinctive cultural her-itage.17 This should not, however, mask acute awareness in the United Statesof the potential for such ‘multifunctionality’ to distort trade.18

B. Implementation

1. Introduction

The implementation of the European Model of Agriculture has beendescribed by Commissioner Fischler as ‘an ongoing process’.19 Two maintranches of reform may, nonetheless, be identified: that concluded at the Berlin Summit of 24 and 25 March 1999 and the Mid-term Review,concluded in Luxembourg on 26 June 2003.

The European Model of Agriculture and World Trade 81

15 (http://europa.eu.int/en/comm/dg06/ag2000/agprop/mot_en.htm, visited on 3 June 1998),para 3.16 Directions for Future Farm Policy: The Role of Government in Support of ProductionAgriculture—Report to the President and Congress (Washington, DC 2001), xv and xvi. Seealso, eg, United States Department of Agriculture, Food and Agricultural Policy: Taking Stockfor the New Century (Washington, DC 2001); and Coulthard, RA, ‘The Changing Landscapeof America’s Farmland: A Comparative Look at Policies which Help to Determine the Portraitof Our Land—Are There Lessons that We Can Learn from the EU?’ (2002) 6 Drake Journal ofAgricultural Law 261. 17 See, eg, Hamilton, ND, ‘Reaping What We have Sown: Public Policy Consequences ofAgricultural Industrialization and the Legal Implications of a Changing Production System’(1997) 45 Drake Law Review 289.18 See, eg, Bohman, M et al, The Use and Abuse of Multifunctionality (Economic ResearchService/USDA, Washington, DC 1999) (www.ers.usda.gov/briefing/wto/PDF/multifunc1119.pdf,visited on 23 January 2001).19 Speech/01/10, The CAP after Agenda 2000: The Achievements and Challenges, Berlin, 18 January 2001.

2. Berlin Summit

The reforms agreed at the Berlin Summit in large part were directed to thecommon organisations of the market and, to adopt the language of theAgenda 2000 document itself, deepened and extended the 1992 MacSharryreforms.20 Accordingly, the measures were intended to implement ‘furthershifts from price support to direct payments’ and the development of ‘a coher-ent rural policy to accompany this process’.21 There was less focus on suchmatters as food safety, animal welfare and the protection of the environment;and this attracted criticism from, inter alios, the Court of Auditors.22

An example of the shift from price support to direct payments may be fur-nished by the reduction in the intervention price for cereals and concomitantincrease in area payments. Thus, the intervention price for cereals wasreduced by 15 per cent in two equal steps over the 2000–2001 and2001–2002 marketing years;23 and over the same period the rate of directpayments was increased to 63 Euros per tonne (this amount to be multipliedby the average regional cereal yield). Further, as from the 2002–2003 market-ing year, the rate of direct payments for linseeds and oilseeds (but not proteincrops) was brought in line with that for cereals.24 This move away from crop-specific support served the purpose of achieving simplification and also, asshall be seen, had the capacity to confer advantages in world trade terms.

Notwithstanding retention of the existing overall framework of the com-mon organisations of the market, two major developments were initiated byCouncil Regulation (EC) 1259/1999 establishing common rules for directsupport schemes under the Common Agricultural Policy (‘1999 HorizontalRegulation’).25 Article 3 imposed obligatory environmental protectionrequirements (‘cross-compliance’) and Article 4 accorded Member States dis-cretion to ‘modulate’ direct payments.26 If Member States elected to implement modulation, direct payments in a given calendar year could bereduced by up to 20 per cent. Any sums so realised were to be made availableto the Member State concerned as additional support for specified rural development measures. As a result, modulation operated as a financial bridge

82 M I C H A E L C A R D W E L L

20 For a useful summary of the progress of the Agenda 2000 reforms to the Berlin Summit, see, eg, Ackrill, R, The Common Agricultural Policy (Sheffield Academic Press 2000), Tables 4.1–4.3. See also, eg, Galloway, D, ‘Agenda 2000—Packaging the Deal’ (1999) 37Journal of Common Market Studies Annual Review 9; and Ackrill, RW, ‘CAP Reform 1999: ACrisis in the Making?’ (2000) 38 Journal of Common Market Studies 343.21 European Commission, Agenda 2000: For a Stronger and Wider Union, COM(1997)2000,Part One, III, 4.22 Opinion No 10/98 of the European Court of Auditors on Certain Proposals for Regulationswithin the Agenda 2000 Framework, OJ 1998 C 401/1, para 20.23 Council Regulation (EEC) 1766/92, OJ 1992 L 181/21, Art 3(1), as amended by CouncilRegulation (EC) 1253/1999, OJ 1999 L160/18.24 Council Regulation (EC) 1251/1999, OJ 1999 L 160/1, Art 4.25 OJ 1999 L 160/113.26 For the direct support schemes to which cross-compliance and the discretion to modulateapplied, see the Annex to the 1999 Horizontal Regulation.

between the First and Second Pillars of the Common Agricultural Policy,transferring funds from the common organisations of the market to ruraldevelopment. Its major limitation was the low level of up-take by MemberStates. While the United Kingdom did require reductions of 4.5 per cent by2005, this pattern was not widely replicated.27 Indeed, by April 2001Commissioner Fischler could regret that only France and the United Kingdomhad exercised the discretion conferred by Article 4, countenancing that thebetter course would be to render modulation compulsory for all.28 Further, inMay 2002 France decided to suspend implementation.29

In addition, the objective of developing a coherent rural policy wasaddressed by Council Regulation (EC) 1257/1999 (‘Rural DevelopmentRegulation’).30 While in large part a consolidation of existing measures,two features may be highlighted in the specific context of domestic support.First, in contrast to the 1999 Horizontal Regulation, a key feature of theRural Development Regulation was targeted support, with payment beingmade to farmers for effort beyond a baseline. This may be illustrated by theagri-environmental chapter, under which, as enacted following the BerlinSummit, commitments by farmers were to ‘involve more than the applica-tion of usual good farming practice’.31 Secondly, there were significantchanges in support for less-favoured areas.32 Previously this had in largepart consisted of payments in respect of livestock on a headage basis, withthe emphasis on compensating farmers for natural handicaps.33 Under theRural Development Regulation it came to be paid on an area basis, with atleast as much emphasis on maintaining the countryside, promoting sustain-able farming and protecting the environment.34 Moreover, the territorialambit of the measures was extended from less-favoured areas to includealso areas with environmental restrictions.35

The European Model of Agriculture and World Trade 83

27 For the implementing legislation in England, see the Common Agricultural Policy SupportSchemes (Modulation) Regulations 2000 (SI 2000 No 3127). Following the Foot-and-Mouthepidemic, the Report of the Policy Commission on the Future of Farming and Food recom-mended an increase to 10% from 2004 and that, if substantial Common Agricultural Policyreform was not delivered in 2006–2007, the Government should give serious consideration toa further increase to the maximum of 20%: Farming and Food— a Sustainable Future (PolicyCommission on Farming and Food 2002), 77.28 Speech/01/165, Food Quality, Östersund, 10 April 2001 (France and the United Kingdomwere joined by Portugal).29 Agra-Europe Weekly, No 2004, 24 May 2002, at N/1.30 OJ 1999 L 160/80.31 Ibid, Art 23(2).32 For the provisions governing inclusion within less-favoured areas, see ibid, Arts 17–20 (theseprovisions reflecting concern over land abandonment). See, generally, eg, Dax, T andHellegers, P, ‘Policies for Less Favoured Areas’ in Brouwer, F and Lowe, P (eds), CAP Regimesand the European Countryside (CABI Publishing 2000), 179.33 Council Regulation (EC) 950/97, OJ 1997 L 142/1, Arts 17–19.34 OJ 1999 L 160/80, Art 13.35 The restrictions in question were to be the result of implementation of limitations on agricultural use based on Community environmental protection rules: ibid, Art 16(1).

However, while the Berlin Summit may have established rural developmentas the Second Pillar of the Common Agricultural Policy, it must be recog-nised that the level of funding devoted to such measures did not come closeto the level of funding for measures under the First Pillar. Thus, the agreedfinancial perspective imposed a ceiling of 4,300 million Euros on ruraldevelopment and ancillary expenditure for 2000 (in 1999 prices), asopposed to a ceiling of 40,920 million Euros on other CommonAgricultural Policy costs.36 Moreover, by the time of the issue of the Mid-term Review of the Common Agricultural Policy, it was conceded thatonly 16 per cent of total European Agricultural Guidance and GuaranteeFund (‘EAGGF’) expenditure was devoted to rural development.37

3. The Mid-term Review

The agreement reached at the Berlin Summit already included provision forreview of the reform process and the Mid-term Review of the CommonAgricultural Policy was issued, as indicated, on 10 July 2002.38 However, itmay be noted that over the intervening period a considerable amount oflegislation was enacted or proposed which, while outside the immediatecontext of the Common Agricultural Policy, would increasingly have abearing on domestic support to farmers.39 In particular, there was a con-certed effort to promote higher food safety, food quality and animal wel-fare standards.40 Thus, with regard to food safety, the White Paper on FoodSafety and Regulation (EC) 178/2002 of the European Parliament and ofthe Council (‘Food Law Regulation’) confirmed the importance of agricul-ture as the first link in the food chain;41 and Commissioner Fischler unequiv-ocally stated that the question of food safety was ‘non-negotiable’.42

Likewise, food quality was promoted by, for example, extension of the rulesgoverning organic production to livestock production;43 and the importance

84 M I C H A E L C A R D W E L L

36 European Commission, Bulletin of the European Union, 3–1999, at I.12.37 COM(2002)394, 9.38 It may be noted that the various reviews envisaged were brought together into a single package. In particular, the review of the milk quota system was initiated earlier than requiredby Council Regulation (EC) 1256/1999, OJ 1999 L 160/73, Art 3 (setting 2003 as the date forconducting a mid-term review).39 See, generally, eg McMahon, JA, ‘The Common Agricultural Policy: From Quantity toQuality?’ (2002) 53 Northern Ireland Legal Quarterly 9.40 On the Community law implications of ‘higher standards’, see, in particular, Dougan, M,‘Minimum Harmonization and the Internal Market’ (2000) 37 Common Market LawReview 853.41 Respectively, COM(99)719; and OJ 2002 L 31/1. 42 See, eg, Speech/01/301, Quality Production: The New Challenge of the Common AgriculturalPolicy, Brussels, 21 June 2001.43 Council Regulation (EEC) 2092/91, OJ 1991 L 198/1, as amended by Council Regulation(EC) 1804/1999, OJ 1999 L 221/1.

of protected geographical indications and designations of origin was reflectedin increased litigation before the European Court of Justice.44

In the case of animal welfare, momentum had already been generated bythe Protocol on Protection and Welfare of Animals annexed to the ECTreaty by the Treaty of Amsterdam. The Common Agricultural Policy wasfirst-mentioned in the list of policies where the Community and MemberStates were to ‘pay full regard to the welfare requirements of animals’.Respect must, however, be accorded to ‘the legislative or administrativeprovisions and customs of the Member States relating in particular to reli-gious rites, cultural traditions and regional heritage’.45 This momentum hasbeen continued. For example, the condition of battery hens will beimproved by Council Directive 1999/74/EC.46 However, a generoustimescale has been granted for implementation, with ‘unenriched cages’ notprohibited altogether until 1 January 2012.47 Further, the decision of theEuropean Court of Justice in Jippes v Minister van Landbouw, Natuurbeheeren Visserij has somewhat reduced expectations as to the effect of theProtocol on Protection and Welfare of Animals.48 In the view of the European Court of Justice, it is apparent from the very wording of theProtocol ‘that it does not lay down any well-defined general principle ofCommunity law which is binding on the Community institutions’.49

The issue of the Mid-term Review of the Common Agricultural Policysaw the Community make significant strides towards reconfiguring domesticsupport. The proposed reforms were characterised as ‘completing the shiftfrom product to producer support’.50 However, the reform package asfinally agreed did mark a considerable retreat from the ambition of the ear-lier policy document. In the words of Commissioner Fischler, ‘theCommission has trimmed its reform plans. But anyone familiar with the EUknows that this is normal and necessary in order to find solutions that are

The European Model of Agriculture and World Trade 85

44 See, eg, Case C–87/97 Consorzio per la Tutela del Formaggio Gorgonzola v KäsereiChampignon Hofmeister and Bracharz [1999] ECR I–1301 (Cambozola); Joined CasesC–289/96, C–293/96 and C–299/96 Denmark v Commission [1999] ECR I–1541 (Feta); andCase C–108/01 Consorzio del Prosciutto di Parma v Asda Stores Ltd, 20 May 2003 (Parmaham).45 See, generally, eg, Camm, T and Bowles, D, ‘Animal Welfare and the Treaty of Rome—aLegal Analysis of the Protocol on Animal Welfare and Welfare Standards in the EuropeanUnion’ (2000) 12 Journal of Environmental Law 197.46 OJ 1999 L 203/53.47 Similar unhurried implementation could be found in the case of legislation to improve thewelfare of pigs, with stalls for sows not to be prohibited altogether until 1 January 2013:Council Directive 2001/88/EC, OJ 2001 L 316/1. See also, eg, Ministry of Agriculture,Fisheries and Food News Release 30/01, Morley Welcomes Proposals for EU Sow Stall Ban, 29 January 2001.48 Case C–189/01 [2001] ECR I–5689. See also Spaventa, E, (2002) 39 Common Market LawReview 1159.49 Case C–189/01 [2001] ECR I–5689, para 73.50 COM(2002)394, 3.

acceptable to everybody’.51 In particular, attempts to improve competitivenessby reductions in intervention prices met with strong opposition and, in the case of the intervention price for cereals, no reduction at all wasachieved.52

Nonetheless, the agreed reform package did see significant developmentsin the restructuring of domestic support for farmers; and four such develop-ments may be considered. First, the most important innovation was theintroduction of the single farm payment under Council Regulation (EC)1782/2003 (‘2003 Horizontal Regulation’).53 In principle, this is understoodby the Commission to be exempt from domestic support reduction commit-ments by virtue of Annex 2 to the URAA.54 Based on historic payments during a 2000–2002 reference period, it will bring a wide range of directsupport schemes under one umbrella.55 Accordingly, the crop-specific natureof domestic support will largely cease. That having been said, exceptions willremain. For example, outside the single farm payment there will be a specificquality premium for durum wheat and a premium for protein crops.56

The price for securing so important an innovation was the grant toMember States of significant discretions in its implementation. As a result,some of the simplicity of the original proposals was sacrificed. For example,whereas the single farm payment is, as a general rule, to be introduced asfrom 1 January 2005, Member States will enjoy the ability to delay imple-mentation until either 1 January 2006 or 1 January 2007.57 Further,Member States will enjoy the option of partial implementation. In particular,they will be able to retain up to 25 per cent of arable area payments as ‘coupled’ support.58

Secondly, cross-compliance will be radically extended by the attachmentof multifunctional conditions to receipt of both the single farm paymentand other direct payments. Statutory management requirements are estab-lished by Community legislation in the fields of: public, animal and planthealth; environment; and animal welfare. Accordingly, this brings directlyinto play, inter alia, such legislative measures as the Food Law Regulation.59

Further, in any event farmers will be obliged to maintain all agriculturalland in good agricultural and environmental condition. While MemberStates enjoy some discretion in defining such condition, there is an obligation

86 M I C H A E L C A R D W E L L

51 Speech/03/326, ‘The New, Reformed Agricultural Policy’, Luxembourg, 26 June 2003.52 The Mid-term Review of the Common Agricultural Policy had proposed a 5% reduction:COM(2002)394, 13–14.53 OJ 2003 L 270/1.54 See, eg, COM(2002)394, 19 and 20; and see post.55 The direct support schemes initially covered by the single farm payment are set out in Annex VI to the 2003 Horizontal Regulation. As and when they are reformed, other directsupport schemes will be included.56 The 2003 Horizontal Regulation, OJ 2003 L 270/1, Arts 72–78.57 Ibid, Art 71.58 Ibid, Art 66.59 The statutory management requirements are set out in ibid, Annex III.

to respect a Community framework.60 This framework has the capacity toaddress distortions of competition;61 but the uneven application of earlierenvironmental protection measures has generated doubts as to its efficacy.62

Further, it is apparent that maintaining this good agricultural and environ-mental condition might involve continued production. For example, onerequirement is to ensure a minimum level of maintenance through minimumlivestock stocking rates and/or appropriate regimes. Indeed, an avowedobjective is to prevent land abandonment.63 A consequence, as shall beseen, is to place in some jeopardy exemption from domestic support reduc-tion commitments under the URAA.

Thirdly, it being accepted that the existing provisions governing modula-tion had not achieved the requisite balance of support, compulsory reductionsin direct payments are to be imposed. There were, however, substantial differences between the scheme envisaged by the Mid-term Review of theCommon Agricultural Policy, the legislation subsequently proposed inJanuary 2003 (‘2003 Proposed Legislation’) and the reforms finally agreed.The Mid-term Review of the Common Agricultural Policy proposed theintroduction of ‘dynamic modulation’ as from 2004. All direct payments,whether or not decoupled, would be reduced progressively in steps of 3 per cent per annum up to the maximum rate of 20 per cent agreed at theBerlin Summit. The interests of small farmers would be protected by a ‘fran-chise’ geared to the employment situation on each farm. In particular, forfarms with up to two annual work units, dynamic modulation would notapply to the first 5,000 Euros of direct payments per annum and it wasstated that the franchise would fully exempt approximately three-quartersof the farms in Europe.64 By contrast, those farming on a large scale wouldsuffer ‘capping’. After the application of the franchise and modulation,direct payments would be limited to a maximum of 300,000 Euros per annumper farm. All sums realised by modulation and capping would be available toreinforce rural development programmes. However, while sums realised fromcapping would be retained within the Member State concerned, sums realisedfrom modulation would be re-distributed to the Member States on the basis ofagricultural area, agricultural employment and a prosperity criterion.

Two aspects of these proposals may be highlighted. First, there would be nosea-change in the relative level of funding for the First and Second Pillars ofthe Common Agricultural Policy. It was estimated that dynamic modulationwould generate not more than 600 million Euros in 2005 (with equivalent

The European Model of Agriculture and World Trade 87

60 For the Community framework, see ibid, Annex IV.61 COM(2002)394, 21.62 See, eg, Court of Auditors, Special Report No 14/2000 on Greening the CAP, para 18 andTable 4 (relating to environmental protection requirements on land set-aside).63 COM(2003)23, 10; and MEMO/03/18, Outcome of the Agri/Fisheries Council of 27/28January 2003, Brussels, 29 January 2003.64 COM(2002)394, 23.

increases as the rate was incrementally raised to 20 per cent). Secondly, thecapping provisions proved immediately controversial. In particular, studiesrevealed that the brunt would fall upon a limited number of German andUnited Kingdom farms.65 Moreover, in the case of the former, the scale of thefarms was the result of collectivisation during the Communist era rather thana concerted drive towards ‘agri-business’.

By contrast, the 2003 Proposed Legislation provided for ‘degression’,with only a proportion of the sums so realised being transferred by modula-tion from the First to the Second Pillar of the Common Agricultural Policy.Degression would commence in 2006, with an initial reduction in directpayments of 1 per cent. This reduction would rise in uneven steps to 19 per cent by 2012.66 However, the situation of those farming on a smallscale would again be accommodated. In respect of the first 5,000 Euros ofdirect payments per annum, farmers would receive an additional amount ofaid equal to the amount removed by the application of degression; and onlyin respect of direct payments in excess of 50,000 Euros per annum wouldthe full weight of degression be felt. Further, there was no longer provisionto cap direct payments at 300,000 Euros per annum for any one farm.67 Asindicated, a matter of considerable significance was that only a proportion ofthe sums realised by degression would be transferred to the Second Pillar ofthe Common Agricultural Policy. Indeed, the maximum rate was to be only 6per cent by 2012. Those sums not subject to modulation would be availableto finance new market reforms.

In the event, the agreed reform package refocussed on modulation, withdegression being translated into provisions on financial discipline.68 Suchmodulation will be introduced in 2005 at the rate of 3 per cent, but will riseto only 5 per cent in 2007, remaining fixed at that rate until 2012. Therewill be no capping; and effective exemption through additional aid will beconfined to farmers in receipt of 5,000 Euros or less per annum. A furthermaterial development is substantial ‘ring-fencing’ of sums modulatedwithin the Member State concerned. They will receive at least 80 per centof the total amounts generated within their borders.69 Significantly, evenwhen the 5 per cent rate applies, modulation will realise a mere 1.2 billionEuros per annum for the Second Pillar.70

88 M I C H A E L C A R D W E L L

65 See, eg, MEMO/02/198, Commission Publishes Indicative Figures on the Distribution ofDirect Farm Aid, Brussels, 1 October 2002. See also Agra-Europe Weekly, No 2017, 23 August 2002, A/1–2.66 COM(2003)23, 12.67 A matter of some interest is that the United States Farm Security and Rural Investment Actof 2002 imposed a 360,000 Dollar limitation on payments.68 As from the 2007 budget, an adjustment in direct payments will be triggered when forecastsindicate that the ceiling for Common Agricultural Policy market-related expenditure and directpayments will be exceeded, allowing for a margin of 300 million Euros and before the applica-tion of modulation: the 2003 Horizontal Regulation, OJ 2003 L 270/1, Art 11.69 Ibid, Arts 10 and 12.70 IP/03/898, EU Fundamentally Reforms its Farm Policy to Accomplish Sustainable Farmingin Europe, Luxembourg, 26 June 2003.

Fourthly, the agreed reform package saw the expansion of the RuralDevelopment Regulation to include two new chapters. The first, on foodquality, will provide support to encourage farmers to participate in Communityor national food quality schemes. The second, on ‘meeting standards’, willprovide support to partially offset costs incurred by farmers in meetingdemanding standards based on Community legislation on the environment,public, animal and plant health, animal welfare and occupational safety.71

At the same time it may be noted that amendment has been effected to theagri-environmental chapter, with a view to securing payments for farmersin respect of extra animal welfare efforts. Moreover, whereas formerly commitments capable of attracting payment had to ‘involve more than theapplication of usual good farming practice’, they are now to ‘involve morethan the application of usual good farming practice including good animalhusbandry practice’.72

C. Emerging Trends

Accordingly, in the context of domestic support, both the reforms agreed atthe Berlin Summit and under the Mid-term Review arguably demonstrateidentifiable trends. First, there has been apparent a continuation of the shiftin support from the product to the producer. This has been accompanied byincreasingly unequivocal acceptance that such payments operate as incomesupport. As stated in the Mid-term Review of the Common AgriculturalPolicy, ‘market revenues alone are not enough to ensure an acceptable stan-dard of living for many farm households’.73 That having been said, there wasalso clear articulation that farmers should not be perceived as objects of char-ity and that direct payments should not be perceived as a form of welfare.74

Secondly, there has been a determination to ‘decouple’ support from production. As shall be seen, successful decoupling would have major advan-tages under the URAA. However, it is far from clear what actually constitutes‘decoupling’ and there has already been controversy as to the extent thatthe Community will meet the requisite criteria.75

The European Model of Agriculture and World Trade 89

71 Implementation of both these chapters by Member States is voluntary, although it had beenproposed that in the case of the former it be compulsory.72 The Rural Development Regulation, OJ 1999 L 160/80, Art 23(2), as amended by CouncilRegulation (EC) 1783/2003, OJ 2003 L 270/70.73 COM(2002)394, 7.74 See, eg, Commissioner Fischler, Speech/02/342, Presentation of the CAP Mid-term Reviewat the Agricultural Council, Brussels, 15 July 2002: and Speech/02/412, Adjusting the CAP toBetter Meet its Objectives, Brussels, 20 September 2002.75 See, generally, eg, Cahill, SA, ‘Calculating the Rate of Decoupling for Crops under theCAP/Oilseeds Reform’ (1997) 48 Journal of Agricultural Economics 349; and OECD,Decoupling: A Conceptual Overview (OECD 2001). For compatibility with URAA criteria ofdomestic support following the Mid-term Review, see post.

Thirdly, the concept of cross-compliance has already, in effect, rendereddirect payments conditional and implementation of the Mid-term Reviewwill see this conditionality further developed.76 This would appear consis-tent with the creation of a new ‘contract’ between farmers and civil society.In the words of Commissioner Fischler,

Civil society is right to support a common agricultural policy that providesincentives for producing what people want and not what attracts the highestsubsidies. And time and again, opinion polls confirm that what people wantis healthy, good-quality food together with a healthy environment and aviably-managed farming landscape.

But, in return,

farmers are also right to demand due reward for the quality products theysupply, the environmental services they perform and their role in the upkeepof the countryside—in other words, for all the products and services that theyprovide for society. Direct payments remain essential in this context, sincemarket prices alone are not enough.77

At the same time, in terms of the objectives of the European Model ofAgriculture, this ‘contract’ would seem calculated to achieve ‘justificationof support through the provision of services that the public expects farmersto provide’.78

Finally, domestic support has increasingly come to be regarded as anengine to promote quality production and, indeed, higher standards moregenerally. The new chapters in the Rural Development Regulation on foodquality and ‘meeting standards’ provide a graphic illustration. This hasmarked a significant refocusing of such issues within the framework ofagreements concluded in the Uruguay Round. For example, the disputebetween the United States and the Community regarding the use of hor-mones in beef cattle had been largely conducted within the context of theAgreement on the Application of Sanitary and Phytosanitary Measures.79

For the future, the Community is asserting the right to address public healthand animal welfare issues not only by seeking to condition imports, butalso by providing a level of support to Community farmers such that theycan compete on world markets notwithstanding a higher regulatory burden.

90 M I C H A E L C A R D W E L L

76 On property rights implications see, eg, Rodgers, CP, ‘Agenda 2000, Land Use, and theEnvironment: Towards a Theory of ‘Environmental’ Property Rights?’ in Holder, J andHarrison, C (eds), Law and Geography (Oxford University Press 2003), 239.77 Speech/02/342, Presentation of the CAP Mid-term Review at the Agricultural Council,Brussels, 15 July 2002.78 COM(2002)394, 2.79 EC Measures concerning Meat and Meat Products (Hormones) (1998), WT/DS26/AB/R andWT/DS48/AB/R.

III. THE WTO FRAMEWORK GOVERNING DOMESTIC SUPPORT AS ESTABLISHED BY THE URAA

A. General

The URAA for the first time implemented a specific framework governingdomestic support to agricultural producers.80 However, before consideringthe provisions set out in Articles 6 and 7 and Annexes 2–4, two preliminarypoints may be noted. First, the URAA was a ‘stand-alone’ agreement in thesense that its renegotiation was not dependent upon the launch of theMillennium Round. Rather, Article 20 included an agreement that ‘negotia-tions for continuing the process will be initiated one year before the end ofthe implementation period’, the implementation period for these purposesextending for six years as from 1995.

Secondly, Article 20 also included express provision that this renegotia-tion would take into account ‘non-trade concerns’. In the Preamble thesewere identified as encompassing food security and the need to protect theenvironment.

B. Reduction Commitments

Under the URAA domestic support reduction commitments were imposed.The mechanism adopted was a staged reduction in the Aggregate Measure ofSupport (‘AMS’) over the implementation period, which for these purposesagain extended for six years as from 1995. The URAA defined the AMS asthe ‘annual level of support, expressed in monetary terms, provided for anagricultural product in favour of the producers of the basic agricultural prod-uct or non-product-specific support provided in favour of agricultural pro-ducers in general’.81 A base level was calculated by reference to a 1986–1988base period; and then for each Member ‘Annual and Final BoundCommitment Levels’ were set out in Part IV of its Schedule. In the case ofdeveloped countries, the level of reduction required over the implementationperiod was 20 per cent. Domestic support measures subject to reduction

The European Model of Agriculture and World Trade 91

80 On the URAA, see, eg, Scott, J, ‘GATT and Community Law: Rethinking the “RegulatoryGap”’ in Shaw, J and More, G (eds), New Legal Dynamics of European Union (ClarendonPress 1995), 147; Epstein, PJ, ‘Beyond Policy Community: French Agriculture and the GATT’(1997) 4 Journal of European Public Policy 355; Ingersent, KA, Rayner, AJ and Hine, RC(eds), Agriculture and the Uruguay Round (Macmillan 1994), passim; Scott, J, ‘TragicTriumph: Agricultural Trade, the Common Agricultural Policy and the Uruguay Round’, inEmiliou, N and O’Keefe, D (eds), The European Union and World Trade Law: After theGATT Uruguay Round (John Wiley 1996), 165; Josling, TE, Tangermann, S and Warley, TK,Agriculture in the GATT (Macmillan 1996), 175–216; and Coleman, WD and Tangermann, S,‘The 1992 CAP Reform, the Uruguay Round and the Commission: Conceptualizing LinkedPolicy Games’ (1999) 37 Journal of Common Market Studies 385.81 Art 1(a). For the detailed provisions governing the calculation of the AMS, see Annex 3.

commitments were termed ‘amber box’ and Members would be consideredto be in compliance with their domestic support reduction commitments inany year where their Current Total AMS did not exceed the correspondingannual or final commitment level specified in Part IV of their Schedule.

C. Exceptions

There were, however, very significant exceptions. First, domestic supportmeasures specified in Annex 2 were not to be included in the AMS. These‘green box’ measures must all ‘meet the fundamental requirement that theyhave no, or at most minimal, trade-distorting effects or effects on production’.To do so, two basic criteria must be satisfied, together with policy-specific criteria and conditions. The two basic criteria were that:

(a) the support in question shall be provided through a publicly-funded gov-ernment programme (including government revenue foregone) not involvingtransfers from consumers; and (b) the support in question shall not have theeffect of providing price support to producers.

The policy-specific criteria and conditions were broad in ambit andreflected different priorities for different Members.82 In the case of theCommunity, several categories of direct payment as set out in paragraphs6–13 of Annex 2 would appear most relevant. In particular, it has beenforcefully argued that the single farm payment will qualify as ‘de-coupledincome support’ under paragraph 6 of Annex 2. Not least, on the issue ofthe 2003 Proposed Legislation it was asserted that ‘the new single farm pay-ment will be green box compatible’.83 As shall be seen, however, meetingthe detailed criteria may not be easy. For the time being, two of thesedetailed criteria may be highlighted. Under paragraph 6(b) ‘The amount ofsuch payments in any given year shall not be related to, or based on thetype or volume of production (including livestock units) undertaken by theproducer in any year after the base period’; and under paragraph 6(e) ‘Noproduction shall be required in order to receive such payments’. Other categories of direct payment as set out in Annex 2 would seem of relevanceto programmes under the Rural Development Regulation, for example,structural adjustment assistance provided through producer retirement pro-grammes (paragraph 9); structural adjustment assistance provided throughresource retirement programmes (paragraph 10); structural adjustment assis-tance provided through investment aids (paragraph 11); payments underenvironmental programmes (paragraph 12); and payments under regionalassistance programmes (paragraph 13).

92 M I C H A E L C A R D W E L L

82 By way of example, the United States has an established pattern of domestic food aid (Annex 2, para 4).83 COM(2003)23, 4.

Secondly, Article 6(4) provided a de minimis exception. Developedcountries were not required to include within their Current Total AMS orreduce: in the case of product-specific domestic support, up to 5 per cent ofthe total value of production of a basic agricultural product during the rele-vant year; or, in the case of non-product-specific domestic support, up to 5 per cent of the value of their total agricultural production.84

Thirdly, Article 6(5) provided exemption for ‘blue box’ domestic support.85

This comprised direct payments under production-limiting programmeswhere either:

(i) such payments are based on fixed area and yields; or (ii) such payments aremade on 85 per cent or less of the base level of production; or (iii) livestockpayments are made on a fixed number of head.

In essence, the exemption was understood to encompass Community com-pensatory payments on an area and headage basis following the 1992MacSharry reforms and United States deficiency payments. Moreover, it wasonly after the Community and the United States had agreed on such exemption under the Blair House Accords that the Uruguay Round could beconcluded.86 Two matters may be noted at this juncture. First, blue boxdomestic support has historically accounted for a very substantial propor-tion of Common Agricultural Policy expenditure. For example, out of totalEAGGF Guarantee Section budget appropriations of 40,237 million Ecusfor 1998, some 16,243 million Ecus were devoted to arable area aid(including set-aside).87 Secondly, the claim underlying the Mid-term Reviewis that the single farm payment will effectively transfer the bulk of blue boxexpenditure into the green box.

IV. THE TREATMENT OF DOMESTIC SUPPORT IN THE CURRENT WTO AGRICULTURE NEGOTIATIONS

A. General

As indicated, the defence of the European Model of Agriculture has been apervading theme of Community negotiating proposals;88 and in this

The European Model of Agriculture and World Trade 93

84 For developing countries the threshold was 10%.85 This exemption was achieved by excluding blue box domestic support from the calculationof the Current Total AMS: Arts 1(h) and 6(5)(b).86 See, generally, eg, Coleman, WD and Tangermann, S, ‘The 1992 CAP Reform, the UruguayRound and the Commission: Conceptualizing Linked Policy Games’ (1999) 37 Journal ofCommon Market Studies 385.87 European Commission, The Agricultural Situation in the European Union: 1998 Report(Brussels: Luxembourg, 1999), 150.88 For discussion of the current round of agriculture negotiations under the umbrella of theWTO, see, eg, Josling, T and Tangermann, S, ‘Implementation of the WTO Agreement onAgriculture and Developments for the Next Round of Negotiations’ (1999) 26 European

defence it has been expressly asserted by Commissioner Fischler that therelevant question is ‘not if but how to support agriculture’. Accordingly, itmust be asked: ‘How can EU agriculture meet its twin objectives to simulta-neously be competitive at the world markets’, competing at lower prices,‘while producing at the higher costs implied by the need to meet our veryhigh environmental, food quality, or animal welfare standards’?89 Likewise,The EC’s Proposal for Modalities in the WTO Agriculture Negotiationsstated as follows:

The EC’s overall objectives in the negotiations are further substantial liberali-sation on a fair and equitable basis and the right to maintain a model of agri-culture which addresses the need to ensure environmental protection, ruraldevelopment, food safety and other consumer concerns.90

Thus, Community policy would appear to be seeking to opt out of a ‘raceto the bottom’ and domestic support would appear to have a major role inallowing farmers to survive the resulting challenges. Indeed, CommissionerFischler could even talk of ‘opting out’ of the production race based onmarket support.91 At the same time, there has been consistent affirmationof the importance of achieving a settlement that meets societal goals. Forexample, in the EC Comprehensive Negotiating Proposal of December2000 it was argued that:

in order to achieve these goals, it is vital to muster strong public support,which can only be achieved if other concerns are met, in particular the multi-functional role of agriculture, which covers the protection of the environmentand the sustained vitality of rural communities, food safety and other con-sumer concerns including animal welfare.92

In this context, two facets of the treatment of domestic support may beexamined: first, the defence by the Community of the blue box; and,

94 M I C H A E L C A R D W E L L

Review of Agricultural Economics 371; Swinbank, A, ‘CAP Reform and the WTO:Compatability and Developments’ (1999) 26 European Review of Agricultural Economics 389;McNiel, DE, ‘Furthering the Reforms of Agricultural Policies in the Millennium Round’ (2000)9 Minnesota Journal of Global Trade 41; Usher, JA, EC Agricultural Law 2nd edn (OxfordUniversity Press 2001), 60–79; McMahon, JA (ed), Trade and Agriculture: Negotiating a NewAgreement? (Cameron May 2001), passim; Rude, J, ‘Under the Green Box: The WTO andFarm Subsidies’ (2001) 35 Journal of World Trade 1015; Kennedy, KC, ‘Reforming Farm Tradein the Next Round of WTO Multilateral Trade Negotiations’ (2001) 35 Journal of World Trade1061; Landau, A, ‘The Agricultural Negotiations in the WTO: The Same Old Story?’ (2001) 39Journal of Common Market Studies 913; and Beierle, T, ‘Agricultural Trade Liberalization—Uruguay, Doha, and Beyond’ (2002) 36 Journal of World Trade 1089.

89 Speech/03/77, Reaction to Chairman Harbinson’s Draft Modalities Paper on Agriculture,Brussels, 13 February 2003.90 European Commission, Ref 625/02, Brussels, 16 December 2002, 2.91 Speech/01/10, The CAP after Agenda 2000: The Achievements and Challenges, Berlin, 18 January 2001.92 G/AG/NG/W/90, 14 December 2000.

secondly, the proposed revisiting of the criteria for the green box. It mayinitially be emphasised, however, that the Community has throughoutexpressed a willingness to see significant reductions in the overall level ofamber box domestic support. Thus, in the EC Comprehensive NegotiatingProposal it was advocated that there should be further reduction in theTotal AMS, commencing with the final bound commitment level reachedunder the Uruguay Round. Also advocated were a further strengthening ofthe rules governing non-product-specific domestic support and a reductionin the de minimis exception for developed countries.93 Likewise, in theDoha Ministerial Declaration of November 2001 the Community agreed toundertake, without prejudging their outcome, comprehensive negotiationsaimed at, inter alia, ‘substantial reductions in trade-distorting domestic support’.94 By the time of The EC’s Proposal for Modalities in the WTOAgriculture Negotiations issued in December 2002 the proposed level ofreduction in the AMS was quantified at 55 per cent, again commencingwith the final bound commitment level reached under the Uruguay Round;and a clear definition of crop specificity was proposed for non-product-specific domestic support. Moreover, the complete abolition of the de minimisexception was proposed in the case of developed countries.95 By contrast,the U.S. Proposal for Global Agricultural Trade Reform took the view thatnon-exempt support should be reduced from the final bound commitmentlevel to 5 per cent of the average value of total agricultural production in abase period of 1996–1998. This was to be achieved over a five-year periodthrough equal annual reduction commitments. Further, it was the view ofthe United States that the de minimis exception should remain.96 In theevent, the First Draft of Modalities for the Further Commitments issued byChairman Harbinson on 17 February 2003 suggested a 60 per cent reduc-tion in the final bound Total AMS in equal annual instalments over a five-year period and, in the case of developed countries, a 0.5 per cent annualreduction in the de minimis level over a five-year period.97 Considerablereconciliation between the positions adopted towards the amber box by the Community and the United States was achieved prior to the

The European Model of Agriculture and World Trade 95

93 Ibid.94 WT/MIN(01)/DEC/W/1, 14 November 2001, para 13.95 European Commission, Ref 625/02, Brussels, 16 December 2002, 5–6. See also EuropeanCommission, EU Agriculture and the WTO: Doha Development Agenda—Cancún—September 2003: info (Brussels 2003), para 2.3.96 (http://www.fas.usda.gov/itp/wto/actual.htm, visited on 3 October 2002). The Cairns Grouphas consistently argued for major reductions in amber box domestic support and, indeed, itseventual elimination: see, eg, Cairns Group Negotiating Proposal: Domestic Support,G/AG/NG/W/35, 22 September 2000.97 TN/AG/W/1, 17 February 2003, paras 45 and 50. These suggestions were retained in therevised version of the first draft modalities issued on 18 March 2003: TN/AG/W/1/Rev 1,paras 46 and 51.

Cancún Ministerial.98 However, the failure to reach agreement on themodalities at the Ministerial has resulted in little progress in concrete terms.

B. Defence of the Blue Box

The maintenance of the blue box has been a keystone of the stance adoptedby the Community. Not least, this was expressed unequivocally in the ECComprehensive Negotiating Proposal;99 and justification was sought in evi-dence which suggested that blue box measures (and, in particular, area pay-ments even when implemented with a requirement to plant) had less tradeimpact than market price support, payments based on outputs or paymentsbased on variable input use. In particular, recourse was had to OECDresearch, which concluded that ‘there were substantially less spillovereffects from area payments than for any other form of support studied’.100

It was also argued that the Agenda 2000 reforms had increased the respon-siveness of farmers to market signals.101 Likewise, The EC’s Proposal forModalities in the WTO Agriculture Negotiations could subsequently echothat blue box domestic support had ‘been an essential mechanism for reduc-ing the most trade-distorting support’. At the same time it re-affirmed that,for the purpose of further reducing amber box domestic support, the excep-tion conferred by Article 6(5) of the URAA should be maintained.102

By contrast, the United States has preferred a simple distinction between,on the one hand, ‘exempt support, as defined by criteria-based measuresthat have no, or at most minimal, trade-distorting effects or effects on pro-duction’; and, on the other hand, ‘non-exempt support, as defined by theAggregate Measure of Support (AMS) and production-limiting support asdefined in Article 6.5 of the Agreement on Agriculture’.103 Accordingly, thissimple distinction would bring about the demise of the blue box, a negotiat-ing position shared with the Cairns Group.104 Moreover, the First Draft ofModalities for the Further Commitments provided no great comfort for

96 M I C H A E L C A R D W E L L

98 IP/03/1160, EC and US Propose a Framework for a Joint Approach on AgriculturalQuestions in WTO, Brussels, 13 August 2003.99 G/AG/NG/W/90, 14 December 2000.

100 OECD, A Matrix Approach to Evaluating Policy: Preliminary Findings from PEM PilotStudies of Crop Policy in the EU, the US, Canada and Mexico, COM/AGR/CA/TD/TC(99)117(OECD 2000), 6 (cited in European Communities Proposal: The Blue Box and Other SupportMeasures to Agriculture, G/AG/NG/W/17, 28 June 2000).101 European Communities Proposal: The Blue Box and Other Support Measures toAgriculture, G/AG/NG/W/17, 28 June 2000.102 European Commission, Ref 625/02, Brussels, 16 December 2002, 6.103 US Proposal for Global Agricultural Trade Reform (http://www.fas.usda.gov/itp/wto/actual.htm, visited on 3 October 2002). For an earlier example of such an approach, see, eg,Proposal for Comprehensive Long-term Agricultural Trade Reform: Submission from theUnited States, G/AG/NG/W/15, 23 June 2000.104 See, eg, Cairns Group Negotiating Proposal: Domestic Support, G/AG/NG/W/35, 22 September 2000.

the Community. It suggested that blue box domestic support should becapped and bound, with payments then reduced by 50 per cent in equalannual instalments over a five-year period. However, it also suggested thealternative possibility of including blue box domestic support in the CurrentTotal AMS.105

On one level it may be regarded as surprising that the Community hascontinued its dogged defence of the blue box. Central to the Mid-termReview of the Common Agricultural Policy was the assertion that the sin-gle decoupled income payment per farm would be green box compatible;and, since this payment would extend ab initio to the majority of supportschemes (including the common organisations of the market in cereals andin beef and veal), the blue box would to a large extent be ‘emptied’.Nonetheless, there have been vigorous denials that the Community intendsto abandon the blue box. For example, in response to criticism that theMid-term Review signalled a willingness to see its demise, CommissionerFischler unambiguously stated: ‘This is incorrect’.106 Further, the agreedreform package included acceptance of partial implementation of the singlefarm payment. Clear limits prevent, for example, more than 25 per cent ofarable area payments being coupled to production; but, to the extent thatthe option of partial implementation is exercised, support would seem tofall into the blue box.

C. Revisiting the Criteria for the Green Box

The Community has also consistently demanded that fresh considerationbe given to the green box criteria, as set out in Annex 2 to the URAA. Thesedemands have openly reflected the more multifunctional role of theEuropean Model of Agriculture. Indeed, in the words of the House ofCommons Agriculture Committee, ‘We see no reason why reasonable support for goals encompassing the multifunctional nature of agricul- ture could not be embraced in further green box measures’.107 Likewise, at a Community level, the EC Comprehensive Negotiating Proposaladvocated:

that the criteria to be met by measures that fall into the ‘green box’ be revis-ited to ensure minimal trade distortion whilst at the same time ensuringappropriate coverage of measures which meet important societal goals such

The European Model of Agriculture and World Trade 97

105 TN/AG/W/1, 17 February 2003, para 43. Only minor amendments were made in the revisedversion of the first draft modalities issued on 18 March 2003: TN/AG/W/1/Rev 1, para 44.106 Speech/02/342, Presentation of the CAP Mid-term Review at the Agricultural Council,Brussels, 15 July 2002.107 Sixth Report from the House of Commons Agriculture Committee: The Implications forUK Agriculture and EU Agricultural Policy of Trade Liberalisation and the WTO Round(Session 1999–2000), HC 246–I, para 51.

as the protection of the environment, the sustained vitality of rural areas and poverty alleviation, food security for developing countries and animalwelfare.108

Again, echoes could readily be found in The EC’s Proposal for Modalitiesin the WTO Agriculture Negotiations, which saw the green box as the pri-mary source of measures to achieve societal goals such as the specificdomestic support needs of developing countries, the protection of the envi-ronment, rural development and animal welfare.109 The stance adopted bythe Community has throughout been bolstered by the fact that, as indi-cated, Article 20 of the URAA obliges Members to take into account suchnon-trade concerns in the current agriculture negotiations. Moreover, theDoha Ministerial Declaration specifically confirmed ‘that non-trade con-cerns will be taken into account in the negotiations as provided for in theAgreement on Agriculture’.110

In this regard, some common ground has been established with theUnited States. For example, Commissioner Fischler has stated that theCommunity and the United States:

can even agree on the multifunctionality of agriculture, as former USAgriculture Secretary Glickman did by referring to the need for a ‘multi-faced’agriculture, which means exactly the same thing.111

However, as already noted, some reservations have been expressed in theUnited States lest multifunctionality be employed as a cloak for protectionism;and among the nations of the Cairns Group there has been more open scepticism.112

Three matters raised by the Community may be considered. First, theCommunity has been swift to acknowledge that these multifunctional con-cerns already fell within the ambit of numerous WTO regulatory provi-sions, not just those governing domestic support. For example, in EuropeanCommunities Proposal: Animal Welfare and Trade in Agriculture it wasnoted that animal welfare stood ‘at the crossroads of economic, ethical,animal health, public health, food production and legal issues’, capable of

98 M I C H A E L C A R D W E L L

108 G/AG/NG/W/90, 14 December 2000.109 European Commission, Ref 625/02, Brussels, 16 December 2002, 6.110 WT/MIN(01)/DEC/W/1, 14 November 2001, para 13. The inclusion of these words wastreated as a positive outcome by the Community: see, eg, IP/01/1584, ‘New WTO Round Slapin the Face for Isolationism’, Says EU Farm Commissioner Fischler, Doha, 14 November2001; but arguably marked no advance on the position under the URAA.111 Speech/01/148, Trends in Agricultural Policy: Opportunities for a Closer TransatlanticRelationship, Brussels, 29 March 2001. See also, eg, OECD, Written Comments on theDocument ‘Multifunctionality: A Framework for Policy Analysis’ [AGR/CA(98)9],AGR/CA/RD(99)1 (OECD 1999), paras 240–241.112 See, eg, ABARE, ‘“Multifunctionality”: A Pretext for Protection?’ [1999] 3 ABARECurrent Issues 1–6.

being addressed under Article 20 of the URAA, the Agreement on theApplication of Sanitary and Phytosanitary Measures, the Agreement onTechnical Barriers to Trade and Article XX of the General Agreement onTariffs and Trade.113

Secondly, a novel feature of the Community stance on domestic supporthas been development of the argument that, where payments are made tofarmers to compensate them for the additional animal welfare costs incurredin adopting higher standards, those payments should be exempt from reduc-tion commitments. However, it has also been accepted that the additional costsmust stem directly from the adoption of those higher standards, with the resultthat the payments are not, or are at most minimally, trade-distorting.114 Suchexemption would seem apt to encompass payments made for this purposeunder the ‘meeting standards’ chapter added to the Rural DevelopmentRegulation. It would also seem apt to encompass payments made, followingamendment to the agri-environmental chapter, in respect of commitments toadopt good animal husbandry practice over and above a reference level. Inthe event, the First Draft of Modalities for the Further Commitments sug-gested that Annex 2 to the URAA should be amended so as to exempt underparagraph 12 not just payments under environmental programmes, but alsoanimal welfare payments, provided that they are paid under a clearly-definedgovernment programme and provided that the amount of payment is lessthan the extra costs involved in compliance and not related to or based onthe volume of production.115 What may be considered characteristic of suchanimal welfare payments is that they involve ‘extra effort’. This may be illus-trated by comparing the animal welfare provisions in the 2003 HorizontalRegulation with those in the Rural Development Regulation, as amended.116

In the former case, the statutory management requirements are to be amandatory element of cross-compliance and, in effect, a condition for receiptof direct payments. In the latter case, while each Member State must includeagri-environmental and animal welfare schemes within its rural develop-ment programming, participation by individual farmers remains voluntary.Moreover, as indicated, it is fundamental that those who do participateshould undertake commitments which ‘involve more than the application of

The European Model of Agriculture and World Trade 99

113 G/AG/NG/W/19, 28 June 2000.114 See, eg, European Communities Proposal: Animal Welfare and Trade in Agriculture,G/AG/NG/W/19, 28 June 2000; EC Comprehensive Negotiating Proposal, G/AG/NG/W/90,14 December 2000; Green Box: Non-paper from the European Communities, 6865, 24 September 2001; and European Commission, The EC’s Proposal for Modalities in theWTO Agriculture Negotiations, Ref 625/02, Brussels, 16 December 2002, 7.115 TN/AG/W/1, 17 February 2003, para 40 and attachment 7. This suggestion survived, in slightly amended form, into the revised version of the first draft modalities issued on 18 March 2003: TN/AG/W/1/Rev 1, para 41 and attachment 8.116 Respectively, OJ 2003 L 270/1, Arts 3–4 and Annex III; and OJ 1999 L 160/80, Arts 22–24, as amended by Council Regulation (EC) 1783/2003, OJ 2003 L 270/70.

usual good farming practice including good animal husbandry practice’.Accordingly, it would seem to be accepted that green box exemption will notbe conferred by meeting a ‘baseline’.

Thirdly, probably the most radical aspect of the Mid-term Review wasthe introduction of the single farm payment; and it was expressly claimedthat ‘the Green Box compatibility of the scheme will help secure these pay-ments in an international context’.117 However, since this initiative tookplace approximately two and a half years after the commencement of theagriculture negotiations, there has been a constricted timescale for theCommunity to develop its argument for the purposes of the WTO.Moreover, although The EC’s Proposal for Modalities in the WTOAgriculture Negotiations made much mention of multifunctional aspects ofthe European Model of Agriculture, there was no express reference todecoupling.118 What may be highlighted, nonetheless, is the frequent asser-tion that the single farm payment will be production-neutral. Indeed,Commissioner Fischler declared that ‘the decoupling of our support meansthat there are no trade distorting production incentives any more’.119 Onthe other hand, it may be reiterated that the agreed reform package hasauthorised partial implementation; and, in any event, the form of decou-pling to be introduced is ‘decoupling with strings attached’.120 In particular,while the cross-compliance conditions might boost the public acceptabilityof direct payments, they will preclude decoupling in its purest form.121

V. CERTAIN OBSERVATIONS ON THE STANCE ADOPTED BY THE COMMUNITY

Without doubt the development of the European Model of Agriculture is,to a considerable degree, a response to world trade imperatives. Yet, it isalso a response to internal pressures, which the 1998 ExplanatoryMemorandum saw as even more influential.122 With regard to these inter-nal pressures, great emphasis has been accorded the concerted effort toreconnect farmers with consumers and civil society generally. However, theCommission has not been slow to assert also the importance attached to

100 M I C H A E L C A R D W E L L

117 COM(2002)394, 19.118 European Commission, Ref 625/02, Brussels, 16 December 2002.119 Speech/02/339, The Mid-term Review: Towards a Policy that Pleases Everybody,Wageningen, 12 July 2002.120 For early use of this expression, see Centre for World Food Studies, Amsterdam andNetherlands Bureau for Economic Policy Analysis, The Hague, The CAP-reform Proposal ofthe Mid-term Review: Decoupling with Strings Attached, one of the four external impactanalyses published by the European Commission Directorate General for Agriculture (Mid-term Review: External Impact Analyses, Brussels, 2003).121 See post.122 (http://europa.eu.int/en/comm/dg06/ag2000/agprop/mot_en.htm, visited on 3 June 1998),para 1.

securing an appropriate and stable income for farmers. As a result, just aswith the original objectives of the Common Agricultural Policy set out inthe EEC Treaty, the European Model of Agriculture has sought to accom-modate a range of potentially conflicting factors.123

The reforms to domestic support agreed at the Berlin Summit and underthe Mid-term Review reflect these tensions. There would seem to be consid-erable tracking of world trade criteria so as to secure exemption fromreduction commitments, but on occasion provisions directed to achievespecifically Community objectives would seem to prevent, or at least jeopardise, such exemption.

A clear example is provided by the scope of the single farm payment. Itwas acknowledged ab initio that this would not cover all direct supportschemes; and, in addition, other factors may have the combined effect ofmaterially reducing the level of exemption within the category of ‘de-coupledincome support’ under paragraph 6 of Annex 2 to the URAA. For example,the imperative of obtaining political agreement to conclude the Mid-termReview resulted in the option of partial implementation. Further, it wasalways accepted that differential treatment would be accorded to durumwheat and protein crops, so as to accommodate considerations such asquality and the retention of a certain level of supply in traditional produc-tion areas.124 In consequence, this specific support falls outside the singlefarm payment and would not seem to meet the paragraph 6 criterion thatthe amount of payment is not to be related to or based on the type or vol-ume of production undertaken by the producer in any year after the baseperiod. Besides, the Community objective of preventing land abandonmenthas found expression in the cross-compliance obligation to maintain allagricultural land in good agricultural and environmental condition; andthis obligation may be incompatible with the paragraph 6 criterion that noproduction shall be required for payment. Not least, as noted, farmers mustensure a minimum level of maintenance through minimum livestock stock-ing rates and/or appropriate regimes.

Indeed, over and above these specific objectives, the cross-complianceconditions would appear, more generally, at least as much directed toaddressing the concerns of consumers and civil society as meeting WTOimperatives. As stated in the Mid-term Review of the Common AgriculturalPolicy, ‘The inclusion of food safety and animal health and welfare in cross-compliance … will improve transparency and give consumers

The European Model of Agriculture and World Trade 101

123 On the approach to be adopted by the Community institutions where the objectives of theCommon Agricultural Policy conflict, see, eg, Case C–311/90 Hierl v Hauptzollamt Regensburg:‘The Court has held that in pursuing the objectives of the common agricultural policy theCommunity institutions must secure the permanent harmonization made necessary by anyconflicts between those objectives taken individually and, where necessary, give any one ofthem temporary priority in order to satisfy the demands of the economic factors or conditionsin view of which their decisions are made …’: [1992] ECR I–2061, para 13.124 See, eg, COM(2002)394, 20.

greater confidence’.125 In any event, the cross-compliance conditionsattached to the single farm payment would not seem in themselves obvi-ously to meet the criteria for green box compatibility and, in that regardmay be again contrasted with targeted support for extra agri-environmentaland animal welfare efforts.

Accordingly, it would seem correct to characterise the single farm payment as ‘decoupling with strings attached’ and this would inevitablyquestion claims of production-neutrality. In effect, the cross-complianceconditions ‘operate as subsidies on specified activities’,126 albeit activitiesvalued by consumers and civil society. As a result, they would affect thechoice of crop and choice of husbandry practices. That having been said,the relevant green box criterion for decoupled income support is not pro-duction-neutrality as such, but that no production should be required inorder to receive payment.127

Finally, at the broadest level it may be questioned whether the sheerweight of Community domestic support for which green box compatibilityis claimed could permit that support to meet the fundamental requirementof having no, or at most minimal, trade-distorting effects or effects on pro-duction. Thus, in the Mid-term Review of the Common Agricultural Policy itwas forecast that in 2006 the existing regime would give rise to expenditureof 17,530 million Euros on direct aids in the arable sector and 8,067 millionEuros on direct aids in the beef and veal sector.128 And these would not bethe only direct aids to be rolled up into the single farm payment. That havingbeen said, the Community will not be alone in confronting such difficulties.The United States Farm Security and Rural Investment Act of 2002 has beenstated to increase expenditure by 73.5 billion Dollars over 10 years.129

102 M I C H A E L C A R D W E L L

125 Ibid, 27.126 Centre for World Food Studies, Amsterdam and Netherlands Bureau for Economic PolicyAnalysis, The Hague, The CAP-reform Proposal of the Mid-term Review: Decoupling withStrings Attached (European Commission Directorate General for Agriculture, Mid-termReview: External Impact Analyses, Brussels, 2003), 61. It may also be noted that the OECD inDecoupling: A Conceptual Overview distinguishes between a policy measure that is ‘effectively fully decoupled’ and a policy measure that is ‘fully decoupled’. The former requiresthat production (or trade) should not differ from the level that would have occurred in theabsence of the measure. The latter, more restrictively, requires that the equilibrium level ofproduction (or trade) be the same as without the measure and that the quantity adjustmentdue to any outside shock also be unaltered. As a result, it is accepted by the OECD that ‘itseems difficult to contend that any policy measure can be entirely production or trade neutral’Decoupling: A Conceptual Overview (OECD 2001), 5.127 There must also, however, be observance of the fundamental requirement that such sup-port has, at most, minimal trade-distorting effects or effects on production.128 COM(2002)394, Table 1.129 United States Department of Agriculture Transcript, Release No 207.02, Foreign Press CenterBriefing with JB Penn, Under Secretary of Agriculture for Farm and Foreign Agricultural Serviceson the 2002 Farm Bill and the Implications for World Trade, 22 May 2002. See also, eg,MEMO/02/94, Questions and Answers: US Farm Bill, Brussels, 15 May 2002 (Farm Bill expen-diture calculated at 180 billion Dollars over 10 years).

Accordingly, both the greatest agricultural exporters in the world wouldappear to be locked into a culture of domestic support and as evident at theCancún Ministerial, their negotiating stance in the current agriculture nego-tiations must be correspondingly restricted. The development of theEuropean Model of Agriculture has done much to reconfigure the natureof domestic support to meet the exigencies of the WTO regulatory frame-work, but, as indicated, there are internal pressures which do indeed militate against sacrifice of this model ‘on the altar of liberalisation’.130

The European Model of Agriculture and World Trade 103

130 IP/00/295, WTO Farm Negotiations: ‘EU Constructive but Firm’, Franz Fischler Says,Brussels, 24 March 2000.

7

European Integration andGlobalisation: The Experience of

Financial Reporting

CHARLOTTE VILLIERS*

I. INTRODUCTION

MUCH OF THE debate on European integration centres on therelationship between ‘globalisation’ and ‘Europeanisation’.Whereas the two processes have, in the past, been viewed sepa-

rately there is now a broad recognition that a relationship exists betweenthem.1 International relations and politics circles have observed this, butcontroversy exists over whether the two processes are antagonistic to eachother or whether they are in fact ‘working in combination’.2 ProfessorFrancis Snyder in the legal field asked, in his seminal paper, are they friendsor rivals—‘is the EU part of the problem or part of the solution in relationto globalisation?’3

Many EU policies are justified as reactions to globalisation. European inte-gration—in both its negative and positive integration forms—is frequentlyexplained by reference to the context of globalisation. The consequences,

* Reader in Law, University of Bristol. Thanks are due to participants for their feedback whenI presented an earlier version of this paper at a seminar in the Centre for European LegalStudies, University of Cambridge, 5 March 2003. This chapter is connected with ongoingresearch, see further ‘Globalisation and Justice: a study of the European Integration ofFinancial Reporting Regulation’ in Macleod, S and Parkinson, J (eds) Global Governance andthe Search for Justice: Corporate Governance (Hart, forthcoming).1 See for a discussion of the debate, Kelstrup, M ‘The European Union and Globalisation:reflections on strategies of individual states’ available at http://www.copri.dk/publications/WP/WP%202001/38-2001.doc.2 See eg Graziano, P ‘Europeanisation or globalisation? A framework for empirical research’available at http://www.isaf.no/nova/nyheter/kalender/COSTa15/Papers/Graziano.pdf.3 Snyder, F ‘Globalisation and Europeanisation as Friends and Rivals: European Union Law inGlobal Economic Networks’ EUI Working Paper LAW No 99/8, available at http://www.ive.it/LAW/WP-Texts/law99_8.pdf.

however, are potentially far reaching. European integration in the face of globalisation has implications for the institutional and political structureof the EU and affects the ability of European citizens to participate in decision-making processes.4 This in turn leads us to question the legitimacyof the decisions that are eventually reached.

One area of activity which allows us to consider the debate, in a contex-tual framework, is financial reporting. In this area the EuropeanCommission has displayed a willingness to participate in the internationalharmonisation of accounting standards, reflecting the globalised nature ofcapital markets. For example, in 1990 the Commission accepted an invita-tion to become a member of the Consultative Group of the InternationalAccounting Standards Committee and to sit on the Committee’s Board inan observer capacity.5 At the same time, the Commission is anxious to pro-tect the achievements of the European Union in the regulation of financialreporting.6

This paper will explore the regulatory activity directed at financialreporting, and will offer some broader observations about how this reflectsupon the relationship between EU integration and globalisation. Part I willdescribe EU policy towards financial reporting and how it is shaped by thereality of a globalised capital market. Part II will examine the legislativeresults of the EU’s financial reporting policy. Part III will consider how thisshapes the EU’s overall accounting regulation. Part IV will suggest what this might signify more generally in the EU’s political and institutionalcontext.

II. EU FINANCIAL REPORTING POLICY IN A GLOBALISED CONTEXT

Financial reporting has traditionally been regulated within the frameworkof the EU’s company law harmonisation programme, and has been dealtwith by the Accounting Directives of 19787 and 1983.8 A key characteristicof those Directives was their flexibility, particularly in the broad range of

106 C H A R L O T T E V I L L I E R S

4 See eg, Scholte, JA ‘Civil Society and Democracy in Global Governance’ CSGR WorkingPaper No 65/01, available at http://www.warwick.ac.uk/fac/soc/CSGR/wpapers/wp6501.pdf.5 See Commission Communication: Accounting Harmonisation: A New Strategy Vis-a-visInternational Harmonisation COM 95 (508) 14.11.95.6 COM 95 (508), para 1.7 Council Directive 78/660/EEC of 25 July 1978 on the annual accounts of certain types ofcompanies OJ L 222/1978, 11 (amended by Directive 2001/65/EC OJ L 283/2001, 28).8 Council Directive 83/349/EEC of 13 June 1983 on consolidated accounts, OJ L 193/1983, 1(amended by Directive 2001/65/EC OJ L 283/2001, 28). See also Council Directive86/635/EEC of 8 December 1986 on the annual accounts and consolidated accounts of banksand other financial institutions, OJ L 372/1986, 1 (amended by Directive 2001/65/EC OJ L283/2001, 28) and Council Directive 91/674/EEC on the annual accounts and consolidatedaccounts of insurance companies OJ L 374/1991, 7.

options they afford to Member States and to companies in the way accountswere regulated and presented. Increasingly in the company law programme,Member States have been granted greater freedom. In part that is the veryessence of Directives as legal instruments, since they leave to Member Statesdiscretion in the manner in which their provisions will be implemented. Atleast within the Company law programme, Accounting Directives haveindeed been described as ‘second generation Directives’ that marked a moveaway from the more prescriptive ‘first generation Directives’.9

However, alongside these EU developments, a process of convergencehas been emerging on the international plane. The International AccountingStandards Committee (hereinafter ‘IASC’) was founded in 1973. It isknown today, as the International Accounting Standards Board (hereinafter‘IASB’) and one of its stated objectives is:

to develop, in the public interest, a single set of high quality, understandableand enforceable global accounting standards that require high quality, trans-parent and comparable information in financial statements and other financialreporting to help participants in the world’s capital markets and other usersmake economic decisions.10

These measures are considered essential to the increasing importance of theinternational activities of businesses which look beyond their own nationalmarkets for capital investment. Yet the capacity for international trade andinvestment is limited if financial reporting is substantially different acrosstrading borders. Such differences make comparisons between the financialstatements of different businesses more difficult. The existence of such dif-ferences increases costs of producing and analysing financial statements.Ernst and Young describe the position in the following way:

A deep, accessible and liquid capital market in Europe is important for thedevelopment of new businesses in Europe. The growth and entrepreneurialculture essential to development will thrive better with a clear route to marketfor equity. This is particularly important to an enlarged community as newbusinesses will grow more strongly with the help of equity capital. Conversely,without an integrated capital market these potential macro-economic benefitswill not be realised, economic growth will be lower and the opportunity of

European Integration and Globalisation 107

9 See eg Martorell, RF ‘La Armonización en el Marco del Derecho Europeo de Sociedades: La Obligación de Resultado Exigida por las Directivas Societarias a los Estados Miembros’(1994) 596 Revista General De Derecho 5651 at 5663. See also Woods, L and Villiers, C‘The Legislative Process and the Institutions of the European Union: A Case Study of theDevelopment of European Company Law’ in Craig, P and Harlow, C (eds) Lawmaking inthe European Union—Proceedings of W G Hart Legal Workshop 1996 (Sweet & Maxwell1998).10 IASC Foundation Constitution, Part A, para 2, last revised on 8 July 2002, available athttp://www.iasc.org.uk.

achieving competitive advantage in the global capital markets will be lost… .Without high quality, reliable, comparable and transparent financial informa-tion, even if all other barriers are removed, investors will remain skepticaland demand a premium for their capital.11

In 1990 an EU conference was organised by the Commission. It was concluded there that the EU needed to take into account harmonisationefforts at the broader international level, and to cooperate with the interna-tional accounting standard setters.12 In 1995 the Commission published aCommunication indicating its recognition of a need to alter and moderniseits accounting regime.13 Its own Directives were not as demanding as therules of the Securities and Exchange Commission in the United States ofAmerica with the consequence that European companies would have toprepare a second set of accounts if they were seeking capital on interna-tional markets.14 Such a situation can be confusing. The same informationpresented in different ways could lead to different interpretations. This inturn could mean that comparability might become difficult to achieve andmore expensive.15 The Commission also recognised that the diverse optionswithin the Directives meant that there was no common position onaccounts in Europe, thereby weakening the EU’s role on the internationalaccounting standards setting scene.16 The Commission therefore decided toseek a more positive role, and at the same time preserve its own accountingregulation achievements.17

In 2000 another Communication was published focusing on financialreporting strategy.18 This Communication stated that ‘globalisation andinformation technology developments have created a unique momentum torealise a single, efficient and competitive EU securities market’.19 MemberStates’ securities markets were consolidated by new technologies, globalisa-tion, the introduction of the Euro and information and communicationtechnologies as well as electronic trading platforms.20 In the 2000Communication the Commission also noted that there had been strongpressure towards convergence of accounting standards.21 The Commission

108 C H A R L O T T E V I L L I E R S

11 see http://www.ey.c…/Assurance—IAS—Case for a Single Financial Reporting Framework.12 See Com 95(508), at para 2.6.13 Com 95 (508) above n 5. 14 Com 95 (508) paras 1.2, 1.3 and 3.3.15 Com 95 (508), at para 3.3.16 Com 95 (508) para 3.4.17 Com 95 (508) paras 1.4 and 1.5.18 Communication from the Commission: EU Financial Reporting Strategy: the way forward,COM (2000) 359 final, Brussels 13.6.2000.19 Com 2000 (359) Executive Summary.20 Com 2000 (359) para 3.21 Com 2000 (359) para 5.

saw the need for a single set of comparable financial statements by aEuropean company. Thus the Commission stated:

Relevant, timely, reliable and comparable information about the performanceand financial position of an enterprise continues to be of central importancein safeguarding the interests of investors, creditors and other stakeholders toensure a level playing field between competitors.22

The European Commission adopted the strategy of supporting the core setof standards created by the International Organization of SecuritiesCommission and the IASC. The 2000 Communication also proposed theendorsement of the international standards by the EU. The plan was thatthey would become effective by 2005 in order to comply with the conclu-sions of the Lisbon European Council, which set the goal of a fully inte-grated financial services market by that year.23

III. THE NEW ACCOUNTING LEGISLATION

The result of the Commission’s policy in legislative terms is a Regulationfor the endorsement and enforcement of the international accounting stan-dards created by the IASB24 and a proposed Directive to modernise theexisting Fourth and Seventh Directives. This would render them compatiblewith international accounting standards.25

A. The Regulation

The Regulation states that there is a need to supplement the legal frameworkapplicable to publicly traded companies in their financial reporting activities.Thus, Article 3 provides for the Commission to decide, under the Committeeprocedure set out in Decision 1999/468/EC,26 on the applicability within theCommunity of international standards provided they: are not contrary tothe true and fair view principle, are conducive to the European public good,and they meet the criteria of understandability, relevance, reliability and

European Integration and Globalisation 109

22 Com 2000 (359) para 8.23 Com 2000 (359) para 13.24 Regulation (EC) No 1606/2002 of the European Parliament and of the Council of 19 July2002 on the application of international accounting standards OJ L 243/2002, 1.25 Proposed Directive of the European Parliament and of the Council amending Council Directives 78/660/EEC, 83/349/EEC and 91/674/EEC on the annual and consoli-dated accounts of certain types of companies and insurance undertakings COM (2002)259/2 final, Brussels, 9.7.2002. The European Parliament voted to approve the proposal on14 January 2003 and the proposal is expected to be adopted by the Council of Ministers:see IP/03/47.26 Art 6 refers to Decision 1999/468/EC as laying down the relevant procedure.

comparability required of the financial information needed for making economic decisions and assessing the stewardship of management.International standards that are adopted shall be published in the OfficialJournal as a Commission Regulation, and from January 2005 companieswill be required to prepare consolidated accounts in conformity with thoseinternational standards if, at their balance sheet date, their securities are admit-ted to trading on a regulated market of any Member State.27 The enforcementof such international standards is currently being negotiated.28

B. The Proposed Directive

The existing Directives still have a role, since they apply to non-publiclytraded companies and to those areas not affected by international accountingstandards. Further, they continue to apply to the annual accounts of allcompanies. Yet to some extent the Directives have been superseded by mod-ern accounting theory and practice so they are not entirely compatible withinternational standards.29 The proposed Directive seeks to modernise themand to bring them into line with the international principles,30 addingrequirements pertaining to financial reporting. These are to contain analy-ses of environmental, social and other factors relevant to an understandingof the company’s development and position.

IV. THE NEW ACCOUNTING REGIME

The new legislation and the European Commission’s commitment to theadoption of the international accounting standards has significantly alteredthe accounting regime in the EU. A number of observations can be made:

A. A Two-tier Accounting System

A two-tier accounting regime may have been created. One level will applyto publicly traded companies, the consolidated accounts of which will be

110 C H A R L O T T E V I L L I E R S

27 Art 4.28 Para 16 of the preamble states that ‘a proper and rigorous enforcement regime is key to underpinning investors’ confidence in financial markets. Member States, by virtue of Art 10of the EU Treaty, are required to take appropriate measures to ensure compliance with international accounting standards. The Commission intends to liaise with Member States,notably through the Committee of European Securities Regulators (CESR), to develop a commonapproach to enforcement’. 29 See the explanatory memorandum to the proposed Directive. 30 See IP/02/799.

subject to international accounting standards. Another level will apply toother businesses and to the annual accounts of all limited companies. Itshould be noted, however, that Member States have been given the optionof extending the application of international standards to annual accountsand to non-publicly traded companies.31 If the Member States take up theseoptions, that would reduce the extent of the two tier system. The potentialimpact is further reduced (at least in the short term, prior to any revision ofthe international accounting standards) by the Directive’s attempt to mod-ernise the existing Directives, so that the latter operate in a broadly similarway to the international accounting standards.

B. Priority to International Accounting Standards

If, despite modernising the Directives, any incompatability arises betweenan adopted international accounting standard and the Directives, theRegulation dictates that international accounting standards take prece-dence. This is acknowledged specifically by the Commission in its 1995Communication document.32 The IASB has also adopted a cooperativestance and expressed a willingness in such circumstances to re-examine anyinternational accounting standards which are found not to be in conformitywith the Directives.33

C. Mandatory Standards

Pursuant to the Regulation, international accounting standards are manda-tory. This is an interesting result, since the IASB itself does not endow thestandards with this status, given that the IASB has no authority to enforcethem. The IASB acknowledges that Member States have the option of giv-ing them legally binding status. The Regulation itself is, of course, directlyapplicable and any endorsed international standard would become directlyapplicable. At this point in time, however, it is not clear how that directapplicability would be given effect in practice since enforcement mecha-nisms have not been set. As is known, under Article 249 of the EU Treaty, aRegulation, being directly applicable, becomes part of the domestic law ofthe Member States without needing transposition. This means that, so longas their provisions are sufficiently clear, precise, relevant to the situation ofan individual litigant, they are capable of being relied upon and enforced byindividuals in their national courts.

European Integration and Globalisation 111

31 Art 5 of the Regulation.32 See para 5.3 of the 1995 Document, COM (1995) 508.33 Ibid.

D. Enforcement Negotiations

The Regulation’s preamble states that the Commission intends to liaisewith Member States through the Committee of European SecuritiesRegulators to develop a common approach to enforcement,34 so it leavesto speculation the penalties that may be applied for non-compliance. Priorto the entry into force of the Regulation, those countries which havealready made use of the International Accounting Standards andInternational Financial Reporting Standards require companies to giveparticulars of material departures from those standards and the reasonsfor such departures. It is often left to professional bodies to regulate theissue. The Institute of Chartered Accountants in England and Wales advo-cates a global enforcement system, but in the short term it suggests a uni-form enforcement of international standards across Europe.35 In the viewof the Institute, the effectiveness of international accounting standards‘depends on uniform enforcement, so as to prevent companies seeking tobenefit from arbitrage where national enforcement systems or rulings dif-fer’.36 The Institute’s preference is for a referrals procedure rather than asystem of pre-clearance on the acceptablility of a proposed accountingtreatment.

The Committee of European Securities Regulators published a proposedstatement of principles in October 2002.37 It suggested the establishmentby Member States of Competent Independent Administrative Authoritiesthat would have ultimate responsibility for enforcement of compliance. Itfurther suggested that such enforcement would be predominantly riskbased, combined with rotation and or sampling of the financial informa-tion of selected companies. It would be comprised of a range of formalchecks, including in-depth substantive checking of the information pro-vided by the selected companies. In the case of a material mis-statement,enforcers should take appropriate action to achieve disclosure, and if rele-vant a correction of the mis-statement. What is apparent is that the pro-posal suggests a degree of discretion in the hands of the Member States.Thus the global and uniform enforcement system advocated by theInstitute of Chartered Accountants in England and Wales is unlikely to beachieved.

112 C H A R L O T T E V I L L I E R S

34 Preamble, para 16.35 See Institute of Chartered Accountants in England and Wales, Policy Statement on EUEndorsement and Enforcement of International Accounting Standards, Tech 23/00, availableat http://www.icaew.co.uk/index.cfm?AUBTB21_4069. 36 Ibid.37 Committee of European Securities Regulators, Proposed Statement of Principles ofEnforcement of Accounting Standards in Europe, Consultation Paper, October 2002,CESR/02–188b, available at http://www.europefesco.org.

E. Importance of Committees in the Endorsement Process

The endorsement process, like the Commission’s proposed enforcementnegotiations, makes heavy use of committees. As has been noted above, theRegulation refers to Decision 1999/468/EC, which sets out the CommitteeProcedure. The Communication documents also refer to the comitology pro-cedure, justified on the basis of the subsidiarity and proportionality princi-ples for the purpose of amending the Directives. Yet what exists in reality isan extremely complex arrangement with the involvement of several commit-tees whose precise roles and status are not entirely clear. As was proposed inthe 2000 Communication, the endorsement mechanism requires a two-tieredstructure comprising a technical level and a political level.

(i) The technical level consists of the European Financial ReportingAdvisory Group (hereinafter ‘EFRAG’), a committee of inde-pendent experts from the private sector,38 to advise theCommission on the suitability of international accounting stan-dards and their compatibility with the Directives. A supervisoryboard ascertains that individual members of the technical groupwork in the European interest.

(ii) On the political level, following advice from EFRAG, theCommission then puts forward its proposal to the AccountingRegulatory Committee consisting of official representatives fromthe Member States and chaired by the Commission. TheAccounting Regulatory Committee votes by qualified majorityvoting whether or not to accept the proposal to adopt the inter-national accounting standards. If the Committee votes againstthe proposal the Commission may submit it to the Council ofMinisters. The Council of Ministers is then given three monthsto adopt or block the proposal, also by qualified majority vot-ing. If it blocks the proposal the Commission can resubmit it.The European Parliament also has a right to comment but not toveto.39

Alongside these committees, the Contact Committee, which was set upunder the Fourth Directive, is to check the compatibility of Directives withthe international accounting standards. Any changes to the Directiveswhich are necessary will be effected by the Committee. The aim is to

European Integration and Globalisation 113

38 For further information about EFRAG see http://www.iasplus.com/efrag/efrag.htm.39 This interpretation of the procedure is offered in the Consultation Document issued by theDepartment of Trade and Industry: International Accounting Standards: A ConsultationDocument on the Possible Extension of the European Regulation on International AccountingStandards, URN 02/1158, 30 August 2002, at 35–6, paras 7–11.

achieve a common position internationally and between Europe and the relevant international bodies, in particular the IASB. Thus, a technicalsubcommittee of the Contact Committee has a role of ‘meeting regularly todiscuss matters particularly relating to international accounting standards’and also seeks common positions on exposure drafts.40 It appears thatEFRAG plays this role as the Contact Committee’s technical subcommittee.Through this arrangement the Commission seeks effective participation inthe IASB’s standard setting process.41

There is also an Accounting Advisory Forum, which represents users andpreparers of accounts42 which meets with the Contact Committee. But it isnot clear at which stage this occurs. Indeed, the Commission, in 1995,noted the weakness of this Forum since ‘in the absence of a clear mandate,the results of its work do not carry enough weight to exercise a real influ-ence on accounting developments’.43

It is possible to conclude, therefore, that the endorsement process is com-prised of a rather messy arrangement. There are several committeesinvolved, some more official than others, and with overlapping roles. Yet,the identity of Committee members is not clear. For example, what is meantby the term ‘official’ when we refer to the official representatives of theMember States in the Accounting Regulatory Committee?44 The EFRAGmembers come from private sector bodies such as the Union desConfederations de l’Industries et des Employeurs d’Europe (UNICE) andthe Federation des Experts Comptables Europeens (FEE). However, there isno indication that they must come from specified bodies and the EFRAGadditionally claims to operate independently of each of the Europeanorganisations involved.

The justification for the use of committees is legitimate when reference ismade to the principles of subsidiarity and proportionality. But the usualcriticisms of the committee process can also be levelled against the arrange-ments that are apparent in the field of financial reporting. Gráinne de Búrcaset out the more well known criticisms in her essay in the edited collection

114 C H A R L O T T E V I L L I E R S

40 See http://www.europa.eu.int/comm/internal_market/en/company/account/committ/con-tact/index.htm.41 See COM 95 (508) at para 5.4 in which the Commission states: ‘In order to ensure an appro-priate European input into the continuing work of the IASC, the Contact Committee will exam-ine and seek to establish an agreed position on future Exposure Drafts (or draft standards) published by the IASC. An agreed Union position on Exposure Drafts can thus be conveyed tothe IASC’.42 This was set up by the Commission after the 1990 Conference in order to open up the debateon accounting issues at European level and to influence the work of national standard settingbodies: see COM 95 (508) para 2.7. 43 Ibid.44 This is a common question raised about the so-called official representatives within thecommittee process: see for example, de Burca, G ‘The Institutional Development of the EU: aConstitutional Analysis’ in Craig, P and de Burca, G The Evolution of EU Law (Oxford UP1999) 55 at 71–75.

The Evolution of EU Law.45 She included lack of transparency; the complexity and opaque nature of the system; the marginalisation of theEuropean Parliament leading to claims of democratic deficit and the hap-hazard nature of the process. All of these criticisms pertain to recourse tocommittee usage within the field of financial reporting. Indeed, with somany committees involved, the arrangement arguably distances theEuropean Parliament even further, not to mention the companies andinvestors who are directly affected by the regulations that emerge from theprocess.

F. Role of the IASB

The role of the IASB is relevant to the arrangement. Yet this body is also opento criticism. First there is evidence that the IASB is open to lobbying whichcan stand in the way of a democratic result.46 This problem is exacerbated bythe fact that, as Scholte observes, the IASB has no provisions for public participation or consultation.47 Currently the European Commission hasan observer role within the IASB and EFRAG seeks to influence its deci-sions by submitting opinions on exposure drafts and consultations. Butnone of this gives a clear formal role to the EU in the decision-makingprocess leading to the eventual creation of standards. Membership of theIASB is based on technical expertise48 and its own Constitution statesspecifically that selection of members shall not be based on geographicalrepresentation.49 The role of the IASB’s members is ‘to act in the publicinterest and to have regard to the IASB framework’.50 There is nothing inthe Constitution that refers to the EU, or which provides for any role of theEU. Yet the geographical domination of the IASB is also apparent and isconsidered by some to be problematic. For example Feng notes the domi-nance of seven countries in what purports to be an international body.51

One might correct Feng on her calculation but generally it is fair to say thata small—albeit geographically wide—number of jurisdictions has domi-nated the IASB since its beginnings. In 1973 the IASC was founded as aresult of an agreement by the accounting bodies in Australia, Canada,

European Integration and Globalisation 115

45 Ibid.46 See Zeff, SA ‘“Political” Lobbying of Proposed Standards: A Challenge to the IASB’,Accounting Horizons, Volume 16, March 2002. Zeff notes a campaign by US industry tooppose any attempt by the IASB to develop a standard on employee stock options that goesfurther than the disclosure requirement in the FASB statement No 123.47 See Scholte above, n 4 at 16.48 IASC Constitution, para 20.49 IASC Constitution, para 21.50 IASC Constitution, para 24.51 Madame Feng Shuping, Strengthen Co-operation to Promote International Convergence ofAccounting Standards, Speech at the IASB National Standards Setters’ Meeting, 18 November2002, at http://www.iasplus.com/china/0211iasbfeng1.pdf.

France, Germany, Japan, Mexico, the Netherlands, the United Kingdomand Ireland and the United States of America. Today, based in London, theBoard members come from nine countries.52 This leaves out the majority ofthe EU’s Member States from the important process of setting standardsthat will most likely eventually apply in their jurisdictions, as a result of EUendorsement of those standards. It might thus be argued that it is appropri-ate to alter the membership of the IASB.

G. New Directions

One notable feature of the Commission’s stance on financial reporting isthat it demonstrates a potentially different approach from that which previ-ously developed in the company law programme. That programme, encom-passing the Accounting Directives, has become increasingly more flexibleand has bowed more and more to the demands of the Member States. It hasbeen possible, as was noted above, to identify ‘generations’ of Directiveswhich, by and large, coincided with successive EC/EU enlargements, as wellas the introduction of new legislative processes. Thus the First and SecondDirectives are rather prescriptive with broadly mandatory provisions. Thesecond generation Directives, which include the Accounting Directives offermore options to the Member States and to the companies being regulated.The Eleventh and Twelfth Directives suggest a third generation in whichthey consist mainly of principles with the details to be made up by theMember States. The proposed Thirteenth Directive may well fall within the‘new approach’ Directives. The fact that it has still not been adopted andhas been altered dramatically from its earlier drafts, also highlights thepower of negotiation among the Member States.53

The generosity of the Accounting Directives, in the options they provideto the Member States and to companies, has, according to the Commission,created fragmented EU financial reporting. This in turn is said to have hindered the EU’s position in the establishment of deep and liquid capitalmarkets.54 The Commission has thus made resort to the device of aRegulation to impose on Member States an obligation to adopt the interna-tional financial reporting standards created by a body outwith the EU’s reg-ulatory structure. Indeed, the financial reporting strategy, which falls withinthe new approach policy, is more similar to that seen in the capital marketsregulation which comprises very little detail but has the effect of adoptingwholesale provisions created by an outside, expert, private body.

116 C H A R L O T T E V I L L I E R S

52 See http://www.iasc.org.uk/cmt.53 For a full account of this pattern of development in the company law programme seeVilliers, C European Company Law: Towards Democracy? (Ashgate 1998).54 See COM (2000) 359, para 4.

This new approach may demonstrate a recognition that the increasinglyflexible approach within the programme of company law Directives wenttoo far and eventually failed to achieve the required level of harmonisation.One might interpret the adoption of the international standards as a signthat the Member States have given up their role in the standards creatingprocess. They have left the task to technical experts from the private sectorand expert opinion about the appropriateness of turning such standardsinto legally effective norms applicable throughout the EU.

H. US Standards Come Closer

The European Commission made a positive choice of the IASB’s standardsin preference to the Generally Accepted Accounting Principles in the UnitedStates of America (hereinafter ‘US GAAP’). Primarily this was because the international accounting standards of the IASB are drawn up from aninternational perspective, rather than being tailored to the US environment.Additionally, the US GAAP are very detailed and technically demanding.Furthermore, the EU has no influence on the elaboration of US GAAP. Yet,the recent Memorandum of Agreement between the IASB and the US FinancialAccounting Standards Board, aimed at achieving real convergence betweentheir respective accounting standards,55 will bring the US GAAP closer to thethose of the EU and its Member States. In addition, the recent Sarbanes OxleyAct, introduced in the wake of the Enron scandal, threatens to impose arequirement to comply with its standards. The Act gives the US regulatorpower to inspect and punish EU accounting firms involved in auditing compa-nies with US share listings.56 Thus the Commission’s stated attempt to reducemultiple versions of financial statements might be lost as a result of the poten-tial for double regulation arising from the Sarbanes Oxley Act. Needless tosay, attempts are now being made to avoid this double regulation potential!

V. RETURNING TO GLOBALISATION—THE GENERALIMPLICATIONS

Clearly, globalisation has influenced the European Commission’s policy.However, the Commission appears to view globalisation in a particularway, even though, arguably, globalisation has occurred in many differentguises since the middle ages. The Commission has treated globalisation as

European Integration and Globalisation 117

55 See the announcement at http://www.iasc.org.uk/cmt/0001.asp. 29 October 2002.56 For commentary on the Act see Parker, A ‘Britain to press US for easing of audit plans’Financial Times, 24.2.02. and Andrew Parker ‘Accountants urge cap on claims’ FinancialTimes 24.2.02.

an exclusively economic phenomenon57 and in the context of financialreporting this includes reference to trade flows, information technologyand communications.58 As globalisation tends to focus on market-makingthe response to the process has been mainly a negative integration response;a neoliberal project aspiring towards intensified trade and financial flowsand investments. No more than lip service is paid to positive integration.One might argue that the proposed requirement of environmental andsocial reports contributes to the development of positive integration.However, the emphasis on negative integration arguably reflects the natureof financial reporting itself.

It is possible to see Europeanisation as both a conduit for global forcesand a shield against them,59 which casts doubt on the ability of nationalgovernance to deliver appropriate policies to meet the external conditions.60 Indeed, the activity observed reveals a hope for the EU toexert political influence on international developments. It showsEuropeanisation not only as a response to globalisation but also as anacceptance of, and furtherance of, globalisation with attempts to strengthenthe European economy. Thus according to Rosamond, globalisation is usedas an exogenous referent by actors seeking to argue for the furtherEuropeanisation of governance capacity, and deeper European economicintegration. He adds that much of this is bound up with the discursiveelaboration of a European economy, or of European firms which seek aEuropean level regulatory framework to assure competitiveness globally.61

He suggests that globalisation may be used as a strategic exercise designedto enhance Europeanisation, the position of the Commission and the pursuit of neoliberal modes of economic governance. Stated another way,globalisation tends to be seen as a form of liberalisation which must bemet with furtherance of liberalisation.62

118 C H A R L O T T E V I L L I E R S

57 Rosamond, B, ‘Europeanisation and Discourses of Globalisation: Narratives of ExternalStructural Context in the European Commission’ (Working Paper 2000) available athttp://www.warwick.ac.uk/fac/soc/csgr/wpapers/wp5100.pdf2000, at 16.58 See COM (2000) 359 final, at para 3. 59 See Schmidt, VA ‘Convergent Pressures, Divergent Responses: France, Great Britain andGermany Between Globalisation and Europeanisation’ in Smith, DA Solinger, DJ and Topik,SV States and Sovereignty in the Global Economy (Routledge 1999) 172–92.60 Rosamond above n 57.61 Rosamond, B ‘Globalisation and the European Union’ Paper presented to a conference onThe European Union in International Affairs, National Europe Centre, Australian NationalUniversity, 3–4 July 2002 available at http://www.anu.edu.au/NEC/rosamond.pdf at 10 andRosamond, B ‘Imagining the European Economy: ‘Competitiveness’ and the SocialConstruction of Europe as an Economic Space’ (2002) New Political Economy Volume 7,Issue 2 at 157.62 See for example the views expressed by two consecutive trade Commissioners: Brittan, L‘The Challenges of the Global Economy for Europe’ speech to the Vlerick Annual AlumniMeeting, Ghent 1998, and Lamy, P ‘Globalisation: a win-win process’, Brussels, 15 September1999, available at http://www.europa.eu.int/trade/speeches_articles/spla01en.htm both ofthese references are made by Rosamond (2000) above n 60, at 17.

Article B of the EU Treaty aims for the EU to assert its identity on theinternational scene. It is still, however, for the Member States to createinternational agreements. In the area of financial reporting it has been pos-sible to observe some genuine attempts by the European Union to assert itsidentity on the international stage. As was noted above, the Commissionhas employed a cooperative approach with the IASB in adopting interna-tional accounting and financial reporting standards. At the same time itseeks to align these with the true and fair view principle, while ensuringthat such standards support European policy. The European Commissionhas also sought to have participatory influence on the creation of standardsvia the Contact Committee and EFRAG, but it is unclear how sufficientand well coordinated these attempts have been. Kelstrup argues that thelack of internal coherence makes the EU a weak international actor.63 Thecomplicated arrangement that has emerged in the financial reporting fieldmay well exacerbate the problem.

A greater role has been carved out for the European Commission at leastregarding the endorsement process relating to international accountingstandards. The adoption of the Committee process certainly appears, withinthis arena, to have further marginalised the European Parliament and theCouncil of Ministers. This trend corresponds with observations made bythe critics of the Committee process64 and by those in international relationsand political circles. For example, Rosamond argues that the Commissionis at the heart of a supranational coalition involving experts and corporateactors.65

The financial reporting experience also highlights the increasing emphasison a multi-level approach to governance within the European Union inwhich national governments no longer have a monopoly of control. Thistheoretical model of multilevel governance was developed by Marks,Hooghe and Blank. As part of their theory they suggested that:

States do not monopolize links between domestic and European actors, butare among a variety of actors contesting decisions that are made at a varietyof levels. … States are an integral and powerful part of the EU, but they nolonger provide the sole interface between supranational and subnational are-nas, and they share, rather than monopolize, control over many activities thattake place in their respective territories.66

This multilevel governance appears also to be operated at the point of cre-ating implementing norms where such norms result ‘from the interaction of

European Integration and Globalisation 119

63 Kelstrup above n 1.64 See, for example: Bradley, K ‘The European Parliament and Comitology: On the Road toNowhere?’ (1997) 3 European Law Journal 230.65 Rosamond (2000) above n 57, at 14.66 Marks, G Hooghe, L and Blank, K ‘European Integration from the 1980s: State-Centric vMultiple-Level Governance’ (1996) 34 Journal of Common Market Studies 341 at 346–47.

the Commission, state technocrats, and interest groups’.67 Indeed, the picture is ultimately one of a very complex structural arrangement. Thus asJørgensen and Rosamond describe,

the EU has become recently more ‘multi-actor’, multi-level and multi-process.Formal mechanisms have been colonised by an array of governmental and non-state actors and patterns of informal interaction have become institutionalised.68

Part of this structure entails a stronger reliance on the private sector,although in the financial reporting field this is arguably nothing new. In theUK at least, most accounting regulation has been within the jurisdiction ofbodies such as the Accounting Standards Board. Moreover, private bodiesmay well be best equipped to create standards since they have expertise andare likely to be among those who are specifically affected. Nevertheless,within EU regulatory and legislative processes, such a strong reliance on theprivate sector might be problematic from the perspective of political anddemocratic legitimacy. There is often a lack of formality within privateorganisational activities and, indeed, we have witnessed no clear sign of aformal role for the EU in the decision-making process of the IASB. As notedabove, the IASB is also dominated by a small handful of states. This meansthat potentially interested parties from a large number of Member Stateswithin the EU are given no genuine opportunity for involvement or influ-ence in the eventual standards created. This is a common problem withinthe global setting. For example, commentators have noted that in institu-tions such as the World Trade Organization, the International MonetaryFund and the World Bank, decision-making is strongly influenced by fewcountries representing specific interests involving free trade issues.69 Theproblem is deepended by the fact that democratic representation is generallyflimsy since many international organisations are formed by representativesof national governments who have quite uneven statuses and are notdirectly elected.70

The increased emphasis on private organisations in the financial reportingfield also reflects a more universal effect of globalisation processes. Forexample, Wallace notices in EU policy-making generally an accumulationof technical expertise to produce agreed standards and policy norms.71

120 C H A R L O T T E V I L L I E R S

67 Craig, P ‘The Nature of the Community’ in Craig and de Búrca above n 45, 1, at 19, refer-ring to Marks, Hooghe and Blank above n 65, at 367–69.68 Jørgensen, KE and Rosamond, B ‘Europe: Regional Laboratory for a Global Polity?’ CSGRWorking Paper No 71/01, May 2001, available at http://www.warwick.ac.uk/fac/soc/CSGR/wpapers/wp7101a.pdf at 6.69 See Graziano above n 2 at 9 and Scholte above n 4 at 14.70 Graziano above n 2 at 8.71 Wallace, H ‘The Institutional Setting: Five Variations on a Theme’ in Wallace, H andWallace, W (eds) Policy Making in the European Union 4th Edn (Oxford UP 2000).

Wallace considers this trend to be an OECD import.72 Further, networks oftechnocrats are often in the driver’s seat in global governance, and asScholte observes, a significant regulation of global relations has come toreside in the private sector.73 Indeed, the very nature of globalisation isshaped by private actions since the process is largely driven by the activitiesof multinational firms. Additionally, private bodies such as the IASB andthe FASB are deepening the globalisation processes, for example, by theirrecent agreement on convergence of their respective accounting standards.

What might be suggested overall is that the traditional institutionalstructure, and the so called classic Monnet method (the Communitymethod) has not been adequately equipped to deal with the challenges, pre-sented by globalisation. There is a greater need for ‘regulation throughexpertise’. It could be argued that the financial reporting arena shows thatEuropean acceptance of globalisation in turn requires reference to globalrules and deference to global actors by inserting rules created by thoseglobal actors into the legislative programme of the EU. The highly technicalnature of the standards being created together with the continuingenlargement of the EU, give reason to the Commission for delegating thenegotiations regarding the creation of the standards to an outside body withthe intention of later embedding such standards into the EU’s own legisla-tive framework. The realistic alternative seems to be failure to create anycommon rules at all. The constitutional and institutional arrangementswould certainly make the achievement of any body of standards difficult.Ultimately, as Snyder suggests, globalisation could be sustaining and creat-ing interests and relationships which undercut traditional constitutionalismas a mode of EU governance.74

VI. CONCLUSION

There is undoubtedly a symbiosis between globalisation and Europeanisation.The two phenomena do appear to be operating in parallel and in tandem.In the words of Professor Snyder: ‘globalization and Europeanization arecomplementary, partly overlapping, mutually reinforcing, but also compet-ing processes’.75 There is still a long way to go in the field of financialreporting. Clearly the push towards greater convergence of standards internationally is strong. The effect from a legislative perspective seems tobe more delegated legislation which is at the same time more prescriptive.

European Integration and Globalisation 121

72 Ibid. See also OECD (n.d.) International Benchmarking Network, at http://www.oecd.org/puma/mgmtres/pac/Benchmarking/links.73 Scholte above n 4, at 12.74 Snyder above n 2.75 Snyder above 2, at 1.

Both such trends are justified as practically necessary. The legislativeprocess is too slow and cumbersome to operate without access to delegatedlegislation and a more prescriptive approach seems necessary to achieve acoherent and common European framework. In the short term at least atwo tier accounting system is likely to emerge though this could eventuallydisappear, or at least diminish, as steps are taken to achieve compatibilitybetween the Directives and international standards.

The financial reporting field has also confirmed suggestions that globali-sation requires changes to the constitutional, institutional and regulatoryarrangements of the EU. Thus as Scholte notes, globalisation has gone handin hand with a reconfiguration of regulation; from government to gover-nance, a supraterritorial, multilayered governance.76 This, in turn hasmeant stronger roles for the Commission and for the private sector withserious implications for democracy. Such a development presents a chal-lenge for creating a legitimate process. What is required is clear evidencethat the process fits within the five principles of good governance set out in the Commission’s White Paper on European Governance: openness, participation, accountability, effectiveness and coherence.77 At the momentany claim that these principles have been satisfied would not be convincing.As Scholte argues, in each area of global policy popular participation, con-sultation, transparency and accountability are generally weak.78

The constitutional challenges that globalisation brings to the EU are con-siderable indeed. These affect the procedural aspects, of course, but ulti-mately it will be the substantive results that count. In the field of financialreporting at least, that judgement will become necessary after 2005.

122 C H A R L O T T E V I L L I E R S

76 Scholte above n 4, at 10.77 European Commission: ‘European Governance: A White Paper’ COM (2001) 428. See alsoScholte above n 4 at 12.78 Scholte above n 4.

8

Law, Economics and Politics in theConstitutionalisation of Europe*

CHRISTIAN JOERGES

I. INTRODUCTION

THIS ESSAY IS continuing the path between the disciplines of lawand political science that I have been following for a couple of yearsnow. This is a somewhat delicate exercise. In addressing my own

discipline, law, I argue that it should renew its perceptions of reality andopen up its normative and dogmatic conceptual structure. To political sci-entists engaged in integration research, I suggest that they ought to take thelaw’s normative structure seriously and open up their analytical and empir-ical models to this peculiar reality. ‘Two goals?! No wonder he never getsanywhere!’ By no means, I would object, we are only looking at the twosides of the same coin. And there are good reasons to undertake suchefforts: Europe’s constitution is too important to be left up to the lawyers;but it is also something that cannot be grasped by empirical and analyticalapproaches which are unable to address the normative dimension of the‘real’ world.

It is the interdependence of the factual and the normative, of facticity andvalidity, that this essay seeks to address. Accordingly, I will try to show that,in the course of the integration process, Europe has been repeatedly ‘consti-tuted’ anew and differently. The law itself was subject to change; it had tolearn. We have to realise what kind of body politic Europe represents in

* Translated by Iain L Fraser. The original German version is forthcoming in MarkusJachtenfuchs and Beate Kohler-Koch (eds), Europäische Integration (2nd edn Leske undBudrich 2003). The English version of the contribution to the first edition is ‘Taking the LawSeriously: On Political Science and the Role of Law in the Process of European Integration’(1996) 2 European Law Journal 105–135. The fact that the paper was written for political scientists which is visible from its style of citation, implies that the legal materials referred towill all be quite familiar to students of European law. But this should not be true for theapproach as a whole. I would like to thank Jo Eric Murkens for his thoughtful help with theediting of this text.

order to understand how law can, and should, constitutionalise theEuropean polity. No invisible hand, no Hegelian cunning of reason, canguarantee that this process will come to a happy end. What we can recon-struct, however, are changes which the law experiences and which itsobservers put into perspective. My reconstruction here will distinguishbetween three stages in the development of the integration project:

(1) The first section covers the period from the establishment of theEEC up to the Single European Act. This involved the construc-tion of a ‘supranational’ body of law claiming primacy overnational law, and, on this very ground, possessing constitutionalsignificance. ‘Vertical constitutionalism’ is a term reflecting thishierarchical relationship. In its substantive contents, verticalconstitutionalism was often (in Germany) identified with aEuropean ‘economic constitution’.

(2) The second period covers the programme of the ‘White Paper onthe Completion of the Internal Market’ of 1985, which wasrooted in the Single European Act that came into force in 1987,and was taken further by the Maastricht Treaty. All of thisbrought Europe into the political awareness of scholarship andonto its agenda. The key question in practical politics for thisstage was: can completion of the European internal market onlybe achieved at the price of breaking down the various regulatorypatterns that both Continental and British welfarism had institu-tionalised? The relevant empirical, analytical and conceptualcontributions from political scientists correlate to two problemsin constitutional law: a) what limits does one’s own constitutionset to the hollowing out of statehood through integration; b)what standards as to rule of law and democracy does the institu-tionalisation of Europe have to meet?

(3) These issues are by no means definitely settled. But their back-ground conditions have once again changed. The present situationcan be characterised by referring to the Commission’s GovernanceWhite Paper of July 20011 on the one hand (Commission 2001),and the Constitutional Convention set in motion through theTreaty of Nice2 and the Laeken Declaration of 20013 on the other.One might think that reform of governance and constitutionalconvention belong together. Yet, as will be shown, one ought notto build up great expectations about this coincidence.

124 C H R I S T I A N J O E R G E S

1 Commission of the European Communities, European Governance. A White Paper, COM(2001) 428 final of 25.07.01.2 OJ C 80, 10 March 2001.3 Accessible at http://www.europa.eu.int./comm/laeken/_council/.

These three stages, divided by these dates, do not involve strict caesurae.The state of development of the integration project is only very incom-pletely mirrored in Treaty amendments or the descriptions by theirobservers. In each phase, the understanding of the project was controver-sial. The conceptual and theoretical bases of such perceptions and positionstend, however, to be immune to many changes and are often carried overinto a new Treaty amendment. But such theoretical constructs can never fully represent the law. This mysterious body was created quiteincrementally, through a problem-related discovery process in which boththe Commission’s political programmes and the many adjustments onwhich the ‘masters of the Treaty’ agreed were continuously reflected in theterms that a sensitive judiciary had enunciated and was entrusted withdeveloping further.

II. ‘VERTICAL CONSTITUTIONALISM’: THE JUSTIFICATION OF THE SUPREMACY OF EUROPEAN LAW, AND THE THEORY

OF THE ECONOMIC CONSTITUTION

The distinctions between the development stages of the integration processemployed here are widespread in both political and legal science.Admittedly, the accents shift a bit according to disciplines and nationalities.Authors coming from international law or ‘public’ law usually take themarked institutional shifts as milestones. English-speaking European lawbelongs entirely in this box. Economic integration research and Europeanlawyers coming from private (‘economic’) law have been more interested inthe connections between market integration and economic policy.Particularly in Germany, the second, ‘private-law’ interpretation of the‘European Economic Community’ was influential.4 Both viewpoints andtraditions have a constitutional core. Both, in their ways, are ‘right’. Andthe common features are as instructive as the differences.

A. Vertical Constitutionalisation: ‘Legal Integration from Above’

It is no coincidence that public-law research into European law has dealt sointensively with the separation of European law from general internationallaw. Nor is it a coincidence that the ‘integration through law’ methodology

Politics in the Constitutionalisation of Europe 125

4An interpretation paid little attention to abroad: on this, cf, Gerber, David J ‘Constitutionalizingthe Economy German Neo-liberalism, Competition Law and the “New” Europe’ (1994) 42American Journal of Comparative Law 25; Sauter, W, Competition Law and Industrial Policyin the EU (Oxford UP 1997) 26 ff.

was spearheaded by the ECJ. Its characterisation by an emigrant fromCzechoslovakia has become famous:

Tucked away in the fairyland Duchy of Luxembourg and blessed, untilrecently, with benign neglect by the powers that be and the mass media, theCourt of Justice of the European Communities has fashioned a constitutionalframework for a federal-type Europe.5

The history of this Court-based constitutionalisation is fascinating forlawyers, since it seems to confirm the existence of a legal culture of argu-mentation that is not only practised over and above the national legal sys-tems but which is also capable of widespread acceptance (see point 1.1.1below). It is as fascinating for legal sociologists and political scientists asBaron von Münchhausen’s tale about pulling himself out of a swamp by hishair: can it really be true that, through its own efforts, the law placed itselfabove inter-governmental politics and imposed its validity on sovereignstates? What were the ‘real’ reasons—outside the law—for the law’s successin the integration process? These are the questions that any self-respectingsocial scientist has to ask.

1. The Law’s Self-Descriptions

The interpretation of the EC system as a supranational legal communitycan indeed be called an ingenious product of the ECJ. Its jurisprudence hasfound—in the legal system and beyond—such widespread support that itcan well be regarded as the core of the dominant orthodoxy of Communitylaw. The gradual construction of this legal architecture has been depicted sofrequently6 that very few remarks on the major steps should suffice here.

The foundations were laid in 1963 with the doctrine of ‘direct effect’ ofEC law (ECJ 1963). As long as they are sufficiently precise, the rules of theEEC Treaty are binding not only on the Community and the Member Statesbut are also valid ‘directly’. They create individual rights; domestic courtsmust guarantee their protection as if they were ‘law of the land’.

What we should not forget is that all this was anything but obvious at thetime. Article 169 of the EEC Treaty (now Article 226 TEC) envisagedenforcement procedures by the Commission and the Member States againstTreaty infringements. This corresponded to the heritage of international law.

126 C H R I S T I A N J O E R G E S

5 Stein, E, ‘Lawyers, Judges, and the Making of a Transnational Constitution’ (1981) 75American Journal of International Law 1.6 For striking similarities in this respect see Ipsen, HP, ‘Über Supranationalität’ in: idem,Europäisches Gemeinschaftsrecht in Einzelstudien (Nomos 1984) 97; Weiler, J, ‘TheTransformation of Europe’ (1991) 100 Yale Law Journal 2403 at 2413 ff, and, more recently,von Bogdandy, A, ‘Beobachtungen zur Wissenschaft vom Europarecht. Strukturen, Debattenund Entwicklungsperspektiven der Grundlagenforschung zum Recht der Europäischen Union’(2001) 39 Der Staat 3 at 11ff (English version in 2000 European Law Journal 208–238).

Yet, so we have come to believe, it was possible to deduce from the preliminary rulings procedure of Article 177 (now 234) and from the exten-sive law-making powers of the Community that it was intended to be morethat an international organisation. These elements of the Treaty, were thereference point of a truly ‘constitutional moment’, proclaimed by the ECJin its doctrine of direct effect.7 The second building block, already impliedin the direct effect doctrine, was, of course, the celebrated ‘supremacy’ prin-ciple as announced in Costa v ENEL.8

Two further consequences are already discernible from the quoted decisions: ‘Direct effect’ and ‘supremacy’ imply that Community law will‘pre-empt’ Member States from taking legislative action, if and when a pol-icy area becomes occupied by the Community. Even more importantly: ifand because Community law ought to have equal relevance in all MemberStates, the ECJ must have the final competence to rule on the limits of itsapplication. This consequence was forcefully drawn in the 1971 AETRjudgment (ECJ 1971). Case law concerning the ‘functional’ Communitycompetences, based on the objectives of the Treaty, as well as the doctrineof ‘implied powers’ followed from this judgment: even though the Treatylists Community responsibilities ‘enumeratively’ and therefore limits them(Article 3B; now Article 4), they nonetheless have to be understood andtreated as ‘goal-oriented’. This broad interpretation of the Community’scompetences was, in practice, limited by Article 235 EEC (now 308 TEC),

Politics in the Constitutionalisation of Europe 127

7 ‘The objective of the EEC Treaty, which is to establish a Common Market, the functioning ofwhich is of direct concern to interested parties in the Community, implies that this Treaty ismore than an agreement which merely creates mutual obligations between contracting states.This view is confirmed by the preamble to the Treaty which refers not only to governments butalso to peoples. It is also confirmed more specifically by the establishment of institutionsendowed with sovereign rights, the exercise of which affects Member States and also their cit-izens … In addition, the task assigned to the Court of Justice under Article 177, the object ofwhich is to secure uniform interpretation of the Treaty by national courts and tribunals, con-firms that states have acknowledged that Community law has an authority which can beinvoked by their nationals before those courts and tribunals. The conclusion to be drawn fromthis is that the Community constitutes a new legal order of international law for the benefit ofwhich the states have limited their sovereign rights, albeit within limited fields, and the sub-jects of which not only comprise Member States but also their nationals. Independently of thelegislation of Member States, Community law therefore not only imposes obligations on indi-viduals but is also intended to confer upon them rights which become part of their legal her-itage. These rights arise not only where they are expressly granted by the Treaty, but also byreason of obligations which the Treaty imposes in a clearly defined way upon individuals aswell as upon the Member States and upon the institutions of the Community,’ (Case 26/62,Van Gend en Loos [1963] ECR 1 at 24 f).8 ‘The integration into the laws of each Member State of provisions which derive from theCommunity, and more generally the terms and the spirit of the Treaty, make it impossible forthe States, as a corollary, to accord precedent to a unilateral and subsequent measure over alegal system accepted by them on a basis of reciprocity. Such a measure cannot therefore beinconsistent with that legal system … . The executive force of Community law cannot varyfrom one State to another in deference to subsequent domestic laws without jeopardising theattainment of the objectives of the Treaty set out in Article 5(2) and giving rise to the discrim-ination prohibited by Article 7’ (Case 6/64, Costa v ENEL [1964] ECR 1251, 1269 f).

which demanded unilateral decisions on such matters. Article 100 EEC(now 94 TEC) stipulated the same for legal harmonisation.

Inevitably, the application of these principles posed, and continues topose, difficult problems and is responsible for and susceptible to controver-sial interpretations. But as long as these doctrines are accepted in principle,and as long as the ECJ remains able to take conclusive decisions in cases ofconflict, we are dealing with a supranational order that is fundamentallydifferent from the rules delineating domestic and international law. It isprecisely because of this difference that one may assign the status of a ‘con-stitutional charter’ to the structure of the Community legal system asendorsed by the ECJ.9

2. Explanations

All ECJ statements on the quality and the content of Community law havebeen based on ‘strictly juridical’ operations. Nowhere can we find explica-tions of methodological premises or theoretical deliberations as to the legit-imacy of Europe’s ‘constitutional charter’. Is this the right way to go aboutcreating and proclaiming a constitution?

What remains so remarkable, and needs to be explained, is the broadacceptance of this nothing less than revolutionary jurisprudence. In its land-mark decisions, the ECJ could not muster the support of the Europeannations; frequently, it did not even meet with the consensus of their govern-mental representatives.10 Equally, the Court was unable to rely on force orthe kind of sanctions a supra-nationally institutionalised power centremight possess. Instead, support came from the Court’s Advocates-General,from the Commission, and, after some resistance, from the Member States’national courts.11 Europe experienced the strength of a silently andpatiently operating ‘epistemic’ community12 of law interpreters that tookup the supreme judges’ doctrines and used them as a framework for action.

How do political scientists tell this Münchhausen13 story? In theiraccount, the ‘legal dialogue’ between the ECJ and the national supremecourts was an important, if not the most important, ‘dependent variable’.

128 C H R I S T I A N J O E R G E S

9 Stein above n 5; Weiler above n 3 at 2413; Pernice, I, ‘Maastricht, Staat und Demokratie’(1993) 26 Die Verwaltung 449, and especially the Court’s own Opinion 1/91, [1991] I ECR6079.10 Stein above n 5 at 25.11 Weiler, J, ‘Journey to an Unknown Destination, A Retrospective and Prospective of theEuropean Court of Justice in the Arena of Political Integration’ (1993) 31 Journal of CommonMarket Studies 417 ff.12 Cf, Höland, A, ‘Die Rechtssoziologie und der unbekannte Kontinent Europa’ (1993) 14Zeitschrift für Rechtssoziologie 17 ff; Schepel, H and Wesseling, R, The Legal CommunityJudges, Lawyers, Officials (Blackwell, Oxford 1997).13 The Baron of Münchhausen is famous for his preposterous/tall stories.

They also underline that the Commission stubbornly utilised the means forenforcing European law domestically, which was granted to it by Article169 (now 226),14 and that the so-called acquis communautaire (the stockof European law) was never made disposable in external relations—andthis is again the case with EU enlargement, to the dissatisfaction of theaccession countries.15 As a much noted inter-disciplinary essay concluded,‘Law functions both as a mask and as a shield. It hides and protects thepromotion of one particular set of objectives against contending objectivesin the purely political sphere’.16

In such accounts, the normativity and facticity of the law remain insulated.Did it matter what arguments the institutional actors used? Did it matterwhat ‘finalité’ of the European project they invoked. Should we have to askwhether the arguments invoked ‘deserved’ recognition?

B. Ordo-liberal Economic Constitution Theory: Europe as ‘MarketWithout State’

Are such suggestions blurring the borders between empirical and normativeworlds? They are. But they can be backed by ‘normative facts’: technicallegal (‘doctrinal’) reconstructions of European law were always accompa-nied, supported or criticised by metadogmatic justificatory discourses, by‘legal-science theories of integration’, which dealt with the validity claimsof law.17 One justification for European law that continues to be impor-tant, and is far superior to the purely legal methodological derivation ofvertical constitutionalism, is given by the ‘ordo-liberal’ theory of a suprana-tional ‘economic constitution’.

To understand the operational history of this theory we have to look right back to the Weimar Republic. There, the founding fathers ofOrdo-liberalism and Ordnungspolitik18 had advocated a framework orderabove party disputes which was intended to guarantee economic freedoms,but, at the same time, to hold them in check legally through a system of law

Politics in the Constitutionalisation of Europe 129

14 Börzel, T, ‘Private Actors on the Rise? The Role of Non-State Actors in Compliance withInternational Institutions’ (manuscript Florence/Bonn; 2000).15 Wiener, A, ‘The Embedded Acquis Communautaire. Transmission Belt and Prism of NewGovernance’ (1998) 4 European Law Journal 294.16 Burley, A-M and Mattli, W, ‘Europe before the Court A Political Theory of Legal Integration’(1993) 47 International Organization, 41 at 72.17 Joerges, C, ‘Rechtswissenschaftliche Integrationstheorien’, in Kohler-Koch, B, and Woyke, W, (eds), Lexikon der Politik, Band 5. Die Europäische Union (Beck 1996), 229.18 Both terms have no real equivalence in Anglo-Saxon jurisprudence and law. The pertinentWorking Group VI of the European Convention has been called ‘Economic Governance’. Thatmay be the best possible ‘translation’. It does, however, only very imperfectly convey the con-notations of Ordnungtheory (cf Gerber and Sauter above n 4; Manow, Ph, ‘ModellDeutschland as an interdenominational compromise. Program for the Study of Germany andEurope’, (2000) Working Paper No 00.3. Center for European Studies, Harvard University).

ensuring undistorted competitive processes.19 ‘Ordo-liberalism’ had practicaleffect for the self-perception of the young Federal Republic, particularlybecause of its inclusion in the concept of a ‘social market economy’.20 Itsleading exponents21 committed themselves very early and very successfullyto Europe, bringing the core ideas of ordo-liberalism to bear there.

Conceptually, ordo-liberalism was particularly well-suited to integration.It could be used to justify the theorem of the primacy of European law andcombine it with a precise ‘economic constitutional’ content, thereby alsolimiting it: the freedoms guaranteed in the EEC Treaty, the opening up ofnational economies, the bans on discrimination and the competition ruleswere easily understood as a collective decision in favour of an economicconstitution that matched ordo-liberal conceptions of the framework con-ditions for a market economic system (at least, to the degree that the manydepartures from the system might be classified as exceptions, and a blindeye could be turned to the original sin of the common agricultural policy).The very fact that Europe had started its integrationist path as a mere economic community lent plausibility to ordo-liberal arguments: by inter-preting the economic-law provisions of the European Community as a law-based order committed to guaranteeing economic freedoms, theCommunity acquired a legitimacy of its own. This legitimacy was inde-pendent of the institutions of the democratic constitutional state and thusplaced limits upon the political powers of the Community.22

Ordo-liberalism’s conception of economic and legal policy was expanded,refined and altered in the Seventies.23 But the core constitutional contentremained unaffected: the validity of supranational economic constitutionallaw requires no legitimation through the institutions of the constitutionalstate or political processes—and, for this very reason, has to confine its regu-latory claims to the (competitive) order of the economy. A theory of this pat-tern cannot easily be shamed by reality: if political practice does not behaveaccording to the theory—which it did not do either domestically in theFederal Republic or at European level—then that practice is simply wrong.

130 C H R I S T I A N J O E R G E S

19 Nörr, KW, Die Republik der Wirtschaft. Teil I Von der Besatzungszeit bis zur GroßenKoalition (Mohr 1999) 5–18; Wiethölter, R, ‘Franz Böhm, F (1895–1977)’, in Diestelkamp, B,and Stolleis, M, (eds), Juristen an der Universität Frankfurt aM (Nomos 1989) 208 at 225 ff.20 Abelshauser, W Die Langen Fünfziger Jahre. Wirtschaft und Gesellschaft in Deutschland1949–1966 (R Oldenburg 1987); Haselbach, D, Autoritärer Liberalismus und SozialeMarktwirtschaft. Gesellschaft und Politik im Ordoliberalismus (Baden-Baden 1991) 117 ff;Nörr above n 19 at 58 ff and 81 ff.21 Hallstein, W, ‘Wiederherstellung des Privatrechts’ [1946] Süddeutsche Juristen-Zeitung 1;ibid, Der unvollendete Bundesstaat (Econ Verlag 1969); Böhm, F, ‘Die Bedeutung derWirtschaftsordnung für die politische Verfassung’ [1946] Süddeutsche Juristen-Zeitung 141;Müller-Armack, A, Wirtschaftslenkung und Marktwirtschaft 2edn (Hamburg 1947).22 Müller-Armack, A, Die Wirtschaftsordnung des Gemeinsamen Marktes, in idem,Wirtschaftsordnung und Wirtschaftspolitik (Kohlhammer 1966), 401.23 For details, see Mussler, W, Die Wirtschaftsverfassung der Europäischen Gemeinschaft imWandel. Von Rom nach Maastricht (Nomos 1998) 58 ff, 91 ff, 125 ff.

To be sure, once the positive-law underpinnings of the theory fall away—ashappened with the Maastricht Treaty24—then the theory must, as it were,emigrate and take root beyond European law; this movement has, in fact,been put in motion with the constitutional interpretation of world tradelaw.25

III. EUROPE AS A ‘REGULATORY STATE’? THE ‘MASTERS OF THE TREATIES’ AS ‘STATES WITHOUT MARKETS’?

Ordo-liberalism was supported, above all, by private lawyers and economiclawyers. German constitutional law and European law, in contrast,remained largely indifferent to the guiding themes, conceptions and institu-tionalisations of the ordo-liberal credo, and rejected the practical ambitionsof Ordnungspolitik. The dominating practice was functionalistic and tech-nocratic. It was given legal form very early on by Hans Peter Ipsen, whoreferred to the (three) European Communities as ‘purposive associationsfor functional integration’26 a form that was to outlast ordo-liberalism andexperience a sort of renaissance in the great growth phase of integrationpolicy from the mid-eighties onwards.

The concept of the ‘special-purpose association’ opened up goals and practices for Community law that went beyond ordo-liberalOrdnungspolitik—without seeking to subject it to democratic requirementson that ground. As a special-purpose association, Europe was to deal withquestions of ‘technical accomplishment’, ie, administrative tasks that couldbe conveyed to a supranational bureaucracy—and ought to be.27 With hisreferences to Forsthoff’s theory of the state and the constitution, and toAmerican neo-functionalism for integration theory, Ipsen rejected both further-reaching federal integration concepts and the early interpretationsof the Community as an international organisation. For him, Communitylaw constituted a tertium quid between (federal) national law and interna-tional law, constituted and adequately legitimated through its ‘specialisedtasks’.28

Politics in the Constitutionalisation of Europe 131

24 For an ordo-liberal critique of the Maastricht Treaty cf Streit, ME and Mussler, W, ‘TheEconomic Constitution of the European Community From “Rome” to “Maastricht”’ (1995) 1European Law Journal 5; for a critique of ordo-liberal claims after the adoption of theMaastricht Treaty cf, Sauter above n 8 at 31 ff and 34 ff).25 Petersmann, E,U, ‘Constitutionalism, Constitutional Law and European Integration’, (1991)46 Außenwirtschaft 247; ibid, ‘Grundprobleme der Wirtschaftsverfassung der EG’ (1994) 48Außenwirtschaft 389.26 Ipsen, HP, ‘Der deutsche Jurist und das Europäische Gemeinschaftsrecht’ (1964) 43rdDeutscher Juristentag, Vol II L 14 (Beck 1964); ibid, Europäisches Gemeinschaftsrecht (Mohr1972).27 Ipsen, Europäisches Gemeinschaftsrecht, 176 ff.28 Kaufmann, M, Europäische Integration und Demokratieprinzip (Nomos 1997) 312 ff; Bach, M, Die Bürokratisierung Europas. Verwaltungseliten, Experten und politische Legitimation

It is precisely this technocratic interpretation of the Community that wasrenewed, taken up and transformed by the political scientist GiandomenicoMajone when he conceptualised the European Community as the ‘fourthbranch of government’29 and as a regulatory state.30 However, both the prac-tical strengths and the theoretical weaknesses of this position become apparentwhen one looks at its object and its opponents in the integration process.

A. Factual Developments

The contemplative picture of the workings of European law sketched byEric Stein in 198131 was very close to reality at the time. Undeniably,European law was advancing steadily, while politically the Community wasgoing through one crisis after another and economic integration was lookingmore like the Echternach dancing procession.32 The institutional reasonsfor this stagnation were well known: ‘legally’, the Community was able todo a great deal, thanks to the ‘functional’ interpretation of its powers, inthe name of bringing about the Common Market by adopting directivesunder Article 100 (now 94), or else on the basis of Article 235 (now 308).In practical terms, however, the unanimity requirement of Article 100ensured that every Member State could defend its own regulatory conceptsand economic interests through its veto. European competition law (Article 85 ff; now 81 ff) was, and, in so far as it applied ‘directly’ anddespite the Commission’s administrative powers, remains a torso, power-less against national, non-competitive regulatory powers.

1. ‘Negative Integration’ and ‘Regulatory Competition’

In the Eighties, however, through the now legendary internal market initia-tive, a breakthrough was achieved.33 The reasons for the broad support thatthis initiative met with are disputed among the faculties involved—lawyers,

132 C H R I S T I A N J O E R G E S

in Europa (Westdeutcher Verlag 1999) 38 ff; on this background see Zumbansen, P,Ordnungsmuster im modernen Wohlfahrtsstaat, (Nomos 2000) 93 ff; Joerges, ch, ‘On theLegitimacy of Europeanising Europe’s Private Law’, Global Jurist Topics Vol 2 No 2, Article 1,http//www.bepress.com/gj/topics/vol2/iss2/art1. 65 ff).

29 Majone, G, ‘The European Community. An ‘Independent Fourth Branch of Government”?’,in Brüggemeier, G (ed), Verfassungen für ein ziviles Europa (Nomos 1994), 23.30 Majone, G, ‘“Democracy Deficit” The Question of Standards’ (1996) 4 European LawJournal, 5.31 See 1.a above.32 These alleged paradoxes—the perfecting of supranational law on the one hand, and insis-tence on political inter-governmentalism with veto possibilities on the other—were resolved byJHH Weiler in his theory of the legal and political dual structure of the Community as a bal-ance between law and politics (Weiler above n 3 at 2423).33 On the following, see Moravcisk, A. The Choice for Europe (Cornell UP 1998) 314 ff;Joerges, C (1991)‘Markt ohne Staat? Die Wirtschaftsverfassung der Gemeinschaft und die

economists, and political scientists. Economists can point to their discipline’sprogrammatic orientation towards rationality patterns: efficiency and com-petitivity through deregulation (‘negative integration’), supplemented bymechanisms of ‘regulatory competition’34, which would similarly keep wel-fare state policies in check—this rhetoric met with much unofficial approval(for example, from the Scientific Advisory Council 1986). Or was it politicalcunning—personified by a charismatic Commission President, JacquesDelors—which brought together economic interests that were madeEuropean by the design of the new programme, thereby ultimately makinguse of a neo-functionalist logic?35

The ‘first faculty’ admittedly insisted on the law: in fact, the new policywas keen to present itself in unofficial statements as a mere application ofprecisely those legal principles that the ECJ had disclosed in primaryCommunity law. As often happens in ‘classic’ cases, this had happened in atrivial situation: it was, as the Court had found in the Cassis de Dijoncase,36 incompatible with the principle of free movement of goods (Article 30;now Article 28) for the Federal Republic of Germany to ban the marketingof a French liqueur because German law provided for a higher alcohol con-tent in liqueurs than the weaker French drink contained. The Court’s argu-ment that the confusion of German consumers accustomed to strongerliqueurs could appropriately be avoided by disclosing the alcohol contentwas convincing, but also trivial. Yet, the ECJ used the obvious case ofCassis to proclaim the new legal principle of ‘mutual recognition’ of thelegal systems of Member States, thereby allotting itself constitutional com-petence to review national legislation and, at the same time, displayingoptions for a market integration supported only on primary law and inde-pendent of positive harmonisation measures. All this had happened in judi-cial circumspection. This was enough for the Commission to take the ECJdecision as the legal basis for the new harmonisation policy which it devel-oped in its White Paper on internal market policy.37 However, the economic,

Politics in the Constitutionalisation of Europe 133

regulative Politik’, in Wildenmann, R, (ed), Staatswerdung Europas? Optionen für eine politischeUnion (Nomos 1991), 225 (translated as ‘The Market without a State? States withoutMarkets? Two Essays on the Law of the European Economy’, EUI Working Paper Law 1/96,San Domenico di Fiesole 1996); ibid, ‘Legitimationsprobleme des europäischenWirtschaftsrechts und der Vertrag von Maastricht’, in Brüggemeier, G (ed), Verfassungen fürein ziviles Europa (Nomos 1994), 91; ibid, ‘Rationalisierungsprozesse im Recht derProduktsicherheit Öffentliches Recht und Haftungsrecht unter dem Einfluß der EuropäischenIntegration’, in (1994) 14 Jahrbuch für Umwelt- und Technikrecht 141.

34 Reich, N, ‘Competition Between Legal Orders A New Paradigm of EC Law?’ (1992) 29Common Market Law Review 861.35 Sandholtz, W and Zysman, J, ‘1992: Recasting the European Bargain’ (1989) 42 WorldPolitics 95 at 96 ff.36 Case 120/78, Cassis de Dijon [1979] ECR 649.37 ‘Commission Communication on the effects of the ECJ judgment of 20 February 1979 in120/78 (“Cassis de Dijon”)’, OJ C 256, 3 October 1980, 2–3; Commission of the EC (1985)Commission White Paper to the European Council on Completion of the Internal Market,COM (85) 310 final, 14.06.85.

political and legal factors are to be weighed up. The internal market programme found its way into the Single European Act negotiated by theMember State governments, which was able to enter into force in 1987. Itstransposition was accompanied by large and smaller institutional innova-tions: the move to (qualified) majority decisions for all internal-market policy decisions in Article 100A (now 95) of the Treaty, now called the EC Treaty, was a change of fundamental importance—for the practice ofboth European policy and its constitution.

2. ‘Re-regulation’ Instead of ‘De-regulation’

The renewal of the integration project was not taken as exactly fulfillingthe ordo-liberal vision of a ‘market without state’, but as nonetheless tend-ing to confirm a supranational, non-state legal constitution guaranteeingeconomic freedoms that were effective Community-wide to the citizens ofEurope’s market, thus committing both the Community and the MemberStates to a competitive system for the economy.38 Much faster and morethoroughly than either supporters or critics of the internal market pro-gramme had foreseen, new regulatory and juridification trends set in wheresignificant patterns could be identified: a trend towards regulation at highlevel; the development of new forms of cooperation including governmen-tal as well as non-governmental actors; a strengthening of de-centralisednational political activities, and a range of participation entitlements. Theseare the most striking features of the internal market policy called into being:

1. Wherever Community law turned to the institutional frameworkconditions and legal fine structure of markets, it did so at anastonishing level. The best-known examples are offered by prod-uct regulations that protect consumer and health interests, whichoften comprise safety-at-work issues and environmental con-cerns. Here, the provisions of Article 100a(3) SEA and the rightsof Member States with high regulatory aspirations to ‘go it alone’(Articles 100a(4), 118a(3), 130t) ensured that the opening ofmarkets was to come about only at the cost of modernisingthe relevant regulatory machinery and enhancing its quality.39

But even in the domains of private and economic law, the

134 C H R I S T I A N J O E R G E S

38 Mestmäcker, EJ, ‘Auf dem Wege zu einer Ordnungspolitik für Europa’ in Mestmäcker EJ,Möller H, Schwartz, H (eds), Eine Ordnungspolitik für Europa. Festschrift für Hans vond.Groeben (Nomos 1987), 9–49.39Joerges, ‘Rationalisierungsprozesse’ above n 33 at 154 ff; Bücker, A, Von der Gefahrenabwehrzu Risikovorsorge und Risikomanagement im Arbeitsschutzrecht. Eine Untersuchung amBeispiel der rechtlichen Regulierung der Sicherheit von Maschinen unter dem Einfluß dereuropäischen Rechtsangleichung, (Duncker and Humbolt 1997); Eichener, V, DasEntscheidungssystem der Europäischen Union. Institutionelle Analyse und demokratietheo-retische Bewertung (Leske und Budrich 1997).

‘completion’ of the internal market was marked by a growth andsteady refinement of the patterns of economic regulation and newconsumer protection policies. The originally envisaged mutualrecognition of mandatory national law was thoroughly alienatedin its implementation: through the partial unification of supervi-sory rights, as well as by taking measures to coordinate the prac-tice of national supervisory bodies and through the MemberStates’ reserved rights to protect their general interests.

2. Since the EU itself does not have the resources to generate stan-dards and because it also lacks the administrative powers neces-sary to implement legally binding rules in Member States, it hasto try to compensate for these shortcomings. For this reasonalone, the Commission must promote the development and coordination of national certification bodies as it develops prod-uct safety standards that cooperate with the European standardi-sation organisations. In other ways, it must operate through adense network of committees in which Member State administra-tive experts, and also independent scientists and representativesof economic and social interests, collaborate.

While the integration process has restricted the autonomy of national pol-icy, it has also opened up new possibilities. Formally, this can be seen in thefact that European directives regularly provide for ‘safeguard procedures’that allow objections to decisions and that may lead to revisions. Article100a(4) (now 95) allows nations to ‘go it alone’, on condition that theyregulate in more detail. At the same time, all these reservations for nationalpolicy-making are opportunities for action. The restriction of nationalautonomy compels the taking of ‘foreign’ interests into account; and con-versely, one’s own regulatory concerns may be ‘exported’ beyond one’s ownterritory.

B. Constitutional Alternatives

This much is undisputed: the programme to complete the internal market setoff a new impetus to juridification. If this flood of norms cannot be blocked,40

and if, as the continued extension of the Treaty programmed in Article 102A

Politics in the Constitutionalisation of Europe 135

40 According to a much quoted, but now rather hoary, statement by Jacques Delors (speech tothe European Parliament on 4.7.1988, EC Bulletin 1988, 7/8, 124), the economic law in forcein EC Member States is, to a large degree (80%), enacted or brought into being by theCommunity. Delors rejected complaints about the regulating mania of his bureaucracy[‘Europa im Umbruch. Vom Binnenmarkt zur Europäischen Union’, in Kommission der EG(ed), Europäische Gespräche, Heft 9, 1992]: of 100 Community law-making initiatives, only 8were truly to be attributed to the Commission: in 92% of cases, his officials were taking up theconcerns of the Member States—and 70% of cases saw the Community taking up the law-makingconcerns of the Federal Republic (ibid at 12).

of the 1987 SEA showed, it is not wanted by the European governmentseither, how is it to be controlled? One alternative was mentioned earlier. Asecond attempt, made by the German Constitutional Court following theconclusion of the Maastricht Treaty, will be dealt with below. The firstalternative is justified ‘sociologically’—yet what is perhaps its most impor-tant proponent is a law professor trained in social philosophy. The authorof the second alternative is a Court—but this author, too, argues in trans-disciplinary fashion.

1. Europe as Regulatory ‘State’

The lawyer, Ipsen, who had already defined the European Community inthe Sixties and early Seventies as ‘purposive associations for functional inte-gration’, and the political scientist, Majone, who interpreted the EuropeanSingle Market initiatives of the Eighties as the building up of a Europeanregulatory state are—though not very close(!)—relatives in spirit. Both seethe strength of the integration project in the problem-solving capacity ofEuropean institutions. The ‘objective tasks’ that Ipsen (1972) had in mindcorrespond to the ‘regulatory policies’ which, according to Majone, have toaccompany the development of the Single Market. In both views, the tasksinvolved need expert knowledge for their solution. Both authors share theview that proper performance of the tasks requires the European institu-tions to be walled-off from political influence: these ‘non-majoritarian’institutions (including the Commission itself, and most importantly forMajone, independent agencies on the American pattern), which can beexpected to interpret legislative instructions correctly, are to respond to thisat European level. Thus, it is ‘constitutional’ theories that are involved inboth cases, since the integration project brings a commitment to a particu-lar public goal, but also has its political competence limited through thesetasks.41 However, the closeness to Ipsen, which was confirmed by Majone42

himself, has its limits. Ipsen thought of his ‘purposive association’ decadesearlier than Majone thought of his ‘regulatory state’. The internal marketpolicy, the interplay of de-regulation and re-regulation that Majone analy-ses, did not exist at that time—nor did the analytical machinery of socialchoice theories that Majone uses. Above all, Majone’s regulatory state isconcerned with instances of market failure. He seeks to increase the eco-nomically defined welfare of consumers/citizens, whereas Ipsen’s techno-cratic ‘purposive associations’ furthers the infiltration of the state and itsadministration into society just as Carl Schmitt and Ernst Forsthoff had

136 C H R I S T I A N J O E R G E S

41 Jachtenfuchs, M, ‘The Governance Approach to European Integration’ (2001) Journal ofCommon Market Studies 245.42 Majone above n 29 at 23.

diagnosed at the end of the Weimar Republic.43 In contrast, Majone’s regulatory state institutionalises a ‘fourth branch of government’, whichguards against possible ‘regulatory failures’ through its insulation frommajoritarian and political influences. Yet, this fourth branch could andshould be held ‘accountable’ through indirect but effective control.Moreover, the non-majoritarian institutions of European regulatory politicsand the majoritarian institutions of the Member States do, in Majone’sview, complement each other. In particular, distributive politics are said tobe dependent on majoritarian legitimation and hence remain the domain ofNation State.

We shall return to these questions below (section 2.3). For the moment,it may suffice to observe that even if the European regulatory state does nothave comprehensive competences, it nonetheless signifies a far-reaching dis-empowering of the nation state—and to point to one follow-up concern:would a nation state limited in this way still be a democratic constitutionalstate with regard to its possibility of action within the meaning of the BasicLaw? In its judgment on the Maastricht Treaty of 12 October 1993, theGerman Federal Constitutional Court took up this question. It sought toset constitutional bounds to European integration in a way that comes sur-prisingly close to Majone’s conceptualisation of the EU.

2. The Downgrading of Europe as an Association of States: The German Constitutional Court’s Maastricht Judgment

The Maastricht Treaty reacted to the new dynamic of integration triggered bythe internal market initiative with the further development of the Communitytowards ‘political union’. What was agreed on 9 and 10 December 1991 inthe cosy southern Netherlands town of Maastricht was Economic andMonetary Union, a strengthening of the Community in the area of indus-trial policy, new powers and a ‘subsidiarity principle’ whose chances ofworking were unclear—in short a package that created a Euro-critical pub-lic for the first time. The Danish population rejected the Treaty in June1992, whilst in France it was accepted by a slim majority. In Germany, thesedebates led to constitutional complaints against ratification of the newTreaty (the TEU, Treaty on European Union). The Danes finally found anational compromise and the Federal Constitutional Court rejected thecomplaints. Did this mean business as usual? No, neither in Denmark norelsewhere. The following will examine only the German decision whichraised the debate on Europe’s constitution to a new level, and which

Politics in the Constitutionalisation of Europe 137

43 On these continuities and discontinuities, see Joerges, C, ‘Europe a Großraum? ShiftingLegal Conceptualisations of the Integration Project. Wurde Europa ein Großraum?’, inJoerges, C and Ghaleigh, N, Darker Legacies of Law in Europe The Shadow of NationalSocialism and Fascism over Europe and its Legal Traditions, (Hart 2003) 168.

remains interesting because of its integration-theory perspectives, and, as itwere, the German court’s trans-disciplinary statements on the relationshipbetween legal science and political science.

(i) Restrictions on ‘Vertical’ Constitutionalisation That Europe is a‘Community’ constituted through the supranationality of its law is thefounding principle of European law as such. But the Federal ConstitutionalCourt avoided using this otherwise ordinary term: the European Union wasan ‘association of states’ (Staatenverbund) that took account of the ‘nationalidentity’ of the Member States; membership was in a ‘supranational organi-sation’, not in a ‘European State’.44 ‘Less than a federation. Even less than aCommunity!’—a message that was bound to be disquieting.

Still more irritating was the fact that the Federal Constitutional Court,consistently with the rest of its judgment, distanced itself from the princi-ples of direct effect and the supremacy of European law. In substance, themost revealing passage is found in the context of the Court’s statement onmajority-decisions (the area of application of which the Maastricht Treatyhad further enlarged)—which, in principle, the Court accepts as a func-tional necessity of integration. But, here, the Court adds: ‘Yet the majorityprinciple is limited—through the requirement for mutual respect—by theconstitutional principles and fundamental interests of the MemberStates’.45 With the requirement of mutual respect, the Court elaborates onits own understanding of the term ‘community of law’, and thus limits thevalidity of European law through national law. The reference to the ‘funda-mental interests of the Member States’ goes beyond the heteronomy thatEuropean law fully respects—for example, the positive right of a MemberState to unilateral action which European law recognises in Article 100a(4)(now 95) of the EC Treaty. Thus, the Court questions the (procedural) jurid-ification of the relationships between the Community and the MemberStates as such. The interests, which are of ‘fundamental interest’ forGermany, can and should only be determined by Germany herself. Thecohesiveness set up through the supremacy of Community law breaks downinto a ‘disordered’ heterarchical relationship. The Federal ConstitutionalCourt responds not with ‘anarchy’ but by emphasising ‘cooperation’.

138 C H R I S T I A N J O E R G E S

44 Bundesverfassungsgericht, Urteil von 12 October 1993–2 BvR 2134/92 u 2 BvR 2159/92,BVerfGE 89, 155 at 181, cf 188 ff. The term ‘Staatenverbund’ (association of states) was usedby the Second Senate’s rapporteur, Paul Kirchhof, as a term for a form of organisation‘between an alliance of states and the de-statization of the Member States’, without combiningthis with any claim to a definitive legal substantive description (Kirchhof, P, ‘Der deutsche Staatim Prozeß der europäischen Integration’ in Isensee, J and Kirchhof, P (eds), Handbuch desStaatsrechts der Bundesrepublik Deutschland Bd. VII (Müller Verlag 1994), 855 at 859 ff).There has been much puzzlement over its meaning both in Germany, since this is indeed, onceagain, merely a Gestalt term (Möllers, C, Staat als Argument (Beck 2000) 378 ff), and else-where, since it was hard to know how exactly to translate ‘Verbund’.45 BVerfGE 89 at 184.

The Federal Constitutional Court does not view itself as the lower tier ina European judicial hierarchy, but prefers to define its link to the ECJ as a‘cooperative relationship’ (174). In particular, this wording (headnote 7and at 174) refers to the Court’s duty to protect human rights under theBasic Law. Equally, the Court reserves for itself a specific, non-transferableright of adjudicating on the assignment of competences. Should theCommunity misjudge the power to extend its competences unilaterallywhen, in fact, a Treaty revision is called for, then this process will not havebinding-effect on Germany (210).

(ii) Back to the Nation State? The Federal Constitutional Court’s refusalto recognise the ECJ’s right to delimit the competences of the Communitytouches on a precarious element in the architecture of European law.46 Ifthe Federal Constitutional Court’s opinion on the competence issueappeared provocative, it is due to its understanding of the principle ofdemocracy in the Grundgesetz.

This principle demanded that the execution of sovereign rights mustderive from ‘the people of the state’.47 This did not exclude membership ina ‘community of states authorised to issue sovereign acts’, yet it also meantthat the authority of the Community remained limited and that the bodyrepresenting the German Staatsvolk was left with ‘sufficient powers of sub-stantial political weight’.48 ‘If the peoples of the individual states (as is trueat present) convey democratic legitimation via the national parliaments,then limits are imposed, by the principle of democracy, on the extension ofthe EC’s functions and powers. State power in each of the states emanatesfrom the people of that state. The states require sufficient areas of signifi-cant responsibility of their own, areas in which the Staatsvolk concernedmay develop and express itself within a process of forming political willwhich it legitimises and controls’.49 Is this intended to block integration?

The answer is not clear. On the one hand, the criterion and yardstickwhich the Court invokes is that democratic legitimation of state powerrequires ‘constant free debate among social powers, interests and ideas thatencounter each other’.50 It is this requirement which the EU political sys-tem does not meet. Yet, the judgment goes on to concede, it might also bethat, in the future, the political objectives of the European polity no longerneed to be specifically ‘mediated through the nations’; this might happen,once the process of forming a ‘public opinion in Europe’ is sufficientlyadvanced.

Politics in the Constitutionalisation of Europe 139

46 See Weiler above n 3.47 BVerfGE 89 at 182.48 Ibid at 206.49 Ibid at 186.50 Ibid at 185.

But, on the other hand, the Court seems to erect an insuperable barrierto further integration by introducing a democracy precept that the forma-tion of political will should enable the people (Staatsvolk) concerned to‘give legal expression to … that which spiritually, socially and politicallylinks it … relatively homogeneously’.51 What is so objectionable about this?Hermann Heller, who is cited for this proposition, had, in fact, described ‘acertain degree of social homogeneity’ as a requirement for the self-assertionof the Weimar Republic’s parliamentary system,52 is no good exemplar forthe Court’s statement about the role of the peoples of states.53 The capacityof the Basic Law of the nation state to solve economic and social problemshas been more thoroughly eroded—and, at the same time, its internalEuropean capacity for peace made enormously stronger—than seemed con-ceivable in Heller’s time. Among the supranational normative principlesthat accompanied this process of erosion, however, are such anti–nationstate provisions such as the ban on discrimination in Article 6 (now 12) andthe anti-protectionist provision of Article 30 (now 28).

The statement that European integration—currently and until furthernotice—constitutes a league of peoples organised in states is, however, thoroughly compatible with these provisions—the ‘Staatsvolk’ (the peopleconstituting a nation) is a constitutional concept denoting the ‘subject oflegitimation’ of the power of the state—under the Basic Law54 and, indeed,already in Weimar.55

(iii) The ‘Masters of the Treaties’ as ‘States without Markets’: A BelatedVictory of German Ordo-liberalism The complainant, Mr Brunner, whowas concerned about the future of the Deutschmark, made a different argu-ment. He asserted that the capacity of the constitutional state to shape theliving conditions of its citizens politically would be affected if it partici-pated in Economic and Monetary Union under the Maastricht Treaty. Hewas not really concerned with democratic rights of participation but withtying monetary policy to the German state.

140 C H R I S T I A N J O E R G E S

51 Ibid at 186.52 Heller, H, ‘Politische Demokratie und soziale Homogenität’ (1928), in ibid, GesammelteSchriften, vol 2 (Sijthoff 1971) 421 at 427 f.53 Böckenförde, E-W, ‘Demokratie als Verfassungsprinzip’, in ibid, Staat, Verfassung undDemokratie (Suhrkamp1991), 289 at 348 ff; von Bogdandy, A and Bast, J, ‘Die vertikaleKompetenzordnung der Europäiaschen Union/ Rechtsdogmatischer Bestand undVerfassungspolitische Reformperspektiven.’ (2001) 28 Europäische Grundrechte Zeitschrift441; Bryde, B-O, ‘Die bundesrepublikanische Volksdemokratie als Irrweg derDemokratietheorie’ (1994) 5 Staatswissenschaften und Staatspraxis 305 at 311 f; Pernice, I,‘Die Dritte Gewalt im Europäischen Verfassungsverbund’ [1996] Europarecht 27; also La Torre, M ‘Un giurista nel crepuscolo di Weimar. Politica e diritto nell’opera di HermannHeller’, (2001) Ratio Juris.54 Möllers above n 44 at 407.55 Lepsius, O, Die gegensatzaufhebende Begriffsbildung. Methodenentwicklungen in derWeimarer Republik und ihr Verhältnis zur Ideologisierung der Rechtswissenschaft unter demNationalsozialismus (Beck 1994), 13 ff.

The Bundesbank’s ‘external relations’ were reorganised by the newArticle 88(2), inserted into the Federal Bank Act by the Amending Act of21 December 1992. It stipulates that the Bundesbank’s tasks may be trans-ferred to a European Central Bank that is ‘independent and which servesthe primary objective of price stability’. These principles were endorsedwholeheartedly by the Federal Constitutional Court: according to theMaastricht agreements, the federal parliament has the right, before the third stage of monetary union is entered, to examine the fulfilment ofthe Treaty criteria on price stability and convergence, and the exercise ofthe Bundestag’s right to review is bound to the objectives agreed-upon (202 f).Furthermore, if monetary union ‘could not develop continuously in linewith the agreed stability mandate’, then the Treaty conception assumed bythe German ratification law would be abandoned (205).56

Thus, economic integration is perceived as an apolitical phenomenonoccurring autonomously outside the states, and European Monetary Unionas a project committed to success—and legitimated only by its success; it is,therefore, downright surprising how little these statements were taken intoaccount in the commentaries on the Maastricht opinion. Yet, they wereenormously more problematic than the somewhat strange reference toHermann Heller. By linking Germany’s ratification of the Maastricht Treatyto specific political criteria, which all other Member States also had to com-ply with, the Court over-extended its own competencies rather than limitedthose of the ECJ. The demotion from ‘community’ to ‘association of states’was intended to preserve the nation state. However, one cannot overlookthe point that, if one could treat economic integration as irrelevant fromthe constitutional policy viewpoint, Europe would then become a ‘marketwithout a state’ and the so-called ‘masters of the Treaties’57would be left as‘states without markets’.58

IV. CONSTITUTIONALISATION OF GOVERNANCE IN THE EUROPEAN MULTI-LEVEL SYSTEM

The debate about the above models of constitutionalisation—legal supra-nationalism, the notion of an economic constitution, the regulatory state,

Politics in the Constitutionalisation of Europe 141

56 The Court again proved to be subsequently conciliatory; it has explicitly confirmed the constitutionality of the monetary union (Bundesverfassungsgericht (1998) Beschluß von 31 March1998, 2 BvR 1877/97, 2 BvR 50/98, BVerfGE 97, 350).57 For this concept, see Everling, U, ‘Zur Stellung der Mitgliedstaaten der Europäischen Unionals ‘Herren der Verträge’, in Beyerlein U et al (eds), Recht zwischen Umbruch und Bewahrung.Festschrift für Rudolf Bernhardt (Duncker & Humbolt 1995) 1161.58 European law is a field for public lawyers. This may explain why even comprehensive analy-ses barely mention the ironic consequence of defending nation-state democracy brought out inthe text, while the echoes of Schmitt have very much been taken seriously: cf, Bryde above n 53 and Weiler, J, ‘Does Europe Need a Constitution? Reflections on Demos, Telos and theGerman Maastricht Decision’ (1995) 1 European Law Journal 219 on the one hand,

the association of states—has not been laid to rest either in law or in politicalscience. But as the debate goes on, the object of discussion changes as well,sometimes visibly but quietly, sometimes less visibly but still significantly. Akind of turn of the millennium in European law is heralded, which foundand is still finding its expression in two projects. In October 2000, theCommission adopted its ‘Working Programme’ for a ‘White Paper on theGovernance of the European Union’, bearing the programmatic subtitle‘Enhancing Democracy in the European Union’.59 At Nice—the Treaty wassigned on 26 February 2001—there followed the solemn Declaration onHuman Rights,60 and, in Laeken, a constitutional convention was set up inDecember 2001.61 It is thus no longer the responsibility of the ECJ tomutate the Treaties into the ‘Constitutional Charter’.62 Evidently, Europehas become too important for its legal-constitutional progress to be leftessentially in the hands of the judiciary, and for its governance practices tobe left largely in the hands of the Commission. To be sure, the decision toset up a constitutional convention takes account of the increasing impor-tance of European governance; it is a reaction to pleas to place governanceon a legitimate footing, by constituting it legally or by constitutionalisation.Yet, a different issue is what kind of expectations one might have of such aprocess. One should not, of course, view it in isolation and, at the sametime, as the summit of Europe’s constitutionalisation process. At present(January 2003), any prediction would be premature—the more so as twoother European projects have also attained constitutional significance. Onedeals with the practice of European governance. The second, the so-calledopen method of coordination, should correct and complement the course ofintegration on the economy. Both projects question in a different way theprevious practice of integration politics.63 The work programme preparingthe Governance White Paper was subtitled ‘Enhancing Democracy in theEuropean Union’64; this proposal seemed to shake itself free of the legal

142 C H R I S T I A N J O E R G E S

Ladeur, K-H, ‘Towards a Legal Theory of Supranationality The Viability of the NetworkConcept’ (1997) 3 European Law Journal 33 at 35 ff and von Bogdandy, A, ‘Das Leitbild derdualistischen Legitimation für die europäische Verfassungsentwicklung’, (2000) 83 KritischeVierteljahresschrift für Gesetzgebung und Rechtswissenschaft 284, on the other.

59 Commission of the EC, A White Paper on European Governance—‘Enhancing Democracyin the European Union’ (Work programme, SEC (2000) 1547/7 final, 11.10.00) 4.60 OJ C 34, 18 December 2000.61 The language setting it up is kept instructively vague: ‘The question ultimately arises as towhether this simplification and reorganisation might not, in the long run, lead to the adoptionof a constitutional text in the Union … In order to pave the way for the next IntergovernmentalConference …, the European Council has decided to convene a Convention … . [I]t will be thetask of this Convention to consider the key issues arising for the Union’s future and try toidentify the various possible responses,’ (SN 300/01 ADD 1, 7).62 Cf, 1.1.1 above.63 In my understanding of Europe’s constitutionalisation, the efforts to Europeanise privatelaw, which are gaining ever more momentum, should be mentioned here; for a very brief scep-tical comment cf Joerges above n 28.64 Commission above n 59.

and economic clutches in order to entrust itself to the leadership of politicalscience and the prophesies of New Public Management (below 3.1). TheLisbon Summit 2000 introduced OMC so as to initiate a new employmentstrategy at European level. It marked a break with the old ‘Communitymethod’ for three reasons: first, it permitted the taking of action even out-side the area of competences which had been expressly transferred to theCommunity; second, it upgraded the Council; third, it renounced the con-ventional ‘juridification’ of Community policies (below 3.2).

A. The Commission’s White Paper on Governance in Europe: A Symptom of Crisis

‘Governance’ has become a key concept in the Europe debate. In the theory ofinternational relations in political science, the term has been in vogue for aconsiderable time65; in integration research, it refers, above all, to the decision-making processes that have taken shape in the EU system.66 It entered intounofficial use within European politics when the President of the Commission,Prodi, announced a White Paper in which the Commission would present newperspectives for a democratically reformed ‘European Governance’, and thecreation of a ‘Governance Team’ to come up with proposals.67

1. Governance as the Key Concept of the European Polity?

The adaptation of the term ‘governance’ by the European Commissionembraced the experiences and learning processes during and after the ‘comple-tion’ of the internal market, and above all an awareness that the internal mar-ket programme called for pro-active initiatives in ever more new areas, andthat the dynamic of market integration required a permanent management tosupervise the economic implications and social dimensions (above 2.1). Theterm ‘governance’ does indeed open up new perspectives. ‘Governance’ canneither be equated with governmental or administrative acts nor with legalpractice in public authorities and the courts. It is all these things ‘as well’.

Politics in the Constitutionalisation of Europe 143

65 Steinberg, P, ‘Governance-Modelle in der Politikwissenschaft und Möglichkeiten Ihrer verfassungsrechtlichen Umsetzung’, WHI Working Paper 6/99 (1999) – www.rewi.hu-berlin.de/WHI; Schmitter, PC, ‘What is there to Legitimise in the EU … and how might this beAccomplished’ (Typescript EUI Florence 2001).66 Kohler-Koch, B, ‘The Evolution and Transformation of European Governance’, in Kohler-Koch, B, and Eising, R, (eds), The Transformation of Governance in the European Union,(Routledge 1999), 14.67 Commission above n 59; also Joerges, C, ‘“Economic order”—“technical realization”—“thehour of the executive” some legal historical observations on the Commission White Paper onEuropean governance’ (2001) http//www.iue.it/RSC/Governance/ and ibid, ‘The Commission’sWhite Paper on Governance in the EU A Symptom of Crisis?, Guest Editorial’ (2002)Common Market Law Review 441.

But in more and more areas, in particular of regulatory politics, a specific feature of political action is that it builds and relies upon the knowledge insociety and the management capacities of enterprises and organisations.Politics in general—and the Commission in particular—simply cannot imple-ment its objectives through a command and control type of policy-makingand policy implementation; however, to describe the cooperative arrange-ments between public and private actors on as a ‘delegation’ of regulatorytasks to non-governmental actors would be misleading. Governancearrangements are a response to real problems of society and impasses of thepolitical system and its administrative machinery.68 Governance instead ofgovernment and administration: this is the outcome—but it is also the problem, at which point law and political science inevitably have to go theirseparate ways. In political science it is possible and necessary to distinguishbetween the efficiency of governing and its legitimacy69—and the analyticalpoint in identifying dependent and independent variables is precisely toevade an entanglement into normative questions. Jurisprudence cannotcopy that model. Even where lawyers deal with the (authorised) legal mate-rial only dogmatically and exegetically, they are unavoidably confrontedwith the problem of legitimacy of these forms of governance. They cannotconfine themselves to identifying the factual acceptance of governancearrangements but will have to explain whether such governance deservesthe compliance and recognition of the governed. The ‘Governance Team’ ofthe Commission, that was charged with drafting the White Paper, underes-timated the weight of this legal-normative question. They responded to thelegitimacy question with the metaphor of ‘good governance’ and developedprinciples70 and initiatives that are individually very worthwhile.71

2. Back to the Community Method?

Their deficiency lies in a lack of effort to give ‘good’ European governancenew constitutional basis, to translate the European praxis into a language oflegitimacy as conveyed by law—and to expose it to such legitimacy criteria. Itis precisely the example of regulatory politics that shows how important itwould have been to build bridges between the disciplines: the concept of gov-ernance owes its attraction to the fact that it provides an ‘appropriate’ analy-sis for the practices of governance, which have been developed for the

144 C H R I S T I A N J O E R G E S

68 The definition by the Commission is extraordinarily vague: (‘“Governance” means rules,processes and behaviour that affect the way in which powers are exercised at European level,particularly as regards openness, participation, accountability, effectiveness and coherence’):see Commission of the European Communities above n 1 and n 59.69 See, for instance, Jachtenfuchs above n 41 at 246.70 Above n 1 at 10 f.71 Note the series published by the Forward Studies Unit (http://europa.eu.int/comm/gover-nance/index_de.htm) and especially De Schutter, O, and Lebessis, N and Paterson, J (eds),Governance in the European Union (ECJ, Luxembourg 1999), 3–42001.

management of the common market, and from which reformed perspectivescan be derived. In the world of conventional European law, important elements of this praxis do not have a proper place; they must appear illegal. Itis this very reaction that one finds in the final version of the White Paper. Thatpaper has suspended the exploration of the normative validity of governancepractices and moved back into the inherited legal categories; its language shiftsfrom political science to law. ‘Strengthening the Community method!’—this is the legal leitmotiv of the White Paper as adopted in July 2001.72 The impli-cations for regulatory politics are that a simple legislative procedure is anaspiration, under which Parliament and the Council act as the legislature.The Commission is entrusted with ‘implementing Community law’ and issupported in this task by executive agencies73 (Commission 2001: 24 ff; 40).Within such a view of law, none of the insights that the term ‘governance’conveys remain. The Commission represents the ‘administration’ of theinternal market, as if the sole purpose is to implement the will of aEuropean sovereign whilst mobilising expert support. The issues this‘administration’ has to respond to are often economically weighty, politi-cally sensitive; and they can give rise to moral and ethical concerns. It issimply inexplicable how, based on the hands-on legal approach of theWhite Paper, the Commission hopes to reinforce the legitimacy of Europeangovernance. One window—the White Paper refers to civil society.74 Buteven then the White Paper leaves too many questions unanswered: whatgives those actors and expert communities mentioned in the White Paper apolitical mandate? How do they represent affected interests? One of themost recent and relevant Commission documents75 confirms that these areunresolved questions of constitutional importance, but its answers remainvague or cautious.

B. The Open-Method of Coordination

As already mentioned, the Treaty of Amsterdam saw the insertion of a newTitle (VIII) on employment as well as a novel mode of governance, namelya coordination of employment strategies by the Member States and theCommunity (Article 125). Since the European Council in Lisbon in 2000also recommended this method for social policy, ‘OMC’ has become theobject of intensive discussion. Political scientists, in particular, have pinnedhigh hopes on it.76 OMC does indeed envisage a mode of governance which

Politics in the Constitutionalisation of Europe 145

72 Above n 1 at 8.73 Ibid at 24 ff and 40.74 Ibid at 14.75 Commission of the EC, above n 59.76 Scharpf, FW, ‘European Governance Common Concerns vs. The Challenge of Diversity,Symposium Responses to the European Commission’s White Paper’ (RSC Symposium 2001),86 (http://www.iue.it/RSC/symposium).

seeks to avoid the institutional bottlenecks in European law-making andadministration, and which simultaneously opens up new perspectives forlegitimising the Union.

So far, the effects of OMC have not been easy to grasp in any of the fieldsin which it has been tried, and this is particularly true in the field of employ-ment policy.77 In particular, it seems difficult to find out anything reliableabout the mechanisms which define it: is the autonomy nation states enjoyin their search for the means to achieve agreed upon targets really beingused innovatively? Have criteria been discovered and defined which enablea ‘benchmarking’ which the competitors will find convincing? Do the stateof political and societal actors really expose themselves to learningprocesses which they then convert without further pressure? Or does OMCerode core principles of constitutionalism, such as the regulative idea thatgovernance should adhere to legal principles and the rule of law? Whetherthis risk comes to pass depends on how the Member States synchronisetheir actions, and whether they find principles and rules to distinguish suchcoordination from pure political competition in a way that it gives a pictureof ‘democratic experimentalism’ and thus deserves approval.

C. Perspectives for Constitutionalising the European Multi-Level System

The Commission has not kept its promise to develop new perspectives for ademocratisation of European governance; it is doubtful whether the hopeswhich have been pinned to the coordination method recommended by theCouncil will be fulfilled; the Constitutional Convention is on its way but willhardly break effectively through to the lowlands of the economic, labour andsocial ‘state of the (European) Union’ or to the sensitive spheres of the risksociety: all of this does not exactly sound like good news. But on the onehand, there is a framework of analysis with which one can understand theabove mentioned approaches and difficulties. On the other hand, the integra-tion project always finds ways to progress despite the presence of obstacles.

1. Constitutional Incrementalism

Europe, so political-science integration research has been telling us for someyears now, is to be understood as a ‘multi-level system of governance sui generis’.78 This qualification of the EU cannot be transferred to law thateasily. But it points to problem constellations which the legal discipline

146 C H R I S T I A N J O E R G E S

77 Ashiagbor, D ‘Soft Harmonisation Labour Law, Economic Theory and the EuropeanEmployment Strategy’ (PhD Thesis, EUI Florence 2002).78 (Jachtenfuchs/Kohler-Koch 1996; Scharpf, FW, Regieren in Europa. Effektiv unddemokratisch? (Campus Verlag 1999).

must confront if it wants to hold on to the perspective of a legally conveyedlegitimacy of European governance. This is exemplified by the example ofthe demarcation of competences between the EU and the Member Statesand the legitimation of transnational, non-governmental governance.

(i) Competence Conflicts and ‘Diagonal’ Dispute Situations Competenceconflicts in the EU are distinguished by the fact that the Member Statedefending its autonomy itself belongs to the Community against whosepower it is seeking to defend itself. In this sort of conflict, both the MemberState concerned and the Community each bring their specific legitimacy to bear. Here, the principle of ‘limited individual empowerment’ (EC Article 3–4; now 3–7), according to which the Community may act only inthe areas explicitly allotted to it, is quite often dysfunctional: action ori-ented towards the various technical problems may involve both Communityand Member State powers. The resulting overlaps in practice compelCommunity and Member States de facto into complex mutual adjustmentsof their claims to act: each can block the other, but neither can arrive atsolutions to problems alone.79 This finding is very hard for the case law todeal with because it treats the allotment of competences as both empower-ment to action and restrictions on action, which, at the same time, makepolitical responsibilities transparent.80

The ECJ case law is known for its very broad interpretation of Europeancompetences. At the same time, however, it offers rich exemplary materialfor a prudent self-restriction in the practical treatment of the validity claimsof the competences of European law.81 The institutional context compelsthe law into ‘procedural’ settlements of conflicts that take the regulatoryconcerns of the Member States seriously and still manage to harmonisethem with the functional conditions of the EU system, which prove to be‘protective of autonomy and compatible with the Community’.82 Oneabsolutely typical situation for the European multi-level system is the ‘diag-onal’ conflict. Here, the Community has a competence which only extendsto one sub-area of inter-dependent technical questions, while the MemberStates only have partial powers which do not enable them to reachautonomous solutions to the problems, either. As a result, these conflict

Politics in the Constitutionalisation of Europe 147

79 Scharpf, FW, ‘Die Politikverflechtungs-Falle Europäische Integration und deutscherFöderalismus’ (1985) 26 Politische Vierteljahresschrift 323; Benz, A, ‘Politische Steuerung inlose gekoppelten Mehrebenensystemen’, In Wehrle, R and Schimank, U (ed), GesellschaftlicheKomplexität und kollektive Handlungsfähigkeit (Campus Verlag 2000), 99.80 For details, see Mayer, FC, ‘Die drei Dimensionen der Europäischen Kompetenzdebatte’(2001) 61 Zeitschrift für ausländisches öffentliches Recht und Völkerrecht 577; von Bogdandyand Bast above n 53.81 Furrer, A, Die Sperrwirkung des sekundären Gemeinschaftsrechts auf die nationalenRechtsordnungen (Nomos 1994).82 Scharpf, FW, ‘Autonomieschonend und Gemeinschaftsverträglich. Zur Logik der europäis-chen Mehrebenenpolitik’, MPIFG Discussion Paper 9/93 (Bonn 1993).

situations force cooperation; they can then only be solved cooperatively,and, at best, in deliberative processes.

(ii) ‘Deliberative’ Supranationalism The EU’s de facto administrativeweakness has strengthened the importance of these freedoms and engen-dered synergetic effects: it has promoted the development of autonomoustransnational areas of governance that constitute neither mere modifica-tions of the national polity nor supranational areas of administration. Thehybrid rules of control that characterise the EU system, in which nationaland European, as well as public and non-governmental actors collaborate,are responses to these institutional framework conditions. The perspectiveson constitutionalisation, which tie up with these mechanisms of cooperation,build on experiences in relatively well-known subsystems of risk regulation,and their normative content resembles the broader hopes associated withOMC. They bank on regulatory policy remaining pluralistic—also in thesense of being responsive to societal differences in the internal market—during its ‘implementation phase’. At the very least, they expect regulatorypolicy to be structured in a which enables national bureaucracies to debatethe positions of their counterparts in the neighbouring states which:

— ensures that the interests and concerns of Member States are not disregarded;

— induces the still primarily nationally organised and oriented publicspheres to pool their interests, concerns and arguments in the decen-tralised communication relations of European politics;

— encourages these public spheres to mutually acknowledge each other;— guarantees, through principles and rules, deliberatively constructed

solutions to problems, which in turn legitimise these hybrid governancestructures.

2. A Resumé

This tenacity of the European polity is reassuring, but no more than that. Itdoes not, after all, guarantee that the incrementalist searching and learningprocess whereby Europe has ‘constituted’ itself can successfully continue;neither does it ensure that the integration project discovers its Third Wayrather than constitutionalisation ‘from above’ and blind pragmatism.‘Constitutionalisation’, here, denotes the idea of a legal binding of gover-nance based on being able to structure the processes of political opinion-formation and decision-making ‘deliberatively’ using law, thereby securingtheir legitimacy.83 For this sort of programmatic re-attachment of the

148 C H R I S T I A N J O E R G E S

83 Eriksen, EO, and Fossum, JE, ‘The European Union and Post-national Integration’ (ARENAWorking Paper No 9/99, Oslo 1999); Joerges, ch, ‘The Law’s Problems with the Governanceof the European Market’, in Joerges, C and Dehousse, R (eds), Good Governance in Europe’s

European project to the ideals of deliberative democracy, a formal constitutional text would be neither sufficient nor indispensable.

Politics in the Constitutionalisation of Europe 149

‘Integrated’ Market (Hart 2002) 3. All this is very largely in line with the concept developedby Pernice (above n 53 and ibid, ‘Multi-level Constitutionalism and the Treaty of AmsterdamEuropean Constitution-Making Revisited’ (1999) 36 Common Market Law Review 703; and(2002) European Law Review 511) of a ‘constitutional association’, to the extent that it startsfrom both the de jure and the de facto inter-dependency in the European multi-level system,and seeks to overcome the dichotomies between national and European law. ‘Deliberative’supranationalism, however, seeks to set out these functions more precisely.

9

Collective Dominance in ECCompetition Law: Trojan Horse or

Useful Tool?

ALBERTINA ALBORS-LLORENS*

I. INTRODUCTION

THE EVOLUTION OF the concept of joint or collective dominancehas contributed an important chapter to EC Competition law and hasbeen the focus of intense attention in the academic literature.1 This

thorny notion has proved relevant both in the context of the application ofArticle 82 EC and of the EC Merger Regulation even if a textual reference toit was clear in the first case but non-existent in the second. Article 82 ECrecognises the existence of the concept of joint dominance by prohibiting

*Lecturer in Law, University of Cambridge and Fellow of Girton College. I am grateful to DanGoyder for his helpful comments on an earlier draft. All errors are, of course, my own. Thelaw has been stated at 30 June 2003.1 See Schödermeier, M ‘Collective dominance revisited: an analysis of the EC Commission’snew concepts of oligopoly control’ (1990) 11 European Competition Law Review 28;Winckler, A and Hansen, M, ‘Collective dominance under the EC merger control regulation’(1993) 30 Common Market Law Review 787; Venit, JS, ‘Two steps forward and no stepsback: economic analysis and oligopolistic dominance after Kali & Salz’ (1998) 35 CommonMarket Law Review 1101; Bishop, SB, ‘Power and responsibility: the ECJ’s Kali-Salz judg-ment’ (1999) 20 European Competition Law Review 37; Korah, V, ‘Gencor v Commission:Collective dominance’ (1999) 20 European Competition Law Review 337; Whish, R,‘Collective Dominance’ in Judicial Review in European Union Law, (Liber amicorum in hon-our of Lord Slynn of Hadley), Vol 1, O’Keefe, D and Bavasso, A, (eds), (The Hague, 2000),581; Motta, M, ‘EC merger policy and the Airtours case’ (2000) 21 European CompetitionLaw Review 199; Preece, S, ‘Compagnie Maritime Belge: missing the boat?’ (2000) 21European Competition Law Review 388; Cook, CJ, and Kerse, CS, EC Merger Control (3rdedn (Sweet and Maxwell 2000), pp 168–175; Monti, G, ‘The scope of collective dominanceunder Article 82 EC’ (2001) 38 Common Market Law Review 131; Niels, G, ‘Collective dom-inance: more than just oligopolistic interdependence’ (2001) 22 European Competition LawReview 168; Christensen, P and Rabassa, V, ‘The Airtours decision: is there a new Commissionapproach to collective dominance?’ (2001) 22 European Competition Law Review 227;Withers, C and Jephcott, M, ‘Where to now for EC oligopoly control?’ (2001) 22 EuropeanCompetition Law Review 295; Richardson, R and Gordon C, ‘Collective dominance: the third

abuses by one or more undertakings of a dominant position within theCommon Market. There is, however, no definition of joint dominance inthat provision. For its part, Article 2(3) of the EC Merger Regulation,2 onlydeclares incompatible with EC law those concentrations that create orstrengthen a dominant position, as a result of which competition would besignificantly impeded in the Common Market. It does not appear, however,to cover expressly mergers that would lead to a situation of joint domi-nance in a given market.

It therefore fell to the European Court to give meaning to the notion ofcollective dominance in the context of both Article 82 EC and of the ECMerger Regulation. This was a significant task in a system whose principalrules bifurcated to deal with explicitly collusive and unilateral anti-compet-itive behaviour—the latter when involving dominant firms—and where thecontrol of oligopolies presented difficult problems for the law.3

This article will consider the development of the concept of joint dominancein the case law and will then examine the recent decisions of the Communitycourts in Compagnie Maritime Belge4 and Airtours v Commission.5 It willfocus on the notion of collective dominance and will not consider issues relat-ing to the abuse of such a position.

II. THE EMERGENCE OF THE CONCEPT OF JOINT DOMINANCE IN ARTICLE 82 EC CASES

In some of the early cases, the Court interpreted the expression ‘one ormore undertakings’ in Article 82 EC as meaning that a position of domi-nance could be held by an undertaking alone or jointly with other under-takings in the same group.6 This seemed to suggest that joint dominancecould only apply to undertakings belonging to what the Court has tradi-tionally regarded as a single economic unit.7 It therefore represented a

152 ALBERTINA ALBORS-LLORENS

way’ (2001) 22 European Competition Law Review 416; McGregor, L, ‘The future for thecontrol of oligopolies following Compagnie Maritime Belge’ (2001) 22 European CompetitionLaw Review 434; Overd, A, ‘After the Airtours appeal’ (2002) 23 European Competition LawReview 375; Jones, A, and Sufrin, B, EC Competition Law (Oxford UP 2001), 681–91; Haupt,H, ‘Collective dominance under Article 82 EC and EC merger control in the light of theAirtours judgment’ (2002) 23 European Competition Law Review 434; Feddersen, C andO’Donoghue, R, ‘Airtours plc v Commission’ (2002) 39 Common Market Law Review 1171;Navarro, E, et al, Merger Control in the EU (Oxford UP 2002), 191–240.

2 See Art 2(3) of Council Regulation 4064/89 (OJ [1990] L 257/13), as amended by CouncilRegulation 1310/97 (OJ [1997] L 180/1).3 See the statement of the Court in Europemballage Corporation and Continental Can vCommission (Case C–6/72 [1973] ECR 215 at para 25 of the judgment).4 Joined Cases C–395/96P and C–396/96P [2000] ECR I–1365.5 Case T–342/99, Judgment of 6 June 2002, not yet reported.6 Case 78/70 Deutsche Grammophon v Metro [1971] ECR 487 at para 17 of the judgment.7 See Case 48/69 ICI v Commission [1972] ECR 619 at paras 131–42 of the judgment. Thisapproach has been referred to as the ‘narrow’ view of the coverage of Art 82 EC (see Rodger, BJ,

restrictive view of the notion of collective dominance and one that couldnot be applied to cases where several independent undertakings that jointlyhad a substantial share in a relevant market behaved in a parallel manner.8

The Commission, however, always had a forward-looking vision of thenotion of joint dominance. In the seventies, it applied the concept of collec-tive dominance in the European Sugar Cartel9 decision. There, theCommission found that two major Dutch producers of sugar that werelegally and financially independent were dominant because they systemati-cally cooperated in all their activities: in the joint purchase of raw material,in market research, in advertising, etc. This meant that they acted in a uni-form manner and appeared as a single entity in their dealings with otherundertakings.10 The decision of the Commission implicitly acknowledgedthree elements that might be regarded as constitutive of a position of collec-tive dominance. First, the undertakings in question held a large combinedmarket share.11 Secondly, they were legally and financially independent.Thirdly, they were connected in a way that enabled them to display uniform conduct and behave as a common entity towards other market par-ticipants. The Commission then took the view that the two producers hadabused their position of dominance by applying economic pressure to threeDutch sugar dealers in order to conclude an anti-competitive agreement.The European Court held that the Commission had not provided sufficientproof that the Dutch producers had applied such pressure and hence didnot consider the issue of joint dominance on appeal.12

In its judgment in Hoffmann-la-Roche,13 the Court shed light on the fac-tors that are indicative of individual dominance14 but also asserted a limit-ing position on the issue of joint dominance and its impact in the field ofoligopolies. Thus, it held:

A dominant position must also be distinguished from parallel courses of con-duct which are peculiar to oligopolies in that in an oligopoly the courses of

Collective Dominance in EC Competition Law 153

‘Oligopolistic market failure: collective dominance versus complex monopoly’ (1995) 16European Competition Law Review, 21 at 22).

8 See also the statement of the Court in Case 247/86 Alsatel v Novasam [1988] ECR 5987, atpara 20.9 Decision 73/109/EEC, OJ [1973] L 140/17; [1973] CMLR D 65.

10 Ibid at para 172.11 In the Sugar Cartel case, the two producers produced all the Dutch sugar and their sales rep-resented more than 85% of the Dutch market.12 Joined Cases 40 to 48, 50, 54–56, 111, 113 and 114/73 [1975] ECR 1663, at paras 403–20of the judgment.13 Case 85/76 [1979] ECR 461.14Ibid at paras 38–79 of the judgment. Both the definition of individual dominance and indicativefactors of dominance had been set out in earlier cases (see Case 27/76 United Brands vCommission [1978] ECR 207 at paras 65–129 of the judgment) and Commission decisions (seethe decisions of the Commission in Re Continental Can [1972] 1 CMLR D 11 at para II.B.3; inRe United Brands [1976] CMLR D 28 at para II.A.2 and in Re Aardolie Belange GemeenschapBV [1972] 2 CMLR D 1.

conduct interact, while in the case of an undertaking occupying a dominantposition, the conduct of the undertaking which derives profits from that posi-tion is to a great extent determined unilaterally [emphasis added].15

This statement reflected the reluctance of the Court to use Article 82 EC asa mechanism to control oligopolistic markets16 and showed a potentialgap in their regulation under EC Competition law. While express collusionwould be caught by Article 81 EC, tacit collusion—which could easilyarise in these highly transparent markets—could escape the application ofboth Articles 81 and 82 EC.17 Furthermore, by distancing oligopolies fromthe sphere of application of Article 82 EC, the Court intrinsically curtailedthe development of the concept of collective dominance, which could havefound a fruitful field of application in cases involving this kind of market.

What had seemed to be a closed chapter in EC Competition Law, wasvigorously re-opened in 1992, with the landmark ruling of the Court ofFirst Instance in Italian Flat Glass,18 which began to give real substance tothe notion of joint dominance in Article 82 EC. The case concerned threeItalian producers of flat glass which operated in a tight oligopoly andtogether had a 79% share of the flat glass automotive market and a 95%share of the flat glass non-automotive market. The Commission took theview that the three undertakings had infringed Article 81(1) EC by enteringinto a series of agreements and concerted practices, with the intention interalia of applying identical prices and of sharing of markets and consumers.Furthermore, the Commission went on to find that the producers hadabused their position of joint dominance and, therefore, that they were alsoin breach of Article 82 EC.19 The Court partly annulled the Commission’sdecision based on Article 81 EC and also found no abuse of collective dom-inance. Crucially, however, it defined joint dominance in much wider termsthan those used in the early case law. Thus, it held:

The Court considers that there is no legal or economic reason to suppose thatthe term ‘undertaking’ in Article 86 EC [now 82 EC] has a different meaningfrom the one given to it in the context of Article 85 [now 81 EC]. There is

154 ALBERTINA ALBORS-LLORENS

15 Case 85/76 above n 13 at para 39 of the judgment.16 See Whish above n 1 at 586 and Withers and Jephcott above n 1 at 296.17 See Whish above n 1 at 586–87.18 Joined Cases T–68/89, T–77/89 and T–78/89 Società Italiana Vetro v Commission [1992]ECR II–1403.19 The Commission (see Commission Decision 89/93/EEC, OJ [1989] L 33/44) had establishedthe existence of a collective dominant position on the basis of three main factors: First, becauseof the large and stable joint market shares of the undertakings, both in the automotive andnon-automotive market. Secondly, because the undertakings presented themselves as a singleeconomic entity. This was reflected in the fact that the producers jointly maintained speciallinks with the main glass distributors in Italy and that their business decisions displayed amarked degree of interdependence with regard to prices and conditions of sale. Finally, becausethe three undertakings had established among themselves structural links relating to produc-tion through the systematic exchange of products (see para 79 of the Commission’s decision).

nothing, in principle, to prevent two or more independent economic entitiesfrom being, on a specific market, united by such economic links that, byvirtue of that fact, together they hold a dominant position vis-à-vis the otheroperators on the same market. This could be the case, for example, wheretwo or more independent undertakings jointly have, through agreements orlicences a technological lead affording them the power to behave to an appre-ciable extent independently of their competitors, their customers and ulti-mately, of their consumers.20

The significance of this statement was two-fold. First, the Court implicitlywithdrew from its earlier position, which had confined joint dominance toundertakings belonging to the same corporate group by stressing that theterm ‘undertaking’ in Article 82 EC had the same meaning as in Article 81EC.21 The consequence of this was that joint dominance could now beapplied to two or more legally and financially independent undertakings.Secondly, now freed from the constraints of its previous approach, theCourt went on to define collective dominance as a situation where two ormore independent undertakings are united by economic links and, thereby,hold a position of dominance vis-à-vis other undertakings.

III. THE MEANING OF THE TERM ‘ECONOMIC LINKS’

While the Court defined the scope of collective dominance in Italian FlatGlass, it simultaneously obscured this concept by not explaining the mean-ing of the expression ‘economic links’, which appeared to be central to itsdefinition. The Court provided an example of what would constitute aneconomic link: ie where two or more undertakings have a technologicallead in the market as a result of agreements or licences between them. Thespecificity of this example, however, was unhelpful when a general defini-tion of the term had yet to be established. The judgment therefore promptedsome important questions. What was the purpose of requiring the undertak-ings to be united by economic links? What would constitute an economiclink other than a contractual link like the one described in Italian Flat Glass?Could agreements caught by Article 81(1) constitute an economic link in thecontext of application of the concept of collective dominance?

It is hardly surprising that an intense debate about the purpose andmeaning of economic links was generated in the wake of the decision inItalian Flat Glass. The function of these links soon became clear inAlmelo,22 where the European Court held that undertakings ‘must be

Collective Dominance in EC Competition Law 155

20 Ibid at para 358 of the judgment.21 See above n 6.22 Case C–393/92 [1994] ECR I–1477.

linked in such a way that they adopt the same conduct in the market’23 inorder to be collectively dominant. This approach reflected what had alwaysbeen the position of the Commission, namely, that collectively dominantundertakings are characterised as such mainly because they act in a uni-form manner and appear as a single entity in their dealings with other oper-ators in the same market.24 Almelo therefore made it clear that economiclinks were important in so far as they constituted the means of determiningthat two or more undertakings were able to present themselves as a singlemarket entity.

In Compagnie Maritime Belge v Commission,25 the Court of FirstInstance upheld the Commission’s view that members of CEWAL, a linerconference, were united by economic links. Liner conferences fall withinthe scope of Block Exemption Regulation 4056/8626 and are defined as agroup of two or more shipping companies that provide international linerservices for the carriage of cargo on certain routes and which arrange tooperate on the basis of common freight rates and carriage conditions.27

The Court held that while some of the activities of the members of the con-ference were covered by the block exemption, and hence fell outside thescope of application of Article 81(1) EC, this did not preclude the applica-tion of Article 82 EC to other of their activities.28 In particular, it endorsedthe Commission’s finding that the companies were collectively dominant.This was because they held a very large combined market share in the rele-vant market and, as a result of the conference, had a very close relationshipwhich enabled them to adopt a common policy and to present themselvesas a single unit.29 It would seem from the judgment, that there were two ele-ments crucial to a finding of dominance: the existence of a connecting link

156 ALBERTINA ALBORS-LLORENS

23 Ibid at para 42 of the judgment. See also the decisions of the Court in Centro ServiziSpediporto v Spedizioni Maritima del Golfo (Case C–96/94 [1995] ECR I–2883) at para 33 ofthe judgment, and in DIP v Comune di Bassano del Grappa and Comune di Chioggia (JoinedCases C–140/94, C–141/94 and C–142/94 [1995] ECR I–3257) at para 26 of the judgment.24 See the decision of the Commission in European Sugar cartel (above n 9 and correspondingtext).25 T–24–26 and 28/93 [1996] ECR II–1019.26 OJ [1986] L 378/4.27 See Art 1(3)(b) of Regulation 4056/86.28 Commission Regulation 4056/86 (see note 26 above) expressly acknowledges that Art 82may be applicable to conferences benefiting from the exemption (see Art 8 of the Regulation),if the conduct of their members constitutes an abuse of dominant position. See also Art 7(2) ofCouncil Regulation 3976/87 on the application of Art 81(3) EC in the air transport sector (OJ[1987] L 374/9) and the judgment of the Court in Ahmed Saeed Flugreisen v Zentrale zurBekämpfung unlauteren Wettbewerbs [1989] ECR 803, at para 37.29 See Cases T–24–26 and 28/93, note 25 above, at paras 64–65 of the judgment, andCommission Decision 93/82/EEC (OJ [1993] L 34/20) at paras 57–61. See also the decision ofthe Commission in Port of Rødby (Commission Decision 94/119/EC OJ [1994] L 55/63,where the Commission applied the same approach to two companies that jointly operated theferry route between the ports of Rødby and Puttgarden and cooperated in joint ticket sales, injoint fixing of timetables and rates and in the granting of identical discounts.

between the undertakings that would enable them to appear as a collectiveentity, and the actual adoption of a sustained common market policy.30

An appeal was lodged against the decision of the Court of First Instancewhich led to the landmark ruling of the European Court in CompagnieMaritime Belge v Commission.31 There, the Court chose to adopt a wideinterpretation of the concept of economic links and clarified some aspectsof the concept of collective dominance in the context of Article 82 ECcases.32 This judgment will be considered below.33

IV. COLLECTIVE DOMINANCE IN THE FIELD OF MERGER CONTROL

In the meantime, important developments took place in the field of mergers.While the EC Merger Regulation covers mergers that lead to the creation orstrengthening of a position of dominance, it does not expressly refer tomergers that lead to a position of collective or oligopolistic dominance, thatis where a few big sellers jointly dominate the competitive structure of amarket. In its decision in Kali und Salz,34 the Court accepted theCommission’s long-held view that mergers giving rise to such situationsshould come under the scope of the Merger Regulation.35 It also definedcollective dominance for the purposes of application of the EC MergerRegulation as follows:

a situation in which effective competition in the relevant market is signifi-cantly impeded by the undertakings involved in the concentration and one ormore undertakings, which together, in particular because of correlative fac-tors which exist between them, are able to adopt a common policy on themarket and to act to a considerable extent independently of their competi-tors, their customers, and also of consumers.36

Collective Dominance in EC Competition Law 157

30 This was recognised by the European Court on appeal (see Cases C–395/96 and C–396/96P[2000] ECR I–1365 at paras 39–41 of the judgment).31 See Cases C–395/96P and C–396/96P, note 30 above,32 Advocate General Fennelly delivered his Opinion on the appeal in October 1998 and pro-posed the adoption of an expansive definition of economic links. He took the view that of thetwo ingredients necessary for a position of collective dominance to occur—a connecting rela-tionship between the undertakings and the adoption of a common market strategy—it was thesecond one that was predominant. Hence, economic links could only be defined ‘by referenceto their result, namely, the establishment of a situation where a group of independent under-takings performs as a single market entity’. He concluded that the notion of economic linkscould go beyond links of a contractual nature to encompass cross-shareholdings, commondirectorships, or even family links with economic consequences (see the Opinion of AGFennelly in Joined Case C–395/96P and C–396/96P Compagnie Maritime Belge v Commission[2000] ECR I–1365, I–1383–I–1384.).33 See below nn 78–84 below and corresponding text.34 Joined Cases C–68/94 and C–30/95 [1998] ECR I–1375.35 See, inter alia, the decision of the Commission in Nestlé-Perrier (Case IV/M, OJ [1992] L 356/1).36 Ibid at para 221 of the judgment.

The EC Merger Regulation and Article 82 EC have each different scope ofapplication. The first aims to control concentrations with a Communitydimension; the second deals with abuses of dominant position by one ormore undertakings which have an effect on intra-EC trade. The first isbased on a prospective analysis of the market (ex ante control), the secondon a retrospective one (ex post control). Despite these differences and theabsence of any express reference to Article 82 EC cases, the definition ofcollective dominance provided in Kali und Salz seemed to be close to theconcept that had emerged in Article 82 EC cases. In particular, the require-ment that the undertakings in question should be in a position to adopt auniform market policy supported the findings of the European Court inAlmelo.37

A year later, the decision of the Court of First Instance in Gencor38 shedfurther light on the notion of collective dominance in merger cases. Thecase concerned the proposed merger of the platinum and rhodium opera-tions of a South African and an English company. The arrangements werenotified to the Commission, which concluded that the proposed concentra-tion would be incompatible with EC law because it would lead to the cre-ation of a joint dominant position between the entity arising from themerger and Amplats, the leading world-wide supplier of platinum metal.39

The Court of First Instance confirmed that the Merger Regulation wouldapply to concentrations likely to create or strengthen a position of joint orcollective dominance.40 Moreover, it clarified the scope of the notion ofeconomic links, and in this respect, the judgment is of great importance.One of the arguments of the applicant was that the Commission did notprove sufficiently the existence of structural links between the entity arisingfrom the merger and Amplats. The applicant was obviously referring tolinks within the meaning of the example given in Italian Flat Glass: ie atechnological lead resulting from an agreement or licence.41 The Commissionadopted a much broader view and contended that the judgment in that case:

did not lay down the existence of economic links as a requirement or restrictthe notion of economic links to the structural links relied on by the applicant[emphasis added].42

158 ALBERTINA ALBORS-LLORENS

37 See n 22 above. On the facts of the case, however, the Court annulled the Commission’sdecision because the economic analysis used by the Commission to conclude that the mergedentity (Kali und Salz (K�S) and Mitteldeutsche Kali (MdK)) and another undertaking in thatmarket (Société Commerciale des Potasses et de l’Azote (SCPA)) would be collectively domi-nant did not support that finding conclusively. See further Venit above n 1.38 Case T–102/96 [1999] ECR II–753.39 Commission Decision 97/26/EC (OJ [1997] L 11/30).40 See Case T–102/96 above n 38 at paras 123–57.41The Commission, however, took the view that a number of structural links did exist in the case,and this finding that was later upheld by the Court (see Case T–102/96 above n 38 at para 280).42 Case T–102/96 above n 38 at para 270.

Two aspects need to be considered in relation to the arguments of the parties to the case. First, both the applicant and the Commission referred tothe ruling in Italian Flat Glass, thereby emphasising the connection betweenthe interpretation of collective dominance in Article 82 and in merger cases.Secondly, both the applicant and the Commission used the term structurallinks instead of referring to links of a contractual nature.43 There were,however, important differences in terms of their respective interpretationsof the concepts of collective dominance and of economic links. The appli-cant argued on the premise that the presence of economic links was crucialto a finding of joint dominance and then went on to state that only struc-tural links could be considered as proper economic links. The Commission,on the other hand, was trying to introduce a very wide definition of collec-tive dominance by stating that economic links were not even necessary for aposition of joint dominance to occur. Moreover, it maintained that thoselinks, if present, could encompass links other than those of a structuralnature. In other words, while the applicant treated structural links as equiva-lent to economic links, the Commission treated the former as a sub-categoryof the latter.

The Court of First Instance adopted a judiciously balanced approach. Itbegan by explaining that structural links were just a form of economic linkand hence that it had only referred to them in Italian Flat Glass by way ofexample.44 In doing so, it also defined the term ‘economic links’ as includ-ing both structural and contractual links. The Court did not, however, fullyadopt the broad approach of the Commission and it implicitly confirmedthat the existence of economic links was a constitutive element of the notionof collective dominance.45 The judgment was particularly helpful becausethe Court went on to explain what could constitute an economic linkbeyond the examples already accepted in the case law.46 It held:

there is no reason whatsoever, in legal or economic terms, to exclude fromthe notion of economic links the relationship of interdependence existingbetween the parties to a tight oligopoly within which, in a market with theappropriate characteristics, in particular in terms of market concentration,transparency and product homogeneity, those parties are in a position toanticipate one another’s behaviour and are therefore strongly encouraged to

Collective Dominance in EC Competition Law 159

43 This expression was also used by the Commission and by the European Court in Kali undSalz (See Joined Cases C–68/94 and C–30/95 above n 34 at para 27 of the judgment. In thatcase, the Commission had listed—among other criteria which it thought relevant to the estab-lishment of a position of collective dominance—three structural links: a joint venture, thecooperation between the parties in an export-cartel, and the channelling of the Kali und Salzsupplies to France through SCPA.44 Case T–102/96 above n 38 at para 273. As Whish explains, the Court treated structurallinks as a ‘sub-species’ of economic links: see above n 1 at 600.45 See Withers and Jephcott above n 1 at 298.46 See also Korah above n 1 at 337.

align their conduct in the market, in particular in such a way as to maximisetheir joint profits by restricting production with a view to increasing prices.47

The Court therefore held that the notion of economic links could extend tolinks that result from market structure. In particular, it accepted that therelationship of interdependence between parties to a tight oligopoly could,in itself, be an economic link that would enable the undertakings in ques-tion to behave as a common market entity. It would seem that, in doing so,the Court was providing an incipient mechanism for the control of poten-tial oligopolies, for which EC Competition law hitherto had not had a clearresponse. The underlying reasoning seemed to be clear. Given that anundertaking operating in that kind of market can normally predict the reac-tion of the others without having to resort to an agreement or concertedpractice, then potentially anti-competitive conduct in those markets—egoutput restriction in order to drive up prices—could easily escape the appli-cation of the Competition rules.48

Could we, however, go further and deduce from the Court’s judgmentthat members of an oligopoly would automatically be collectively domi-nant, given that a measure of interdependence is always present in this typeof market? That would be a far-reaching assumption. It must not be forgot-ten that the requirement of a link is important because it helps to determinewhether the undertakings will be likely to behave in a consistent manner asa common entity in their dealings with other market operators.

Most authors argued against identifying every oligopolistic market struc-ture with a situation of collective dominance. Thus, Niels explained that,on the basis of a dynamic oligopoly theory, interplay between oligopolistscan result in competitive outcomes (ie if one of them decides to price lowwhile the others stay high) as well as to anti-competitive ones (ie where allthe oligopolists reach and sustain high prices in order to obtain monopolyprofits).49 Therefore only where the firms can be shown to be maximisingprofits repeatedly through tacit coordination is a finding of collective dom-inance pertinent.50 Put differently, that interdependence alone might notlead per se to tacit collusion in every single case. In the context of mergercases, this interpretation would mean that the Commission needs to provescrupulously whether or not a proposed concentration would be conduciveto a situation where the entity arising from the merger, and other marketparticipants, would maximise their profits through tacit coordination.51

160 ALBERTINA ALBORS-LLORENS

47 Case T–102/96 above n 38 at para 274 of the judgment.48 See Case T–102/96 above n 38 at para 277 of the judgment.49 Niels above n 1 at 170. On static and dynamic oligopoly theory, see also Haupt above n 1 at435–36.50 Ibid at 172. See also Richardson and Gordon above n 1 at 420. For arguments against theautomatic application of collective dominance to oligopolies in the context of Art 82 EC cases,see Monti above n 1 at 143–44.51 See also Whish, R, Competition Law 4th edn (Butterworths 2001), 487.

The real difficulty lies, of course, in anticipating situations of tacit collusionand in distinguishing them from cases that would involve competitive market behaviour.52

Some authors construed the judgment in Gencor as limited to the con-text of mergers leading to the formation of tight oligopolies—which inher-ently may pose anti-competitive risks—and hence justify the approach ofblocking mergers that could create such market structures. The inference isthat the conditions prevalent in a duopoly—high entry barriers, similar costbarriers, low demand growth, transparency of prices and producthomogenity—are such that duopolists will be strongly encouraged to aligntheir conduct in the market and to present themselves as a common entity.53

However, this is not the same as concluding that collective dominance canbe found in every oligopoly purely on the basis of the natural structuralinterdependence between the market participants.54 Oligopolies are, afterall, complex structures that can adopt many forms, ranging from a duopolyor a perfect oligopoly to situations where the oligopolists have unequalmarket shares or where there is a group of small participants in the market.55

In other words, the extension of the Gencor approach beyond the contextof a tight oligopoly would seem to be an oversimplification of the ‘oligopolyproblem’.

The potential of the Gencor judgment, however, was soon exploited bythe Commission’s decision in Airtours/First choice.56 The background ofthis decision was the proposed acquisition by Airtours, a United Kingdomtravel group, of First Choice, another British company operating in thesame market. The Commission blocked the merger on the grounds that theproposed concentration would lead to the creation of a joint dominanceposition in the United Kingdom market for short-haul foreign package hol-idays, which would substantially impede effective competition in that mar-ket. This collective dominant position would have been held by the entityresulting from the merger and Thomson and Thomas Cook—the other twoleading and vertically integrated operators in the same market. At the hear-ing, Airtours put forward an argument, which later became central to itsapplication for the annulment of the Commission’s decision. It argued thatcollective dominance really amounts to ‘tacit coordination’ and that tacitcoordination is only feasible where there are appropriate retaliatory mecha-nisms in the market which prevent the oligopolists from cheating.57

Collective Dominance in EC Competition Law 161

52 On the difficulties of distinguishing tacit coordination and competitive behaviour, seeChristensen and Rabassa above n 1 at 229.53 See Monti above n 1 at 133–35.54 See Withers and Jephcott above n 1 at 298.55 See McGregor above n 1 at 436. For an analysis of the criticisms directed to the theory ofoligopolistic interdependence, see Whish above n 51 at 463–65.56 Decision 2000/276/EC, OJ [2000] L 93/1; [2000] 5 CMLR 494.57 Ibid at paras 52 and 148 of the decision.

The Commission, no doubt encouraged by the Court’s positive stance inGencor, took the view that collective dominance was not dependent on afinding that the merger would lead to sustainable tacit coordination.58 As aresult, it was not necessary to show that punishment mechanisms were inplace to deter those participants who might try to depart from the commonmarket policy.59 The Commission asserted that joint dominance would existwhere ‘a merger makes it rational for the oligopolists, in adapting them-selves to market conditions, to act individually, in ways that would reducecompetition between them [emphasis added]’.60 In other words, theCommission thought it unnecessary to show that the undertakings wouldbehave as if there was an explicit agreement between them. Provided thatthe degree of interdependence between them was such that it would berational for them to restrict output, and hence restrict competition, a posi-tion of collective dominance would be created.61 The Commission then tookthe view that the market of short-haul foreign package holidays already dis-played a number of characteristics that were conducive to the creation of aposition of collective dominance.62 These included low price sensitivity ofdemand, similar cost structures of the main suppliers, high market trans-parency, commercial links between the suppliers, high entry barriers andinsignificant buyer power.63 Furthermore, the Commission found that themarket already showed ‘a tendency towards collective dominance’.64 It con-cluded that the proposed merger would reinforce these characteristics andwould contribute to the creation of a position of collective dominance.65

The Commission’s decision in Airtours was received cautiously. For somescholars in the field, the decision confirmed the view that the Commissiondid not think it necessary to show the likelihood of sustainable tacit coordi-nation after the merger.66 They concluded that Airtours had extended theGencor principles to a market with different characteristics from those pres-ent in a tight oligopoly.67 This would have the effect of introducing a more

162 ALBERTINA ALBORS-LLORENS

58 Ibid at paras 54 and 150 of the decision.59 Ibid.60 Ibid at para 54 of the decision.61 Ibid at para 150 of the decision.62 Ibid at paras 87 and 127 of the decision.63 Ibid.64 See para 138 of the decision.65 Ibid.66 Withers and Jephcott above n 1 at 302; Richardson and Gordon above n 1 at 420; Nielsabove n 1 at 168.67 See Motta above n 1. This author provided a thoughtful and clear analysis of theCommission’s decision and argued that there was little doubt that the merger would decreaseeconomy efficiency. In his view, what made the decision controversial was the fact that theCommission used the concept of collective dominance to block the merger, without provingthe likelihood of tacit collusion after the merger. This author concluded that the solution tothe problem could lie in a modification of the EC Merger regulation ‘so as to allow for theprohibition of welfare detrimental mergers even when they do not create or strengthen dominance’ (see above n 1 at 199 and 207).

radical and general mechanism for the control of oligopolistic markets.Essentially, the Commission’s approach seemed to shift the emphasis of collec-tive dominance from a consideration of dynamic factors, such as the likeli-hood of tacit coordination after the merger, to purely structural factors, such as the degree of interdependence between the undertakings in question.The general consensus, though not unanimous,68 seemed to be that theCommission had pushed the notion of collective dominance one step further.69

Airtours challenged the Commission’s decision before the Court of FirstInstance. Its case rested on the argument that not only had the Commissionintroduced a new and incorrect definition of collective dominance but alsothat it had insufficiently proved that the merger would lead to a situationwere the companies would behave in an anti-competitive manner.70 Adefinitive clarification of the case law was urgently needed. It came threeyears later, with the dramatic decision of the Court of First Instance inAirtours v Commission, where the Court annulled the Commission’s deci-sion and provided a set of strict criteria for the identification of situationsof collective dominance in merger cases. This decision will be considered indetail below.71

V. MOVING FORWARD? COLLECTIVE DOMINANCE IN RECENT ARTICLE 82 EC AND MERGER CASES

After the decision of the Commission in Airtours, the focus of collectivedominance moved again to Article 82 EC cases. In October 1999, the Courtof First Instance delivered its judgment in Irish Sugar v Commission.72 Thiscase was important on several counts. Firstly, because it upheld a decisionof the Commission making a finding of collective dominance in a verticalcommercial relationship between a supplier and one of its distributorsrather than in a traditional horizontal situation.73 Secondly, because, inaffirming the decision of the Commission, it implicitly introduced a widernotion of economic links,74 which would encompass not only contractuallinks, but also other factors that connected the two undertakings so as to

Collective Dominance in EC Competition Law 163

68 See Christensen and Rabassa, (above n 1), who argued that the Commission’s analysis inAirtours was consistent with that applied in previous decisions.69 But see Whish above n 51 at 491, who convincingly argued that although the language ofthe Commission’s decision could be construed as introducing a lower threshold for collectivedominance, it was not clear from the decision that the Commission intended to do so.70 Case T–342/99 Airtours v Commission, above n 5, at para 16.71 See below nn 86–94 below and corresponding text.72 Case T–228/97 [1999] ECR II–2969. The decision of the Court of First Instance wasappealed before the European Court and the appeal was dismissed by Order of 10 July 2001(Case C–497/99, not yet reported).73 Ibid at paras 61–64 of the judgment.74 This would be confirmed later by the judgment of the European Court on the appeal inCompagnie Maritime Belge (Joined Cases C–395/96P and C–396/96P, above n 32).

enable them to behave as a common entity.75 These included Irish Sugar’sequity holdings in the distributor company and representation on its board,as well as economic ties, such as the commitment provided by Irish Sugarto cover the cost of all promotions and rebates offered by the distributor toindividual customers.76 Finally, it was also significant that the Court drewauthority from the merger cases on collective dominance, thereby underlin-ing the already manifest parallelism in the definition of this concept inArticle 82 EC and merger cases.77

In March 2000, the European Court delivered its judgment78 on theappeal against the decision of the Court of First Instance in CompagnieMaritime Belge.79 The appeal was partly based on the argument that theCourt of First Instance had failed to prove the existence of the economiclinks that were necessary to establish a position of joint dominance. In par-ticular, the appellants considered that the series of agreements that formedthe liner conference ought to be dealt with under Article 81(1) EC—and, ifappropriate, exempted under 81(3) EC. However, they could not be ‘recy-cled’ in order to be used as economic links for the purpose of the applica-tion of the notion of joint dominance.

The judgment of the Court was of great consequence on two mainfronts. Firstly, because it clarified the occasionally nebulous interplaybetween Articles 81 and 82 EC. The question that the Court was expectedto answer was whether an agreement within the meaning of Article 81 ECcould in itself constitute an economic link for the purpose of a finding ofcollective dominance. The Court held:

The mere fact that two or more undertakings are linked by an agreement, adecision by an association of undertakings or a concerted practice within themeaning of Article 85(1) [now 81(1) EC] of the Treaty does not, of itself, con-stitute a sufficient basis for such a finding.

On the other hand, an agreement, decision or concerted practice—whetheror not covered by an exemption under Article 85(3) [now 81(3)] of theTreaty—may undoubtedly, where it is implemented, result in the undertak-ings being so linked as to their conduct on a particular market that they pres-ent themselves on that market as a collective entity vis-à-vis their competitors,their trading partners and consumers.80

The approach of the Court was therefore that while an agreement withinthe meaning of Article 81(1) EC would not automatically constitute an

164 ALBERTINA ALBORS-LLORENS

75 Ibid at para 51 of the judgment.76 See the decision of the Commission in Irish Sugar (Decision 97/624/EC OJ [1997] L 258/1)at para 112. For the Commission, these ties created a ‘clear parallelism of interest of the twocompanies vis-à-vis third parties’ (Ibid).77 See Case T–228/97 above n 72 at para 46.78 Joined Cases C–395/96P and C–396/96P above n 32.79 See Cases T–24–26 and 28/93 above n 25.80 Joined Cases C–395/96P and C–396/96P above n 32 at paras 43–44 of the judgment.

economic link, it could nevertheless do so when, as a result of it, theundertakings constituted a collective entity vis-à-vis the other market par-ticipants. Whether an agreement or series of agreements produced such aresult would be decided on the basis of each particular case. On the facts ofCompagnie Maritime Belge, the Court was persuaded that the agreementsthat were part of the liner conference provided the necessary economic linkto enable the companies to present themselves as a common entity for thepurposes of Article 82 EC. 81

Secondly, the Court went further in its efforts to elucidate the contestednature of the term ‘economic links’. It held:

The existence of a collective dominant position may therefore flow from thenature and terms of an agreement, from the way it is implemented and, con-sequently, from the links or factors which give rise to a connection betweenundertakings which result from it. Nevertheless, the existence of an agree-ment or other links in law is not indispensable to a finding of a collectivedominant position; such a finding may be based on other connecting factorsand would depend on an economic assessment and, in particular, on anassessment of the structure of the market in question [emphasis added].82

It is significant that, in a case where contractual links were present, theCourt chose to emphasise that economic links could also arise from thestructure of the market. Although no express reference was made to thejudgment in Gencor, there were striking similarities between this decisionand the Court’s reasoning in Compagnie Maritime Belge. The Courtstopped short of affirming that an example of this kind of link could be therelationship of interdependence present in an oligopoly. However, thisseemed to be the conclusion that followed from this statement,83 particu-larly given the parallel definitions of collective dominance in Article 82 ECand merger cases, and the Court’s well-established practice of making cross-references to the case law in both areas.84

The judgment in Compagnie Maritime Belge could therefore be con-strued as the awaited response to the ‘oligopoly problem’ in Article 82 ECcases, just as Gencor was construed as a response to that problem in thecontext of merger control. While the merger cases had provided a mecha-nism for the ex ante control of potential situations of oligopolistic domi-nance, the decision in Compagnie Maritime Belge could be read as doingthe same for the ex post control of oligopolies.

Collective Dominance in EC Competition Law 165

81 The Court of First Instance had been satisfied that the Commission had provided sufficientproof that the members of the liner conference presented themselves as a common entity (see Cases T–24–26 and T–28/93 above n 25 at paras 63–65 of the judgment). See also the judg-ment of the European Court (Joined Cases C–395/96 and C–396/96 above n 32 at paras 46–47of the judgment).82 Ibid at para 45 of the judgment.83 See Withers and Jephcott above n 1 at 303, and McGregor above n 1 at 436.84 See above nn 44 and 77.

The application of Article 81 EC to these markets had always been a difficult task because sellers can easily anticipate the reaction of their com-petitors and engage in anti-competitive behaviour without express collusion.Tacit collusion in an oligopoly had therefore escaped any form of control bythe competition rules. At the other end of the spectrum, however, paral-lelism in those markets may just be an expression of intelligent adaptationto the behaviour of competitors and not a reflection of any anti-competitivepractice. The degree of clarification of the notion of ‘economic links’ intro-duced by the judgment in Compagnie Maritime Belge was well received.However, the judgment also raised concerns that, although this approachcould provide a beneficial mechanism for bridging an important gap in ECcompetition law, it might produce unfair results if misused or applied with-out the support of scrupulous economic analysis. In particular, it wouldseem to be crucial that the finding that the oligopolists present themselvesand act as a collective entity that is independent of competitive pressuresshould be supported by a rigorous analysis of the market, and not simplyinferred from their parallel behaviour.85

The development of collective dominance had thus reached a momen-tous point, both in the context of merger control and in Article 82 EC cases,when the Court of First Instance delivered its eagerly awaited decision inAirtours v Commission86 in June 2002. There, the Court of First Instanceannulled the Commission’s decision because the Commission had failed toprove adequately that the merger would lead to the creation of a positionof collective dominance. More importantly, the Court provided not only aclear definition of collective dominance, but also a set of conditions that arenecessary for the finding of such a position.87 It held:

A collective dominant position significantly impeding competition in theCommon Market or in a substantial part of it may thus arise as a result of aconcentration where, in view of the actual characteristics of the relevant mar-ket and of the alteration in its structure that the transaction would entail, thelatter would make each member of the dominant oligopoly, as it becomesaware of common interests, consider it possible, economically rational, andhence preferable, to adopt on a lasting basis a common policy on the marketwith the aim of selling above competitive prices, without having to enter intoor resort to a concerted practice within the meaning of Article 81 EC … andwithout any actual or potential competitors, let alone customers of con-sumers, being able to react effectively [emphasis added].88

The Court’s statement essentially confirmed that a position of collectivedominance would not arise purely from the natural interdependence in an

166 ALBERTINA ALBORS-LLORENS

85 See Withers and Jephcott above n 1 at 303, and McGregor above n 1 at 437.86 Case T–342/99 above n 5.87 See generally, Feddersen and O’Donoghue above n 1; Haupt above n 1.88 Case T–342/99 above n 5 at para 61 of the judgment.

oligopoly, but from the fact that the participants were likely to adopt, on alasting basis, a common policy in the market. In other words, the Courtaffirmed that a finding of joint dominance would be pertinent only where itwould be likely that the undertakings in question would tacitly coordinatetheir behaviour in order to affect competition, and were able to do so with-out other market participants being able to react. The Court’s approachdirectly addressed the concerns expressed both after its decision in Gencorand particularly after the decision of the Commission in Airtours.89

The Court then went on to outline the three conditions that must becumulatively satisfied for a finding of collective dominance to be made. Itheld:

First, each member of the dominant oligopoly must have the ability to knowhow the other members are behaving in order to monitor whether or not theyare adopting the same policy … second, the situation of tacit coordinationmust be sustainable over time, that is to say, there must be an incentive not todepart from the common policy on the market … third, to prove the existenceof a collective dominance to the requisite legal standard, the Commissionmust also establish that the foreseeable reaction of current and future com-petitors, as well as of consumers, would not jeopardise the results expectedfrom the common policy.90

This three-stage test introduces a welcome and unprecedented degree ofcertainty in the application of the notion of joint dominance. Lookingclosely at the three limbs of the test, each one represents an evidential hur-dle that cannot be overcome without thorough economic analysis. TheCommission needs to prove prospectively first that the oligopolists not onlywill be aware that interdependence may be profitable, but also that theywill ‘have the means of knowing whether the other operators are adoptingthe same strategy and are maintaining it’;91 secondly, that there will be adequate deterrents in place for those who depart from the common policy92

and finally, that the foreseeable reaction of current and future competitorswould not affect the results expected from the common policy.93 When theCourt applied these parameters to the facts, it found that the Commissionhad not proved adequately that any of these conditions would be present inthe market for short-haul package holidays following the merger.

It remains to be seen whether this test will be applicable to findings ofcollective dominance in Article 82 EC cases. It is suggested that this testwould not only be suitable but also that it would be easier to apply in these

Collective Dominance in EC Competition Law 167

89 See above nn 56–65 above and corresponding text.90 Case T–342/99 above n 5 at para 62 of the judgment.91 Ibid. 92 Ibid.93 Ibid.

cases because the Commission follows a retrospective analysis of a particularmarket rather than a prospective one. In other words, it would appear to besimpler to examine these conditions with reference to an existing positionof dominance than to examine the likelihood that they will be present afterthe merger. Furthermore, it would avoid the dangers associated with anassumption of collective dominance made purely on the basis of oligopolis-tic interdependence.94

VI. LOOKING TO THE FUTURE OF COLLECTIVE DOMINANCE

This article has considered the development of joint dominance and its rolein EC Competition law. It is remarkable how a concept that remained prac-tically dormant for over 30 years has become, in little more than a decade,one of the most challenging and controversial instruments of control ofanti-competitive behaviour, both in the context of Article 82 EC and inmerger cases.

The meandering course of the case law in this field is not easy to follow,but a few pointers have emerged. Both in Article 82 EC and in merger cases,three elements seem to be crucial to a finding of collective dominance. Thefirst two elements are geared to proving the existence of a ‘collective entity’,while the third one constitutes the essence of a position of ‘dominance’.

Firstly, the undertakings in question must be connected by economiclinks. These links are necessary as a means of showing that the undertak-ings were able to behave (in Article 82 EC cases) or will be able to behave(in merger cases) as a common entity in their dealings with other marketoperators. In the case law, the notion of economic links has evolved fromencompassing purely contractual links to include structural links and alsothose that arise from market structure, such as the relationship of interde-pendence between parties to a tight oligopoly—at least in merger cases.

Secondly, and more importantly, the Commission will need to prove thatthe undertakings have indeed behaved (in Article 82 EC cases) or will belikely to behave (in merger cases) as a common entity towards the other mar-ket participants, on a lasting basis. This second element is particularly rele-vant in the framework of oligopolies, where parallel behaviour—whichcould easily be identified with the adoption of a common market strategy—can simply reflect the natural interdependence between sellers that arises inthese markets. In Airtours, the Court of First Instance has advanced ourunderstanding of this requirement in the context of merger control. Itexplained that the Commission should undertake a rigorous economicanalysis in order to demonstrate the probability that the oligopolists wouldtacitly coordinate their activities following the merger. Moreover, it set out

168 ALBERTINA ALBORS-LLORENS

94 See above nn 49–52 above and corresponding text.

the criteria that should guide the Commission’s market analysis in thisrespect. Thus, the Commission must show that every oligopolist would havethe means of monitoring how the others will react to the common policy andit must also show that there would be retaliatory mechanisms in place to pun-ish those that departed from that policy. This reasoning has yet to be adaptedand extended to Article 82 EC cases, but it would seem desirable for theCommunity courts to do so in order to prevent the adoption of a superficialapproach to oligopolies and to provide a sufficient degree of legal certainty.

Finally, the Commission will have to prove that the collective entity wasable (in Article 82 EC cases) or will be able (in merger cases) to behave inde-pendently of competitors, customers and consumers, this being the core ofthe definition of a position of market dominance. This seems to be implicitin the third limb in the Airtours test. There, the Court explained that theanticipated reactions of competitors and consumers after the concentrationought to be assessed in order to establish that their actions would notendanger the outcome of the common policy that the dominant oligopolistswould be expected to adopt.

It seems, therefore, that a relatively clear notion of collective dominancehas now been crafted by the case law. However, there are still certain issuesthat require further refinement and clarification.

Some important considerations relate to Article 82 EC cases. Although, asnoted above, the decision of the Court in Compagnie Maritime Belge hasbeen construed as extending the Gencor findings to Article 82 EC cases, thedecision did not do so expressly. It therefore remains to be explicitly con-firmed that oligopolistic interdependence constitutes a link that would enablethe undertakings to behave as a common entity in Article 82 EC cases.Another relevant point that must not be forgotten is that for Article 82 EC toapply, it is also necessary to prove that the undertakings in question haveabused their position of collective dominance. For example, if two or moreundertakings can be shown to be collectively dominant and—as part of theircommon market strategy—they apply the same prices, this would not in itselfbe contrary to Article 82 EC95 unless these prices are abusive. Unlike theMerger Regulation, whose purpose is to prevent the creation or strengthen-ing of a position of dominance, Article 82 EC only bites if there has beenabuse of such a position. Excessive pricing, would seem to be the obviousanti-competitive practice that could arise in an oligopoly, but other forms ofabuse could take place in other kinds of market. In any of these cases, itwould be essential for the Commission to prove adequately that abuse hastaken place and for the Court to establish beyond reasonable doubt that thefinding is justified.96

Collective Dominance in EC Competition Law 169

95 It would also not be contrary to Art 81 EC in the absence of express collusion between theundertakings.96 For example, in CEWAL, (Decision 93/82/EEC, OJ [1993] L 34/20), the Commission foundthat the members of the liner conference had abused their position of collective dominance

In the field of merger control, and despite the welcome clarificationintroduced by the judgment in Airtours, the Commission’s recent proposalfor the review of the EC Merger Regulation could potentially muddy thewaters once again.97

The decision of the Court in Airtours had established that, in the currentsystem, before concluding that a proposed merger will lead to a situation ofcollective dominance, it has to be shown that oligopolists will be likely toengage in tacit coordination. However, the contrast between theCommission’s approach and that adopted by the Court of First Instance,also brought a related issue to the fore: whether it is efficient to excludefrom the scope of the EC Merger Regulation concentrations resulting inmarket structures where oligopolists would be in a position to impede effec-tively competition without resorting to tacit coordination. It would seemthat the current interpretation of collective dominance would not apply tothese cases, even where there would be an appreciable and sustained effecton competition. Hence it revived the controversy of whether the objectivesof merger control could be better served with a test based on whether themerger would lead to ‘substantial lessening of competition’ (SLC) in themarket rather than with a test based on whether the merger would createor strengthen a position of dominance.98

In its Green Paper on Merger Review, the Commission invited a discussionon, inter alia, the effectiveness of the dominance test included in Article 2 ofthe EC Merger Regulation.99 Following the consultation exercise, theCommission decided not to adopt the SLC test in its proposal for the reviewof the EC Merger Regulation.100 While the Commission agreed that this

170 ALBERTINA ALBORS-LLORENS

mainly by engaging in the practice known as ‘fighting ships’ and by establishing 100% loyaltyarrangements. The practice of ‘fighting ships’ involves the members of the liner conferencemodifying their freight rates by departing from the tariff in force, in order to offer the same orlower rates than those of their principal independent competitor for vessels sailing on the sameroute. This can be described as a form of ‘selective price cutting’ (see the judgment of the Courtin Compagnie Maritime Belge (Cases C–395/96P and C–396/96P above n 32 at para 117 ofthe judgment). The decision of the Commission on the issue of the abusive practices wasupheld by the Court of First Instance and was confirmed on appeal by the European Court ofJustice (see sections III and V above). Preece, (see above n 1 at 390–91) has cogently argued,that the judgment of the Court could have been more explicit when dealing, in particular, withthe abusive nature of selective price-cutting. The appellants had contended that their practicewas not abusive because they were simply reacting in a normal and rational competitive wayand because they were not pricing below cost. The Court, however, confirmed theCommission’s view that the practice was abusive, but Preece explains that the judgment strictlycircumscribed its ruling to the specialised market of liner conferences, thereby suggesting thatthe principle may not have been of wider application (ibid at 391–92). Preece also contraststhe Court’s approach with the more analytical and thorough consideration of this practiceprovided by Advocate General Fennelly (ibid).

97 OJ [2003] C 20/19.98 In this respect, see Motta’s interpretation of the Commission’s approach in Airtours (above

nn 1 and 67).99 COM (2001) 745, final.

100 See n 97 above.

test would be more sound economically and introduce a welcome degree ofclarity, it also pointed out that the SLC test and the dominance test hadproduced very similar results and that the dominance test had always beeninterpreted teleologically by the European Court.101 The Commissiontherefore favoured instead an amendment of Article 2 of the EC MergerRegulation, and proposed the insertion of a new paragraph that would‘clarify’ the definition of a position of dominance for the purposes of theapplication of the Merger Regulation. The suggested amendment reads asfollows:

For the purpose of this Regulation, one or more undertakings shall be deemedto be in a dominant position if, with or without coordinating, they hold theeconomic power to influence appreciably and sustainably the parameters ofcompetition, in particular, prices, production, quality of output, distributionor innovation, or appreciably to foreclose competition [emphasis added].102

The Commission was clearly trying to strike a compromise between main-taining the test of dominance—and consequently the body of case law builtup over the years—and ensuring that those mergers where the parties couldunilaterally and without the need of coordination significantly impede com-petition would also fall within the scope of the EC Merger Regulation. Inother words, in the control of concentrations, it was trying to achieve aresult based on economic considerations while retaining, at least nominally,the test of dominance as the substantive test in the Merger Regulation. Butis this approach consistent with the case law? After Airtours it seemed to beclear that a proposed merger would be prohibited if it could be shown thatthe entity arising from the merger and another or other competitors wouldbe likely to engage in tacit coordination. The concept of collective domi-nance that emerged from that decision did not encompass situations wherethe parties, without coordination, could significantly impede competitionin a given market. The Commission’s proposal, however, appears to extendthe concept of dominance to these situations, and therefore it seems to be atodds with the decision in Airtours.

There is no doubt that the Commission’s approach is, essentially, a judi-cious one, given that some concentrations that may not lead to coordina-tion can still affect competition to a significant extent and are, at present,excluded from the scope of the EC Merger Regulation. Would it not havebeen better, however, for the Commission to adopt outright a test based onsubstantial lessening of competition, rather than trying to stretch the con-cept of dominance beyond its logical parameters? It remains to be seen

Collective Dominance in EC Competition Law 171

101 See paras 53–57 of the Explanatory Memorandum that accompanies the Commission’sproposal.102 This would be the proposed (new) Art 2(2) of the EC Merger Regulation. See also Recital21 in the preamble to the proposal.

whether the Council will—or will not—follow the advice of the Commissionon the clarification of the test of dominance, but it is suggested that itsadoption could have the effect of rendering a test of collective dominancemeaningless in the context of the EC Merger Regulation.

A second slightly confusing aspect of the Commission’s proposal isencapsulated in its statement at paragraph 57 of the ExplanatoryMemorandum that accompanies the proposal. There, the Commission com-ments that one of the advantages of the proposed clarification would bethat the definition of dominance under the Merger Regulation would notbe linked ‘to any future interpretations given by the Court to the concept ofdominance in Article 82 EC’.103 As far as collective dominance is con-cerned, it has been shown above that the Community courts have regularlyreferred to Article 82 EC in merger cases, and vice versa. This has progres-sively enriched the configuration of this notion and has introduced a degreeof consistency and legal certainty in both areas. What could be the advan-tages of ending this well-established practice and distinguishing the construc-tions of joint dominance in these two situations? Again, the more desirablesolution would perhaps be to abandon the test of dominance altogether in theEC Merger Regulation and to adopt the SLC test, thereby confining the cur-rent definition of collective dominance to Article 82 EC cases.

This article has tried to show that the concept of collective dominancehas come a long way from deserving no more than a brief mention inArticle 82 EC. Some of the key decisions of the Commission and the caselaw of the Community courts have been examined and reveal an increas-ingly mature concept both in the context of merger control and within thescope of Article 82 EC. What may have seemed to be a Trojan horse in earlydays, has slowly become a useful tool. Furthermore, recent developmentssuggest that the future of collective dominance might be a exciting as itspast.

172 ALBERTINA ALBORS-LLORENS

103 See para 57 of the Explanatory Memorandum, above n 101.

10

Partial Harmonisation and EuropeanSocial Policy: A Case Study on the

Acquired Rights Directive

AMANDINE GARDE*

I. INTRODUCTION

THE QUESTION OF Community competence has been one of themost debated issues since the ruling in Tobacco Advertising I, inwhich the Court annulled, for the first time, a Community Directive

for lack of competence.1 This judgment is significant in terms of assessingthe constitutional role of the Court in the Community legal order.

The aim of this article is not to comment on the Tobacco Advertisingjudgment. Rather, it is to consider the question of competence from a dif-ferent angle: that of partial harmonisation.

Partial harmonisation is a mechanism that enables Community law tocoexist with the laws of the Member States; the Community may legislateon particular points of a given problem, leaving the Member States to fill inthe gaps in areas that have not been directly dealt with at Community level,or have been expressly left to national law. This is why partial harmonisa-tion can be viewed as a form of shared competence.

This article is divided into four parts. Most of it will focus on theAcquired Rights Directive,2 as this Directive provides a good illustration ofhow the mechanism of partial harmonisation actually works. In the firstplace, a brief introduction to the Directive will be made, which will showthat in adopting it, Member States did not intend to delegate all their pow-ers to act in respect of transfers of undertakings to the Community.Secondly, the emphasis will be more specifically placed on the Court’s caselaw concerning the right of employees to object to their transfer and theconsequences of exercising this right, as it provides a striking example of

* Selwyn College, Cambridge.1 Case C–376/98 Germany v Parliament and Council [2000] ECR I–8419.2 Subsequently referred to as ‘the Directive’. Directive 77/187/EEC, OJ 1977 L 61/26.

the Court’s express reliance on partial harmonisation. This example willshow that the mechanism has given rise to difficulties. These difficultieswill be further analysed in the third part of this article, where the Court’scase law relating to the definition of the personal scope of the Directive willbe considered in detail. The main source of controversy is that the Directiveis grounded on a basis in which transfer rights are distinguished from exist-ing rights. However, fundamental as this may be in allocating competence,this distinction is artificial and sometimes extremely difficult to draw.Finally, the last part of this article is aimed at replacing the Court’s case lawon the interpretation of the Directive in the broader context of EuropeanSocial Policy.

II. THE ACQUIRED RIGHTS DIRECTIVE

The Directive was adopted in 1977 as part of the Commission’s SocialAction Programme of 1974. It was revised in 19983 and codified in 2001.4

Its legal basis is Article 94 (ex-Article 100) of the EC Treaty.In a nutshell, the Directive confers three main kinds of rights to the

employees who fall within its scope. Firstly, Article 3 provides that theemployees in an undertaking have the right, on its transfer, to be taken overby the new employer without any change to their existing terms and condi-tions of employment. Secondly, under Article 4, dismissals by reason of thetransfer alone are prohibited; dismissals are only allowed if there is ‘an economic, technical or organisational reason entailing changes in the work-force’. Thirdly, Article 7 states that the representatives of employees mustbe informed and consulted when the transfer of an undertaking is to takeplace.

The aim of the Directive is to ensure that the rights acquired by employ-ees in the course of their employment with a first employer (the transferor)are safeguarded in the event of a transfer to another employer (the trans-feree). However, the aim of the Directive is not to define the content of theseacquired rights or prescribe any particular level of protection. The Directiveonly has the objective of ensuring that the level which the employee enjoyedin relation to the transferor continues to be enjoyed in relation to the trans-feree. Thus, the Directive simply requires that in the event of the transfer ofan undertaking ‘employees retain a nationally defined pre-transfer level ofprotection’.5 This is why, for example, it does not preclude an alteration in

174 A M A N D I N E G A R D E

3 Directive 98/50/EC, OJ 1998 L 201/58.4 Directive 2001/23/EC, OJ 2001 L 82/16.5 Hepple, B. ‘Report for the Commission of the European Communities Directorate-GeneralEmployment, Industrial Relations and Social Affairs—Main shortcomings and proposals forrevision of Council Directive 77/187/EEC’, December 1990.

the employment relationship agreed with the transferee insofar as such analteration is permitted by national law in cases other than transfers ofundertakings.6 It is necessary, therefore, to enquire how far, and in whatcircumstances, national laws permit such alterations in the terms of theemployment relationship.7

The Court has played a crucial role in characterising the relationshipbetween the Community and its Member States in relation to their respec-tive competence in this area of labour law. The Court has often describedthe Directive as a measure of ‘partial harmonisation’, which ‘does not aimto establish a uniform level of protection for the entire Community by ref-erence to common criteria’; the result of invoking partial harmonisation ininterpreting the Directive has generally been to the benefit of national com-petence. More specifically, in practice, the Court has extended the compe-tence of Member States beyond what could have been anticipated from thetext of the Directive as originally drafted by the Community legislature.

III. AN EXAMPLE OF PARTIAL HARMONISATION: THE RIGHT OF EMPLOYEES TO OBJECT TO THEIR TRANSFER

The Court held that the right of objection of employees to their transferwas an example of partial harmonisation. This right should be considerednot only from the point of view of its existence but also from the point ofview of the consequences of its exercise.

A. The Existence of a Right of Objection

It is necessary to reconcile two principles that may, at first sight, seem con-tradictory. On the one hand, the Directive is a measure of public policyfrom which it is not possible to derogate. On the other hand, labour is nota commodity. The Court considered for the first time the relationshipbetween these two principles in the case of Katsikas.8

A Case Study on the Acquired Rights Directive 175

6 Case 324/86 Daddy’s Dance Hall [1988] ECR 739.7 For an account of the position under British law, see Bourn, C and Thorpe, P ‘Preservation,Variation and Harmonisation of Terms and Conditions’, in Bourn, C (ed), The Transfer ofUndertakings in the Public Sector (Ashgate 1999), 161.8 The case of Katsikas was dealt with by the Court along with two other requests for prelimi-nary references from Germany. The facts of Skreb and Schroll are very similar to those ofKatsikas: Mr Skreb and Mr Schroll worked as dockers in the stevedoring department of aGerman company which was transferred to another German company. Both of them, alongwith other employees, objected to the transfer of their employment relationship to the secondcompany. They were dismissed by the first company. They claimed that their dismissal was notjustified on the ground that they had not been transferred and that there were sufficient

1. The Factual Background to the Case of Katsikas

Mr Katsikas worked at ‘the Fishtaverne’, a Greek restaurant in Lichtenfels,a small town in Germany. He was employed as a cook by Mr Konstantinidiswho subsquently decided to let the business to Mr Mitossis. Mr Mitossisundertook to discharge Mr Konstantinidis of all the obligations arising inconnection with the operation of the restaurant, and in particular to payemployees’ wages. From Mr Katsikas’ point of view, this basically meantthat he was to be employed from the date of the transfer by Mr Mitossisrather than Mr Konstantinidis. However, Mr Katsikas refused to work forMr Mitossis and asked Mr Konstantinidis to take him on at another of hisrestaurants. Mr Konstantinidis refused and dismissed Mr Katsikas whobrought an action against him.

The question arose as to whether an employee’s right of objection, theexercise of which had the effect of preventing the employee’s employmentrelationship with the transferor from being transferred to the transferee,was compatible with the Directive. The Arbeitsgericht of Bamberg stayedthe proceedings and sought a preliminary ruling from the Court.

2. The Mandatory Nature of the Provisions of the Directive

As a defence to Mr Katsikas’ claim for unfair dismissal, Mr Konstandinidissubmitted that he no longer was Mr Katsikas’ employer as he had transferredhis business to Mr Mitossis. More specifically, he relied on the fact that theprovisions of the Directive were mandatory, which implied, he argued, thatan employee should not be empowered to object to the transfer of his con-tract of employment and should be taken over with the business.

Article 3 (1) of the Directive states that:

the transferor’s rights and obligations arising from a contract of employmentor from an employment relationship existing on the date of a transfer shall,by reason of such transfer, be transferred to the transferee.9

As the Court firmly stated in Daddy’s Dance Hall, the provisions of theDirective, and Article 3 (1) in particular, are mandatory.10 At least two con-sequences had been identified as flowing from this statement before the case

176 A M A N D I N E G A R D E

employment possibilities within the business of the first company. The Arbeitsgericht ofHamburg referred a question relating to the interpretation of the Directive to the Court whichraised the same issue as in Katsikas. Joined Cases C–132, 138 and 139/91 Katsikas, Skreb andSchroll [1992] ECR I–6577.

9 The wording of this Article confirms that the aim of the Directive is the transfer of existingrights rather than the definition of such rights; indeed, national laws determine the level ofacquired rights.10 Case 324/86 Daddy’s Dance Hall [1986] ECR 739, at para 14.

of Katsikas was referred. First, the Court held in Berg that the applicationof the Directive had the effect of automatically transferring employmentcontracts or employment relationships. The transferor and the transfereecannot contract out of Article 3(1) and their contrary intention cannotdefeat the mandatory effect of the Directive. Thus, the transferor is dis-charged from the date of the transfer from all the obligations arising fromthe contract of employment or employment relationship.11 Secondly,employees cannot waive their acquired rights under the Directive if to do sowould be unfavourable to them. This is true even if they obtain new bene-fits in compensation for the disadvantages resulting from an amendment totheir contracts of employment, so that, taking the matter as a whole, theyare not placed in a worse position than before.12

In Katsikas, the question arose as to whether the Court’s previous caselaw compelled employees to accept their transfer from the transferor to thetransferee, notwithstanding their objection. Mr Konstantinidis submittedthat they were so compelled.

Relying on its previous cases of Berg and Daddy’s Dance Hall, the Courtheld that the protection provided by the Directive was a matter of publicpolicy and was thus independent of the will of the parties to the contract ofemployment.13 This seems to imply that employees do not have the powerto prevent the transfer of an undertaking. The decision whether or not totransfer should therefore be solely that of the employers. However, oncethey have decided to go ahead with the transfer, the mandatory nature ofthe Directive prevents them from limiting its scope: the transfer of allacquired rights is automatic.

This part of the judgment did not answer the question of whether anemployee could object to the transfer of his contract of employment. In thisrespect, the Court did not uphold the interpretation of Article 3 of theDirective which Mr Konstandinidis had put forward in his submissions. Bycontrast, the Court expressly stated that the question of an amendment ofthe employee’s contractual terms and working conditions was of a differentnature than the question of an employee’s right of objection to his transfer.14

3. ‘Labour is not a Commodity’

Mr Katsikas, supported by the German Government, argued that he shouldnot be forced to work for an employer he had not chosen. An employment

A Case Study on the Acquired Rights Directive 177

11 Joined Cases 144 and 145/87 Berg and Busschers [1988] ECR 2559. This was subsequentlyrepeated in Case C–305/94 Rotsart de Hertaing [1996] ECR I–5927.12 Daddy’s Dance Hall, above n 10, para 14 and 15. For an application of this principle in theUnited Kingdom, see the two cases of Wilson v St Helens Borough Council and Meade vBaxendale [1998] IRLR 706 (combined appeal to the House of Lords).12 Katsikas, above n 8, para 28.13 Katsikas, above n 8, para 28.14 Katsikas, above n 8, paras 25–27.

contract entails a personal element and as a consequence should not betransferred without the employee’s consent, as this would be contrary to hispersonal freedom and free choice of occupation.

In Danmols Inventar, the Court had already held that the protectionguaranteed by the Directive was redundant where the person concerneddecided of his own volition not to continue the employment relationshipwith the new employer after the transfer; Article 3(1) simply could notapply.15 In Katsikas, the Court referred to Danmols Inventar16 and wentone step further to uphold Mr Katsikas’ argument.

Whilst the Directive, which effects partial harmonisation only, allows theemployee to remain in the employ of his new employer on the same condi-tions as were agreed with the transferor, it cannot be interpreted as obligingthe employee to continue his employment relationship with the transferee.Such an obligation would jeopardise the fundamental rights of the employeewho must be free to choose his employer and cannot be obliged to work foran employer whom he has not freely chosen.17

The reliance on employees’ fundamental rights seems to refer implicitly tothe principle that ‘labour is not a commodity’, which is strongly enshrinedin instruments of international law.18

Ingram said as early as 1880 when addressing the British TUC at theirCongress:

Labour is spoken of as if it were an independent entity, separable from thepersonality of a workman. It is treated as a commodity, like corn or cotton—the human agent, his human needs, human nature, and human feelings, beingkept almost completely out of view. … By viewing labour as a commodity, weat once get rid of the moral basis on which the relation employer andemployed should stand, and make the so-called law of the market the soleregulator of that relation … Labour is not a commodity.19

As used by Ingram, this phrase meant that the price of labour could not beleft solely to the operation of the labour market but that the level of wageshad to be such as to provide for a reasonable standard of living for a workerand his family.20 However, Professor O’Higgins pointed out that the principle

178 A M A N D I N E G A R D E

15 Case 104/85 Danmols Inventar ECR [1985] ECR 2639. For a detailed analysis of this judg-ment, see part IV below. 16 Katsikas, above n 8 para 30.17 Katsikas, above n 8, para 31.18 In particular, it is the first of the principles on which the International Labour Organisationis based. See the Declaration of Philadelphia.19 Address on Work and the Workman, Dublin, 1928, at page 8. Quoted in O’Higgins, P ‘“Labour is not a Commodity”—an Irish Contribution to International Labour Law’, 26 Industrial Law Journal (1997) 225, 226.20 To understand the influence of the concept in its primary sense, see the United NationsUniversal Declaration of Human Rights, Art 23(3), the Council of Europe’s Social Charter

also had other important practical consequences.21 In particular, anemployee should never be forced to submit to the power of direction of atransferee that he would not have freely accepted as his employer.22

There is a strong argument for allowing an employee to object to thetransfer of his contract of employment if one accepts that his transfer is notnecessarily in his best interests. It is true that it is often the most favourableoption from his point of view—especially when unemployment rates arehigh. However, this is not always so. An employee may have good reasonsfor objecting to his transfer if, for example, he has no confidence in thetransferee’s business. This would be the case when the question of financialsolvency of the undertaking arises. Furthermore, it could easily be con-ceived that an employee who is close to retirement age would rather negoti-ate a good dismissal package rather than start anew with another employer,particularly if the firm has to be relocated. Moreover, there are some casesin which the employee would lose some benefits if he had to transfer. Anemployee is likely to be reluctant to transfer if the new pension package isnot as attractive as the previous one, in so far as pension rights are notacquired rights within the meaning of the Directive and consequently donot have to be taken over by the transferee.23 It may also be that anemployee prefers not to transfer from a public to a private undertaking, forthis would imply a loss of statutory advantages in several Member States ofthe Community.24 This is why it is entirely conceivable that employees maynot wish to transfer. Refusing them the right of objection would arguablybe based on the wrong premise.

Advocate General Van Gerven underlined in Katsikas that grantingemployees the right to object to their contract of employment would not inprinciple worsen their situation. Employees would presumably not exercisetheir right of objection if they ran serious risks of being dismissed by thetransferor, and employees themselves are presumably best placed to assesssuch potential risks.25

A Case Study on the Acquired Rights Directive 179

(1961), Art 4, the European Union’s Code of Conduct for Companies with Subsidiaries,Branches, or Representatives in South Africa (1977), Art 3, the Community Charter ofFundamental Social Rights for Workers, Art 5.

21 O’Higgins, above n 19.22 This amounts to a clear rejection of the free market ideology in labour relations. Comparewith the reasoning adopted in Nokes v Doncaster (subsequently used to justify that thereshould be no employee protection on transfers), in which the House of Lords held that anemployee could not be forced to work for an employer that he had not freely chosen, as thiswould be akin to slavery [1940] AC 1014.23 Art 3(4)(a).24 Case C–268/94 Henke [1996] ECR I–4989, Case C–343/98 Collino [2000] ECR I–6659and Case C–175/99 Mayeur [2000] ECR I–7755. Garde, A ‘The Public Sector as a GoodEmployer: the Application of the Acquired Rights Directive to Public Authorities’ 4 (2001)CYELS 153.25 Katsikas, AG Van Gerven’s Opinion, at para 18 and 19.

The answer as to whether there should be a right of objection ultimatelydepends on what the Directive is trying to achieve. Indeed, if employees arenot allowed to object to their transfer at all, this should mean that the socialaspect of the Directive is only subsidiary to its economic aim: the transferof employment contracts would be crucial to ensure that the transferee’sundertaking has the means to function efficiently and should thus be trans-ferred with the business. By contrast, if employees are entitled to object totheir transfer, the social aim of the Directive is seen as a higher purpose: adistinction is then drawn between the transfer of a business and the transferof employment contracts. In this case, employees are granted an alternativewhen their interests do not correspond to the transfer of the undertaking.The dissociation between businesses and their workforce is a manifestationof employees’ freedom and thus contributes to reinforcing the basic protec-tion that they have under the Directive. In this respect, the second part ofthe Court’s judgment in Katsikas granting employees a right of objection totheir transfer is a welcome interpretation of Article 3(1). They have theright to remain in the employ of the transferee on the transfer of an under-taking, but they have no obligation to do so: the Directive offers them analternative. This is consistent both with its wording and its purpose.

This case law on the right of objection was subsequently reiterated in thecases of Merck and Neuhuys26 and Europièces.27 The rulings of the Courthave not shown much change of emphasis since Katsikas.

B. The Consequences of the Exercise of the Right of Objection

The fact that the Court granted employees the right to object to their trans-fer meant for Mr Katsikas that he could refuse to work for Mr Mitossis.Nevertheless, this did not explain whether Mr Katsikas had the right towork in one of the other restaurants run by Mr Konstandinis. The questionthus arises as to the practical consequences of the exercise of this right.

In the final part of its judgment, the Court held:

In the event of the employee deciding of his own accord not to continue withthe contract of employment or employment relationship with the transferee,the Directive does not require the Member States to provide that the contractor relationship is to be maintained with the transferor. In such a case, it is forMember States to determine what the fate of the contract of employment oremployment relationship should be.28

At this stage, therefore, the Court did not state that the exercise of the rightof objection would necessarily imply that the contract of employment or

180 A M A N D I N E G A R D E

26 Joined Cases C–172 and 173/94 Merckx and Neuhuys [1996] ECR I–1253.27 Case C–399/96 Europièces [1998] ECR I–6965.28 Katsikas, above n 8, para 35.

employment relationship should be maintained with the transferor. Rather,it relied on the mechanism of partial harmonisation to explain that eachnational legislature should be free to decide what these consequencesshould be. Thus, Member States can opt to classify the termination of anemployee’s contract of employment or employment relationship by one oftwo methods: either the termination can be initiated by the employee, andthus assimilated to a resignation, or it can be initiated instead by theemployer, and thus assimilated to a dismissal.29

As stated above, in adopting the Directive, Member States did not intendto delegate all their powers to act in the field of transfers of undertakings tothe Community. As the Directive is a measure of partial harmonisationonly, the Community legislates on some particular points (such as the rightof objection), whereas the Member States fill in the gaps in areas that eitherhave not been directly dealt with at Community level or have expressly beenleft to national law (such as the exercise of this right).

The neutrality of the Court leaves a broad discretion to Member States.It is arguable that at least two detrimental consequences flow from thisreliance on the mechanism of partial harmonisation. The first is that theright of objection may remain largely theoretical and the purpose of theDirective may be frustrated if Member States refuse to support anemployee’s right to object to his transfer with the right to stay in the trans-feror’s service. This is a problem of uniformity and effectiveness ofCommunity law. Secondly, the question arises as to how one part of a givenquestion (the existence of the right) is treated as a Community law problem, whereas the other part of the same question (the exercise of theright) is a national law problem. This is a problem of logic in the Court’sreasoning.

1. Problems of Uniformity and Effectiveness

It is interesting to compare what Mr Katsikas would have obtained inFrance or in England with what he would have obtained in Germany. InFrance or in England, the objection of an employee to the transfer of hiscontract of employment amounts to his resignation: the employee does nothave to transfer, but he will not be able to remain in the transferor’s employ-ment. It is of course open to him to try and negotiate to do so, but the trans-feror has no obligation to keep him at his service.30 Such a legal positionconstitutes an important practical limitation to the fundamental right of

A Case Study on the Acquired Rights Directive 181

29 Katsikas, above n 8, para 36.30 For the position under British law, see Regulation 5(4B) of the Transfer of Undertakings(Protection of Employment Regulations 1981. Regulation 5(4B) was inserted into the TUPERegulations by s 33(4)(c) of the Trade Union Reform and Employment Rights Act (TURERA)1993. For the position under French law, see for example the decision of the Cour de cassationin Soc 16 janv 1990, Bull Civ V, n 11, at p 17.

objection recognised in Katsikas; the alternative generally is to either acceptto work for the transferee or loose one’s employment.

In Germany, by contrast, employees who do not want to work for thesecond employer have the right to stay with the first if they so wish underArticle 613a § 1 and 2 of the German Civil Code as interpreted by theBundesarbeitsgericht—the German Federal Labour Court.31 As a conse-quence, if the transferor does not want to keep an employee at his service,he will have to dismiss him; and in this case, the employee will not be con-sidered as having resigned from his employment. The German legislationoffers a real alternative to employees, as their right of objection is accompa-nied with practical consequences making its exercise much more attractive.Their protection is thus maximised.32

This shows that there are wide-ranging differences between MemberStates in relation to the consequences that arise from the exercise of anemployee’s right of objection. Interestingly, the French, English and Germanlaws implementing the Directive all have exactly the same purpose. That is,they seek to protect employees’ rights in the event of the transfer of anundertaking. However, the same laws have been given a radically differentinterpretation, which means that the degree of employee protection actu-ally varies from one Member State to another.

The argument put forward here is that, in order to reinforce employees’protection, the right to object to the transfer of their employment contractsor relationships must be complemented with protective measures at thetime their right is exercised. Otherwise, there is a strong case for suggestingthat employees will not be able to exercise their right effectively. This is why the question legitimately arises as to whether the right of objection would not be better dealt with at Community rather thannational level.33

182 A M A N D I N E G A R D E

31 AG Van Gerven referred to several cases in his Opinion, at para 3, n 5: judgments of 21 July1977, BAG AP, Para 613a of the BGB, para 8, of 17 November 1977, BAG AP, Para 613a ofthe BGB, para 21, of 15 February 1984, BAG AP, Para 613a of the BGB, para 37, and BAGAP, Para 613a of the BGB, para 55, of 30 October 1986. 32 Advocate General Van Gerven considered that the case law of the Bundesarbeitsgericht onthe question of objection could be described as a more favourable provision within the mean-ing of Art 8 of the Directive. Katsikas, AG Van Gerven’s Opinion, above n 8 at para 20.Following the revision and codification of the Directive, ex-Art 7 has now become Art 8. Thisprovision states that the Directive is a measure of minimum harmonisation and consequentlythat Member States have the right ‘to apply or introduce laws, regulations or administrativeprovisions which are more favourable to employees or to promote or permit collective agree-ments or agreements between social partners more favourable to employees’.33 Valentin Ionescu, who clearly is in favour of a uniform Community treatment of the right ofobjection, has argued that the right would be truly effective only if it was supported with com-plementary measures. In particular, employees should have some time to think about whetherthey want to transfer or not (even after the transfer has taken place, so that they can effectivelyexercise their right of objection) and they should have the necessary information to make up their mind. Ionescu, V ‘Le droit d’opposition des salariés au transfert de leur contrat de travail: mythe ou réalité’, (2002) Droit Social 507.

2. Flaws in Logic

There is nothing in the wording of Article 3(1) of the Directive to suggestthat a distinction should be drawn between the right of objection and itspractical consequences. In fact, there is nothing at all in the text of theDirective concerning the right of employees to object to their transfer.Further, it is submitted that there is nothing in the general framework of theDirective that would prevent the consequences stemming from the exerciseof this right from being a Community competence. Rather, the fundamentalaim of the Directive is to protect employees’ rights in case an undertaking istransferred. It is arguable that the right of objection is more closely linkedto transfer rights than to existing rights. Thus, it may be unjustified toinvoke the notion of partial harmonisation as the reason for refusing todeal with the exercise of the right of objection at Community level.

This begs the question as to why the Court resorted to the mechanism ofpartial harmonisation when, strictly speaking, it did not have to do so. Oneanswer may be that the Court did not want to embark on the very sensitivearea of dismissal law without any more specific guidance from theCommunity legislature. This point is particularly important, in so far as thelaw of dismissal has a much wider scope than the law of transfers of under-takings.34

As this example shows, partial harmonisation can be seen as a way outof some of the dilemmas which the harmonisation of social policy has gen-erated. In addition, it allows the Court to keep Member States reasonablycontent with the evolution of European Social Policy, enabling them tostrike a suitable balance at national level between protecting employees’rights on the one hand and other economic aims on the other hand. The lat-ter include flexibility and competitiveness of the European economy.35

A Case Study on the Acquired Rights Directive 183

34 Sylvaine Laulom noted that ‘it was perhaps because of the sensitivity of an issue which has abearing on dismissals law that the ECJ refrained here from making any attempt to harmonisenational provisions which, however, have major implications for the exercise of the right ofobjection’. Laulom, S ‘The European Court of Justice in the dialogue on transfers of undertak-ing: a fallible interlocutor?’, in Sciarra, S (ed), Labour Law in the Courts—National Judgesand the European Court of Justice (Hart Publishing, 2001), 145. The fact that Art 137(3) ofthe Treaty maintains the requirement of unanimity for questions of dismissals confirms thatthis area of the law is particularly sensitive, even within the already sensitive field of social pol-icy. However, the fact that Art 137(3) requires a unanimous vote in the Council also showsthat the competence of the Community in this field is not excluded.35 If the main aim of the Directive is the protection of employees’ rights, there are some limitsthat have been taken into account not only by the Community legislature (see the Preamble ofthe Directive) but also by the Court. Its case law on the interpretation of the material scope of theDirective is particularly revealing in this respect. For an account of the recent case law on themeaning of the expression ‘the transfer of an undertaking’, see McMullen, J ‘Side-stepping Süzen’28 (1999) Industrial Law Journal 360; Darmaisain, S ‘Le concept de transfert d’entreprise’,(1999) Droit Social 343; Davies, P ‘Transfers—The UK will have to make up its own mind’, 30(2001) Industrial Law Journal 231; Sciarra, S (ed), Labour Law in the Courts—National Judgesand the European Court of Justice (Hart Publishing, 2001); Garde, A ‘Recent Developments inthe law relating to transfers of undertakings’ 39 (2002) Common Market Law Review 523.

The Court could have gone much further than it did in Katsikas, withoutmisinterpreting the Directive in so doing. This example, therefore, showsthat the Court does not systematically adopt a very broad interpretation ofCommunity law provisions to narrow the ambit of the discretion left toMember States, as is sometimes suggested.36 By contrast, this exampleshows that the Court has already interpreted restrictively the powers of theCommunity to the benefit of Member States.

IV. THE DIFFICULT TASK OF THE COURT IN DELIMITING COMPETENCE—THE EXAMPLE OF THE DEFINITION OF

‘EMPLOYEE’ AND RELATED TERMS

It seems that it is often difficult to determine whether the Community or thenational legislative order should be empowered to act. In case there is noth-ing specifically mentioned in the text of the Directive itself, the Court mustdecide whether a problem pertains to the definition of existing rights or totransfer rights. Therefore, the Court has to find the suitable balance betweenthe Member States and the Community and share competence between themaccordingly. There are very few guidelines in the text of the Directive onwhich the Court can rely. The problem therefore is to decide the extent towhich leaving the definition of existing rights to Member States can frustratethe purpose of the Directive in affecting transfer rights as well. This is a par-ticularly onerous task. For example, it has just been argued above that theCourt could have interpreted the Directive so that the question of objectionshould have been treated entirely at Community level. However, the Courtchose not to engage upon this sensitive question of judicial policy.

The example of the definition of ‘employee’ and related terms used inthe Directive further illustrates the ambit of the problem. The distinctionbetween existing rights and transfer rights is far from obvious. Thus, relying on this distinction to allocate competence between the Communityand national legal orders can be extremely detrimental to the harmonisationof European social policy and the protection of employees’ rights.

The Court has failed to apply a consistent distinction between ‘substantive’and ‘transfer’ rights, and so has left a number of ‘transfer’ rights for determi-nation at national level, thus defeating the object of harmonisation of these‘transfer’ rights.37

184 A M A N D I N E G A R D E

36 See for example the evidence presented by Sir Patrick Neill to the House of Lords SelectCommittee on the European Communities, taken before the Sub-Committee on the 1996Intergovernmental Conference (HL Paper 88, at 218). For a response, see ProfessorDashwood’s evidence (HL Paper 88, at 253).37 Hepple, B above at n 5, at 12.

In the original version of the Directive, the Community legislature did notlay down any definition of the terms ‘employee’ and ‘contract of employ-ment or employment relationship’. These terms, however, are absolutelycrucial to define the personal scope of application of the Directive.

In Danmols Inventar,38 the Court dealt at length with the issue of whatthe term ‘employee’ meant for the purpose of the Directive. In this case, Mr Mikkelsen was employed in a company that was subsequently trans-ferred by reason of its financial difficulties. He continued the same workreceiving the same pay with the transferee company, but became a share-holder. Following the transfer, Mr Mikkelsen brought an action against hisformer employer to recover an amount equal to two months’ pay togetherwith holiday pay. One of the questions referred to the Court by the Danishcourt related to whether the expression ‘employee’ in the Directive had tobe interpreted as meaning that it was sufficient for the person concerned tohave been an employee of the transferor or whether he also had to occupy aposition as an employee with the transferee.

The Court stressed that the Directive, being a measure of partial har-monisation only, was not intended to establish a uniform level of protectionthroughout the Community on the basis of common criteria.39 It then concluded:

[…]The term ‘employee’ must be interpreted as covering any persons who, inthe Member State concerned, is protected as an employee under nationalemployment law. It is for the national court to establish whether that is thecase in this instance.40

The Court’s case law was subsequently implemented in 1998 by theCommunity legislature in the amended version of the Directive. NewArticle 2(1)(d) now clearly states that ‘“employee” shall mean any personwho, in the Member State concerned, is protected as an employee undernational employment law’. It is striking to note that this definition is borrowedword for word from the Court’s judgment in Danmols Inventar.

This case law is flawed and should not have been implemented by theCommunity legislature. In particular, it gives rise to serious risks of discrimi-nation against some categories of employees. For example, employees in thepublic sector do not, in some Member States, benefit from the protection ofthe Directive. Moreover, there are more women than men in precarious

A Case Study on the Acquired Rights Directive 185

38 Case 105/84 Danmols Inventar [1985] ECR 2639. In Wendelboe, the Court had alreadydecided, following the Opinion of Advocate General Slynn that ‘the existence or otherwise ofa contract of employment or employment relationship on the date of the transfer within themeaning of Art 3 (1) must be established on the basis of the rules of national law, subject how-ever to observance of the mandatory provisions of the Directive’. Case 19/83 Wendelboe[1985] ECR 457, para 16.39 Danmols Inventar, above n 38, at para 26.40 Danmols Inventar, above n 38, at para 28.

employment. It follows that there may be a risk of claims for indirect sex discrimination based on the Equal Treatment Directive.41

It is true that new Article 2 (2) was also added to the text of the Directivein 1998. It provides that:

Member States shall not exclude from the scope of the Directive contracts ofemployment or employment relationships solely because:

(a) of the number of working hours performed or to be performed,(b) they are in employment relationships governed by a fixed-term duration

contract of employment …, or(c) they are temporary employment relationships … .

The Preamble of the Directive further reinforces the argument that fear of dis-crimination was the driving force behind the incorporation of Article 2 (2). Itstates at paragraph 9 that ‘the Social Charter recognises the importance ofthe fight against all forms of discrimination, especially based on sex, colour,race, opinion and creed’. This new provision makes clear that part-timeand other atypical workers cannot be discriminated against by beingexcluded from the scope of the Directive: they benefit from the same rightsunder the Directive as full-time employees, irrespective of what nationallaw may provide in their respect. It is therefore consistent with the trend ofthe Community legislature to protect atypical forms of employment asinstruments of flexibility that should be encouraged in the Community asan effective means to combat unemployment.42

If new Article 2(2) has reduced the variation between Member States inrelation to the personal scope of the Directive, a Community wide defini-tion of the term ‘employee’ would be a much better option. In the Reportthat he wrote for the Commission in 1990, Professor Hepple criticised thelack of such a definition as having ‘frustrated the aims of those who draftedthe Directive’.43 He explained that

the choice of the words ‘contract of employment or employment relationship’was deliberate and followed lengthy consideration by the committee of

186 A M A N D I N E G A R D E

41 See the Opinion of the Economic and Social Committee, OJ 1995 C 133/13, para 1.3.42 For example, Clause 1 of the Framework Agreement on Part-time work states:

The purpose of this Framework Agreement is:

(a) to provide for the removal of discrimination against part-time workers and toimprove the quality of part-time work;

(b) to facilitate the development of part-time work on a voluntary basis and to con-tribute to the flexible organisation of working time in a manner which takes intoaccount the needs of employers and workers.

Framework Agreement implemented by Directive 97/81/EC, OJ 1997 L 14/9. Clause 1 of theFramework Agreement on Fixed-Term Work uses a very similar wording. It is implemented byDirective 1999/70/EC, OJ 1999 L 175/43.43 Hepple, B Report of 1990, cited above at n 5, at 72.

independent experts in 1974.44 The first drafts (COM 974) 351 Final/2,COM 975) 429 final) referred only to ‘employment relationships’ in theEnglish version. Because of doubts expressed by the experts as to whether theword travailleur would be sufficient to cover all forms of such relationships,as understood in common law countries, the final version covers both the‘contract of employment’ and ‘employment relationship’.45

There still is a wide variation in the coverage ratione personae of the lawsimplementing the Directive in the Member States. This may ultimately distortcompetition by favouring those countries where the coverage of the Directiveis less extensive, while at the same time discriminating against different cate-gories of workers, thus depriving these workers (who may need it most) of theprotection that it provides. The refusal to define such crucial terms for theapplication of the Directive at Community level is one of the drawbacks of theapproach used by the Community to harmonise labour standards.

The Court should have drawn an analogy with the definition of the term‘worker’ in Article 39 (ex-Article 48) of the EC Treaty concerning the freemovement of workers. A broad approach would ensure the protection of amaximum number of individuals.46 This is why Professor Hepple suggeststhat the Directive be interpreted as covering all ‘employment relationships’,which he defines as ‘any agreement in return for gain to do or perform person-ally any work or services for another person’.47 Drawing such an analogywould be beneficial in order that the Directive does not provide Member Stateswith an opportunity to narrow down its scope of application. It is preciselybecause it is a measure of partial harmonisation only that its scope should notbe defined at national level. It should not be possible to define both the scopeand the content of existing rights at national level. If this may arguably bedone for the content of rights, the crucial terms on which the scope of applica-tion of the Directive depends should not be left to Member States. Otherwise,the aim of harmonisation it pursues would be endangered.

In Danmols Inventar, however, the Court expressly rejected the argumentthat an analogy should be drawn between the definition of the term‘employee’ in the Directive and the definition of the term ‘worker’ in Article39. As Advocate General Slynn suggested, the Court distinguished theDirective from Article 39 on the basis that the Directive was a measure ofpartial harmonisation only:

It may be recalled that the Court, inter alia in [Levin],48 held that the term‘worker’ as used in the Treaty, may not be defined by reference to the nationallaws of the Member States but has a Community meaning. If that were not

A Case Study on the Acquired Rights Directive 187

44 Of which Professor Hepple was a member.45 Hepple, B Report of 1990, n 5, at 72.46 Art 39 only has very limited exceptions. See in particular the narrow scope of Art 39(4) asinterpreted by the Court.47 Hepple, B above n 5, at 75.48 Case 53/81 Levin [1982] ECR 1035.

the case, the Community rules on freedom of movement for workers wouldbe frustrated, since the meaning of the term could be decided upon and mod-ified unilaterally, without any control by the Community institutions, by theMember States, which could thus be able to exclude at will certain categoriesof persons from the benefit of the Treaty.

It is necessary to consider whether similar considerations apply to the defi-nition of the term ‘employee’ in the context of [the Directive]. According toits preamble, the Directive is intended to ensure that employees’ rights aresafeguarded in the event of a change of employer […]

It is clear that the Directive is intended to achieve only partial harmonisa-tion essentially by extending the protection guaranteed to workers independ-ently by the laws of the individual Member States to cover the case where anundertaking is transferred. Its aim is therefore to ensure, as far as possible,that the contract of employment or the employment relationship continuesunchanged with the transferee so that the employees affected by the transferof the undertaking are not placed in a less favourable position solely as aresult of the transfer. It is not however intended to establish a uniform level ofprotection throughout the Community on the basis of common criteria.

It follows that the Directive may be relied upon only by persons who are,in one way or another, protected as employees under the laws of the MemberState concerned.49

This reasoning is not convincing at all. Why should the Court’s approach tothe term ‘employee’ within the meaning of the Directive be different fromits approach to the term ‘worker’ within the meaning of Article 39 of theTreaty? The word ‘employee’ is used in the Directive, as the term ‘worker’is used in the Treaty; it should thus be treated in the same way and definedat Community level. The fact that the Directive is a measure of partial har-monisation only should have no bearing on this issue. The reasoning of theCourt is even more surprising as most of the other fundamental terms relat-ing to its scope have consistently been defined at Community level, notwith-standing that they had also been left undefined in its original version.50 Thescope of the Directive, both material and personal, should exclusively be aCommunity law question.

There was an element of irony in Advocate General Slynn’s reasoning inDanmols Inventar, which strongly reduced the scope of his argument.Indeed, he argued that

for the Court to create a separate definition of ‘employee’ without a full survey of the categories of persons who are capable of, or treated as, beingsuch in the various Member States risks excluding from the benefit of the

188 A M A N D I N E G A R D E

49 Danmols Inventar, above n 38 at, para 24 to 28.50 The Court held that terms crucial to the material scope of the Directive such as ‘a legaltransfer’ and ‘the transfer of an undertaking’ had a Community meaning. On the expression ‘a legal transfer’, see recently Case C–51/00 Temco, judgment of 24 January 2002. On theexpression ‘the transfer of an undertaking’, see recently Case C–172/99 Oy Liikenne [2001]ECR I–745. For commentaries on these cases, see the articles cited above, at n 34.

Directive persons in some Member States who under national law would beregarded as employees.51

However, in Danmols Inventar there was no such definition; Inventar therestill is none. The unfavourable result in the case could have been avoidedby adopting a broad definition of the term ‘employee’, such as the oneProfessor Hepple suggested. Arguably, it is by having no Community defi-nition, rather than having a broad one, that some workers may be excludedfrom the scope of the Directive.52

The risk that several categories of workers may be so excluded is partic-ularly acute nowadays, as there are some tendencies in Member States toreduce the scope of labour laws by returning to a strict interpretation of thenotion of subordination. For example, in France, the Madelin Act of 1994on ‘initiative and individual enterprise’ introduced a reference to perma-nent legal subordination in the Labour Code as an indication of the exis-tence of employee status, whereas French law had previously ignored sucha requirement.53 This evolution may influence the definition of the personalscope of the Directive to the detriment of employees’ protection, by leadingto the exclusion of temporary or intermittent employment from the defini-tion of protected wage-earner status, and thus from its scope.

Integration in a company belonging to someone else which had graduallybecome the main characteristic of subordination, is now relegated to beingmerely one of a number of indications of such a relationship.54

V. PARTIAL HARMONISATION BEYOND THE ACQUIRED RIGHTS DIRECTIVE

The Directive is just one example of the partial harmonisation of nationallaws. There are several social policy directives in which the Community leg-islature expressly referred to ‘national laws and/or practice’.55

A Case Study on the Acquired Rights Directive 189

51 Danmols Inventar, Opinion, at p 2644.52 In fairness to AG Slynn, he also acknowledged that ‘it may be highly desirable that there shouldbe a Community definition but none has been so far adopted for present purposes’ (DanmolsInventar, above n 38 Opinion, at 2644). He suggested if a Community definition was to beadopted, the question would be ‘whether the individual concerned has bound himself, or put him-self into an employment relationship where he can be required to carry out instructions pursuantto that contract or relationship. The question in each case is whether he is subject to control.’(Danmols Inventar, above n 38 n Opinion, at 2643). Professor Hepple noted that this definitionwas ‘defective and far too narrow because the control test [was] difficult to apply in relation tomany modern employment relationships where the manager [was] incapable of directing “how”the highly skilled or professional worker [carried] out his tasks’ (Report above n 5, 74).53 Art L 120–3 of the Labour Code.54 Supiot, A (ed), ‘Report for the Commission of the European Communities Directorate-General Employment, Industrial Relations and Social Affairs–Transformation of labour andfuture of labour law in Europe’, June 1999, at 7.55 See Art 2(2) of the Insolvency Directive (Directive 80/987, OJ 1980 L 283/23), Art 1 of theCollective Redundancies Directive (Directive 98/59, OJ 1998 L 225/16), Art 2(1) of the

The question of partial harmonisation should be considered in thebroader context of Community competence. As is well known, the first stepalways consists in deciding whether the Community is competent at all in agiven area of law.56 Once it is established that the Community is compe-tent, then it is necessary to establish the degree of competence it possesses.Competence may be exclusive or shared. If it is shared, as is often the case,the mechanism of partial harmonisation may become useful as a practicalimplementation of the principle of subsidiarity.57 More specifically, thequestion is to determine when partial harmonisation could be invoked and,if so, what guidelines the Court should apply in allocating competencebetween the Community and Member States. It goes without saying thatanswering this question is extremely complex; here, the aim is simply todraw some conclusions from the specific cases that have been considered inthe previous sections.

As a starting point, it may be useful to distinguish between the scope andthe content of rights granted under Community law. As far as the scope ofCommunity legislation is concerned, it seems that the provisions that referto ‘national laws and practice’ may be of different kinds. Consequently, it isnecessary to take into account the nature of the provision at stake in orderto decide the level of discretion Member States should have. For example,the Young Workers Directive makes the definition of both ‘schooling age’and ‘employment contract or employment relationship’ subject to nationallaw, without distinguishing between these two terms.58 However, an impor-tant distinction should arguably be drawn between them. The definition of ‘schooling age’ is clearly linked to education policy. Under Article 149(ex-Article 126) of the Treaty, the competence in this field remains withMember States:

The Community shall contribute to the development of quality education by encouraging cooperation between Member States and, if necessary, by

190 A M A N D I N E G A R D E

Working Time Directive (Directive 93/104, OJ 1993 L 307/18, as subsequently amended byDirective 2000/32, OJ 2000 L 195/41), Art 2 of the Young Workers Directive (Directive94/33/EC, OJ 1994 L 216/12), Art 2(d) of the Directive on the Establishment of a EuropeanWorks Council (Directive 94/45/EC, OJ 1994 L 254/64), Clause 1(2) of the FrameworkAgreement implementing the Parental Leave Directive (Directive 96/34/EC, OJ 1996 L 145/9),Art 2 of the Directive on Employee Consultation (Directive 2002/14/EC, OJ 2000 L 80/29)…This list is not exhaustive. However, it should suffice to establish that reliance on the mecha-nism of partial harmonisation is a common occurrence in the field of social policy. Note thatpartial harmonisation is also used in other fields of Community action such as tax harmonisa-tion and consumer protection. All these fields are to a large extent contentious, the role of theCommunity not being particularly well defined at legislative level. Hence the ensuing difficul-ties for the Court.

56 See C–376/98 Germany v Parliament and Council [2000] ECR I–8419 (TobaccoAdvertising).57 Art 5 (ex-Art 3B), second paragraph, of the Treaty.58 Art 2 of Directive 94/33/EC, OJ 1994 L 216/12.

supporting and supplementing their action, while fully respecting the responsibility of Member States for the content of teaching and the organisa-tion of education systems and their cultural and linguistic diversity.

This Article only empowers the Council to adopt incentive measures or recommendations and excludes ‘any harmonisation of the laws and regula-tions of the Member States’. Consequently, the fact that the Young PersonsDirective leaves the definition of the term ‘schooling age’ to each MemberState simply amounts to an acceptance that the Community lacks compe-tence in the field of education. In this respect, the mechanism of partial har-monisation is a useful device to maintain the sharing of competence laiddown in the Treaty. By contrast, the phrase ‘employment contract oremployment relationship’ clearly relates to labour law, a field in which theCommunity has been granted more powers to act than for education. Insuch areas of shared competence, relying on the mechanism of partial har-monisation to define the scope of a Community Directive does not seem tobe useful. As suggested above, the definition of terms pertaining to the veryscope of provisions of Community law should not be left to Member States:this would allow them to introduce or maintain national measures thatwould limit the scope of Community law, thus excluding some categories ofworkers, and could even frustrate its purpose. This is why the mechanismof partial harmonisation should not be resorted to where the definitions atstake relate to a field of Community competence, even if competence is onlyshared. If it is thought that the scope of a given directive should be limited,the limits should be agreed at Community level and clearly stated in the rel-evant legislative texts themselves. For example, if it is thought that someemployees should be excluded from the scope of a Community directive,then the text should make it explicit.59 However, legislative provisions donot necessarily state the level of discretion Member States have in definingthe scope of Community provisions. Moreover, even if they do, they do notseem to make sufficiently fine distinctions to enable the Court to strike aproper balance between national and Community competence.

By contrast, the mechanism of partial harmonisation may be more usefulto allocate competence when the content, rather than the scope, ofCommunity rights is concerned. Allowing for national laws to define thecontent of specific rights does not threaten the uniform application ofCommunity law within the Member States, in so far as it does not concernwho benefits from its provisions and who does not. Thus, the main objec-tion to a broad reliance on partial harmonisation with regard to the defini-tion of fundamental terms relating to its scope does not arise with regard to

A Case Study on the Acquired Rights Directive 191

59 For example, the text of the Working Time Directive lists the different categories of workersthat may fall outside its scope of application (Directive 93/104, OJ 1993 L 307/18, as subse-quently amended by Directive 2000/32, OJ 2000 L 195/41).

its content. Secondly, social policy is not a field of exclusive Communitycompetence. Therefore, the principle of subsidiarity means that ‘nationallaws and/or practice’ should have a role to play. Nevertheless, it is neces-sary to ensure that the purpose of any Community legislative instrumentunder review is not frustrated by granting too much competence to MemberStates.60

If there is an express reference to the laws of the Member States in a pieceof Community legislation, the Court is obviously bound to respect the wishof the Community legislature. However, as the cases on the interpretation ofthe Directive illustrate, there is not always such a clear reference. This iswhy the uncertainty surrounding the definition of the scope of Communitycompetence in relation to measures of partial harmonisation has indirectlycontributed to the reinforcement of the constitutional role of the Court. Ifno express reference is made to ‘national laws and/or practice’, the Courthas to decide by relying on the purpose and general scheme of the Directivein order to ascertain what the Community and its Member States shouldrespectively be empowered to do and allocate competence between themaccordingly.

However, the question arises as to how the Court can convincingly decideat which level a particular Community provision should be defined. Forexample, the material scope of the Directive has consistently been defined atCommunity level, whereas its personal scope has mainly been defined atnational level. The reasons for this difference are difficult to understand. Arecent judgment in the area of intellectual property confirms that appropri-ate guidelines are never easy to find and provides a useful illustration of howfar the Court is willing to fill in legislative gaps where terms either have notbeen defined by the Community legislature or have expressly been left to‘national laws and/or practice’.61 In this case, the question was whether thenotion of ‘equitable remuneration’ used in Article 8(2) of Directive 92/10062

on copyright was a Community concept. The Court held that the need for auniform application of Community law and the principle of equalityrequired that the terms of a provision of Community law which made noexpress reference to the law of the Member States for the purpose of deter-mining its meaning and scope normally had to be given an autonomous anduniform interpretation throughout the Community. This applied to the con-cept of ‘equitable remuneration’.63 However, it also stated that it was forthe Member States alone to determine, in their own territory, what were themost relevant criteria for ensuring, within the limits imposed byCommunity law, and particularly Directive 92/100, adherence to that

192 A M A N D I N E G A R D E

60 See the discussion above concerning the consequences of the right to object to one’s transfer.61 Case C–245/00 SENA v NOS, judgment of 6 February 2003, not yet reported.62 Directive 92/100/EEC on rental right and lending right and on certain rights related to copy-right in the field of intellectual property, OJ 1992 L 346/61.63 SENA, above n 61, at para 23 and 24.

Community concept.64 This case shows how difficult it may be to allocatecompetence between Member States and the Community. It seems that theCourt has tried to strike a suitable balance, thus trying to give judicial scopeto the principle of subsidiarity. However, it is difficult to see how a conceptsuch as ‘equitable remuneration’ can be a Community concept withoutclear and precise Community guidelines with regard to the factors thatMember States must take into account in assessing whether remuneration isindeed equitable. It is like saying that the concept of ‘employee’ should be aCommunity concept, without giving the necessary factors that should beconsidered in assessing the existence of an employment contract or employ-ment relationship. This approach is bound to fail.

Bearing in mind the fierce debates flowing from the uncertainty sur-rounding the respective scope of Community and national competence, it isas controversial to interpret a contentious provision of Community law byrelying on the fact that it is ‘a measure of partial harmonisation only’, as itis to do so by relying on the principle of subsidiarity. ‘Subsidiarity can cutboth ways’.65 So can partial harmonisation.

A Case Study on the Acquired Rights Directive 193

64 SENA, above n 61, at para 34. In so doing, the Court accepted the contention of theCommission and of the governments which submitted observations that Directive 92/100deliberately omitted to lay down a detailed and universally applicable method for calculatingthe level of such remuneration.65 See for example Lyon-Caen, G ‘Subsidiarity’, in Davies, P, Lyon-Caen, G, Sciarra, S andSimitis, S (eds) European Community Labour Law: Principles and Perspectives. LiberAmicorum Lord Wedderburn of Charlton (Oxford, Clarendon Press, 1996), 49.

11

The European Community’s Anti-Dumping Policy: The Quest forEnhanced Predictability, Rationality,European Solidarity and Legitimacy

GUY HARPAZ*

I predict the Union of the people of Europe one day will come when you England,when you France, when you Germany, all of you nations of the continent withoutlosing your own distinctive abilities and without losing your glorious individual-ity, will join together in a higher body and you will find European Brotherhood.

Victor Hugo**

I. INTRODUCTION

THE INTERFACE BETWEEN trade and competition has long been the focus of scholarship. Its international dimension has in recent years increasingly attracted the attention of commentators,1

* I would like to thank the following people for their wise advice. At Cambridge: Ms EleanorSharpston, QC, King’s College, Mr Daniel Bethlehem, Clare Hall, Director, LauterpachtResearch Centre for International Law, Professor John Bell, Pembroke College and Director ofthe Centre for European Legal Studies, and Professor Alan Dashwood, Sidney Sussex College.At Durham: Professor Rosa Greaves. At Haifa: Dr Sylviane Colombo, Dr Michal Gal and DrIlan Saban. In Brussels: Philip Bentley, QC (Stanbrook Hooper, Brussels), Mr Jacques HJBourgeois (Akin, Gump, Hauer & Feld, Brussels), Ian Forrester, QC (White and Case,Brussels), Dr Robert MacLean (Cameron McKenna, Brussels), Ms Ursula O’Dwyer (Renouf& Co, Brussels) and Clive Stanbrook, QC (Stanbrook Hooper, Brussels). In the ECCommission: Mr Stefan D Amarasinha, Mr Dominique Avot, Dr Thinam Jakob, Mr PeterKlein, Mr Oliver de Laroussilhe, Ms Sinead Meany, Mr Kirtikumar Metha, Ms Muad Labat,Mr Josef Breuls (Council of the European Union), Mr Sion Morton (The EuropeanConsumers’ Organisation) and Mr Roberto Cecutti (European Chemical Industry Council)were also very obliging. The usual caveat applies.** Victor Hugo, 1849, quoted in European Commission, Reviewing and Building on theDeclaration of 9 May, 1950, Academic Session to Commemorate the 50th Anniversary of the declaration of 9 May 1950, Brussels, 8–9 May 2000 (Office for Official Publications of theEuropean Communities, 2001), 116.1 Selective literature includes: Epstein, B ‘The Illusory Conflict between Antidumping andAntitrust’ (1973) 18 Antitrust Bulletin 1; Bourgeois, JHJ ‘Antitrust and Trade Policy: A Peaceful

international organisations in general2 and the European Community (EC)in particular,3 multilateral and regional judicial bodies,4 as well as non-governmental organisations.5 This article analyses one dimension of this inter-face, namely the EC Anti-Dumping (AD) Policy6 directed at non-Europeandumped goods, and its relationship with the EC Competition Policy.

This issue is not as narrow as it may be perceived at face value. Asdemonstrated below, the AD Policy is a microcosm of the EuropeanCommunity as a whole. It encapsulates some of the challenges, virtues andvices, successes and failures of the Community’s order. The article thereforeopens a window to more fundamental, general themes, relating to the ECand its Member States. These themes include the relationship between glob-alisation and regionalisation, protectionism and free trade; the internal

196 G U Y H A R PA Z

Coexistence? European Community Perspective (Part I)’ (1989) 17/2 International BusinessLaw 58; Bourgeois, JHJ ‘Antitrust and Trade Policy: A Peaceful Coexistence? EuropeanCommunity Perspective (Part II)’ (1989) 17/3 International Business Law 115; Messerlin, PA‘Anti-Dumping Regulations or Pro-Cartel Law?: The EC Chemical Cases’ (1990) 13/4 TheWorld Economy 465; Mendes, MM Antitrust in a World of Interrelated Economies: TheInterplay between Antitrust and Trade Policies in the US and the EEC (Etudes Européennes1990); Marceau, RG Antidumping and Antitrust Issues in Free-Trade Areas (Oxford UP 1994);Victor, AP and Friedman, MF ‘Antidumping and Antitrust: Pricing Schizophrenia?’ (1995) 23/1International Business Law 23; Buigues, P, Jacquemin, A and Sapir, A (eds), European Policieson Competition, Trade and Industry: Conflicts and Complementarities (Edward ElgarPublishing Ltd 1995); Hoekman, BM and Mavroidis, PC ‘Dumping, Antidumping andAntitrust’ (1996) 30/1 Journal of World Trade 27; Hope, E and Maeleng, P (eds), Competitionand Trade Policies, Coherence or Conflict? (Routledge 1998); Zäch, R (ed), Towards WTOCompetition Rules: Key Issues and Comments on the WTO Report (1998) on Trade andCompetition, Proceedings of the Seminar, Zurich University, 8–10 July 1999 (Kluwer LawInternational, 1999); Jenny, F ‘Globalization, Competition and Trade Policy: Issues andChallenges’, in Zäch, ibid, 3; Cadot, O, Grether, J-M and De Melo, J ‘Trade and CompetitionPolicy: Where do We Stand?’ (2000) 34/3 Journal of World Trade 1; Branton, J ‘Trade LawMeets Antitrust in the European Court: Judgment in Mukand v Council’ (2001) 7/6International Trade Law and Regulation 184; de Araujo, Jr, JT ‘Legal and Economic InterfacesBetween Antidumping and Competition Policy’ (2002) 25/2 World Competition 159.

2 For example, WTO Working Group on the Interaction between Trade and CompetitionPolicy, ‘Synthesis Paper on the Relationship of Trade and Competition Policy to Developmentand Economic Growth’ Note by the Secretariat, (18 September 1998) (98–3575)WT/WGTCP/W/80; OECD Trade and Competition: Frictions After the Uruguay Round,International Trade and Investment Division, Economic Department, Working Paper No 165(OECD, 1996) OCDE/GD (96)105.3 See, for example, the European Commission Report by a Group of Independent Experts,Chaired by K Van Miert, ‘Competition Policy in the New Trade Order: StrengtheningInternational Cooperation and Rules’, Commission of the European Communities (1995)Com/95/359 final.4 For example, the European Court of First Instance in Case T–58/99 Mukand Ltd, IsibarsLtd, Ferro Alloys Corporation Ltd and Viraj Impoexpo Ltd v Council of the European Union[2001] ECR II–2521 and the WTO Panel Report on United States—Anti-Dumping Act of1916, WT/DS136/R (00–1257), 31 March, 2000.5 See, for example, BEUC, ‘BEUC Reaction to Doha Outcome’ (30 January 2002)BEUC/X/005/2002.6 The term ‘EC Anti-Dumping Policy’ is used to refer to both the formal legal regime on ADand its enforcement, unless otherwise indicated. Technically, however, it is not a genuineCommunity policy, but rather an instrument belonging to the Common Commercial Policy.

struggle within the Community between the forces of supranationalism,intergovernmentalism and infranationalism; the growing difficulties ofcoherent governance of the EC, which increasingly involves multiple poli-cies, based on different principles and aimed at different goals; the growingproblems associated with the formulation and enforcement of policies toachieve an optimal equilibrium between the forces of Darwinian capitalismand those of the good Samaritan’s brand of social justice; the regulatorychallenge of administering the economic order along utilitarian lines whileconfronted with intergovernmental horse-trading and rent-seeking pres-sures; the status of the individual in the evolving European economic orderand the EC’s credibility (or lack thereof).

The interface between the EC AD and competition policies, together withthese broad themes, when combined, constitutes the subject matter of thispaper. The latter evokes a challenging intra-disciplinary and inter-disciplinarydiscourse, juxtaposing the disciplines of law, economics, political economy,social sciences and international relations.

The objectives of the article are (i) to link those various themes; (ii) toutilise them in order to gain a better appreciation of the ego, superego and idof the EC, its Member States and citizens; and (iii) to suggest various meanswhich would render the EC regime in general, and the AD regime in particu-lar, more rule-oriented, predictable, rational, legitimate and pan-European.

The article is predicated on five broad assumptions, analysed elsewhere.7

First, the AD and competition policies operate in different settings and maytherefore advance different objectives. The AD Policy regulates non-European trade practices, operating in a global setting, in which nationalmarkets are segregated from one another by artificial means. In contrast,the Competition Policy governs mainly private practices, conducted byEuropeans, that adversely affect the competitive process within theCommunity (cartels, abuses of a monopoly position and certain mergers). Ittherefore largely operates in an integrated European economic community.The AD and Competition Policy tend to march in diametrically oppositedirections, the first along a protectionist, pro-competitors route, and thesecond on a pro-competition course.8

The second assumption is that the EC AD authorities are obliged underEC law to conduct a comprehensive competition policy analysis9 and torely on the findings of that exercise (hereafter referred to as competition

The European Community’s Anti-Dumping Policy 197

7 Harpaz, G, The EC Anti-Dumping Policy: Turning a Blind Eye to Competition PolicyConsiderations? (A dissertation submitted to the University of Cambridge for the degree ofDoctor of Philosophy 2002).8 For analysis, see Cadot et al, above n 1 at 7–8.9 This exercise is a fact-finding mission, aimed at providing sufficient information on both theexporting and the Community markets, including the examination of the conditions that facil-itate dumping by foreign producers in Community markets and the likely effects of any pro-posed AD measures against such producers in competition policy terms. This exercise should

policy considerations), when enforcing the AD Policy. In exercising thatduty, they have to steer:

a difficult and thankless course between Scylla and Charybdis: on the oneside, the risk of smashing Community industry against the rocks of unfaircompetition; on the other side, the bottomless whirlpool of protectionism.10

Third, the EC does not fully abide by the said legal duty. The AD legalregime is enforced politically and is administered opaquely. Consequently,the AD Policy is legally unpredictable and has been captured by vested interests. The legal definition of actionable dumping under the AD Policy isvery broad, much broader than the perception of illegitimate, predatorydumping,11 as recognised in economic circles.12 Similarly, it is also muchbroader than the definition of prohibited price-cutting under the ECCompetition Policy. Despite continuous improvements over the years, the ADauthorities do not always collect sufficient intelligence on all markets, andeven when they do, they generally fail to ascribe due weight to competitionpolicy considerations. In the majority of cases, international price discrimina-tion and sales below cost, the two manifestations of dumping conducted byforeign producers, are tackled without regard to the existence of predatoryintent or capabilities on the part of the foreign exporter, having considerationalmost exclusively as to whether the Community industry is on the decline.

The fourth assumption upon which this article is predicated is that dueto its broad legal scope, the AD Policy (both ‘law in the books’ and ‘law inaction’) is overly interventionist and largely devoid of economic rationale. Ittargets innocuous non-European trade practices and consequently producesnegative consequences in Community markets in terms of competition, effi-ciency and welfare, together with legal and commercial unpredictabilityand resultant injustice.13 The main victims of that state of affairs are

198 G U Y H A R PA Z

not be equated with an economic analysis that is solely concerned with efficiency-enhancement.For the interface of law and economics, see Posner, RA Economic Analysis of Law 5th edn(Aspen Law and Business 1998). For the interface between law and economics in the field ofdumping, see Bhala, R ‘Rethinking Antidumping Law’ (1995) 29/1 George WashingtonJournal of International Law and Economies 20.

10 Jacobs, F, quoted in Bourgeois, above n 1 at 58.11 The term ‘predatory dumping’ denotes the practice whereby the exporter sets low exportprices with the intention of eliminating more efficient competitors in the importing country,gaining, in the long term, a monopolistic position and then extracting monopoly profits,thereby recouping his short-term losses, see Merkin, R ‘Predatory Pricing or CompetitivePricing: Establishing the Truth in English and EEC Law’ (1987) 7 Oxford, Journal of LegalStudies 182.12 For analysis, see Deardorff, AV ‘Economic Perspectives on Antidumping Laws’, in Jackson,JH and Vermulst, EA (eds) Antidumping Law and Practice, A Comparative Study (HarvesterWheatsheaf 1990), 23.13 It was Jacob Viner who warned, close to half a century ago, that what governments can dowith dumping law ‘will make the escape [safeguard] clause look like small potatoes. They can,

European consumers and industrial users and developing countries andcountries in transition, such as Russia and China.14 Fifth, conducting acomprehensive competition policy analysis in the AD context, with relianceon its findings, would render the AD Policy more in harmony with theCompetition Policy. This enhanced coherence could, in turn, allow the ECto reap significant economic and non-economic benefits.

The arguments advanced in this article are articulated in four sections.Section One, ‘Introduction’, sets out its objectives and relevance. SectionTwo, ‘The European Community’s Anti-Dumping Policy’, describes theAD Policy and places it in its broader context, namely the EC’s legal orderin general and its Common Commercial Policy in particular. SectionThree, ‘The Way Forward’ suggests various means to reform the ADPolicy in order to render it more rule-oriented and less political, morepan-European and less national, more rational, and therefore less protectionist. Section Four, ‘Summary and Conclusions’, rounds off thisanalysis.

II. THE EUROPEAN COMMUNITY’S ANTI-DUMPING POLICY

A. Introduction

The EC is the most complicated, advanced and ambitious regional entity inthe world. Its evolving legal order is of a sui generis nature. The EC is neither

The European Community’s Anti-Dumping Policy 199

if they wish, raise the effective tariff barriers more than all the negotiations in Geneva will beable to achieve in the other direction’, quoted in Petersmann, E-U ‘Need for ReformingAntidumping Rules and Practices’ (1990) Swiss Review of International Economic Relations179, 188. Prominent members of the leading contemporary school of thought, such asBourgeois, Messerlin and Stanbrook, (in Europe), Bhala, Barceló, Dale, Milton Friedman,Jackson and Posner, (in the US), also use a gamut of derogatory expressions to describe AD,policies as ‘potentially far more distortive of trade patterns than the practice they weredesigned to deter’, Barceló, JJ ‘Antidumping Laws as Barriers to Trade—The United States andthe International Antidumping Code’ (1972) 57 Cornell Law Review 491, 494; are applied‘for a purpose which is overtly anti-competitive …’, Dale, R Anti-dumping Law in a LiberalTrade Order (Macmillan 1980), 191. See also Acheson, K ‘The Efficiency Rationale of Anti-dumping Policy and other Measures of Contingency Protection: Some Further Reflections’, inQuinn, JH and Slayton, P (eds) Non-Tariff Barriers after the Tokyo Round (The Institute forResearch on Public Policy 1982), 71; Wood, DP ‘“Unfair” Trade Injury: A Competition-Based Approach’ 41 (1989) Stanford Law Review 1153; Trebilcock, MJ andYork, RC (eds) Fair Exchange: Reforming Trade Remedy Law (CD Howe Institute 1990);Anderson, KB ‘Antidumping Laws in the United States—Use and Welfare Consequences’(1993) 27/2 Journal of World Trade 99; de Araujo, above n 1 records critical statements ofMichael Finger, Kenneth Dam, Alan Greenspan and Joseph Stiglitz.

14 For the EC’s aggressive treatment of China in the AD context, see Snyder, F ‘The Origins ofthe “Nonmarket Economy”: Ideas, Pluralism and Power in the EC Anti-Dumping Law aboutChina’ (2002) 7 European Law Journal 369; Liu, Xiang ‘European Union Anti-DumpingCases against China’ (2002) 36/6 Journal of World Trade 1125.

a traditional intergovernmental institution15 nor a purely supranational16 orinfranational entity.17 Instead, it constitutes a unique and fascinating attempton the part of numerous nations with a long history of armed conflicts anddiverse cultural, linguistic, legal and economic traditions, to integrate under aseparate and superior legal order.18 The original EEC Treaty (Rome, 1957),as amended and construed by the EC Courts, forms the constitutional charter of the Community in general, and its economic constitution in particular.19 The EC’s economic persona is two-dimensional. The internaldimension relates to the interplay of economic forces within the Community(intra-Community trade). The external dimension pertains to the economicactivities of the EC, its Members States, citizens and undertakings vis-à-visthe rest of the world (inter-Community trade). At the heart of the latter liesthe Common Commercial Policy.20

200 G U Y H A R PA Z

15 ‘Intergovernmentalism’ refers to the traditional structure of international organisationswhereby each Member State retains its sovereign powers. See Weiler, JHH, The Constitution ofEurope: ‘Do The New Clothes Have An Emperor?’ and other Essays on European Integration(Cambridge UP 1999), 273: The focus is on negotiation, inter-state bargaining, and diplomacy.There is a relatively low level of institutionalisation, and a premium on informal and unstruc-tured interaction. Formal sovereign equality and the loose reflexes of international law prevail.16 ‘Supranationalism’ refers to advanced inter-state structure, the joining of which entails theloss of some sovereign powers. See Weiler, above n 15 at 12 and 273: The materia is often con-stitutional. The modus operandi is more structured, formal, and rule-bound. 17 ‘Infranantionalism’ relies on experts’ know-how, manifested in a wide web of advisory com-mittees. See Weiler, above n 15 at 272: it is characterised by the relative unimportance of thenational element in the decision-making. Technical expertise, economic and social interests,and administrative turf battles shape the process and outcome rather than ‘national interest’.Infranationalism strikes a balance between political intergovernmentalism and genuine legalsupranationalism. Armstrong, KA ‘Rediscovering Civil Society: The European Union and theWhite Paper on Governance’ (2002) 8 European Law Journal. 102, 145: Infranationalismmoves beyond this dual structure by its disregard of the law/politics dichotomy and of theMember State/Community dichotomy. For a strong philippic of Infranationalism, see Weiler,above n 15 at 284 ff. For the interplay of these three forces, see Weiler, above n 15 at 264 ff.18 See Weiler, above n 15 at 10: The EC is an avant garde international organisation usheringforth a new model for trans-national discourse. For general survey of EC law, see Weatherill, Sand Beaumont, P EU Law (Penguin Books, 1999, 3rd edn). For in-depth analysis, see Mancini, GF ‘The Making of a Constitution for Europe’ (1989) 26 Common Market LawReview 595; Weiler, JHH ‘The Transformation of Europe’ (1991) 100 Yale Law Journal 2403;Mancini, GF and Keeling, DT ‘Democracy and the European Court of Justice’ (1994) 57Modern Law Review 175; Arnull, A The European Union and its Court of Justice (Oxford UP1999); Allott, P ‘European Government and the Re-branding of Democracy’ (2002) 27European Law Review 60. For the EC and political science theory, see Jachtenfuchs, M ‘The Governance Approach to European Integration’ (2001) 39 Journal of Common MarketStudies 245. For the EC and international relations theory, see Pollack, MA ‘InternationalRelations Theory and European Integration’ (2001) 39 Journal of Common Market Studies 829.19 For analysis, see Sauter, W Competition Policy and Industrial Policy in the EU (ClarendonPress 1997), 1–56, who analyses the influence that the Freiburg School had on the EC’s eco-nomic constitution. 20 For literature, see Emiliou, N and O’Keeffe, D (eds) The European Union and World TradeLaw After the GATT Uruguay Round (John Wiley & Sons 1996); Snyder, F InternationalTrade and Customs Law of the European Union (Butterworths 1998); Didier, P WTO Trade

B. The Common Commercial Policy

A country’s trade policy is comprised of the international and nationalinstruments that govern trade relations between that country and others,and that regulate the cross-border flow of goods, services and investments.21

The Community was vested from its inception with the competence to estab-lish and conduct an external trade policy towards third countries. TheCommon Commercial Policy is composed of two sets of legal instruments.The first relates to the Common Customs Tariff, which creates a unifiedexternal customs barrier.22 The second relates to the hard core provisionsof the Common Commercial Policy, which are found in Article 3(b)23 andArticles 131–134 of the EC Treaty.24 Article 131 sets down the generalobjectives of the Common Commercial Policy, namely harmonious devel-opment of world trade and reduction of restrictions to internationalexchanges. Article 132 (EC) provides for a harmonised system in the grant-ing of aid for exports to third countries. Article 134 (EC) regulates urgentprotective measures against intra-Community trade. The core of theCommon Commercial Policy is to be found in Article 133(1) (EC):

The common commercial policy shall be based on uniform principles, partic-ularly in regard to changes in tariff rates, the conclusion of tariff and tradeagreements, the achievement of uniformity in measures of liberalisation,export policy and measures to protect trade such as those to be taken in theevent of dumping or subsidies (italics added).

Some salient features of the Common Commercial Policy should be noted.First, it is arguably the most developed aspect of EC foreign policy.25

The European Community’s Anti-Dumping Policy 201

Instruments in EU Law (Cameron May 1999); Cremona, M ‘External Commercial Policyafter Amsterdam: Authority and Interpretation with Interconnected Orders’, in Weiler JHH(ed) The EU, the WTO, and the NAFTA: Towards a Common Law of International Trade?(Academy of European Law, European University Institute, Hart 2000), 5; Molyneux, CTGDomestic Structures and International Trade: The Unfair Trade Instruments of the UnitedStates and the European Union (Hart 2001); Herrmann, CW ‘Common Commercial PolicyAfter Nice: Sisyphus Would Have Done a Better Job’ (2002) 39 Common Market Law Review7. For the interface between the Common Commercial Policy and other policies, seeBourgeois, JHJ and Demaret, P ‘The Working of EC Policies on Competition, Industry andTrade: A Legal Analysis’, in Buigues et al, above n 1 at 65.

21 Barutciski, M ‘The Two Solitudes: Trade and Competition Policy’, Canadian Bar Association,1998 Annual Competition Law Conference, Ottawa, 24–25 September, 1998, 3, in WorldTrade Organisation, United Nations Conference on Trade and Development World Bank, ThirdSymposium on Competition Policy and the Multilateral Trading System (6 April, 1999), 7–8.22 Arts 25–27 (EC).23 One of the EC activities is the maintenance of a trade policy.24 Other related provisions are Art 300 (EC) (authority to conclude international agreements),Art 302 (EC) (maintenance of appropriate relationships with international organisations) andArt 310 (EC) (conclusion of Association Agreements).25 Hine, RC and Padoan, PC ‘External Trade Policy’ in Hall, R, Smith, A and Tsoukalis, L(eds) Competitiveness and Cohesion in EU Policies (Oxford UP 2001), 61. For the EC external

Moreover, on the face of it, it is governed by the principle of uniformity. It is apolicy common to all Member States, exclusively formulated at Communitylevel. Whether in a bilateral, regional or multilateral context, the EC speaks, atleast formally, with one voice.26 Realities are, however, more complex, a themethat is central to this paper. In addition, the provisions of the CommonCommercial Policy were given a liberal construction by the European Court ofJustice (ECJ),27 which held that the scope of the Common Commercial Policyshould be as broad as the scope of any national external trade policy.28

Furthermore, to meet the challenges of globalisation, the Community gradu-ally widened the scope of the Common Commercial Policy. Traditionally, itgoverned only goods. Gradually it expanded to include intellectual propertyand services.29 Moreover, the list of trade instruments referred to in the above-quoted Article 133(1) is non-exhaustive.30 They include both tariff and non-tariff measures. Among the non-tariff measures there are instruments such asAD measures, designed to counteract what is considered by the EC to be unfairtrade practices pursued by foreign governments and traders. On the institu-tional front, the Common Commercial Policy is formulated and administeredby the Commission, the Council and the European Parliament, whilst the ECCourts review the legality of its formulation and enforcement.31 The CommonCommercial Policy operates subject to the regime of the World TradeOrganisation (WTO).32 The Common Commercial Policy is going through aprocess of juridification,33 and yet its formulation and enforcement are prone

202 G U Y H A R PA Z

relations, see Dashwood, A and Hillion, C (eds) The General Law of EC External Relations(Centre for European Legal Studies, Cambridge, Sweet and Maxwell 2000).

26 For analysis, see Meunier, S and Nicolaïdes, K ‘Who Speaks for Europe? The Delegation ofTrade Authority in the EU’ (1999) 37 Journal of Common Market Studies 477, who suggestthat that feature helps insulate the policy-making process from domestic pressures and increasesEC’s political stand. See also Opinion 1/75 Opinion of 11/11/1975 [1975] ECR 1355. Theexclusivity of the Common Commercial Policy does not apply when Member States areequipped with an express authorisation from the Commission to act unilaterally, CaseC–174/84 Bulk Oil (Zug) AG v Sun International Ltd. and Sun Oil Company [1986] ECR 559. 27 Opinion 1/75, above n 26 and Opinion 1/78 Opinion of 04/10/1979 [1979] ECR 287 1 arecases in point. But see Opinion 1/94 Opinion of 15/11/1994 [1994] ECR I–5267, for a nar-rower approach with respect to the EC’s competency to conclude the World TradeOrganisation Agreement. Meunier and Nicolaïdes, above n 26 at 492–493 suggest that thestrict construction exhibited in the latter’s judgment represents a broader trend in which theCourt abandons judicial activism in favour of a more neutral entity in questions of distribu-tion of competence between the different levels of the EU polity. See also Herrmann, above n 20 at 11–12. This ruling was amended by the Treaty of Nice, see Herrmann, ibid.28 See Opinion 1/75, above n 26.29 For analysis, see Herrmann, above n 20.30 These include countervailing and safeguard measures. For a general overview, see Van Bael,I and Bellis, J-F Anti-Dumping and other Trade Protection Laws of the EC 3rd edn (CCHEurope 1996), 16 ff.31 See Art 230 (EC).32 See the ECJ judgment in Case C–149/96 Portuguese Republic v Council of the EuropeanCommunities [1999] ECR I–8395. For analysis, see de Búrca, G and Weiler, JHH (eds) TheEuropean Court of Justice ( Academy of European Law, European University Institute Hart 2001). 33 See, for example, Herrmann, above n 20.

to lobbying pressures.34 Finally, under its aegis, an extensive web of tradeagreements and arrangements was created.

The above exposition does not demonstrate whether the CommonCommercial Policy is based on liberal or protectionist ideology. Neither theEC Treaty, nor the jurisprudence of the EC Courts and academic literatureprovide a decisive answer to this question.35 This article tackles this themein the narrow province of the AD Policy.

C. The Anti-Dumping Policy

The Common Commercial Policy refers explicitly to AD measures as one ofits components.36 A common AD policy was therefore established in 1969under the aegis of the Common Commercial Policy. The AD Policy is predi-cated on a three-tier pyramid of norms. At the highest level are the provi-sions of the Common Commercial Policy, which set the broad constitutionalframework. At the middle level, and based upon these provisions, the EChas over the years enacted successive Basic Regulations, which have createddetailed machinery for the application of AD measures. The third level con-sists of individual Regulations and Decisions that apply AD measures againstforeign products on an ad hoc basis by virtue of the Basic Regulation. Likethe Common Commercial Policy itself, the AD Policy does not operate in avacuum. It is subjected to the disciplines of the WTO regime in general andthose of the Uruguay Agreement on AD (1994) in particular.37 Indeed, theBasic Regulation’s spirit, form and substance are largely in line with the mul-tilateral regulatory regime.38

The European Community’s Anti-Dumping Policy 203

34 Stegemann, K ‘Anti-Dumping Policy and the Consumer’ (1985) 19/5 Journal of WorldTrade. 466; Messerlin, above n 1; Pauwels, W, Vandenbussche, H and Weverbergh, M ‘RentSeeking Activity Induced by European Antidumping Policy’, Credit Research Paper (Centrefor Research in Economic Development and International Trade, University of Nottingham1996).35 For the academic debate and survey of the Court’s jurisprudence, see Bourgeois, JHJ ‘TheEuropean Court of Justice and the WTO: Problems and Challenges’, in Weiler, above n 20 at 71; Cremona, above n 20; Hine and Padoan, above n 25 at 64.36 Art 131(1) (EC).37For that regime, see Morgan, C ‘Competition Policy and Anti-Dumping: Is it Time for a RealityCheck?’ (1996) 30/5 Journal of World Trade 61. See also above n 32, especially Case C–53/96Hèrmes International v FHT Marketing Choice [1998] ECR I–3603, which recognised a pre-sumption in favour of a consistent interpretation between Community law and international law.In Case C–69/89 Nakajima All Precision Co Ltd v Council of the European Communities [1991]ECR I–2069, paras 31 ff, the ECJ held that that GATT’s provisions bind the Community and that‘the same conclusion must be reached in the case of the Anti-Dumping Code, which was adoptedfor the purpose of implementing Article VI of the General Agreement …. Community … is there-fore under an obligation to ensure compliance with the General Agreement and its implementingmeasures…’. For the relationship between the AD regimes of the EC and the WTO, see also CaseT–188/99 Euroalliages v Commission of the European Communities [2001] ECR II–1757, para57ff. Hence, measures adopted by the authorities in enforcing the Basic Regulation on AD mustcomply with the GATT regime on AD.38 But see Didier, above n 20, who analyses some of the consistencies between the two regimes.

The EEC Treaty of Rome (1957) ruled out the application of AD measuresagainst goods dumped from one Member States to another, thereby creatingfor the first time in trade history a trade area free of AD measures.39 Nomeasures can therefore be imposed on goods dumped, for example, fromLondon to Berlin. As to inter-Community dumping (dumping from non-Member States), Article 133 (EC) required that commencing from the endof the transitional period (1969), a Common Commercial Policy was to beadopted, one component of which was to be the AD Policy. Yet theCommunity’s original six Member States perceived dumping differently.40

Vesting the competence to apply AD measures in their respective handswould have caused distortions of trade. Consequently, the AD Policy wasformulated, just like its overarching policy, the Common CommercialPolicy, at the Community level. A common AD Policy was adopted in theform of the first Basic Regulation.41 Within that framework, the authorityto apply measures against inter-Community dumped trade was taken awayfrom the Member States and entrusted exclusively to the Community.

The first Basic Regulation (1968) dealt with both the substantive and theprocedural aspects of the regulation of AD. In nuce, it required the follow-ing four cumulative prerequisites: (i) the existence of dumping; (ii) an injuryto the Community industry; (iii) a causal link between dumping and injury;and (iv) a determination that the proposed application of measures corre-sponds to the Community interest. These basic requirements remain intact,yet over the years the original Basic Regulation was amended and thenreplaced by a series of new Basic Regulations.42 Following the adoption ofthe WTO Uruguay Agreement on AD (1994), a new Basic Regulation (BR)was adopted.43 It was later re-introduced as Council Regulation (EC)384/96. The BR, as amended,44 constitutes the current EC’s regulatory

204 G U Y H A R PA Z

39 For analysis of the reasons leading to this state of affairs, see Beseler, J-F and Williams ANAnti-Dumping and Anti-Subsidy Law: The European Communities (Sweet and Maxwell1986), 33. 40 For analysis, see Beseler and Williams, above n 39 at 21ff.41 Council Regulation (EEC) No 459/68 of 5 April 1968 on protection against dumping or thegranting of bounties or subsidies by countries which are not members of the EuropeanEconomic Community, Official Journal L 093, 17/04/1968 p 0001.42 For literature relating to previous Basic Regulations, see Beseler and williams, above n 39.43 Council Regulation (EC) No 3283/94 of 22 December 1994 on protection against dumpedimports from countries not members of the European Community, Official Journal L 349, p 0001–0002, as amended by Council Regulation (EC) No 1251/95 of 29 May 1995, amend-ing Regulation (EC) No 3283/94 on protection against dumped imports from countries notmembers of the European Community, Official Journal L 122, 02/06/1995 p 0001.44 See Council Regulation (EC) No 2331/96 of 2 December 1996 amending Regulation (EC)No 384/96 on protection against dumped imports from countries not members of theEuropean Community, Official Journal L 317, 06/12/1996 p 0001; Council Regulation (EC)No 905/98 of 27 April 1998 amending Regulation (EC) No 384/96 on protection againstdumped imports from countries not members of the European Community, Official Journal L128, 30/04/1998 p 0018; Council Regulation (EC) No 2238/2000 of 9 October 2000 amend-ing Regulation (EC) No 384/96 on protection against dumped imports from countries notmembers of the European Community, Official Journal L 257, 11/10/2000 p 0002; Council

framework for the application of AD measures.45 No measures can betaken outside the framework of AD proceedings. This regime is directedagainst all products. No regime exists with respect to service dumping.Geographically, the AD Policy governs dumped products from all non-Community countries, whether developed or developing,46 and regardlessof whether they are members of the WTO.47 With respect to certain coun-tries the EC took upon itself, in the framework of various bilateral andregional agreements, sundry constraints with regard to the application ofthe AD Policy.48

III. THE WAY FORWARD

A. Introduction

The AD Policy is the subject of extensive academic criticism. The presentSection advances a reform package.49 The Section is predicated on the

The European Community’s Anti-Dumping Policy 205

Regulation (EC) No 1972/2002 of 5 November 2002 amending Council Regulation (EC) No384/96 on the protection against dumped imports from countries not members of theEuropean Community, Official Journal L, 305 07/11/2002 p 0001; Council Regulation (EC)No 452/2003 of 6 March 2003 on measures that the Community may take in relation to thecombined effect of anti-dumping or anti-subsidy measures with safeguard measures, OfficialJournal L 069, 13/03/2003 p 0008–009.

45 For literature, see Van Bael and Bellis, above n 30; Stanbrook, C and Bentley, P Dumpingand Subsidies: The Law and Procedures Governing the Imposition of Anti-dumping andCountervailing Duties in the European Community 3rd edn (Kluwer Law International 1996);Müller, W, Khan, N and Neumann, H-A EC Anti-Dumping Law—A Commentary OnRegulation 384/96 (John Wiley & Sons 1998). For an analytical survey, see Vander Schueren,P ‘New Anti-Dumping Rules and Practice: Wide Discretion Held on a Tight Leash?’ (1996) 33Common Market Law Review 271. Holmes, P and Kempton, J ‘EU Anti-Dumping Policy: aRegulatory Perspective’ (1996) 3/4 Journal of European Public Policy 647; Vermulst, EA andDriessen, B ‘New Battle Lines in the Anti-Dumping War: Recent Movements in the EuropeanFront’ (1997) 31 Journal of World Trade 135; MacLean, RM and Eccles, RJ ‘Change of Stylenot Substance: The Community’s New Approach towards the Community Interest Test inAnti-Dumping and Anti-Subsidy Law’ (1999) 36 Common Market Law Review 123;Molyneux, above n 20. For a comparison between EC practice and other major tradingnations’ practices, see Gottlieb, R, Vander Schueren, P, Pearson, D and Georgi, K ‘Anti-Dumping Law and Practice in Canada, The European Community and United States After theWTO Anti-Dumping Agreement’ (Part I) (1998) 4/5 International Trade Law and Regulation160; Gottlieb, R, Vander Schueren, P, Pearson, D and Georgi, K ‘Anti-Dumping Law andPractice in Canada, The European Community and United States After the WTO Anti-Dumping Agreement’ (Part II) (1998) 4/6 International Trade Law and Regulation 204.46 Art 15 of the WTO Agreement on AD requires that developed countries give special regardto the unique situation of developing countries and that constructive remedies be preferred.This Art was not incorporated into the BR.47 Yet Art 22(c) (BR) empowers the Community to apply ‘special measures’ with respect toimports from non-WTO Members.48 See for example, Hoekman and Mavroidis, above n 1.49 For further discussion, see Wood, above n 13; Mendes, above n 1; Marceau, above n 1;Barbuto, CM ‘Towards Convergence of Antitrust and Trade Law: An International TradeAnalogue to Robinson-Patman’ (1994) 62 Fordham Law Review 2047; Bhala, above n 9;

assumption that at least in the short-run, the EC would not (and arguablyshould not) abolish altogether its AD Policy.50 The proposals advancedherein may be divided into three broad categories, in accordance withtheir degree of abstractness. The first category entitled ‘The NarrowPerspective: Greater Coherence with the Competition Policy’, includesthe more concrete, detailed legal arrangements. The second category, enti-tled ‘The Constitutional and Institutional Perspective’ includes remedialactions that impinge on the very constitutional and institutional struc-tures of the EC. The third category, entitled ‘The Broader Picture:Meeting the Challenges of Globalisation and European Integration’includes proposals of a more abstract nature relating to the ego, superegoand id of the EC, its Member States and citizens, serving as a para- digm upon which the said detailed arrangements (first category) and institutional and constitutional reform (second category) can beimplemented.

B. The Narrow Perspective: Greater Coherence with the Competition Policy

This sub-section examines various technical corrections to the AD Policy,with a view to subjecting it to enhanced competition policy disciplines,thereby rendering it ‘more competition friendly’ and more welcoming tohealthy foreign competition.51 The aim of this exercise is not to secure fullharmony between the AD and competition policies, as this objective is not

206 G U Y H A R PA Z

Gual, J ‘The Coherence of EC Policies on Trade, Competition and Industry’, Discussion PaperNo 1105 (Centre for Economic Policy Research, 1995); Cartland, M ‘Anti-Dumping andCompetition Policy’ (1996) 28 Law and Policy in International. Business 289; Miranda, J‘Should Antidumping Laws be Dumped?’ (1996) 28 Law and Policy in International Business255; Bronckers, MCEJ ‘Rehabilitating Antidumping and other Trade Remedies through Cost-Benefit Analysis’ (1996) 30 Journal of World Trade 5; Hoekman and Mavroidis, above n 1;Niels, G and ten Kate, A ‘Trusting Antitrust to Dump Antidumping: Abolishing Antidumpingin Free Trade Agreements without Replacing it with Competition Law’ (1997) 31 Journal ofWorld Trade 29; Stanbrook, C ‘EU Competition and Anti-Dumping Policy: A PainfulEncounter’, Mimeo, 11 June 1997; MacLean, RB ‘The Need to Reform the CommunityInterest Test in European Community Anti-dumping Law and Policy’ (1998) 4 InternationalTrade Law and Regulation 129; de C Grey, R ‘The Relationship between Anti-Dumping Policyand Competition Policy’ 31 May 1999, Report for UNCTAD (1999); BEUC, above n 5.

50 For discussion of this possibility, see Cartland, above n 49; Hoekman and Mavroidis, above n 1.51 See Petersmann, E-U ‘International Competition Rules for the GATT-MTO World Tradeand Legal System’ (1993) 27/6 Journal of World Trade 35, 75–76; Hoekman and Mavroidis,above n 1: This route of reform might help to defuse both market-access-related disputes andlimit the use of AD actions. See also Lamy, P (13 December 2001), ‘US Steel: a Warning about Perverse Signals’, Speech to the UK Steel Association Annual Forum, London, 13 December 2001, http://europea.eu.int/comm/trade/speeches_articles/spla88_en.htm, visitedon 16 December 2001.

feasible, and is perhaps even undesirable.52 Instead, it is meant to bringabout an enhanced coherence between the two.

1. Enhanced Economic Analysis

The structure of any given market has a profound influence on the conductof undertakings competing in it.53 This assumption is not sufficientlyreflected in the EC AD proceedings. Admittedly, the current economicanalysis conducted by the AD authorities is much more sophisticated thanthat conducted during the early days of the AD Policy, but it still remainsimmature in many respects. Consequently, the AD authorities are notequipped with sufficient market intelligence and are unable to assess satis-factorily the potential effects of dumping practices and those of their pro-posed AD measures. The market analysis is especially immature withrespect to the conditions of the dumping party’s domestic market.

A more robust analysis is therefore called for. Its sophistication shouldbe elevated as closely as possible to the level of that conducted under theEC Competition Policy.54 That analysis should be focused on the structuralcharacteristics of the Community market and of the foreign market alike,as well as of the characteristics of the various competitors. The existence ofdistortions in the exporting market and the causes of such distortions,together with the market conditions and degree of competition prevailingin the Community, must be carefully examined.

The blessings of such an exercise could prove to be immense, setting intrain the following developments. It would enable the AD authorities toascertain whether the prerequisites for a successful predatory campaignexist55 and whether the Community industry is competitive. It could equipthem with detailed insight into the causes of dumping. It could establish thelikely intent behind the dumping campaign, and the likelihood that thedumping party would recoup its short-term losses. It could also provide anindication of whether dumping is likely to be ruinous to the competitivestructure of the Community markets. The AD authorities would then be

The European Community’s Anti-Dumping Policy 207

52 See Schepel, H and Blankenburg, B ‘Mobilizing the European Court of Justice’, in de Búrcaand Weiler, above n 32 at 64: The notion of ‘value pluralism’ implies that values and principlescannot be reduced to a single value or coherent set of values, nor should conflicts between rea-sons be interpreted as imperfection, but rather as the normal state for human beings.53 See the analysis in the introductory section of Goyder, DG, EC Competition Law 3rd edn(Clarendon Press, 1998).54 For the latter, see Hildebrand, D, The Role of Economic Analysis in the EC CompetitionRules 2nd edn (Kluwer Law International 2002); Posner, above n 9 at 309–347 (US).55 A thorough assessment of a long list of factors is required. Predatory campaign usuallyrequires, inter alia, strong market power, significant wealth, diversified production and significant capacity on the part of the dumping party, inelastic demand for his products, highbarriers to entry in both the exporting and importing markets, consumer irrationality in theimporting market and slow technical growth of the dumped products. For analysis, seeMerkin, above n 11.

armed with sufficient market intelligence, and could justifiably be expectedto display greater attentiveness to competition policy considerations. Thatinsight could allow them to take a more rational and balanced stance andto ascertain the likely effects of any proposed measure,56 ensuring that thelatter are likely to meet their underlying objective under the BasicRegulation on AD, namely to ‘restore effective competition’. The AD Policywould then produce minimal anti-competitive consequences.57 These sug-gestions are viable. The Community has indeed proven itself, at times, capa-ble of pursuing a comprehensive market analysis in the context of the ADPolicy58 and elsewhere.59

2. A More Rule-Oriented Anti-Dumping Policy

The concept of full enforcement is chimerical.60 Law enforcement presup-poses discretion: ‘what the rule of law demands is not that wide discre-tionary power should be eliminated, but that the law should be able tocontrol its exercise’.61 Unnecessary discretionary power should be elimi-nated, and necessary discretionary power should be confined, structuredand checked.62 The discretion bestowed upon the institutions of the EC is

208 G U Y H A R PA Z

56 For support, see MacLean and Eccles, above n 45.57 More specifically, the larger the market share of the dumping party in the Community mar-ket, the more probable it is that it will succeed in conducting a predatory campaign. The appli-cation of measures in such a scenario might produce pro-competitive consequences. Thereverse is true with respect to foreign exporters with an insignificant market share in the Community. Similarly, the more concentrated the Community industry is found to be, themore harmful the proposed measures could be in reinforcing a concentrated market structure.For analysis of different measurements of concentration, see Wood, above n 13 at 1196 ff andBarbuto, above n 49 at 2094. On the basis of the latter paradigm, Wood argues, in the US con-text, that AD remedies could be tied to the concentration level of the complaining domesticproducer, see Wood, above n 13 de Grey, above n 49 and Yano, K ‘Thirty Years of being aRespondent in Antidumping Proceedings: Abuse of Economic Relief can have a NegativeImpact on Competition Policy’ (1999) 33/5 Journal of World Trade 31, 38 suggest that a sin-gle party with a dominant market position might not be entitled to the benefit of the AD pro-vision. It is suggested that this bright-line rule might produce arbitrary results and shouldtherefore be rejected. The findings on the contestability of both markets are also highly rele-vant. The higher the barriers in the foreign market, the more likely it is that dumping would befacilitated by a distorted advantage enjoyed by the dumping party at home. Under such condi-tions, dumping may be considered as an unfair and potentially harmful trade practice thatwarrants remedial action. Per contra, if the export market is found to be contestable, it ismore likely that the dumping party is efficient and that his triumphal march into Communitymarkets reflects its comparative advantage. In the latter scenario, measures are likely to pro-duce anti-competitive results. The dumped products should instead be welcomed. 58 For analysis, see Didier, above n 20 at 141–144.59 See, for example, the analysis conducted under the Merger Regulation. See Hildebrand, DThe Role of Economic Analysis in the EC Competition Rules (Kluwer Law International1998), 330 ff.60 Ibáñez, AJG The Administrative Supervision and Enforcement of EC Law: Powers,Procedures and Limits (Hart Publishing 1999), 202–204.61 Wade, W and Forsyth, C Administrative Law 7th edn (Clarendon Press 1994), 379.62 Ibáñez, above n 60 at 239.

restricted under Community law by various general instruments.63 Thefollowing paragraphs attempt to apply those means in our narrow context.

This article focuses on the theoretical aspects and policy issues involved,while striving not to get overly bogged down with its technical dimensions.Yet the devil lies in the (AD) detail. The AD Policy is composed of a com-plex matrix of discretionary rules, each of which is the subject matter ofacademic criticism. The provisions of the Basic Regulation are formulatedin very broad language, allowing for their protectionist enforcement.Narrowing down their scope and reducing their discretionary nature couldrestrict the anti-competitive nature of the AD Policy. This corpus of techni-cal and discretionary rules should be tightened and imbued with an eco-nomic soul. The remedial route advanced in the following paragraphswould further stamp the institutions’ discretion in employing techniquesthat run counter to competition policy considerations, constituting yetanother step on the long road to transforming the AD Policy from a discre-tionary instrument into a more rule-based one.

The first precondition for the imposition of AD dumping is the findingof dumping. There exists a difference between the (narrow) economic and(wide) legal notions of dumping. Consequently, the scope of the AD Policyis too wide, thereby producing excessive anti-competition effects. The legalnotion of dumping should be brought closer to its economic counterpart.For example, the EC can stop treating price discrimination per se asamenable to AD measures, unless it entails sales at loss. Less ambitious pro-posals exist.64 A further step would be to redefine the concept of sales atloss along the lines proposed below. Tightening the concept of dumpingwould reduce the number of cases in which healthy competition were coun-teracted. Greater synergy between the two policies would follow.

The second precondition for the imposition of AD measures is the find-ing of injury to the Community industry. The provisions of the BasicRegulation regulating this issue are formulated in very broad language,allowing for their protectionist enforcement.65 A more rule-oriented regimeis therefore warranted.

Some writers have called for the replacement of the AD Policy’s test on injury to Community competitors with a test based on injury

The European Community’s Anti-Dumping Policy 209

63 Ibáñez, above n 60 at 202–204: (i) Legal rules and the principle of legality; (ii) The princi-ples of unreasonableness and proportionality; (iii) The doctrine of manifest error/misuse ofpower; (iv) Procedural limits; (v) Judicial review.64 See Lindsey, B ‘The US Antidumping Law: Rhetoric versus Reality’ (2000) 34/1 Journal ofWorld Trade 1, 28ff: An affirmative determination of price discrimination should require thefindings of a significant and stable differential between a foreign producer’s export price andnormal value and the existence of government policies that insulate the foreign producer’sdomestic market from foreign competition.65 For analysis, see Didier, above n 20, 76 ff.

to competition66 (mainly based on the benchmark of Average VariableCost).67 Yet, this proposal raises theoretical difficulties. In the intri-cate global context, complex commercial realities cannot at all times bedivided into neat categories in accordance with price benchmarks. Forexample, there can be instances of innocuous and non-harmful sales belowAverage Variable Cost and vice versa.68 Similarly, AD measures aimed atnon-predatory dumping may in certain circumstances be pro-competitionand welfare-enhancing, and conversely so.69 Hence, the said proposal maysometimes promote greater simplicity at the expense of a nuanced analyticalstance. Moreover, any attempt to replace the test of injury to domesticindustry with a test of injury to competition amounts, in effect, to the sub-sumation of the AD instrument into the Competition Policy regime. TheEC, like other major trading nations, opposes the abolition of AD laws.The very same reasons that induced the EC to oppose that move mightinduce it to oppose the full convergence of the injury tests of the two policies.

More modest proposals are therefore to be examined. The provisionsrelating to threat of material injury are protectionist.70 The possibility ofinvoking them should be abolished. ‘Material’ as an adjective to describeinjury to the Community industry is too vague, lending itself to a de minimisinterpretation.71 It should therefore be tightened along the lines of the‘serious injury’ test under the EC safeguard regime.72 The overly modestde minimis measurement below which no measures may be imposedshould be reinforced.73 Defences recognised under competition law shouldbe permitted.74

The third prerequisite for the application of AD measures is the causallink between dumping and injury to the European industry. The provisionson this issue are loose, allowing for protection even if dumping is merely asubsidiary cause of the injury suffered by the Community industry.75 Thecausation analysis must therefore be reinforced. Protection is to be affordedonly when dumping is the ‘principal’ cause of injury and not merely ‘a’ cause.

210 G U Y H A R PA Z

66For extensive analysis, see Petersmann, above n 51 at 62–63; Hoekman, BM and Mavroidis,PC ‘Antitrust-based Remedies and Dumping in International Trade’ (Centre for Economic PolicyResearch, London 1994), 24; Barbuto, above n 49 at 2084-2089; Wood, above n 13 at 1200.67 For detailed account, see Bhala, above n 9 at 126–128.68 For extensive discussion, see Marceau, above n 1 at 24–26; Morgan, above n 37 at 66–67;Bhala, above n 9 at 136.69 See Morgan, above n 37; Miranda, above n 49.70 For further analysis, see Marceau, above n 1 at 35.71 Didier, above n 20 at 79–80. 72For the EC regime in the area of safeguard measures, see Van Bael and Bellis, above n 30 at 18.73 Relying on a bright line rule of, for example, 15% of market share held by the alleged dump-ing party. 74 See Miranda, J, Torres, RA and Ruiz, M ‘The International Use of Antidumping—1987–1997’ (1998) 32/5 Journal of World Trade. 5, 63; Lindsey, above n 64 at 30.75 See Didier, above n 20 at 79.

The provisions on cumulation76 are an affront to common sense, allowing,in one case, the imposition of measures against an exporter who exported0.0083% of the dumped goods.77 It cannot be argued that numerous unre-lated producers from several countries, each having a very small marketshare in the Community, can injure the Community industry. These provi-sions should be abolished, or at least severely curtailed. The implementa-tion of these proposals would, once again, bring the AD Policy a step closerto what most economists perceive to be a legitimate instrument.

The last precondition for the imposition of AD measures is theCommunity interest clause: No AD measures can be imposed if such impo-sition runs counter to Community interest. The other major trading part-ners of the EC do not posses such a clause. The potential virtues of theCommunity interest clause are immense. It could have served as a mediumby which competition policy considerations would be examined. It couldhave ensured that AD measures would be tailored to the measurement ofunhealthy dumping practices. However, because of its deficiencies,78 it hasnot met such expectations.

The presumption embedded in the clause in favour of applying measuresshould be abolished and the clause should instead be couched in neutralterms.79 Other means to remedy it should be considered.80 Under thatrefined clause, an objective and comprehensive investigation would be con-ducted in order to ascertain the totality of affected interests, focusing onwhether Community interest truly lies in the adoption of AD measures.More emphasis would be placed on the distinction between beneficialdumping in competition policy terms and prejudicial dumping. Such areform would restrict the scope of the AD Policy and in turn enhance thesynergy between the two policies.

The European Community’s Anti-Dumping Policy 211

76 Under Art 3.4 (BR), the EC authorities assess cumulatively the effects of imports that aresubject to the same investigation, although they derive from different producers and/or fromdifferent countries.77 See Case T–171/97 Swedish Match Philippines Inc v Council of the European Union [1999]ECR II–3241.78 See MacLean and Eccles, above n 45.79 The reference to the need to give special consideration to the restoration of effective compe-tition must be abolished, as it wrongly presupposes that all forms of dumping are a manifesta-tion of ineffective competition. Moreover, the phrase that calls upon the institutions not totake measures when they ‘can clearly conclude that it is not in the Community interest’ toapply measures should be rephrased as follows: ‘The institutions ought not to adopt measuresunless they can clearly conclude that that imposition is in the Community interest’.80 Marceau, above n 1 at 151: Consumer groups and commercial users are not generally awareof the dumping investigation. The period of 30 days is insufficient for them to make represen-tations on this issue and should therefore be prolonged. Hoekman and Mavroidis, above n 66at 22–25: The Community interest examination should come into play at the same time thatinjury to producers and the causal link between dumping and injury is established, as opposedto the final stage of an investigation. Otherwise, users are required to counteract by well-established evidence with insufficient time to present their arguments.

The search for a more precise Community interest may, however,encounter difficulties.81 A comprehensive cost-benefit analysis conductedin each AD proceeding could be helpful here. The advantages of this exer-cise are immense.82 Yet the original position of the EC was that such anexamination was unwarranted. That approach has been facing mountingpressure from academic circles,83 non-governmental organisations84 andintergovernmental organisations.85 The EC Treaty provisions, the corpus ofthe judgments of the European Court of Justice and the provisions of theCharter of Fundamental Rights on reasoning86 and transparency,87 and theongoing work of the Commission to reform the governance of the EC,88

only add to that pressure. The authorities have taken notice of these pres-sures, pursuing a more balanced stance.89 Having said that, the currentstate of affairs remains unsatisfactory. The EC should take a courageousstep by adding a provision to the Basic Regulation, requiring the conduct ofa cost-benefit examination in each AD investigation. This ad hoc exerciseshould be supported by cost-benefit periodical assessments of all AD meas-ures in force.

212 G U Y H A R PA Z

81 Holmes, P with Kempton, J ‘Study on the Economic and Industrial Aspects of Anti-DumpingPolicy’, Sussex European Institute Working Paper No 22 (Sussex European Institute 1997), 23:Costs, benefits and the concept of fairness may not be prone to a scientific estimation.82 See Stegemann, above n 34 at 481; Vandoren, P ‘The Interface between Anti-Dumping andCompetition Law and Policy in the European Community’ (1986) Legal Issues of EuropeanIntegration 1, 13–15; National Consumer Council Working Paper No 1 ‘International Tradeand the Consumer: Consumer Electronics and the EC’s Anti-Dumping Policy’ (February1990); For recent developments, see European Commission, Commission of the EuropeanCommunities, White Paper ‘European Governance’, the Commission of the EuropeanCommunities, Brussels, (25 July, 2001), COM(2001) 428 final; European Commission, Reportfrom the Commission on European Governance (Luxembourg 2003).83 Above n 82.84 National Consumer Council, above n 82.85 For analysis of the relevant work of the OECD in that regard, see Marceau, above n 1 at 136–137.86 For analysis, see Weatherill and Beaumont, above n 18 at 161–163. See also Art 41(2) of theEU Charter of Fundamental Rights which provides that the right to good administrationmeans the existence of an obligation of the administration to give reasons for its decision.87 For analysis, see Weatherill and Beaumont, above n 18 at 76–80. For the issue of trans-parency, in its broader context, see European Commission (2001), above n 82 at 10: ‘TheInstitutions should work in a more open manner. Together with the Member States, theyshould actively communicate about what the EU does and the decisions it takes … This is ofparticular importance in order to improve the confidence in complex institutions’. Art 42 ofthe EU Charter of Fundamental Rights provides that any citizen of the Union, and any naturalor legal person residing or having its registered office in a Member State, has a right of accessto European Parliament, Council and Commission documents.88 See European Commission, Reviewing and Building on the Declaration of 9 May 1950,Academic Session to Commemorate the 50th Anniversary of the declaration of 9 May 1950,Brussels, 8–9 May 2000 (Office for Official Publications of the European Communities,Luxembourg 2000); EC Commission (2003), above n 82.89 See Bronckers, MCEJ Papers presented at the Symposium on Competition Policy and theMultilateral Trading System: a Dialogue with Civil Society, WTO Working Group on theInteraction between Trade and Competition Policy (21 September 1999). For the same themein broader contexts, see EC Commission (2003), above n 82 at 20.

Other corrections are also warranted. The AD Policy should be amendedin several respects in order to render it more in line with the WTO regime.90

A number of amendments should then be executed: the maximum duration of the measures should be restricted,91 measures should be phased out during their life span and protection denied in the absence ofevidence of adjustment on the part of a Community industry. The ADPolicy should also be rendered more sensitive to the interests of developingcountries.92 These and other technical refinements93 may restrict the discre-tionary nature of the AD Policy, and narrow down its anti-competitive ramifications.

The AD proposals advanced in the preceding paragraphs should be sup-ported by corrective arrangements pursued in other provinces. AD protec-tion can be denied to those Community industries found to be in breach ofthe rules on competition law.94 Yet the utilisation of competition policyinstruments to overlook the AD proceedings is a delicate task. On the onehand, the use of legal avenues, including that of the AD Policy, should notbe excessively restricted. Therefore, the preparation and submission of anAD complaint by a Community industry should, in principle, be free fromthe threat of the Competition Policy. On the other hand, the AD frameworkmust not be abused.95 The EC should be vigilant in detecting Communitymonopolies and cartels that threaten foreign competitors with the submis-sion of a complaint in order to obtain a collateral advantage. These might

The European Community’s Anti-Dumping Policy 213

90 See above n 46; Didier, above n 20 analyses the near absence of proper level-on-trade adjustments; definition of related parties for the purpose of computing the export price; thestrict conditions of start-up and currency depreciation adjustments and the expiry review.91 For a maximum period of 4 years. The sunset proceedings which allow for the extension ofmeasures should be abolished.92 Art 15 (WTO Uruguay Code on AD) calls on the WTO Members to give special considera-tion when considering the application of measures against developing countries. This provi-sion was not incorporated in the BR. For the need to take into account the interests of thesecountries, see Kufuor, KO ‘The Developing Countries and the Shaping of GATT/WTOAntidumping Law’ (1998) 32/6 Journal of World Trade 167; WTO Ministerial Conference,Fourth Session, Doha, 9–14 November 2001 ‘Ministerial Declaration, para 28, 14 November2001 (01–5769), WT/MIN(01)/DEC/W/1; European Commission WTO Ministerial, Doha: Assessment of Results for EU, Memo, Doha (14 November 2001), http://trade-info.cec.eu.int/europa/2001newround/pl4.php, visited on 15 November 2001; See also theWTO’s decision in Appellate Body Report on European Communities—Anti-Dumping Dutieson Imports of Cotton-type Bed Linen from India, WT/DS141/AB/R (01-0973), 1 March 2001,providing a broad interpretation for this duty.93 Measures in force must be reviewed on a systematic annual basis to examine whether theyremain inevitable. For further suggestions, see WTO, Ministerial Conference, Fourth Session,Doha, 9–14 November, 2001 ‘Implementation-Related Issues and concerns’ Decision’ (14 November 2001) (01–5768), WT/MIN(01)W/10, 5.94 de Grey, above n 49. This proposal is problematic. The fact that one undertaking has, in thepast, breached Community law should not, in principle, prevent it at all times from obtainingprotection from anti-competitive practices.95 See Goyder, above n 53 at 553 who analyses the Courts’ case law under which Art 81 (EC)does not permit anti-competitive cooperation as a response to dumping.

be considered incompatible with the Competition Policy provisions, evenwhen such complaints are well founded.96

Attempting to allow the utilisation of AD proceedings against unaccept-able forms of competition, while deterring the abuse of these proceedingsby non-competitive Community producers, is a difficult task. The EC canrely in that respect on the experience gained in the US.97 Yet the adoptionof a European lobbying doctrine and its exception, under which aggressivelobbying by Community industries in national capitals and in the corridorsof Brussels could amount to infringement of Competition Policy provisionsshould be examined with much care, as it poses a threat to the democraticprocess.98 Another suggestion that merits deliberation would require DGCompetition, the Directorate in charge of the Competition Policy, to scruti-nise systematically any Community industry that obtained AD protection.

In sum, the first category of remedial actions includes measures aimed atenhancing the analysis conducted by the EC AD authorities and other meas-ures aimed at reducing the discretionary nature of the Basic Regulation.One should not, however, content oneself with this category of suggestions.The solution to the problems identified in this article should not be basedmerely on a narrow legal or economic perspective. The law, after all, asOliver Wendell Holmes, during a Lowell Lecture in 1880 noted:

embodies the story of a nation’s development through many centuries and itcannot be dealt with as if it contained only the axioms and corollaries of abook of mathematics.

One should, therefore, also search for a second category of remedial actionsthat impinge upon the EC’s very institutional and constitutional structures,and that can serve as a paradigm upon which the more detailed arrangements,advanced above, can be implemented.

214 G U Y H A R PA Z

96 See Whish, R Competition Law 4th edn (Butterworths 2001), 854, for the EC law and practice on the exchange of information between competitors. For recent comment, see TempleLang, J ‘Case Note, Case T–58/99, Mukand and others v Council, Court of First Instance,Judgment of 19 September 2001’ (2002) 39 Common Market Law Review 633.97 Under the Noerr-Pennington doctrine, attempts to solicit favourable legislation or adminis-trative decisions are exempt from antitrust law, even where the outcome of a bona fide peti-tion has anti-competitive ramifications, see Eastern Railroad Presidents Conference v Noerr365 US 127, 5 LEd 2d 464, 81 SCt 523 (1961), 136–39. This immunity was invoked success-fully in numerous cases in the context of AD proceedings. It is, however, a qualified immunity,as it is subjected to the sham exception. Sham occurs when the domestic industry intentionallyor knowingly submits a baseless complaint or false information, or when it files or threatensto file a complaint to force the other party to make a concession in an unrelated area. SeeDavidow, J ‘Antitrust Issues Arising out of Actual or Potential Enforcement of Trade Laws’(1999) 2/4 European Journal of International Law 681, 692–93.98 See, by analogy, Case T–111/96 ITT Promedia NV v Commission of the EuropeanCommunities [1998] II–2937, with respect to limitations on the right to initiate judicial proceedings.

C. The Institutional and Constitutional Perspective

The Commission, Council, Advisory Committee on AD, EuropeanParliament, EC Courts and Member States are all involved in the adminis-tration of the AD Policy. Their duties are discharged within the general insti-tutional framework of the Community, and subject to provisions of a lexspecialis nature.99 The Commission (a supranational body, serving mainly asthe European executive)100 has a pivotal role. Its Directorate General (DG)responsible for the AD Policy (as well as all other trade protective measures)is DG Trade. DG Trade accepts complaints against dumping exercised bynon-European exporters, and initiates proceedings, commences investiga-tions, adjudicates proceedings, applies provisional measures, terminates pro-ceedings without measures, and submits proposals for definitive measures tothe Council. The Commission is assisted by an Advisory Committee on AD.The Council (an intergovernmental body, serving mainly as the ultimate leg-islature), by simple majority, applies definitive AD measures on the basis ofproposals submitted to it by the Commission. A limited formal role isassigned to the European Parliament and to the Member States. The enforce-ment of the AD Policy is subjected to the supervision of the EC Courtsthrough the regular EC machinery of judicial review.

Fruitful research has been conducted, mainly in the US, on the influenceof institutional structures on the performance of the economies that theyattempt to regulate.101 That research is relevant also in our context. Indeed,as Meunier and Nicolaïdis noted, the manner in which voices are chan-nelled to the top and disparate interests aggregated to form a single policydefines the health of any democratic system.102 It is submitted that someinstitutional aspects of the AD Policy contribute to the latter’s illegitimate,protectionist and inefficient administration, warranting improved institu-tional arrangements.

The Commission is most heavily involved in the day-to-day enforce-ment of the AD Policy. DG Trade could have relied on the expertise of DGCompetition, the EC Directorate in charge of enforcing the ECCompetition Policy. However, the cooperation between the two is quali-fied. This state of affairs invites reform. Different remedial routes have

The European Community’s Anti-Dumping Policy 215

99 For exposition of the institutional aspects of the AD Policy, see Holmes and Kempton,above n 45. 100 Molyneux, above n 20 at 194: The Commission is a unique body in a unique institutionalset-up. It is a hybrid creature somewhere between a bureaucratic and a political organisation.It has a political role, normative tasks, and administrative and meditative functions, having tomake compatible the administrative, technical, ideological and national positions when partic-ipating in the Community’s trade policy decision-making.101 See the Nobel Prize Laureate North, North, DC, Institutions, Institutional Change andEconomic Performance (Cambridge UP 1990). See also Pollack, above n 18 for analysis ofrational-choice institutionalism.102 Meunier and Nicolaïdis, above n 26 at 497.

been suggested. Far-reaching suggestions include the establishment of aseparate service, which would be entrusted with evaluating the costs andbenefits associated with the positions of DG Trade, DG Competition (andalso DG Industry), and recommending to the Commission the best courseof action;103 entrusting the AD tasks to DG Competition,104 or grantingthe latter a right of veto, having to approve ex ante the measures proposedby DG Trade.105 More realistic suggestions include imposing on DG Tradea statutory requirement to consult DG Competition in each and every caseprior to the adoption of measures,106 or the enhancement of informal con-tacts between the two Directorates.107 The chefs de cabinet and theCommissioners of all Directorates should take a less consensual stance, inorder to influence the outcome of AD proceedings.108 Ancillary changesshould also be adopted, aimed at reducing the Commission’s ‘managementdeficit’.109

The Council has the last word in AD proceedings, having to decidewhether to impose definitive AD measures. Its involvement in AD proceed-ings results in horse-trading between the Member States, thereby trans-forming the legal notion of ‘Community interest’, enshrined in the BasicRegulation, into a political notion that represents the sum total of the nar-row political interests of the majority of Member States in the Council.110

Such a narrow-minded stance on the part of the Member States can beexplained on the basis of various theories, articulated in the discipline ofinternational relations.111

This state of affairs has led Stanbrook to toy with the idea of withdraw-ing the Council’s authority, leaving the Commission to act as the sole

216 G U Y H A R PA Z

103 Buigues et al, above n 1 at xxi. This reform might prove, however, to be too ambitious. TheCommunity industrialists would probably not consent to it.104 See the situation in Poland, Hoekman and Mavroidis, above n 66 at 24.105Hoekman and Mavroidis, above n 66 at 24. However, the duty of confidentiality imposed onDG Trade by the Basic Regulation renders the implementation of that proposal an arduous task. 106 See Bourgeois and Demaret, above n 20 at 110–112.107 Ibáñez, above n 60 at 292, analyses the benefits of informal means of co-ordination in acomplex organisational arrangement.108 The college of Commissioner can serve as a forum through which pressure can be exertedon DG Trade to mitigate its stance with respect to proposed measures.109 For example, an increase of personnel in DG Trade and technical assistance granted by DGCompetition. See Ibáñez, above n 60 at 148 ff: There is room for improving the capacity of theCommunity in general and that of the Commission in particular. The latter has recognised theneed for the provision of adequate resources both at Community and national level in order tonarrow the ‘management deficit’. Yet increase in personnel, improved training, and greaterfinancial support, are insufficient. Improving and rationalising internal procedures is alsorequired.110 MacLean, above n 49. See also Weiler, above n 15 at 94: According to a Thatcherite per-ception, Community membership continues to be assessed in terms of its costs and benefits toa Member State. The Community is conceived not as a redefinition of the national self but asan elaborate and sophisticated arrangement of achieving long-term maximisation of thenational interest in an interdependent world. Its value is measured with the coin of nationalutility and non-Community solidarity.111 For analysis, see Pollack, above n 18.

enforcer of the AD Policy.112 Prima facie, this proposal is attractive. The Commission’s seemingly apolitical nature can allow it to represent theCommunity’s general interests. Placing AD competencies in its sole handscan avoid political confrontation between the Member States,113 allowingthe Commission to serve as a mediator and to pursue a tighter regime ofcompetition control in the AD arena, thereby tempering the Policy’s inter-governmental elements.114 It is submitted, however, that this proposal is tobe rejected for lack of both theoretical soundness and practicability. Recentyears have witnessed a change in the role of the Council. The latter nolonger operates as a rubberstamp on Commission proposals for definitiveAD measures. Instead, it does at times temper the Commission’s interven-tionist stance.115 The abrogation of the Council’s role might thereforeresult, at times, in more measures, greater protectionism and a wideninggap between the AD and Competition policies. As to the political aspects,Holmes and Kempton noted:

The lack of a common ideological position among the member states meansthat they will almost certainly be unwilling or unable for the foreseeablefuture to devise a purely legalistic and depoliticized set of rules which wouldbe necessary for application of the anti-dumping regime to be solely delegatedto the Commission … In the present political conjuncture, if this discretion isto exist, it is not going to be left in the hands of the Commission … Real resist-ance has been experienced in transferring trade policy powers to theCommission, and in developing a concept of Community interest that wouldnot be just the sum of voting interests of the member states.116

Real politique at its best/worst. One of the most fundamental motifs in ECgovernance is the struggle for power between the ‘federal’ entity (the EC)and its components (the Member States). Any institutional structure in theCommunity is meant to reflect a political compromise between these pow-ers on the one hand, and the practical necessity of having to rely on experts’know-how, manifested in a wide web of advisory committees (infranation-alism). This statement is also true in our context. The EC external traderegime remains an area in which diverging ideological perceptions alongnational lines still prevail. Each AD proceeding is concerned with a broadCommunity interest and narrower national interests. The participation of

The European Community’s Anti-Dumping Policy 217

112 Stanbrook, above n 49; Stanbrook, C Guest Lecturer, Centre for European Legal Studies,Cambridge, 20 January 1999.113 Compare with Lavdas, KA and Mendrinou, MM, Politics, Subsidies and Competition: TheNew Politics of State Intervention in the European Union (Edward Elgar 1999), 146, whoargue in favour of strengthening the Commission’s role in the area of state aid. 114 See ibid, for the same argument in the state aid context. 115 For analysis, see MacLean and Eccles, above n 45. 116 Holmes and Kempton, above n 45 at 661–662. For the same theme in broader terms, seeWeiler, above n 15 at 276: ‘Intergovernmentalism may be a desirable feature of Community

both the Commission and the Council reflects this adage, balancing theseoccasionally conflicting interests. The Council’s exclusion would upset thatdelicate constitutional equilibrium.

This issue can also be viewed through the prism of the theory of existversus voice.117 The last four decades have witnessed both in Geneva andin Brussels the tightening of the disciplines on trade in general and on ADin particular (the juridification of international economic law).118 This ren-ders the task of selective ‘exit’ or circumvention from these rules much morearduous. As the Community and therefore the Member States can no longereasily escape these rules, they are more motivated to have their ‘voice’ heardin the formulation and application of the AD Policy. The departure of theCouncil from the AD scene would frustrate that desire.

Moreover, the exclusion of the Council might be considered undemocra-tic. European citizens are closer to the everyday work of the Council thanto that of the Commission.119 The Council’s participation in AD proceed-ings allows those citizens to participate, albeit in a very indirect manner, inthe proceedings that affect their daily lives. Declaring the Commission to bethe sole enforcer of the AD Policy may further distance European citizensfrom the decision-making process, thereby increasing the notorious ‘demo-cratic deficit’ of the Community.

The role of the Council in the AD context is therefore to be retained, atleast for the time being. Yet much can be done to improve the quality of itsparticipation. The Council should abandon its simple majority voting inAD cases and revert to its original qualified majority voting.120 Increasedtransparency is warranted, a verity that is manifested, in a broader context,in the ongoing work of the Convention.121 Enhanced judicial review of theCouncil’s work is also warranted.122 Moreover, as will be argued below,the ‘bargaining’ style in the Council should be moderated by a ‘problem-solving’ style and the Council’s intergovernmental nature should be tem-pered in the AD context by an enhanced vision of European solidarity.

As for the European Parliament, it was never granted a de jure role in ADproceedings. Given the increasing stress placed on the role of European citi-

218 G U Y H A R PA Z

and Union governance or a necessary evil, but, whether one or the other, it is a central featureof the system and will, in all likelihood, stay for the foreseeable future’.

117 For the application of this theory in different contexts, see Weiler, above n 15 at 34, whohimself draws inspiration from the work of Albert Hirschman.118 Reich, A ‘From Diplomacy to Law: The Juridicization of International Trade Relations’(1997) 17 Northwestern Journal of Law and Business 775.119 For analysis of the democratic deficiencies of the Commission and the Council, see Ibáñez,above n 60 at 226 ff; Temple Lang, J ‘How Much do the Small Member States Need theEuropean Commission? The Role of the Commission in a Changing Europe’ (2002) 39Common Market Law Review 315, 328.120 Admittedly, this proposal is not in line with the call, raised below, to enhance the suprana-tional nature of the AD Policy.121 See Draft European Convention (2 April 2003), Conv 650/03, Art I–46.122 See below n 139–57.

zens, an enhanced role for the European parliament, as their representative,might be appropriate. The European Parliament, being arguably the soleEuropean institution that enables the direct participation of European citi-zens in the EC governance, could serve as the natural forum for raisingEuropeans’ concerns over proposed AD measures. Indeed, greater powersfor the European Parliament in the external trade front would enhance thelegitimacy, efficiency and transparency of the Common CommercialPolicy123 and improve coherence of EC governance.124

Does this mean that the Commission and the Council would be requiredto obtain the European Parliament’s opinion on each and every proposedmeasure? While this possibility is desirable in abstracto, it might prove tobe problematic in concreto. The European Parliament lacks the expertise toaddress the very technical rules of AD. Its participation might also slow theproceedings, preventing the EC from meeting the deadlines imposed by theBasic Regulation on AD. Hence, the reform in this context should be pur-sued in a different direction. The Commission’s laudable practice of main-taining informal contacts with the European Parliament should be furtherenhanced. The Commission should deliver its annual cost-benefit assess-ments of all AD measures in force, and the European Parliament should inturn conduct a thorough debate on the findings of such reports and issue itsnon-binding recommendations. This would improve the transparency ofthe AD Policy, as well as Parliament’s supervision of the executive.125

National parliaments could also contribute to that process.126

The enforcement of the AD Policy by the Commission and the Council issupported by the work of the Advisory Committee on AD. The latter iscomposed of representatives of the Member States and is chaired by theCommission. Its opinion is not binding on the Commission as such, yet itexerts de facto influence on the final outcome of the proceedings. The relianceon experts is praiseworthy, in principle, in any form of governance.127

A ‘government of the people for the people by the people’ must not be

The European Community’s Anti-Dumping Policy 219

123 See Molyneux, above n 20 at 226; Lamy, P ‘Global Policy without Democracy?’ Conferenceon the ‘Participation and Interface of Parliamentarians and Civil Societies for Global Policy’,Berlin 26 November 2001, http://europa.eu.int/comm/trade/speeches_articles/spla85_en.htm,visited on 28 November 2001. But see Weiler, above n 15 at 273: It is neither feasible nordesirable that the European Parliament close the intergovernmental democracy deficit. The correct locus for such action is within the Member States by, or at the behest of, nationalparliaments.124 Lavdas and Mendrinou, above n 113 at 144.125 This is in line with the Commission’s approach to the reform of European Governance,European Commission (2001), above n 82 at 16: ‘What is needed is a reinforced culture ofconsultation and dialogue; a culture which is adopted by all European Institutions and whichassociates particularly the European Parliament in the consultative process, given its role inrepresenting the citizen’.126 By scrutinising the executive’s stance in the Council and in the AD committee. SeeEuropean Commission (2001), above n 82.127 For discussion, see Joerges, C ‘Bureaucratic Nightmare, Technocratic Regime and the Dreamof Good Transnational Governance’, in Joerges, C and Vos, E (eds) EU Committees: Social

equated with pure majority rule. Its decision-making structures shouldinstead ensure that economic and non-economic preferences be shaped bypublic discourse and supported by experts’ know-how.128

These propositions are a fortiori valid in the EC context.129 The struc-ture of European governance is more complicated than that of traditionalgovernments. The role of the European Parliament is more restricted thanthat of traditional legislatures. The Europeans are geographically remotefrom Brussels, and even worse, they are to a certain extent psychologicallydisenchanted by the integration venture. These factors do not create healthydemocratic structures. Nor are they ideal for the European government,which vowed to predicate its constitutional order on the ‘principle ofdemocracy’.130 Instead, they create conditions conducive to effective rent-seeking pressures and public cynicism, a state of affairs that was diagnosedas the ‘democratic malaise’ of the EC.131

The need for enhanced legislative procedures and participation ofexperts is therefore all the more evident in the Community context.132 Thegradual move from political to legalistic enforcement of the EC Traderegime (or from power-oriented diplomacy to rule-oriented diplomacy, as

220 G U Y H A R PA Z

Regulation, Law and Politics (Hart Publishing 1999), 3. For elaborate treatment of this theme,see Joerges and Vos, ibid; Andenas, M and Türk, A (eds) ‘Delegated Legislation and the Roleof Committees in the EC’ (Centre of European Law, King’s College, London, Kluwer LawInternational 2000). See also above n 17.

128 Farber, DA and Frickey, PP, Law and Public Choice: A Critical Introduction (TheUniversity of Chicago Press 1991), 36–37; Lamy, above n 123; See Art I–45(3) of the DraftEuropean Convention, above n 121: ‘Every citizen shall have the right to participate in thedemocratic life of the Union …’.129 See European Commission (2001), above n 82 at 17 and 19: Confidence in expert adviceplays an increasingly significant role in preparing and monitoring decisions. The Institutionsrely on specialist expertise to anticipate and identify the nature of the problems and uncertain-ties that the Union faces, to take decisions and to ensure that risks can be explained clearlyand simply to the public.130 Art 6 [Treaty of the European Union]. The Commission decided to reform European gov-ernance, based on the principles of openness, participation, accountability, effectiveness andcoherence. As to the notion of ‘participation’ of civil society in the governance of the EC, seeEuropean Commission (2001), above n 82 at 10ff.131 President of the EC Commission, quoted in Joerges, C ‘Guest Editorial: The Commission’sWhite Paper on Governance in the EU—a Symptom of Crisis?’ (2002) 39 Common MarketLaw Review 441, 445.132 For a broader perspective, see European Commission (2001), above n 82 at 17–19 whichnotes the need to rationalise the system of ad hoc consultation bodies because of the ‘lack ofclarity about how consultations are run and to whom the Institutions listen’. Public percep-tions ‘are not helped by the opacity of the Union’s system of expert committees’; Schäfer GF‘Linking Member State and European Administrations—The Role of Committees andComitology’, in Andenas and Türk, above n 127 at 3, 22 proposed that committees shouldmake their records, including the votes, accessible to the public and publish their membership.Neyer, J ‘The Comitology Challenge to Analytical Integration Policy’, in Joerges and Vos (eds),above n 127 at 219, 238: Enhanced transparency in EC committees would encourage dele-gates to behave according to the definitions of given legislative discourses and provide nationalparliaments with a more accurate account of what governmental delegates in committees aredoing.

John Jackson puts it), is no longer perceived in itself to be satisfactory.Enhanced legal procedures are expected to be imbued with legitimacy.

This need has recently manifested itself in the ongoing work of theConvention, in the reform of EC governance and in an ensuing lively aca-demic debate. A string of prominent academics, including Scott andArmstrong, have added their voice to the call for ‘New EuropeanGovernance’, one that facilitates a more open dialogue between the EC insti-tutions and the emerging European civil society.133 The works conducted inthe United States on Deliberative Justice were ‘imported’ to Europe and‘marketed’ there under the label of ‘Deliberative Supranationalism’.134

AD proceedings have significant economic and non-economic repercus-sions on many people. Granting a voice to all stakeholders concerned canenhance the legitimacy of the AD process. The reliance on a professional,non-majoritarian, independent institution could have tempered the relianceon narrow national interests, achieving through deliberative problem-solvingthe right equilibrium between all stakeholders concerned.135 The ADCommittee could have served, in the words of Armstrong, as a public spaceof discourse and communication.136 Yet, enhanced openness and resultantlegitimacy may adversely affect the efficacy of the EC machinery.137 Anoptimal equilibrium between legitimacy and efficacy is therefore to beachieved in all contexts, including that of the regulation of AD.

The AD Committee does not face these challenges. It does not cater to thevoice of European citizens through the participation of non-governmentalorganisations. It is not composed of independent experts but of bureaucrats

The European Community’s Anti-Dumping Policy 221

133 Armstrong, above n 17 at 103–04: For much of the history of European integration, theconcrete achievements have been the product of trans-national technocratic decision-makingamong elite-political actors. Yet, the problem of EU governance lies in bridging the gapbetween such mode of governance and its democratic legitimation. The notion of ‘Europeancivil society’ may help to bridge that. See also Scott, C. ‘The Governance of the EuropeanUnion: The Potential for Multi-Level Control’ (2002) 8 European Law Journal 59, 61: newinitiatives of the Commission in the area of New Governance are likely to provide greatereffectiveness and coherence, as they concentrate policy and executive power further in thehands of the Commission. For a contrasting view, see Temple Lang, above n 119 at 327.134 Joerges, C ‘“Deliberative Supranationalism”—Two Defences’ (2002) 8 European LawJournal 133, 151: The ‘supranational’ element places restraints upon the ‘internal’ decision-making processes in constitutional states resulting from the guarantee of European rights,from commitments to take account of ‘foreign’ interest, from the binding of these nation statesby trans-national principles and duties to justify their policies. The ‘deliberative’ element basesits validity claims not simply on a hierarchy of sources of law, but on constitutional ties of politics.135 See Molyneux, above n 20 at 202: The committees’ function is to achieve agreementswhereby a balance is kept between adequate technical solutions to cope with globalisation,Member States’ interests and the general Community interest. See above n 127 and Gehring, T‘Bargaining, Arguing and Functional Differentiation of Decision-Making: The Role ofCommittees in European Environmental Process Regulation’, in Joerges and Vos (eds), aboven 127 at 195, 217 for the same approach in a broader context. 136 Armstrong, above n 17 at 105.137 For comment on this theme, see Temple Lang, above n 119; Scott, above n 133 at 62.

seconded by the Member States themselves. Each delegate might thereforebe tempted to advance narrow, national interests, at the expense of thebroader Community interest. In that way the Committee might operate as a‘mini-Council’, yet another arena for national horse-trading.138 This stateof affairs is neither compatible with the expectations of a modern decision-making process of democratic governance, nor consistent with the democraticaspirations of the EC. Political discourse should at least be supported bydeliberation between the EC institutions and Europe’s civil society/societies.

One way of achieving this would be to staff the AD Committee withindependent experts on trade and other disciplines, a move that is likely toencounter strong opposition from the Member States. A more realisticproposition would be to continue to rely on the Committee’s present com-position, provided that its members conduct a meaningful and transparentexchange of ideas with the representatives of all affected parties in theirrespective states. Procedures must, however, be formulated in such a man-ner that enhanced legitimacy does not come at a disproportional price interms of the efficacy of the AD machinery.

How can the EC Courts fit into this reform? Generally speaking, theyhave displayed over the years a robust judicial stance, one that aggressivelyadvanced European integration and based this campaign on more solid con-stitutional grounds. Yet, in our narrow context, the EC Courts tend to ignorethe policy issues embedded in the AD Policy and to concentrate instead onits more technical aspects, those that grant wide discretionary powers to theEC authorities. This allows the EC Courts to avoid any meaningful interven-tion in the exercise of executive discretion on the substantive front.139 TheAD authorities therefore act under relatively little fear of judicial rebuke, astate of affairs clearly not conducive to achieving an open, rule-based andlegitimate AD Policy. Judicial review is therefore to be reinforced.140

This change should be manifested first and foremost on the substantivefront. The general indifference of the EC Courts to the way the AD authori-ties exercise their discretion must be changed. Very recent judgments mayprove that the Courts are willing to meet that challenge.141 Strong scholarly

222 G U Y H A R PA Z

138See Weiler, JHH ‘Epilogue: “Comitology” as Revolution—Infranationalism, Constitutionalismand Democracy’, in Joerges and Vos (eds), above n 127 at 339.139 For an elaborate survey of judgments exhibiting a reluctance to interfere with the authori-ties’ findings, see Van Bael and Bellis, above n 45 at 335, n 480.140 For support, see Petersmann, E-U ‘Constitutional Principles Governing the EEC’sCommercial Policy’, in Maresceau, M (ed) The European Community’s Commercial Policyafter 1992: The Legal Dimension (Martinus Nijhoff Publishers 1993), 21. See Ward, A,Judicial Review and the Rights of Private Parties in EC Law (Oxford UP 2000), 12 ff for the link between the EC’s democratic deficit and the need for robust judicial scrutiny of ECmeasures.141 See, for example, Case T–88/98 Kundan Industries Ltd. v Council of the European Union[2002] (not yet reported); Case C–76/00 Petrotub SA and Republica SA v Council of theEuropean Union [2003] (not yet reported).

opinions indicate otherwise.142 Admittedly my call for greater judicialactivism on the substantive front is not in line with the approach displayedby those prominent academics in the province of EC law who warn againstany activist intervention in the way the authorities balance conflicting eco-nomic and social interests and values.143 Indeed, it is acknowledged thatthe EC Courts are faced with difficulties on the substantive (AD) front.144

Yet, there is no valid reason why the EC Courts may aggressively intervenein such a balancing act in numerous contexts, such as the Internal Marketand the Competition Policy, but refrain from doing the same in the ADsphere.145

Realistically, however, greater hopes should be placed on judicial sensi-tivity to procedural regularities and to the forces that warp political outcomes.146 Ely’s theory of ‘representation-reinforcing’ judicial review isrelevant. Under that theory, judicial review is to be based on the model ofdue process of lawmaking, whose focus is institutional legitimacy and rein-forced deliberation.147 Notwithstanding the differences between the US andEC legal orders in that regard,148 one may still draw inspiration from Ely’swork. Judicial scrutiny should ensure that the authorities have acted withsatisfactory deliberation and have provided adequate access to the politicalprocess by all interested groups. Evidence of serious and comprehensiveutilisation of the Community interest clause must be sought, together withreasoning manifesting a thorough examination and diligent balancing of all

The European Community’s Anti-Dumping Policy 223

142 Scott, J and Trubek, DM ‘Mind the Gap: Law and the New Approaches to Governance inthe European Union’ (2002) 8 European Law Journal 1, 9ff: EU law has been instrumental inpromoting the transformation of Europe from international, to supranational, or even consti-tutional order. Thus the premises underpinning EU law have a symbolic value, and their ‘tainting’with the values of New Governance might be seen to threaten the integrity of ‘law’ as such,and the broader dynamics of integration.143 See, for example, Weiler, JHH ‘Epilogue: The Judicial aprés Nice’, in de Búrca and Weiler,above n 32 at 215. Scott, J ‘On Kith and Kine (and Crustaceans): Trade and Environment inthe EU and WTO’ in Weiler (ed), above n 20 at 125. Howse, R ‘Adjudicative Legitimacy andTreaty Interpretation in International Trade Law: The Early Years of WTO Jurisprudence’, inWeiler, above n 20 at 35. Farber and Fricky, above n 128 argue, in the US context that PublicChoice theories do not justify an extensive resort to the notion of ‘reasonableness’ in scrutinis-ing the legislature’s and executive’s economic choices.144 See ch 5 of Harpaz, above n 7.145 For support, see Bengoetxea, J, MacCormick N and Soriano, LM ‘Integration and Integrityin the Legal Reasoning of the European Court of Justice’, in de Búrca and Weiler, above n 32at 43 who are of the opinion that the rule of reason and the principles of proportionality andnon-discrimination are the criteria of coherence, the guarantors of plausible connectionsamong reasons, assisting the courts in optimally weighing and balancing colliding principlesand policies, and solving conflicts of reasons in which economic freedoms are at stake. Sauter,above n 19 explains that the Freiburg School did perceive the courts to be in charge of a bal-ancing exercise in the context of safeguarding the economic constitution.146 For discussion, see Farber and Frickey, above n 128 (in the US context).147 Ely, JH Democracy and Distrust: A Theory of Judicial Review (Harvard UP 1980).148 Ely asserts that one of the reasons for the need to place heavy reliance on procedural bal-ance is the fact that the US Constitution is mainly concerned with non-positive legal norms.The same cannot be said of the EC Treaty.

relevant factors and interests. The Courts should not hesitate to annuldecisions when evidence is found of inadequate access to the deliberativeprocess. Indeed, the European Court of Justice has recently proved itselfcapable of pursuing such a course of action.149

Due process of lawmaking can also be focused on procedural regularity.Fair procedures can play an important role in legitimisation of administra-tive proceedings, especially where, as in our case, contradictory values areat stake.150 Enabling foreign producers, commercial users and consumerorganisations to operate under a fairer procedural framework can renderthe AD Policy more sensitive to competition policy considerations.

Yet one must not place too much trust in that line of argument.151 A casein point is the recent ruling of the EC Court of First Instance inEurocotton.152 Here the Court was in fact placed in a legal Catch-22 situa-tion. Interference with the Council’s decision not to impose definitive meas-ures, taken in accordance with procedural rules, but decided contrary tothe Commission’s recommendation to impose definitive measures, wouldhave ignored the letter of the Basic Regulation on AD. Non-interferencewould, on the other hand, have virtually exempted the Council from judi-cial scrutiny, even when acting according to political considerations. TheCourt chose the second option: the Council’s authority not to act upon suchthe Commission’s proposal was held to be inherent in the text of the BasicRegulation, the EC Treaty and the WTO Uruguay Agreement on AD. TheCouncil may thus act as it wishes, as long as it devotes ‘careful examina-tion’ to the facts in hand. A timid administrative benchmark, indeed. TheCourt has thus approved the right of the Council to act in accordance withnarrow national political interest. This choice is arguably well founded informal legal terms, yet it creates a lacuna at the heart of the system of judi-cial review of AD measures, acknowledging the dominance of political con-siderations in AD proceedings.

This outcome is very disappointing. The area of international and regionaleconomic law has witnessed impressive progress. It was once dominated by

224 G U Y H A R PA Z

149 See Case T–256/97 BEUC v Commission of the European Communities [2000] ECRII–101. But see above n 142.150 See Scott, above n 143; Howse, above n 143 and the ECJ ruling in Case C–269/90Technische Universität München v Hauptzollamt München-Mitte [1991] ECR I–5469, para 14.For support, see Marceau, above n 1 at 133. See also Howse, above n 143 at 42: Democraticlegitimacy for decisions, including those of the more directly representative organs, derives notsimply from an authorisation by a crude majoritarian or mass will but from the fact that com-plex procedures and institutional disciplines have been followed.151See Gilmore, G The Ages of American Law (Yale UP 1977), 110–11: ‘The values of a reason-ably just society will reflect themselves in a reasonably just law. The better the society, the less lawthere will be. In heaven there will be no law, and the lion will lie down with the lamb. The valuesof an unjust society will reflect themselves in an unjust law. The worse the society, the more lawthere will be. In Hell there will be nothing but law, and due process will be meticulously observed’.152 See Case T–213/97 Eurocotton and others v Council of the European Union [2000] ECRII–3727.The Council did not adopt the Commission’s proposal for definitive measures, as asimple majority in support of such measures could not be secured.

politics and power-oriented diplomacy.153 Over the years these regimeswere rendered more and more legalistic (rule-oriented diplomacy). And yet,many entities were not satisfied with this progress. They demand thatenhanced legal procedures be supported by such mechanisms that wouldadvance legitimacy, openness, coherence, accountability and participationof all stakeholders concerned. EC law is indeed changing its character. It nolonger exclusively belongs, as it may have in its very early days, to the polit-ical and bureaucratic elite. Instead, it is gradually becoming the law of theEuropean peoples. Secretive political bargains are replaced by legitimate,legalistic solutions. The Eurocotton judgment runs counter to that positivetrend, by reverting to the old era of power-oriented diplomacy. This disap-pointing judicial stance ought to be examined in a broader context, (viz.,the regrettable willingness of the European Court of Justice to accord exces-sive weight to political elements involved in the regulation of internationaleconomic law).154

Arguably, if the Community wishes to retain the Council’s last word onAD measures, it ought to accept, as a corollary, that the Council’s relianceon narrow political considerations is to be subject to judicial review, basedupon the concept of ‘reasonableness’.155 The Courts should thereforeexamine whether the Council pursued the Community interest in any givencase as dictated by the Basic Regulation on AD. They should interfere with its decisions when the Council has unreasonably relied on narrownational interests of several Member States at the expense of the overallCommunity interest.156 These proposals with respect to the Courts shouldbe read in conjunction with broader suggestions for the reform of the ECjudiciary.157

On a different note, no clear statement of the objectives of the Common Commercial Policy is discernible either in its provisions them-selves or in the jurisprudence of the EC Courts. The absence of a clearly

The European Community’s Anti-Dumping Policy 225

153 See Walter Hallstein, the first President of the Commission: ‘We are not in business, we arein politics’, quoted in Temple Lang, above n 119 at 326.154 See Case C–149/96 Portuguese Republic v Council of the European Communities [1999]ECR I–8395.155 After all, in deciding on definitive measures, the Council is not exercising a purely legisla-tive role, but rather a role which combines legislative and executive functions. See A–G Jacobsin Case C–233/99 Nachi Europe GmbH v Hauptzollamt Krefeld [2001] ECR I–1197, para 28.The executive nature of AD proceedings can provide legitimacy for greater judicial interventionin scrutinising the Council’s decisions. For discussion of the use of the notion of reasonable-ness, see Ibáñez, above n 60 at 202–04.156 For that purpose, one should consider obliging Member States to provide detailed reason-ing of their stance in the Advisory Committee and in the Council.157 For the reform of the Judiciary under the Treaty of Nice, see Meij, AWH ‘Guest Editorial:Architects or Judges? Some Comments in Relation to the Current Debate’ (2000) 37 CommonMarket Law Review 1039 and Weiler, above n 143. The latter proposed the creation of specialised chambers in matters such as AD.

stated pro-competition objective constitutes yet another contributing factorto the EC failure to grant competition policy considerations their due prideof place. Drawing inspiration from the Freiburg School,158 a clearer state-ment to that effect is warranted. Needless to say, mere statements in thatvein are insufficient. They should be supported by a clear vision of tradeliberalism, as will be discussed below.

In the Beatles’ song ‘Revolution’, John Lennon implied that the solutionto social problems lies not so much in constitutional or institutionalchanges, but that ‘you better free your minds instead.’ Indeed, the said sub-stantive, institutional, constitutional and procedural reforms articulated inthe preceding two sections describe only part of the narrative. They oughtnot to be examined in isolation. The EC institutional structure in general,and that of the AD Policy in particular, reflect Europe’s overall landscape.Any reform of the AD Policy should therefore be conducted hand in handwith a more profound change in the EC’s self-perceptions and its percep-tion of the rest of the world. Such changes may facilitate constitutional andinstitutional reforms (second category) which will, in turn, serve as the par-adigm upon which the more detailed arrangements (first category) can beimplemented.

D. The Broader Perspective: Meeting the Challenges of Globalisationand European Integration

Should the EC execute the reform advanced in this article unilaterally, oras part of a multilateral package deal? The advantages of the latter optionare evident. The EC is a major user of AD instruments. Many otherMembers of the WTO would like to restrict its reliance on AD measures.A multilateral approach could therefore allow the EC to engage in quid pro quo negotiations, extracting further gains from other WTOMembers.159 Multilateral negotiations between 146 WTO Members, eachpursuing separate agendas, might prove, however, to be burdensome andlengthy.160 Moreover, there is much force in the intellectual case for

226 G U Y H A R PA Z

158 Snyder, above n 14 at 414: The Ordoliberals placed great emphasis on ‘economic constitutionalism’, namely the importance of legal constraints on governmental, includingadministrative action. They considered that decision-making should be subject to legal princi-ples and clear legal rules. The conjunction of general concepts, such as reasonableness, anddetailed rules guiding administrative action was entirely consistent with their ideas. 159 Tharakan, PKM, Vermulst, EA and Tharakan, J ‘Interface between Anti-dumping Policyand Competition Policy: A Case Study’ (1998) 21 The World Economy 1035, 1037–038;Lamy, above n 51.160 See Horlick, G ‘The Speedbump at Seattle’ (2002) 3 European Journal of InternationalLaw 167, addressing the difficulties in dealing with that issue in the framework of the SeattleWTO Ministerial Conference negotiations of 1999.

unilateral free-trade.161 Thus, the EC should, in the spirit of RobertSchuman,162 reform its AD Policy on a unilateral basis, pending multilat-eral activity.163

Four processes that relate to the self-perception of the EC, its MemberStates and citizens may facilitate the proposed reform. The first relates tothe Europeanisation of the Community and the quest for the Europeancommon interest. This article presents a narrative whereby Member Statesinfluence at times the ‘Common’ Commercial Policy’s formulation andenforcement not so much in the spirit of ‘European brotherhood’ as envis-aged by Victor Hugo in his above-quoted statement, but according to theirown national interests. This state of affairs must be reversed. Europeancitizens can contribute to such a change. They should together advancetheir common interest in all contexts, including that of the AD. The eco-nomic and popular press, European retailers, commercial users, consumerorganisations and other non-governmental organisations must do their bestto enhance public awareness of the vices of AD measures. This allianceshould take upon itself the missionary role of spreading the ideology of freetrade, drawing inspiration from the words of Adam Smith, uttered as earlyas 1776:

It is the maxim of every prudent master of a family, never to attempt to make athome what it will cost him more to make than to buy … . What is prudence inthe conduct of every private family, can scarce be folly in that of a great king-dom. If a foreign country can supply us with a commodity cheaper than weourselves can make it, better buy it of them with some part of the produce ofour own industry, employed in a way which we have some advantage. The gen-eral industry of the country … will not thereby be diminished … but only left tofind out the way in which it can be employed with the greatest advantage.164

If that coalition can raise the awareness of Europe’s emerging civil societythat the dumped goods are causing injury to the Community industrybecause Community products are over-priced, public support for measuresforcing importers to increase their prices will decline.165

The European Community’s Anti-Dumping Policy 227

161 See Bhagwati, J Protectionism (The Massachusetts Institute of Technology Press 1988), 29for interesting comments on the position of Richard Cobden and others in the context of theCorn Laws campaign in England.162 Robert Schuman: ‘What we do, we are not doing for our nations. We are doing it with avision far beyond our borders, thinking of what the whole of humanity is expecting of us’,quoted in European Commission, above n 88 at 120.163 For discussion, see Bhagwati, above n 161 at 26–31. See Hennis, M ‘Europeanization andGlobalization: The Missing Link’ (2001) 39 Journal of Common Market Studies 221, for apolitical science perspective of the link between Europeanization and globalisation.164 Smith, A, An Inquiry into the Nature and Causes of the Wealth of Nations (The ModernLibrary, New York, 1776 reprinted in 1937), 424.165 Stegemann, K ‘The Efficiency Rationale of Anti-dumping Policy and Other Measures ofContingency Protection’, in Quinn and Slayton, above n 13 at 21; above n 82.

This process is a bottom-to-top one. It must therefore be examined in awider context, namely the debate over the strengthening of the Europeancivil society.166 Allott, for example, argues that the Community cannothave common legal, economic and political systems without an idea of asociety. The redemption of Europe’s reunification is not, in his view, a mat-ter of institutional reform or a diplomatic exercise. The European Unionmust not be seen as a federation or a confederation, but a state of mind, notmerely a union of states or governments, or an aggregate of the public inter-ests of the Member States but a unity of consciousness. The common inter-est of the Union would override the individual interest of its constituentsocieties, once a solid Community of Europeans were formed.167

Allott’s argument is valid in our narrower context. The AD Policy shouldnot reflect, as it all too often does, the sum total of national interests, butshould instead seek to pursue the genuine Community interest. After all thevery rationale of EC and the EU is that the overall European structure ismore legitimate and powerful than the sum total of its constituencies.

But can Europe meet that challenge? European history has proven thatEuropeans can contribute to the shaping of their Continent. The fall of theBerlin Wall is a case in point. The Erasmus students exchange programmeis yet another important, albeit less dramatic example. Yet, no genuineEuropean modern agora, let alone a fully-fledged European demos yetexists. Europe’s citizens have indeed largely kept themselves out of thedebate on fundamental issues such as the prospective enlargement of theEuropean Union towards the East. It is therefore unlikely that these samecitizens would get heavily involved in issues such as AD protection, per-ceived by many, albeit wrongly, as technical rather than normative.

In any event, the forces of such a civil society may not suffice in order tobring down ‘Fortress Europe’. A second process is thus warranted. A genuinechange of heart is also needed in Brussels and in the capitals of the Member

228 G U Y H A R PA Z

166 For the notion of a European civil society, see Armstrong, above n 17 at 115. See ECCommission (2003), above n 82 at 8 for the latest on improving bottom-up involvement in EUpolicy shaping and implementation. 167 Allott, P ‘The Crisis of European Constitutionalism: Reflections on the Revolution InEurope’ (1997) 34 Common Market Law Review 439, 467 ff; Allott, P ‘The Concept ofEuropean Union’, in Dashwood, A and Ward, A (eds) 2 (2000) 2 Cambridge Yearbook ofEuropean Legal Studies 31, especially 58–59; Allott, above n 18 at 70: The general will of theUnion is distinct from, and not merely an aggregation of, the general wills of the MemberState. The common interest of the Union should be an integral part of the common interest ofeach of its Member States. See also Weiler, above n 15 at 92–93: The importance of theCommunity notion of community ‘rests on the very fact that it does not involve a negation ofthe state. It is neither state nor community. The idea of community seeks to dictate a differenttype of intercourse among the actors belonging to it, a type of self-limitation in their self-perception, a redefined self-interest, and, hence, redefined policy goals. To the interest of thestate must be added the interest of the community. But crucially, it does not extinguish the sep-arate actors who are fated to live in an uneasy tension with two competing senses of thepolity’s self, the autonomous self and the self as a part of a larger community, and committedto an elusive search for an optimal balance of goals and behavior between the community andits actors’.

States in favour of a genuine pro-competition, pan-European trade policy.The genuine Community interest must be advanced in a two-directional verti-cal move, from bottom to top (from streets across Europe to rue de la Loiand rue Joseph II, Brussels) and vice versa (top-to-bottom). Yet, as bothWeiler and Temple Lang argued, vision is not always manifest in Brussels ingeneral and in the Commission’s corridors in particular.168 Indeed, there is agrowing academic and popular feeling that the EC has become an end initself, rather than an instrument to attain higher moral grounds.169

The suggestions conveyed in the previous paragraphs do not contain anyagenda for the creation of a super-state. The advancement of Communityinterests need not come at the expense of the interests of the MemberStates.170 The narrative presented here does not, after all, describe a zero-sum game. The article merely envisages the Community, Member Statesand European citizens joining forces to face together the challenges of glob-alisation and global diversity, by forming legitimate procedures on the basisof national heterogeneity.171 The ongoing economic integration of Europecan contribute to that process, bringing about the formulation of an exter-nal trade policy shaped according to genuine, pan-European interests.172

The third process that can facilitate the reform advanced in this article isthe phenomenon of globalisation. The Community often combats practicesconducted in undeveloped and sheltered economies (eg, Russia and China).Globalisation opens up the markets of these countries. More Europeansand others are investing in them, forming joint ventures with domestic enti-ties therein. The economies of these countries are gradually becoming moreliberal, competitive and rational.173 This process creates opportunities forcommercial arbitrage, a fact that may reduce the risk of anti-competitivedumping to be launched from these countries. Moreover, the more Europeansthere were with economic interests in these countries, the more pressurewould be exerted from within the Community on the authorities to take

The European Community’s Anti-Dumping Policy 229

168 Temple Lang, above n 119; Weiler, JHH ‘A Constitution for Europe? Some Hard Choices’Working Paper, published in Harpaz, G (ed) (2003) 10 The Newsletter of the IsraeliAssociation for the Study of European Integration.169 Ibid.170 See Elazar, DJ Federalism and Political Integration (Turtledove Publishing 1979) (US), 1:‘Federalism … offers an alternative to the centre-periphery model … the measure of … integra-tion is not the strength of the center as opposed to the peripheries; rather the strength of theframework. Thus both the whole and the parts can gain in strength simultaneously and,indeed, must do so on an interdependent basis’.171 Molyneux, above n 20 at 148 and 264.172 But the economic integration which has been taking place in Europe in recent years did notproduce these results. Herrmann, above n 20 at 29: The treatment by the Treaty of Nice of theCommon Commercial Policy reflects efforts to disguise the reluctance to trade in national sov-ereign rights for the common good.173 See Guohua, Y and Jin, C ‘The Process of China’s Accession to the WTO’ (2001) 4European Journal of International Law 297. But compare with Molyneux, above n 20 at 148and 264: Globalisation affects the domestic sphere of each country, yet such changes are path-dependent and the possibility of eliminating structural differences is limited.

into account competition policy considerations in AD proceedings.Furthermore, globalisation may reduce the trade deficit that Europe haswith countries such as China, thereby reducing the incentive to apply ADmeasures against products exported from these countries.174

Globalisation has also manifested itself in a swift and impressive movetowards the creation of legislative and adjudicative forums to regulateinternational trade. Indeed, the dispute settlement mechanism of the WTOexerts much pressure on the EC, by intervening in the manner in which theEC authorities exercise their discretion in the sphere of AD.175 Moreover,the WTO no longer operates, like its predecessor, the GATT, as the richmen’s club. Countries such as India and China, traditional victims of theEC AD Policy, are becoming more and more vocal, demanding a morestringent multilateral regime on AD. All of these developments rendermore difficult any attempt on the part of the EC to enforce its AD Policyin a protectionist manner. It is rather surprising that the multilateralregime, which was for so many years a major part of the problem (allowing for the EC’s protectionist utilisation of its AD Policy), is gradually becoming a central component of the solution. It is also ironicthat the EC, which was meant to lead the globalisation campaign, isinstead led by it.

In our context, however, one must not place excessive trust in theprocesses of globalisation. The Community is the largest trade partner inthe world. This is a position of great responsibility. The trading Communitylooks to the EC for leadership and guidance and expects it to adopt a broadview of the interests at stake. The Community, in turn, has pledged to meetthat challenge.176 Yet European integration and enlargement create other,sometimes conflicting, challenges. The impressive progress towardsEuropean integration, coupled with the phenomenon of globalisation, hasexposed European industries to severe competition and ensuing adjust-ments and redundancies. Consequently, European industries are intensify-ing their pressures for greater protection. Member States, which because ofdifferent historical traditions and varying socio-economic market struc-tures, are affected differently by globalisation, and which cannot, due tothe Internal Market campaign, meet the demands for protection at anational level, exert pressure on the Community, according to thesenational features. The EC is thus torn between its leadership role on theglobal front and its narrower, interventionist role on some Europeanfronts.177 This tension manifests itself vividly in the context of the AD

230 G U Y H A R PA Z

174 For further analysis, see Liu, above n 14.175 Graafsma, F, ‘Recent WTO Jurisprudence in the Field of Anti-Dumping’ (2001) 28 LegalIssues of European Integration 337.176 EC Commission (2003), above n 82 at 25.177For elaborate examination of this theme, see Molyneux, above n 20. For recent developments,see Draft Convention (2003), above n 121 at Art I–3(4).

Policy, which places in juxtaposition globalisation and Europeanisation,interventionism and free trade.

Moreover, globalisation and European integration have in recent yearsencountered enormous challenges, the latest of which is the Anglo-American campaign conducted in Iraq in defiance of the multilateral political order of the United Nations. These challenges may slow down theprocess of globalisation, and in turn, reduce the pressure exerted by globalisation on the EC to restrict its interventionist use of the AD Policy.

Furthermore, even if the global campaign for trade liberalisation provedto be successful, it might at times produce the reverse outcome, namelyheavier reliance on AD instruments. Since the creation of the multilateralorder for international trade (GATT, 1947), the trading community hascircumscribed the availability of protection to domestic industries runninginto difficulties in the face of international competition. The success of globalisation, however, has devastated traditional sectors and socialstructures.178 As evidenced in the streets of Prague and Genoa, globalisationis perceived by many as a formidable threat. Governments are in continuoussearch for instruments to temper the adverse effects of globalisation, in orderto be able to tread the path of globalisation, while confronting weakenedinternal opposition. AD laws are an effective and readily-available instru-ment to meet these demands, serving as the ‘chemical weapon’ of interna-tional trade.179 As such the AD Policy operates as an effective safeguardor safety valve in the face of intensified international competition.180

Countries may perceive AD measures as exacting a minimum price, whichis worth paying to subdue the anti-globalisation coalition. Therefore,arguably, the more successful the globalisation campaign should prove tobe, the more attractive the AD instrument would become and the less theEC would be inclined to utilise it in a more cautious manner.

The fourth process which may contribute to the implementation of theproposed reform may be termed ‘the boomerang effect’. AD measures were,for almost a century, the weapon that rich countries directed at less devel-oped countries. Yet, as of late, the developing countries have acquired thestatus of most frequent users of AD measures.181 AD measures are graduallybeing transformed from a European shield into a non-European sword. Thisreality has permeated the boardrooms of European industries, organisa-tions representing these industries and the EC AD authorities.182 This

The European Community’s Anti-Dumping Policy 231

178 For critique, see Falk, R. Predatory Globalization: A Critique (Polity Press 1999).179 The Economist, ‘The anti-dumping Dodge’, 10 September 1988, Vol 308, r 7567, p 77(2).180 See Miranda et al, above n 74 at 7.181 WTO, World Trade Organisation Annual Report (WTO 2002), 73ff.182 EC, Submissions from the European Communities Concerning the Agreement onImplementation of Article VI of GATT 1994 (Anti-Dumping Agreement) (July 2002).

process can lead the EC to be more agreeable to a new and much tightermultilateral regime on AD.

IV. SUMMARY AND CONCLUSIONS

The phenomena of globalisation and European integration have radicallyinfluenced markets and entrepreneurship. Modern trade transcendsnational boundaries and European markets become more interdependent,and microeconomic policies, including trade and competition, increasinglybecome interrelated. This process creates formidable challenges for the eco-nomic governance of Europe. This article focuses on one aspect of thatbroad phenomenon, namely the Anti-Dumping (AD) Policy, aimed at non-European exporters.

The latter was always the subject matter of academic criticism. The aimsof the article are to suggest remedial routes that would render the ADPolicy more in harmony with its Competition Policy and bring about amore rule-oriented, rational and legitimate AD regime with resultantenhanced coherence and European solidarity in the sphere of EC externaltrade.

The boldest suggestion in the academic literature calls for abolishing theAD Policy and for relying instead on the competition notion of positivecomity. The EC should indeed aspire to accomplish that goal. However, thissolution, ingenious as it may be, is ivory-towered, at least for the foresee-able future. Instead, remedial actions articulated in three categories areadvanced, according to their level of abstractness.

Within the first category, more detailed legalistic arrangements areadvanced. The EC should unilaterally subject its AD Policy to tighter com-petition policy disciplines, thereby rendering it more competition-friendly,more rational and therefore less protectionist and more predictable andjust. For that purpose it should first amend the AD Policy in several techni-cal ways, rendering it more in harmony with the WTO regime. It shouldthen embark on a reform that would render the AD Policy less discretionaryand less accessible. The existing substantive hurdles should be buttressed.New legal mechanisms that could reduce the potential for its protectionistutilisation should be installed in the Basic Regulation on AD itself. The ECAD authorities should conduct a comprehensive market analysis of thecompetitive structures in both the exporting country and in the Community.The starting point should be a close investigation of the economic back-ground against which dumping takes place, in order to ascertain whether itis likely to bring about a pro- or anti-competition outcome. Similarly, theprobable effects of the proposed AD measures should be examined circum-spectly. The decisions on whether or not to apply measures would then bebased on profound market insight.

232 G U Y H A R PA Z

Additional steps should be envisaged. Certain mechanisms should beinserted in the AD Policy in order to render it less protectionist. Some of theproblems identified in this article would be rendered less acute. Otherinstruments should be adopted, offering the AD authorities a more pro-found insight into the competition policy considerations at hand, such asreliance to the fullest extent possible on a cost-benefit exercise. The legalobligation imposed upon the AD authorities to take into account competi-tion policy considerations should be reinforced.

Yet, the proposed remedial actions included in the first category of pro-posals should not be seen through a purely technical prism, as they cannotbe executed in an institutional or constitutional vacuum. The current ADregime reflects, to a large extent, the Community’s institutional and consti-tutional landscape. Examination of the deficiencies of the AD Policy tellsonly part of the story. The AD Policy is in fact a microcosm of theCommunity as a whole. It encapsulates some of the challenges, virtues andvices, successes and failures of the Community’s order. The aforesaiddetailed arrangements should be supported by a second category of reme-dial route, one that impinges upon the very institutional and constitutionalstructures of the EC.

The AD Policy should be rendered less intergovernmental and more dem-ocratic. The cooperation between DG Trade and DG Competition shouldbe further enhanced. A change in the work of the AD Committee is calledfor in order to render it more open to deliberation with European civilsociety. The Council’s role should be improved and rendered less political.The Courts should tighten their judicial supervision on both the substan-tive and procedural fronts. These substantive, procedural and institutionalreforms should be adopted unilaterally, pending the completion of the DohaAgenda of the WTO.

The article also uncovers more general themes, which are interwovenwith the EC regulatory failure in the AD front, and which run like a threadthroughout the Community order. Those broad themes, described aboveand summarised below, warrant a third category of remedial actions, onethat relates to the ego, superego and id of the EC, its Member States andcitizens.

The first broad theme focuses on the interrelationships between globali-sation and Europeanisation, protectionism and free trade. The EC is tornbetween its leadership role on the global front and its narrower, interven-tionist role on some European fronts. This tension manifests itself vividly inthe context of the AD Policy, which places in juxtaposition globalisationand Europeanisation, interventionism and free trade. This article suggestsmeans by which Europe will be encouraged to meet its responsibilities inthe global context.

The second broad theme is the internal struggle between the forces ofsupranationalism, intergovernmentalism and infranationalism. The EC is

The European Community’s Anti-Dumping Policy 233

considered as the largest, most expansive and sophisticated regionalarrangement in the world. One of its most powerful instruments is theCommon Commercial Policy, which has removed the Member States’ com-petencies in the sphere of external trade and entrusted them instead to theCommunity. The advanced supranational nature of the EC, coupled withthe Europeanisation of its Common Commercial Policy, has created theexpectation that decisions whether or not to grant AD protection would bemade according to a genuine Community interest. After all, as Weiler putsit, the unique contribution of the EC to the civilisation of international rela-tions derives from the need of each Member State to reconcile the reflexesand ethos of the sovereign national state with new models of discourse anda new discipline of solidarity.183

Yet AD realities have proven otherwise. The Community interest isdiluted by ‘horse-trading exercises’, where some Member States attempt tomould the outcome of the proceedings, according to their socio-economicnational market structures. Consequently, the AD Policy is shaped, to a sig-nificant extent, according to the sum total of national interests. Indeed, afierce battle is being conducted between the forces of supranationalism andintergovernmentalism. The substantive and institutional dimensions of theAD Policy and its generic policy, the Common Commercial Policy, like theEC itself, are neither supranationalist nor intergovernmentalist. The battlebetween these forces manifests itself in each and every Community action,programme or policy, including that of the AD. It is likely that this battlewill last as long as the EC itself. The division of labour between the institu-tions and the formulation of substantive rules and their enforcement maythus remain a compromise between these conflicting forces. To complicatematters, Europe is growing more dependent on experts’ know-how. Thereliance on committees of experts injects into the EC governance a strongelement of infranationalism, rendering our debate even more complex. Thisarticle advances proposals aimed at enhancing Europe’s supranational char-acter in the context of European external trade, while not unduly interferingwith the ongoing ménage à trois of intergovernmentalism, supranationalismand infranationalism.

The third broad theme that emerges from this article relates to the grow-ing complexities of the governance of the Community. The EC competen-cies and fields of action have been significantly expanded since its earlydays. The EC is not concerned solely with the liberalisation of factors ofproduction, but rather with enforcing efficiently and coherently multiplepolicies, each predicated on different principles and aimed at differentgoals. The problem of coordination among Member States, Member Statesand the EC and among the EC’s institutions inter se is a growing one. Alegitimate equilibrium must be struck in the EC governance between purely

234 G U Y H A R PA Z

183 Weiler, above n 15 at 93.

economic considerations and those stemming, inter alia, from the disciplinesof social justice, international relations and environmental protection. TheEC must enhance its competitiveness while reinforcing social solidarity. Anintricate task, indeed. Heated disputes have always existed on this issue.The EC economic charter has a bright aura of economic liberalism, yetsome of its objectives warrant Community intervention to safeguard thepublic interest. It is characterised neither by centralised economic planningnor by laissez-faire capitalism.

As long as there is no monolithic doctrinal approach to the nature of theEC’s economic order, something which is unlikely to occur, there will be noconsensus on whether EC policies (including that of the AD), should bebased on principles of economic efficiency or social cohesion. The ADPolicy, like any other Community policy, is therefore likely to continue torepresent a compromise between the forces of Darwinist capitalism andthose of the good Samaritan’s social justice. This article calls for a moreopen external trade policy, one that advances European’s efficiency andcompetitiveness. The paramount social objective of giving the EC capitalis-tic machinery a human face should largely be pursued in different contexts,using different instruments.

A fourth broad theme concerns the conflict between the need to administerthe EC along utilitarian lines and the practical necessity of satisfying strongvested interests. The enforcement of the AD Policy is only one manifestationof that conflict. The article advances means to make more difficult the ‘capture’ of the AD machinery by rent-seeking efforts. A fifth, closelyrelated theme is the status of the individual in the Community. A consistentline links the European Court of Justice judgement in van Gend (1962),which endowed individuals and undertakings with the principle of directeffect, and the adoption of the Charter of Fundamental Rights in 2000,whose preamble proclaims that the Community ‘places the individual at theheart of its activities’. Those two events, together with numerous othersthat occurred in the interim, are the manifestation of the Community’sdesire to disassociate itself from traditional concepts of international publiclaw and to place its European citizen at the heart of the integration process.Yet in the context of the AD Policy, as well as in others, the European individual is geographically, psychologically and legally remote from thedecision-making process. The dissonance between Europe’s successes andits image creates formidable challenges for EC governance, a theme thatcan also be examined from the angle of the EC’s crisis of legitimacy. Despiteits impressive successes, the EC is perceived by many as an elitist, burden-some and non-credible order, a perception echoed in the narrower provinceof the AD Policy. The strengthening of the European civil society and theshaping of Europe’s New Governance may facilitate the establishment of amodern European agora, where a lively dialogue can take place between the EC and all stakeholders concerned. This article adds to this debate by

The European Community’s Anti-Dumping Policy 235

suggesting more open, transparent and therefore more legitimate AD proceedings, ones that would intensify the dialogue with all stakeholders,thereby enhancing EC’s credibility both in Europe and elsewhere.

Following the implementation of the remedial actions belonging to thesaid three categories, the Community would conduct a comprehensive exam-ination of the competitive structures in both the exporting and Communitymarkets. The decisions on whether to apply AD measures would then bebased on a deeper insight. The AD Policy would be rendered inherently lessprotectionist and more sensitive to competition policy considerations. Thelatter would then gain their well-deserved status in the AD legal order. TheEC would then embrace, in the context of AD proceedings, the principles ofliberal trade, undistorted competition, specialisation and innovation, allgrounded on Ricardo’s concept of comparative advantages. Competitionpolicy disciplines would, in the words of the US Supreme Court, serve as the‘Magna Carta of free enterprise’,184 in inter-Community trade. A more per-missive approach to dumping in general, and to competition from develop-ing and least developed countries in particular, would follow.

The European citizen, the declared darling of the evolving Communitylegal order, would be the ultimate beneficiary of that change. Other entities,both in the Community and elsewhere, would also benefit. These conse-quences are in line with the commitment of the European Union expressedin Lisbon (2000), to attain the strategic goal of becoming the most compet-itive economy in the world. They are also compatible with the EC’s declaredambition to facilitate the integration of developing countries to the globaltrade order. The notion of Europe will gradually be shaped in an inclusiverather than an exclusive manner.

One must not underestimate the difficulties entailed in such a reform. It runs counter, after all, to deeply entrenched and antiquated nationalisticfeelings.185 It also endangers influential interest groups. These factors renderthe call made in the article for reform all the more imperative.

236 G U Y H A R PA Z

184 US v Topco Associates Inc 405 US 596 (1972), 610.185 For an early comment on this theme, see Viner, J, Dumping: A Problem in InternationalTrade (University of Chicago Press 1923, reprinted in 1966), 93.

12

The European Convention onHuman Rights and International

Public Order

ALEXANDER ORAKHELASHVILI*

I. INTRODUCTION: EUROPEAN CONVENTION AS AN ELEMENT OF INTERNATIONAL PUBLIC ORDER

IT IS COMMONLY assumed that the European Convention on HumanRights, being a treaty of specific nature, embodies elements of Europeanpublic order. However, there seems to be no authoritative or generally

accepted definition of the public order of Europe, of its essential compo-nents, and of its relationship with the notion of international public order.This article will examine these questions. In pursuing this goal, the law-enforcement resources accumulated within the European system of humanrights protection will be examined in the context of interaction between thepublic order of Europe as part of the law of the European Convention, andinternational public order as part of general international law.

Although the existence of the public order of Europe is not seriously dis-puted, it is understood in different ways. Some commentators explain thespecific nature of the European Convention by reference to the penetrabil-ity of its provisions into domestic law of the State parties.1 It is, however,inherent to every international engagement that a State is obliged to givefull effect to its international obligations in its domestic legal order, when-ever obligations involved make this necessary.2 This factor does not seem toconfer any specific nature to an international instrument.

* LLM cum laude (Leiden); PhD Candidate, Jesus College, Cambridge. The author thanks Prof John Bell and Prof Rick Lawson for their remarks and suggestions. For the content andany errors the author alone is responsible.1 Jacobs, FG and White R, The European Convention on Human Rights 2nd edn (ClarendonPress 1996), 27–28.2 See, for instance, the decision of the PCIJ on Free Zones of Upper Savoy, PCIJ, Series A/B,1934.

Another explanation of the public order nature of the EuropeanConvention is based on the suggestion that the Convention should be consid-ered as an element of European integration, an instrument which embodies ‘asystem of liberal values which crystallise centuries of political development’.3

The unity between the political and social traditions of participating States asa precondition for existence of the public order is emphasised by Sudre, whoconsiders that the homogeneity of actors involved is a necessary prerequisitefor the existence of public order, since the latter necessarily presupposes cohe-sion of the society in which it operates and it is difficult to conceive it in a het-erogeneous social milieu.4

It is submitted that such an approach fails to reflect the essence of theproblem. During the last decade, the membership of the Council of Europehas enlarged so as to cover States that have no centuries-old democraticexperience. Further insistence upon the historical criteria would mean thatthe public order of Europe is on the way of its disappearance or would, atleast, impede the uniform applicability of this concept. Furthermore, if thepublic order of Europe is a juridical notion capable of having impact onapplication of the European Convention, it must be defined not in a historico-sociological, but in a normative sense.

The most suitable explanation seems to be that the Convention protectsindividuals irrespective of their nationality. It does not give rise to bilaterallegal relations between States, but protects the common interests. TheConvention obligations possess the objective nature, ie, they give rise not tobilateral and reciprocal legal relations, but bind States towards all otherState parties, irrespective of the direct and individual interest of the latter.This feature is identical with the characteristics of the international publicorder in general international law, in particular, with peremptory normssafeguarding the interests of the international community as a whole, andwith erga omnes obligations vesting the legal interest in their protection inall States irrespective of their individual affection. This is not the same as tosay that the Convention binds even States not parties to it, but at the sametime the Convention has an extraterritorial effect and protects humanbeings from the action of State parties even if their rights are violated out-side the territory of State parties. In the same spirit, the Convention pro-tects individuals irrespective of nationality. All these factors are due to theobjective nature of the Convention obligations.

It is commonly accepted today, and has repeatedly been affirmed by theEuropean Commission and European Court of Human Rights that theEuropean Convention contains obligations implicating the public order of

238 A L E X A N D E R O R A K H E L A S H V I L I

3 Jacobs and White above n 1 at 3; Similar approach expressed by Robertson, AH andMerrills, JG, Human Rights in Europe (Manchester University Press 1993) 2–3.4 Sudre, F, ‘Existe t-il un ordre public Europeen?’ Tavernier, P Quelle Europe pour les droits del’homme? (Economica 1996), 42.

Europe, which are of objective character, and protect not the interests ofcontracting States but rather the fundamental rights of individuals. TheEuropean Commission has affirmed this already in the early years of opera-tion of the Convention machinery, in the case of Austria v Italy.5 Later, inIreland v UK, the European Court emphasised that:

Unlike international treaties of the classic kind, the Convention comprisesmore than mere reciprocal engagements between contracting States. It cre-ates, over and above a network of mutual, bilateral undertakings, objectiveobligations which, in the words of the Preamble, benefit from a ‘collectiveenforcement.’6

These obligations of special type are assumed by each State party towardspersons within its jurisdiction, and not towards other States parties. 7

This special nature of the European Convention follows from its charac-ter of a human rights treaty, and is comparable with other conventions ofthe same nature, whether regional or universal. It may be recalled that in itsAdvisory Opinion on Reservations, the International Court of Justiceemphasised the similar character of the 1948 Genocide Convention. TheCourt stressed in particular that:

In such a convention the contracting States do not have any interests of theirown; they merely have, one and all, a common interest, namely, the accom-plishment of those high purposes which are the raison d’être of the conven-tion. Consequently, in a convention of this type one cannot speak of individualadvantages or disadvantages to States, or of the maintenance of a perfect con-tractual balance between rights and duties.8

The Inter-American Court of Human Rights has said much the same thingof the American Convention of Human Rights:

the object and purpose of the Convention is not the exchange of reciprocalrights between a limited number of States, but the protection of the humanrights of all individual human beings within the Americas, irrespective of theirnationality.9

It went on to say that:

modern human rights treaties in general, and the American Convention inparticular, are not multilateral treaties of the traditional type concluded to

The European Convention on Human Rights 239

5 Austria v Italy (1961) 4 YB ECHR 140.6 Ireland v UK, 58 ILR 188, at 291.7 Cyprus v Turkey, 8007/77, 13 DR 145, at 147; cf also van Dijk, P, and van Hoof, GJH,Theory and Practice of the European Convention on Human Rights (Kluwer 1998), 40–41.8 ICJ Reports, 1951, 23.9 Effect of Reservations, para 27, 67 ILR 568.

accomplish the reciprocal exchange of rights for the mutual benefit of thecontracting States. Their object and purpose is the protection of the basicrights of individual human beings irrespective of their nationality, bothagainst the State of their nationality and all other contracting States. In concluding these human rights treaties, the States can be deemed to submitthemselves to a legal order within which they, for the common good, assumevarious obligations, not in relation to other States, but towards all individualswithin their jurisdiction.10

Furthermore, the Inter-American Court emphasised the similarity betweenregional human rights treaties and universal treaties such as the GenocideConvention.11 Similarly, the UN Human Rights Committee emphasisedthat the International Covenant on Civil and Political Rights is not a webof inter-State obligations, but is designed to safeguard individual humanbeings.12 Humanitarian law treaties also possess the similar nature. Theyare not intended to benefit or protect State interests; they are primarilydesigned to protect human beings qua human beings.13 Accordingly, theobjective nature of a specific human rights treaty and the consequences fol-lowing therefrom seem to be attributable to the character of substantiveobligations enshrined in a treaty and do not depend on whether a treaty isuniversal or regional in scope. This is significant for the purposes of inter-pretation of clauses in such treaties. The nature of obligations is in a posi-tion to make similar principles of interpretation applicable to differenttreaties, whether universal or regional.

Moreover, the objective nature of the Convention obligations mirrorstheir place and status under general international law, which is, as we shallsee below, an important factor in their applicability in face of their interac-tion to or conflict with other principles of international law. The Conventionprotects individuals irrespective of their nationality. It does not give rise tobilateral or reciprocal legal relations between States, but protects the com-mon interests. This feature is identical with the characteristics of the interna-tional public order in general international law. For instance, peremptorynorms14 safeguard the interests of the international community as a whole.They give rise to erga omnes obligations vesting the legal interest in theirprotection in all States irrespective of their individual prejudice.15 Such afeature of the European Convention is similar to the nature of certain uni-versal treaties. As the International Criminal Tribunal for the FormerYugoslavia emphasised, the objective nature of obligations embodied in

240 A L E X A N D E R O R A K H E L A S H V I L I

10 Ibid, para 29, 67 ILR 568.11 Ibid, para 30, 67 ILR 569.12 General Comment 24(52), (1995) 2 IHRR 10 para 17.13 Kuprsekic, Judgment of 14 January 2000, para 518.14 See Art 53 of the Vienna Convention on the Law of Treaties of 1969.15 Barcelona Traction, ICJ Reports, 1970, para 33.

humanitarian law treaties stems from their erga omnes character in thesense of the International Court’s dictum.16

The nature of the Convention obligations is similar, as is already clear,with the nature of the norms and obligations protecting the communityinterest under general international law, and hence with international pub-lic order proper. Identification of the content of international public orderas embodied in peremptory norms is thus only possible through identifyingsubstantive values and principles which would be so fundamentally impor-tant and indispensable to the international community as a whole as theprinciples embodied by national public orders are to national legal systems.In this regard, both practice and doctrine would suggest that norms possessa peremptory nature because of the values they protect,17 and it is the basiccommunity values which give rise to jus cogens protecting the interests ofthe community as a whole.18

Whether a norm is peremptory has to be identified by asking whether itprotects the community interest as distinct from individual State interests,whether it is intended to benefit certain actors in the interest of the communityrather than individual States, and whether, on the basis of the aforesaid, it pos-sesses a specific normative character and effect which distinguishes it from theordinary norms. To use another expression, jus cogens is based on ‘a transcen-dent common good of the international community, while jus dispositivum iscustomary law that embodies a fusion of self-regarding national interests.’19

Frowein explains that ‘With public international law developing into muchmore than a law of bilateral and multilateral treaty relationships the thresholdto a constitutional structure has long been crossed,’20 and this entails legalprotection of the interests of the international community as a whole as dis-tinct from the interests of individual States.21 The criterion that the jus cogensrules exist not to satisfy the needs of individual States, but the higher interestsof the whole international community, makes these rules absolute. The otherrules are relative, since they concern only individual interests of States.22

Hence, jus cogens and the obligations enshrined in the European Conventionare similar in that they both protect the community interest, and not the inter-ests of individual States. They are furthermore identical in that in general

The European Convention on Human Rights 241

16 Kupreskic, Judgment of 14 January 2000, para 519.17 Furundzija (1999) 38 ILM 349.18 Frowein, JA, ‘Jus Cogens’ 7 Encyclopaedia of Public International Law 329.19 Brundner, A, ‘The Domestic Enforcement of International Covenants on Human Rights’(1985) 35 University of Toronto Law Journal 249–250.20 Frowein, JA ‘Reactions by Not Directly Affected States to Breaches of Public InternationalLaw’ 248 Recueil des Cours (IV–1994), 365.21 Suy, E, ‘The Concept of Jus Cogens in International Law’, 2 Lagonissi Conference: Papersand Proceedings (1975), 13; Jaenicke, G, ‘Zur Frage des Internationalen Ordre Public’, 7 Berichte des Deutschen Gesellschaft für Völkerrecht (1967), 87.22 Verdross, A, ‘Jus Dispositivum and Jus Cogens in International Law’ (1966) 60 AmericanJournal of International Law 58.

international law most of the cases of jus cogens are ‘cases where the positionof the individual is involved, and where the rules contravened are rules insti-tuted for the protection of the individual.’23

Therefore, it is submitted that the public order nature of the EuropeanConvention is based on the nature, legal force and place in internationallegal hierarchy of the rights and freedoms enshrined in the Convention. Asfar as the public order is understood as a body of legal rules, the emergenceand operation of the relevant rules in a given legal system—as opposed tothe common political and cultural traditions—is the decisive factor withregard to the emergence and operation of public order.

International public order exists and operates, although no real like-mindedness and homogeneity between various groups of States within theinternational community is observable. The universality of human rightsevidences that the public order in the international community operatesdespite the existing political and cultural differences. Human rights maynot be universal if the cultural differences between countries hinder theiroperation. Rather, the public order nature of fundamental human rights24

as evidenced by their force as peremptory rules of international law,25 is ina position to override the defences and differences based on cultural relativismand thus create conditions for the protection of the rights and freedoms of ahuman being irrespective of his race, nationality, gender or religion. The samereason is obviously the basis of the European human rights system, if thatsystem is supposed to retain its public order nature after enlargement of theCouncil of Europe’s membership.

As the preamble of the European Convention suggests, the aim of theConvention is to create a mechanism for the collective enforcement of cer-tain rights enshrined in the Universal Declaration of Human Rights of1948. The Universal Declaration is referred to in the Preamble as a starting-point and guideline for the European human rights protection. The like-mindedness and common heritage of traditions is invoked only as a reasonfor establishment of the enforcement machinery.26 This fact clearly indicates

242 A L E X A N D E R O R A K H E L A S H V I L I

23 Fitzmaurice, G, ‘Third Report on the Law of Treaties’ (1958) Yearbook of the InternationalLaw Commission Vol II 40.24 Without prejudice of existence of evidence of jus cogens nature of all human rights, would itbe possible to consider any treaty concluded between States which derogates from any humanrights obligations as lawful? The Erga omnes nature of human rights obligations may, withoutprejudice of validity of such a treaty inter partes, make possible the invocation of its invalidityby third parties. Such a treaty may therefore not be used either as defence against claims or asa circumstance precluding wrongfulness. Therefore, it might be argued that all human rightshave legal force of jus cogens, with the reservation, of course, that the regime of State respon-sibility shall be determined according to gravity and extent of the breach. Nevertheless, thisapproach is only a suggestion here and not a categorical one.25 The notion of jus cogens does not exhaust the concept of public order, but it is in any casethe core element of it: Jaenicke, G, ‘International Public Order’, 7 Encyclopaedia of PublicInternational Law, 315.26According to the Preamble, the State parties, ‘Considering the Universal Declaration of HumanRights proclaimed by the General Assembly of the United Nations on 10 December 1948;

that the rights and freedoms as such are universal, supplemented by theEuropean enforcement machinery. Thus, it must be reiterated that the basisof the public order of Europe is the nature, legal force and place in the inter-national legal hierarchy of the rights and freedoms enshrined in theEuropean Convention.

The practice of application of the European Convention demonstratesthat it is not a self-sufficient instrument operating in isolation from generalinternational law. The organs entrusted with the interpretation and applica-tion of the Convention clearly understand the need to resort to general inter-national law in exercising their functions. The task of the interpretation andapplication of the Convention at the stage of admissibility or merits isinevitably connected with the operation of rules of general international law.Leaving aside the fact that several provisions of the Convention containdirect references to the ‘general principles of international law’,27 theEuropean Commission and European Court of Human Rights haveresorted to general international law also when the Convention does notrefer to it.28 It is undeniable that in many important cases the Conventionorgans29 would not have been able to adopt decisions necessary for the effec-tive implementation of the Convention, had they not resorted to the relevantrules of general international law. Nor should it be denied that the Conventionbodies’ determinations have often provided valuable precedents for thedevelopment of general international law.

All this leads us to the conclusion that in order to properly apply andenforce the European Convention, the Convention organs have to pay due

The European Convention on Human Rights 243

Considering that this Declaration aims at securing the universal and effective recognition andobservance of the Rights therein declared,’ are ‘resolved, as the governments of Europeancountries which are like-minded and have a common heritage of political traditions, ideals,freedom and the rule of law, to take the first steps for the collective enforcement of certain ofthe rights stated in the Universal Declaration.’

27For instance, Art 26 (exhaustion of local remedies) and Art 1 of Protocol 1 (right to property).28 Such a resort to general international law may be necessary to clarify the content and scopeof rights and freedoms enshrined in the Convention, Selmouni, para 97–98; to clarify the sta-tus of the applicant or respondent, 6780/74 and 6950/75, Cyprus v Turkey, 2 DR, 145ff,8007/77, Cyprus v Turkey, 13 DR, 146ff, An v Cyprus, 13 HRLJ, 153, Loizidou (PreliminaryObjections), para 57; to clarify the role of reciprocity in jurisdictionnal issues, Turkish(Admissibility), paras 35–43, 4 Human Rights Law Journal, 555–557; to clarify the issue ofpermissibility of reservations to the Convention, Loizidou, paras 65–73; to clarify the legalforce of provisional measures, Cruz Varas, (Judgment by the Court), para 101; to interpret theprovisions of the Convention, Golder, paras 29–30, Johnston, para 51; Loizidou, para 73; toclarify the relationship between Convention obligations and domestic law, Cruz Varas,(Decision by the Commission), Series A, Vol 201, para 124, at 52. This record is of course, farfrom being exhaustive. See generally also Charney, ‘International Law and MultipleInternational Tribunals’, Recueil des Cours, 1998, Vol 271, 210–216, 241–244.29 Here and elsewhere in the text the expressions ‘the Convention organs’ or ‘the Conventionbodies’ refer to the European Commission and European Court of Human Rights. Althoughthe European Commission has been abolished through Protocol No 11 to the EuropeanConvention, some of its practice is relevant for the present analysis and is respectively dealtwith here.

regard not only to the rights and freedoms enshrined in the Convention assuch, but also to the legal consequences attached to those rights and free-doms under general international law. The object and purpose of theConvention overlaps with jus cogens of general international law in that itrequires objective protection of the community interest rather than of indi-vidual State interests, and this requires respect for the consequences thatthe norms protecting community interest entail. The notion of the publicorder of Europe implies the application and interpretation of theConvention in accordance with the principles, trends and requirements ofinternational public order. Both notions are based on the objective natureof relevant international obligations. The reference to the notion of the pub-lic order of Europe in the early practice of the Convention organs maypartly be explained by the fact that at that time the notion of internationalpublic order was not yet fully established.30

In certain cases, the Convention may effectively be enforced only if thelegal consequences attached under general international law to the viola-tions of the Convention rights are duly respected. The Convention merelystates, for instance, that no one should be subjected to torture, but it is notin position to clarify what legal consequences are attached to violation ofthis freedom, because the Convention does not specify any legal conse-quence of prohibition of torture (apart from the derogability provisions).31

What is the kind and degree of wrongfulness torture produces? How shouldthis wrongfulness be undone? Nor does the Convention as such clarify whatshould the legal consequences be if the violation is single, on the one hand,and massive, on the other; or if the violation is likely to produce irreversibleconsequences. These factors are at the core of the concept of effectiveenforcement of rights, one of the Convention purpose and it is the task ofthe Convention bodies not to ignore them. The Convention being silent onthe matter and limited only to the requirement that rights and freedomsshould be secured, the organs entrusted with the interpretation and applica-tion of it have to resort to the applicable standards and principles of gen-eral international law, or apply notions of what is just and equitable. Andhere we see that certain human rights, being part of jus cogens, may enjoyspecial status and their violation produces a higher degree of wrongfulness;that the rights whose violation produces irreversible consequences deservedifferent a degree of protection; that the massive and systematic character

244 A L E X A N D E R O R A K H E L A S H V I L I

30 Indeed, the relevance of jus cogens has been confirmed in 1969 by adoption of VCLT; theerga omnes nature of human rights obligations has been stressed by the ICJ in 1970; and theILC announced its concept of international crimes in 1976 only. The absence of those estab-lished categories in 50s and early 60s may help understand the necessity to distinguish betweenthe nature of obligations enshrined in European Convention and other international obliga-tions. At the present stage of development of international law, however, those categories ofpublic order are clearly established and may provide useful guidance for Convention bodies inenforcememt of the Convention.31 See, generally, Art 15 of the Convention.

of a violation is likely to increase the wrongfulness and aggravate the Stateresponsibility. The Convention can be effectively enforced only if these fac-tors are duly taken into account.

The importance of the rights and freedoms protected may also dictatethat the Convention organs adopt certain judicial policies with regard totheir own powers, in accordance with the public order considerations.Thus, they may assert certain powers not directly conferred upon themunder the Convention. For instance, in the Chrysostomus case, theEuropean Commission declared invalid the territorial application reserva-tions to the Convention made by the respondent Government, and severedthem by reference to the public order of Europe. Such an approach has beencriticised by Golsong, who regards the introduction of the public ordernotions into the Convention’s practice as an attempt to escape the opera-tion of the established rules of international law.32 Golsong insists that theordinary and plain meaning of the Convention does not limit the power ofStates to attach reservations concerning the competence of the Conventionorgans when they become Party to the Convention and that the reference tothe public order was an unjustified attempt not to apply this principle; judi-cial policy was used to override operation of the law in force. Consequently,the interpretation of the Convention was not in conformity with the ruleson treaty interpretation enshrined in the Vienna Convention on the Law ofTreaties of 1969 (VCLT).33

Leaving aside the fact that Golsong’s suggestions have been rejected bythe subsequent decision of the European Court in Loizidou,34 it may besubmitted that to allow States to make reservations restricting the compe-tence of the Convention organs in a territorial sense is in fact tantamountto allowing the reserving State to breach the Convention’s provisions on acertain territory. This consideration affects an integral part of theConvention’s object and purpose. The Convention organs, established tosafeguard and ensure compliance with the Convention,35 have to refer tothe specific nature of the Convention and emphasise that the integrity ofthe Convention obligations is a necessary precondition for the effective pro-tection of the Convention rights.

The European Commission’s approach has therefore been fully in accor-dance with the Vienna Convention on the Law of Treaties, bearing in mindthat this organ had in mind its role of the guardian of the public order inEurope.36 Golsong completely ignores the question whether the object and

The European Convention on Human Rights 245

32Golsong, H, ‘Interpreting the European Convention on Human Rights beyond the Confines ofthe Vienna Convention on the Law of Treaties?’ in Macdonald, R, Matscher, F, and Petzold, H,The European System for the Protection of Human Rights (Nijhoff 1993) 154 at 158.33 Ibid, 152, 159.34 Loizidou (Preliminary Objections), Judgment of 23 March 1995, Series A310.35 Former Art 19 (on the European Commission), current Art 19 (on the European Court).36 Sudre above n 4 at 65.

purpose of a treaty may be relevant for the Convention bodies when theyinterpret their powers. He further assumes that the purposive interpretationof the Convention is justified only as far as the substantive provisions areconcerned, and not in case of the procedural provisions.37 This assumptionis hardly justified. Substantive and institutional provisions of theConvention are interdependent parts of one integral system and neither thenature of the Convention, nor the interpretation methods under the VCLTpermit the application of differentiated interpretation methods in thisregard.

Interpretation of powers of the Convention bodies should be in accor-dance, or, more correctly, not in violation of the text of the Convention. Atthe same time, the Convention bodies’ powers should be interpreted in thelight of the object and purpose of the Convention, which is a primary factorof interpretation under the VCLT. The intentions of the drafters andGovernments, as embodied in preparatory materials, should be given only asecondary importance.38 As Judge Alvarez emphasised in the Admissions case,

an institution, once established, acquires a life of its own, independent of theelements which have given birth to it, and it must develop, not in accordancewith the views who created it, but in accordance with the requirements ofinternational life.39

Therefore, although the drafters of the Convention were reluctant to conferupon the Convention bodies extensive powers in certain cases, this will notprevent those bodies exercising those extensive powers where theConvention is site at if the need for effective enforcement of human rightsso requires.

And as far as ‘the requirements of international life’ are concerned, it isundeniable that since the European Convention has come into being, inter-national legal order has experienced substantial transformation both in itscontent and in its nature. It has to be defined not as a legal system based onthe traditional bilateralist model, but as a legal system with essential ele-ments of public order. This overlaps with the very telos of the Conventionwhich is a constitutional instrument designed to protect a transcendentcommunity interest.40 The requirements of the operation of this publicorder may require from the Convention bodies that they adopt specificmethods of interpretation and application of its constituent instrument andeven adhere to a specific judicial policy.

246 A L E X A N D E R O R A K H E L A S H V I L I

37 Golsong above n 32 at 150.38 See, generally, Arts 31 and 32 of the Vienna Convention on the Law of Treaties of 1969.39 Admission to the United Nations, ICJ Reports, 1947–48, at 68; See also Loizidou(Preliminary Objections), 1995, para 71; See also Charney, ‘International Law and MultipleInternational Tribunals’ (1998) 271 Recueil des Cours 159 at 161.40 Above notes 19–21 and the accompanying text.

The general approach developed above has to be examined in the lightof several elements of the European Convention. Due to shortage of space,the analysis below will be limited to the three elements that concern thepowers of the Convention organs. These institutes are (1) the inter-Stateapplications procedure, (2) the friendly settlement and (3) the issues of justsatisfaction. These issues will be examined exclusively from the perspectiveof international public order and not as such, in a systematic way as theystand in the law of the European Convention.

II. INTER-STATE LITIGATION UNDER THE EUROPEAN CONVENTION

The inter-State complaints procedure under the European Convention hasmore been neglected than effectively utilised. Frowein concludes that,regrettably, apart from rare exceptions, European States prefer to resolvetheir disputes through political and diplomatic methods and not throughadjudication.41 According to a more radical suggestion, ‘in the close-knitcommunity of like-minded states in the Council of Europe, contracting par-ties will be reluctant to jeopardise their good diplomatic relationships withother parties and undoubtedly prefer negotiation to a legal process whichmay be lengthy, counterproductive and ultimately ineffective’.42 Therefore,not only is emphasis made on the under-utilisation of the inter-State com-plaints procedure, but it is also described as counterproductive, ineffectiveand thus inappropriate. Scepticism in this regard seems to increase since, inconsequence of the recent reform of the Convention system, accession tothe Convention by States in itself entails recognition of competence of theEuropean Court of Human Rights to receive individual applications.43

Neglect of the inter-State complaints procedure goes so far that certaincommentators fail to examine it.44

What should be examined is whether ignoring the role of inter-State liti-gation under the Convention system might be compatible with the natureof the Convention embodying the public order of Europe. In addition, howsuch neglect impacts on the ability of the Convention system to face challenges brought about by the developments within the international legal system since the Convention was adopted should also be examined.

The European Convention on Human Rights 247

41 Frowein, JA, ‘Reactions by Not Directly Affected States on Breaches of Public InternationalLaw’, Recueil des Cours, 1994(IV), 389–394.42 Harris, DJ, O’Boyle, M, and Warbrick, C, The Law of the European Convention of HumanRights (Butterworths 1995) 587.43 Frowein, JA, and Peukert, W, EMRK Kommentar (Engel Verlag 1995), 18.44 For instance, only shortly commented upon as a marginal issue in Robertson and Merrillsabove n 3 at 254–55; not mentioned at all in Jacobs and White above n 1; practically no analysisin Merrills, Development, 1988.

The relevant and suitable treatment of these factors is crucial in ensuringthe efficiency and credibility of the Convention system.

It is not difficult to note that Inter-State litigation has an inevitable rolein certain areas, in which it solely assumes a unique and appropriate impor-tance. It may effectuate the judicial potential that is totally or partiallyunavailable under the individual applications procedure. A significant pecu-liarity of the inter-State applications procedure is that it enables theConvention bodies to address grave and systematic human rights viola-tions. This procedure makes it possible to address governmental policiesresulting in breaches of the Convention by challenging the respective leg-islative and administrative practices.

‘A general concept of “administrative practice” may have to cover widelydifferent situations of fact and law’.45 It covers two elements: repetition ofacts and official tolerance. Repetition implies the substantial number of actsoccurring in several places which are expression of a general situation.46

Repetition of acts consists not necessarily of repetition of the administrativedecisions, but of the ‘repeated factual events which are tolerated’.47

Official tolerance means the respondent’s failure to punish wrongful actsand prevent their repetition.48 In case of official tolerance the superiors,though cognisant of violations, take no action to prevent or punish themand manifest indifference.49 These factors relax the requirements of attri-bution. ‘Although it is quite possible that isolated acts might escape theknowledge of the superiors, it is hardly conceivable that frequently repeatedacts by their subordinates could do so’; and therefore, when the issuereceives publicity, the requirement of direct evidence is relaxed.50

Thus, the Convention organs are in position to address different degreesof wrongfulness resulting from breaches of the Convention. The combina-tion of repetition and tolerance increases the seriousness of a violation.Moreover, on the basis of the relaxed requirements of the evidence andattribution, the inter-State complaints procedure enables the Conventionorgans to assess different levels of conduct by the State organs and deter-mine the degree of wrongfulness according to these criteria. Owing to thewide context of inter-State applications (as opposed to individual applica-tions dealing with single violations) the Convention organs are empoweredto judge the compatibility of the human rights situation in a particularscountry with the Convention. It has been concluded in this regard by the

248 A L E X A N D E R O R A K H E L A S H V I L I

45 Ireland v UK, 19 YB ECHR, 756; the case contains wide references to Greek and FirstCyprus cases while considering the issues of administrative practice.46 Ireland v UK, 19 YB ECHR, 754, 756; Greek, 12 YB ECHR, 195–96; So was considered,for instance, the repetition of tortures, Ireland v UK, 19 YB ECHR, 750–52.47 Ireland v UK, 19 YB ECHR, 754.48 5310/71, Ireland v UK, 15 YB ECHR, 178, 180.49 Ireland v UK, 19 YB ECHR, 754, 758, 766; 9940–44/82, Turkish case (admissibility), 4 HRLJ, 550.50 Ireland v UK, 19 YB ECHR, 764.

Court that ‘the higher the organ tolerating the acts the more serious theviolation involved’.51 Such a broad perspective evidences the fact that theinter-State applications procedure has to deal with the most important ele-ments of preservation of European public order.

It is thus clear that Convention organs are able and willing to distinguishbetween the degrees of wrongfulness according to the nature of a breach.General international law is not unfamiliar with such distinctions. In 1976,the UN International Law Commission approved the concept of interna-tional crime, consisting in the conduct of a State seriously infringing uponthe essential interests of the international community and covering the com-mission of serious breaches of obligations safeguarding the rights of ahuman being on a massive and widespread scale. The listing of particularcrimes in draft by the ILC was merely illustrative and not exhaustive.52

Therefore, certain breaches of the European Convention which assumemassive, large-scale and systematic character, may fall into that category.This holds undeniably true for the rights and freedoms belonging to juscogens, and arguably also for other rights.

The former ILC’s Special Rapporteur on State responsibility Arangio-Ruizmade certain suggestions concerning the role of judicial and quasi-judicialinstitutions in responding to international crimes. The main emphasis wason the role of arbitration tribunals and of the International Court ofJustice.53 Such a limited approach is difficult to explain bearing in mind thewide potential and resources the European Convention offers in this regard.Without prejudice to the roles of the institutions focused upon by Arangio-Ruiz, it should be noted that the universal and regional human rights bodiespossess the capability to respond effectively to the breaches of fundamentalinternational obligations. In contrast to arbitral tribunals and the ICJ,whose jurisdiction is mainly based either on special agreements or optionalclauses, the European Court of Human Rights has a more solid jurisdic-tional basis. Accession to the European Convention automatically meansthe recognition of jurisdiction of the Court.

Another factor strengthening our assumptions is the role of theCommittee of Ministers, which is entrusted with the supervision of enforce-ment of the Court’s decisions.54 In case of arbitration tribunals, such asupervisory mechanism is totally absent; in the case of the ICJ only partiallypresent—the UN Security Council. But there are still some important differ-ences between these two systems of supervision. The Committee ofMinisters is bound to supervise the execution of the Court’s judgments,while the Security Council possesses a total discretion in this regard.

The European Convention on Human Rights 249

51 Ireland v UK, 19 YB ECHR, 762–64.52 Draft Art 19 of the ILC draft on State Responsibility, (1976) Yearbook of the InternationalLaw Commission Vol II, part two, 97ff.53 Arangio-Ruiz, G, Seventh Report on State Responsibility, UN Doc A/CN 4/469. 54 Art 46 of the Convention.

Another difference (although one of degree) is the fact that the Committeeof Ministers has always been more coherent in supervision of the EuropeanCourt’s decisions than the Security Council in enforcement of the ICJ’s judg-ments. Therefore, the European system should be viewed as a necessary ele-ment of enforcement of consequences of massive breaches of human rightsincluding the possibility that they may amount to an international crime.

The ILC subsequently decided to remove the concept of internationalcrime from its Articles on State Responsibility and replace it with the con-cept of serious breaches of peremptory norms.55 Despite the change innotions and terminology, the principle that the regimes of State responsibilityare different dependent on the nature of a wrongful act remains unchanged.Whatever the approach of the ILC to the State crimes, both the Convention’slegal order and general international law call for differentiation between thelegal consequences of internationally wrongful acts on the basis of their seri-ousness and gravity. Therefore, our observations apply to the consequencesof serious violations of human rights, irrespective of whether or not they canbe denoted as international crimes. The relevance of Convention machinerydoes not decrease, because the obligations of States under the Conventionpossess erga omnes character, both under the Convention and under interna-tional law. The following analysis demonstrates the highest possible suitabil-ity of the Convention machinery to address massive human rights breachesas violations of erga omnes obligations.

Inter-State litigation offers the possibility—the only one under theConvention system—to enforce fully the legal effects of Article 1 of theConvention which removes the necessity of any contractual balancebetween rights and obligations of contracting parties by establishing thatState parties shall secure the fulfilment of Convention obligations undertheir jurisdiction without adding any qualifying limitation to that generalobligation. Such an objective nature of the Convention, having given rise tocontractual erga omnes obligations at a time when the general internationallaw was not yet familiar with that notion, is the basis of several jurisdic-tional and admissibility prerequisites for enforcement of the Conventionobligations.

Most importantly, inter-State litigation gives the possibility of realiseingactio popularis under the Convention system, which is a necessary elementof the European public order, since the concept of public order necessarilyinvolves the right to sue without having suffered individual damage or prej-udice. It should be emphasised that the possibility of suing in the publicinterest is the only option to fully realise the reach and potential of obliga-tion enshrined in Article 1 of the Convention. Article 1 obliges the State par-ties to observe provisions of the Convention not on the basis of reciprocitybut as objective obligations towards all other State parties irrespective of

250 A L E X A N D E R O R A K H E L A S H V I L I

55 Arts 40–41, A/CN 4/L/602/Rev 1.

whether their individual and material interests are affected. Actio popularisis therefore a natural continuation of the obligation under Article 1. IfStates are entitled to invoke human rights violations without having toprove individual injury, they under the Convention system cannot do thisbut rather by resorting to inter-State litigation and suing in the public inter-est. Therefore, resort to the inter-State complaints procedure is essential tofully realise the extent and effects of Article 1.

Article 1 delimits operation of the Convention provisions with regard toits application ratione loci, personae, and temporis.56 As far as temporaloperation of the Convention and, respectively, temporal jurisdiction ofConvention organs are concerned, the inter-State applications procedure iscapable of supporting enforcement of the Convention as an instrument ofspecial character. The European Commission on Human Rights in theAustria v Italy case57 suggested that the commencement of inter-State liti-gation requires only that the Convention is in force between the parties atthe time of making the application. Whether or not the Convention was inforce between the parties when alleged violations occurred is not relevantfor the enforcement of a treaty establishing public order which is designedto create objective obligations rather than to create reciprocal balance ofrights between States. The inter-State litigation may therefore go beyondrealising actio popularis and enable States to sue each other on the basis ofrelatively relaxed requirements of a jurisdictional link thus also stressingthe objective nature of Article 1 obligations in a temporal sense. This is alsoan inborn and unique potential of the inter-State complaints procedure.Although the accession to the Convention by the respondent State is thedecisive point for considering individual applications as well, in the case ofan inter-State complaint it may be observed how conflicting interests basedon the public order considerations on the one hand, and the autonomy ofindividual States on the other, have to be balanced with each other. In caseof individual applications the Strasbourg organs do not face the need todeal with those conflicting values; in case of inter-State complaints they doand this contributes to a better understanding of the nature of theConvention obligations.

Inter-State applications do not require as a condition of admissibility58

prima facie proof by the applicant of its allegations and the Conventionorgans do not undertake the preliminary examination of merits issues.59

Generally, admissibility requirements under inter-State complaints system

The European Convention on Human Rights 251

56 Frowein and Peukert, above n 43 at 17.57 788/60, Austria v Italy, 2 YB ECHR, 132–44.58 299/57, 2 YB ECHR, 190; 9940–44/82, Turkish case (admissibility), 4 HRLJ, 547–48.59 9940–44/82, Turkish case (admissibility), 4 HRLJ, 548; an applicant government, unlike anindividual applicant, is not required to show evidence of administrative practice at the admis-sibility stage; an individual applicant must show some evidence, by virtue of Art 27(2) to makeat least a threshold case, Harris, O’Boyle and Warbrick above n 42 at 615.

are substantially lower than in the case of individual applications. ‘Specificregulation’ of admissibility criteria60 is peculiar to that system. The func-tion of inter-State litigation, obviously consisting in protection of theConvention regime from the most serious attacks and threats, seems to bethe natural prerequisite for this. Several admissibility requirements do nothave to be met at all.61 For instance, a case of systematic and massivehuman rights violations may repeatedly be referred to the European Courtof Human Rights.62 Considerations based on principle non bis in idem can-not prevent repeated seising of Convention organs. Therefore, if an applica-tion is deficient for one or another reason, for instance, it cannot be shownthat local remedies have been exhausted, an applicant has the opportunityof remedying these deficiencies and refering the case to the Court again.Procedural technicalities operate only to a limited extent. This means that aState-Party to the ECHR, engaging in the massive human rights violations,has no reason to feel secure as far as the inter-State complaints procedure isconcerned.

The Commission has liberally interpreted the requirement that the com-plaint should not be abusive. Apart from the circumstance that the respec-tive rule of the Convention does not apply to inter-State complaints, therule of general international law according to which judicial proceedingsmay not be abused has not been strictly applied.63 ‘Alleged political ele-ment of … allegations, even if established, is not such as to render them“abusive” in the general sense of the word’,64 provided the applicant pro-vides ‘sufficient particularised information of alleged breaches’.65 Even therepeated seising of Convention organs with the same matter may not bequalified as abuse.66

252 A L E X A N D E R O R A K H E L A S H V I L I

60 9940–44/82, Turkish case (admissibility), 4 HRLJ, 549.61 For instance, Art 27, paras 1 and 2 apply only to individual applications procedure, Greece v UK, 2 YB ECHR, 184; 788/60, Austria v Italy, 4 YB ECHR, 178–182; 3321/67,Greek, 11 YB ECHR, 726; Greek (Additional Allegations), 11 YB ECHR, 764; 5310/71, Irelandv UK, 15 YB ECHR, 248; 25781/94 Cyprus v Turkey (www.echr.coe.int, on file with the author).62 8007/77, Cyprus v Turkey, 13 DR, 154; 25781/94; the view reiterated on merits of the samecase, 72 DR, 22; Cyprus v Turkey, objection to admissibility II, dealing with this issue wasjoined to the merits.63 8007/77, Cyprus v Turkey, 13 DR, 156.64 3321/67, Greek, 11 YB ECHR, 764.65 6780/74 and 6950/75, Cyprus v Turkey, 2 DR, 138; essence of an abuse may consist in theuse of the application procedure for purposes (exclusively) other than human rights protectionor in submitting allegations unacceptable in nature or in form, 8007/77, Cyprus v Turkey, 13 DR, 156; It has been noted that in the majority of cases the applicant governments hadtheir own political interests in submitting applications, Harris, O’Boyle and Warbrick above n42 at 587; Frowein and Peukert above n 43 at 517. This circumstances do not in any way prej-udice the nature of inter-State complaints. It is understandable that in several cases the appli-cant governments might have ethnic or nationality bonds with persons whose rights are allegedto have been violated. However, this cannot outweigh the fact that applicant governments donot seek individual benefits but complain of violations of human rights enshrined in theConvention as such and in objective sense.66 25781/94, Cyprus v Turkey.

Thus, the Convention makes clear that certain admissibility requirementsdo not have to be observed in inter-State cases. The practice of Conventionbodies has gone further. Even the admissibility criteria that apply to inter-State cases according to the text of the Convention, have been declared bythe Convention bodies inapplicable when the nature and extent of thewrongfulness so require.

In Greece v UK, it has been established that the requirement of exhausting local remedies according to Article 26 does not apply to appli-cations concerning legislative and administrative practices.67 Applicationwas therefore declared admissible despite the alleged non-exhaustion oflocal remedies. There is a close link between exhaustion of local remediesand administrative practice.68 The Commission has found that whether ornot existing domestic remedies are available (as the respondent may sub-mit), they cannot be considered as effective if large-scale violations are tobe dealt with. The fact that alleged violations are large-scale may as suchrender existing remedies ineffective, because it is practically impossible toshow in such cases that ‘such remedies are both practicable and normallyfunctioning’.69 The Convention organs normally will not require exhaus-tion of local remedies in case of human rights violations arising out of situ-ations having ‘seriously affected the life of the population’ as evidenced forinstance by armed invasion and refugee flow,70 as well as in case of viola-tions being acts of ‘an accumulation of identical or analogous breacheswhich are sufficiently numerous and inter-connected to amount not merelyto isolated incidents or exceptions but to a pattern or system’.71

This circumstance obviously also influences the applicability of the six-month rule under Article 26. Even where the Convention organs regarddomestic remedies as ineffective because of large-scale violations, the six-month rule applies,72 existence of a ‘permanent state of affairs which is stillcontinuing’ makes the rule inapplicable.73

This practice makes it clear that Convention organs are able to distin-guish between certain legal consequences of violations of the Convention

The European Convention on Human Rights 253

67 176/56, 299/57, 2 YB ECHR, 184, 190 (Generally, a respondent should demonstrate thatremedies, which had to be exhausted, did exist, ibid, 192; applicants should demonstrate thatexisting remedies are ineffective, ibid, 193–94); 3321/67, Greek, 11 YB ECHR, 726; 4448/70,Second Greek, 13 YB ECHR, 134; 5310/71, Ireland v UK, 15 YB ECHR, 120; Ireland v UK,19 YB ECHR, 762, 768; 9940–44/82, Turkish case (admissibility), 4 HRLJ, 550; The ruleapplies however to inter-State cases referring to concrete violations, 788/60, Austria v Italy, 2 YB ECHR, 150–52, 182.68 5310/71, Ireland v UK, 15 YB ECHR, 164.69 6780/74 and 6950/75, Cyprus v Turkey, 2 DR, 137–38; 8007/77, Cyprus v Turkey, 13 DR,151; 25781/94, Cyprus v Turkey.70 8007/77, Cyprus v Turkey, 13 DR, 151.71 9940–44/82, Turkish case (admissibility), 4 HRLJ, 550.72 8007/77, Cyprus v Turkey, 13 DR, 153 (it seems to be connected with the fact of violationand not with local remedies).73 8007/77, Cyprus v Turkey, 13 DR, 154; 25781/94, Cyprus v Turkey (objection to admissi-bility IV).

according to the degree of their wrongfulness under international law. Theyare ready, in particular, to accord differential treatment to violations thedegree of wrongfulness of which is increased by their systematic and mas-sive character. This is nothing but the ability to respond to violations oferga omnes obligations and international crimes as understood in generalinternational law. The very concept of bringing an inter-State case beforethe Court essentially overlaps with the action in public interest in interna-tional law, where States act not in pursuance of their interests, but asguardian of European (or international) public order.

Certain general advantages have also to be considered. By weakeninglegal basis for possible defences advanced by a respondent, the inter-Statecomplaints procedure offers a more effective and comprehensive option todeal with violations of the Convention and enables Convention organs todeal not only with a single violation as such, but with the human rights sit-uation in a country in general as well as, to a certain extent, with structuralcauses of human rights violations. This factor is unique in the sense of pro-moting the purposes of the Council of Europe.

There is thus sufficient evidence to suggest that the inter-State complaintsprocedure can be more effectively used for the protection of rules and inter-ests associated with international (or European) public order than for indi-vidual applications. The approach that attaches predominant or exclusivevalue to one of the procedures, as it frequently takes place in favour of theindividual applications procedure, should be rejected. The individual appli-cations procedure serves the goal of protecting the individual where hisrights and interests are directly affected, while the inter-State complaintsprocedure is designed for the protection of human beings in an imperson-alised way and regardless of the existence of individual injury or interest.Both procedures possess their unique functions and their effective operationis an essential precondition for the successful working of the Conventionmachinery.

The process of enlargement of the Council of Europe is characterised bythe adoption of new member-States with less a democratic experience. Incountries with totalitarian pasts—which has substantial ramifications forthe administrative practice and operation of political system—the likeli-hood of the occurrence of massive and systematic human rights violationsis considerable. The mechanism of inter-State complaints assumes increas-ing importance in the light of these developments. It is possible to effec-tively safeguard democracy and the rule of law in the new member-States.The level of democracy in some of the new CE-members permits one toconclude that the procedure of individual applications alone is hardly likelyto bring about effective changes in this regard. The inter-State applicationsprocedure focuses upon political, legal and administrative systems of thedefendant States as such and is therefore a more effective tool for promot-ing democratic change, for intervening in the human rights situation of

254 A L E X A N D E R O R A K H E L A S H V I L I

a country ‘before it will be too late’.74 Regrettably, such an interventionmay still prove necessary within the membership of the Council of Europe.

III. FRIENDLY SETTLEMENT75

The friendly settlement option under the European Convention may con-cern either the merits of the case or the issue of just satisfaction.76 It hasgenerally been considered as an inherent part of the Convention system andcharacterised as a normal mechanism to protect human rights,77 and ide-ally it should satisfy the interests of the applicants, governments andConvention organs,78 providing more effective remedies than judicial deter-mination of the case.79 The objective nature of the Convention obligationsand the status of certain Convention rights under general international lawrequire us to examine the role and relevance of the friendly settlement inthe context of enforcement of the Convention.

Friendly settlement, as well as the discontinuance of proceedings basedon withdrawal of an application, is an institution based on the consent ofthe parties and thus an agreement under international law.80 This calls forexamination of friendly settlements in the light of the interaction betweenthe consensual agreements and legal consequences of the rights possessingthe status of jus cogens, which by their very nature exclude consent as avalidating factor of their violation. The issue of the hierarchy of normsacquires particular importance where, due to the nature of the friendly set-tlement procedure, it is likely to result, in certain circumstances, in purelydiplomatic negotiations, where parties, as well as the Convention bodies,try to achieve a settlement, taking into account considerations based onexpediency: preserving reputation, avoiding costs, saving time, reducingcaseload, escaping confrontation with governments.81 Thus, the friendly

The European Convention on Human Rights 255

74 Expression by Teitgen at the stage of preparation of the European Convention, cited inRobertson and Merrils, Human Rights in Europe, 3–4; See also Frowein, Reaction by NotDirectly Affected States on Breaches of Public International Law, Recueil des Cours 1994(IV),emphasising that inter-State litigation under the ECHR emphasises the role of States as guar-antors of the public order of Europe, 394.75 The following analysis on friendly settlement (Arts 38–39 of the Convention) applies also,unless otherwise indicated, to the discontinuance of proceedings before the Convention bodies(Art 37), due to the similar consent-based legal nature of these two institutions.76 Harris, O’Boyle and Warbrick above n 42 at 680; Robertson and Merrills above n 4 at 282.77 Kiss, A, ‘Conciliation’, in Macdonald, Matscher and Petzold above n 32 at 703.78 Harris, O’Boyle and Warbrick, above n 42 at 681.79 Jacobs and White above n 1 at 373, see also 378–79.80 Frowein and Peukert above n 43 at 626.81 The additional concern has been, in the past, the probability of difference of opinionbetween the European Convention on Human Rights and the European Court of HumanRights, Jacobs and White above n 1 at 374. With the reform of Convention machinery accord-ing to Protocol 11, this circumstance has been set aside and may, no longer operate by necessi-tating achievment of friendly settlements or discontinuance of a case.

settlement, as such, involves considerable risk that a compromise reachedwill not satisfy the requirements of the Convention.82 This is not to say thatthe friendly settlement should be banned or that no case initiated may beconcluded through friendly settlement, rather it requires one to acknowledgethat the agreement thus reached between the parties should not endangerwhat the Convention, as a public order instrument, objectively requires.83

Even if the achievement of a friendly settlement is regarded as a majortask of the Convention bodies,84 the task is obviously subordinated to theirduty to ensure that the Convention is enforced. Therefore, the Conventionmakes the respect of human rights a necessary prerequisite of friendly set-tlement (Article 28). Under the legal order of the Convention the require-ment of respect for human rights for the friendly settlement procedure hasat least two implications. Firstly, the settlement under the Convention is notvalue-neutral, but should be in accordance with the Convention. Full reali-sation of the rights protected under the Convention shall not be the subjectof compromise under the friendly settlement procedure. This follows fromthe special nature of the proceedings under the Convention (whether in thecase of inter-State or individual applications) as a public order instrument.This public order nature of the Convention obligations, as described above,requires not the achievement of an agreement between the applicant andrespondent as such, but the objective enforcement of specific human rights.Secondly, the requirement of respect for human rights underlines the specialresponsibility of Convention bodies by necessitating an expression of objec-tive stances by Convention bodies in specific cases independent of the atti-tudes of parties. The observance of human rights is a positive legal limitationplaced by the Convention on the operation of the friendly settlement proce-dure and the Convention bodies have an independent jurisdiction to judgethe extent to which this limitation has been respected. As far as the ‘effec-tive enforcement’ of rights and freedoms is concerned, the Convention bod-ies have to ascertain not only the requirements based on the Convention assuch, but also the nature, legal force and consequences of a violation ofrights under general international law.

Therefore, in certain cases a friendly settlement should be aimed not atachieving a compromise between the applicant and respondent, but atensuring compliance of the conduct of parties and thus with the compro-mise achieved with the Convention’s provisions. The agreement betweenthe parties should not replace the need for observance of international obli-gations embodying interests going far beyond the reciprocal relationship

256 A L E X A N D E R O R A K H E L A S H V I L I

82 Van Dijk and van Hoof above n 7 at 179.83 Cf Rolin, H, ‘Vers un ordre public reelement international’, in Hommage d’une generationdes Juristes au President Basdevant (1961), 462, suggesting that the agreement between theparties cannot be a sufficient factor to stop proceedings before the European Court of HumanRights.84 Jacobs and White above n 1 at 373.

between the applicant and respondent. The function of the friendly settlementshould be understood as providing an option for the respondent to redressthe breaches of the Convention without being subjected to judicial proceed-ings involving costs and publicity and not as enabling avoidence of its obligations through extra-judicial negotiations. The European Court ofHuman Rights should uphold no settlement that results in failure to enforcethe provisions of the Convention.

The substance of the friendly settlement may consist in redress of an indi-vidual breach or in measures designed to improve a human rights situationin general. From this perspective, the acceptability of a settlement, includ-ing on the basis of respect of human rights as enshrined in Article 28 of theConvention, will depend on the context of specific cases. In the case of indi-vidual applications, the measures to redress particular breaches are crucial.However generous the proposals by the respondent government withrespect to the amendment of legislation or administrative practice and non-repetition of similar acts in the future, the central issue before Conventionbodies should be the redress of that individual violation as required byinternational law and in accordance with the gravity of a violation. In inter-State cases, however, the acceptability of a settlement is subject to differentcriteria. As far as the inter-State procedure offers a broader perspective foraddressing violations, the limits on settlement may also be wider. In thiscontext, the acceptability of a settlement depends both on the redress ofviolations and respective changes in the legislation and administrative prac-tice. These criteria form part of the notion of effective enforcement of therights and freedoms and thus place limitations on the power of theConvention bodies to agree to the settlement.

For the compatibility of a settlement with the Convention, the legal andfactual circumstances should be taken into account. As far as the factualcircumstances are concerned, it is important to identify the factual basis onwhich the proposed settlement is based. In certain cases the respondent gov-ernments are in a position to refer to the concrete actions already taken forimproving the human rights situation including actions to redress thebreach of the Convention in question. Within this category falls, forinstance, the case of Alam,85 where the refused certificate of entry to theterritory of the respondent State was granted after the proceedings inStrasbourg were instituted, and supplemented by ex gratia payments. Suchsituations represent no special difficulty from the perspective of the effec-tive enforcement of the Convention. Another example would be Pfleger,86

where the European Court of Human Rights approved a settlementbetween the applicant and government concerning the alleged violation of

The European Convention on Human Rights 257

85 Alam, Khan and Singh v UK, 10 YB ECHR, 478.86 Pfleger, Judgment of 4 April 2000 (available at the website of the Court, www.court.coe.int;on file with the author).

the Convention based on the fact that judicial hearings affecting the rightsand interests of the applicants were not conducted publicly. After the Courtin Strasbourg was seised of the case, the respondent government agreed topay the applicant the sum covering both the substance of the claim andcosts of proceedings. The Court supported this settlement. But other casesnot provided effective redress but merely the respondent’s promises toadopt certain measures to the violation. The cases of this category consti-tute the most problematic area in this field.

The factual circumstances considered above are closely interrelated withthe legal ones, in particular with the effective enforcement of theConvention. For instance, in cases involving systematic and massive viola-tions, the enforcement of the Convention carries more extensive meaningthan in the case of individual breaches. In inter-State cases, addressingaspects of the human rights situation of a country, the responsibility ofConvention bodies increases respectively as far as the friendly settlement isconcerned. In this sense, the settlement must involve measures directed toeffectively improve the human rights situation. The friendly settlement inthe Turkish case, involving gross and massive breaches of numerous provi-sions of the Convention including torture on a wide scale,87 was based onthe ‘determination of the Turkish Government to secure compliance withthe rights and freedoms secured by the Convention’.88 The Turkish govern-ment undertook to report to the European Commission as to the stepstaken to improve the human rights situation in the country.89 Reportingobligations of such a kind could hardly serve any real purpose, because thecommitments undertaken by Turkey in the settlement were considerablyvague. Violations of the several Convention provisions alleged in the appli-cation were not mentioned at all in the settlement conditions.90 These condi-tions of settlement, being apparently based on a value-neutral compromisebetween the parties, cannot really be described as contributing to the effec-tive enforcement of the Convention.

It should be noted, first of all, that the Commission’s report approvingthe friendly settlement was merely the reproduction of the text of settle-ment the parties had concluded. By simply approving what the parties sug-gested, the Commission thus failed to make its own judgment on issues offact and law in terms of the compatibility of the settlement with theConvention. As regards concrete deficiencies in the effective enforcement ofhuman rights, the settlement (1) was largely though not exclusively based onpromises rather than actual measures of redress, for instance careering mar-tial law and amnesties,91 and (2) did not include measures of reparation and

258 A L E X A N D E R O R A K H E L A S H V I L I

87 Turkish case (Admissibility), 4 HRLJ, 1983, 534–36.88 Turkish case (Friendly Settlement), 6 HRLJ, 1985, 337.89 Turkish case (Friendly Settlement), 6 HRLJ, 1985, 335–36.90 Van Dijk and van Hoof above n 7 at 188; Robertson and Merrills abive n 3 1993, 284.91 Turkish case (Friendly Settlement), 6 HRLJ, 1985, 336.

rehabilitation for the victims of torture. It should also be emphasised thatthe reporting procedure under the settlement was confidential, exclusivelybilateral and did not provide for either a determination or any conse-quences should Turkey fail to comply with the terms of the settlement.92

Such a solution can hardly be considered as guaranteeing respect for theConvention in a manner equivalent to a determination by Convention bod-ies of the existence of violations and their consequences.

Despite the suggestions by certain authors,93 it would be difficult toargue that this settlement has really contributed to improving the humanrights situation in the country either generally or in the sense of the rightsinvolved in that particular case. The friendly settlement in the Turkish casein fact brought about the opposite consequences and contributed to thenon-adoption of serious measures for the prevention of torture,94 or otherhuman rights violations. The reports issued by international organisations,as well as the stream of individual complaints before the Convention bodiesagainst Turkey concerning torture, disappearances, deprivation of propertyand denial of the right to fair trial provide sufficient evidence of this fact.Even if the jurisdiction of the European Court was non-existent in thatcase,95 this could not compare with the failure of the commission to fulfilits responsibilities under Article 28.1(b) of the Convention to ensure obser-vance of human rights.96 This extends both to the substantive conditions ofthe settlement and the mechanism for supervision of it.

Similar circumstances were present in the Greece v UK case, where the‘withdrawal of the application was a matter which concerned theCommission as well as the parties and the Commission must satisfy itselfthat the termination of the proceedings was calculated to serve, not todefeat, the purposes of the Convention’, in view of responsibilities of theCommission under Article 19 ‘to ensure the observance of the engagementsundertaken by Parties in the Convention.’97 The Zurich and London agree-ments on political settlement were regarded as sufficient evidence that thoseengagements would be observed.98 It should be noted, however, that no

The European Convention on Human Rights 259

92 Turkish case (Friendly Settlement), 6 HRLJ, 1985, 335–336, see, in particular, settlementcondition A, in para 39.93 Harris, O’Boyle and Warbrick above n 42 at 602.94 Kamminga, M, ‘Is the European Convention on Human Rights Sufficiently Equipped toCope with Gross and Systematic Violations?’ (1994) 2 Netherlands Quarterly for HumanRights 158–59.95 Robertson and Merrills above n 3 at 284. It is argued sometimes that it was because of thatfriendly settlement that Turkey has subsequently accepted the compulsory jurisdiction of theCourt. But the direct and inviolable link between those two facts would be too difficult to con-sider as an absolute. Moreover, the acceptances, assurances and public commitments by therespondent governments is one thing and the real improvement of the human rights situationin a country concerned, is another. The practice shows that the former does not necessarilyresult in the latter.96 Van Dijk and van Hoof above n 7 at 188–89; Kamminga, above n 94. 97 299/57, 2 YB ECHR 178.98 Ibid, 178–79.

attempt has been made by the Commission to look for evidence (or evenfor assurances) of reparation in favour of victims of 49 cases of tortureforming the substance of the application. This factor obviously has an impact on the value of the Commission’s decision to consent to the withdrawal.

Such practice forces one to conclude that the European Commission ofHuman Rights, in adopting friendly settlements, has failed to take dueaccount of the nature and consequences of a wrongful act, which is a seri-ous failing in terms of the enforcement of the Convention and internationalpublic order. It might be argued that the Commission, in adopting the set-tlements, has been in the best position to evaluate the circumstances leadingto the adoption of the settlements; that the Commission might well have hadgood reason for considering the settlements useful for the enforcement of theConvention. Such a suggestion could hardly justify the Commission’s deci-sions. Whatever the Commission is motives and reasons, its decisions haveobjectively resulted in a failure to protect the rights and freedoms enshrinedin the Convention.

Robertson and Merrils have criticised the Commission’s practice by sug-gesting that ‘in inter-State cases, … the friendly settlement procedure should beapproached with a degree of scepticism and its value assessed accordingly’.99

It is abundantly clear that the cases of general character are normally not suit-able for friendly settlements.100 Matters forming part of the European pub-lic order are not eligible to be the object of transaction, compromise orrenunciation.101 Without prejudice to a general definition of ‘general interest’or public order for the purposes of the Convention, it could hardly be deniedthat the notion of jus cogens is suitable and forms its essential element. Withthe increase of the degree of wrongfulness—based on the increase in humansuffering—it should increasingly be borne in mind that the friendly settlementis a mechanism for the effective enforcement of the Convention rights and free-doms and not its alternative.

IV. THE JUST SATISFACTION

The issue of just satisfaction is the core issue of conclusive importance in thecontext of effective enforcement of the rights and freedoms enshrined in theConvention, because it is instrumental in making the Convention’s safeguardspractical and effective102 and therefore a crucial one for understanding the

260 A L E X A N D E R O R A K H E L A S H V I L I

99 Robertson and Merrills above n 3 at 285.100 Fribergh M, and Villiger, M, ‘The European Commission on Human Rights’, Macdonald,Matscher and Petzold above n 32 at 612.101 Sudre above n 4; Ben Yaacoub, Series A, No 127–A, 8–9.102 The necessity of application of Convention provisions in a way making effective and prac-tical its safeguards was stressed in Loizidou (Preliminary Objections), 1995, para 72; See alsoSoehring, para 87

Convention as an element of international public order. Article 41 of theConvention defines the competence of the European Court with respect tojust satisfaction as follows:

If the Court finds that there has been a violation of the Convention or theprotocols thereto, and if the internal law of the High Contracting Party con-cerned allows only partial reparation to be made, the Court shall, if neces-sary, afford just satisfaction to the injured party.

The notion of public order may impact upon the powers of the EuropeanCourt in determining (1) under which circumstances the just satisfactionshould be awarded; (2) what kinds of remedies the just satisfaction shouldcover and (3) who are the ‘injured parties’ entitled to require and/or benefitfrom just satisfaction. These issues will be examined in turn.

The Convention requires the Court to award just satisfaction only ‘ifnecessary’. The Court is thus given a certain degree of discretion in terms ofthe conditions and amount of the award.103 It should be borne in mind,however, that the Court is nevertheless bound to achieve the effectiveenforcement of rights and freedoms enshrined in the Convention at thestage of just satisfaction. This has an undeniable impact on the Court’s dis-cretionary powers.

The relevance of just satisfaction in the light of effective enforcement ofConvention rights and freedoms may only be clarified according to the legalconsequences of their violation under general international law attached tothose rights according to their legal nature. The Court has to clarify in thisregard (1) what is the place of a right in the hierarchy of international legalsystems and (2) what actions and measures the wrongdoer State has to takein order to effectively redress the wrongfulness in satisfaction of the inter-ests of victims and the international community. The community interest inawarding just reparation to victims follows from the community interest inthe observance of substantive rights and freedoms. If substantive rightsguaranteed have to be observed in the community interest, then the redressof their violation is subject of the community interest as well. Apart fromforeseeing the general possibility of awarding just satisfaction, theConvention does not specify the relevant provisions of the law concerningremedies. The Court has obviously to consider what remedies are availableunder international law and what is the impact of the gravity of a violation.

The European Convention on Human Rights 261

103 Van Dijk and van Hoof above n 7 at 249; Danneman, G Schadenersatz bei Verletzung derEuropäischen Menschenrechtskonvention (Möhr 1994) 237, considering this discretion as alimitation on entitlement to full reparation; Monsterrat Enrich Mas, ‘Right to CompensationUnder Art 50’, in Macdonald, Matscher and Petzlold above n 32 at 783; Penopää, M, inRandelzhofer, A, and Tomuschat, C (eds), State Responsibility and the Individual. Reparationin Instances of Grave Violations of Human Rights (Nijhoff 1999) 112; Pisillo-Mazzechi, R,‘International Obligations to Provide for Reparation Claims?’ in ibid at 169.

The requirement of ‘necessity’ to award just satisfaction should be interpretedand applied in the light of these considerations. The discretion of the Courtis not unlimited: just satisfaction is ‘necessary’ insofar as the nature of therights violated and gravity of a violation makes it so.

In determining the just satisfaction necessary, due regard shall be paid tothe context of a case. A remedy should be appropriate to meet requests laiddown in an application. In cases based on individual applications, remediesshould primarily cover relevant aspects of redressing injury caused to appli-cant as such, while in the inter-State cases they should cover reparation in abroader sense as undoing injury caused to the individuals as well as the leg-islation and administrative practice of a wrongdoer State.

The Convention-based criteria for the Court’s exercise of its power toaward just satisfaction should be applied similarly. No other limitation maybe presumed in this regard save those explicitly mentioned in the Convention.The presumption of the existence of inherent limitations on the Court’s pow-ers to decide on just satisfaction would hardly be compatible with the needsof the effective enforcement of substantive rights and freedoms.

The fundamental starting-point in this regard is that every violation of inter-national law is to be compensated for by way of reparation.104 Article 41 (for-merly Article 50) of the Convention may not be considered as abolishingthe duty of a wrongdoer to make reparation in any form necessary, includ-ing restitution in kind.105 To effectively enforce rights and freedoms, theCourt has in principle to resort to all forms of reparation. The Court isempowered to combine various forms of reparation as the context of a vio-lation requires. The Papamichalopoulos case106 may serve as evidence ofsuch a complex approach.

The duty to provide restitutio in integrum is a primary duty imposed byinternational law on a wrongdoer State. The role of monetary compensationhas to be determined depending on whether and to what extent restitutionis, or can be, implemented.107 In cases where just satisfaction is primarilyconceived as monetary compensation, it still serves the purposes to beachieved by restitution in kind. As the ILC’s Articles on State responsibilityconfirm, the wrongdoer State has to pay compensation ‘insofar as suchdamage is not made good by restitution’.108 Therefore, in the process ofmaking awards of monetary compensation, the Court should consider thatif restitution has not been effected, the extent of any monetary award must

262 A L E X A N D E R O R A K H E L A S H V I L I

104 Chorzhow Factory, PCIJ Series A, 1928, No 17, 2ff (47).105 Polakiewicz, J, Die Verpflichtungen der Staaten aus den Urteilen des EuropäischenGerichtshofs für Menschenrechte (Möhr 1993) 97; See also Recommendation NoR (2000) 2of the Committee of Ministers of the Council of Europe concerning re-opening cases at domes-tic level, preamble and para I. See also Charney, International Law and Multiple InternationalTribunals, Recueil des cours, 1998, Vol 271, 274–75106 Papamichalopoulos, A–330B, 56ff, in particular, 64.107 Polakiewicz above n 105 at 97–98.108 Art 36(1) of the ILC’s Articles on State responsibility, ILC Report 2001, 52.

be sufficient to compensate for any injury which might otherwise have beenmade good by restitution. In simple words, this means that compensationin this case should be greater in amount and cover, where appropriate,interest and lost profit.109

Under the Convention, just satisfaction has to be given if the domesticlaw of the respondent State allows only for partial reparation. It is submit-ted that the Court has interpreted this requirement in line with the law ofState responsibility, according to which pecuniary compensation should bepaid if and insofar restitutio in integrum is impossible. Impossibility ofrestitutio in integrum means in the language of the Convention that ‘domes-tic law allows only partial reparation’.110 In other cases, the nature of vio-lation of rights may make restitution impossible.111 In line with theChorzhow Factory case, as well as the ILC’s articles on State responsibility,the Convention suggests that monetary compensation should be paid whenrestitution in kind is due but impossible.

It is still prevailingly held that the powers of the Court to give just satis-faction is limited to awarding monetary compensation. The preparatorywork of the Committee of Experts is referred to in this regard.112 Similarly,the Court has shown reluctance to make ‘consequential orders’ to govern-ments regarding compatibility of legislative and administrative practicewith the Convention,113 despite the fact that (1) these may be a violation ofthe Convention irrespective of the nature and position under domestic lawof the organs involved in violation, including legislative, administrative andjudicial organs, and (2) reparation for a wrongful act under internationallaw may comprise monetary compensation, satisfaction for the moral dam-age and restitution, often consisting of amendments in domestic law andpractice. It is correctly emphasised that although the Convention does notexplicitly empower the Court to make restitution orders, nor does it pro-hibit it from doing that.114 Other international tribunals, such as the ICJand the Inter-American Court of Human Rights do not hesitate to awardsuch remedy if necessary.115 Moreover, in inter-State cases addressing leg-islative measures, the redress of a breach of the Convention is hardly con-ceivable without effecting amendments of the legislation in question.116

The European Convention on Human Rights 263

109 Art 36(2) and 38 of the ILC’s Articles on State responsibility, ILC Report 2001, 52–53.110 Frowein and Peukert above n 43 at 670.111 Monsterrat Enrich Mas above n 103.112 Harris, O’Boyle and Warbrick above n 42 at 683–84.113 Ibid, 684; Ireland v UK, para 187; Penopää above n 103 at 110; Pisillo-Mazzechi, above n103 at 169; Robertson and Merrills above n 3 at 311.114 Polakiewicz above n 105 at 147.115 The Inter-American Court has awarded such remedy in a number of cases, such as CastilloPetruzzi, para 221 and operative para 13, 7 International Human Rights Reports 744–46(2000); Loayza Tamayo, para 189 and operative para 9, 116 ILR, at 439, 442; Suarez Rosero,para 76 and operative paras 1 and 4, 118 ILR, at 113, 119–120. Concerning the ICJ, see thecases quoted in infra n124. 116 Polakiewicz, 165.

At the same time, the Court’s reluctance with regard to consequentialorders is not limited to the orders related to legislative amendments, butalso comprises the failure of the Court to award consequential remediesnecessitated by the situation of a specific applicant. In Selmouni, theEuropean Court condemned the respondent State for the extremely seriousbreaches of the prohibition of torture embodied in Article 3 of theEuropean Convention and imposed an award compensation, but refused toorder the transfer of the victim to the country of its nationality and exemp-tion of the awarded compensation from attachment.117 The Court reiter-ated that the European Convention ‘does not give it jurisdiction to makesuch an order against a Contracting State.’118 Thus, despite the award of asubstantial amount of compensation, the European Court seems to havefailed in several ways to perform its task to ensure the observance of theEuropean Convention, as imposed by Article 19 of the European Convention.By leaving the victim in the hands of the respondent, the Court left unclearthe fate of the detained person tortured in a serious violation of theConvention. Moreover, by refusing to exempt the compensation fromattachment, the Court in fact afforded discretion to the respondent State indeciding whether or not to comply with the judgment. It is thus question-able whether the declaration of serious breaches of the Convention and theconsequent award of substantial compensation could serve any real purpose if the respondent State is allowed to take certain steps that wouldnullify its obligations under the judgment of the European Court. It seemsto be perfectly clear that by failing to assume certain inherent remedialpowers, the European Court failed to impose, through its judgment, theeffective obligations on the respondent, which ultimately represents a failureto perform the mandate imposed under Article 19 of the EuropeanConvention. This failure is even more serious if it is remembered that thecase—unlike the precedents referred to by the Court119—involved a seriousbreach of a non-derogable Convention right120 that is also safeguarded bya peremptory norm of general international law. Even if it is assumed thatthose earlier cases embody the correct approach—for which there seems tobe no warrant—they are nevertheless different from Selmouni both in thenature of a violated Convention provision and the gravity of a breach itself.

Just satisfaction involves compensation for pecuniary and non-pecuniaryloss. The non-pecuniary or moral injury is most importantly associated withthe violations involving deprivation of life, personal liberty and infringementon personal dignity. An appropriate remedy under international law for such

264 A L E X A N D E R O R A K H E L A S H V I L I

117 Selmouni v France 1999 ECHR (25803/94), para 133.118 Ibid, para 126.119The Court referred to Philis v Greece, Decision of 27 August 1991, ECHR (Ser A 209), at 27;Allenet de Ribemont v France, Decision of 7 August 1996, paras 63–65.120 See, generally, Art 15 of the European Convention.

injury is satisfaction121 as understood by the International Law Commissionin its articles on State Responsibility.

In a considerable number of cases involving non-pecuniary loss or moraldamage, the Court confines its ruling to holding that the finding of a breachin itself is an appropriate satisfaction (declaratory judgments),122 using thisoption to justify its failure to award compensation.123 General interna-tional law is not unfamiliar with this practice. The International Court ofJustice,124 as well as arbitration tribunals,125 have had recourse to such aremedy. The European Court, unlike the ICJ, generally offers no explana-tion why a declaratory judgement should be regarded as appropriate justsatisfaction and this leaves the reasonableness of the Court’s findings opento question.126

However, without prejudicing the value of this remedy as such, it shouldbe noted that this option, for the purposes of effective enforcement of rightsand freedoms enshrined in the Convention, should be treated with cautionand care. Generally, this option seems to be justified only in cases whererestitution in kind and other remedies are possible and likely to be imple-mented under the wrongdoer’s domestic law.127 Even if the wrongdoerState decides to abolish the law which conflicts with the Convention, it willnot be a sufficient remedy to state that the finding of a breach constitutesjust satisfaction. For the remedies to be effective and appropriate, theyshould be appropriate to compensate for the injuries already caused.128

Such remedies cannot effectively protect the rights of individual applicants,because they contain nothing that would undo the harm caused to an indi-vidual applicant. In case of massive and systematic breaches, on the otherhand, such a finding would be completely inappropriate for remedying theviolations of the rights of injured persons and guaranteeing the effective

The European Convention on Human Rights 265

121 As distinguished from the word ‘satisfaction’ used in the Convention. Satisfaction as understood by the ILC is related to immaterial or moral injury only and covers both materialand immaterial remedies in this regard; Art 37 of the ILC’s Articles, ILC Reports 2001, 52.122 Krusilin case (para 39) and Aquilina case (para 59) for example; See also Robertson andMerrils, Human Rights in Europe, 1993, 313–314.123 Kamminga, M, Legal Consequence of an Internationally Wrongful Act of a State against anIndividual, Bakhuysen et al (eds), Execution of Strasbourg and Geneva Human RightsDecisions in National Legal Orders, 67, 72; Penopää above n 103 at 118; Dannemann aboven 103 at 365.124Corfu Channel case, ICJ Reports, 1948, 35, referring to the respective submission by Albania.In two recent cases the ICJ did not stop at pronouncing the illegality of the respondent’s conduct,but ordered further remedies such as restitution and guarantees of non-repetition. See LaGrand,General List No 104 (27 June 2001); and Arrest Warrant, General List No 124 (12 February2002).125 Rainbow Warrior case, XX RIAA, 275, also having awarded decent compensation.126 Dannemann above n 103 at 368.127 This circumstance obviously is one of the determining factors in the calculation of compen-sation when the Court decides to award it, van Dijk and van Hoof above n 7 at 251. This mayjustify our above assumption by analogy.128 Van Dijk and van Hoof above n 7 at 252.

enforcement of the Convention. Massive and systematic breaches requireimposition of a complex of reparations combining various forms.

It is held that the Court is generally reluctant to grant exemplary or puni-tive damages,129 although in a number of cases a clear distinction betweenthe damages for pecuniary loss and the damages for non-pecuniary loss hasbeen made. The Court has often awarded pecuniary compensation on ascale greates than the material damage suffered by the applicant.130 It is notquite clear what threshold compensation for non-pecuniary damages mustcross in order to be viewed as ‘punitive’. It is true that the Court has on sev-eral occasions rejected claims for exemplary or punitive damages, but it isnot entirely clear that it has done so because of lack of competence. As theCourt’s judgments usually offen no explanation on this issue, it may bethought that the Court’s reluctance in this respect is based not on the lackof competence, but merely on the Court’s holding that an award of punitiveor exemplary damages is not appropriate in the circumstances of a case.131

Material compensation for non-pecuniary damage may be imposed incase of grave breaches of the Convention. Even if precedents were lacking,the task of the effective protection of human rights may empower the Courtto award damages of an amount which will be punitive and exemplaryrather than purely compensatory.132 Under international law, moral injurymay legalise payment of damages which reflect the gravity of the infringe-ment by the wrongdoer State.133 As far as full redress for moral damage ispart of the effective enforcement of human rights enshrined in theConvention, the failure of the Court in certain cases to award exemplarydamages is hard to understand.

In cases of non-pecuniary or moral damage, these may be an issuewhether the Court has the power to order criminal prosecution of individ-ual perpetrators. It is assumed that the drafters of the Convention have notconferred such a power on the Court.134 But other tribunals do not hesitateto make such pronouncements.135 It might be argued that the EuropeanCourt possesses an inherent jurisdiction in this regard. Under internationallaw the jurisdiction to consider the case involves the jurisdiction to decide

266 A L E X A N D E R O R A K H E L A S H V I L I

129 Harris, O’Boyle and Warbrick above n 42 at 687.130 Aydin, 23178/94, paras 127–130; Aksoy, 21987/93, para 113.131 Selçuk and Asker, 23184/94, 23185/94, paras 116, 119; Tekin, 22496/93, paras 75, 78.132 Frowein and Peukert above n 43 at 672–73.133 ILC Draft on State Responsibility, Art 45.2(c), adopted by the first reading, ILC Report1996. This provision disappeared from the draft adopted by the second reading, A/CN 4/L/602/Rev.1. However, the ILC emphasised that satisfaction may comprise remediesother than those mentioned in the draft articles, including monetary payments (commentary toArts 36–37, ILC Report 2001, 244–68). On the other hand, whatever the ILC’s approach, theEuropean Court is unlikely to abandon its established approach of awarding monetary com-pensation for non-material injury.134 Kamminga, Legal Consequences, Bakhuysen above n 123.135 See the practice of the Inter-American Court, Velasquez-Rodriguez (Compensation), 95 ILR, p 315, and Loayza Tamayo, 116 ILR, p 435.

on remedies,136 and it might be suggested that the power of the Courtunder Article 41 of the Convention is a specific power rather than a generaland exclusive one and coexists with the general power of the Court todecide on reparations. The Court has therefore an inherent jurisdiction toorder criminal prosecutions of specific persons if the need for effectiveenforcement of the Convention makes such a remedy necessary. In caseswhere massive and systematic human rights violations are addressed by theCourt, the context of the violations necessitates satisfaction in the form ofthe punishment of persons who have committed those violations. Withoutsuch a remedy no enforcement may be effective.

It might be said that the Court does not have at its disposal any means toensure that its determination as to individual criminal responsibility will becomplied with by the respondent States. On the other hand, the Court isobliged under the Convention to indicate all necessary and relevant steps tobe taken by the wrongdoer for undoing the violations committed by it. Thisseems to be an inevitable element of the Court’s responsibility to ensurecompliance with the Convention. The uncertainty about further steps to betaken by States shall not prevent it from discharging this responsibility.Moreover, it is well established that decisions of international tribunalsshall not be influenced by considerations as to the compliance with thesedecisions by States.137

Guarantees against repetition offer a remedy accepted under interna-tional law as well as by the human rights organisations, such as the UNHuman Rights Committee.138 This remedy under the Convention systemmay cover the publication of the Court’s judgments; the instructions to rel-evant administrative bodies and officials to respect the judgment in a givencase and in the future similar cases, including the amendment of adminis-trative regulations; the other measures including structural reforms inadministrative and judicial systems.139 Although and reporting and super-vision to ensure non-repetition is important in the sense of the collectiveenforcement of Convention rights and freedoms, it should be submittedthat due to its judicial nature, the European Court of Human Rights is notan appropriate body to deal with implementation of guarantees of non-repetition. This seems to be the function of the Committee of Ministers.The judicial powers of the Court concern only (1) the determination in theoperative paragraphs of the judgment that the wrongdoer State is bound toreport to and submit to the supervision by the Committee of Ministers and

The European Convention on Human Rights 267

136 Chorzhow Factory, PCIJ Series A, 1928, No 17, 23; Corfu Channel, ICJ Reports, 1948,26; Nicaragua, Merits, ICJ Reports, 1986, 142.137 Haya de la Torre, ICJ Reports, 1951, 79.138 Kamminga above n 123 at 73; See also the decision of the UN Human Rights Committeeon communications No 623–24 and 626–627/1995, Domukhovski et al v Georgia, para 20,internet version: www.unhchr.ch (on file with the author).139 Polakiewicz above n 105 at 150–152.

(2) the indirect supervision of non-repetition by way of consideration infuture of the applications submitted on the basis of similar violationsincluding the imposition of reparations commensurate to the degree of theaggravated wrong. In our view, if the Court finds that the State-Party hascommitted a violation of the Convention of systematic or massive charac-ter, it has the inherent competence to order the wrongdoer to submit to thesupervision by the applicant State(s) and/or the Committee of Ministers.

The conclusion on remedial competence of the Court under Article 41 isthat it possesses comprehensive powers in the sense of deciding on variousforms of reparations. Failure of the Court to award certain remedies seemsto be based not on deficiencies in the Court’s powers, but on its own judi-cial restraint. Under certain circumstances, this may be of a doubtful valuefor the effective preservation of the substantive rights and freedoms and,respectively, the Court’s role under Article 19 of the Convention.

The notion of an injured party under the Convention should be inter-preted in a way that does not encroach on the nature of the obligationsinvolved. As far as rights enshrined in the Convention protect the interestsof the international community as a whole, every State-Party may be con-sidered as injured in consequence of their violation. Therefore, the questionarises whether in the inter-State proceedings the applicant State may beregarded as an injured party. This issue has been the subject of debateswithin the ILC and the consequence is the recognition of the fact that theso-called ‘indirectly affected States’ are entitled to require reparation from awrongdoer State. The ILC’s provision on injured States provides for theright of the indirectly injured States to require reparation in the interest ofperformance of the obligations of an objective nature.140 The Conventioncontains no specific restriction in this regard. Therefore, the applicantStates may ask the Court to pronounce on restitution in kind, compensa-tion, satisfaction and guarantees of non-repetition in accordance with thenature and gravity of a given breach.

The right to demand remedies should not be confused with right to ben-efit from a remedy. When a State sues another State for the preservation ofinterests of the international community, it attempts not to obtain a directmaterial benefit, but to ensure that the victims of a given violation are com-pensated and satisfied according to the gravity of a breach. In inter-Statecases, an applicant State appears merely as a representative of the directlyaffected human beings and this factor is also decisive for the proper calcula-tion of damages.141 An applicant State does not benefit either from the amendment of domestic legislation of the wrongdoer, nor from the payment of pecuniary compensation and exemplary damages to victims,

268 A L E X A N D E R O R A K H E L A S H V I L I

140 Art 48, ILC’s Articles State responsibility, ILC Report 2001, 56.141 Frowein and Peukert above n 43 669; See also Monsterrat Erich Mas, ‘Right toCompensation Under Art 50’, in Macdonald, Matscher and Petzold above n 32 at 776–77.

nor from the assurances and guarantees of non-repetition undertaken bythe respondent. The guarantees against repetition in particular may includethe reports to and the monitoring by States or collectivities of States andthey may indeed acquire the reciprocal rights against the wrongdoer in thisregard. But in realising those rights they act exclusively in the interest of thevictims and the international community as a whole.

V. CONCLUSIONS

It was suggested earlier in this paper that the restrictive approach ofGolsong concerning the interpretation and application of the EuropeanConvention does not correspond to the nature of the Convention obliga-tions. The Convention bodies have, at a conceptual level, dismissed the rel-evance of Golsong’s arguments.

But as far as the practical aspects of the implementation of this approachis concerned, the situation seems to be different enough from the generalconceptual approach adopted by the Convention bodies. Apart from thecases of the severance of certain incompatible reservations, the Conventionbodies have fairly followed the approach developed by Golsong.Regrettably, the Convention bodies seem to have followed the interpreta-tion criteria based on the difference between the substantive rightsenshrined in the Convention and the institutional provisions governing thepowers of the Convention bodies. In the case of the former, some dynamicapproach has indeed taken place. In the later case, this is still expected.

It is beyond doubt that the European Convention is not a treaty operat-ing in a legal vacuum, but is governed by general international law andinfluenced by developments in that legal system including its public orderelements. Two main conclusions following from our analysis may be sum-marised as follows: (1) effective enforcement of a legal instrument embody-ing elements of public order is possible only by way of substantive andenforcement potential accumulated within the international legal system asa whole; (2) this task requires approaching the problems by way of judicialactivism by having due regard not only to text of the Convention but alsoto its object and purpose. The performance of such a task requires adoptionof specific judicial policy consisting of the independent assessment, inter-pretation and application of substantive provisions of the Convention, aswell as of the powers of the Convention bodies, when the text of theConvention does not contain a direct answer in this regard.

Such a policy is understood to be the policy exercised on the basis of and within the law and not in disregard of the relevant legal principles.142

The European Convention on Human Rights 269

142 For the description of such a role of judicial policy in the EC law see Hartley, T, Foundationsof European Community Law 4th edn (Oxford UP 1998), 78ff; with respect to the ICJ see theSeparate Opinion of Judge Lauterpacht in Bosnian Genocide [1993] ICJ Reports 408.

Our submissions concerning the interpretation and application of theEuropean Convention on Human Rights are neither concerned with reformof the Convention machinery nor do they suggest that extra-legal consider-ations should be taken into account in the process of consideration of issuesfocused upon in this paper. These submissions are simply an attempt toreflect and reappraise the actual content of certain provisions of theConvention in terms of the need for the effective enforcement of substantiverights and freedoms.

270 A L E X A N D E R O R A K H E L A S H V I L I

13

Public Services and European Law:Looking for Boundaries

ELEANOR SPAVENTA*

I. INTRODUCTION

ALL MEMBER STATES must, as a matter of Community law, provide for a qualified right to go to another Member State toreceive treatment at the expense of the competent social security

system. According to Article 22 of Regulation 1408/71 such a right is conditional upon prior authorisation by the competent institution.1

Authorisation cannot be refused when the treatment is amongst the benefitsprovided for by the State where the individual resides and the treatmentcannot be provided within the time ‘normally necessary’ for obtaining thetreatment in the State of residence. The Court however has found thatArticle 49 EC imposes upon Member States obligations that go beyondthose contained in the Regulation: thus a prior authorisation requirementconstitutes a justified barrier (subject to important qualifications) in thecase of hospital treatment and a non-justified barrier in the case of non-hospital treatment. The effects of this interpretation are far-reaching: notonly do Member States see their obligations under Community law rede-fined in a way which might have a significant financial impact on theirsocial security systems; but also the reasoning of the Court could be appliedto other branches of the public sector, such as education.

This contribution challenges the assumption that the free movement ofservices provisions can be properly applied to cases in which an individual is

* Norton Rose European Law lecturer at the Faculty of Law, and Fellow of New Hall College,Cambridge. I am grateful to Michael Dougan for the invaluable discussions we had over theserather contentious issues. The usual disclaimer applies. 1 Regulation 1408/71 on the application of social security schemes to employed persons, toself-employed persons and to members of their families moving within the Community, asamended. Consolidated version OJ 1997 L28/1, and http://www.europa.eu.int/eur-lex/en/con-sleg/pdf/1971/en_1971R1408_do_001.pdf. Hereinafter Regulation 1408/71.

seeking reimbursement for treatment received abroad. In order to overcomethe textual limitation imposed by the Treaty (ie the remuneration clausecontained in Article 50 EC) the Court has focused on the relationshipoccurring between the patient and the foreign health provider. The patientpays for treatment abroad, the reasoning goes, and thus the relationshipcan be qualified as a provision of services for remuneration. The presenceof such an economic link is enough, in the eyes of the Court, to triggerArticle 49 EC with all the consequences that this implies. However, it issubmitted, the Court should also have (if not only) considered the relation-ship between the claimants and the competent social security institution,since it is in this relationship that the right to reimbursement finds its basis.If such a relationship is not defined as an ‘economic’ relationship, thenArticle 49 EC cannot be used to challenge the substantive conditionsimposed by national law on the right to reimbursement. In other words, itis for national law alone to determine when a right to be treated in an insti-tution which is not part of the public system arises. Only once this right isrecognised, should Article 49 EC become relevant by imposing upon theMember States a duty not to discriminate between (private) domesticproviders and foreign providers (whether private or public acting in a semi-private capacity).

We will start by outlining the ‘traditional’ approach given to the remu-neration requirement, and then consider those cases in which the boundarybetween publicly funded services and commercial services has been indi-rectly eroded. We will then consider the recent case law, its consequencesand its hermeneutic shortcomings.

II. SERVICES, DISCRIMINATION AND THE PUBLIC PURSE

The provisions on freedom to provide services protect not only serviceproviders who wish to provide their services in another country, but alsoservice recipients wishing to go abroad to receive a service. Thus theMember State of origin cannot erect barriers to the recipients’ ability to goto another country and there receive a service.2 Further, the Member Stateof destination cannot apply discriminatory rules to foreign recipients.

The fact that service recipients are covered by Article 49 EC raisesimportant issues as to which services should be covered by that provision:would a tourist be able to rely on Article 49 EC as a service recipient in orderto claim equal treatment in relation to public services (eg general education,health care)? The wording of the Treaty suggests that ‘non-economic’ entitiesand relationships are, at least to a certain extent, excluded from the scope

272 E L E A N O R S PAV E N TA

2 Case 286/82 Luisi and Carbone v Ministero del Tesoro [1984] ECR 377.

of application of the free movement provisions. Thus Article 48 ECexcludes non-profit making companies from the scope of application of theprovisions relating to establishment, and Article 50 EC defines as services,those ‘normally provided for remuneration’. It is clear that the remunera-tion clause was intended to exclude public services form the scope of appli-cation of the free movement provisions, which were intended to regulateonly economic and commercial activities.3

The concept of remuneration has been given a purposive interpretation:thus the Court found that remuneration does not necessarily need to bemonetary, but can also be in the form of a quid pro quo.4 And that in orderfor a service to fall within the scope of application of the Treaty the servicedoes not need to be paid for by the recipient:5 as long as the service is eco-nomic (commercial) in nature Article 49 EC applies.6 However services of anon-economic nature, such as those provided directly by the State free ofcharge, or for a charge which does not reflect the cost of the service, hadbeen traditionally excluded from the scope of application of Article 49 EC:in these cases the services are not provided for ‘remuneration’, defined as‘consideration for the service in question’. In excluding general educationfrom the scope of application of Article 49 EC, the Court relied on twomain considerations: first of all, the State in providing education was notengaging in a gainful activity but was rather ‘fulfilling its duties towards itsown population in the social, cultural and educational sphere’; secondly theservice was primarily funded by the public purse, rather than by the service-recipients.7 However, it should be noted, that in other cases the nature of the funding proved not to be determinant in assessing whether the non-discrimination obligation applied. The Court has found that European citi-zens have, in some instances, a right to equal treatment even in cases inwhich the benefit claimed is entirely paid for by the public purse. Thesecases did not amend the definition of ‘service provided for remuneration’:however they made clear that the public nature of the funding was not initself enough to shelter the benefit from the scope of application of theTreaty free movement of services provisions.8

Public Services and European Law 273

3 The Court made clear in case 36/74 Donà v Mantero [1976] ECR 1333, para 12 that thepractice of sport is subject to Community law only insofar as it constitutes an ‘economic’activity. 4 Case 196/86 Steymann v Staatssecretaris van Justitie [1988] ECR 2085.5 Case 352/ 85 Bond van Adverteenders and others v The Netherlands [1988] ECR 2085,para 16.6 Cf case 36/74 Donà v Montero above n 3, para 12: and AG Slynn’s opinion in 293/83Gravier v City of Liège [1985] ECR 379, esp 603; and in case 263/86 Belgium v Humbel[1988] ECR 5365, esp 5379.7 Case 263/86 Belgium v Humbel above n 6, para 18 and 19. See also case C–102/92 Wirth vLandeshauptstadt Hannover [1993] ECR I–6447. The lack of remuneration was instrumentalin avoiding the difficult questions on the Irish limitation of information concerning abortionin case C–159/90 SPUC v Grogan [1991] ECR I–4685. 8 Of course social advantages have always been available to workers and established persons.

In this respect, we can distinguish two different type of cases: thosewhere the Court establishes a connection between the economic servicesought and the publicly funded benefit, and Cowan, a rather anomalouscase. As for the former, in the museum admissions case the Commissionbrought proceedings against Spain for maintaining discriminatory museumadmission conditions. The Commission did not attempt to challenge thedefinition of remuneration by arguing that publicly funded museums wereto be considered as services within Community law. Rather it argued that therewas a link between the reception of services as tourists and museum admissionconditions: the discriminatory condition could then be construed as an indirect barrier affecting tourists’ right to free movement. The Court acceptedthe Commission’s reasoning and found that since there is a link between the reception of services as tourists and museum admission conditions,9 thenon-discrimination obligation applied to those advantages.10

On the other hand in Cowan, the Court seemed to sever the connectionbetween the reception of services and a scheme entirely financed throughthe public purse.11 In Cowan a British tourist claimed a right to equal treat-ment in relation to a crime compensation scheme. The scheme was reservedto residents, nationals and nationals of those States which had a reciprocityagreement with France. The French Government relied, inter alia, on thefact that the scheme was paid for by the public purse to support its claimthat it did not fall within the scope of the Treaty.

The Court found that, notwithstanding the publicly funded nature of thescheme, France could not exclude Community nationals from it. TheCourt’s reasoning, synthetic as it might be, seems to substantially followAdvocate General Lenz’s opinion. The Advocate General found that thecrime compensation scheme was an aspect of the State’s duty to ensuresafety and order in its territory. In establishing a compensation scheme forvictims of crime the State was acknowledging its own failure to ensure theindividual’s safety. Since the State bears this duty towards residents and vis-itors alike, it could not exclude tourists from the compensation scheme. Inthe words of the Court, protection from ‘harm’ is a corollary of the free-dom to move, and for this reason a tourist is entitled to protection from therisk of assault (and compensation when that risk materialises) on equalterms with nationals, regardless of how the scheme is funded.

These cases highlight that the fact that a benefit is funded by the publicpurse is not enough in itself for it to be excluded from the reach of Article 49

274 E L E A N O R S PAV E N TA

9 Case C–45/93 Commission v Spain (‘Museum admission’) [1994] ECR I–911; see morerecently case C–388/01 Commission v Italy (‘Italian museums’), judgment of 16/01/03, nyr.10 The reasoning of the Court in this case mirrors, to a certain extent, existing case law on ben-efits indirectly related to the provision of services according to which the non-discriminationobligation applies to anything connected, even indirectly, to the ability to pursue the economicactivity; see eg case 63/86 Commission v Italy (‘Social Housing’) [1988] ECR I–29. In the fieldof establishment see Case 197/84 P Steinhauser v City of Biarritz [1985] ECR 1819.11 Case 186/87 Cowan v Trésor Public [1989] ECR 195.

and/or 12 EC. However, public services which are an expression of socialsolidarity were excluded from the scope of the Treaty: expressions of soli-darity are by definition not ‘economic’.12 Thus, before the developmentsoccurred in the late nineties, we can distinguish two trends: one is the willto exclude ‘public services’ from the scope of the Treaty; the second is toextend the scope of application of the Treaty to those benefits, regardless ofthe way they are funded, which are even remotely connected to the recep-tion of an economic service.

III. TOWARDS THE ERADICATION OF THE DISTINCTIONBETWEEN PUBLIC AND PRIVATE SERVICES:

THE CASE OF HEALTH SERVICES

Although until the late nineties the Court accepted that ‘public services’were not to be considered as falling within Article 49 EC, new develop-ments in the case law suggest that the distinction between services providedfor remuneration and those which are not so considered might have comeof age. In a series of cases concerning health care, the Court expanded thescope of Article 49 EC so as to encompass national rules imposing limita-tions and conditions on patients’ ability to gain reimbursement for treat-ment sought in another Member State.13 Such limitations and conditionsact, in the Court’s opinion, as a barrier to the free reception of services andconsequently have to be justified according to the principle of necessity andproportionality. We shall analyse these developments in detail, and thenexam the legal consequences of the Court’s new approach.

A. The Ruling in Kohll

In the cases which we are about to analyse, the national rules under attack fully complied with the provisions of Regulation 1408/71; this

Public Services and European Law 275

12 This reasoning applies also in other fields of Community law: see in relation to the applica-bility of Art 81 and 82 EC Joined Cases C–159 and 160/91 Poucet v Assurances Generales deFrance (AGF) and Caisse Mutuelle Regionale du Languedoc-Roussillon and Pistre v CaisseAutonome Nationale de Compensation de l’Assurance Vieillesse des Artisans [1993] ECRI–637, and more recently case C–218/00 Cisal di Battistello Venanzio & C Sas v IstitutoNazionale per l’assicurazione contro gli infortuni sul lavoro (INAIL) [2002] ECR 691; andAG Jacobs’ Opinion in Joined Cases C–264/01, C–306/01, C–354/01 and C–355/01 AOKBundesverband and others v Ichthyol-Gesellschaft Cordes and others, delivered 22/5/03, casestill pending. In relation to Art 43, case C–70/95 Sodemare Sa and others v RegioneLombardia [1997] ECR I–3395. 13 Case C–158/96 Kohll v Union des Caisses de Maladie [1998] ECR I–1931; Case C–368/98Abdon Vanbreakel and others v Alliance nationale des mutualités chrétiennes [2001] ECRI–5363; Case C–157/99 B S M Garaets-Smits v Stichting Ziekenfonds VGZ and Peerbooms vStichting CZ Groep Zorgverzekeringen [2001] ECR I–5–473; Case C–385/99 Müller FaurévOnderlinge Waarborgmaatschappij OZ Zorgverzekeringen UA, and van Riet v OnderlingeWaarborgmaatschappi ZAO Zorgverzekeringen, judgment of 13/05/03, nyr.

notwithstanding, the claimants argued that they fell foul of Article 49 EC.The authorisation requirement, it was argued, constitutes a barrier to thepatients’ ability to receive services abroad since it makes the reception ofservices abroad more difficult than the reception of services within the terri-tory of the State of residence. In Kohll,14 the Court held that orthodontictreatment provided for remuneration outside a hospital infrastructure wasto be considered a service falling within the scope of Article 49 EC, and con-sequently found that the authorisation requirement for reimbursement fortreatment received abroad was a barrier to the freedom to receive services.15

The fact that the health system in that case provided for reimbursement at apre-fixed rate rather than treatment in kind, together with the Court’s quali-fication that the treatment had been provided outside any hospital infra-structure, left it unclear whether the Court’s reasoning would also affecthealth systems which provide for benefits in kind (ie which provide for treat-ment rather than reimbursement) or whether the ruling was of a more lim-ited application. With the insight of subsequent cases, however, it is clearthat Kohll signals the first step towards exposing public health systems, inwhatever way organised, to the Treaty rules on free movement of services.

B. The Rulings in Peerbooms and Müller Fauré

We said above that the Court had previously excluded general educationfrom the scope of the Treaty because such a service was not provided forremuneration, rather being an expression of the State’s responsibilitiestowards its citizens. In Peerbooms and Müller Fauré the Court significantlyamends its interpretation, showing its willingness to bring, at least to a cer-tain extent, publicly provided health care within the scope of Article 49 EC.

In Peerbooms,16 the authorisation requirement provided under Dutch lawwas attacked by two patients who, having obtained treatment in hospitals

276 E L E A N O R S PAV E N TA

14Case C–158/96 Kohll v Union des Caisses de Maladie above n 13, noted by Giesen, R 36 (1999)Common Market Law Review 841; Cabral, P ‘Cross-Border Medical Care in Europe: BringingDown a First Wall’ 24 (1999) European Law Review 387; Van der Mei, AP ‘Cross-border accessto medical care in the European Union—some reflections on the judgments in Decker and Kohll’5 (1998) Masstricht Journal of European and Comparative Law 277; Fuchs, M ‘Free Movementof Services and Social Services: Quo Vadis?’ 8 (2002) European Law Journal 536.15 The Court stressed that what was at issue was not the application of Art 22 of Regulation1408/71 above n 1, since Mr Kohll was not claiming full reimbursement of the expenses heactually incurred abroad (as he would have been entitled were the Regulation applicable) butrather reimbursement of the sum he would have been entitled to had his daughter receivedtreatment in Luxembourg. 16Case C–157/99 Garaets-Smits and Peerbooms above n 13, noted Steyger, E ‘National HealthCare Systems Under Fire (but not too heavily)’ 29 (1999) LIEI 97; Van der Mei, AP ‘Cross-borderaccess to medical care in the European Union—some reflections on Garaets-Smits and Peerboomsand Vanbraekel’ 9 (2002) MJ 189; and extensively analysed by Davies, G ‘Welfare as a Service’ 29(2002) Legal Issues of European Integration 27 and Hatzopoulos, V ‘Killing the National HealthSystems but Healing the Patients? The European market for health care after the judgement of theECJ in Vanbraekel and Peerbooms’ 39 (2002) Common Market Law Review 683.

abroad, were denied reimbursement for the expenses they had incurred.The Dutch health care system is based on providing treatment in kind.Eligible individuals are associated with a sickness fund which enters intoagreements with health care providers established in the area where itoperates (contracted institutions). Individuals are then entitled to receivetreatment free of charge from one of the providers which have stipulatedan agreement with their sickness fund. The fund, where necessary, canauthorise an insured person to seek treatment in another institution,within or outside the Netherlands, with which the fund has no agreement.The authorisation is granted in cases in which treatment is considered‘normal in the professional circles’ and is necessary, ie not available in acontracted institution without undue delay. It was accepted, for the pur-pose of the case, that the system was not discriminatory, in that, if it werenecessary to have recourse to an external provider (ie one with which thefund did not have an agreement) the choice would be made withoutregard to whether the provider was established in the Netherlands or elsewhere.

The first issue for analysis was whether the services in question couldbe considered as provided for remuneration so as to fall within the scopeof application of the Treaty. The Advocate General and the Court disagreed: Advocate General Dámaso Ruiz-Jarabo Colomer consideredthat the question was not whether the foreign institutions provided treat-ment for remuneration, since the applicants in the main proceedings werenot complaining about the behaviour of these institutions. Rather whatwas relevant was whether the relationship which linked the patients totheir sickness funds was to be so considered. The Advocate General foundthat the relationship between the insured, the sickness funds and the careproviders could not be qualified as a provision of services for remunera-tion. This was because, even though the service was not paid for by thebeneficiary, the funds paid fixed sums rather than reimburse the healthcare provider for the expenses incurred from time to time. Thus, the distinguishing factor in respect of Kohll was that in that case the insur-ance provided reimbursement of medical expenses rather than benefits inkind.

The Court considered both the relationship between the patients and theforeign institutions; and between the patients and their sickness funds. Asfor the former, since the patients would have to pay for the treatmentreceived abroad, they received a service provided for remuneration. As forthe latter, the Court dismissed the argument that the relationship patients/sickness-funds/hospitals was not one of service provision. The service waspaid for by the sickness fund and indeed the hospitals providing the serviceswere exercising an economic activity: the fact that payment to the hospitalsoccurred through flat rates and that the beneficiaries were not paying, had no bearing on the definition of what is to be considered a service for

Public Services and European Law 277

remuneration. In Müller Fauré,17 the Court went further, merely focusing onthe fact that the treatment received abroad had been paid for by the patient.Thus, such treatment had been provided for remuneration and fell withinthe scope of Article 49 EC. There is no mention in this ruling of the rela-tionship between the patient and the sickness fund, nor of the relationshipbetween sickness funds and heath care providers. The ruling seems thus toapply also to national health systems (usually financed through general tax-ation) which directly, and without the medium of sickness funds, providefor health care.

Having found in both cases that the situation fell within the scope ofapplication of Article 49, the Court not surprisingly held that the authori-sation requirement constitutes a barrier to the freedom to receive (and pro-vide) services: it then turned to the issue of justification.

1. Prior Authorisation as a Barrier: Imposing Substantive Requirements

In Peerbooms, the Court found that in the case of medical services providedin hospitals authorisation is ‘both necessary and reasonable’. Medical serv-ices provided in a hospital take place in an infrastructure which requiresplanning. This notwithstanding, the conditions imposed in order to obtainthe authorisation must be justified by the imperative requirements invoked(ie must be necessary) and must satisfy the requirement of proportionality.The Court then ventured in a substantive assessment of the conditionsimposed by the Dutch legislation, stressing, at the same time, that it is forthe Member States to determine which benefits are provided for under thenational social security system.

In Müller Fauré, the Court elaborated on the Peerbooms ruling. First ofall, it clarified that there is a distinction between medical services providedfor in a hospital, and non-hospital medical services (ie those provided by aspecialist). In the case of the former, the Court substantially upheld its rea-soning in Peerbooms. However, in its assessment of the compatibility of theconditions according to which authorisation is granted it added an impor-tant proviso. In Müller Fauré one of the arguments of contention related towhat is to be considered as ‘undue delay’ which, according to nationalrules, would be grounds for authorisation of treatment abroad. The Courtmade clear that the existence of waiting lists alone could not justify a refusalof prior authorisation, since in such case the refusal would be based onpurely economic reasons, which cannot justify limitations on one of thefreedoms granted by the Treaty.

As for non-hospital treatments, the Court found that the requirement ofprior authorisation could not be justified since the lack of prior authorisationhad not been demonstrated to ‘seriously undermine the financial balance’ of

278 E L E A N O R S PAV E N TA

17 Case C–385/99 Müller Fauré and van Riet, above n 13.

the social security system—even though the Court recognised that theremoval of such authorisation ‘adversely affects the ways in which healthcare expenditure may be controlled’ in the competent State. Further, theprior authorisation requirement cannot be justified even in those cases, suchas the Dutch one, in which the sickness fund entered into agreements withprofessionals and paid fixed amounts rather than for the cost of each visit.The patient seeking treatment abroad is thus entitled to reimbursement,albeit only at the tariffs provided for domestic treatment (rather than for allexpenses incurred as would be the case under the Regulation). In the case inwhich Member States did not have such tariff schemes in place, they wouldhave to establish them.

2. A First Assessment of the Court’s Ruling

These rulings signal a revolution: in Peerbooms the Court found that theexistence of economic elements in the relationship between funds and con-tracted hospitals was enough to catapult the situation into the scope ofapplication of Article 49. In Müller Fauré the Court simply focused on thefact that the patients had to pay for their treatment, and thus that treat-ment had been provided for remuneration. The fact that the Court focusedonly on the relationship between individual and health care providersabroad suggests that, not surprisingly, the new approach to ‘remuneration’applies also to NHS-type systems, where there is no provision of servicesbetween the hospital and a fund.18

Further, the Court’s assessment of the justification of the prior authorisa-tion regime was substantive, affecting the nature of the right to seek treatment abroad as granted by national law. It is debatable whether thesuper-imposition of criteria which to a certain extent extend the right asdefined by national law, is consistent with the Court’s repeated statement thatCommunity law cannot have the effect of extending the benefits recognisedby domestic social security schemes. After all, to transform a qualified rightto seek non-hospital treatment abroad to an unqualified right to reimburse-ment, albeit at national tariffs, seems to considerably extend the benefitsgranted by national law. This is especially the case having regard to the factthat even the Court recognised that such change might have financial implica-tions, even though these financial implications were deemed not importantenough to justify maintaining the authorisation requirement. But even in thecase of hospital treatment the rulings, by qualifying existent conditions on theright to seek treatment abroad, impact on the substance of the right. If previ-ously the right to seek treatment abroad arose only in given (and stricter) circumstances, now it is more easily gained. Take for instance the fact that the

Public Services and European Law 279

18 Davies, G above n 16, writing before the ruling in Müller Fauré, argued that NHS type ofsystems would be excluded from Art 49 EC because of the absence of any market aspect.

existence of reasonable waiting lists cannot be invoked to justify a denial ofprior authorisation for treatment abroad; or that international medical science must be taken into account; or that in order to decide whether a treat-ment is sufficiently tested regard must be had also to whether the treatment iscovered by the social security scheme of other Member States. In other words,the effect of the two rulings might be seen also as extending the benefits exist-ing in national law: Mr Peerbooms was not eligible for the treatment hesought in Holland. As a result of the Court’s substantive assessment of theconditions imposed on the prior authorisation requirement, Mr Peerboomsgained that right (a good thing no doubt but still an extension of the benefitsgranted by national law). Ms Van Riet (the other claimant in Müller Fauré)did not have the right to travel abroad to receive the arthroscopy. As a conse-quence of the application of Article 49 EC, she now has.

The situation post-Müller Fauré suggests that the distinction betweenpublic and private services has evaporated in the heat of the moment.However, it is submitted, the distinction should be maintained both toavoid considerable practical problems which would arise from such anexpansion of the scope of the Treaty; and because of the very wording ofthe Treaty, which cannot be judicially amended. Those issues will be lookedat in turn, and a different approach, capable of incorporating some, but notall, of the dicta of the Court will be suggested.

IV. PRACTICAL CONSEQUENCES OF THE NEW APPROACH: HEALTH CARE

The rulings of the Court, sometimes extremely confused in their reasoning,seem to determine the following situation. In the case of hospital treatment,prior authorisation is in principle justified. However, close judicial scrutinyof the conditions under which such authorisation is granted will ensure thatthe patient’s situation is assessed having regard to her individual circum-stances. Further, authorisation cannot be denied simply on the grounds thatthere are no urgent medical reasons (ie life-threatening situation) to justify‘jumping the queue’. Whether this pronouncement is sound, is difficult tosay. Whilst in an ideal word no patient should be left suffering simplybecause her condition is not life-threatening, the Court’s ruling might havethe effect of diverting resources from structural improvements, aimed atreducing waiting lists, to funding treatment abroad.

As for the amount to be refunded, the ruling does not provide any guidance. However since the system of prior authorisation is to be maintainedin the case of hospital treatment, and since prior authorisation grants theright under Regulation 1408/71 (as implemented by national law) to benefitsin kind in the host institution (or to full reimbursement), it seems that thepatient receiving treatment in a hospital abroad has the right, if she fulfils the

280 E L E A N O R S PAV E N TA

conditions for prior authorisation as re-interpreted by the Court, to full reimbursement. The relationship between Article 22 Regulation 1408/71 andArticle 49 EC remains however unclear: the Court has not re-interpreted theconditions provided for by the Regulation, but only those provided for bynational law implementing the Regulation. The right to full reimbursementarises in this case by the combined application of national implementing leg-islation and Article 49 EC, not by the Regulation. Thus, in the future, there isgoing to be little advantage for the patient in relying on the Regulation, sincethe same result can be achieved by relying on the less burdensome conditionsset out by the Court in its interpretation of Article 49 EC. Indeed, followingthe ruling in Vanbraekel, Article 49 EC grants a right to be reimbursedaccording to the tariffs in place in the Member State where the patient isinsured if those are higher than the tariffs in place in the Member State wherethe patient has received treatment.19 On the other hand Article 22 Regulation1408/71 grants the right to benefits in kind as calculated by the system wheretreatment is provided. Thus, if the tariffs are higher in the State of treatment,the patient might have an interest in relying on Article 22; otherwise thepatient is better off relying directly on Article 49 EC.

In the case of non-hospital treatment the situation is different: priorauthorisation is in this case not justified, and the patient is free to go andreceive treatment abroad. However, the competent insurance fund (or NHS)is under an obligation to reimburse the cost of the treatment only withinthe limits of the cover provided. The relationship between this part of theruling and Regulation 1408/71 is unclear: Advocate General Dámaso Ruiz-Jarabo Colomer has suggested that the system provided for by the Regulationis not inconsistent with Article 49 EC, but rather that it runs parallel toit.20 Thus, if the patient obtains prior authorisation for non-hospital treat-ment, she will be entitled to full reimbursement rather than reimbursementat the tariffs of the competent Member State. The impact of Article 49 ECis then to add to, rather than to challenge the validity of, Regulation1408/71.21

A problem which will need to be addressed in the future is how non-hospitaltreatment is defined. In other words it is not uncommon for specialists to oper-ate within a hospital infrastructure: it is likely that the Court will adopt a

Public Services and European Law 281

19 Case C–368/98 Vanbreakel above n 13. 20 Opinion in case C–56/01 Patricia Inizan v Caisse primaire d’assurance maladie des Hautsde Seine, delivered 21/01/03, nyr, case still pending. On the fact that an expansion of the pos-sibility of seeking health care abroad should be by way of legislation rather than judicial inter-pretation see Cornelissen, R ‘The Principle of Territoriality and the Community Regulationson Social Security’ 33 (1996) Common Market Law Review 439, at 466.21 This new situation seems to be similar to what is happening as a consequence of the directeffect of Art 18, which has been interpreted as expanding rather than challenge the residencydirectives. See Dougan, M and Spaventa, E ‘Educating Rudy and the (non-)English Patient: aDouble Bill on Residency Rights under Art 18 EC’ 28 (2003) European Law Review 699.

substantive rather than formal approach. This said, the boundaries betweenthe two situations might still be confused (such is the case, for instance, inrelation to so called ‘day-hospitals’).

V. BROADER CONSEQUENCES OF THE NEW APPROACH

Having considered the rulings and their consequences in detail it is nowtime to turn our attention to the broader consequences of the Court’s inter-pretation, and to an analysis of the validity of the hermeneutic approach itadopted. We could visualise the rulings of the Court, and its consequences,in the following way:

282 E L E A N O R S PAV E N TA

As said above, in Peerbooms (fig 1), the Court found that the fact that therewas an economic link between the fund and the contracted institution,together with the fact that the treatment received abroad had been providedfor remuneration, was enough to bring the situation within the scope of Article49 EC. Therefore, the prior authorisation requirement was qualified as a bar-rier which needed to be justified according to the imperative requirements. InMüller Fauré (fig 2), the Court focused exclusively on the relationship betweenpatient and foreign provider: since that relationship was one of provision ofservices for remuneration the situation fell within the scope of application ofArticle 49 EC and again the prior authorisation requirement needed justifica-tion. In both cases the Court found that the relationship between the patientand the fund was not relevant to its assessment; further in Müller Fauré, theCourt, in order to extend its reasoning to NHS-type systems, also disregardedthe link between fund and contracted institutions. This approach has far-reaching consequences not only for national health systems, but also for otherfields where the State directly provides public services. Take general education(fig 3). In Wirth the Court excluded that a Member State could be obliged toprovide a scholarship for studying abroad when it provided a scholarship fortaking up education within its territory.22 The Court made clear that since(public) education was not a service provided for remuneration, the Treatyrules did not apply. However, if the ruling in Müller Fauré were to be appliedanalogically, then the State’s refusal to contribute to the expenses for educationreceived in another Member State would have to be qualified as a barrier tothe students’ ability to receive services abroad. The student going abroadwould in fact be receiving a service for remuneration: since Article 49 EC is triggered regardless of the relationship between State and individual, the territorial limitation imposed on the enjoyment of a scholarship for general

Public Services and European Law 283

22 C–102/92 Wirth above n 7.

education should be construed as a barrier. Furthermore, were we to take theunqualified statements in Müller Fauré literally, the State could also be guiltyof erecting a barrier by not providing for the possibility of students seekingtheir general education abroad at its own expense. After all, the Court madeclear that Member States might be under a duty to set up a tariff scheme so asto calculate the level of reimbursement to which individuals are entitled whenseeking non-hospital treatment abroad. Would then a pupil wishing to beeducated in a public or private institution abroad have the right to demandfrom the State a financial contribution equal to that which the State wouldhave borne had she taken advantage of the State education system? Thiswould be a paradoxical result: it would be peculiar if national rules which didnot leave any choice to the beneficiaries as to where the service might beobtained, and which did not recognise any right to seek education but in pub-lic institutions, were to be construed as a barrier to the free movement ofservices. If this result is to be avoided, whilst also ensuring a coherency offramework in the interpretation of Article 49 EC, then a different, more rig-orous approach, needs to be taken to define the rights of individuals accruingfrom the combined application of national and Community law. This pointwill be elaborated in detail below: for the time being a question needs to beraised. Would the Court have been as willing to extensively interpret Article49 EC had national rules, and Regulation 1408/71, not provided for a rightto be treated abroad in given circumstances?23

VI. PUBLIC SERVICES AND REMUNERATION: CHALLENGING THE COURT’S APPROACH

The right to seek treatment abroad is recognised by national social securitysystems as part of the State’s duty to provide effective health care: it iswhen, for whatever reason, the State cannot ‘directly’ fulfil its duty towardsa patient in need of treatment, that national law provides for an obligationupon the competent institution to meet its duties by alternative means, ie bypaying for health care in a private institution or in another Member State.24

When an individual seeks care outside the State system, she is enforcing herright to receive adequate and effective health care by demanding that the Statedischarges one of the primary responsibilities it bears towards its citizens.Had the State not accepted an obligation to provide health care in the firstplace, the citizen would have no claim. In other words, had the State not

284 E L E A N O R S PAV E N TA

23 These cases might illustrate another aspect of the ‘leverage principle’, ie the use of secondarylegislation to expand the scope of Treaty provisions, described by Treumer, S and Werlauff, E‘The Leverage Principle: Secondary Community Law as a Lever for the Development ofPrimary Community Law’ 28 (2003) European Law Review 124.24 Of course this right is also recognised by Regulation 1408/71 above n 1. However the veryrecognition of such right in the Regulation is an expression of the State’s duty that once agiven treatment is covered by the social security system, such treatment must be effective.

provided health care, either directly or indirectly, there would be no discussionof the State’s duty to reimburse the cost of treatment in another MemberState. However in providing health care, the State is not providing a servicefor remuneration. Since it is the State’s duty to provide health care that veststhe right upon individuals to demand reimbursement of expenses incurredfor treatment in another Member State, it is conceptually questionable thatthe Court should dismiss in Peerbooms, and not even consider in MüllerFauré, the contention that the service provided by the State was not in fact aservice provided for consideration but a manifestation of social solidarity.

We will now turn to consider in detail the various relationships whicharise in the (public) provision of health care, distinguishing the three mainsystems (compulsory insurance, NHS, reimbursement systems),25 to arguethat when the individual is seeking reimbursement for health treatmentreceived abroad, she is relying on a right granted by national law whicharises by virtue of the State’s responsibilities in the field of health care. Therelationship between State and individual is in this case not an economicrelationship and thus Article 49 EC cannot be construed as challenging thesubstantive conditions on the right to seek health care abroad. It can merelyserve to ensure that once such a right is granted by national law, it should begranted without any discrimination as to the location of the health provider.

A. Compulsory Insurance Systems

The health system in the Netherlands is organised through a system of com-pulsory insurance, whereby residents are ensured with a sickness fund. Thefund then enters into agreements with health providers which provide treat-ment free of charge to those affiliated with it.26 Thus, there is a triangularrelationship patient/fund/hospital.

Public Services and European Law 285

25 Different systems might operate conjunctively. So for instance there might be a reimbursementsystem for non-hospital care and a direct provision of services in relation to hospital treatments.26 This model applies in the same way even if the State is contracting out health care withoutthe medium of a sickness find and financing the scheme through general taxation rather thanad hoc contribution.

The relationship between the fund and the contracted hospital is, as heldby the Court in Peerbooms, one of service provision for remuneration. Inthis respect the fact that remuneration is calculated according to fixedamounts rather than on a time-to-time basis is irrelevant. The remunerationstill reflects the costs incurred by the institutions.27 Since this relationshipcan be qualified as provision of services for the purposes of the Treaty, thefunds cannot discriminate on grounds of the nationality of the healthprovider (ie their place of incorporation) and can discriminate on groundsof where the health provider is situated only if such distinction can be objec-tively justified (eg because of the need to ensure geographical proximitybetween potential patients and hospitals or the need to ensure that hospi-tals are evenly spread across the national territory). Further, if the funddecides to avail itself of the services of non-contracted institutions, it can-not discriminate between domestic and foreign providers, since the rela-tionship between funds and non-contracted hospitals is also one of servicesfor remuneration.28 Once the fund decides to ‘contract out’ health care pro-vision, then, all things being equal (such as costs), it cannot prefer providersestablished in the national territory.

The relationship between hospital and patient can also be qualified as oneof service provision: the service is paid for by a third party (as it was the casein Bond van Adverteenders),29 but is provided for remuneration. In this case,the exclusion of non-insured people from the benefit of free treatment canbe easily explained since insured and non-insured people are not in the samesituation (and for this reason a contracted institution would not be under aduty to provide treatment to other non-insured European citizens).

The relationship between the (insured) patient and the sickness fund isnot however one of service provision. This for two main reasons: first,because some individuals, such as those with low or no income, areincluded in the scheme even though they do not make any contribution toit. Secondly, because the amount to be contributed is not assessed havingregard to the individual risk of the insured, but rather having regard toother factors, such as income. Thus, the relationship is not one of actuarialsolidarity (which would be evidence of a relevant economic element) but ofsocial solidarity. This is further demonstrated by the fact that, as recognisedby the Court, the patients have no choice over which benefits are covered

286 E L E A N O R S PAV E N TA

27 For a detail account of how costs are calculated in the Dutch system see AG Dámaso Ruiz-Jarabo Colomer’s Opinion in case C–157/99 Garaets-Smits and Peerbooms above n 13,para 44 and 45.28 This regardless of the application of the public procurement directives (Dir 92/50 relating tothe coordination of procedures for the award of public service contracts (1992) OJ L 209/1;Dir 93/36 relating to the coordination of procedures for the award of public supply contracts(1993) OJ L 199/1 as amended; Council Dir 93/38 relating to the coordination of the procure-ment procedures of entities operating in the water, energy, transport and telecommunicationssector (1993) OJ L 199/84). 29 Case 352/ 85 Bond van Adverteenders above n 5.

by the compulsory insurance scheme, nor have they any choice over theinstitutions which provide them.

B. The State as a Provider of Health Care: The NHS Systems

In some Member States the health system is centrally organised, and theState directly and without intermediaries provides health care free of charge(or charges amounts significantly below costs) to its residents.

Public Services and European Law 287

In these cases it is even more difficult to qualify the relationship betweenpatient and NHS as one of service provision for remuneration: health careis provided free of charge to all those entitled to it, and the system isfinanced through general taxation. This, of course, does not exclude theNHS entering into an ‘economic’ relationship with commercial operators,for instance when it buys equipment. In those cases, of course, the NHS isunder an obligation not to discriminate between suppliers on grounds oftheir nationality. Similarly when the NHS ‘contracts out’ health care, ieagrees to pay for private health care when it cannot directly meet the needsof the patient, the relationship between NHS and private health provider isproperly qualified as one of services for remuneration. Thus, as in the caseof systems organised through compulsory insurance, the NHS cannot dis-criminate on grounds of the nationality of the private health provider, nor,all things being equal, on grounds of the location of the provider. In otherwords, once the NHS recognises the patient’s right to be treated by a pri-vate provider at its expense, it cannot discriminate between healthproviders. However the relationship between patient and NHS remains anon-economic relationship which should be excluded from the scope of theTreaty. For this reason Community law cannot determine the conditions

under which the right to be treated by a private health provider materialises:it can only insist that once this right materialises under the provisions ofnational law, then, since there is a service provided for remuneration, thenon-discrimination principle applies. This also means that the NHS is underno obligation to provide health services to other European citizens underthe same conditions as it does to its beneficiaries.

C. Reimbursement Systems

Finally, the situation of those systems which provide for reimbursementrather than benefits in kind should be considered. In these systems, the Stateprovides for reimbursement (usually at pre-fixed rates) of health expensesincurred by its citizens/residents. Such was the situation in Kohll.

288 E L E A N O R S PAV E N TA

In this case, the relationship between patient and health care provider isclearly one of service provided for remuneration. Since the State is indirectly‘contracting out’ health care (through reimbursement) it cannot discriminateamongst providers. It is only if there is an imperative requirement of publicinterest, that the State will be able to limit or impose conditions on thepatients’ choice of a foreign provider. Again however, Community law cannot impose any requirement that benefits be included in the scheme: it isfor national law to determine which treatments are covered by the socialsecurity system.

VII. A LIMITED APPLICATION OF ARTICLE 49 EC TO (PUBLIC) HEALTH SYSTEMS

It is submitted that in both Peerbooms and Müller Fauré the relevant rela-tionship was that between patient and funds. The patients were relying onthe duties the funds bore towards them—duties which cannot be defined as

arising from an economic relationship—in order to obtain reimbursementof expenses for treatment abroad. In other words, what the claimants wereenforcing was their right to effective health care as protected by nationallaw. The expectation of being treated in an effective and timely mannerdoes not arise from the economic relationship linking the individual to theState. Rather, it reflects the notion that effective health care is a fundamen-tal right of the citizen, a fundamental right which is an expression of thatlink of solidarity, of the allocation of mutual responsibilities between Stateand individuals, which is at the core of the notion of national welfare states.It is only once, and to the extent to which, this right is recognised bynational law, that Article 49 EC can come into play. It is only when nationallaw recognises a right to be treated ‘outside’ the pre-organised structurethat Article 49 EC becomes of relevance. However, the conditions accord-ing to which such right, if granted at all, materialises are a matter fornational law alone. As recognised by the Court, it is a matter for nationallaw to determine which benefits patients are entitled to; and it is a matterfor national law to provide that in given circumstances such benefits can beextended. However, once national law recognises the individual’s right tobe treated in a non-contracted institution, then the State, in choosing the insti-tutions with which to enter into agreements, cannot discriminate on groundsof nationality. This is not because the relationship between State and patienthas changed, that relationship is still not one of service-provision for remuneration, but because when the State ‘buys’ services, it cannot discrim-inate, lacking an objective reason, between domestic and foreign providers.The same reasoning applies also to NHS-type systems. As for reim- bursement systems, this reasoning applies only in relation to the fact thatCommunity law cannot extend the benefits covered by the social securitysystem. As for the rest, since the State ‘contracts out’ the services, once thesocial security system covers a given treatment, it cannot limit the patients’choice as to where to receive that treatment.

Some of the criteria imposed by the Court are consistent with this inter-pretation: for instance the requirement that once the right to seek treatmentin a non-contracted institution is recognised, such right cannot be condi-tional upon discriminatory criteria, and criteria must be set so as not toleave open the possibility of abuse and so as to ensure the possibility ofjudicial review. It is submitted, however, there is no basis in the Treaty freemovement of services provisions to go beyond this and to impose substan-tive criteria on when, if at all, the right to seek treatment in a non-contractedinstitution should be recognised. Otherwise, the effect of the Court’s caselaw would be to extend the benefits recognised by national law, somethingthat the Court expressly held to be not required by Community law.

This interpretation would also solve the problems arising in relation tothe impact of Article 49 EC on other public services, such as education.Thus, since the relationship between student and State cannot be considered

Public Services and European Law 289

as one of service provision, the State would be under no obligation to provide that the right to education can be enjoyed on the same basis inanother Member State. However, if the State were to recognise a right topublic funding, either by granting monetary benefits or by granting tax benefits, to those students who decided to avail themselves of education inprivate schools, then the same benefits should be available to studentsreceiving their education abroad.30

VIII. CONCLUDING REMARKS

In this paper I have attempted to cast some doubt over the hermeneuticsoundness of recent case law. Thus, I suggested that the Court’s reasoningin Peerbooms and Müller Fauré is unconvincing and that the presence of aneconomic element somewhere in the chain should not be considered suffi-cient to trigger Article 49 EC. Instead, regard should be had to the relevantrelationship: only when this is an ‘economic’ relationship should the Treatyprovisions apply. Further, since the relationship between patient and State isnot one of service provision, Community law cannot be construed as deter-mining the conditions under which the right to be treated by non-contractedinstitutions or non-NHS hospitals materialises. That is exclusively a matterfor national law. However once this right materialises, and the State agreesto ‘contract out’ health care, the non-discrimination obligation applies: thusthe State cannot, lacking an objective reason, discriminate between domes-tic and foreign health providers. This interpretation is only partially consis-tent with the Court’s ruling. However, it has the advantage of contributingto a more coherent framework by both ensuring that the express Treatyrequirement that services be provided for remuneration is respected; andensuring that the same interpretation can be given to all public services, andin particular education.

As for non-hospital treatment, the same reasoning should apply: if theMember State ‘contracts out’ specialist consultancies, then there is no rea-son why it should discriminate between domestic and foreign specialists. Inthis case a prior authorisation is an unjustified restriction. However, whenconsultancy is provided within the NHS or within the same framework asthat provided for hospitals in the case of compulsory insurance, then theservice should not be considered as provided for remuneration and Article49 EC should not challenge the conditions imposed by national law on theright to seek treatment outside the public sector.

The Court ventured onto a very different path when it delivered its rulings. One can but wonder whether, especially in Peerbooms, concernsover the patients’ right to effective health care, and a willingness to ensure a

290 E L E A N O R S PAV E N TA

30 In the same sense Davies above n 17.

just result, did not affect the Court’s approach. Effective health care is afundamental right: however, it is questionable whether such a right can belinked to the right to receive economic services.

The health cases are not the only ones where the interpretation of Article49 EC seems tinted by the desire to ensure that European citizens see theirfundamental rights effectively protected.31 And it is difficult to criticise theend result of these cases. But, especially in preliminary rulings, the role ofthe European Court of Justice, is to guide national courts as to the correctinterpretation of the Treaties, not to ensure that (perceived) injustices areavoided. The Court now has two choices: if it wishes to ensure fundamen-tal rights, then it should choose a stronger hermeneutic basis than Article49 EC. The provisions on citizenship, read together with the Charter, or thegeneral principles of Community law, might do the trick. Or, if it persists inan extensive interpretation of economic rights as an instrument to enforcefundamental rights, then it should provide clearer guidance of the basis forso doing.

Public Services and European Law 291

31 See case C–60/00 M Carpenter v Secretary of State for the Home department [2002] ECRI–6279, and E Spaventa ‘From Gebhard to Carpenter: Towards a (non-economic) EuropeanConstitution’ forthcoming in the Common Market Law Review.

14

Lay Judges

JOHN BELL*

I. INTRODUCTION

THE ROLE OF lay judges in the legal system is a matter of considerable importance. Lay judges are not only numerous, butthey play an especially important part in many branches of law. Yet

they are often ignored in general statements on the judicial role or in dis-cussions by professional judges. Concepts like ‘Judicial Independence’ focusalmost exclusively on the professional judge and the conditions for heroperational effectiveness. The Council of Europe Recommendation on judi-cial independence1 recognises that some principles apply to lay judges aswell as to professional judges. But the text amounts to a rather grudgingrecognition.

In the recent book of Delmas-Marty and Spencer on European CriminalProcedures, Denis Salas has a very interesting chapter on the role of judges.He sketches the way in which the presence of lay judges affects both courtprocedure and judicial reasoning, but does not go very far in discussing thetopic. In the detailed sections on French and German law, lay members ofjudicial panels get two pages.2 The purpose of this paper is to examine theEuropean tradition of lay judges in greater depth.

I want to examine three questions:

1. Why are lay judges involved in the legal system? What is theirsource of legitimacy? Perhaps one needs to draw a distinctionbetween countries in which lay judges are seen as ‘second-best’, a

* Professor of Comparative Law, Pembroke College, University of Cambridge, Director ofCELS.1 Council of Europe Recommendation R (94) 12 on ‘The Independence, Effectiveness and theRole of Judges’.2 Delmas-Marty M and Spencer J (eds), European Criminal Procedures (Cambridge UP 2002)at 248 and 298 respectively.

cheap alternative to insufficient professional judges, and countriesin which lay judges are promoted as the ‘democratic leaven’ inthe judicial activity, which is the case of Sweden.

2. Who are ‘lay’ or ‘non-professional’ judges—are they lawyers orpeople from other walks of life? What sort of person becomes alay judge? How are they selected?

3. What sort of roles do they perform? Do they reach judicial deci-sions, or do they merely judge in ‘fairness’ or ‘equity’? Can theirrole be equated with that of the professional judge?

For reasons of economy of space, I will focus on three countries—Germany,Spain and Sweden. Each has had lay judges since the medieval period, buttheir modern role has developed in each country for different reasons.These countries also provide examples of a range of options among theroles of generalist criminal or civil judges.

II. WHY LAY JUDGES?

A. Visions of Justice

Hutton, Bankowski and others usefully draw attention to a tension in legalsystems between formal legal rationality and democratic participation.3

The desire for justice takes the forms both of adherence to rules (repre-sented by the professional judge) and substantive conformity to communitystandards (represented by the lay judge). This tension is developed inBankowski’s recent book on legal theory, Living Lawfully.4 On the onehand, we want the rule of law in the sense that legal rules will be appliedimpartially according to general, pre-announced standards. This providesus with legal certainty and predictability. This conformity to rules is typi-cally secured by the formal reasoning of trained professional lawyers. Onthe other hand, we want legal decisions to be fair and socially acceptable.In this respect, we want the law to be appropriate to the needs of the indi-vidual situation. This could be achieved by a more popular representationwithin the legal decision-making process. Atiyah and Summers identify thisas a tension between two visions of law:5 a formal vision which sees law asthe conformity to agreed standards and a substantive vision which sees lawas an instrument for achieving justice. The place of the lay judge within thelegal system is an important area in which this tension between visions is

294 J O H N B E L L

3 Hutton N and Bankowski Z, Lay Justice? (Edinburgh University Press 1986).4 Bankowski Z, Living Lawfully (Kluwer 2001), 114–24 and ch 9.5 Atiyah PS and Summers RS, Form and Substance in Anglo-American Law (Oxford UP 1987),411.

negotiated. I am therefore interested in the topic as much for what it saysabout general values of legality as for what it tells us about particular legalsystems.

Like Atiyah and Summers, I want to argue that the resolution of this ten-sion depends on the specific history of the legal system in question. Legalsystems lie on a spectrum between substantive and formal visions of law.

B. Specific Reasons

In addition to the general tension between formal and substantive visionsof law, there are other reasons for using lay judges which are more specificto particular countries. Clark wrote that,

Several grounds have been advanced to justify lay participation in the judicialprocess; it fosters democracy by checking executive despotism and ensuringindependent decision making; it contributes to citizenship training; and itlegitimates the decision made.6

The 2002 Swedish report identified four contributions of lay judges, whichare similar:

1. to guarantee effectiveness by keeping judicial decisions in linewith social values;

2. to maintain confidence of citizens in effectiveness of courts3. to keep the interest of the public in the effectiveness of justice by

collaboration of lay people

These are more idealistic aims. As we will see, there is a tension between a‘technocratic’ vision of progress and a more ‘social’ vision. On one view,the chronological progression from lay judges to professional judges as amatter of progress. We have moved from the judgement of the communityto an independent and professional approach. In such a picture, the layjudge is an anachronism. We may have to tolerate it (as in England andSpain) for lack of resources, but it goes against our conception of justice.

The alternative would be to argue that we need to keep justice anchoredin the community. Since most decisions do not turn on law, but on socialevaluation, then a lay participation is a vital part of the process. Whetherjust in terms of the internal dialogue in the court, or in terms of the out-come itself, social involvement keeps the professionals under control. Inparticular, in bureaucratic, career judiciaries, there is scope for influence

Lay Judges 295

6 DS Clark, ‘The Selection and Accountability of Judges in West Germany: Implementation ofa Rechtsstaat’ (1986) 61 University of Southern California Law Review 1794 at 1830.

from hierarchical superiors, which lay involvement can restrain. These ideaspresuppose that there is a mixed bench involving lay and professionaljudges. In Lord Justice Auld’s phrase, the lay judges under this model are‘surrogate jurors.’7 The English jury model is only one way of involving layperspectives.

Both Clark and the Swedish commission take the view that lay participa-tion produces a more trained and informed citizenry. To a great extent, thisdepends on a cascading effect which is not always seen. People knowfriends and family, or merely acquaintances who have been involved as layjudges. This is supposed to produce a ripple effect of broadening under-standing of how the legal system works and confidence in its actions. Inreverse, it is supposed to feed into the legal system the views of the ordinarypeople, especially where social evaluation questions are at stake. I am notaware of any empirical work which has tested out this two-way process.But it is clearly a major article of belief for those who wish to sustain therole of lay judges. Certainly, professional judges interviewed as part of thisresearch did confirm that they obtained different views through delibera-tions with lay judges than they would have got simply from conversationsamong professional colleagues. Other research, as we will see, hints at thesame conclusion. The Auld Review8 makes much of the fact that evidenceof ‘public opinion’ is difficult to assess in this area, since there is a lot ofignorance about how the criminal courts work, whether lay people areinvolved or not.

One pragmatic strand of justification is the kind of expertise required tomake the relevant kinds of decision in law. Published literature, confirmedby interviews conducted for this research, suggests that lay judges are meantto bring common sense to the deliberation on the outcome of the case, butare not meant to be involved in detailed analysis of the case file. In manybranches of law, they will rely on the oral hearing to inform themselvesabout the issues. In German administrative law, the role of the lay judgeshas been limited to difficult questions of law and fact. Since 1978, it hasbeen possible for the German administrative court to make a decision byorder without the involvement of lay judges, where there are no particulardifficulties of fact or law. Such a division of functions presupposes adichotomy between law and fact which is difficult to sustain. We are allfamiliar with the idea that facts in law are a particular kind of construct,which looks at reality from a perspective which is legally interesting andrelevant.9 It is the particular synthesis of social observation and legal atten-tion which give facts in law their specificity. This may be one reason why

296 J O H N B E L L

7 Lord Justice Auld, Review of Criminal Courts in England and Wales (Lord Chancellor’sDepartment 2001), ch 4, § 33.8 Ibid, §§ 30–32, 34.9 See Samuel G, Epistemology and Method in Law (Ashgate 2003), ch 5.

many of the systems studied do not maintain a sharp separation of law andfact in the division of labour between professional and lay judges. In thisvision, the lay judge is more a non-professional judge, rather than a repre-sentative of the community as such.

III. WHO?

A. Spain

1. Juez de Paz

Spain has a long tradition of lay judges, but their place has long been con-troversial. In the medieval period the alcades were appointed by the king orthe local lord to be defenders of the peace.10 The 1812 Constitution createda formal court and envisaged that names of lay judges might be proposedby the people. In principle, the liberal constitutionalists had wanted a pro-fessional judiciary, but this was not practical. This balance between history,constitutional theory and pragmatism has characterised the role of layjudges ever since.

The Law on the Organisation of Judicial Procedure (LOPJ) of 1985rationalised the system of local courts by abolishing the district judge andtransferring his functions to the Juzgado de primera instancia. Professionaljudges would staff these courts, where available. But, under Article 99, inmunicipalities where a professional judge was not possible, ie where noJuzgado de Primera Instancia was found, there was a Juzgado de Paz with aJuez de Paz.11 The system continues to be based on the idea that thereshould be a court for every municipality, even though the list of these hasnot been reduced for many years and populations have moved significantly.

Under Article 102 LOPJ, the nominees for being a juez need to satisfy allthe conditions necessary for being a judge, except having a licenciado in law.The previous formal preference for qualified lawyers has gone.12 But theidea that there should be a single body of judges is held strongly by manylawyers and politicians, who consider that the very existence of lay judgesbreaches the requirements of Article 117 § 3 of the Spanish Constitution(CE) under which judicial power is conferred on ‘los Juzgados y Tribunalesdeterminados por las leyes’ (literally ‘the courts established by law’).13

Lay Judges 297

10 See Gavala RC, El Juez de Paz en la Ordenación Jurisdiccional Española (Ministry of Justice1989).11 Ibid, p 68. This was the solution proposed in the preliminary draft law of 1968, but whichgave the juez de paz essentially the role of dealing with disputes between neighbours in equity.It was the 1970 revision which firmly stressed the role of the juez de paz as delegate of the pro-fessional judge.12 For previous requirements see Gavala, above note 10 at 227–32, note 94.13 See in particular the arguments of Moreno, ibid at 230–39.

Under Article 101 LOPJ, the juez de paz is appointed by the executive ofthe Tribunal Superior de Justicia from among the list presented by the localcouncil, the Ayuntamiento. The judges exercise a vetting role, but the fullcouncil of local municipalities is involved in the appointment.14 There isthus an attempt to balance the idea of popular election with some form ofvetting by judicial experts, who have the final say. This balance has beenpart of the tradition of the appointment of the juez de paz.

On the one hand, among courts designated for the professional judges,there are the full jueces (or in some, more important courts, a magistrado)15

in many locations, but also a large body of substitute judges—in 1996–7there were 1,517 such judges for a complement of 3,434 full-time judicialposts.16 Many are retired judges, but there is such a problem of filling judi-cial vacancies in some places which almost permanently have a substitutejudge—even someone who was not able enough to pass the judicial exami-nations. On the other hand, there are many places where no professionaljudge is expected and the Juzgado de Paz is in place. At first instance, thereare many unviable courts with less than 7,000 inhabitants. These are theclassical areas for the appointments of the Juez de Paz. On 30 May 2000,there were 7,680 Juzgados de Paz, which are equipped and located by thelocal government.17 There are large numbers of jueces to staff these—2,000alone in Castille and Leon. Many of these have a law degree, but some donot. Administrative regrouping has meant that some 2,831 courts areserved by 297 groups of segretarios. But there is no regrouping in terms ofjudges. In this situation of courts frequently staffed by temporary and layjudges, the professional ideal of an expert cadre imposing the rule of lawhas never been realised. But of course there is a level of discomfort with thepresent system.

2. Jurado

Lacking a consistent tradition of the jury, but retaining a sense that jurytrial is both modern and liberal, the authors of the 1978 Constitution com-mitted Spain to having jury trial, but without any specific view of its pur-poses and scope. The institution was the subject of much debate after theConstitution was enacted and it was only finally implemented by the leyorganica of 1995.18 This came into force on 1 April 1997, so there has beenonly a limited period for it to operate. All the same, an official report was

298 J O H N B E L L

14 Ibid, at 217ff.15 A magistrado is a more senior judge, a position to which most jueces are promoted after 7or so years of service.16 CGPJ, Libro Blanco (Madrid 1996), 34.17 Ministry of Justice website: http://www.mju.es.18 On this see Merino-Blanco E, The Spanish Legal System (Sweet & Maxwell 1996) at180–86.

produced for the Consejo General del Poder Judicial in May 1999, coveringthe first year of operation.19 Its preliminary conclusion, not surprisingly, isthat there will need to be a change in mentality to make the jury work.20

The report notes that in the first year there was a noticeable ‘flight from thejury’ by prosecutors and investigating judges, the Juez de Instruccion. Thismay simply be a matter of the novelty of the institution, but there is alsothe sense that the difficulty of the process may make them prefer a purelyjudicial hearing. Judicial and popular opinion on the jury have fluctuatedsince 1978. In 1987, a survey reported that 47.6 per cent of judges favourthe jury and 30.4 per cent were against.21 By contrast, among prosecutorsand letrados de estado 30.7 per cent accepted the idea and 58.7 per centwere against. Most prosecutors favoured having lay assessors as inGermany.22 Among the population, in 2000 49 per cent said they wouldprefer trial by jurado, rather than by judges, a figure which has been fairlyconstant since 1987, with the exception of 1997.23

B. Sweden

As Modéer states, ‘The nämnd is the most distinctive feature of the Swedishlegal culture.’24 The nämnd has origins in decision-making in rural commu-nities in the early Middle Ages. In Svealand and Götaland from the 1200s,each hundred chose 12 electors and these produced 2 judges. In Skåne, thenämnd became the form of decision-making from 1216. The nämndbecame the general form of proof in criminal cases by the time of MagnusEricksson’s general law of the realm in 1347. It decided law and fact. Onlywith professionalisation of judges was it reduced to an assessor role by theCode of 1734. Until 1872, voting was restricted to the propertied classes,so that the nämnd’s decisions reflected the views and traditions of the localfarmers. It was not until 1925 that women became eligible. The choice bythe local community is now reflected in the appointment of the nämnd bythe local authority. Since 1863, members have been chosen by the commune,and since 1975 on a proportional basis. Nämndemän are usually chosenfrom members of the authority in proportion to the political representationat the last local elections. As one interviewee put it, appointment as a nämnd

Lay Judges 299

19 Report of Sáez Valcárcel JR, Informe sobre la Aplicación de la Ley Orgánica de Tribunal delJurado desde el 1 de Abril de 1997 al 31 de Marzo de 1998 (CGPJ 1999).20 Ibid, p 6. For example, it appears to take at least half a day to empanel a jury because ofobjections by the parties and excuses offered by the jury: p 36. This suggests a need to developan appropriate culture among defence lawyers.21 ‘Elite jurídica española’ (1987) 53 Documentacion Juridica at 62.22 Ibid at 91 and 116.23 Toharia J-J, Opinión pública y justicia. La imagen de la justicia en la sociedad española(CGPJ 2001), 124.24 Modéer KÅ, Den svenska domarkulturen (Corpus Iuris Förlag 1994) 41.

is one of a range of committees on which a local councillor may choose tosit. The Riksdag has made it clear that being a member of the nämnd is aspecial role, which is not a political task, despite the method of appoint-ment. Certainly, nämndemän interviewed suggested that political affiliationis not a major determinant in how people carry out their task. Individualshave their own views on criminal justice, the upbringing of children and soon, and these are political positions in a broad sense, rather than oneswhich are neatly confined to a particular political party.

This political appointment is under threat as a result of a recent review.It is suggested that there should be scope for those who are not attached topolitical parties to secure appointment.25

There are now some 6,000 nämndemän—5,500 in the lower courts and500 in the appeal courts. Although there have been suggestions for trainingto be provided centrally, training is predominantly provided through a vol-untary association of lay judges, the Nämndemannaförening, with somefunding from Domstolsverket for events, such as visits to other courts. Thelocal association may also obtain funding for its activities from the localcommune.26

The importance of popular participation in justice gives rise to concernsabout the representative character of the nämnd. In a 1992 report byDomstolsverket (the National Courts Administration), 58 per cent of näm-ndemän were found to be men, 94 per cent were over 40 years of age, with63 per cent from the oldest age groups—23 per cent were pensioners. 27 per cent worked in the administration, compared with only 1 per cent ofthe population as a whole, and 65 per cent had an income of 160,000 kr ayear, compared with 17 per cent of the population as a whole.27 In 2000,45 per cent of nämndemän were over 60 and only 8 per cent under 40.28

The present system effectively hands over nominations to the political par-ties, and a review in 1994 suggested that a more open system of recruit-ment was desirable.29 The 2002 Committee has recognised a particularproblem in ensuring representation of ethnic minorities within the nämnd.Previously only Swedish nationals could serve as lay judges, and it was notpossible for people to hold Swedish nationality with any other nationality.The 2001 reform of nationality law has enabled people to hold dual citizen-ship, and this may be attractive to those who have come to Sweden in the last30 years, and who have retained the nationality of their country of origin.

300 J O H N B E L L

25 Framtidens nämndemän (Betänkande från Nämndemannakommittén) SOU 2002:61 (June 2002).26 Nämndemännens riksförbund (NRF) (homepage: http://hem.passagen.se/n.r.f/).27 Diesen C, Lekmän som Domare (Norsteds Juridik 1996), at, 140–41.28 Ministry of Justice press release, ‘Utredning för att breda rekryteringen av nämndemän tilllandets domstolar’, 30 November 2000.29 See Reformingen av domstolsväsende (DOV 1994) 32–33, requesting a broader social basethan at present.

C. Germany

Germany has a range of different categories of non-professional judge.There are three principal groups: community judges, expert judges and rep-resentative judges.30 They can either be regular members of panels of thecourt or, as with the criminal law Schöffen, they can be appointed for par-ticular cases. Lay judges are not paid, but receive reimbursement ofexpenses and an indemnity for loss of earnings.

The Schöffen have been community judges since the medieval period,knowing both the local law and trying local cases. The Schöffen31 nowoperate in criminal and administrative cases at various levels within the sys-tem. In the Amtsgericht, there will be one professional judge with twoSchöffen.32 These deal with lesser offences (Vergehen). More serious casesare heard by the Große Kammer of the Landgericht by three professionaljudges and two Schöffen. The formation for the most serious offences (eg homicide) is the Schwurgericht, also with three judges and twoSchöffen. The 1879 Code of Criminal Procedure had established a jury oftwelve Schöffen sitting separately from 3 professional judges to try seriousoffences. But this was changed during the Weimar Republic, and the pat-tern established in the post-War period was for the Schöffen to be con-cerned with all elements of the case, not just the question of guilt.

Most non-professional judges are appointed as ‘Schöffen’ in the criminalcourts. They represent the community and constitute a democratic element inboth the Amtsgericht and the Landgericht. In administrative courts(Verwaltungsgericht and Oberverwaltungsgericht), there are also similar rep-resentatives of the community. In the Constitution of Courts Law (GVG), § 42Abs 2, there is a specific provision that attention is paid to ensuring all groupsin society (in terms of sex, age, occupation and social position) are representedamong the Schöffen in criminal courts. There is no equivalent provision in therules governing lay judges in the administrative courts.33 The legal provisiondoes not mention religious affiliation or ethnic grouping. Based on analysis of statistics from 1977 to 1998, Brusten suggests that there is an over-repre-sentation of public service workers and an under-representation of women.34

Lay Judges 301

30 The lay judges in chambers dealing with commercial cases, agricultural, finance, labour,social and professional courts are appointed because of their expertise in the subject-matter ofthe court’s work. Judges appointed to these chambers are also appointed as representatives ofa particular sectional interest.31 A good introduction is provided on the website of the Deutsche Vereinigung der Schöffinnenund Schöffen: http;//www.schoeffen.de.32 The prosecution may ask for two professional judges in more difficult cases.33 See, for example, the introductory booklet for lay judges in administrative courts ‘Die ehre-namtlichen Richter in der Verwaltungsgerichtsbarkeit’ from the Senatsverwaltung für Justiz,Berlin 2000, para 3.2.34 M Brusten, ‘Wie wird man Schöffe?’ in Lieber H and Sens U (eds), Ehrenamtliche Richter.Demokratie oder Dekoration am Richtertisch? (Kommunal- und Schul-Verlag 1999) (hereafter ‘Lieber and Sens’) at 77.

Data collected by the Federal Ministry of Justice35 shows that Schöffen aremore heavily represented in the age groups 40 to 50 and 50 to 60. On 1 January 1997, they represented 0.08 per cent of the 25 to 40 age cohort,0.18 per cent of the 40 to 50 group, 0.16 per cent of the 50 to 60 and 0.09per cent of the 60 to 70 age cohort.36 There has been a decline in thedependence on this middle aged group since 1975. At that time, there was amuch smaller proportion of the 60� age group available for this work, andyounger women were over-represented. Now, proportionately fewer in the25 to 40 age group are active as Schöffen, and more in the 60 to 70 agegroup. Men and women are fairly evenly represented except in the 60 to 70age cohort, where the proportion of men is double that of women. Thisrepresents a substantial change since 1975 when there were proportion-ately 25.5 per cent more men than women as Schöffen (and 31.6 per cent ifone only looked at Schöffen hearing adult criminal cases).

Total %women 25–40 41–50 51–60 61–70Landgericht 22,773 45.8 22% 28% 33.45% 15.97%(criminal matters)Amtsgericht 19,005 47.08 23.8% 29.25% 31.5% 14.06%(Schöffengericht)Landgericht 5,223 50.35 29.66 35.76 25.94 7.3%(youth court)Amtsgericht 13,946 51.01% 33.24 34.7 23.77 7.08(youth)

In terms of employment, 20.8 per cent were housewives, unemployed orretired. Of the 52.7 per cent who were employees, just over half worked inthe public sector. In terms of the distribution of occupations, less haschanged over the 22 years from 1975 to 1997. Public sector workers areover-represented by about 20 per cent and the self-employed by 6 per cent.Pensioners are substantially under-represented by over 30 per cent. Therehas been a decline in the proportions of private sector workers and house-wives giving time to this role. Statistics are not kept on ethnic minorities. Inorder to be a Schöffen or a professional judge, one must be a German citi-zen, so those of Turkish origin are rarely found among the judges, eventhough they are the accused in about 30 per cent of cases.37 Richert wrotein 1983 that ‘The ideal lay judge emerges as a middle-aged man, possessinga solid education, hailing from the middle class, and preferably supporting

302 J O H N B E L L

35 Bundesministerium der Justiz, ‘Geschlects, - Alters- und Berufsstruktur der Schöffen imBundesgebiet im Vergleich mit der Bevölkerungsstruktur’ (report 3221–1–51 0016/97).36 Under § 35 GVG, among the excuses for service as a Schöffen is that the person selected isover 65 or will be over 65 when the period of service is over. Thus those in this age group whoare serving as Schöffen are predominantly volunteers.37 See Sigismund E, ‘Zur Funktion der ehrenamtlichen Richter im Strafverfahren inDeutschland’ (Ministry of Justice, Bonn 28 April 1999) (hereafter ‘Sigismund’), 11.

the political party in power.’38 This profile has changed significantly in anumber of ways and is, in any case, too much of a caricature, given theother factors which determine a person’s availability for this kind of work.

Improvements have been made by reforms to the 1957 Gesetz über dieEntschädigung der ehrenamtlichen Richter by a law of 13 July 2001. Thiscan include compensation for loss of income. Those who work part-timeand are otherwise responsible for keeping house now receive specific com-pensation for this aspect of their work. Employers cannot force an employeeto take their lay judge period as holiday. There is, thus, a serious effort toimprove the range of people who feel able to take up service as a lay judge.

The Schöffen for the criminal courts are selected by a special committeebased on a list of recommendations drawn up by the local community(Gemeinde) council. For a candidate to be placed on the list, two-thirds ofthe councillors must approve the name. The selection committee is chairedby a judge of the Amtsgericht and consists of an administrative officialappointed by the government of the Land, as well as 10 local people. These‘trusted people’ are nominated from residents of the area served by theAmtsgericht and chosen by the local authority responsible for the area ofthe court (typically the Landkreis or town council). The way these recruit-ment processes work varies from area to area. Some Gemeinde seek nomi-nations from a variety of local groups, political parties and unions, otherswill just rely on the list of residents and generate names randomly. Politicalparties feature prominently among those suggesting names. Although serviceas a Schöffen is a duty when you are called, the pre-selection process willnot always yield a random selection of society. Some employers encourageapplications, others are more reluctant to lose the time of important workers.39 Some local authorities place advertisements in the press. Thereis no interview procedure similar to the appointment of English magistrates,and, by and large, it would appear that the selection committee feels betterable to form a judgement on those who are known to some of its members.

The Schöffen are nominated for four years. Their number is such thatthey will typically only serve for 12 sittings a year. In 1997, there were 60,947 Schöffen. The workload is ensured by having ‘Hilfschöffen’ appointedfor long cases, so they can step in and take over a formal role, should anominated Schöffen be unable to carry on during the course of a case. Ininterviews, I encountered examples of cases lasting a long time—one hadinvolved 56 hearing days and another lasted over 3 years. The availabilityof Schöffen had to be planned in advance as far as possible, and individualSchöffen had to be flexible about holidays and work to see the case to itsconclusion.

Lay Judges 303

38 Reichert J West German Lay Judges: Recruitment and Representativeness (University ofFlorida Press 1983) 66, cited in Clark above n 6 at 1832.39 Lieber and Sens, above n 34 at 78–84.

There are lay members of other courts, who are not really representativesof the community. For example, the Berlin constitutional court, establishedon reunification, has nine members—three judges, three lawyers qualifiedfor judicial office and three lay members, sitting for a fixed seven-year term.The first group appointed in 1992 were five Rechsanwälte, three judgesand a university professor. In 1999, the new group comprised threeRechtsanwälte, four judges and two university professors.40 The so-called‘lay’ element really meant ‘not-professional-judges’.

The arrangements for induction and training of lay judges are not as wellorganised as for the professional judiciary. In interviews for this research,lay judges commented that they would have liked further training. This isorganised on a voluntary and self-help basis by associations of Schöffen,41

but without the financial support provided in Sweden by the judicial admin-istration. The absence of formal induction programmes leaves much to thepresiding judge to ensure that the lay judges are aware of their role. This isoften done as cases arise. Certainly, all the interviews with judges, officialsand Schöffen conducted for this research suggested that Schöffen frequentlydid not receive any training, nor did they meet up with other Schöffen.

Lay judges are not within a bureaucratic hierarchy, so they have no supe-rior to give them directions about the way that they perform their tasks.They can only be removed in limited circumstances.

IV. WHAT RÔLE FOR LAY JUDGES?

A. Spain

The Juez de Paz is involved in three kinds of matter as a single judge. Theydetermine matters where there is no professional judge court, the Juzgadode Primera Instancia e Instrucción. In civil matters, they decide cases up tor 90. They then mainly deal with the conciliation of non-matrimonial civildisputes, or provide assistance to other courts in taking statements or otheracts of procedure. Judicial statistics show that decisions in disputes are notvery significant and have been declining. Whereas in 1992 some 1,893 caseswere begun before all the Juzgados de Paz in Spain, only 176 resulted injudgments. By 2001, only 406 cases were begun resulting in 64 decisions.42

In 2001, there were 14,866 conciliation decisions and 1,270,366 legal actsregistered by the Juzgados de Paz. Their principal civil function is as a localregistry for legal acts (births, marriages, etc) and providing certificates.

304 J O H N B E L L

40 See K Eschen in Lieber and Sens, above n 34 at 56–59.41 The programme offered by the DVS is available on its website. This involves both inductionand general continuing education themes.42 Instituto Nacional de Estadística, Estadísticas judiciales 2001: see http://www.ine.es.

In criminal cases, they deal with minor cases concerning offences againstthe person or property, or against public order. In 2001, there were 12,142criminal cases brought before the Juzgados de Paz in all of Spain, but therewere also 544,206 cautions and 86, 612. Thus a total of 653,612 criminalmatters were handled by them. In many ways, they are dealing with matterswhich are too petty for the time of a professional judge, especially in alocality which does not have enough work to keep a professional judgeoccupied.

Training is a matter of balance. Jueces de Paz have formed their ownregional associations for both meetings and exchange of information. Thisvoluntary activity is supported by the Consejo del Poder Judicial which hasorganised annual conferences since 1998 for them at which current issuescan be debated.43

B. Sweden

The role of the nämnd is given by a 1977 committee:

laymen with mature judgment and general life experience … have a goodbackground for judging questions of evidence. But, through habit and greaterexpert consideration, professional judges in general have greater possibilitiesthan lay judges to come to an objectively right assessment of proof.

As Diesen puts it,

Through the participation of the nämndemän the perspective of the generalpublic comes into the operation of the courts and can exercise a democraticcontrol, which promotes confidence in the administration of justice. A furtherobjective of this participation is that it guarantees that legal decisions are inline with the public’s sense of justice and that, through the broader life experi-ences, conditions are established for a rounded solution to matters.44

The role of the nämnd is complex and pulls in a number of directions. In the past, they had only a block vote and so the numbers of nämndemändeclined from 12 in 1734 to 3 in 1948 for less serious cases and 9 for seriousones. Since 1948, the nämnd has formed a collegial bench with the profes-sional judges. In the tingsrätt, there is normally one judge and (since 1983)three nämdemän, but any case involving a possible sentence of more thantwo years in jail has four or five nämndemän. In family cases, there are

Lay Judges 305

43 See the CGPJ, Memoria anual 2002 (Madrid 2002), 244.44 Diesen, above note 27 at 255. Similar words are used by the government in Regeringensskrivelse 1999/2000:106, Reformingen av domstolsväsendet—en handlingsplan, 32. Theimportance of public confidence in the legal system and of democratic principles is also statedby the committee on judges in 1994: SOU 1994:99, 302.

three judges and two nämndemän, and in the länsrätt, there is one judgeand three nämndemän. Since 1977,45 on appeals to the hovrätt relating tocriminal and family cases, two nämndemän sit with three judges. The kam-marrätt has a similar composition for appeals from the länsrätt. In thelower courts, they are fellow judges with individual votes. In the appealcourts, they are more assessors exercising a controlling or accountabilityfunction. Certainly, by their very presence, they are able to inject both dif-ferent knowledge and an element of social accountability into the profes-sional judges’ decision-making process. Because they are politicians, theyhave a way of offering feedback to the legislator about the operation of thelegal system. Only to a limited extent do they represent the population (asfolksdomare).46 It is inevitable that they will be drawn from the older andmore experienced members of society, and their work commitments willmake it difficult for many employed members of society to discharge. Thatsaid, there are arguments for greater social representativeness or perhapsmore attention to specialist knowledge.47

The way nämndemän work has been studied by Landolf. In her study ofover 4,000 cases in the Svea hovrätt (Stockholm district court of appeal),she found that the lay judges disagreed with the professional judges in only2 per cent of cases and made a reservation in a further 7 per cent (a similarpercentage to professional judges). In 18 per cent of criminal appeals, therewere divergent opinions among the judges, but in only 2.6 per cent was themajority made up of a single professional judge and two lay judges.48

Dissent is much higher in the difficult appeal cases compared with the lowercourts. It was noted to be six times higher in the Svea hovrätt than in theStockholm tingsrätt. Now dissent indicates only one aspect where layjudges make a difference, but their low number perhaps colours the percep-tion of judges about the difference which lay participation actually makes.My own limited interviews with nämndemän suggest that there is some atti-tude of deference shown by the lay judges to the professionals, as well as arespect for authority and expertise. The rules of the court also limit theinfluence of the lay judges. Deliberations start with the youngest professionaljudge or the reporter and then follow the seniority of professional judgesbefore giving the lay judges a chance to express their opinions. This doesgive rise to a ‘snowball’ effect in many decisions, whereby there is little pointin the lay judges making much of a contribution to discussions unless theydisagree with what the professional judges have already proposed.

306 J O H N B E L L

45 Participation by nämndemän in the appeal courts was originally proposed in 1931 and wasdebated at several times thereafter before the 1977 reforms: see SOU 94:99, 180–84.46 Diesen, above note 27 at 337–38. ‘The Swedish nämndemän can therefore be characterisedas a jointly responsible co-judge without legal knowledge.’(ibid at 331).47 In a 1994 survey, 70% of professional judges thought that more expertise in specialist areasamong nämndemän would be helpful: Diesen, above n 27 at 369.48 Diesen above note 27 at 315–36. On the work of lay judges in the appeal courts, see SOU1994:99, 310–11.

The justifications for the contemporary role of the nämnd mainly involvesome criticism of the competence of professional judges to decide alone. Astudy of Swedish appeal court judges suggested that 60 per cent of respon-dents thought that lay judges had no place in the appeal courts because theissues are predominantly legal questions. 70 per cent claimed to have goodworking relationships with the nämnd, but only 36 per cent were positiveabout the value of the contribution that they made to decision-making.49 Adifferent survey also found strong objections to lay judges in the appealcourts, but a division of opinion at first instance between the ordinarycourts, where only 10 per cent were against having lay judges, comparedwith 40 per cent among administrative judges. Since lay judges only cameinto administrative courts in 1971 and into the appeal courts in 1977, buthave been traditional in the ordinary courts at first instance, one can detecta certain reluctance among judges in those courts to accept ‘recent’ changes,particularly as they were introduced by a particularly radical SocialDemocrat government under Olaf Palme. Efficiency and effectiveness areperhaps stronger weighted arguments among judges than a particular ver-sion of democratic representativeness.

C. Germany

In Germany, there are two stages to the process of decision-making. Thepre-trial process is conducted in different ways, depending on whether the case is criminal or administrative. In criminal matters, it is increasinglythe prosecutor who is responsible for the pre-trial process of sorting evi-dence and determining what is relevant. The judge will conduct some formof review before trial, simply to schedule the different parties. There mayeven be discussion about possible sentences with the defence. But the judgewill have to discuss this both with the other judges and with the Schöffenbefore a decision is reached.

In administrative law cases, which are often conducted on paper, therewill be even more preparation by the reporting judge in advance. Researchon the law, requests for information on fact will focus the purpose of thehearing. The Berichtserstatter will start with an account of the facts andissues, and the court may even try out some likely outcomes on the variousparties to test their reactions. Now all this will have been done without con-sultation with the Schöffen, who will be appointed for the case and willturn up for the oral hearing.

Lay Judges 307

49 Diesen above note 27 at 316–17. Good working relationships are traditional—in the 19thcentury there was often overnight accommodation provided in the courts for the nämndemänif they had come from a distance and there would be convivial relations between them and theprofessional judges out of court: see Modéer, Domarkulturen above n 24 at 41.

The lay judge will arrive with no prior knowledge of the case-file. Therewill be a brief introduction by the presiding judge about the nature of thecase and the basic kinds of issue to be raised. There will then be the oralhearing. In many cases, the oral hearing is spread over several days andthere may be some opportunity to review progress in the middle of the case.But it is not expected that the lay judge will examine the case file. In admin-istrative law cases, the reporting judge (Berichterstatter) will have exam-ined the file and may have decided that third parties should be joined orevidence gathered. This preparation for the hearing is conducted in advanceand without consultation of the lay judges.50 As was said in interviews andin the briefing literature for lay judges, their function is to receive theaccount of the factual issues and to check that the professional judges haveconducted an investigation of all the issues.51 The relationship between layand professional judges is based on a division of functions

The importance of the oral hearing in criminal, administrative andlabour matters does give scope for participation by the lay judge. Lay judgesare typically invited by the presiding judge to ask questions, but the litera-ture suggests that Schöffen are uncertain whether this is a formality or agenuine invitation.52 Much depends on the personal relationships betweenthe lay and professional judges and the personality of the lay judge. A layjudge needs to have a degree of confidence in order to ask questions in alegal setting without legal training. There is certainly a danger, noted in theliterature and interviews, that lay judges will remain relatively passive dur-ing the hearing.

Once in private deliberations, lay judges may outnumber professionaljudges, but the extent of this will be limited by the deference shown by thelay judges to the views of the professionals. If the views of the professionalsare heard first, as was suggested in interviews, this will put pressure on thelay judges to fall into line. The professional judges also play an importantrole by deciding questions of law. This role will not be seen externally interms of one decision by the judge on law and another by the lay judges onfacts. But the division of functions is made clear.

The official literature does not claim that there is any great difference inthe reasoning of professional and lay judges. Lay judges are not harder orsofter in sentencing. Rather, their function is to confer legitimacy on theprocess and to link official approaches to a view of matters which is ‘closeto the citizen’ (Bürgernah).53

308 J O H N B E L L

50 See ‘Die ehrenamtlichen Richter in der Verwaltungsgerichtsbarkeit’ (Senatsverwaltung fürJustiz, Berlin 2000), §§ 4.3–4.5.51 Ibid, § 4.7.52 See U Vultejus, C Renning and S Machura in Lieber and Sens, above n 34 at 63 and 67.53 Sigismund E, ‘Zur Funktion der ehrenamtlichen Richter im Strafverfahren in Deutschland’(Ministry of Justice, Bonn 28 April 1999) 8.

V. CONCLUSION

The brief survey of the appointment and roles of some major generalist layjudges in three European systems reveals diversity of functions and concep-tions. The tension between formalism and substantivism can be met in anumber of ways. Whereas the lay judges in Spain, Sweden and Germanyshare some similarities in medieval roots, the manner and reasons for theirsurvival are distinct. Each system has undergone major changes in the lastcentury and a half, and especially in the last 50 years, which gives lay judgesa distinct place. In Sweden, the social democratic reforms of criminal pro-cedure in 1948 and of court composition in the 1970s has enhanced therole of the lay person in the criminal and administrative process as a checkon the officials and on the state. But this has been done by maintaining thenämndemän as clearly political appointees, though this may be about tochange. It represents a form of participatory character to Swedish democ-racy.54 The German system has also wanted to maintain lay participationon the bench as a way of achieving similar objectives in criminal and admin-istrative courts. But the country’s history has made it wary of having politi-cians as lay judges and the Schöffen are very much lay people brought infrom the community. For this reason, there is a reluctance to have muchformalised training. Both Sweden and Germany have been able to redrawthe map of the courts, regrouping courts to meet the needs of modern socialconditions. This has been politically impossible in many Latin countries. Asa result, while the jurado may be seen as an example of trying to increasecommunity participation in justice, this is not the case really for the Juez dePaz. The Juez de Paz is described as a ‘non-professional judge’, a local per-son to whom petty matters can be delegated. Despite some public participa-tion, there is a real sense that the main purpose is to get jobs done, whichothers could not do. As the Auld review discovered, there is a significantdifference between seeing lay judges as ‘representative of the community’and seeing them as non-professional judges, where the work does notrequire the time of a highly skilled lawyer. Different countries take differentviews.55

It would be wrong to conclude from this that every legal system has simi-lar problems or functions to perform, but which lead to different means. Layparticipation is not a common problem, but a generic phenomenon. Thedynamics of how one maintains public confidence in the legal system,widens the perspective in which relations between the citizen and the stateare viewed in judicial decisions, or simply how one gets the business of judg-ing done differs from country to country. Getting the business conducted

Lay Judges 309

54 See T Tilton, The Political Theory of Swedish Social Democracy (Oxford 1990).55 Morgan, R and Russell N, The judiciary and the magistrates’ courts (Home Office 2000)RDS 66, 6–7.

efficiently is not the same problem in Sweden as it is in Spain. Public confidence in the judicial process is different in Sweden, which has hadmany years of democratic government, compared with Spain, which hashad barely 25 years of democracy. The value of comparative law is showingthat abstract values such as justice, effectiveness and public confidence inthe legal system can be achieved in significantly different concrete ways.

310 J O H N B E L L

15

The Race Directive: Recycling RacialInequality

FERNNE BRENNAN*

I. INTRODUCTION

THE NEW EUROPEAN Race Directive is one of the latest measures adopted by the Council of Ministers under its enlargedpowers aimed at combating racism in the EU. This Race Directive

reflects the strategic thinking of EU policy aimed at combating institution-ally racist1 constraints on the free movement of persons within theCommunity. Nevertheless, this paper argues that the effectiveness of theDirective is likely to be limited. This potential impediment is premised ontwo factors: the textual ambivalence that surrounds the concepts of ‘race’and ‘ethnicity’ and the scope of the instrument. In turn, these restrictionsare indicative of a power struggle between the EU and nation states, astruggle that threatens to sideline the broader picture of institutionalracism and how to defeat it.

European Council Directive 2000/43/EC2 (Race Directive) was adoptedby the Council of Ministers on 29 June 2000 and will come into effect onthe 19 July 2003 in Member States. The Race Directive3 is a landmark in

* Lecturer in Law, University of Essex. Thank you Professor Peter Fitzpatrick, Professor BillBowring, Professor Janet Dine and Peter Luther for helpful comments on earlier drafts.Responsibility for the Article remains with the author.1 Defined as ‘acts by the total white community against the black community’, see Carmichael, S and Hamilton, CV Black Power. The Politics of Liberation (Vintage Books 1967), 4 and morerecently as the ‘collective failure of an organisation to provide an appropriate and professionalservice to people because of their colour, culture, or ethnic origin. It can be seen or detected inprocesses, attitudes and behaviour which amount to discrimination through unwitting preju-dice, ignorance, thoughtlessness and racist stereotyping which disadvantage minority ethnicpeople.’ See Sir William Macpherson of Cluny, The Stephen Lawrence Inquiry. Report of anInquiry (London, Stationery Office 1999) CM 4264–1, para 6.34.2 Council Dir 2000/43/EC of 29 June 2000 implementing the principle of equal treatmentbetween persons irrespective of racial or ethnic origin, Official Journal 2000 L180/22.3 The Race Directive is broadly modelled on the UK Race Relations Act 1976.

the evolution of EU policy on race discrimination, since it is the first timethat a legal duty has been placed on Member States to provide a ‘commonminimum level of legal protection from discrimination in public and privatesectors.’4 Its objective is to provide a foundational, common framework forMember States to put into place anti-race discrimination measures byrequiring the abolition of any laws, regulations or administrative provi-sions contrary to the principle of equal treatment.5 The Race Directive canbe seen as an equal opportunities measure that addresses two related prob-lems—market and social integration. Market integration can be understoodas requiring the dismantling of racially and ethnically determined barriersto the marketplace. The business case for removing these barriers concernquestions about, ‘effective service delivery, concerns with the public imageof an organisation … and issues surrounding recruitment and retention’.6

Social integration raises questions of equity that resonate beyond the market.7

The obligations imposed by the Race Directive concern both market andsocial integration. Successful implementation should mean that no personis prevented from pursuing economic and social opportunities on raciallydiscriminatory grounds.

II. EU AND ANTI-RACISM: THE HISTORICAL CONTEXT

The EU has had a relatively poor record on anti-racist discrimination, leavingsuch issues to be dealt with by Member States.8 Several reports demonstratethe futility of this approach9 because there is no comprehensive prohibitioncovering areas where racial discrimination tends to occur—in civil, political,economic, social and cultural spheres.10 Thus, Austria has specific legislationprohibiting incitement to hatred on racial or religious grounds and generalconstitutional provisions, whilst the British Race Relations Act 1976 is

312 F E R N N E B R E N N A N

4 See O’Brien, M ‘The European Race Directive—Our plans for implementation’, EuropeanLookout 3 (2000), 2.5 Art 14 Council Dir 2000/43/EC above n 2.6 Dandeker, C and Mason, D ‘Diversity in the British Armed Forces: the Debate Over Ethnic

Minority Representation’, Paper presented to a conference on ‘Redefining Society—MilitaryRelations: From Vancouver to Valdistock, at the University of Birmingham, 16–18 April 1999.7 Ibid.8 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 discrimi-nation is not an autonomous right and the remedy relies on the willingness of member states’governments to comply with court rulings.9 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, EqualOpportunities Study Group, University of Southampton, 1992, Research Series No 1 (London,Department of Employment).10 UN Centre for Human Rights (1996) ‘Model National Legislation for the Guidance ofGovernments in the Enactment of Further Legislation Against Racial Discrimination’.

broader but does not include health or social security, or participation inpolitical, economic, social or cultural spheres.11 Moreover, many of thelegal instruments that exist at Member State level are rarely used.12

Given the ethnic conflict that preceded the birth of the EC, the lacuna inthis area should have been filled long ago. It has been argued that racismand intolerance have a detrimental effect on third country nationals13 andnational ethnic minorities14 in exercising the right to free movement withinthe internal market.15 The failure to abolish institutionally racist barriersstrikes at the very heart of the European idea in two fundamental respects.On a narrow internal market basis (the business case),16 upwards of 13million third country nationals are more or less discounted where questionsof effectiveness of service delivery, markets and competition for the recruit-ment and retention of people. At the level of concerns over fairness andequity (the altruism model)17 this necessitates that racial and ethnic groupsare represented throughout society, so that the creation of ‘harmonioussocieties characterised by ethnic and cultural diversity … [as] a positive andenriching factor’18 can be achieved. In the light of these difficulties, theKhan Commission recommended using EU law. This law would enshrinethe principle that, ‘all individuals, regardless of their colour, race, national-ity, ethnic or national origin, or religion, should have the right of equalaccess to employment, equal pay and fair treatment.’19 The Commissionemphasised that the right to equal treatment should apply whether or not aperson was a Community citizen.20 It is argued that within a human rights

The Race Directive: Recycling Racial Inequality 313

11 The Human Rights Act 1998, incorporating the European Convention on Human Rights islikely to have an impact in these areas.12 See Bell, M ‘Beyond European Labour Law? Reflections on the EU Racial EqualityDirective’, 8 (2002) European Law Journal 384. Also see Forbes & Mead, above n 9.13 Non-EC nationals in any EC country who have been legally admitted as residents. Theseinclude all residents from outside the EC, citizens of Commonwealth countries (if they havenot registered or naturalised as British citizens), British nationals but not British citizens, seeDummett, A Citizens, Minorities and Foreigners (London, CRE 1994).14 Duncan, W ‘Racism and Xenophobia in Europe’, in Barrett, G (ed) Justice and Cooperationin the European Union, (Dublin, Institute of European Affairs 1997), 183. Also see EuropeanMonitoring Centre on Racism and Xenophobia, Looking Reality in the Face, Annual Report1998, part 2, EUMC, Vienna.15 A freedom guaranteed by Art 39 of the EC Treaty but limited to the abolition of discrimina-tion on grounds of nationality not race or ethnicity. Commission, ‘European Social Policy—Away Forward for the Union’ COM (94) 333 final, 27.7.94, ch VI. Also see Case 186/97Cowan v Tresor Public [1989] ECR 195 where the Court held that the prohibition against dis-crimination on the grounds of nationality extended to recipients of services.16 For analysis of the ‘business case model’ in relation to ethnic minorities and the armed serv-ices see Dandeker and Mason, above n 6.17 Ibid, at 3.18 EU Anti-discrimination Policy. From Equal Opportunities Between Men and Women toCombating Racism, Working Documents, Public Liberties Series LIBE 102 EN, 3.19 European Council Consultative Commission (1995) Final Report, Ref 6906/1/95 Rev 1Limite RAXEN 24.20 Ibid, 59.

framework this is justified. Additionally, the 1996 European Parliamentasked the EC Commission to address the question of how the principle ofequal treatment might be obtained beyond areas pertaining to the labourmarket.21 This reflected an understanding that institutionally racist barriersmight have a bearing on interstate and intrastate movement for ‘racial’ and‘ethnic’ minorities. This understanding is important if the appropriate leg-islative tools are to be formulated in order to strike at the heart of institu-tionally racist practices (and, if needs be, at the individuals who operatethem). Examples include the fact that in Austria and Germany distinctionsdrawn between EC nationals and non-EC nationals (including third coun-try nationals who have permanent residence) are not seen as racially dis-criminatory. In Greece, public sector employment is not open to non-ECnationals and in Portugal a company with more than five employees canonly employ foreign nationals as long as 90 per cent of the workforceremains Portuguese.22

Although proposals to amend the EC Treaty were advocated since the1980s,23 it was only in 1997 that the European Council at Amsterdamaccepted the principle that the Community should combat racism. This waspursued by the implementation of Article 13.24 This article empowers25 theCouncil, acting unanimously on a proposal from the Commission,26 to takeappropriate action to combat discrimination on racial or ethnic grounds.27

Article 13 is the main provision dealing with Community competence in tack-ling unlawful discrimination and equal opportunities in employment andother fields. Its existence is motivated by the belief that equal opportunities inthe labour market are, to some extent, contingent on equality of access to

314 F E R N N E B R E N N A N

21 Para 15, Resolution on the Communication from the Commission on Racism andXenophobia and Anti-semitism, 9 May 1996 (OJ 1996 C 152/57).22 Wench, J ‘Mechanisms of Exclusion: Ethnic Minorities and Labour Markets’ 1 (1997)Nordic Labour Journal 16, 17.23 The European Parliament, Council, Representatives of member states and the Commissionagreed the 1986 Declaration Against Racism and Xenophobia. A number of organisationshave been actively engaged in compiling draft instruments aimed at the enhancement of theEC’s competence in dealing with racial discrimination on a Community-wide basis. Thesehave included the CRE, the Dutch National Bureau against Racism, Belgian Centre for EqualOpportunities, Churches Commission for Migrants in Europe, the Migrants Forum andStarting Line. 24 Another amendment to the Treaties relating to racism was Art 29 EU aimed at preventingand combating racism and xenophobia in the provision on police and judicial cooperation incriminal matters.25 It has been unsuccessfully argued that the Community already had competence in this areaunder the old Art 235 of the Treaty of Rome see A Dummett.26 After consulting the European Parliament, Art 13 EC Treaty.27 Additional grounds of discrimination in the Article included sex, religion or belief, disability,age and sexual orientation. Contrast this with the equal treatment of men and women in rela-tion to pay for instance under Art 141, formerly Art 119. Another difficulty is the requirementthat the Council act unanimously in any appropriate action. It could lead to inaction or lim-ited action. This was a problem that the CRE hoped to avoid in its proposal in the early 1990’sthat the Council act by qualified majority, see Dummett above n 13 at 12–13.

spheres that are contingent and simultaneous such as housing and health.Inequality in these spheres compound labour market discrimination.28

The European Monitoring Centre on Racism and Xenophobia29 was setup with the express aim of providing the Community and its Member Stateswith data at European level on racism, xenophobia and anti-Semitism, inorder to help them in formulating policy in this area. It was not until 6 June2000 that agreement was reached on a package of anti-discriminationmeasures put forward by the European Commission, which included theRace Directive.30 The Race Directive was adopted by the Council ofMinisters (Council)31 on 29 June 2000. It is a European Union (EU)Community-wide instrument that will come into effect32 on 19 July 2003in all Member States.33

III. THE RACE DIRECTIVE: KEY FEATURES

The object of the Race Directive is to lay down a common framework forcombating racial or ethnic discrimination in Member States of the EUthrough the application of the principle of equal treatment

Member States are under a duty to implement measures at the domesticlevel to ensure compliance and must report to the Commission on theirwork in this regard.34 They must designate a body or bodies charged withthe promotion of equal treatment on the grounds of racial or ethnic originand imbued with the legal competence to provide assistance for victims.These bodies must also have competence to conduct surveys and publishindependent reports.35 Sanctions for non-compliance with the objective of

The Race Directive: Recycling Racial Inequality 315

28 The extent to which this article can deal with racial discrimination wherever it may arise isquestionable.29 On 2 June 1997 the Council of Ministers adopted regulation (EU No 1035/97) to set up thiscentre. For a critique of the limited objectives of the Centre, see Brennan, F ‘Can theInstitutions of the European Community Transcend Liberal Limitations in the Pursuit ofRacial Equality?’ in Brecher, B Halliday, J and Kolinska, K Nationalism, Racism and theLiberal Order (Ashgate 1998) 108.30 Council Dir 2000/43/EC adopted on 29 June 2000 implementing the principle of equaltreatment between persons irrespective of racial or ethnic origin, above n 2. It may be useful toadd that this directive was rushed through, precipitated by fears over the human rights situa-tion in Austria due to the rise of the Far Right Freedom Party in 2000. See Douglas-Scott, S Constitutional Law of the European Union (Longman 2002) 435, fn 21 and Bell, M ‘BeyondEuropean Labour Law? Reflections on the EU Racial Equality Directive’ 8 (2002) EuropeanLaw Journal 384, 385. As part of the package of measures, provisions to deal with discrimina-tion on the grounds of religion were adopted through Council Dir 2000/78/EC, establishing ageneral framework for equal treatment in employment and occupation, Official JournalL303/16.31 The Council of Ministers consists of representatives of each Member State at ministeriallevel imbued with authority to commit the government of that State.32 Art 249 EC Treaty provides that a Dir shall be binding as to the results to be achieved.33 Art 16 of the Race Directive above n 2.34 Ibid.35 Art 13, ibid.

the Race Directive must be developed that are effective, proportionate anddissuasive.36 Provisions designed to deal with these matters must be noti-fied to the Commission.37 Whilst there are several areas aimed at the levelof Member State obligation, how does the Race Directive help victims ofracial discrimination?38

There are a number of articles in the Directive that purport to lay down alevel playing field for those who consider themselves wronged by failure toapply the principle of equal treatment39 on the grounds of racial or ethnicdiscrimination. These include the right not to be discriminated against eitherdirectly or indirectly40 and protection from harassment41 and victimisation.42

This right applies in the context of both the private and public sectors andcovers a number of areas such as employment, training, membership oforganisations, social protection, security and healthcare.43 Some importantaspects involve the establishment of an independent body to provide individ-ual assistance to victims,44 a shift in the burden of proof to the respondentonce a prima facie case of racial discrimination has been made out45 and aduty to disseminate information to inform people of the existence of theseprovisions.46 A directive was seen as the most feasible instrument to deal witha minimum level of protection from racial discrimination in Member States.

A directive as an instrument to provide minimum protection to victimsof racial discrimination is useful. It can take account of the divergent legal47

and cultural systems of Member States when measuring compliance withthe obligation to implement the principle of equal treatment because it isbinding as to the results to be achieved, leaving the form or method ofattaining the objective to Member States. Regulations and decisions arebinding in their entirety and their implementation might require completeuniformity. Reliance on the latter might prove problematic when pursuingcomplex EU social policy such as the integration of people in the singlemarket, in countries with divergent legal and historic systems. From a political point of view, a directive is likely to be the most palatable instru-ment in seeking to achieve the consensus of 15 Member States.

316 F E R N N E B R E N N A N

36 Art 15, ibid.37 Ibid.38 For analysis of the Race Directive as a model for worldwide mechanisms to combat racialdiscrimination see Brennan, F The European Race Directive: A Bridge So Far? (London,Consultative Council of Jewish Organisations 2001) discussion paper produced for the WorldConference Against Racism.39 Art 7(1) of the Race Directive above n 2.40 Art 2(1) (a) and (b) ibid.41 Art 2(4) ibid.42 Art 9, ibid.43 Art 3(1), ibid.44 Art 12, ibid.45 Art 8, ibid.46 Art 10, ibid.47 For instance whilst Britain, the Netherlands and France have laws against discrimination, inother EC countries such protection amounts to a pittance.

The Race Directive requires a minimum standard of compliance acrossall Member States.48 It is aimed at the protection of victims of racial dis-crimination by placing upon states a duty to provide national measures togive effect to this instrument. Where a Member State fails to implement adirective, individuals may rely on it directly.49 This opens the door to hor-izontal direct effect as well as vertical direct effect claims. An individualmay also bring an action in damages against the state if there is a causallink between the state’s failure to implement a directive and the loss suffered.50

The idea behind the Race Directive is to prevent the use of characteristicssuch as racial or ethnic origin, as a ground of discrimination in the singleEuropean market. It could be argued then that the Directive is a poten-tially powerful instrument in challenging both intentional discriminationand prejudice and the social construction and ideological justification ofracism51 when manifested in the form of racial discrimination in theCommunity market place. This may be dealt with at an individual, groupor institutional level. Thus the Directive appears to place an obligation onMember States to perform a ‘policing’ function in terms of controllingdirect discrimination52 and it can be seen as an agent of social change, inthe sense that it also prohibits discrimination53 against groups and so hasthe potential to deal with the results of past discriminatory practicesand/or a ‘concern for distributive justice.’54

IV. TRANSPOSITION

At the time of writing few Member States have fully transposed the RaceDirective into their domestic legal systems.55 The following table sets outthe stage reached by Member States.

The Race Directive: Recycling Racial Inequality 317

48 Member states may introduce more favourable provisions, but they cannot reduce levels ofprotection that were already afforded by them prior to the Directive, Art 6 of the RaceDirective above n 2.49 Individuals may rely on an unimplemented directive under the doctrines of ‘direct effect’, Case41/74 Van Duyn v Home Office [1974] ECR 1337, [1975] 1 CMLR, and ‘indirect effect’, Case4/83 Von Colson and Kaman v Nordrhein-Westfalen [1984] ECR 1891, [1986] 2 CMLR 430.50 Art 1 Council Dir 2000/43/EC. Joined cases C–6/90 and C–9/90 Francovich and Bonifaci vItalian State [1991] ECR I–5357.51 As a set of beliefs or dogma that is used to justify the existence of groups, ie, natural andfixed biological criteria, inferior culture or religion, see Bowling, B and Phillips, C Racism,Crime and Justice (Pearson 2002), 21.52 A type of cleansing of the process of decision-making on behalf of the individual com-plainant, see McCrudden, C, Smith, DJ and Brown, C Racial Justice at Work: TheEnforcement of the Race Relations Act 1976 in Employment (PSI, 1991) at 5–6.53 Art 2(2)(b) of the Race Directive above n 2.54 See McCrudden, Smith & Brown above n 52 at 6–7.55 See European Network Against Racism, ENAR Update on the Implementation of theCouncil Dir 2000/43/EC Implementing the Principle of Equal Treatment between PersonsIrrespective of Racial or Ethnic Origin, January 2003 (based on information from ENAR 31 December 2003).

Member State Stage Reached in Transposition Potential Problems

Austria Draft anti-discrimination law presented Will not be fully transposed.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.

Belgium In December 2002 a law was adopted to Only 80% of the content of the implement Race Directive. Directive has been covered by this

law.Denmark Expert Committee overseeing the work Independent bodies are unlikely

and has proposed changes to existing law. to be given the legal competence to There is no draft bill. bring cases before the courts.

Finland Draft law was submitted to Parliament in Standards proposed only bringDecember 2002 but dropped due to the protection against racial elections in March 2003. The draft law discrimination to the level required changes existing legislation. by the Directive.

France The Directive has been brought into force The scope of the Directive is notthrough laws of 16-11-2001 (employment) all-encompassing. Powers ofand 17-01-2002 (Housing). associations to bring action on

behalf of victims is limited and indirect discrimination is not generally recognised.

Germany In the process of preparing a new proposal Racism is not considered a major after the first one was dropped. problem thus the proposal may

reflect this.Greece No information available. Does not associate negative

practices with racism.Ireland Discussion on implementation by way Need for primary, rather than

of regulation. 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 NI that aims to protect and build on existing provisions.

Italy An unofficial draft exists. May lag behind and do little to transpose the Directive.

Luxemburg No information available.The Netherlands A bill was proposed that is in the process Whilst the bill is fairly

of discussion. comprehensive some areas remain unclear.

Portugal No information available.Spain There is a working group but no proposal

from Government.Sweden There are proposals from the Government Whilst the proposals appear to

that will be presented to Parliament in encompass higher standards July 2003. There are also inquiries that are than required by the Directive, it isconsidering whether to have one too early to determine howall-embracing law or to combine existing comprehensive the law will be.legislation.

United Kingdom Draft Race Relations Act 1976 One of the difficulties will be the (Amendment) Regulations 2003 laid before possibility of inconsistencies parliament 8 May 2003 for discussion in June.56 between the Draft Regulation,

318 F E R N N E B R E N N A N

56Source 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.

existing Race Relations Act 1976(amended to impose positive dutieson institutions) and the Human Rights Act 1998. Moreover, it is difficult to assess the impact of theproposal for a Single Equalities Commission.

Sources57

The Race Directive: Recycling Racial Inequality 319

Candidate countries due to join the EU in May 2004 will also be expected to implement therace directive.

57European Commission Against Racism and Intolerance. http://www.coe.int/T/E/human_rights/Ecri/1-ECRI/, European Union Monitoring Centre on Racism and Xenophobia, EuropeanNetwork Against Racism, ENAR Update on the Implementation of the Council Dir2000/43/EC Implementing the principle of equal treatment between persons irrespective ofracial or ethnic origin, January 2003, http://www.enar-eu.org/en/events/racedirective/ENAR%20update%20on%20the%20implementation.pdf, ENAR Shadow Reports on theactivities of Member States, http://www.enar-eu.org/en/national/, Northern Ireland Councilfor Ethnic Monitoring (NICEM), Submission to the OFMDFM in response to Draft RaceRegulations in Implementing EU Equality Obligations in Northern Ireland, 31 March 2003,Belfast.58 Art 2(1) of the Race Directive above n 2.59 Art 2(3) ibid.60 Art 2(4) ibid.61 Which states that ‘For the purposes of this Directive, the principle of equal treatmentshall mean that there shall be no direct or indirect discrimination based on racial or ethnicorigin.’62 Art 4 Genuine and determining occupational requirements. For an interesting critique of theuse of Genuine Occupational Qualifications as a ground of discrimination see Pitt, G ‘MadamButterfly and Miss Saigon: Reflections on Genuine Occupational Qualifications’ in Dine, J andWatt, B Discrimination Law. Concepts, Limitations and Justifications (London, Longman1996) 198.63 Art 5 of Council Dir 2000/43/EC, above n 2, related to positive action.

V. TEXTUAL AMBIGUITY

Discrimination on the grounds of racial and ethnic origin is central to theproblem that the EU perceives as dividing the internal market along unjusti-fied discriminatory lines. To address this problem the Community hasemployed the principle of equal treatment. Accordingly, the principle ofequal treatment shall mean that there shall be no direct or indirect discrim-ination based on racial or ethnic origin.58 The Directive provides thatharassment59 and an instruction to discriminate60 are prohibited as formsof discrimination as defined in paragraph 1,61 based on racial or ethnic ori-gin. Further, the instrument does not exclude a ‘ … difference of treatmentwhich is based on a characteristic related to racial or ethnic origin … ’62

and Member States are encouraged to ‘ … maintain or adopt measures tocompensate for disadvantages linked to racial or ethnic origin.’63 The diffi-culty here is that these provisions in the Directive appear to undermine itsbasic premise in relation to ‘race’ and ‘ethnicity’.

A. ‘Race’

Regarding the question of ‘race’, the premise in the Directive is one thatrejects theories of separate human races.64 No doubt this is put in place tocounter any suspicion that nineteenth century scientific racism and its re-emergence in mainstream politics and Far Right discourse is accepted bythe EU. Such racism is based on hatred of the ‘Other’65 and a belief in thesuperiority of one racial group over another, drawing on somatic featuressuch as skin colour, skull size and hair texture—linked to mental character-istics.66 However, the use of language such as ‘racial origin’, ‘related toracial origin’ and ‘linked to racial origin’, in Article 1 and 2 is ambiguous.In transposing the Directive who is the Member State to target? Should theyput in place provisions to protect ‘racial’ groups or prohibit perceptionsthat there are separate ‘racial’ groups? It may be argued that the provisionsmust be transposed in such a way that they get at perception of, rather thanthe existence of, separate ‘racial’ groups. However, this is not clear in thetext of the Directive that uses the term ‘based on racial origin’. Moreover, itcould be contended that the acceptance of a difference in treatment basedon a characteristic related to ‘racial origin’ contained in the provision cov-ering genuine occupational qualifications, supports the argument that theEU impliedly accepts the notion of separate ‘racial’ groups. This may befurther reinforced by the concept of positive action in Article 5.67 This pro-vision does not prevent Member States from using ‘ … specific measures toprevent or compensate for disadvantage linked to racial … origin.’68 Theobscurity may compound difficulties in the transposition of the RaceDirective into the legal system of Member States that is likely to have nega-tive consequences for victims of racial discrimination.

Problems regarding racism that have surfaced in Northern Ireland,Germany and Greece serve as timely reminders of these difficulties. A seriesof reports on Northern Ireland consider that characteristically the principaltrigger for racially discriminatory behaviour is ‘skin colour racism’.69 Thatis the use of the colour of a person’s skin as grounds for discriminatory andoffensive behaviour. In Northern Ireland discriminators do not generally

320 F E R N N E B R E N N A N

64 Para 6 of Preamble Council Dir 2000/43/EC.65 Fitzpatrick, P and Bergeron, JH Europe’s Other: European Law Between Modernity andPostmodernity (Ashgate 1998).66 See Gearty, CA ‘The Internal and External “Other” in the Union Legal Order: Racism,Religious Intolerance and Xenophobia’ in Alston, P (ed) The EU and Human Rights (OUP1999), 327.67 The Race Directive, above n 2.68 Ibid.69 NICEM, Submission to the OFMDFM in Response to the Draft Race Regulations inImplementing EU Equality Obligations in Northern Ireland, 31 March 2003, Belfast. Also seeECRI, Second Report on Ireland, Adopted 22 June 2001, 23 April 2003 where it is reportedthat people generally reject the idea that a person may be Irish and black, para 55.

know the ethnic or national background of victims. The tendency is to discriminate on the basis of ‘visible’ characteristics. Similar problems havearisen with people in Austria (whether or not they are native born).70 Theseproblems suggest that the failure to define ‘race’ to include discrimi- nation on the basis of skin colour will present a problem for those seekingto rely on the transposition arrangements to protect them from racial discrimination.

‘Rasse’ the German word for ‘race’ tends to be perceived as a quintessen-tial category in Germany. This concept represents the essence ‘Wesen’ of atribe ‘Volk’ in public discourse. Discourse on racism in Germany manifestsitself in the stigma attached to Colonialism and the Holocaust and thus israrely discussed outside of those terms. This makes it difficult to considercontemporary forms of racism and how that might impact on market inte-gration.71 By contrast, it is suggested that in Greece, where the ChristianOrthodox Church considers all children derive from ‘Adam and Eve’ andthat to talk of racial ideas is heresy, a very low profile may be given to thequestion of ‘race’. This poses difficulties since there is little in the publicsphere to challenge the widely held notion that integration of ‘races’ maylead to degeneration.72 This problem indicates that if the question of ‘race’is not part of public discourse because it does not ‘exist’ on that level inMember States, it will not be taken seriously. Moreover a failure to define itin the Race Directive compounds this problem since member states will nothave a duty to acknowledge something that they can deny exists at the con-ceptual level. Further, victims will not have an instrument that they canpoint to that is clear and precise in defining discrimination on the basis ofracial origin, causing complaints to be harder to make and raising the issueof effective remedy at the international level.

This ambiguity in the Race Directive is likely to have an impact across arange of public services that are covered by the scope of the Race Directive,such as housing, education and health, since it fails to challenge racial dis-crimination along ‘skin colour’ lines for instance. This failure points to theproblem earmarked by institutional racism. Institutional racism is the fail-ure to provide a service to people because of, for instance, the colour oftheir skin. This failure is not one based on conscious racism, rather it arisesfrom unconscious and unwitting racism that results in racial discrimina-tion. It is suggested that in this respect at least the EU has failed to providean adequate service to people subject to racial discrimination in the internalmarket. This would have been a more comprehensive instrument had itencompassed a meaningful definition of ‘race’.

The Race Directive: Recycling Racial Inequality 321

70 See ECRI, Second Report on Austria, 3 April 2001.71 Hieronymus, A and Moses, M ENAR, Shadow Report 2002, Talking ‘Race’ in Germany,Institut fur Migrations-und Rassismusforschung, Hamburg, Germany April 2003, para 1.1.72 See generally Roubani, N ENAR Shadow Report—2001, for Greece.

B. ‘Ethnicity’

The Race Directive prohibits both direct and indirect discrimination on thebasis of ‘ethnic’ origin.73 This prohibition includes harassment and aninstruction to discriminate.74 The converse is true where the question ofgenuine occupational qualification or positive action is the object of thediscriminating factor. Here the Directive does not prohibit provisions thatseek to provide for difference of treatment ‘related to ethnic origin’.75

However, it does not provide a definition of ‘ethnic’ origin. This omission islikely to raise issues regarding the question of what is an ‘ethnic’ group?Further, this may have implications for monitoring the effectiveness of thetransposition arrangements for those subject to this form of discrimination.

In English legal jurisprudence the question of whether or not a person isa member of an ethnic group is problematic.76 In Mandla (Sewa Singh) vDowell Lee and Others77 the House of Lords has held that for the purposesof the Race Relations Act 1976 (RRA), an ethnic group is one defined byreference to a long shared history and a cultural tradition of its own.78 Thisdefinition has been criticised as being overly restrictive since certain groupsare unable to take advantage of it in order to seek legal redress under theAct in cases of discrimination. Thus in Cooper v British Rail,79 CRE vPrecision Manufacturing Services Ltd80 and Dawkins v Department of theEnvironment81 the courts have consistently decided that certain groupssuch as Muslims and Rastafarians are not ethnic groups. By contrast,groups such as Jews82 and Gypsies83 have been afforded the benefit of theMandla definition enabling them to seek legal redress under the RRA.Given the racism that Rastafarians and Muslims face, commentators haveargued that it is illogical not to extend anti-racist legislation to them.84

322 F E R N N E B R E N N A N

73 Art 2 of the Race Directive above n 2.74 The Race Directive, above n 2, Arts 2(3) and (4) respectively.75 Ibid, Arts 4 and 5.76 See Dobe, K and Chhokar, S ‘Muslims, Ethnicity and the Law’ 4 (2000) InternationalJournal of Discrimination and the Law 369 and Poulter, S Ethnicity, Law and Human Rights.The English Experience (OUP 1998), ch 9.77 [1983] 2 AC 548.78 [1983] 2 AC 548 at 562.79 Unreported, Independent 27 November 1986.80 Case No 4106/91 where it was alleged that an instruction to discriminate against Muslimsfell outside the Race Relations Act because Muslims did not constitute an ethnic group becausethe tribunal believed that Islam was a spread of faith rather than a group of people who couldtrace their descent from a common geographical origin. Also see Nyazi v Ryamans, EAT, 10May 1998 (unreported), Tariq v Young, Birmingham IT, 19 April 1989 (unreported); J H Walker Ltd v Hussain [1996] IRLR 11.81 [1993] IRLR 284.82 Seide v Gillette Industries Ltd [1980] IRLR 427.83 Commission for Racial Equality v Dutton [1989] 1 All ER 306.84 See Gearty, C A ‘The Internal and External “Other” in the Union Legal Order: Racism,Religious Intolerance and Xenophobia’ in Alston above n 66, 335–339 at 327, (in relation to

The Race Directive might have resolved this anomaly had a comprehensive definition of ethnicity been provided.

In Portugal several ethnic minorities are often discriminated against inthe internal market for jobs, good and services on the basis of culturalfactors. African ethnic minorities are particularly vulnerable because theyare subject to ‘latent racism’. However, an evaluation of the legal jurispru-dence related to this area suggests a lacuna.85 Discrimination is not dealtwith by reference to ‘ethnicity’ rather issues are framed in terms of ‘working’and ‘living’ conditions. This means that who is within and who withoutthese parameters, in terms of ethnic groups, is difficult to decipher. Withouta working definition of what an ethnic group might be, it is difficult to assessto what extent the transposition arrangements will effectively deal with discrimination against ethnic groups. By way of contrast, Austrian legaljurisprudence is familiar with the term ‘ethnic origin’. This is dealt withthrough the Austrian Constitution’s equality clause and takes its languagefrom the International Convention on Elimination of all Forms of RacialDiscrimination (ICERD): ‘any distinction, exclusion, restriction or prefer-ence based on … ethnic origin … .’86 However, there is no definition ofwhat is meant by ethnic origin. This means that the potential exists forcertain groups to be excluded and thus not afforded protection fromracial discrimination. An added complication in the Austrian context isthe existence of ‘special measures’ for protected national minorities. Somegroups of national minorities in Austria are so defined under theVolksgruppengesetz (National Minorities Act). This defines ‘a nationalminority as one that comprises groups of Austrian citizens with a non-German mother tongue and a common autonomous cultural heri-tage who have their residence and home in a part of the Austrian Federal territory.’87 Whilst anyone can affiliate to an ethnic group,88

given the prevalence of skin colour racism in Austria89 it seems highlyunlikely that Austrian born Africans or Muslims could do so in the con-text of how national minorities are defined. The Race Directive mighthave been better served in terms of its desire to protect people from ethnic discrimination had it provided a way of dealing with the issueraised here.

The Race Directive: Recycling Racial Inequality 323

Rastafarians and Muslims); Dobe, K and Chhokar, S ‘Muslims, Ethnicity and the Law’ 4(2000) International Journal of Discrimination and the Law, 369 (regarding Muslims).

85 Niessen, J and Chopin, I (eds), Anti-discrimination Legislation in EU Member States. A comparison of national anti-discrimination legislation on the grounds of racial or ethnic ori-gin, religion or belief with the Council Directives. Austria, (Vienna, Austria, EUMC 2002).86 Art 1, para 1 of ICERD.87 Niessen and Chopin (eds), above n 85 at 20.88 Ibid.89 See ZARA, Racism Report 2001. Case Reports on Racist Excesses in Structures in Austria,Vienna Austria, 2001.

Recent events in relation to ‘September 11’ have brought to the fore thequestion of ‘cultural racism’.90 It has been argued that racism cannot beunderstood as based only on colour,91 nor can the racism experienced byMuslims be side-stepped by construing the victimisation process as onebased on religion—or indeed ethnicity.92 There are developing sets of ‘cul-tural racisms’ that use cultural difference to denigrate or ‘demand culturalassimilation from groups who also suffer colour racism.’93 The Directivefails to provide a mechanism whereby this problem is both understood anddealt with in terms of national anti-discrimination legislation. It is arguedthat the issues raised in this section demonstrate the ‘fractured’ approach tothe prohibition of racial discrimination at national level, using the RaceDirective as a device to combat racism. Whilst well-meaning, such a strat-egy indicates that the Directive reflects a failure to provide a service to asignificant proportion of people of the EC. This failure indicates the processof institutional racism because this blinkered approach tends to impact onpeople on the basis of ethnicity. A far more comprehensive approach to thebreadth of the problem is to be welcomed.

V. SCOPE

Paragraph 21 of the preamble94 to the Race Directive states that theDirective is to protect ‘persons who have been subject to discriminationbased on racial or ethnic origin’ and ‘that they should have adequate meansof legal protection.’ This paper assumes that such wording encapsulates theview of the Khan Commission that, ‘all individuals, regardless of theircolour, race, nationality, ethnic or national origin, or religion, should havethe right of equal access to employment, equal pay and fair treatment.’95

However, this broader approach appears watered down when comparedwith the provisions dealing with the Directive’s scope. Article 3(2)96

expressly provides that the directive ‘does not cover difference of treatmentbased on nationality’, nor does it deal with, ‘conditions relating to entry,residence and any treatment which arises from the legal status of thirdcountry national’.97 The difficulty is that problems flow from the apparent

324 F E R N N E B R E N N A N

90 See Brennan, F ‘Islamophobia: the Response of the Criminal Justice System’, 2003 (forthcoming).91 Modood, T et al, Ethnic Minorities in Britain: Diversity and Disadvantage ‘The FourthNational Survey of Ethnic Minorities in Britain’ (Policy Studies Institute 1997).92 Religious discrimination is dealt with by the Framework Directive on Employment andOccupation.93 Fredman, S Discrimination Law (OUP 2002).94 A preamble is not binding but can be persuasive.95 European Council Consultative Commission (1995) Final Report, Ref 6906/1/95 Rev 1Limite RAXEN 24.96 The Race Directive above n 2.97 Art 3(2) of the Race Directive, ibid.

contradiction between the general wish of the EU to protect persons fromracial and ethnic discrimination98 and the restrictions placed on its compe-tence to do so, in the face of the discretionary power of states to admit peo-ple into the territories of the EU.99 The whole question of the extent towhich the legal regime of the EU confines its coverage to people in a waythat impacts directly on third country nationals, may be summed up as anexample of discrimination. This issue concerning discriminatory treatmentof third country nationals in the EU also opens up disturbing questionsabout the rule of law and equality before it. It is argued that third countrynationals are not treated equally before the law in this respect. They areincluded in the Race Directive, except in ways in which they are specificallyexcluded which are to do with immigration and statelessness. Prioritisingstatus over the fact of racial and ethnic discrimination seems to put the cartbefore the horse in this sense. Racism does not respect immigration status orthe condition of statelessness, its prime concern is to resurrect and maintainbarriers along racially or ethnically discriminatory lines. A legal measureaimed at tackling racism cannot be fully effective if it allows Member Statesto pick and choose ‘who’ will be protected from discriminatory structures.Since the Race Directive does not prevent this selecting it can be argued thatthis provision is not really directed at racism at all. Rather, its aim is to pro-hibit racial discrimination only in so far as the object of it has first been iden-tified as a European Community citizen. The difficulty with this approach isthat it is status-determined groups who are afforded a remedy under EU law.This creates an algorithm that leaves those who fall on the wrong side of the‘yes’ or ‘no’ column to the mercy of the inadequate protection of nationallaws. More fundamentally, from this point of view, racism as a fundamentalbasis for discriminating against people is allowed to survive.

A. Third Country Nationals

Many third country nationals100 who legally reside in Member States expe-rience racial discrimination in employment, housing and the provision of

The Race Directive: Recycling Racial Inequality 325

98 The Commission has expressed concern that if migrants are left to fend for themselves theywill continue to occupy the bottom rungs of society and the larger society will continue to behostile, develop mechanisms of rejection and stigmatisation reinforcing the vicious circle ofexclusion. See Commission of the European Communities, Policies in Immigration and theSocial Integration of Migrants in the European Community, SC (90) 1813 final (internal doc-ument, 1990).

99 See Dummett, A ‘Immigration and Nationality’, in McCrudden, C and Chambers, G (eds)Individual Rights and the Law in Britain (Oxford, Clarendon Press 1994) where she arguesthat with few exceptions, international law takes for granted that each state determine its ownimmigration laws.100 ‘A term used to describe non-EC nationals in an EC country who have been legally admit-ted as residents’, see Dummett A, Citizens, Minorities and Foreigners (London, CRE 1994).

goods and services. Despite their tax and employment burden, this is notbalanced by a reciprocal distribution of resources. It is third country nation-als that tend to occupy the poorest paid jobs and live in the poorest hous-ing. They are less likely to receive secondary and higher education and mostlikely to suffer from the problems associated with poverty such as ill health.These problems are often linked to the immigration policies of member statesrelated to historical demands of the labour market for a cheap labour force—often to do the low skilled, seasonal and low paid work that nationalsreject.101 Although they tend to be the most exploited they are often the mostvulnerable and suffer from racial discrimination that national laws do notnecessarily adequately deal with.102 For instance in Germany, the UK andNorthern Ireland several instances of racially motivated incidents arereported. This conduct is often based on a perception of difference basedon a characteristic of the person—skin colour, hair type, dress—which isused to justify homicide, assaults, harassment or criminal damage.103 Thecreation of an atmosphere of fear where the physical and mental well beingof a person is put in jeopardy because of such characteristics is likely toimpact on the exercise of the right to move freely for the purpose of work.Requiring member states to address this problem through adequate legalmeasures is defeated if the only victims that can rely on the transposed pro-visions are those who, by virtue of their status, are protected EU citizens. Itis defeated because the problem of racially motivated crimes is notaddressed, the problem that is considered is the status of the victim entitledto adequate protection.

The EC was empowered under Article 13 to ‘take appropriate action tocombat discrimination based on racial or ethnic origin’.104 The RaceDirective reflects this competence. Moreover, this Directive obligatesMember States to prohibit discrimination in the linked areas of employ-ment, education, housing, health and service provision105—the very areas inwhich the immigrati, stanieri,106 Gastarbeiter, Auslander,107 and other peo-ple similarly placed in Member States are likely to suffer. The irony is thatsome of the most exploited are least likely to be protected by the directive

326 F E R N N E B R E N N A N

101 See A Rudiger (ed) A Voice of Change. European Minority Organisations in Civil Dialogue(Berlin, Regional Arbeitsstelle fur Auslanderfragen, Jugendarbeit und Schule 2001).102 See European Commission Against Racial Intolerance, http://www.coe.int/T/E/human_rights/Ecri/1-ECRI/2-Country-by-country_approach/default.asp#TopOfPage, Rudigerabove n 101 and Forbes and Meade above n 9. Also see ENAR Shadow Report 2002, Racismand Race Relations in the UK and ENAR Shadow Report 2002, Talking ‘Race’ in Germany.103 See Brennan, F ‘Racially Motivated Crime’ [1999] Criminal Law Review. 17, also seeENAR Shadow Report 2002, Racism and Race Relations in the UK and ENAR ShadowReport 2002, Talking ‘Race’ in Germany.104 Ibid.105 Art 3(1)(a)-(h) of the Race Directive above n 2.106 Immigrants or foreigners in Italy.107 Guest worker or foreigner in Germany.

because they are caught in a vacuum coveted by member states, one whichstrictly controls how people108 acquire full citizenship within their terri-tory. Until the EU addresses the power of Member States to determinenationality109—one that tends to operate along the lines of ius sanguinis110

and ius solis111—and its acquiescence in this, the Race Directive is unlikelyto live up to its claim to provide common minimum protection to personswithin the Community because such instruments tend to favour the statusquo and rarely address the concerns of the community at large in fightingdiscrimination.112 The problem of vulnerability within the territory ofmember states also relates to asylum seekers and refugees.

B. New Problems: Asylum Seekers and Refugees

Article 3(2) also excludes stateless persons from the remit of the RaceDirective by stating that provision and conditions relating to entry and res-idence and any treatment arising from the legal status of stateless persons isnot covered. This leaves in place state power to control the composition ofits population and limit protection of groups such as asylum seekers andrefugees. This is in stark contrast to the Commission’s White Paper in1985113 which included proposed measures on refugees and asylum seek-ers, that envisaged EC action on immigration and asylum because it sawfree movement provisions and the abolition of internal controls applicableto all people regardless of nationality.114 Article 3(2) is a culmination of the

The Race Directive: Recycling Racial Inequality 327

108 Of the vast literature in this area see Cole, P Philosophies of Exclusion. Liberal PoliticalTheory and Immigration (Edinburgh University Press 2000); Geddes, A Immigration andEuropean Integration. Towards Fortress Europe (Manchester University Press 2000); Bellamy, R and Warleigh, A (eds), Citizenship and Governance in the European Union (London,Continuum 2001).109 Italian citizenship is based on Law n 91 of 5 February 1992 where citizenship may beacquired after 10 years of residence, however, foreign nationals must swear a loyalty oath tothe Republic of Italy and renounce their original citizenship. In Spain, naturalisation isobtained under the Naturalisation Act of 1990 generally after 10 years of residence, and dualnationality is only possible in certain circumstances, whereas Luxembourg does not recognisedual citizenship although it requires a residence period of 10 years. German Citizenship Law1999 now requires an 8-year residence qualification coupled with proof of adequate linguisticskills in German, a pledge to the German constitution and renunciation of any other citizen-ship. Under the British Nationality Act 1981, to be a British citizen, a child born in the UKmust have at least one parent who is a British citizen or ‘settled’ in the UK (ie free of condi-tions of stay and ordinarily resident in the UK).110 The acquisition of nationality through bloodlines, ie parents’ nationality.111 The acquisition of nationality through residence qualifications in a country.112 McCrudden, C ‘Racial Discrimination’, in McCrudden, C and Chambers, G (eds),Individual Rights and the Law in Britain (Oxford, Clarendon Press 1994).113CEC (1985a) White Paper on the Completion of the Internal Market, (COM (85)) 310 final.114 Geddes above n 108, although this should be contrasted with the view of the EuropeanCouncil in 1992 that uncontrolled migration could be destabilising and lead to difficulties forthe integration of third country nationals who have legally taken up residence in member states,see Declaration on principles of governing external aspects of migration policy, EdinburghEuropean Council Presidency Conclusions, Bulletin-EC, 12–1992, Annex 5, para I.31.

political tussle that emerged with the Single European Act 1968 (SEA) overfree movement as a general right, Member State resistance to pro-integrationistpolicy within the single market and the ceding of asylum matters only onthe basis of cooperation at the supranational level. However, the practical consequence for refugees and asylum seekers is that they are subject tonational laws that are woefully inadequate as protection mechanisms115

and tend to victimise.116 This can be seen in the way entry to a MemberState is restricted by denying that a well-founded fear of persecutionexists.117

It has been argued at national and EU level that questions of asylum lawand refugees should be kept separate from that of the racial discriminationfaced by long term minority citizens.118 For this reason questions concern-ing refugees and asylum seekers fall outside the terms of reference of theRace Directive. But this begs the question, how to protect people fromracial discrimination when legal language is used to restrict this protection?Racism does not distinguish between a ‘black’ person, a ‘brown’ third coun-try national with temporary residence and a ‘dark’ looking asylum seeker.Racial and ethnic discrimination does not seek to establish which type ofgroup it should exclude since ‘they’ are all ‘outsiders’. In a recent survey itwas found that 95 per cent of African asylum seekers had suffered fromracially motivated attacks.119 Was it colour, nationality or the fact that theywere asylum seekers that made them victims?120

According to a daily tabloid what is happening in the field of immigra-tion and asylum has nothing to do with racism since most asylum seekers arewhite.121 But if racism is not understood as merely biologically or culturallydetermined but as a process that ‘marries up the worst racist practicesthroughout the western world: the segregation of asylum seekers mirrorsthe anti-black racism of apartheid, or of segregation in the U.S. … ’122 thenthe notion that the management of asylum seekers and refugees is not racialdiscriminatory and/or that it should be excluded from the remit of the Race

328 F E R N N E B R E N N A N

115 For instance see European Commission, Legal Instruments to Combat Racism andXenophobia (1993).116 See Fekete, L, ‘The Terrorism Act 2000 , an interview with Gareth Pierce’ 43 No 2 (2001)Race and Class 43, at 95–103.117 Art 1A(2), of the Geneva Convention as amended by the 1967 Protocol, defines a refugeeas any person who: ‘owing to a well-founded fear of being persecuted for reasons of race, reli-gion, nationality, membership of a particular social group or political opinion, is outside thecountry of his nationality and is unable to or, owing to such fear, unwilling to avail himself ofthe protection of that country’. See Dummett above n 99 at 350. 118 Commission, ‘Communication from the Commission to the Council and the EuropeanParliament on Immigration and Asylum Policy’ COM (94) 23, 23 February 1994.119 Irish Times, 1 February 1999.120 See Bell, M ‘Mainstreaming equality norms into European Union asylum law’ 26 (2001)European Law Review 23.121 See Fekete, ‘The Emergence of Xeno-Racism’, Race and Class 43 No 2 (2001) , at 39.122 Ibid.

Directive must be brought into question. There is a moral crisis in a Unionthat professes human rights abroad but ignores these abuses at home. Thereis a type of xeno-racism that is festering unchecked when it comes to asy-lum seekers and refugees. This type of racism cannot be determined by skincolour alone or at all, since the categories of the dispossessed that areaffected by ‘the Europe that has helped to displace them’123 include whites.Rather, in relation to refugees and asylum seekers we are witnessing ademonisation of people who are insecure and whom the Western worldseeks to exclude. The fact that the Race Directive is silent on this only com-pounds the view that the prohibition of racial discrimination is skewed infavour of the few. The failure to provide a more comprehensive directivedealing with the racial discrimination of the perpetrator rather than focus-ing on ‘those within and those outside the categories of protection’, tendsto lend credence to the argument that the Directive is built on an individu-alistic model of justice that cleanses the formal process of discriminationbut leaves the substance intact.124 On the other hand, built into the processby which the Directive is to take effect is the requirement that organisations‘may engage, either on behalf of or in support of the complainant’125 sug-gesting that perhaps a group justice model is envisaged, one that looksbeyond formal barriers of racial discrimination, to the requirement toredress past discrimination and/or one concerned with present redistribu-tive justice.126 The latter concern with the position of groups lends itself tothe argument that there is little justification for choosing between groupswhen they all face racial discrimination and that the Race Directive shouldbe understood as focusing on the conduct of the perpetrators rather thanthe status of victims.

VI. COMPETING PERSPECTIVES AND INSTITUTIONAL RACISM

According to the Commission, ‘The union must act to provide a guaranteefor all people against the fear of discrimination if it is to make a reality of freemovement within the single market.’127 The Race Directive opens the door todealing with the areas where effective social integration through ‘legislativeengineering’ is likely to have some positive impact on the Community objec-tives of improved employment, improved living and working conditions and

The Race Directive: Recycling Racial Inequality 329

123 A Sivanandan, Introduction to The Three Faces of British Racism: A Special Report, inRace and Class 43 No 2 (2001), at 1–5.124 Fallon, M and Weiler, P ‘Firefighters v Stotts: Conflicting Models of Racial Justice’ (1984)Supreme Court Review 1.125 Art 7(1) of the Race Directive above n 2.126 See McCrudden, C, Smith, D and Brown, C Racial Justice at Work, 6–7.127 Commission, ‘European Social Policy—A way Forward for the Union’ COM (94) 333final, 7July94, ch VI, para 27.

social protection.128 Unfortunately this all-inclusive approach has becomesomewhat blurred despite contrary efforts.129 The limitations written intothe Directive in terms of its scope to deal with all victims of racial discrimi-nation and the vagueness of the language leads one to conclude that it is thenon-integrationist who have the upper hand.130 Responsibility for thisproblem lies, in part, in the way the EU has evolved.131 We have witnesseda ‘classic case of federalism without federation.’132 The EU is not a state buta complex of institutions with a Council and European Parliament thatserves to represent the interests of Member States and the Union as a Unionof states and peoples. The mass public is concerned that the shift of powertowards Brussels has resulted in a zero-sum relationship.133 The failure ofthe EU to provide a comprehensive anti-racist legal instrument is indicativeof this unwillingness, particularly of national governments, to give groundto the centre at least on questions of the legal status of people within theirborders. Whilst questions of how much ‘control’ to give to the centre of thisloose federation are quite legitimate, Member States have done little toaddress the question of racism in their borders. In that sense argumentswhich hinge on the loss of sovereignty are weak since it could be argued thatit is Member States’ failure to deal with racism that has made them culpableand caused the EU to ‘act’. Moreover, since they have agreed thatCommunity action, rather than individual state action, is more appropriate,the balance of power in determining what constitutes sufficient action in theeradication of racism should lie with the Community, not Member States.

This is not to argue that the Race Directive has no validity. Despite thelimitations that appear inherent in the text it is possible for member statesto introduce or maintain provisions which are more favourable to the pro-tection of the principle of equal treatment than those laid down in theDirective under Article 6.134 It is argued that this provision might providethe tool by which the limitations raised in this paper could be resolved.

VII. CONCLUSION

The Race Directive represents a start in some direction in terms of address-ing questions of racial and ethnic discrimination. It certainly does not go

330 F E R N N E B R E N N A N

128 See more generally Bell, M ‘The New Article 13 EC Treaty: a Platform for a EuropeanPolicy Against Racism?’ in Moon, G (ed) Race Discrimination. Developing and Using a NewLegal Framework, (Hart 2000).129 From NGOs, the European Parliament, the European Trades Union Confederation and theEconomic and Social Committee calls for the adoption of anti-racial discrimination legislationduring the 1996/7 Intergovernmental conference.130 Geddes, above n 108.131 Burgess, M Federalism and the European Union: The Building of Europe, 1950–2000(Routledge, 2000).132 Ibid, 28–29.133 Ibid, 31.134 Art 6(1) of the Race Directive, above n 2.

far enough. It is not as inclusive as it appears to be. Indeed, as I haveattempted to demonstrate, a number of people may be left out. Some bydesign others because the language of the Directive is not sufficientlyaccommodating. Despite these limitations the Directive has the potential toplay a symbolic role in creating a climate where racial discrimination willno longer be tolerated in the Union. It is not too naive to suggest that thissymbolic role may have more of an impact on those who face racial dis-crimination (whether or not they are long-term third country nationals)than the process of litigation that the Directive is likely to engender. It isthis, in the end, which may determine its success or failure.

The Race Directive: Recycling Racial Inequality 331

16

New Rules of Breach of Contract in Germany

WOLFGANG ERNST*

I. INTRODUCTION

IN 2001 THE German legislator passed a law for the ‘Modernisationof the Law of Obligations’ (Schuldrechtsmodernisierungsgesetz—SMG).1 It encompassed new rules on breach of contract, a wholly new

law of limitation of actions and new provisions for contracts of sale, con-tracts for services and loan. By the same Act the existing statute on standardcontracts (Gesetz über Allgemeine Geschäftsbedingungen) and variousother statutes for the protection of consumers were integrated into theGerman Civil Code (Bürgerliches Gesetzbuch—BGB). It was the mostextensive amendment of the BGB since its enactment in 1900. Many of thelegislative measures bundled together in the SMG had an EC-law back-ground. We shall here consider only one aspect of the reform statute,namely the new rules on breach of contract and their relationship withEuropean law.

In terms of system, the BGB’s rules on ‘breach’ have traditionally coveredboth breach of contract and breach of unilateral obligations and form partof the ‘General law of obligations’ (Allgemeines Schuldrecht). In accordancewith this tradition, the new provisions try to create a unified system apply-ing to misperformance of both unilateral and bilateral obligations (§§ 280to 285 BGB). Since some problems, such as the plea of non-performance(§§ 320 ff. BGB) and termination (§§ 323 ff. BGB), arise only when theobligations are mutual, additional provisions apply only to such bilateralobligations. These general provisions for breach are complemented by specific

* Paper, given at the Cambridge CELS seminar on 22 January 2003. I would like to thank Prof John Bell, Tom Brägelmann, Birke Häcker and, above all, Tony Weir.1 BGBl. I 2001, s 3138 ff. On 2 January 2002, the consolidated text of the BGB was promulgated:BGBl. I 2002, s 42 ff.

provisions to be found in the chapters on specific contracts. Breach of acontract of sale consequently falls under three levels of statutory provision:provisions covering the breach of any obligation (§§ 280–304 BGB), provi-sions addressing issues of mutuality (§§ 320–326 BGB) and provisions relat-ing specifically to sale (§§ 434 ff. BGB). In the case of consumer sales §§474–479 BGB must also be taken into account, but we shall not here dealwith the peculiarities of consumer protection.

Cases of breach of contract call for the parallel application of the provi-sions relating generally to breach of obligation and those relating to bilateralcontracts. While it is true that as regards issues of breach, the focus of thereform was on the law of sales and the law of contracts for services(Werkvertrag, §§ 633 ff. BGB), nevertheless many of the changes intro-duced were brought about by reshaping the provisions of the general law of obligations, so that the new rules on breach of obligations now affectobligations of all kinds.

II. THE PATH TOWARDS A LARGE-SCALE REFORM OF THE LAW OF OBLIGATIONS

At the beginning of the 1980s the German Ministry of Justice asked 24experts to assess the need for wholesale reform of the German law of obli-gations and to suggest what should be done.2 Their opinions were submit-ted between 1981 and 1983.3 In 1982 the Federal Minister of Justiceappointed a commission for the revision of the law of obligations. Thisreform commission (the Schuldrechtskommission) was supposed to pro-duce a proposal for legislation concentrating on the areas of limitation ofactions (Verjährungsrecht), general rules on breach of contract(Leistungsstörungsrecht) and liability for defects (Mängelhaftung) in con-tracts of sale and contracts for services (Werkverträge). The reform com-mission worked from 1984 to 1991, its final report (Abschlußbericht derKommission zur Überarbeitung des Schuldrechts) being published at thebeginning of 1992.4 No enactment followed at the time, but in manyrespects the report is the foundation of the SMG of 2001. On many points,both with regard to the law of sales and with regard to general provisions

334 W O L F G A N G E R N S T

2 On the history of the reform see: Reinhard Zimmermann, in: W Ernst and R Zimmermann,Zivilrechtswissenschaft und Schuldrechtsreform (Mohr Siebeck 2001), 1 ff., 13 ff; B Dauner-Lieb,AnwaltKommentar BGB. vol 2—Schuldrecht (Deutscher Anwaltverlag 2002), 21 ff; H Ehmann and H Sutschet, Modernisiertes Schuldrecht (Franz Vahlen 2002), 1 ff; C-WCanaris, Schuldrechtsmodernisierung (C H Beck 2001), ix ff.3 Bundesminister der Justiz (ed), Gutachten und Vorschläge zur Überarbeitung desSchuldrechts, vols I und II (Bundesanzeiger 1981), Vol III (1983). On breach of contract seeUlrich Huber, Vol I 647–909.4 Bundesminister der Justiz (ed), Abschlußbericht der Kommission zur Überarbeitung desSchuldrechts (Bundesanzeiger 1992).

for breach of contract, the final report is based on the Convention on theInternational Sale of Goods (CISG),5 though with many deviations6.

The reform proposed in 1992 (Schuldrechtsreform) might have startedout by identifying specific shortcomings in the everyday application of theBGB and trying to correct them by proposing a few detailed improvements.Instead it sought to produce a systematic and even didactic reform of theBGB in its entirety, and to establish a new—and as many hoped, more com-prehensible—system of rules on breach of contract. From the very outsetone of the main stimuli for reform was the fact that while the BGB’s systemfor dealing with breach of contract was ingenious, its complexity was suchthat it was never completely accepted by academics or practitioners.Despite persistent scholarly attempts to explain and re-establish the authen-tic rules on breach of contract in the original BGB,7 the rules laid down byits authors remained alien to much of even the academic community. It isidle to try to put the ‘blame’ for this either on the BGB8 or on the scholarswriting in the twentieth century:9 the diagnosis remains that in a centralarea of the law of obligations neither academics nor practitioners duringthat century could satisfactorily handle this eminent piece of legislation.Their failure to embrace the regulatory framework of the BGB made itinevitable that new, substitute principles were developed to deal withbreach of contract. Just as inevitable was the effort to elevate to the rank oflaw the principles which ran alongside the statute but were inconsistentwith its system. Thus the rules on breach of contract in the BGB came to beseen as a mistake which had to be corrected, a derogatory attitude whichdiscouraged attempts to give its provisions and their origins any seriousand deep thought. Given the loss of knowledge of its origins and conse-quently the inability to make accessible a complete and systematicallythought-out legal framework, the reform of the rules on breach of contract,which had been planned since the 1970s, was committed to integrating theliving law and statute law into an amalgam comprehensible to people today.

That the final report of 1992 did not serve as the basis of formal legisla-tive measures was possibly due to an intervening change in the composition

New Rules of Breach of Contract in Germany 335

5 Law of 5 July 1989, BGBl II 1989, s 586; I 1990, s 1477.6 See in particular W Ernst, (1994) Neue Juristische Wochenschrift (2177, at 2178); ibid in: S Grundmann et al (eds), Europäisches Kaufgewährleistungsrecht (Heymanns 2000), 325 at329 f.7 Jury Himmelschein, (1932) 135 Archiv der civilistischen Praxis (AcP), 255 ff; Horst HeinrichJakobs, Unmöglichkeit und Nichterfüllung (Bouvier 1969); Friedrich Wahl, Schuldnerverzug(Duncker & Humblot 1998), esp 100 ff; U Huber, Festschrift H-F Gaul (Gieseking 1997), 217 ff;Kley, Unmöglichkeit und Pflichtverletzung (Duncker & Humblot 2001).8 The endless complaints about the alleged incompleteness and deficiency of the German CivilCode, starting with the ‘fairy tale’ by Staub about the ‘lacuna’ that had to be closed with theconcept of ‘positive misperformance’ (positive Vertragsverletzung), do not need to be retoldhere: for an overview see U Huber, Leistungsstörungen (JCB Mohr 1999) Vol I, 1999, 79.9 U Huber, in K Geiß et al (eds) Festschrift 50 Jahre BGH (Heymanns 2000), Vol 1, 278, n 119.

of Parliament (1982) and also to the fact that the reunification of Germanyraised far more more urgent legal issues. During this temporary standstillthose who were behind the drive for the work of reform never gave up theiraim of carrying through a revision of the BGB in the light of the final report.At an early stage expectations concentrated on the emerging EC-Directive onConsumer Sales. Since this Directive made it necessary to amend a central part of the BGB it was greeted as a welcome incentive for the imple-mentation at last of the project for the large-scale reform of the law of obliga-tions. It must be left to legal historians to determine whether any Germaninfluence on the European legislative process was actuated by this ulteriormotive. Certainly when the European Parliament and the European Councilenacted the ‘Directive on Certain Aspects of the Sale of Consumer Goods andAssociated Guarantees’10 on 25 May 1999, the German Ministry of Justicewas already determined to combine its implementation with a major reformof the law of obligations. Preparations for this had apparently begun earlyon. The enactment of the Directive with a short deadline for its implementa-tion (by 1 January 2002) coincided with the term of office of a political coali-tion that was eager for reform and had distinguished itself in other respectsby its remarkable legal activism, so the government was not loath to pick upa project which had begun under a similar parliamentary majority.11 InAugust 2001 the German Ministry of Justice presented a discussion draft(Diskussionsentwurf)12 for a statute for the modernization of the law of obli-gations (Schuldrechtsmodernisierungsgesetz—SMG). The parts dealing withthe rules of breach of contract were essentially based upon the principles ofthe final report of the 1982-1991 reform commission. For this reason, theprovisions concerning limitation periods, the rules of breach of contract andthe liability for defective performance in sale and contracts for services areamong the core concerns of the SMG. At the same time the SMG had the taskof implementing the Consumer Sales Directive on time (31 December 2001).To couple the implementation of the directive with an all-embracing reformof the law of obligations was politically astute, for the urgency of the imple-mentation of the Directive was thus extended to the project as a whole.However, the implementation of the Directive could only be combined withthe reform of the law of obligations if changes were made to the final reportof the reform commission. Since that report wanted to do away with most of the traditional rules of liability for defects and also to merge cases of lack of conformity with the general rules of breach of contract,13 the draft

336 W O L F G A N G E R N S T

10 Directive1999/44 EC OJ L 171/12 of 7 July 1999.11 The debate on the implementation of this Directive created a vast body of writing inGermany. See the bibliographies in Ernst and Zimmermann, n 2 above 735–739; in Grundmannet al n 6, above 383–402; and in A Schwartze, Europäische Sachmängelgewährleistung beimWarenkauf (Mohr Siebeck 2001), 633–656.12 Text in Canaris n 2 above 3–347.13 See III B 2 below.

proposals for the general rules of breach of contract had to be re-adjustedto the guidelines of the Consumer Sales Directive. This is the reason formost of the divergences between the discussion draft SMG and the finalreport of the reform commission. Further consequences of conjoining sys-tematic legal reform with the implementation of the directive will be dis-cussed below.14

The discussion draft for the SMG—and then the SMG itself—dealt withsubject-matter which fell outside the mandate of the previous reform com-mission and its final report, not only because the reform of the law of obli-gations was combined with the implementation of the Consumer SalesDirective, but also in other respects. For one thing, the SMG was designedto implement some other Directives, namely the ‘Directive on CombatingLate Payment in Commercial Transactions’ of 29 June 200015 (implementedthrough changes in §§ 286, 288 BGB) and the E-Commerce Directive of 8June 2000 (implemented by § 312e BGB).16 For another, the GermanMinistry of Justice, in line with the contemporary codification policy inother countries such as the Netherlands and Italy, decided to incorporateinto the BGB several ancillary or secondary statutes (Nebengesetze) closelyrelated to matters covered by the BGB. These included the StandardContract Terms Act (Gesetz über die allgemeinen Geschäftsbedingungen—AGBG—now contained in §§ 305–310 BGB)17 and various consumer pro-tection statutes: The Law on Cancellation of Doorstep Sales (Gesetz überden Widerruf von Haustürgeschäften, now included in § 312 BGB), theConsumer Credit Act (Verbraucherkreditgesetz, now §§ 491 ff. BGB), theTime-Share Act (Teilzeit-Wohnrechtegesetz, now §§ 481–487 BGB) and the Distance-Selling Act (Fernabsatzgesetz , now §§ 312b–312d BGB). Oneaim of including these provisions within the BGB was to harmonise thelegal terminology and the legal mechanisms protecting the consumer. Tothis end, the BGB contains statutory definitions of ‘consumer’ (Verbraucher)and ‘entrepreneur’ (Unternehmer) in §§ 13, 14 BGB (introduced already in2000) and has now adopted common rules for the right of cancellation(Widerruf) and return (Rückgabe) in consumer contracts (§§ 355 ff. BGB).18

The integration of the Consumer Credit Act involved restructuring of thelaw of credit.

The legislative proposal of August 2000 came as a considerable surpriseto the legal community. It triggered a fierce debate.19 Criticism was directed

New Rules of Breach of Contract in Germany 337

14 See IV A below.15 2000/35/EC OJ L 200 35.16 2000/31/EC OJ L 178 1.17 Procedural aspects of the former Standard Contract Terms Act ended up as a free-standing statute for prohibitory actions or injunctions against unfair contract terms(Unterlassungsklagengesetz—UKlaG).18 Previously §§ 361a, 361b BGB.19 For the proceedings of a conference held on 17 and 18 November 2000 in Regensburg, seeErnst and Zimmermann n 2 above and an account by Horst Heinrich Jakobs, Juristenzeitung

above all at the discrepancy between the tight time-frame and the veryambitious approach of the all-embracing project for a radical reshaping ofcentral parts of the German law of obligations. The experts noticed numer-ous questionable issues, some larger than others. In reaction to these criti-cisms, the German Ministry of Justice appointed a special commission atthe end of December 2000 to review the reforms of the rules of breach ofcontract proposed for consideration by the discussion draft. This specialcommission for the rules of breach of contract (called KommissionLeistungsstörungsrecht) contained among its academic representativessome members of the 1982-1991 reform commission. The new commissionworked mainly from mid-January to early March 2001. The GermanMinistry of Justice independently organised hearings of interest groups andexperts from academia and practice to discuss the draft. On the basis ofthese discussions and hearings the German Ministry of Justice presented a‘consolidated version of the discussion draft of a statute for the modernizationof the law of obligations’ (Konsolidierte Fassung des Diskussionsentwurfseines Schuldrechtsmodernisierungsgesetzes) in March 2001.20 In the areaof breach of contract this ‘consolidated version’ reflected, with some excep-tions, the proposals made by the new special commission. In relation to therules on breach of contract the draft bill followed the ‘consolidated ver-sion’, except for a few changes. Only a few minor changes were then madeduring the legislative process,21 and on 26 November 2001, the Statute forthe Modernisation of the Law of Obligations (SMG) was enacted. It waspromulgated three days later in the Federal Law Gazette and came intoforce on 1 January 2002. Lawyers had the incredibly short period of onemonth—December 2001—in which to adapt themselves to a greatly modi-fied law of contracts.

III. THE NEW RULES OF BREACH OF CONTRACT

A. Damages and Termination

1. Damages and Termination of Contract: An Overview

The Statute for the Modernisation of the Law of Obligations tries to pro-vide a unified (or at least widely harmonised) system to cover the various

338 W O L F G A N G E R N S T

(JZ) 2001, 27 ff. For the proceedings of a conference on 22 January 2001 in Münster see R Schulze and Schulte-Noelke (eds), Schuldrechtsreform vor dem Hintergrund desGemeinschaftsrechts (Mohr Siebeck 2001).

20 Text in Canaris n 2 above 349–428.21 For details on the legislative debates, see W Ernst in Münchner Kommentar zumBürgerlichen Gesetzbuch, Vol 2a: Schuldrecht—Allgemeine Teil (4th edn CH Beck 2003) § 275 No 6 f.

forms of breach of contract. There are now two basic governing rules.22

These state:

(1) Any breach of contract,23 which is due to the debtor’s fault, generates a right to claim damages.

(2) A breach of contract which is not remedied within a period ofgrace (Nachfrist) granted by the other party generates a right toterminate the contract, regardless of fault.

To implement these principles and to achieve the desired simplification,there was to be one basic statutory definition for the debtor’s liability indamages (§ 280 I 1 BGB) and another for termination of a contract forbreach (§ 323 I 1 BGB).

Only the second principle constitutes a real change in the law, sinceunder the original BGB a contract could be terminated only if the breach was due to fault.24 As regards the debtor’s liability in damages, there wasno doubt that the rule was general even before the new law, though it is true that it was often assumed that this was so only because the case-law had developed the concept of ‘positive breach of contract’ (positiveVertragsverletzuzng). In fact, however, the legislator of the BGB hadintended that fault-based liability in contract be quite general,25 thoughthis was not perhaps expressed in in a clear and unambiguous way. Thishas now been remedied.

2. Breach of Contract without Infringement of the Expectation Interest:Two Special Provisions

Both of the central provisions outlined above (§§ 280, 323 BGB) focus onthe normal case of injury to the creditor’s expectation interest in perform-ance (positives Leistungsinteresse), cases where the creditor does not receivefrom the debtor any or all of the performance to which he is entitled. Thestatute distinguishes the case where the debtor infringes rights or interestsof the creditor without affecting the expected increase in the creditor’swealth. Such a breach of duty can usually be sanctioned simply by awardingthe creditor damages against the debtor, if the debtor is at fault (a simplecase under § 280 I 1 BGB), for it does not usually affect the actual perform-ance of the obligation. Only in exceptional cases, when the breach shakesthe whole contractual obligation to the core (for example, where the relationship is based on trust) need the affected party have the right to treatthe breach as a reason for rescinding the contract. Since this case does not

New Rules of Breach of Contract in Germany 339

22 See also R Zimmermann, ‘Breach of Contract and Remedies under the New German Law ofObligations’ (UNIDROIT 2002).23 More precisely, one should say ‘every breach of an obligation’.24 §§ 326, 285 BGB1900.25 Jakobs, n 7, 27 ff, esp 37 ff; U Huber, n 8, 78 ff.

fall within § 323 BGB, which deals with non-performance or deficient performance capable of being made good by the debtor’s efforts, the CivilCode now contains § 324 BGB, a provision supplementing § 323 BGB andallowing for termination of the contract if the debtor has harmed the creditor’slegal rights other than his expectation in performance. Since the creditor’sinterest in performance in such a case either has been or can be satisfied,termination is allowed only if it is unreasonable to make the injured partyadhere to the contract: the threshold for termination is thus set compara-tively ‘high’. The injured party’s claim for monetary compensation in lieu ofthe performance—which can no longer be achieved once the contract hasbeen terminated under § 324 BGB—can then be based on § 282 BGB.

§§ 324 and 282 BGB deal only with exceptional cases and will probablynot figure significantly in legal practice. Both derive from proposals of thespecial commission. The final report of the reform commission containedno corresponding provisions since the cases now dealt with by §§ 324, 282BGB were supposed to be covered by the central provisions—now § 323and § 281 BGB.26 Separating out the special case of a breach of contractwhich does not affect the expectation interest in performance made it possi-ble to take some of the burden away from the central provisions for termi-nation and damages, thus making them much clearer: they are now focusedon cases of non-performance or deficient performance where performanceis still possible and in this respect are much closer to the corresponding pro-visions in the BGB of 1 January 1900 (§§ 326, 286 in their original form).But difficulties in differentiating between the provisions cannot be ruled outbecause prejudice to the expectation interest in performance cannot alwaysbe clearly distinguished from the violation of other interests or rights of theinjured party, as one can see in the case where the main contractual obliga-tion of the debtor is to take care of the creditor’s present assets or interests.

Even after the ‘exclusion’ of the particular case just discussed, the newbasic rules are characterized by the extensive range of their application:except for the case of delay27 by the debtor, the pivotal provisions (§§ 280/281, 323 BGB) extend to the case where the goods received by thecreditor are not in conformity with the contractual specifications. We shallrevert to this point below.28

3. Damages

a) The provision which establishes that a breach of contract due to faultgives rise to the debtor’s liability in damages uses the term ‘Pflichtverletzung’,§ 280 I 1 S. 1 BGB. This is in accordance with the proposal in the final

340 W O L F G A N G E R N S T

26 As to § 281 BGB, and section 2c herein.27 Under § 323 BGB, one is concerned with late performance without proof of fault (see s 4),rather than ‘delay’ in a technical sense, as defined by § 286 BGB; see below B 3.28 See s B 2.

report of the reform commission. ‘Pflichtverletzung’ can be translated as‘breach of duty’. The statute does not use the term ‘breach of contract’ sincethe provisions are meant to cover breach of unilateral obligations as well.One must note, however, that in the language of the statute ‘breach of duty’implies no more than the bare fact that the performance to which the cred-itor was entitled according to the obligation was not rendered as it shouldhave been. Thus ‘breach of duty’ does not connote any wrongful conducton the part of the debtor. (Wrongful conduct is, however, needed to estab-lish fault, which is a precondition of the creditor’s eventual entitlement todamages.) Accordingly it counts as a ‘breach of duty’ under the reformedBGB if the object of performance is accidentally destroyed by a natural phe-nomenon. The choice of the term gave rise to a disproportionately intensecontroversy which did nothing, in our view, to assist the law.29 Sometimesit even seemed as if this question of terminology were the core of the wholereform project. It remains an open question, however, whether ‘breach ofduty’ is simply a collective term for any possible disturbance of the obliga-tional relationship or whether it is a substantive concept from which thevarious forms of disturbance can be derived. In our view the concept of‘breach of duty’ embraces two elementary categories of interventions,which might perhaps be unified on a higher level of abstraction, though thiswould not take us much further juridically.30 One occurs when there isharm to the expectation interest in performance (the creditor is deprivedcompletely or partly of the increase in his wealth which is owed to him interms of the scope, quality or timing of performance), and the other occurswhen harm results from breach of collateral duties (nicht leistungsbezogeneNebenpflichten) which do not relate to the performance as such. Violationof the expectation interest in performance is always a ‘breach of duty’, butthe fact that the creditor is harmed in some other of his legal rights is only adisturbance of the obligational relationship if ‘by virtue of that obligationalrelationship’ the debtor is bound to protect or respect these legal rights andinterests of the creditor. It is therefore necessary to establish a collateralduty of this kind before one can conclude that the harm was due to a‘breach of duty’ in the sense of § 280 I 1 BGB, ie not just a tort, but a viola-tion of the particular obligational relationship. Differences of great practi-cal importance such as the allocation of burden of proof turn on this.

b) As a general rule, ‘responsibility’ (Zu-Vertreten-Haben) is construed asfault (§ 276 BGB). A breach of contract is to be sanctioned by liability in dam-ages only if the debtor is ‘responsible’ for it (§ 280 I 1 S. 2 BGB). There are

New Rules of Breach of Contract in Germany 341

29 M Schultz, in: HP Westermann (ed), Das Schuldrecht 2002 (Boorberg 2002), 17, 21 ff; U Huber, in Ernst and Zimmermann n 2 above, 31, 93 ff; Schapp, JZ 2001, 583; Stoll, JZ2001, 589, 593; Magnus in Schulze, n 19 above, 67 ff; Canaris, JZ 2001, 511 f and 523;Schlechtriem, JHR 2001, 12, 16; Ernst n 21 above, § 280 No 9 ff.30 Further Ernst n 21 above § 280 No 11–19; similarily now U Huber, in J Eckert and J Delbrück (eds) Reform des Deutschen Schuldrechts (Nomos 2003), 23 ff.

a number of instances where a liability which was strict under the originalBGB (Garantiehaftung) has been replaced by milder standards. This is true ofthe liabilities of the seller of a right which does not exist31 and of the debtorunable to perform at the time the contract was formed.32 Obsession withthe view that fault is in principle required (Verschuldensprinzip) accountsfor the debate over the question whether non-payment by the debtor can leadto a claim of damages regardless of actual fault, and if so why,33 a matterwhich no sober-minded legislator would surely hesitate over. Consistentlywith the effort to avoid any exception to the principle of fault liability theduty of the seller to guarantee performance regardless of fault if he hadgiven an additional warranty concerning the quality of the goods34 wasdeleted from the text of the statute. Likewise the provision acknowledgingthat the liability of the seller of unascertained goods was strict has beenremoved from the Civil Code.35 In these two cases, however, the new ver-sion of the statute upholds the law in a welcome manner in that the former‘warranty’ (Zusicherung) can now be classified as a ‘guarantee’ (Garantie)and the strict liability of the seller of unascertained goods can now befounded upon an implicit assumption of the so-called ‘risk of procuring’suitable goods (Beschaffungsrisiko); see § 276 I 1 BGB.36 In reality, therefore,the fundamental principle of fault-requirement was not rigorously main-tained and the legislative debate on this point seems excessively doctrinaire.Guarantee liability, as previously prescribed by the civil law, is rooted in thenature of things and consistent with legal practice responsive to the needoccasionally to recognise guarantees of performance regardless of fault. Itwill be the task of legal practitioners to draft contracts adequate to counterthe weaknesses in contractual liability which the reform has introduced.One must note, however, that in practice the contrast between strict liabil-ity and liability for fault is somewhat weakened by the fact that it is for thedebtor who wishes to avoid liability in damages to prove the lack of fault (§ 280 I S. 2) in line with the original BGB dating from 1 January 1900 andthe way it has been operated in practice.

c) By claiming money damages as the equivalent of the promised per-formance the creditor gives up his claim to specific performance and therebydeprives the debtor of his ability to discharge his duty by performing. Forthis reason the claim for damages is conditional not only on a breach of dutycaused by fault but also on the expiry of a period of grace set by the creditor(§ 280 I 1 BGB). Such damages are called ‘damages in lieu of performance’

342 W O L F G A N G E R N S T

31 § 437 BGB1900.32 Most recently, Bundesgerichtshof, 114 Entscheidungen des Bundesgerichtshofs inZivilsachen (BGHZ) 118 ff, at 120; U Huber n 8 above § 22 II, s 531 ff (not uncontested).33 Cf the Bill, BT-Drucks. 14/6040, 132; also Grundmann in Münchner Kommentar, n 2 at § 276No 180.34 The Zusicherung of former §§ 459 II, 463 s 1 BGB1900.35 § 279 BGB 1900.36 For details see Grundmann, in Münchner Kommentar, n 2 at § 276 No 171 ff.

(Schadensersatz statt der Leistung), a term which is assumed, correctly inour opinion, to bear the same meaning as the former term ‘damages for non-performance’ (Schadensersatz wegen Nichterfüllung).37 Damages which areawarded in addition to the existing obligation are now sometimes called‘simple’ damages. The legislator felt it necessary to state explicitly that theprinciple set out in § 280 I 1 BGB—’a breach of duty at fault entitles todamages’—is subject to an exception in that the claim for ‘damages in lieuof performance’ depends on the further requirement of the expiry of thegrace period (§ 280 III BGB). The special treatment of this kind of claim fordamages, which acts as a substitute for the claim for specific performance,seems perfectly justified. However, it may not be clear which items of losscan be the subject of a claim only after the expiry of a grace period andwhich are compensable simply because of the breach of duty as such.38

Given that such damages are meant to compensate for defective perform-ance—§§ 280, 281 BGB apply here, too39—it seems likely that the subtledistinction between ‘damages for defects’ (Mangelschäden) and ‘consequen-tial damages caused by a defect’ (Mangelfolgeschäden) will continue to bediscussed despite the enactment of the SMG, though perhaps with a slightlydifferent focus.40 This discussion was thought to be one of the salientissues, which the reform sought to obliterate.

d) It has long been established that a liability to pay damages can arisefrom wrongful conduct at the precontractual stage, a liability whichGerman legal doctrine and practice treated as contractual (culpa in contra-hendo). This has now been confirmed by an express provision, (§ 311 IIand III BGB) which however seems to further extend this somewhat dubi-ous concept.

e) Under the new law a creditor who is entitled to damages ‘in lieu of per-formance’ may decide not to claim his expectation interest but rather com-pensation for expenditure (Aufwendungen) rendered useless by the breach.This provision (§ 284 BGB) is taken to confer on the creditor a free choicebetween reliance damages and expectation interest. It poses quite a few ques-tions which go to the very foundations of the rules on damages.41

4. Termination

a) The reform of the law of obligations has made it much easier to termi-nate a contract. It is a sufficient ground for termination that the debtor

New Rules of Breach of Contract in Germany 343

37 Ernst n 21, § 281 No 1.38 Ernst n 21, § 280 No 5, 66–70, § 281 No 1, 110 ff.39 See s II B 2.40 Ernst n 21, § 280 No 53, 65–71.41 S Gsell, in: B Dauner-Lieb et al (eds), Das neue Schuldrecht in der Praxis (Heymanns 2003),321 ff; P Huber and F Faust, Schuldrechtsmodernisierung, (CH Beck 2002), ch 1 No 5 ff;Ernst n 21, § 284.

failed to remedy a defective performance within the period of grace (§ 323 IBGB). Although under the former law the creditor had to threaten termina-tion when setting the grace period (§ 326 I S. 1 BGB of 1900), this is nolonger necessary. The right to terminate arises as soon as the period of graceexpires. Setting a period of grace does not in itself preempt the decision to ter-minate the contract: the creditor may continue to claim performance. Theexpiry of the grace period does not ‘automatically’ terminate the primaryclaims.42 The original contractual claim and the right to terminate the con-tract coexist. Once the grace period has expired, the creditor has the choicebetween continuing to press for performance and terminating the contract.There is not even a statutory time limit for termination. The fact that no suchstatutory limit is laid down creates a state of uncertainty which affects thesecurity of the contractual relationship, and may prove detrimental, espe-cially where the contract calls for execution over a period of time.43

b) The relationship between termination and damages was put on a newbasis. The right to terminate is based on the bilateral character of a contract,whose mutuality requires that the creditor have the right to terminate thecontract on the mere ground that he did not receive the very performancefor which he promised his counter-performance.44 There is thus a major dif-ference between the right to terminate and the claim for damages: while theright to terminate does not depend on its being the debtor’s fault that per-formance was not rendered properly, the debtor’s liability to pay damages,which burdens his assets in favor of the creditor does so depend (§ 280 I S. 2BGB). The specific provisions of the Civil Code defining ‘fault’ (§§ 276 ff.BGB) have been modified slightly but remain substantially the same.

If one party to a bilateral contract wants both to terminate the contractand obtain compensation for his expectation interest, he will have to relyon § 323 BGB in order to terminate and use § 281 BGB to substantiate hisclaim for damages, as this is a claim for damages in lieu of performance, theclaim to specific performance having been given up. Since § 281 BGB and §323 BGB are constructed in a parallel way, it is usually possible to claimboth rights, termination and damages at the same time, provided that thedebtor’s fault can be established, as is always necessary in a claim for dam-ages. In particular the creditor has no need to set two periods of grace, sincedoing it once fulfils the legal requirements of § 281 I BGB as well as thoseof § 323 I BGB. Subject to the requirement of fault if damages are claimed,the rule of thumb is that the requirements for a claim for damages in lieu ofperformance and the right to terminate the contract are the same.

344 W O L F G A N G E R N S T

42 As was the case under the old law, Cf § 326 IS 2 BGB1900.43 For proposals to tackle this problem see Ernst n 21, § 323 No 150, 155, 168 ff.44 It had already been suggested that the provisions in the original BGB could be interpreted soas to permit termination of contract without the requirement of fault: Horst Heinrich Jakobs,in: W Flume et al (eds), Festschrift FA Mann (Beck 1977), 35 ff; D Beinert, WesentlicheVertragsverletzung und Rücktritt (Gieseking 1979). In the absence of fault, the courts had

Under the original provisions of the BGB there used to be a much disputeddoctrine according to which if a contract was terminated by means of ter-mination no further claim for damages could be made. The new § 325 BGBmakes it clear that the claim to compensation for damage caused by abreach of contract is no longer dependent on the ‘upholding’ of the con-tract. The right to termination and the claim for damages are now separateconcepts in law and operate independently, though while termination of thecontract no longer excludes a claim for damages, it will naturally affect theamount of damages to be awarded.

If a creditor has already rendered performance and wishes to claim restitu-tion, must he first terminate the contract, or can he claim damages accordingto the traditional difference-method (Differenzmethode) without formallyterminating the contract? The question is still disputed. The differencemethod was developed in order to overcome or bypass the incompatibilityunder the original provisions of the BGB of the claim for damages and theactual termination of the contract, but now that termination of the contractno longer excludes a claim for damages, it seems proper to require the creditor who wishes to make a restitutionary claim to terminate the contractformally. This is the only way he can release himself from his duty to delivercounter-performance.45 And he can pursue his claim for damages in theexpectation measure, ie the interest which he would have had if the contractnow terminated had been performed. 46 As of now, however, it is not estab-lished in academic writing and legal practice whether restitution should bemade dependent on formal termination or whether it will be permissible infuture to bring quasi-resitutionary claims in the guise of damages, a practiceto which German lawyers are well accustomed.

c) The provisions as to the details of restitution after termination havebeen totally re-written, §§ 346-352 BGB (Rücktritt).

B. Special deficiencies in performance

The principles set out above do not apply in the same way to all cases ofdefective performance. There are special provisions for three cases: (1) impossibility of performance, (2) liability for defects (Gewährleistung),including cases of lack of title (Rechtsmängelhaftung) as well as qualitative

New Rules of Breach of Contract in Germany 345

treated significant delay as tantamount to impossibility, which permitted cancellation of thecontract under § 323 BGB1900: see Reichsgericht, Entscheidungen des Reichsgerichts inZivilsachen (RGZ) Vol 42, 114, 115; Vol 89, 203, at 206 f.; Vol 90, 102, at 104 f; Vol 94, 45,at 47; Vol 107, 156, at 157; Bundesgerichtshof, Lindenmaier/Moehring (LM) BGB § 275 Nr 7.

45 See Ernst n 21 above, § 325 No. 8 ff; but see also § 326 I BGB, a provision which does notfit well into the new concept of remedies for breach of contract: Ernst, ibidem, § 326 No 13 ff.46 Doubts about this in Huber and Faust, n 41 above, ch 3, No 189 ff.

defects (Sachmängelhaftung), and (3) delay. While the statute is based on arather abstract concept,47 it also contains many detailed provisions for var-ious deficiencies and disturbances. These provisions for special types ofbreach of contract raise numerous issues of delineation both as betweendifferent special provisions and as between special provisions and abstractprinciples. The idea current in the initial euphoria of reform, that if thereformed BGB admitted only one kind of deficiency (‘breach of duty’) theremedies and outcomes would be uniform, has proved to be an illusion.However, these are difficulties which are quite well known, and scholarsand practitioners should be able to resolve them.

1. Impossibility

a) During the revision of the discussion draft impossibility of performancebecame much more distinct as a special case of failure of performance than ithad been in the final report of the reform commission or even in the discus-sion draft of August 2001.48 According to both the approach of the finalreport of 1992 and the majority opinion in academic writing the main reasonfor releasing the debtor from his duties is not the unpredictability of theobstacle, not attributable to the debtor, but rather the fact that the obstaclewas actually insurmountable or treated in law as being so (§ 275 BGB).49

The debtor can therefore be relieved of the duty to perform in specie even ifhe himself made performance impossible. If so, however, his duty to performis replaced by liability to pay damages (§ 283 BGB). In the absence of fault onthe debtor’s side the duty to perform ceases to exist without any substituteobligation to pay damages. We refer to § 275 BGB as governing ‘frustration’of contract, although this provision now also covers cases of initial obstacles.

As to the specific requirements of release by impossibility, the new provi-sion lists what is called objective and subjective impossibility (§ 275 BGB)and adds the case where the effort required for performance would begrossly disproportionate to the result (§ 275 II and III BGB). This last pro-vision is meant to encompass cases where it would be abusive to insist onspecific performance, but oddly enough it fails to cover somewhat similarcases where the abuse of insisting on specific performance is due to reasonsother than ‘crass inefficiency’.50 To establish such crass inefficiency requiresa weighing of circumstances. Since in doing this one has to take into

346 W O L F G A N G E R N S T

47 Above 1.48 See Canaris JZ 2001, 499 ff.49 On this issue the 1900 BGB has been most persistently misunderstood: Jakobs, n 7 above,Wahl n 7 above, 100 ff Huber, n 9 above, 251 ff; Wieling, Melanges F Sturm II (Liege 1999), s 1135 ff; J Harke, 2001 Jahrbuch Junger Zivilrechtswissenschaftler (JbJZivRWiss) 29–59, at 30–45; Chr Knütel, 2001 Juristische Rundschau (JR) 353 ff; Wilhelm and Deeg, JZ 2001,223, 225.50 Eidenmüller, 2001 Juristische Arbeitsblaetter (JurA) 824, 832.

account whether the obstacle is attributable to the debtor’s fault (§ 275 II S.2 BGB), the element of unpredictability which was central to the originalprovision of the BGB of 1900 to this extent reappears in the ‘new’ statutorytreatment of the issue of frustration of contract by impossibility. One wonderswhether the new provisions will work better than the old version of § 275BGB, which was never fully understood, in solving the distinct problems oflimiting the debtor’s duty to perform in specie and releasing him from hisduties by reason of ‘frustration of contract’.51

b) Like the original BGB, the reformed code contains further rulesregarding the creditor’s loss of his right to specific performance by reasonof impossibility. Independent rules for impossibility were inserted in thestatute concerning the right to claim damages (§ 283 and § 311a II BGB)and the ‘automatic’ termination of the obligational relationship (§ 326BGB).52 Numerous provisions were inserted quite late in the day by the‘Kommission Leistungsstörungsrecht’, which is all the more surprising as itwas precisely the provisions on impossibility in the original BGB whichwere most fervently attacked as being unduly complex. The new provisions,which are conventional in content though systematically rearranged, are nosimpler.

The special provisions governing cases of impossibility apply to both thetermination of the contract (§ 326 BGB) and an eventual claim for damages(§ 283 BGB), thereby complementing, and largely imitating, the centralrules for breach of contract in §§ 281, 323 BGB. There is thus a split ordual system which regulates separately the two basic types of breach ofduty: On the one hand there is the violation of the expectation interest inperformance by non-performance when performance is still possible anddue, a type of breach which covers all cases of non- or deficient perform-ance or delay, §§ 281, 323 BGB. On the other hand there is impossibility ofperformance (§ 283, 326 BGB). This two-track-system53 makes it necessaryin every case of breach of contract to decide whether performance is stilldue and has been withheld or improperly rendered, in which case the debtorhas to remedy the deficiency by performance, or whether the exclusion ofthe primary duty has definitively deprived the creditor of his right to spe-cific performance. Different rules apply in the two cases. In the first case,these are §§ 280/281, 323 BGB, in the second case §§ 283, 326 BGB. Thedistinction has to be drawn in the light of § 275 BGB, which lays down the

New Rules of Breach of Contract in Germany 347

51 For further details of the requirements of § 275 I–III BGB see Ernst n 21 above, § 275 No 71.52 § 326 BGB regulates the (automatic) ending of the contract both for impossibility withoutfault (hitherto § 323 BGB1900) and with fault (previously § 325 BGB1900). Unfortuntately,§ 326 BGB seems to prevent the creditor of the now impossible performance from offeringand rendering his counter-performance. This seems an unbalanced solution for cases wherethe impossibility can be attributed to the debtor’s fault and the creditor has an interest inrendering his counter-performance in exchange for damages. See Ernst n 21 above, § 326No 13 ff.53 Huber and Faust, n 41 above, ch 1, No 5 ff.

limits of the right to specific performance. The concepts of the differentkinds of impossibility (subjective/objective), let alone the concept of grossinefficiency in § 275 II BGB, are very much open to interpretation, andsome uncertainties will bedevil the decision about which of the two ‘tracks’is appropriate in a given case. However, the prerequisites and effects of thetwo basic types of breach of contract laid down by the new provisions arethe same or very similar: as regards liability in damages the same standardof fault applies (§§ 276-278 BGB), and in the case of termination restitu-tion is always governed by the same set of provisions (§§ 346–358 BGB).The difference is due mainly to the fact that if the debtor is still under aduty to perform in forma specifica and might still do so, a ‘switch’ to sec-ondary remedies requires the setting and expiry of a period of grace. Thewhole system of a ‘two track’ approach may seem somehow systematicallyoverdone, but the underlying concept is not unsound.

c) The special commission ‘Leistungsstörungsrecht’ discussed the question whether the new statutory system would cover cases of initialimpossibility. Doubts were expressed—without reason in our opinion54—whether the conclusion or non-performance of a contract incapable of per-formance ab initio could amount to a ‘breach of duty’ (scil. of an existingobligational relationship), which would entitle the other partner to claimdamages under § 280 I S. 1, 283 BGB. In order not to leave the law indoubt, a special provision was inserted to ensure that initial impossibilitywill be handled this way (§ 311a II BGB). Here, however, fault, which isalways required when liability for damages is at stake, has a slightly differ-ent meaning: one has to ask whether the debtor whose performance isimpossible knew (or ought to have known) about the obstacle when heentered into the contract (§ 311a II S. 2 BGB). Thus, whenever the credi-tor’s interest in performance is prejudiced by the exclusion of the duty toperform in forma specifica, a distinction must be drawn between initial andsubsequent impossibility: in the latter case the provision granting damagesis § 283 BGB, in the former § 311a II BGB. In both cases the resulting lia-bility is taken to cover the expectation interest, a decision which has alreadydrawn sharp criticism on the ground that in cases of initial impossibilityonly the reliance interest should be protected,55 a view we do not share.

d) The rules on impossibility are supplemented by an express provisionempowering the judges to adapt contracts to changed circumstances(Störung der Geschäftsgrundlage), § 313 BGB. Although courts have beendoing this for a long time, the BGB in its original state did not recognise anysuch judicial power. A similar provision allows for the termination of long-term contracts in cases of an extraordinary breach of contract, § 314 BGB.

348 W O L F G A N G E R N S T

54 Ernst n 21 above, § 311a No 4 with references.55 Altmeppen, 2001 Der Betrieb (DB) 1399, 1400 ff; and Ernst n 21, § 311a No 15.

As long as the courts had no statutory authority to rewrite contracts, it usedto be held that they could not do so where any statutory provision coveredthe change which had actually occurred (such as impossibility). Now thequestion is how the judicial power to adapt the contract relates to thedebtor’s right to excuse his non-performance by reason of an interveningobstacle rendering it impossible (§ 275 BGB).56

2. Lack of Conformity (Qualitative Defects and Lack of Title)

a) The reform of the law of obligations was driven by the desire to abolish thespecial rules relating to defects of quality (Sachmängel) and legal defects orlack of title (Rechtsmängel), and to deal with all such deficiencies under thebroad collective term ‘lack of conformity’ (Konformitätsstörung), anotherterm often employed being ‘Schlechterfüllung’, ie defective performance.57

Prior to the reform, lack of conformity was covered by various rules andindependent remedies depending on whether the contract was for sale,work, travel or tenancy, whereas now the general remedies for breach ofcontract in principle cover the case of defective goods supplied under acontract of sale as well as defective services rendered under a contract ofservices: qualitative defects in the property sold and deficiencies in servicesare now taken to be ‘breaches of duty’ under § 280 I 1 BGB. The formerremedy of repudiation of the contract of sale (Wandlung) has beenabsorbed into the new right of termination (§ 323, especially V S. 2 BGB),which always operates by the giving of notice,58 whereas Wandlung awkwardly involved a consensual (though eventually court-enforced) cancellation of the original contract. The claim for reduction of the price(Minderung) operates similarly in contracts of sale and those for services,but oddly enough still appears as a separate remedy in the two cases (§§ 441, 638 BGB).59 Extending the general remedies for breach of con-tract to cases of defective performance also means that in principle a defectin quality and a lack of title are treated in the same way, although they aredefined separately60 and a specific limitation period applies to certain kindsof lack of title, § 438 I Nr. 1 BGB. The merger of qualitative and ‘legal’deficiencies has probably gone too far.

It emerged during the legislative process that lack of conformity calledfor special rules of its own. Aspects of deficient performance are thereforestill dealt with by special statutory provisions. In the reformed BGB some

New Rules of Breach of Contract in Germany 349

56 See Ernst n 21, § 275 No 19–24.57 See H W Micklitz, 25 Journal of Consumer Policy 2002, 379–401.58 German doctrine speaks of a ‘Gestaltungsrecht’, a unilateral ‘right to alter a legal relationship’.59 Given the fundamental permissibility of partial withdrawal (see Ernst n 21, § 323 No 5, § 323 No 197, 199) one could have avoided having a specific provision on reduction.60 § 434 BGB and §§ 435, 436 BGB respectively.

of these special provisions are placed among the rules for the specific typeof contract (sale, hire, contract for services),61 while others appear as partof the general rules governing breach of contract. In principle, the ruleswhich determine whether a lack of conformity amounts to a breach of con-tract are to be found among the rules for the type of contract involved,while the remedies are supposed to figure among the general rules of breachof contract. It is true that there are no special remedies exclusive to the thecase of deficient performance, but the general remedies (specific performance,damages and termination) are considerably modified, and they are subjectto specific rules for limitation, whenever they are applied to cases of defi-cient performance.62 It is therefore still necessary to distinguish defectiveperformance from other breaches of contract, namely non-performance,delayed performance and partial performance. Numerous issues will con-tinue to trouble us. One will still have to ask, for example, whether deliveryof less than the agreed quantity is to be treated as partial non-performanceor as a defect in quality?63 On one notorious issue the legislator sought toprovide a solution by stating that the delivery of an aliud, something otherthan what was contracted for, is to be treated as a case of a qualitativedefect, § 434 Abs. 3. Some academics, however, already doubt whether thisreally is the end of the story.64

b) The general remedies for breach of contract are subject to significantmodifications in cases of lack of conformity.65 There is, for example, a spe-cial limitation period, §§ 438, 634a BGB: two years instead of the standardthree years (§ 195 BGB). Furthermore, whereas the standard three yearperiod starts to run when the creditor learns (or ignores to learn in a grosslynegligent way) that he has a claim (§199 BGB), in the case of a defectiveperformance the buyer’s knowledge of the defect is not critical: In the caseof qualitative defects, the two year limitation period starts at the time ofdelivery (§ 438 II BGB), or acceptance of the performance rendered under acontract for services (§ 634a II BGB). Defects in quality must therefore bedistinguished from other breaches of contract: for instance, if a seller wrong-fully withholds information which the buyer needs to know in order to avoidsuffering damage and thereby violates a duty to inform (Aufklärungspflicht),the liability which may arise under §§ 280 I, 241 II BGB will be subject tothe standard limitation period.66

c) A major substantive change in the field of qualitative defects is theintroduction of a general (fault-) liability. Under the BGB in its original form

350 W O L F G A N G E R N S T

61 Sale: §§ 434–445; hire: §§ 536–536d; contract for services: §§ 633–639; contract for travel:§§ 651c–651g BGB.62 For such modifications see § 281 I s 3; § 323 V s 2; § 346 III s 1 No 1 BGB63 Ernst n 21, No 213–216.64 Musielak, NJW 2003, 89; Schulze, NJW 2003, 1022.65 Eg, the grace period necessary for rescission and damages in lieu of performance is modifiedby §§ 440, 636 BGB.66 § 195 BGB.

the seller’s liability was restricted: the buyer could recover his expectationinterest only if there was a warranty (Zusicherung) or deceit (dolus, Arglist)on the part of the seller; the complementary liability of the seller if he wasat fault was limited to consequential damages (so-called positiveVertragsverletzung). The seller is now exposed to a general liability for fault(culpa-Haftung) as regards the contractual quality of goods, a reform whichwas not called for by the European Consumer Sales Directive. Since thestatutory basis is the general liability for breach of duty (§ 280 I BGB), theburden of proof in § 280 I S. 2 BGB also applies: in order to avoid liabilitythe seller has to prove that he was not at fault with regard to the defect.

d) Another change of considerable importance is the recognition of theseller’s duty to repair or replace the object of the sale in order to make itmeet, in natura, the contractual description, a duty which arises from thecontractual agreement itself and is more closely specified in § 439 BGB.67

Given that the seller’s duty to render specific performance is limited by thegeneral concept of impossibility and ‘gross disproportionality’ (§ 275BGB),68 it follows that his obligation to remedy a qualitative defect informa specifica can turn out to be (initially or subsequently) impossible.Consequentially, the rules for defects in quality and title mirror the divisionof the general rules of breach of contract into two basic types of breach ofduty:69 the distinction is thus between the failure to remove a temporarydefect in performance on the one hand, and on the other the inability toperform due to impossibility. In every case of a qualitative defect, therefore,one has to decide whether the seller is still under an obligation to procure innatura that the object sold has the promised properties. Should the buyer’sinterest in performance be harmed because performance still due to him, ienot excluded by impossibility, has not been rendered, then §§ 281, 323,439 or 635 BGB apply. By contrast, if the seller’s duty to provide the buyerwith an object having the promised properties is excluded because ofimpossibility (or ‘gross disproportionality’) under § 275 BGB, the buyer’sremedies (damages and rescission) rest on §§ 283 and 326 BGB.70 Theambiguities which we have noted in the definitions of impossibility etc. in §275 BGB are therefore bound to complicate the treatment in law of qualita-tive defects. However, since the two basic types of breach of duty are regu-lated in very much the same way, this seems tolerable. The only differenceof substance is on the issue whether the remedy of specific performance isavailable or not. The particular two-year limitation period laid down for

New Rules of Breach of Contract in Germany 351

67 For contracts for services see § 635 BGB.68 Additionally, the seller can refuse repair or replacement if these seem ‘disproportionatelycostly’, § 439 III BGB.69 Above B 1.70 In the case of an irremediable deficiency affecting the object of sale from the beginning (nota rare case), § 311a II BGB replaces § 283 BGB.

claims based on a qualitative defect applies without regard to the possibilityto remedy the defect in natura.71

The seller’s primary duty to ensure that the object sold has (or acquires)the properties agreed upon leads to another considerable expansion of hisliability in damages. Should the seller fail to remedy the defect, the buyercannot only insist on specific performance, he can claim damages for thisnon-performance as such. In this case there will be no difficulty in estab-lishing the seller’s fault, since he could only avoid liability if he has anexcuse for non-performance, and in most cases it will have been the seller’sown decision not to remedy the defect although this was possible. Giventhe primary obligation to ensure that the object sold has the properties con-tractually agreed upon, the new law with regard to remediable defects thuscomes close to a strict liability for conformity. Much will depend, however,on how far the courts restrict or extend the seller’s duty to provide thebuyer, in natura, with an object that has all the properties contractuallyagreed upon. Numerous new questions will undoubtedly be raised by theseller’s duty to render specific performance in connection with qualitativedefects and his eventual liability in damages in its various forms.72

3. Delay in performance

Besides the general provision for breach of duty there is delay in performance, which is a special breach of duty, §§ 286 ff. BGB. While thegeneral liability for damages is triggered by any breach of duty (§ 280 IBGB), liability for damage caused by delay arises only if there has been aspecial warning (‘Mahnung’, interpellatio, §§ 280 II, 286 BGB). In the caseof an obligation for which no exact time of performance was set, the debtoris in delay only after such an interpellatio: this means that lateness plusinterpellatio are the preconditions of the debtor’s liability in damages.Assuming that late delivery as such is a breach of duty even when no timefor performance was laid down,73 liability in damages is thus excluded untilsuch a warning has been given, whereas under the general rules of breachof contract (§ 280 I BGB) the debtor would already be liable. To avoid letting the need for a warning be sidelined in this way, § 280 II BGBstates explicitly that the general principle of § 280 I BGB is to this extentinapplicable. Unfortunately, the right to terminate the contract has not beenmade dependent on the seller’s being in delay as defined by § 286 BGB.

352 W O L F G A N G E R N S T

71 See the cross-reference to §§ 326, 283 and 311a BGB in §§ 437 and 634a BGB.72 See Ernst n 22 § 280 No 46–78; U Huber, in: Festschrift für Peter Schlechtriem zum 70.Geburtstag (Mohr Siebeck 2003) 521; idem, in Festschrift für Peter Ulmer (De Gruyter 2003)1165.73 See Huber n 8 above, 455.

In exceptional circumstances, therefore, a debtor not yet technically indelay might still face a termination of the contract.74

A further problem arises from the co-existence of provisions for delayand (general) breach. Since an element of time is always involved in cases ofqualitative defects, the debtor whose performance is qualitatively defectivecan be seen as being also in default with ‘proper’ performance. One mighttherefore ask whether the rules for delay in performance are applicable inthe case of qualitative defects. If so, it would mean that the special warning(Mahnung, interpellatio) is a necessary prerequisite for a claim of damagesin cases of remediable defects.75 We would not support this idea,76 but it isone which may well keep scholars and practitioners busy.

IV. EUROPEAN ASPECTS

A. Implementation of European Directives by Central Statutory Provisions

A principal feature of the new law is that it abolishes specific remedies inthe case of defective performance, and does this by extending general reme-dies so as to include the case of defective performance. However, this ten-dency towards greater generalisation rather conflicts with the EuropeanConsumer Sales Directive, which called for very particular provisions forthe relatively narrow band of cases involved, given that the Directive concentrates on the sale of consumer goods and defects in their physicalquality. The pursuit of the fundamental concept of merging the law of qual-itative defect into the general (and abstract) rules governing breach of con-tract meant that those rules must be treated as implementing the Directive.In fact, since there are now only a few special provisions applicable solelyto consumer sales (§ 476 BGB), the main burden of implementing theDirective has been put on general norms which govern obligations of allkinds, including the rules on termination in general (§ 323 BGB) andimpossibility, insofar as they allow rescission in cases of irremediabledefects (§§ 275, 323, 326 BGB and probably § 311a BGB as well). Whilethe Directive does not address the issue of the seller’s liability in damages, theGerman legislator framed the provisions governing damages ‘in lieu of per-formance’ in parallel with the provisions for termination. Thus the ConsumerSales Directive has had an indirect impact on further central provisions,

New Rules of Breach of Contract in Germany 353

74 See Ernst n 21 above § 323 No 46 ff.75 On this see Dauner-Lieb, n 41 above, § 280 No 43 with n 116; also Ernst and Zimmermann,n 2 above, 305, 312.76 For details see Ernst n 21 above, § 275 No 13, § 280 No 65–70; similarily Bamberger/Roth/Faust, Kommentar zum Buergerlichen Gesetzbuch (Beck 2003) Vol 1, § 437 No 61.

namely §§ 281, 283 BGB. Likewise, in the field governed by the ‘Directiveon Combating Late Payment in Commercial Transactions’ the German leg-islator sought to avoid having a separate set of rules for the range of obliga-tions it covered, and tried instead to shape the the general provisions ondelay in such a way as also to implement the Directive (§ 286 and § 288BGB). All in all, the extent to which the general rules for breach of contracthave been determined by the need to implement EU Directives is quite considerable.

The fact that the provisions thus adopted by the German legislator are‘rules of transformation’ (Transformationsnormen) has serious conse-quences, which cannot yet be fully foreseen,77 for such rules are subject todifferent principles of interpretation which modify and can trump the tradi-tional rules of construction. In cases covered by the Directive preferencemust whenever possible be given to the most directive-friendly interpreta-tion (richtlinienkonforme Auslegung). In case of doubt the national courtof last instance must ask the ECJ for a preliminary judgement, as can alsobe done by lower courts,78 provided that the case at hand lies within thescope of the Directive in question. In adopting provisions with a broaderrange of application than just the sale of defective consumer goods, theGerman legislator opted for ‘excessive implementation’ (überschießendeUmsetzung), but the cases where the ‘excessive’ part is plainly so muchbroader than the area actually covered by the Directive are probably few innumber. It is not yet clear how the rules of transformation are to be treatedin cases not within the scope of the underlying Directive,79 how far theGerman courts will interpret the two sets of rules differently and how far sucha split interpretation would be a desirable goal.80 One might presume that incases not covered by the Directive the national courts need neither interpretthe provisions according to the purpose of the Directive nor put a preliminaryquestion to the ECJ, although this is rather doubtful in view of decisions ofthat court. However this may be, the interpretation of a provision whichconstitutes a rule of transformation is bound to influence its application inother cases: the work of interpretation in the future will be strongly influ-enced by European law. On the supposition that the interpretation ofEuropean law by the ECJ might affect more or less all the basic principlesof the new German rules of breach of contract, it may prove that in com-bining reform of the general rules of breach of contract with the additional

354 W O L F G A N G E R N S T

77 See eg M Franzen, Privatrechtsangleichung durch die Europäische Gemeinschaft(De Gruyter 1999); M Gebauer, Grundfragen der Europäisierung des Privatrechts (Winter1998); W H Roth, in Grundmann et al, n 6, 113 ff at 128 f; idem, in Geiß, n 9, Vol 2, 847 ff;Grundmann 2002 Juristische Schulung (JuS) 768; Schnorbus, (2001) 201 Archiv fuer dieCivilistische Praxis 860 ff.78 Art 234 EC.79 On the issue of implementation see Habersack and Mayer, 1999 Juristenzeitung (JZ) 913 ff.80 ECJ 1997 ECR I–4190, 4201 f (Leur-Bloem v Inspecteur der Belastingdienst); 4295, 4304(Giloy v Hauptzollamt Frankfurt aM Ost).

task of implementing Directives the German legislator has provoked legaldevelopments even more radical than the ‘actual’ changes brought about bythe reform. Many matters of detail can of course be dealt with by the legis-lature, but in our view it would have been wise to avoid, or at least restrictas far as possible, this transfer of authoritative interpretation to the ECJ.Other countries seem to have been better at implementing Directives in iso-lation from their general rules of breach on contract. Given that the flow ofdirectives touching on private law issues will not cease, making the centralcodification the main ground for implementation means to turn thenational codification into a permanent ‘construction site’.

Of course, there are also disadvantages in isolating provisions whichimplement Directives, that is, keeping them separate from the core rules:having special provisions restricted to the scope of the Directive standingalongside the more general rules might lead to a confusing diversity.Moreover, preliminary questions about which provision is applicable mighthamper the actual application of the law. Given these conflicting goals, thenational legislature probably has only second best options. If one had tosay which is the lesser evil in implementing Directives, as between voluntar-ily extending the area of transformation so as to include central rules andcreating separate special sets of rules, we would prefer the latter so far aspossible, and not burden the central legal institutions of private law withthe additional role of implementing directives: it would be a different mat-ter if the task were to harmonise the central legal principles of the rules ofcontract. To this possibility we must now turn.

B. Towards a European Law of Contract?

During the debate over the reform of the law of obligations in Germanysome critics argued that it would be better to wait for the creation of aEuropean law of contract: lawyers might thus be spared the trouble ofadjusting twice to entirely new rules of contract. The counter-argument wasthat it would be better to do one’s homework now and create a modernnational law of contract which could successfully influence the creation ofa European law of contract. Both considerations seem rather far-fetched: iflaw reforms are now thought necessary one should not postpone them justbecause one day a European law of contract might emerge, especially assuch law might be no more than an optional supplement to the nationallaws of contracts.81

New Rules of Breach of Contract in Germany 355

81 On the issue of the optional character of an eventual European Civil Code, see Eidenmüller,‘Obligatorisches versus optionales europäisches Vertragsgesetzbuch’, in C Ott and W Schäfer(eds) Vereinheitlichung und Diversität des Zivilrechts in transnationalen Wirtschaftsräumen,Beiträge zum VIII. Travemünder Symposium zur ökonomischen Analyse des Rechts (Mohr2002), 237–243.

If we except the CISG, it must be said that from its beginning in the1970s to its current provisional completion in 2001 the process of reformin Germany has not taken sufficient account of the European or interna-tional model rules on breach of contract. The ‘Principles of EuropeanContract Law’,82 often called the ‘Lando-principles’ or abbreviated asPECL, and the ‘Principles of International Commercial Contracts’, oftenreferred to as the UNIDROIT-principles or PICC, have been largelyignored. Although their status and content cannot be described here,83 bothmodels propose rules for the treatment of breach of contract.84 The same istrue of the ‘Code Européen des Contrats’, the so-called Gandolfi-project.85

These model rules have admittedly not yet passed the test of practice, butthey contain very valuable inspirations for any legislator. On the questionwhether they might become the seed for a European law of contract,86 oneshould look to the Communication from the Commission to the Counciland the European Parliament ‘On the European Law of Contract’.87

356 W O L F G A N G E R N S T

82 O Lando and H Beale (eds), Principles of European Contract Law Parts I & II (Kluwer2000). The Study Group on a European Civil Code under Christian von Bar wants to integratethe PECL in their planned Draft European Civil Code: see von Bar, in P Gottwald (ed),Festschrift Dieter Henrich (Gieseking 2000), 1–11, 4.83 See J Basedow (ed), Europäische Vertragsvereinheitlichung und deutsches Recht (MohrSiebeck) 2000.84 See the contributions of Canaris, Hager, Ernst, Köhler, Medicus und Schlechtriem inBasedow, n 83 above.85 See G Gandolfi, Code Européen des Contrats I, (Giuffrè 2001), a model codel developed byAcademy of European Private Lawyers (Pavia-group).86 The principles mentioned are the focus of ongoing international academic discussion. A bib-liography of German literature up to 1 January 2001 is found in Ernst and Zimmermann, n 2above, 739–742.87 COM (2001) 398 of 11 July 2001; cf G Wagner, 39 Common Market Law Review 2002,995–1023.

17

European ‘Citizenship’: In its OwnRight and in Comparison with the

United States

THOMAS C FISCHER*

I. THE PROBLEM

THE FOURTEENTH AMENDMENT to the US Constitution,adopted in 1868, provides in relevant part: ‘All persons born or nat-uralised in the United States … are citizens of the United States and

of the State wherein they reside.’1 A similar passage in the Treaty ofEuropean Union (TEU or Maastricht), Article 8 (now Article 17(1)),declared: ‘Citizenship of the Union is hereby established. Every person holding the nationality of a Member State shall be a citizen of theUnion.’

But what do these ‘citizenships’ mean substantively? How are the USand EU versions alike or dissimilar? And why are Europeans so ambiva-lent—or even negative—about ‘citizenship’ of the European Union?

Many Europeans seem to fear that they will lose their national identityas the European Union (EU) becomes more harmonised. They wonder whyEU ‘citizenship’ is necessary; and how it will affect them. They are keen toenjoy the freedoms that the Community treaties grant them, but are resist-ant to losing national identity in a European polyglot. As one local citizencommented after the September 2000 referendum rejecting Danish entry

* Professor Emeritus, New England School of Law, Boston, MA. AB University of Cincinnati;JD Georgetown University Law Center, Washington, DC. This article grew out of a lecturegiven at the Institute of Advanced Legal Studies (University of London) while an Inns of CourtFellow (Lincoln’s Inn) in 1997.

I am immensely grateful for the contributions made to the article by Ivana Erceg, myresearch associate, and Dr Stephen C Neff, of the University of Edinburgh Faculty of Law, andfor the advice given to me by Catherine Barnard of the University of Cambridge and DrTakisTridimas and Nick Hopkins of the University of Southampton.1 US constitution, Amendment XIV.

into the single currency, the euro; ‘[the people of Denmark] certainly don’twant a United States of Europe.’2

With an ‘ever-closer union’ evolving among EU Member States—stateswith long and rich histories, different cuisine and languages—it is easy tounderstand the resistance to greater unity. At this point in time, however, itseems inevitable that the European Union will develop into a federationthat goes well beyond mere economic union. To some extent, it already has.But this confederation need not become a ‘United States of Europe’, as somany seem to fear. Indeed, a ‘United States of Europe’ may be a bad thing.As De Tocqueville pointed out in his study of the early United States, thereare many forms of federalism.3 The European Union may well create a formof its own; a Europe of united states.

Currently, there remain a number of differences between the EU and USsystems. They start from very different poles. The United States was estab-lished by the people.4 The European Union was established by its constituentMember States. Both, however, out of necessity, have had to collaborate inareas beyond the control of any individual state. In the US, this resultedfrom a Constitution that moved governance from a confederation to a fed-eration, while in the EU the shift came about more gradually, through expe-rience. Another significant difference is that the US Constitution beginswith the central institutions, and gives scant attention to the objectives ofunion (mostly in Article I, section 8). The European treaties give pride ofplace to a detailed list of Community objectives, and place the institutionslate in the document.

The states of the US and the Member States of the EU are not withoutpowers of their own, however. In the US, most law and law enforcement ishandled at the state level, including most criminal, domestic relations,estate, property and education matters. Amendments IX to XI of the USConstitution (the so-called ‘reservation amendments’) explicitly reserve tothe states and to the people the powers not enumerated in theConstitution.5 Similarly, Article 5 of the EC Treaty requires that theCommunity act within the limits of the powers granted to it, and when

358 T H O M A S C F I S C H E R

2 Ambrose Evans-Pritchard, ‘Triumph for anarchists and late-night drinkers: the Danesenjoyed defying Brussels and their own politicians yesterday,’ Daily Telegraph (London), 29 September 2000 (pg unavail online), 2000 WL 26929978. 3 De Tocqueville, A Democracy in America (Gryphon Editions, Delran, New Jersey 1988), 311.4 The Preamble to the US Constitution reads, in relevant part: ‘We the People of the UnitedStates, in Order to form a more perfect Union, … insure domestic Tranquility, provide for thecommon Defense, [and] promote the general Welfare do ordain and establish thisConstitution for the United States of America’ [emphasis added]. Since the people created theUnion, arguably the states cannot dissolve it. See McCulloch v State of Maryland, 17 US 316(1819).5 US Constitution, Amendments IX and X, state that the rights enumerated in the Constitutionnot be construed to deny other rights retained by the people and that the powers not delegatedto the US government are reserved to the states and the people.

acting in an area of shared competence, act according to the principle ofsubsidiarity.6 This principle is two-edged, however, leading to the conclu-sion that some ‘rights’ must derive from the Community. Moreover, despiteits being a common perception, it is incorrect to think of the United Statesas one great melting pot.

Anyone who has traveled the United States thoroughly knows that thehistories, topography, culture, traditions, architecture and cuisine of itsregions vary widely. Lately, languages other than English have been recog-nised.7 And, notwithstanding the concern of many Europeans that theEuropean Union will become another United States, the process of ‘federal-isation’ (it is a process after all, not an event) is hard to ignore when com-paring European developments to the evolution that took place in theUnited States over the past 200 years. Europe may never become anotherUnited States, but it surely is federalising. And the notion of European ‘citi-zenship’ is simply part of the process. Indeed, it would be quite remarkableif the steady unification of the Common Market did not have a corollaryeffect on the peoples of Europe. And the Union will not be a success unlessthey can be brought along.

As the Committee of the Regions remarked,

union citizenship constitutes both a means and an end for EU integra-tion … [The latter] can only be sustained if the public in the Member Statesperceive and support it as a matter of common concern. From this point ofview, Union citizenship gives legitimacy to EU integration policy. Union citi-zenship is likewise an instrument of EU integration policy since it entailsrights … in a wide variety of fields which serve to promote public identifica-tion with the EU. 8

Hence, there cannot be a legitimate European Union without citizens andno European citizenship without the Union. They co-exist and growtogether in the same way that the US recognised a dualism of loyalties inthe Fourteenth Amendment.

II. CITIZENSHIP DEFINED

Although a commonly-used term, ‘citizenship’ has no settled definition. AsJudith Shklar points out, ‘[t]here is no notion more central in politics than

European ‘Citizenship’ 359

6 EC Treaty, Art 5, provides in relevant part: ‘In areas which do not fall within its exclusivecompetence, the Community shall take action, in accordance with the principle of subsidiarity,only if and insofar as the objectives of the proposed action cannot be sufficiently achieved bythe Member States and can therefore … be better achieved by the Community.’7 Personally, I think Europeans make entirely too much of their heterogeneity and America’ssupposed homogeneity.8 Opinion of the Committee of the Regions on ‘EU Citizenship’, OJ 2000 C156/12.

citizenship, [yet] none more variable in history, or contested in theory.’9

Much of the confusion comes from commingling the concepts of national-ity and citizenship.10

The international legal concept of nationality is very different from thatof citizen. The former serves the taxonomic function of assigning individu-als to states. It is narrow and technical, and:

serves above all to determine that the person upon whom it is conferredenjoys the rights and is bound by the obligations which the law of the State inquestion grants to or imposes on its nationals.11

‘Citizenship’ conjures up a much richer connection between the person andthe state, involving reciprocal loyalties. It entails ‘a sense of attachment, agenuine connection of existence, interests and sentiments … .12

Usually with some particular objective in mind, various states and peo-ples have given the term citizenship a variety of meanings. Their interpreta-tions were influenced by the conditions and the perspective of the time.13 Inancient Greece and Rome, for example, citizenship implied active participa-tion in political life. In ancient Greece, citizenship was hereditary and was aprerequisite to the enjoyment of certain rights, while in ancient Rome, citi-zenship was related to property ownership, since property owners had certain public duties and responsibilities toward the city-state.14 In theMiddle Ages, citizenship depended on a relationship of allegiance to thesovereign.15

A contemporary view might define citizenship as a relation to a law-making/enforcing entity that confers rights and imposes duties upon its cit-izens, but simultaneously gives them status within the community.16 Thisdefinition involves dimensions that are legal, psychological, political andsociological.17 The legal dimension creates a personal status, usually in aconstitution or other fundamental charter, and prescribes the specific rightsand obligations attaching to ‘citizens’, but not to others in the territory.

360 T H O M A S C F I S C H E R

9 Shklar, JN, American Citizenship: The Quest for Inclusion, (Harvard University Press 1991).10 S 212 of Restatement (Third) of Foreign Relations defines a US national as a citizen of theUS See generally, O’Leary, S The Evolving Concept of Community Citizenship, (Kluwer LawInternational 1996).11 Nottebohm Case (Liechtenstein v Guatemala), 1955 ICJ 4, 20.12 Ibid, at 23.13 Professor Josephine Shaw describes citizenship as an ‘open-textured concept’ subject to the‘milieu [in which] it is raised.’ ‘The Many Pasts and Futures of Citizenship in the EuropeanUnion’, 22 European Law Review 554, 558 (1997).14 O’Leary, above n 10 at 4–5.15 Ibid.16 Schauer, F,‘Community, Citizenship and Search for National Identity’, 84 Michigan LawReview 1504 (1986).17 Schuck, P, ‘Citizenship in Federal Systems,’ 48 American Journal of Comparative Law 195,207–08 (Spring 2000).

Thus, it would apply to certain unelaborated privileges and immunitiesunder the US Constitution, but not to due process or equal protection,which don’t require citizenship.18 The political dimension qualifies the citi-zen to participate in the political system; generally by voting or standing foroffice.19 The psychological dimension measures whether individuals iden-tify themselves with the right-giving entity, and how important that iden-tity is to them. The sociological dimension reflects how well-integrated the‘citizens’ are.

Under customary international law, citizenship is taken to imply a rela-tion between a nation-state government (sovereign) and the people (demos)governed. This probably reflects the fact that customary international lawfocuses on nation states. That leaves the impression that a nation-state isthe only legitimate source of citizenship.20

In the last half century, however, the nation-state and national sover-eignty have been eroded. Nation-state independence steadily decreased as aresult of the process of ‘globalisation’. With the advent of the UnitedNations, the World Trade Organization, the Group of 7 industrial nations(G-7), the Quad 4, and the rise of regional groupings like the NorthAmerican Free Trade Agreement (NAFTA), the Asian Pacific EconomicCooperation (APEC) forum, and the European Community, nation-statesare acting more collaboratively.21 Their behaviour is increasingly regulatedby external standards and trans-national, rather than domestic, law. Manyissues today, like the environment or organised crime, are better tackled atthe multinational level. With this dilution of state sovereignty and with therise of collective undertakings, the definition of citizenship also needs tochange.22

Community law accepts this departure from nationhood as the solesource of rights, insofar as it constitutes an independent ‘source of rightsand obligations.’ According to the European Court of Justice, ‘the EEC

European ‘Citizenship’ 361

18 US Constitution, Amendment XIV provides in relevant part: ‘No state shall make or enforceany law which shall abridge the privileges or immunities of citizens of the United States; norshall any state deprive any person of life, liberty, or property, without due process of law; nordeny to any person … the equal protection of the laws’ [emphasis added].19 See eg US Constitution, Art I, §2(2) and 3(2) [citizenship for Representatives and Senators];Art II [citizenship for the President], and amendments XV and XIX [the right of citizens tovote]. The same applies to EC Treaty Art 19 [a non-national European citizen may stand foroffice and vote in municipal and European Parliamentary elections].20 Bosniak, L, ‘Citizenship Denationalised,’ 7 Industrial Journal of Global Legal Studies 447(Spring 2000). A state is defined in international law as a geo-political unit which has a per-manent population, defined territory, government and capacity to enter into relations withother states. See for eg Montevideo Convention of 1933.21 ‘Goodbye to the nation state,’ The Economist, 23 June 1990, 11.22 Professor Shaw writes insightfully about the ‘decoupling’ of citizenship and nationality, andof European citizenship as a ‘post-national’ status and a ‘thicker concept’ of EU membership.Shaw, J, ‘Constitutional Settlements and the Citizen After the Treaty of Amsterdam’, inNeunreiter, K & Wiener, A (eds), Beyond Amsterdam: Institutional Dynamics and Prospectsfor Democracy in the EU (Oup 2000).

Treaty implies that [it] is more than an agreement which merely createsobligations between contracting Member States.’ Rather, it:

constitutes a new legal order …. for the benefit of which the States have limitedtheir sovereign rights, … and the subjects of which comprise not only MemberStates but also their nationals. Community law therefore not only imposeslegislation on individuals but is also intended to confer upon them rightswhich become part of their legal heritage.23

Hence, the EU gives its ‘citizens’ rights that no signatory Member State couldpossibly confer. By this I mean that no single Member State could give itsnationals permission to work, reside, or offer services in the territory ofanother state without its permission. I suppose one may argue that theCommunity’s competencies derive from the voluntary, reciprocal, unani-mous acts of the respective nation-states. But that would not account forsecondary legislation, particularly that adopted by a qualified majority vote,or legal interpretations of the Community courts. The European Communitydoes not have the federal mandate of the US Congress and President, to becertain, but it has to be counted as a quasi-independent source of rights andresponsibilities. And it covers more than just commercial rights and obliga-tions. Certainly, the incorporation by reference of the Rome Convention onthe Protection of Human Rights24 into the EU Treaty by the Treaty ofAmsterdam has vastly expanded the rights and protections upon whichEuropean ‘citizens’ can rely.25 And not only can these ‘rights’ be enforcedagainst one’s own nation-state, they can be enforced in its own courts.26

To a degree then, European ‘citizenship’—like traditional citizenship—embraces a series of person- state relationships (some closer than others), thatI suggest fall broadly into categories of civil, economic, social and political rights.27 And the process of globalisation has considerably enhancedthe range and source of rights upon which the world or regional ‘citizen’ canrely. This represents a new paradigm in the citizenship relationship.

362 T H O M A S C F I S C H E R

23 Case 26/62 NV Algemene Transport-en Expeditie Onderneming van Gend en Loos vNederlandse Administratie der Belastingen [1963] ECR1.24 Technically, the Convention for the Protection of Human Rights and Fundamental Freedoms(Rome 4 November 1950), Council of Europe (ETS No 5), cited at EU Treaty Art 6(2). Priorto this, discrimination specifically identified in the European treaties consisted mostly ofnationality [for example, EC Treaty, Art 39(2)] or sex [EC Treaty, Art 141 (1)]. However, intruth, the national laws of EU Member States guaranteed many of the human rights containedin the Human Rights Treaty.25 Cf 2/94 Opinion pursuant to Art 228(6) of the EC Treaty [1996] ECR I–1759, 1789;although similar rights could be drawn by the Court from the Member States’ constitutionaltraditions and international treaties. 26 Cases 6 & 9/90 Francovich & Bonifaci v Italian Republic [1991] ECR I–5357.27 In her Monnet paper, Professor Shaw writes of citizenship as being ‘membership’ in a group,whose members enjoy civil rights (all or nearly all of them), social rights (some, but not all),and political rights (reserved to the full citizen). [citing Marshall]. Shaw, J,’Citizenship of the

III. THE COMPARISON BETWEEN US AND EU CITIZENSHIP

It is often helpful to define one thing in terms of another, inapposite innature. The comparison is helpful not only because one is able to distin-guish the two, but also to predict possible development through compari-son. Comparing United States citizenship with that bestowed in the ECTreaty allows one to gauge the appropriateness of the term ‘citizenship’ inthe European context. Actually both the Community treaty and the USConstitution use the term citizen quite sparingly.

A. Citizenship in the United States

United States citizenship is acquired by birth, naturalisation28 or relation-ship to a US citizen parent.29 Despite the common view that the rights ofUS citizens are extensive, in reality those explicitly granted to them underthe Constitution are quite modest when compared to those granted to per-sons within US territorial jurisdiction.30

Apart from qualifications for national office in Articles I and II, the termcitizen is found in the US Constitution only in Article IV, entitling the citi-zens of each state to the ‘privileges and immunities’ of citizens of the severalstates, and in Constitutional Amendments XIV, XV31, XIX32, XXIV33, andXXVI34, the latter four dealing with the right to vote.

The most celebrated individual rights in the US Constitution are foundin the Bill of Rights, portions of which have been made applicable to thestates through the ‘due process’ clause of the Fourteenth Amendment.35

European ‘Citizenship’ 363

Union: Towards Post-National Membership?’, Jean Monnet Papers (Harvard Law School),Part I, 1–6, available at http://www.jeanmonnetprogram.org/papers/97/97–06-html>. Otherauthors have made similar classifications and observations. For example, Klaus von Beyme,‘Citizenship and the European Union’ in Eder, K & Giesen, B (eds), European CitizenshipBetween National Legacies and Postnational Projects, (Oup 2001), 78–81.

28 US Constitution, Amendment XIV.29 Immigration and Nationality Act, §301. See also Restatement (Third) of Foreign Relations,s 212.30 The courts have consistently held that any person within the United States, citizen or alien,is protected by the guarantees of the Constitution. This includes the Bill of Rights(Constitutional amendments I–X, and the very expansive ‘due process’ and ‘equal protection’guarantees (Amendments V and XIV). Yick Wo v Hopkins, 118 US 356 369 (1886).31 Amendment XV to the US Constitution provides that the right of citizens of the US to voteshall not be denied or abridged by the US or any state on account of race, color, or previouscondition of servitude.32 Amendment XIX to the US Constitution provides that the rights of citizens of the US to voteshall not be denied or abridged by the US or by any state on account of sex.33Amendment XXIV to the US Constitution ensures a right to vote regardless of ability to pay tax.34 Amendment XXVI to the US Constitution grants the right to vote to persons over 18 yearsof age.35 The interrelationship between the due process clause of the 14th Amendment and the Bill ofRights has developed gradually in US Supreme Court jurisprudence. In 1908, the Court

But the due process clause, and hence the portions of the Bill of Rights thathave been incorporated using that clause (including the right to free speech,press, assembly, against self-incrimination and to equal protection) areapplicable to all persons in the US, not just citizens.36 While the FourteenthAmendment expressly creates state as well as national citizenship, and pro-vides that states cannot ‘abridge the privileges or immunities of citizens ofthe United States’, it does not specify what those privileges and immunitiesare. Indeed, the US Supreme Court has interpreted them rather narrowly. Inthe Slaughterhouse cases, they were limited to the right to travel to the seatof the federal government and to conduct business with it, the right to seekits protection, and right to use seaports.37 Even today this apparent equal-ity of treatment does not extend to the right of a non-citizen to stand or tovote in state and local elections (compare EC Article 19), to the benefits of‘in-state’ tuition,38 or quick access to state courts in domestic matters.39

Conversely, some privileges normally associated with citizenship (a minorchild’s access to a free public education) have turned on mere residence.40

Apart from recognising the dualism, US Supreme Court jurisprudencespends very little time distinguishing federal and state citizenship. TheSlaughterhouse cases appear to allow that a person could be a US citizenwithout being a citizen of any state.41 And Blackmer appears to involvejust such a situation.42 In theory, at least, the two are not mutually interde-pendent. In general, however, states are free to set the standards for theircitizenship, so long as they do not violate any federally-protected rights indoing so.43 The two are separate sources of rights, with the civil and eco-nomic ones better protected.

364 T H O M A S C F I S C H E R

rejected the proposition that the 14th Amendment prevented states from denying the 5th

Amendment privilege against self-incrimination. Twining v New Jersey, 211 US 78 (1908). In1925, however, the Court held that the 14th Amendment applied 1st Amendment protectionsto the states. Gitlow v New York, 268 US 652 (1925). Palkov v Connecticut, 302 US 319(1937), expressed the notion that those portions of the Bill of Rights that were implicit in theconcept of ordered liberty would be applicable to the states through the 14th Amendment. Theprocess by which the Court applied particular Bill of Rights guarantees to the states using the14th Amendment is known as ‘selective incorporation’. See Cohen & Varat, ConstitutionalLaw: Cases and materials, Foundation Press, Westbury NY(10th edn 1997), 501.

36 Amendment XIV to the US Constitution provides in relevant part, ‘No state shall make orenforce any law which shall abridge the privileges and immunities of citizens of the UnitedStates; nor shall any state deprive any person of life liberty, or property without due process oflaw; nor deny any person within its jurisdiction the equal protection of the laws.’37 The Slaughterhouse Cases, 83 US (16 Wall) 36 (1873).38 Elkins v Moreno, 435 US 647 (1978); Toll v Moreno, 458 US 1 (1982).39 Sosna v Iowa, 419 US 393 (1975).40 Plyler v Doe, 457 US 202, 210–216 (1982).41 83 US 36 (1873).42 Blackmer v United States, 284 US 421 (1932). Blackmer, an expatriate American living inFrance, was subject to federal criminal jurisdiction as a US citizen, although he did not appearto ‘reside’ in any state.43 Sosna v Iowa, 419 US 393 (1975); Shapiro v Thompson, 394 US 618 (1969).

The Fourteenth Amendment was simply a reaction to the SupremeCourt’s decision in the Dred Scott case44 (holding that Negro slaves werenot citizens, but property) and the Thirteenth Amendment (which abol-ished slavery).45 But the creation of dual sources of citizenship rightsoccurred long after the Constitution was adopted, and it took much longerstill—well into the twentieth century—before the ‘privileges and immuni-ties’ of citizens and persons under US jurisdiction acquired much substance.So too in Europe; the time finally arrived to acknowledge a dualismbetween EU and Member State citizenship as a source of rights.46 But thisdualism is of a rather different sort.

B. Citizenship in the European Union

Article 17(1) of the Community Treaty makes citizenship of the EuropeanUnion absolutely dependent upon being a fully fledged national of one ofthe EU Member States. And it is up to the domestic law of each MemberState to specify who qualifies as one of its nationals.47 It could not be oth-erwise at this stage of the Community’s development, for there is little inter-est in increasing Brussels’ role as a source of political influence. Indeed, tomollify the Member States, the Amsterdam treaty added to this treaty pas-sage: ‘Citizenship of the Union shall complement and not replace nationalcitizenship.’ That said, however, once an EU Member State recognises a per-son as its national, no other state can question that decision, but must accordthat person a Euro citizen’s rights.48 This means that the most-generousMember State, with regard to granting citizenship, can bind all otherMember States; a situation that could prove intolerable if the EU did notfurther harmonise its standards for conferring this or any other residentialstatus, which they are undertaking to do. Furthermore, if Euro-citizenship‘complement[s]’ national citizenship (a better—although provocative—word might be ‘supplements’) then Community citizenship must contributesomething extra to national citizenship. As indeed it does.

In fact, the European Community has been, since its inception, a de facto(if not a de jure) source of rights and obligations for European citizens. I can

European ‘Citizenship’ 365

44 Scott v Sandford, 60 US 393(1857).45 US Constitution, Amendment XIII, states in relevant part, ‘Neither slavery nor involuntaryservitude, except as a punishment for crime … shall exist within the United States, or any placesubject to their jurisdiction.’46 Shaw above n 27 at Part V, 1–2.47 Case 192/99 The Queen v Secretary of State for the Home Department, ex parte ManjitKaur [2001] ECR I–1237; Case 369/90 Micheletti v Delegación del Gobierno en Canatabria[1992] ECR I–4239.48 Micheletti above. However, the granting state may precondition its grant of citizenship onthe relinquishment of all other claims to citizenship. See case 179/98 Belgian State v FatnaMesbah [1999] ECR I–7955.

not imagine how it could have been otherwise if there was to be a genuine European ‘community’. It is central to the whole enterprise that theCommunity ‘constitution’ (the Treaty of Rome, as amended) confers ‘rights’(for example, the free movement of workers and services) that signatorystates, acting individually, could not. In this sense, Community ‘rights’ pre-date the use of the term ‘citizen’ in the European treaties.49 Indeed, severalscholars have observed that the specific citizenship rights enumerated in ECArticles 17–22 only begin to cover a range of Community rights forMember State nationals that are scattered throughout the EC treaty.50

In fact, some of the rights enjoyed by European citizens are more exten-sive than those enjoyed by US citizens; for example, the right to vote and tostand as a candidate in municipal and European Parliamentary elections inthe state where a person resides, but is not a national. Other rights areapproximately parallel. For example, both American and EU citizens areable to travel to and reside in any of the constituent states and profit fromtheir educational and employment opportunities, subject, in the case of theEU, to certain minor conditions.51 Thus, although the so-called ‘free move-ment’ of persons is not absolutely free under EC Articles 18 (1) and 39, it issubstantially liberalised, especially for workers. And the derogations thatare allowed are generally interpreted narrowly.52 Indeed, although theexpress rights of Eurocitizens may be limited, the EEC’s original ‘four free-doms’ were clearly meant to benefit them, with their consistent reference to‘nationals’ or ‘between Member States’.53 Nonetheless, the Eurocitizens’

366 T H O M A S C F I S C H E R

49 See above n 8. The same report states that, ‘[f]rom the 1970s onwards the debate on Unioncitizenship was intensified with the emergence of the concept of the “Citizens’ Europe”. Theaim at that time was to make the impact of the Community felt in everyday life. An initial list of“special rights” was drawn up at the 1974 summit conference. This list included: a general rightof residence; the right to vote and stand for election (at least at local level); the right of access topublic offices; and the passport Union. The Tindemans report of 1975 added a number of fur-ther provisions: extension of the individual personal rights (recognition of basic rights and free-doms and the granting to individuals of the right to bring actions before the European Court ofJustice in the event of infringement of basic rights) and extension of freedom of movement(abolition of identity checks at frontiers and recognition of the equivalence of diplomas). TheEuropean Parliament, too, called for basic rights to be incorporated into Community law (theright to vote and stand for election, access to elected public office, right of assembly and associ-ation and the general right of residence). The term “Union citizenship” was used for the firsttime in the EP’s draft document on the establishment of the European Union (1984).’50 Shaw, above n 27, Part IV, 28–29 (citing Weiler) and Part V, 1–2; Craig, P, & DeBúrca, G,EU Law Oup (2nd edn 1998,) 723.51 Although EC Art 18 (1) allows Eurocitizens to ‘move and reside freely within the territoryof the Member States’, it permits ‘limitations and conditions’. Dir 90/364 conditions this righton the ability to support oneself and one’s family, and to be covered by sickness insurance (soas not to burden the social security system of the host state). With respect to transient stu-dents, see: case 184/99 Grzelczyk v Centre public d’aide sociale d’Ottignies -Louvain - lawNeuve. [2001] ECR I–6193, Particularly Point 42.52 Case 48/75 The State v Royer [1976] ECR 497; case 65/81 Reina v LandeskreditbankBaden-Württemberg [1982] ECR 33. But visiting Eurocitizens are not always entitled to localtreatment. Case 184/99 Grzelczyk, n51 above.53 Expressly, see EC Arts 25, 39(2), 43, 49 and 56.

benefits have fallen more in the civil rights and economic spheres, and lessin the social and political spheres.

It seems ironic then that the Treaty of European Union, which establishedEuropean ‘citizenship’, met such a chilly reception from the peoples ofEurope. The reason undoubtedly was that its citizenship provisions wereovershadowed by others, providing for economic and monetary union (EMU)including a single currency, and two intergovernmental ‘pillars’ bringing somenon-economic affairs within the Union’s remit. These ambitious extensions ofCommunity influence begat a lengthy and divisive ratification process.54

One reaction to this was to make certain that the next treaty (the Treatyof Amsterdam) took sufficient account of the ‘citizens’ of Europe, for theirinterests appeared to lag behind the evolution of the Common Market. Thisthe Amsterdam Treaty did in four important ways. First, it reconfiguredand renumbered the original EEC Treaty, as amended, so that there weretwo treaties: The Treaty on European Union (EU), rather aspirational incharacter; and a European Community Treaty (EC), containing most of thesubstantive provisions, but extending well beyond the old Treaty of Rome(EEC). This revision was thought to make the treaties more transparentand accessible to Eurocitizens.55 Second, an early and prominent feature ofthe EC Treaty (Part Two, Articles 17 to 22) dealt explicitly with ‘Citizenshipof the Union’. Third, substantial new initiatives were undertaken in thefields of employment, social policy and security (including consumer andhealth protection).56 Finally, the Treaty of Amsterdam embraced the RomeConvention concerning human rights.57 This emboldened the EuropeanCommission to call Amsterdam a ‘Treaty … for all Europeans’, saying‘[t]his Treaty is for you.’58

Notwithstanding EC Article 17’s assertion that European citizenship willcomplement and not replace the rights of national citizens, in a legal sense,an alternative source of citizenship rights and obligations was established.And it seems almost inescapable that the new source will weaken to somedegree the sole pre-existing source.59 In some instances, a Member Statemay not even be able to denationalise EU citizens since that would deprivethem of (Euro) citizenship rights.60

European ‘Citizenship’ 367

54 See generally, Fischer, TC, The Europeanization of America, ch 9, ‘Maastricht: Too Much,Too Soon; or Too Little, Too Late?’ , (Carolina Academic Press 1995).55 ‘A new treaty for Europe—Citizen’s Guide’ (Amsterdam 17 June 1997), Commission of theEuropean Communities, 1997.56 Ibid, 3–9. See, eg EC Treaty, Titles VIII, XI, XIII and XIV.57 Eu Arts 6(2) and 46(d).58 See above n 55 at 2. These themes are captured briefly, and aspirationally, in EU Art 2.59Preuss, U ‘Problems of a Concept of European Citizenship’, 1995 European Law Journal 267268. See also De Tocqueville, above n 3 at 376. EU Art 6(3) also pledges that the ‘Union shallrespect the national identities of its Member States’, but this is hardly a frontal assault on them.60 Case C–369/90 Micheletti v Delegacion del Gobierno en Cantabria [1992] ECR I–4239. Cf,pending case 441/02 Commission v Germany.

The rights expressly given to Eurocitizens by EC Articles 17–22 are fairlylimited, just as those in the United States Constitution. They are as follows:

Freedom of movement and residence throughout the union61 (however,this right existed to some degree since 1958 [the EEC Treaty]—at least forworkers—and was given a liberal interpretation by the European Court ofJustice).62 It was reinforced by the EEC prohibition against discriminationbased on nationality.63

1. The right to vote and to stand as a candidate in municipal andEuropean Parliamentary elections in the state where theEurocitizen resides, even if a non-national;64

2. The right to receive assistance and protection from the diplomaticauthorities of any EU Member State if the state of whichEurocitizen is a national is not represented in a non-membercountry;65 and

3. The right to petition the European Parliament and apply to theOmbudsman, to ask questions of, and receive answers from,Community Institutions, and have access to Parliament, Council,and Commission documents.66

These would seem to be perfectly obvious rights in a citizens’ Europe. Butthey were not express until Maastricht. However, the rights listed in point 3above (EC Articles 21and 255(1)) refer in part to EC Articles 194 and 195,where the same rights are extended to ‘any natural or legal person residingor [registered] in a Member State … ’ (accord Article 255(1)). So even thislist of Eurocitizens’ rights is not exclusive to them. But the political rightsclearly are.

Some scholars have questioned whether there should not be some dutiesor obligations accompanying these rights of Eurocitizenship. The mostobvious would be, I suppose, the duty to pay taxes, or to vote, or serve inthe military, or on juries. All these will have to await a further consolida-tion of the Community, if indeed they ever come to pass. But an individual’sduty to obey Community law is already well established.

368 T H O M A S C F I S C H E R

61 Several EC Treaty Articles deal with the freedom of movement and residence in the Union.Art 14 established the internal market which includes the free movement of persons; Art 18(1)grants Eurocitizens the right to move and reside freely within the territory of the MemberStates; and Arts 43 and 49 allow them to establish themselves in the territory of anotherMember State and to render or receive services there, respectively.62 Case 48/75 The State v Jean Noel Royer [1976] ECR 497.63 Presently EC Art 39(2).64 EC Treaty, Art 19. This is a unique right with the Maastricht Treaty.65 EC Art 20. This right is also entirely unique.66 EU Treaty, Arts 21 and 255. There is a similar right of petition in the US Constitution,Amendment I.

The jurisprudence of the European Court of Justice (ECJ) also significantlyincreased the rights of Eurocitizens, if not specifically under the rubric of ‘cit-izenship’ (which is quite new), by broadly interpreting the ‘four freedoms’enjoyed by Member State nationals/Eurocitizens and the ‘ Constitutional tra-ditions common to the Member States.’67 The list of these cases is well-known, and far too long to recount in full here.68 Just a few, representativedecisions will suggest the influence of the ECJ on the development of aEuropean polity.

For example, the Court has significantly, enlarged the definition of‘worker’, the cornerstone of an individual’s free movement;69 it allowedpersons to travel and to move national currency for the purpose of receiv-ing and offering services;70 and facilitated the unity of families, especiallyas regards minor students.71 One might argue that the Court achieves moreat lower cost by acculturating youth to unified Europe, than by securingsocial benefits for pensioners, who are often less mobile. But one can’texclude social benefits either.

In Commission v Belgium, the European Court limited the right ofMember States to exclude non-national Eurocitizens from certain types ofpublic jobs (patronage often reserved for nationals), despite a treaty dero-gation that would appear to allow it.72 In Johnston73 and Marshall74 apublic employee was able to assert individual, Community-based rightsagainst her employer’s policies. Furthermore, the Treaty has been construedto prohibit Member States from discriminating against their own nation-als,75 and to allow injured nationals to recover from their own sovereignfor its failure to obey Community Law.76

Of course these cases fell dominantly in the civil rights and economicspheres, but several recent cases have fallen into the super-sensitive social

European ‘Citizenship’ 369

67 Generally, EC Arts 23, 39, 43,49 and 56 et seq; Case 29/69 Stauder v City of Ulm [1969]ECR 419; C–11/70 Internationale Handels-gesellschat mbH v Einfuhr-und Vorratstelle fürGetreide and Futlermitted [1970] ECR 1125. The latter legal source is now enshrined in EUArt 6(2).68 A good survey of recent case law will be found at: Reich, N ‘Union Citizenship—Metaphoror Source of Rights?’, European Law Journal., Vol 7, No 1 (March 2001), 10–13.69 Case 66/85 Deborah Lawrie-Blum v Land Baden-Württenberg [1989] ECR 2121.70 Joined cases 286/82 and 26/83 Luisi and Carbone v Ministero del Tesoro [1984] ECR 377.71 Case 459/99 Mouvement contre le Racisme, l’Antisémitisme et la Xénophobie ASBL(MRAX) v Belgium [2002] ECR I–6591; Case 413/99 Bumbast v Secretary of State for theHome Department [2002] 3 CMLR 23.72 Case 149/79 at [1980] ECR 3881. For obvious reasons, EC Art 39(4) has been interpretedto exclude only public service jobs that require a ‘special relationship of allegiance to the State.’73 Case 222/84 Marquerite Johnston v Chief Constable of the Royal Ulster Constabulary[1986] ECR 1651.74 Case 152/84 Marshall v Southampton and South-West Hampshire Health Authority(Teaching) [1986] ECR 723.75 Case 224/98 D’Hoop v Office National de l’emploi [2002] ECR I–6191.76 Joined cases 6 and 9/90 Francovich & Bonifaci v Italy [1991] ECR I–5357; Case 91/92Dori v Recreb Srl [1994] ECR I–3325.

services sphere. This is one protected from over-zealous Community legislation, by EC Article 18 (3). Nonetheless, two recent ECJ decisionsheld that Member States could not set different approval standards formedical services obtained domestically and those obtained in anotherMember State without violating Treaty provisions concerning the freemovement of goods (eyeglasses)77 or services (orthodonty).78

In the absence of harmonising Community legislation (which may takesome time), the European Court has done its best to ensure that there is aflexible European market in the health services, heretofore the near-exclusiveprovince of national providers. In the Smits-Peerbooms cases, the ECJallowed that a Member State could place reasonable limitations on accessto health care, but must allow its national to seek reimbursable health careservices elsewhere in the EU if the same or equally-effective treatment couldnot be gotten domestically ‘without undue delay.’79 The Court recognisedthat large patient migrations might destabilise national health care systems,and might justify a derogation, but felt that this was not the case.80 Thesejudgments gave Eurocitizens greater flexibility in their pursuit of qualityhealth care in Europe,81 and probably spurred harmonisation of this socialservice field.82 But it is not the only social benefit to be enlarged byCommunity jurisprudence.83 Indeed, if the Commission had its way,progress would almost certainly be faster.84

The Treaty of Nice indicates that, if anything, the rights of EU citizens willexpand in the future. The wording of EC Article 18(2) was amended to read:

If action by the Community should prove necessary to attain [a citizen’s rightto move and reside freely within other Member States] and this Treaty hasnot provided the necessary powers, the Council may adopt provisions [tofacilitate these] rights …

370 T H O M A S C F I S C H E R

77 Case 120/95 Decker v Caise de Maladie des Employes Prives [1998] 2 CMLR 879.78 Case 158/196 Kohll v Union des Caisses de Maladie [1998] 2 CMLR 928.79 Case 157/99 BSM Geraets-Smits v Stichting Ziekenfonds VGZ and HTM Peerbooms vStichting CZ Groep Zorgverzekevingen [2001] ECR I–5473, points 60–61, 97, and 104–107.80 Ibid, points 69–75, 108. See also, Case 32/00 Idryma Koinonikon Asfaliseon (IKA) vVasilios Ioanniais OJ 2003 C 101/2 (26 April 2003).81 Castle S & Linton, L ‘EU opens borders for health treatment’, The Independent, 4 December2002, 1; Daniel Flynn, ‘English Patients Travel abroad to get prompt medical care,’ The SeattleTimes, 13 April 2002, A26.82 EC Commission (Press Release) ‘First Meeting of High Level Group on Patient Mobility,’Doc No EK 1601040 (3 February 2003); EC Commission, ‘Communication from theCommission, concerning the introduction of a European health insurance card,’ COM (2003)73 final (17 February 2003).83 Case 65/81 Reina v Landes kreditbank Baden-Württemberg [1982] ECR 33, classifying aGerman ‘childbirth loan’ as a social advantage owed to a low-income Italian worker inGermany. f Case 184/99 Grzelczyk v Centre public d’aide sociale d’ Ottignies-Louvain-la-Neave [2001] ECR I–6193, where the Directive in question did not embrace a supportallowance for non-nationals.84 ‘Social Policy—Commission Proposes Plan to Increase Worker Mobility,’ European Report,2002 WL 13764324 (16 February 2002).

And, while the Treaty of Amsterdam required the Council to act unanimouslyin such matters, the Treaty of Nice deleted this requirement and now refers toArticle 251 (qualified majority voting and co-decision).85 The next passagehowever, (part (3)), indicates that the Article 251 procedure ‘shall not applyto provisions on passport, identity cards, residency permits or … to provi-sions on social security or social protection;’ thus reserving some of themost sensitive issues of status and social rights to a unanimous Council. Inreturn for these liberalisations, however they are achieved, each MemberState gains for its nationals reciprocal rights in other Member States. Butthe source is clearly supra national.86

Member States can restrict freedom of movement on the grounds of pub-lic policy, security and health, of course. The EC Treaty would not have beensigned without these allowances. But these restrictions have been interpretednarrowly by the European Court,87 so that Member States do not take backthrough these escape clauses what they conceded more broadly in the Treaty.

So what ever happened to sovereign prerogative; to the right of a state toexclude non-nationals at will? It simply had to give way to the realities ofEuropean union and a borderless Europe, not just with respect toEurocitizens, but increasingly with regard to third-country nationals aswell. It is simply inevitable that the Member States will lose influence in an‘area of freedom, security, and justice.’88 And, since policy-making powermust flow somewhere in a more-harmonised Europe, it is bound to flow tothe centre. It is to the Community institutions that Eurocitizens and resi-dents will increasingly look for support.89

As said above, some rights in the EC Treaty are clearly linked toEurocitizenship, and tied to national identity.90 But a more sweeping anti-discrimination passage than that of EC Article 12 (namely EC Article 13)appears to be not so linked.91 Thus, as in the US, some rights in the EU’s

European ‘Citizenship’ 371

85Treaty of Nice, Provisional Text. (Coreper, SN 1247/1/01 REV 1) Brussels, 14 February 2001.86 Case 323/97 Commission of the European Communities v Kingdom of Belgium [1998] ECRI–4281.87 For example, EC Treaty, Arts 39, 46, and 55. Cf Case 48/75 The State v Jean Noel Royer[1976] ECR 1970 497. 88 The wording comes from EU Art 2, fourth indent. For analysis, see: Shaw, J ‘ConstitutionalSettlements and the Citizen After the Treaty of Amsterdam’, in Neunreither, K, & Weiner,A(eds), Beyond Amsterdam: International Dynamics and Prospects for Democracy in the EU,(Oxford University Press 1998). 89 Shaw, above n 27 at Part IV, 8.90 Notably EC Arts 17–22. But note also the prohibition in Art 12 of ‘discrimination on thegrounds of nationality.’ Presumably this means nationality of a EU Member State, or being a‘Eurocitizen’. Lawrie-Blum, above n 69, Case 238/83 Caisse d’Allocations Familiales de laRegion Parisienne v Mr & Mrs Richard Meade [1984] ECR 2631. Staples, H, The Legal Statusof Third Country Nationals Resident in the European Union, (Kluwer 1999), 188.91 At least this is the case if the Council, acting unanimously, broadly interprets its chargeunder EU Art 6(2)—‘respect [for] fundamental rights’—under either the European Conventionor constitutional traditions common to the Member States. The European Courts can use thesesame two sources to increase individual protections and harmonise Community law.

‘area of freedom, security and justice’ are not conditioned on Eurocitizenship,but may be enjoyed by Member State and third-country nationals alike.92

This expands the scope of equal treatment in the Community, for theEuropean Council at Tampere expressly said that certain rights ‘should not … be regarded as the exclusive preserve of the Union’s own citizens.’93

Yet another possible source of individual rights in Europe is the Charterof Fundamental Rights of the European Union.94 It is unclear from its pre-amble whether the rights addressed are meant to apply only to Eurocitizens,and it was merely acknowledged by the European Council in Nice and notincorporated into the Treaties. So its legal status is doubtful. But some ofthe principles addressed in the body of the document clearly should applyto resident and citizen alike.

A final source of individual rights may be the result of a EuropeanConvention, currently going forward under the leadership of former Frenchpresident, Valéry Giscard d’Estaing.95 Its latest draft document does notmake clear whether the rights referred to apply only to Eurocitizens or tothird country nationals resident in the EU as well.96 But it may take a whilebefore the Convention’s work becomes part of Community law, if ever.Because the nation states of Europe are no longer able to control movementin a largely borderless community, it has become clear that the EU alsoneeds a uniform policy with respect to third-country nationals residing in,or trying to enter, the EU. It cannot be left entirely to national governments.It is estimated that about 13 million third-country nationals are long-termCommunity residents and a half million illegal migrants enter every year.97 Sothe Amsterdam Treaty introduced a new title (IV) to deal with non-citizens inthe Community.98 The Title transfered significant powers to theCommunity institutions (chiefly the Council and Court), thereby moving alarge amount of pillar III responsibility under the Community pillar. It alsoset a five-year legislative deadline (mid-2004) to deal with the status of non-citizens resident in the EU and legal and illegal immigration.99

372 T H O M A S C F I S C H E R

92 EU Art 2 and EC Art 61, the latter of which expressly links this language to third-countrynationals.93 Presidency Conclusions, Tampere European Council (15–16 October 1999), SI (1999) 800,point 3.94 Official Journal 364/00 (18 December 2000).95 Dick Leonard, EUROPE, December 2002/January 2003, 3.96 The Secretariat, The European Convention, Doc No CONV 724/03 (Brussels, 26 May2003).97 ‘Social Security—MEPs Support Cover for Non-EU Nationals,’ European Report (23 November 2002), 2002 WL 13768804; ‘Fortress Europe,’ The Economist, 16 October1999, 19.98 EC Arts 61–69. Art 69 gives the United Kingdom, Ireland and Denmark an opt out fromthis Title.99 EC Arts 61–63, and 67. The Council’s voting procedures are very convoluted. EC Arts 18(3)and 67. The Court’s role is set out at EC Art 68.

Thus, in due course, it can be expected that there will be a uniform status respecting third-country nationals (many of them workers and fam-ily members) resident in the EU, their right to move and receive social ben-efits; uniform standards for residence permits, visas, identify cards, and thetreatment of asylum seekers and immigrants: a harmonised procedure todeal with these cases; and an equitable sharing-out of the burden.100 Thiswill be even more important in an enlarged Union with weak eastern bor-der controls. If the European Parliament and Commission have their way,long-term non-citizen EU residents could have rights very similar toEurocitizens in the civil and economic (though not the political) spheres.101

At the very least, certain civil rights ought to be gainsafed, insofar as theUnion as ‘an area of freedom, security and justice’ is mentioned in both EUArticle 2 (goals of the Union) and Article 61 (treatment of non-citizens).

One final aspect of Eurocitizenship needs to be mentioned, and that isthe status of nationals of the countries that are about to join an enlargedEuropean Union.102 One would think that they would enjoy the status ofEurocitizens from the first day of accession (probably 1 May 2004). Indeed,a document issued at the Copenhagen summit, entitled ‘One Europe,’ wel-comed ‘75 million people … as new citizens of the European Union.’ Andthe summit’s conclusions stated that ‘[t]he Union remains determined toavoid new dividing lines in Europe … .’103 But not so fast.

Existing EU Member States were concerned about a mass migration ofEastern European workers into the Community, at a time when theireconomies were already stagnant, notwithstanding a European Commission-sponsored study that suggested that such a migration was improbable.104

Suffice it that derogation clauses were introduced into most of the accessionagreements allowing existing EU Member States to continue present border

European ‘Citizenship’ 373

100 Reference is variously made to EC Arts 61, 14(2), 62, 63 and 66; ‘Fortress Europe,’ n 97above. See also, Case 86/96 Martinez Sala v Frei Staat Bayern [1998] ECR I 2691.101 ‘MEPs Support Cover for Non-EU Nationals,’ see above n 97; ‘Justice and Home Affairs—Commission Proposes Directive for Non-EU Students, Trainees, Volunteers, European Report,9 October 2002, 2002 WL 13768040; Commission of the European Communities, ‘TheCommission’s Legislative and Work Programme for 2003,’ COM (2002) 590 final (Brussels,30 October 2002), point 2.2 and Annex 3. See generally, ‘Establishing a status for long-termresidents’ at http://europa.eu.int/comm/justice_ home/fsj/immigration/residents,’ (last visited 3 March 2003) and the draft directive on the status of third country nationals who are long-term Community residents, COM (2001) 127 final.102 There are 10 accession candidates: Cyprus, the Czech Republic, Estonia, Latvia, Lithuania,Hungary, Malta, Poland, Slovakia and Slovenia.103 ‘One Europe,’ Doc No SN 369/02, Copenhagen, 13 December 2002; ‘PresidencyConclusions,’ Copenhagen European Council, 12 and 13 December 2002, Doc No SN 400/02,point 22.104 Boeri, T & Brücker, H ‘The Impact of Eastern Enlargement on Employment and LabourMarkets in the EU Member States (Final Report), Berlin & Milan, 2000. Existing CommunityStates might also have been concerned that the candidates’ border controls were weak andthat illegal immigrants might enter the EU without further controls.

controls on workers (and some services) for up to seven years.105 Of course,the acceding states and their nationals will participate in the political life ofthe Community from day one.106 Nonetheless, the accession state nationalshave been accorded a kind of second-class Eurocitizenship, at least in thenear term. But there is precedent for this.107 And the new Eurocitizens arenot to be treated less favourably than third-country nationals resident inEU Member States, and that status may be improved by 2004.108

There is no exact parallel for this in the US system, except that, asnoted, states do reserve certain minor perks for their citizens for shortperiods of time.109 To exclude non-citizens from more fundamental entitlements for long periods of time runs foul of federal law.110 But thenone could argue that permanent exclusion of these new Eurocitizens fromthe freedoms guaranteed by the Treaties would violate European law aswell.

Like Amsterdam and the enlargement process, the Nice summit andTreaty also struck an integrative chord. For example, a five-year pro-gramme to ‘[reinforce and modernize] the European social model’; to‘[modernize] social protection’, including pensions; and to increase protec-tion and ‘involvement’ for workers (the EU has recognised that high unem-ployment is a Community problem). 111 Still other sections dwell on a coordinated programme of ‘consumer health and safety’ involving a‘European Food Authority’ (similar to the Food and Drug Administrationin the US?); and the development of a coordinated ‘tax package’.112 So theprospects of a harmonised Europe for Eurocitizens keep increasing. Indeed,the report devotes a whole section (V) to a ‘Citizens’ Europe’.

374 T H O M A S C F I S C H E R

105 Cyprus and Malta were exempted from these provisions. Current Member States can retainpresent controls for two years, unless they individually decide to relax them. Then there willbe a review, and controls could be extended for up to three more years if conditions warrant.Another two years could be added if ‘serious labour disturbances’ were threatened. Austriaand Germany were allowed to employ the full seven years. An excellent synopsis of the acces-sion in treaties generally is: Professor Steve Peters, ‘Statewatch Analysis: the EU AccessionTreaty’ at www.statewatch.org/news/2003/feb/accession.pdf. The full ‘Treaty of Accession’ isat AA 2003, final (Brussels, 3 April 2003, particularly Annex II, parts 2B and 3, and Protocols3, 5 and 6.106 Ibid, particularly the Treaty of Accession, Annex II, part 2D.107 EU Art 49 allows the existing Member States, who are in the driver’s seat to set ‘conditionsof admission.’ And transition agreements were applied to Greece, Portugal and Spain. Theonly question is whether the acceding state will ratify the terms.108 Peters, ‘Statewatch in Analysis,’ n 105 above.109 Sosna v Iowa, 419 US 393 (1975), involving a year’s delay in divorce jurisdiction.110 Shapiro v Thompson, 394 US 618 (1969), involving welfare benefits, and Plyler v Doe,457 US 202 (1982), involving free public education for minors.111 Presidency Conclusions, Nice European Council Meeting 7, 8 and 9 December 2000, itemIV. ‘A New Impetus for an Economic and Social Europe’, points13 and 14; point 20; point 22,and points 15–17, respectively. See also Annex I: ‘European Social Agenda’.112 Ibid, points 35–37, and point 33 respectively. See also, Annex III: ‘Council Resolution onthe precautionary principle.’

So the Nice summit moved a harmonised, citizen’s Europe a bit closer.Qualified majority voting was extended to 23 new treaty Articles, but notthe most sensitive ones (tax, social security and immigration).113

European ‘citizenship’ involves both benefits and burdens, of course.The benefits are freedom of movement, a more stable economy, and greatersecurity. The trade-off is having to adhere to European Union laws andrelinquish sovereignty. This leads to allegations that the Member States arenow being ‘ruled’ by Brussels. But is this really true?

Even after the Nice agreements, there are some 70 Articles in the Treatythat are subject to unanimity, so every state has a veto.114 In other areas, a‘qualified (weighted) majority’, and now a double majority (of votes andpopulation) is required.115 Hence, a European union will develop only tothe extent and at the speed that the Member States want it to; that is, aslong as its benefits outweigh its burdens. It is scarcely a superstate runamok.

Every step taken in the process of European integration—some bold,many timid—has involved compromises. The EU has evolved over time asthe result of experience. I view this as a natural evolutionary process thatthe United States also went through. Authority is allocated according toperceived needs. The ambiguous EU Treaty phrase ‘ever closer union’ hasno fixed content. It does not indicate how close a union. Clearly, theMaastricht Treaty envisioned a federation, or confederation, of some sort,but not necessarily one identical to the United States. A ‘common’ marketstill segmented by Member States’ regulations cannot compete globally, nordoes it have the strength to protect itself from external threats. So the EUMember States elected to band together, and to take an increasing numberof joint actions, of which the recognition of a type of federal citizenship isjust one.

IV: SIMILARITIES AND DIFFERENCES OF EU AND USGOVERNMENT STRUCTURE

To some extent then, the relation of a ‘citizen’ to a centralised ‘government’depends upon the security that government provides, and which its con-stituent states cannot. This certainly was true of the United States in thetwentieth century. In the course of two world wars, a catastrophic depres-sion, and military threats from Russia and China, US citizens looked moreand more to the federal government for assistance and protection.

European ‘Citizenship’ 375

113 Quentin Peel, ‘Majority voting slowly wins support of leaders, Financial Times, 12 December 2000, 10; ‘What we agreed to in Nice’, London Times, 17 December 2000, 4, 7.114 Ibid.115 ‘European Parliament political leaders critical of results of EU summit on reform, 17 ITR1932 (21 December 2000).

The growth of the central government in size and complexity during thisperiod reflects these altered expectations and a shift in allegiance. With theevolution of the European Community, the citizen’s relation to Europe waschanged too.

The growth of central authority is one measure of constituents’ expecta-tions that it can meet their needs more nearly than the states themselves.Won’t increased resort to centralisation result in greater identification withEurope? A comparison between US and EU centralisation may hold someclues about the future of Eurocitizenship. Consider the great range of con-cerns that are being shifted from national to Community level in Europetoday (as once was the case in the US).

A. The United States Federal Government

As indicated by the Constitution’s preamble, the US federal governmentwas created to ensure peace and stability. But, if one looks behind the aspi-rational wording, the true purpose of union was more economic in nature.In the debate about the nature of the future federal government, a frequentjustification for creating the union was the need to strengthen the states eco-nomically, by facilitating interstate and foreign commerce. This idea isclearly reflected in Federalist No 22: ‘There is no object [than the power toregulate commerce] that more strongly demands a Federal Superintendence’.The idea was that a unity of commercial interests could only result from aunity of governance.116 And, of course, the US Constitution made an out-right grant of authority to the central government in the areas of interstateand foreign commerce; duties on imports and exports; foreign relations andtreaties; defence; taxation; immigration and naturalisation; coinage;patents; and the recognition of ‘sister state’ judgments.117 None of thesepowers, save control of the common market and a common tariff, wereoriginally given to the European Community by the Treaty of Rome. But,times change.

B. The Evolution of a ‘Federal’ Europe

Although the European Community structure is different, the reasons forcreating the Community were not so different from those that led to the USConstitution. In the Treaty on European Union, the heads of the state or

376 T H O M A S C F I S C H E R

116 The Federalist NO 22.117 All of these powers are found in the US Constitution, Art I, 8, except: duties (Art I, s 10);foreign relations and treaties (also s 10); immigration (Art I, s 9); taxation (also s 9 andAmendment XVI); and recognition of judgments (Art IV, section 1).

government agreed to create a ‘closer union’ (that is, greater solidarity)among the historically-divided ‘peoples of Europe’, to develop a commonforeign and security policy, and to promote social and economic progress,while confirming their attachment to principles of liberty, democracy andrespect for human rights.118 Beginning with the Treaty of Rome, all thiswas to be done through an economic community without internal borders.So the notion of central regulation of interstate commerce was common toboth undertakings. And both reflected a need to build a unified economy,and respond to internal and external threats. While certain foreign relationsand security powers granted by the Constitution to the US government wereinitially withheld in Europe, that also changed over time.119

C. ‘Governments’ of Limited, Enumerated Powers

Centralisation in both the United States and Europe was sold to the peopleas limited, insofar as institutions were obliged to act within their ‘compe-tencies’. Although the powers of the US central government have expandeda great deal, they still are limited. More law than is commonly appreciatedis passed and enforced at state level.120 In United States v Lopez, for exam-ple, Chief Justice Rehnquist pointed out that ‘[t]he Constitution creates aFederal Government of enumerated powers.’ This limitation on centralauthority ‘was adopted by the Framers to ensure protection of our funda-mental liberties’.121 A half-decade later, the Supreme Court declared uncon-stitutional a federal remedy for gender-motivated violence.122 The Courtfelt that the Congress lacked authority to legislate under either theCommerce Clause or the Fourteenth amendment. The prohibition, if any,would have to be enacted at state level.

When the federal union was created, it was not expected to become sodominant. In the 1830s, De Tocqueville wrote that: ‘in America the existingUnion is advantageous to all the States, but it is not indispensable to anyone of them .… . The present Union will only last so long as its benefits out-weigh its disadvantages.’123 The same might be said of the EU today, butwe know what happened in the US

The limits on EU competence are somewhat different, but closely resem-ble those contained in the US Constitution. During a summit in Birmingham,

European ‘Citizenship’ 377

118 EU Treaty, Arts 1, 2, and 6(1).119 Note, for example, the steadily increased provisions to enhance police and judicial cooper-ation in criminal matters (EU Title VI). Pan European crime is now a Community matter.120 James Madison wrote, ‘The powers delegated by the proposed Constitution to the federalgovernment are few and defined. Those which are to remain in the State governments arenumerous and indefinite.’ The Federalist No 55.121 United States v Alfonso Lopez, Jr, 514 US 549, 556 (1995).122 United States v Morrison, 529 US 598 (2000).123 De Tocqueville, above n 3 at 368–69.

then Commission President Delors declared that ‘the powers of the member-states shall constitute the rule; [and] the Community’s powers …shall constitute the exception.’ He felt it would be pointless to list all thepowers reserved to the EU Member States because they were so numer-ous.124 While the powers given to the Community institutions were finiteand express.125

At that summit, EC Article 5 (ex Article 3b) was adopted, providing thatthe ‘Community shall act within the limits of the powers conferred upon itby [the] Treaty’, and that, when the Community acted in an area of sharedcompetence, it should take action in accordance with the principle of sub-sidiarity.126 Thus, the European treaties, like the US Constitution, envisiona union of limited powers, in which the Member States share authority insome cases, and retain sovereignty in others .127

US federal power was increased by the ‘necessary and proper’ (impliedpowers) clause of the Constitution, of course. 128 But the EC Treaty alsoallows the Community to increase its powers ‘should [it] prove necessary’. 129

It is not nearly so expansive as the US Constitution’s necessary and properclause, but it gives the Community some breathing space.130 For, in prac-tice, there are a number of Community objectives that cannot be achievedat national level.

D. The Supremacy of Centrally-Made Law and the Highest Court

Another parallel between the US and the EU involves the supremacy of cen-tral law and the role of the highest court in enforcing it. Once again, thetwo entities proceeded from quite different poles.

378 T H O M A S C F I S C H E R

124 ‘The road from Birmingham: European Community,’ The Economist, 17 October 1992, 60.125 Case 6/64 Flamino Costa v ENEL [1964] ECR 585. In ENEL, the European Court ofJustice observed that the Community was an entity with limited powers: ‘ … The MemberStates have limited their sovereign rights, albeit within limited fields’ [emphasis added].126 That is, ‘only if and insofar as the objectives of the proposed action cannot be sufficientlyachieved by the Member States and can therefore … be better achieved by the Community.’ ECTreaty, Art 5.127 This echoes Amendment IX and X to the US Constitution: that powers not delegated to theUnited States by the Constitution, nor prohibited by it to the states, are reserved to the statesrespectively, or to the people.128 US Constitution, Art I, s 8.129 EC Treaty Art 308 (ex 235) provides: ‘If action by the Community should prove necessaryto attain, in the course of the operation of the common market, one of the objectives of theCommunity and this Treaty has not provided the necessary powers, the Council shall, actingunanimously on a proposal from the Commission and after consulting the EuropeanParliament, take the appropriate measures.’130 In Agenda 2000, Art 308 together with Arts 13 and 137 are proposed as a source ofCommunity competence to deal with human rights issues and discrimination, affecting bothEurocitizens and third-country nationals.

According to Article VI of the US Constitution, the Constitution itself andthe laws made pursuant thereto, as well as treaties, are the ‘supreme Law’ ofthe land. But it took the justices of the US Supreme Court, in Marbury vMadison, to inform us that it was they who applied this provision.131 Thesignatories to the Treaty of Rome were quite clear that they wanted theEuropean Community’s least-political branch (the European Court ofJustice) to decide what the content of EU law was.132 But, for obvious rea-sons, they finessed the question whether EU law took ‘precedence’ overMember State law. The ECJ provided the answer. In order to have a com-mon market, the ECJ concluded that EC law must prevail in the areas towhich it applies. Consequently, Member States must subordinate theirinterests to legitimate Community measures133 In areas where uniformity isimportant, it could not be otherwise.

E. Commerce as the Opening Wedge and Common Powers

Several powers associated with centralised governments are similar in theUS and the EU. Among them are the power to regulate commerce, to ensuresecurity, to coin money and deal with immigration. Once again, the EU andUS proceeded from different poles.

In the case of the United States, these powers are enumerated in theConstitution, Article I, section 8. The European Union has been steadilyamending the treaties to allow for more centralised action.134 Admittedly,the EU is no federal union, and tensions between constituent states and cen-tral authorities persist in both the US and the EU. However, the ‘drift’toward centralisation in pursuit of common goals seems quite evident inthe case of the EU.

1. The Common Market, and the Right to Regulate Commerce withForeign Nations and Negotiate Treaties

The central purpose of the European Community was to strengthen theEuropean economy through a unified market. Member States could notachieve this at the national level, so Brussels was granted almost completecontrol.

European ‘Citizenship’ 379

131 Marbury v Madison, 5 US 137 (1803). 132 EC Treaty, Art 220 (ex 164).133 See Case 26/62 NV Algemene Tansport-en Expeditie Ondernmeing van Gend en Loos vNederlandse Adminstratie der Belastingen [1963] ECR 1, and Case 6/64 Flamino Costa vENEL [1964] ECR 585.134 Such is the case, for example, with economic and monetary policy and a collaborativeimmigration, and foreign and security policy. EC Titles VII, IV, and EU Title V, respectively.

Through the Common Commercial Policy,135 the EU Member Statesagreed to share sovereignty with the EC in matters of external trade. TheEuropean Presidency and Commission were authorised by the MemberStates in Council to negotiate trade treaties on behalf of the Union. Whenagreement is reached, the Council of Ministers must give its unanimousapproval.136 The Court held that these agreements bind the Community aswell as individual Member States,137 and override conflicting provisions ofnational law.138 The Court has also been instrumental in expanding thecommercial enterprises that fall within the Common Market, and thereforethe remit of the Community institutions.139 However, Pillar II (common for-eign and security policy) does not give exclusive and unfettered treaty pow-ers to the Commission or the Community,140 unlike the US Constitution.

2. Economic and Monetary Union

Despite the truculence of many Member States, the EU created a single cur-rency during the last decade. The euro became the currency of account for11 states on 1 January 1999 (and Greece has joined since). From 1 January2002, banks issued only euro notes and coins, although participatingMember State currencies remained convertible for up to six months.141 Asingle currency facilitates trade in goods and services insofar as conversioncosts and fluctuating exchange rates are avoided, and prices are compara-ble. Hence, the euro decreases transaction costs and homogenises the com-mon market, stimulating competitiveness. The task of managing the eurobelongs to the European Central Bank, which is insulated in most respectsfrom national monetary policy. 142

In retrospect, the process of economic and monetary union (still incom-plete) seems deceptively simple. But in fact it was an enormous task (andrisk), but one worth taking because it helped to consolidate the economicCommunity,143 and laid the foundation for the consolidation of Europeanfinancial service industries (banking, insurance and securities).

380 T H O M A S C F I S C H E R

135 EC Treaty, Art 3(1)(b).136 EC Treaty, Arts 180, 181 and 300–04. This authority was considerably enhanced by theNice Treaty, Title XXI, Art 181a.137 Case 22/70 Commission v Council [1971] ECR 263.138 Case 87/75 Bresciani v Amministrazione delle Finanze [1976] ECR 129.139See, for example, Case 466/98 Commission of the European Communities v UnitedKingdom of Great Britain and Northern Ireland (5 November 2002), holding that individualMember States’ negotiations with non-EU air carriers violated the Community Treaty.140 See generally, EU Treaty, Title V, and specifically Art 24.141 eur-lex/en/com/pdf/2000/com2000_0057en01.pdf.142 A common economic and monetary policy for the EU was introduced by the MaastrichtTreaty, and is elaborately developed in EC Treaty, Title VII, Arts 98–124. See particularly, Arts105–08.143 See generally, Rainer Lepsius, M, ‘The European Union: Economic and Political Integrationand Cultural Plurality’, in Eder K, & Giesen, B, (eds), European Citizenship Between NationalLegacies and Postnational Projects, (Oup 2001), 211–12.

For a long time, there was skepticism about the ability of the EU to createa common currency.144 And today many people still take the primacy of theUS dollar for granted. They forget how long it took the United States toestablish its currency.

The US Constitution empowered the federal government to coin money.After the war for independence, it declared the dollar to be its official mon-etary unit. But it did not mint its first dollar until 1794. Meanwhile, peopletraded in Spanish dollars and other forms of coin. Even after national scriptwas issued, it was in short supply. Efforts to create a national banking sys-tem failed twice. The First Bank of the United States was established in1791. Its constitutionality was challenged and its charter lapsed in 1811.The Second Bank of the United States was chartered in 1816 to create sta-bility among state banks, but also lapsed.

Until the Civil War there was little monetary unity in the US. To financethe war, the government issued ‘Demand Notes’ redeemable for gold. Theirvalue fluctuated until 1879, when the government, having recovered fromthe war, rebuilt its gold reserve. A stable economy increased faith in thenational currency.

In 1863, Congress heavily taxed notes issued by state banks. This enabledthe federal government to gain control of alternate currencies, and create auniform monetary system. However, it was not until the Second World Warthat the dollar finally began to assume the importance and strength it enjoystoday.145 On the other hand, the euro, as young as it is, is already a leaderamong the world’s currencies.146

3. Defence

Since the Helsinki Declaration and EU summit in Cologne in June 1999,the EU has made progress toward creating a unified military force. In orderto ‘[create] an area of freedom, security and justice’ under the Pillar II ofthe Amsterdam Treaty, the EU developed a crisis management system toprovide for the defence of Europe. The EU hopes that it one day will beable to act quickly to resolve local crises and relieve NATO of this role.Some of this is positive. The US (and NATO’s) role in Europe has beendeclining since the collapse of the Soviet Union, and the EU wanted toassume some of this responsibility under a reinvigorated Western EuropeanUnion (WEU). Javier Solana was appointed first ‘High Representative forthe common foreign policy and security’, and in December 1999, the EU

European ‘Citizenship’ 381

144 ‘Special Report: Everything you need to know about Europe’s new currency the euro,’ Europe, September 1997 (pg. unavail. online) <http://www.eurunion.org/magazine/eurospec.htm>.145 Peter Gwin, ‘A brief history of the dollar,’ Europe, September 1997 (pg. unavail. online),<http://www.eurunion.org/magazine/eurospec.htm>.146 Edward Luce, ‘Euro proves top currency for bonds’, Financial Times, 6 December 1999,17; ‘The international euro’, The Economist, 14 November 1998, 89.

agreed to create a rapid reaction force of up to 60,000 persons to deal withlocal crises.147 At the recent Nice summit, Member States agreed to con-tinue to address collective questions of peacekeeping, humanitarian inter-vention and crises management.148 But the sharp divisions among EUMember States over the Second Gulf War reveal that a common foreign,security and defence policy is still a long way off. And yet a coordinatedresponse to European security is ever more necessary.

4. Uniform Rules of Immigration and Border Control

In a borderless Europe, the problems of illegal immigration and cross-bordercrime (previously left to individual states) have escalated. Once admitted,non-EU citizens have de facto access to most of the Community. Thus, theacts or inaction of individual Member States affect the security of everyone.Moreover, since the status of Eurocitizenship depends upon being recog-nised as a national of a Member State, each Member State, acting alone, isin the unique position to affect the entire Community.149

The director of Europol recently stated that organised crime is the great-est threat to European security.150 The fastest-growing trade is in humanbeings. Many are young persons, forced into prostitution.151

The Treaty of Amsterdam’s shift of certain Pillar III matters from TEUTitle VI (which was intergovernmental) to EC Title IV (which is legallybinding) suggests how important a common immigration, visa and asylumpolicy is to the EU.152 Since there is no general delegation of competence tothe Community (unlike that in the US Constitution, Article I, section 9)concerning these matters, which might require a large Community bureau-cracy, border controls and standards are to be harmonised and all flankingmeasures adopted by May, 2004.153 And, to its credit, the Community hasmade substantial progress in defining the rights and status of third-countrynationals seeking admission to, or legally within, the EU.154

382 T H O M A S C F I S C H E R

147 See generally, EU Treaty, Arts 17, 18, and 26; Gordon, P, ‘Their own army? MakingEuropean defense work’, Foreign Affairs, July/August 2000, 12.148 Treaty of Nice, Art 17.149 Case 369/90 Micheletti v Delegation del Gobierno en Cantabria [1992] ECR I–4329.150 Tom Brady, ‘Organised crime now EU’s biggest security threat, ‘ The Irish Independent, 28 September 2000. 151 ‘A single market in crime’, The Economist, 16 October 1999.152 See generally, EC Treaty, Arts 61–69. Staples, above n 90 at 129–52; Steiner, J and Wood, L,Textbook on EU Law 6 th edn 1998(Blackstone), 273.153 Staples, above n 90 at 3; EC Treaty Arts 61–63. See also, Hedemann-Robinson, M,‘FromObject to Subject?: Non-EC Nationals and the Draft Proposal of the Commission for aCouncil Act Establishing the Rules for Admission of Third Country Nationals to MemberStates’, 18 Yearbook of European Law 289 (Oup 1998). See also, Shaw above n 27 at Part IV,3–6.154 See, for example, Convention on rules for the admission of third-country nationals toMember States of the European Union, COM (97) 387 final [1997] OJ C 337/10; Presidency

The crime problems that open borders admit led to the creation ofEuropol155 in 1994, as the Europol Drugs Unit.156 In October 1998, theEuropean Convention on Europol took effect and its responsibilitiesincreased dramatically. Europol is surely not the American Federal Bureauof Investigation, but it does execute some of the latter’s roles. Europol has ahand in combating illicit drug trafficking, terrorism, forgery, trafficking inhuman beings, clandestine immigration networks and so forth. Although itoperates chiefly as a source of information in support of Member States’law enforcement agencies,157 Europol is the seed of a central police author-ity, working with and for Member State officials.

That cooperation does not end with Europol. A special EuropeanCouncil meeting in Tampere, Finland (1999) underlined the importance tothe EU of battling cross-border crime. To render that battle more effective,the Council returned to the idea of Eurojust.158 Eurojust is composed ofone national from each Member State, whether a prosecutor, magistrate,police officer or someone of equivalent competence. 159 In the recent treatyadjustments, Eurojust was charged with facilitating coordination and coop-eration among the Member States, ensuring compatibility of rules, facilitat-ing extradition and preventing jurisdictional conflicts.160

Although Europol and Eurojust are but modest steps toward greaterMember State cooperation in police and judicial affairs, and leave the statesresponsible for the decision to cooperate and to enforce criminal law, they areclear steps toward a central approach to a threatening pan-European problem.And that cooperation will surely be increased by recent threats of territorism.

5. Sources of Income and the Power to Tax

Article I, section 8 of the US Constitution gives Congress the ‘Power to col-lect and lay … Duties, Imposts and Excises … ’ But this limited source of

European ‘Citizenship’ 383

Conclusions, Tampere European Council, n 93 above, particularly points 13, 15, 18, 20 and21; Proposal for a Council Directive laying down minimum standards on the reception ofapplicants for asylum in Member States, COM (2001) 181 final (3 April 2001).

155 Authority derives from EU Arts 29–32.156 The European Police Office—Facts Sheet, available at <http://www.europol.eu.int/con-tent.htm?facts/en.htm>.157 Europol Convention, Art 3.158 Presidency Conclusions, Tampere European Council, n 93 above, points 48–50, especially 46.159 2000 OJ C243/8.160 EU Arts 29 and 31. Whereas Europol was created to analyse and provide data, the compe-tence ratione materiae of Eurojust extends over crimes and offences in respect of whichEuropol is competent to act pursuant to the Europol Convention of 26 July 1995; traffickingin human beings; forgery of money and means of payment, as well as other forms of counter-feiting and means of payment; computer crime; the protection of the European Communities’financial interests; and the laundering of the proceeds from crime.

federal revenue, prior to the twentieth Century, consisted chiefly of customsrevenue. The Sixteenth Amendment (1913) allowed Congress to tax personaland business income. Since then, income tax has become the principal sourceof federal revenue, growing from $ 700 million in 1913161 to $1.7 trillion in1999.162 Obviously, the US would not have achieved the dominance itenjoys today if it were starved for resources, as it was before 1913.

The European Community has not been given the power to tax MemberStates, their citizens or businesses. Rather, it must rely on the EuropeanCouncil to specify its sources and percentage of revenue. Most Communityrevenue comes from the common customs tariff, a small per cent of valueadded tax and Member State contributions based on a percentage ofGNP.163 This is perhaps the greatest limitation on the ability of Communityinstitutions to execute their roles effectively, due to the fact that incomefrom key revenue sources is likely to be lowest in a stagnant economy, whenthe need for fiscal stimulation is greatest. Member State governments wouldhave resources for this purpose, and be under constituent pressure to usethem, but their expenditures would be local and probably uncoordinated.Moreover, Member States tend to be jealous of the monies they contributeto the Community, relative to those they receive through its various pro-grammes. Both input and output are easily traceable (unlike the US). Andno country wants to be seen as a net contributor.

Of course, the Community has much less need of a large ‘federal’ budgetand civil service because many of its functions are handled at Member Statelevel (for example, collecting customs duties). But this could create as manyproblems (irregular book-keeping) as it solves.

It will be a long time before the European Community gains the power totax, if it ever does. However, progress has been made in this sector. Initially,the Community budget depended entirely on financial contributions fromthe Member States. Eventually, a scheme was developed to combine customsrevenue with a percentage of each Member State’s VAT income and GNP(Community’s ‘own resources’). Later still, a seven-year budgetary perspec-tive was adopted to give the Community a more predictable income stream.

384 T H O M A S C F I S C H E R

161 US Bureau of the Census, Historical Statistics of the United States Colonial Times to 1970,Part 2, 1104.162 CIS Statistical Services, Statistical Abstract of the US, 1999. Of this amount 55% derivesfrom personal income tax.163 ‘Allocation of EU Operating Expenditure by Member State’, available at<http://europa.eu.int/comm/budget/pdf/agenda2000/allocatedreport99.pdf> National contri-butions (in billions of ecu) have risen from 51.1 in 1993 to 68.7 in 1999 (with Germany,France, Italy and UK being the leading contributors). Payment based on GNP (own resources)increased from 16.4 billion to 37.6 billion in 1999 (45.4% of payments to EU budget).Traditional own resources (agriculture duties, customs duties, levies …) did not increase dra-matically (from 12,986 million to 13,858 million) equaling 16.8% of payments to budget.VAT actually decreased 34,683 to 31,331 equaling 37.9% payments to EU budget. Totalbudget in 1993 was 65,673 million ecu, now 86,908 million.

However, such a long-term perspective may be too constraining with respectto the EU’s ever-expanding ambitions and responsibilities.164

There are other Community problems of a fiscal nature. Proposals toincrease tax harmonisation among the Member States have encounteredgreat resistance, especially from the UK. Member states have only managedto agree on four direct taxation measures in 40 years.165 Without a har-monised tax system, the Member States will continue to compete with oneanother in a common market.

Despite these manifest problems, the Community undertaking hasbrought peace, security and a higher standard of living to Europe. EU grossdomestic product was $2.8 trillion in 1980, but rose to $7.7 trillion in1997. Similarly, per capita GDP grew from $7,932 in 1980 to $20,546 in1997. 166

6. Bill of Rights

It is difficult to argue that the US Constitution’s first 10 amendments (Billof Rights) are a ‘federalizing’ force, insofar as they were expressly agreedto as a quid pro quo for approving the new central government, andmeant to protect individuals and states from its potential hegemony. Inthe course of time, however, people came to rely on these guarantees toprotect them from all governmental injustices, particularly those of stategovernments. 167

In the same way, the guarantee of ‘fundamental rights’ to the peoples ofEurope has little to do with building a European Economic Community.Indeed, it may be entirely superfluous, given that EU Article 6 has incorpo-rated, by reference, the European Convention for the Protection of HumanRights,168 and the laws of virtually all EU Member States contain similarprotections. So no great progress was made when a separate Charter ofFundamental Rights—peculiar to the EU—was introduced at the NiceSummit.169 Whether or not such a charter is ever made part of the

European ‘Citizenship’ 385

164Mathijesen, PSRF, A Guide to European Union Law, 7th edn (Sweet & Maxwell 1999), ch 12:‘Financing Community Activities,’ 180–187. See also OJ C 175, 21.6.1999; Bull 3–1999, pointII.3 and OJ C 138, 18.5.1999; Bull 3–1999, point II.4 in 8 July 2000, the own resources sys-tem was changed to increase GNP-based contributions (GNP being a more accurate reflectionof Member States’ ability to pay) and decrease VAT contributions from 1 to 0.75% fromJanuary 2002 and to 0.5% from January 2004.165 Johan Schwartz, ‘A divide that is proving difficult to bridge’, Financial Times, 10 December1999.166 CIS Statistical Universe, Table No 1363.167 Portions of the Bill of Rights have been applied to the States by the 14th Amendment. Forexample, Gitlow v New York, 268 US 652 (1925).168 Council of Europe, ETC No 5.169 ‘Draft Charter of Fundamental Rights of the European Union,’ Brussels, 28 September2000, Charte 4487/00, fundamental.rights@consilium.eu.int; Nice Presidency Conclusions,n111 above, point 2. 2000 OJ C 364/10.

Treaty, 170 progress to date has already made the Union more visible andimportant to the peoples of Europe. It is precisely because the Communityis a source of rights, and has courts in which to enforce them, that theUnion is important to Eurocitizens.171 Numerous European Court deci-sions, predating these latest additions to individual rights, have alreadygiven Europeans entitlements that Member States were quite ready to denythem.172 Put simply, European law rewards Eurocitizens.

V. CONCLUSIONS

Please do not misunderstand me. The recitation above of certain parallelsbetween the federalising process in the US and in the EU is not to suggestthat the latter should—or ever will—become a ‘United States of Europe’. Ibelieve the goals of the European enterprise can be realised by other means.Moreover, I believe that national identity remains stronger than Europeanidentity for most Eurocitizens.173 However, it seems clear to me (and this isthe lesson of Community history to date) that many of its goals cannot beachieved without greater convergence.174

What is unique about the European Union is that it brings countries withlong histories and separate traditions—often marked by hostility towardone another—together in a single collaborative enterprise. A number ofEuropeans think that union is something that was forced upon them. But their elected heads of state or government, with probably a better

386 T H O M A S C F I S C H E R

170 Peter Norman, ‘Brussels hints rights charter may become law’, Financial Times, 12 October2000, 3. And the European Constitutional Convention seems disposed to recommend this.171 The US Constitution (Art III, s 2) makes federal courts available in suits involving citizensof separate states (so-called ‘diversity’ jurisdiction).172 To cite just a few well-known cases: Case 43/76 Defrenne v Sabena [1976] ECR 455; Case222/84 Johnston v Chief Constable of the Royal Ulster Constabulary [1986] ECR 1651;C–6/90, Andrea Francovich v Italian Republic [1991] ECR I–5357; and C–85/96 MartinezSala v Freistaat Bayern [1998] ECR I–2691.173 Only 4% of EU citizens view themselves exclusively as Europeans while 45% view them-selves exclusively as nationals of their own country. Further, 38% of EU citizens agree orslightly agree that there is a European cultural identity shared by all Europeans while 49%slightly or completely disagree. European Commission, Eurobarometer, Public Opinion in theEuropean Union, Report Number, 10–11.174 The new Treaty of Nice gives an additional boost to Community centralisation through anextension of qualified majority voting and the co-decision process; by giving the EuropeanParliament the same standing to bring cases before the European Court as the Council andCommission; by granting greater powers to the Commission President; and increasing theCommission’s ability to negotiate trade treaties. See, for example, Arts 214(a) and 157(3);230; 217; and 133(5) and (7), respectively.

This is far from a comprehensive list. But a very good synopsis of the Nice changes is found at:Xenophon Yataganas, ‘The Treaty of Nice: The Sharing of Power and the Institutional Balancein the European Union—a Continental Perspective’, Jean Monnet Working Paper 01/01,Harvard Law School, Cambridge, MA 02138.

perspective, unanimously disagree.175 Although a ‘closer union’ requireschanges, Brussels does not do the deciding. Union is a voluntary choice byMember State governments, made in the belief that, through joint and har-monised processes, Member States can achieve the security, prosperity andcompetitiveness and the external bargaining-power, they covet. This is par-ticularly so in areas such as financial services, taxation, transport, energy,communications and privatisation.176

Naturally, the rapid increase in Community competencies, the large pending enlargement and ‘enhanced cooperation’ could lead to destructive divisions within the Community, stagnation and inefficiency.I rather think it will lead eventually to more harmonisation and to a moreefficient Community architecture.177 I think Eurocitizens expect more and more from Brussels, and that alone helps validate a European polity.178

Of course, there are burdens as well as benefits in closer union. And the treaties allow for derogations, opt-outs, and ‘flexibility’ (nowcalled ‘enhanced co-operation’).179 Ultimately, a Member State couldwithdraw from the Union. I can find nothing to prevent it (unlike theUnited States). But frequent, high-level ministerial meetings betweenMember State representatives gradually wear away historical antipathiesand lead to common policies. De facto solutions eventually become de jureand are incorporated into the Community treaties. This is a process drivenby economic considerations and not political abstractions. And harmonisa-tion of laws and economies removes more and more barriers to fullEurocitzenship.

Indeed, European ‘citizenship’ may be just the latest step in this work-in-progress. At some point in the EU’s evolution, it simply made sense torecognise the obvious; dual sources of rights and obligations. The samepoint arrived rather late in the development of the United States.180 And,when it did, it was based on practical realities.

European ‘Citizenship’ 387

175 At least unanimity is required to give the Community new treaty competencies (EC Art 313).In the case of ‘qualified majority voting’, now the majority rule when passing Community laws,a heavily-weighted majority is required (EC Art 205(2)), enhanced by a second majority (basedon population), agreed at Nice. ‘What we agreed to in Nice’, London Times, 17 December2000, 4.7. Because EC decision- making is generally consensual, Member States interests arewell-protected. But too many checks and balances can bring progress to a halt.176 ‘When countries don’t count’, The Economist, 11 November 2000, 92.177 ‘The Commission’s Legislative and Work Programme for 2003’, Com (2002) 590 final,point 5, ‘Conclusions’.178 Closa, C, ‘Requirements of a European Public Sphere’, in Eder, K, & Giesen, B, EuropeanCitizenship Between National Legacies and Postnational Projects, (Oup 2001), 184. Closasuggests that there is no evidence that Eurocitizens reject the concept of Europe. Ibid, 194.179 Chiefly, EU Title VII, but also EU Arts 27a to 27e and 40, 40a and 40b.180 US Constitution, XIV Amendment, adopted in 1868, is the first concrete recognition of thisdualism.

Nothing suggests it is impossible for a person to derive rights from two ormore sources, so long as they do not conflict.181 Closer union need not meana loss of nationality, but rather gaining new rights through Eurocitizenship.The new status reinforces and renders more tangible an individual’s attach-ment to the Union. 182 It invites the European people into a partnership thatEuropean governments and businesses have long profited from.

That said, it is worth noting that essential aspects of our legal lives havebeen divorced from citizenship as such.183 International human rights arealmost entirely distinct from matters of nationality or citizenship, exceptinsofar as we are citizens of the world. A range of rights in the EU have lit-tle to do with citizenship.184 Since these rights extend to ‘people’, the statusof being an ‘EU citizen’ is more social, psychological and political, thaneconomic. This is not to depreciate the status at all, but to suggest that itsurmounts mere economic union. Whether or not the people of Europeembrace it will be the ultimate test of ‘ever closer union’.

388 T H O M A S C F I S C H E R

181 Weiler, JHHH, The Constitution of Europe: ‘Do The New Clothes Have an Emperor?’And Other Essays on European Integration, ch 10, ‘To Be a European Citizen: Eros andCivilization,’ (Cambridge University Press 1999), 345.182 Shaw, above n 27 at 28.183 The entire US Bill of Rights refers to ‘people’ and ‘persons’ not ‘citizens’. The least impor-tant part of the US Constitution’s XIVth Amendment (‘privileges and immunities’) is limited to‘citizens’. But the more important parts (‘due process’ and ‘equal protection’) apply to ‘anyperson’ in the US184 Rights such as the free movement of workers (EC Art 39(1) and (2)), the right of establish-ment (EC Art 43), and to deliver and receive services (EC Art 49) may be limited to EU citizensinsofar as they refer to ‘nationals’. But the Rome Convention and new draft Charter ofFundamental Rights speak in terms of ‘everyone’, ‘no one’, and ‘persons’, not citizenship ornationality. Indeed, the EC Treaty expressly contemplates a legal status for non-nationals (Art 137(1)(g).

United States Constitution Treaty of Amsterdam

PreambleForm a more perfect Union; establishJustice; ensure Domestic Tranquility;provide Common Defence; promoteGeneral Welfare; and secure theBlessings of Liberty

EC Preamble and EU Article 2Form ever closer union among the peoples of Europe; economic and socialprogress; elimination of barriers;improvements of the living and work-ing conditions; balanced trade and fair competition; strengthen the unity oftheir economies; strengthen the less-favoured regions; a common commer-cial policy; abolition of restrictions oninternational trade; common foreignand security policy including... a com-mon defence policy; preserve andstrengthen peace and liberty.

European ‘Citizenship’ 389

Powers of Congress

Article I, section 8, clause 1 Power tolay and collect taxes, duties, impostsand excises, to pay the debts and pro-vide for the ... general welfare of theUnited States; but all duties, impostsand excises shall be uniform through-out the United States;

Title I—Free Movement of Goods

EC Article 23—Customs union cover-ing all trade in goods and prohibitingduties on imports and exports and allcharges having equivalent effectamong Member States; a common cus-toms tariff in relation to third coun-tries; products originating in MembersState to be in free circulation.

EC Article 25—Customs duties onimports and exports and charges hav-ing equivalent effect prohibitedbetween Member States.

EC Article 26—Common CustomsTariff duties fixed by the Council.

Article 1, section 8, clause 3

To regulate commerce with foreignnations, and among the several states,and with the Indian tribes;

EC Article 133—Common commercial policy based on uniform principles,regarding changes in tariff rates, exportpolicy and measures to protect trade asagainst dumping or subsidies. If agree-ments need to be negotiated, the Councilcan authorise the Commission to openthe necessary negotiations, with states orwith international organisations.

Article 1, section 8, clause 4

To establish a uniform rule of naturalization,

EC Article 62—Within a period of fiveyears after the entry into force of theTreaty of Amsterdam, adopt measuresensuring: the absence of any controls onpersons when crossing internal borders;standards/procedures to be followed byMember States in carrying out checkson persons at external borders; rules onvisas and conditions under whichnationals of third countries shall havethe freedom to travel within the EU.

EC Article 63—Within a period of fiveyears after the entry into force of theTreaty of Amsterdam, adopt: measureson asylum, criteria for determiningwhich Member State is responsible forconsidering an application for asylum;minimum standards on the reception ofasylum seekers/refugees; grants of tem-porary protection; and repatriation.

390 T H O M A S C F I S C H E R

Article 1, section 8, clause 5

To coin money, regulate the valuethereof, and of foreign coin,

Chapter. 2, Monetary Policy

EC Article. 105—ESCB to maintainprice stability and support the generaleconomic policies of the Community;define and implement the monetary pol-icy of the Community; conduct foreignexchange operations; hold and managethe official foreign reserves of theMember States; promote the smoothoperation of payment systems; pruden-tial supervision of credit institutions.

EC Article106—ECB shall have theexclusive right to authorise the issue ofbanknotes within the Community. Thebanknotes issued by the ECB and thenational central banks shall be the onlysuch notes to have the status of legaltender within the Community. MemberStates may issue coins subject toapproval by the ECB of the volume ofthe issue. The Council may adopt meas-ures to harmonise the denominationsand technical specifications of all coins.

Article 1, section 8, clauses 7, 8, and 9To establish post offices and postroads;

To promote the progress of scienceand useful arts, by securing for limitedtimes to authors and inventors theexclusive right to their respective writ-ings and discoveries;

To constitute tribunals inferior to theSupreme Court;

EC Article 71—Common rules appli-cable to international transport to orfrom the territory of a Member Stateor passing across the territory of oneor more Member States;

EC Article 163—Community shallhave the objective of strengthening thescientific and technological bases ofCommunity industry and encouragingit to become more competitive at theinternational level.

For this purpose the Community shallencourage research and technicaldevelopment activities.

EC Article 225(1)—A Court of FirstInstance shall be attached to the Courtof Justice, with jurisdiction to hearand determine at first instance, subjectto a right of appeal to the Court of

United States Constitution Treaty of Amsterdam

European ‘Citizenship’ 391

Article 1, section 8, clause 11

To declare war,

Article 1, section 8, clause 12

To raise and support armies,

Title V, Common Foreign and Security Policy

EU Article 11—The Union shall defineand implement a common foreign andsecurity policy to strengthen the secu-rity of the Union in all ways; to promote peace and strengthen interna-tional security,

EU Article 13—The European Councilshall define the principles of and gen-eral guidelines for the common foreignand security policy.

Article 1, section 8, clause 18

To make all laws which shall be neces-sary and proper for carrying into exe-cution the foregoing powers,

EC Article 308

If action by the Community shouldprove necessary to attain one of theobjectives of the Community and thisTreaty has not provided the necessarypowers, the Council, acting unani-mously, can take appropriate measures.

Article I, section 10, clauses 1, 2, 3Powers denied to states

No state shall, without the consent ofthe Congress, lay any imposts or dutieson imports or exports.

No state shall, without the consent ofCongress, lay any duty of tonnage.

Elimination of Customs DutiesBetween Member States

EC Article 25—Customs duties onimports and exports and charges hav-ing equivalent effect shall be prohib-ited between Member States.

EC Article 90. No Member State shallimpose, directly or indirectly, on theproducts of other Member States anyinternal taxation.

Executive power, Article II, section 1

The executive power shall be vested ina President of the United States ofAmerica.

EC Article 203—The Council shallconsist of a representative of eachMember State at ministerial level,authorised to commit the governmentof that Member State.

The Judiciary

Article III, Section 1

The judicial power of the UnitedStates, shall be vested in one SupremeCourt, and in such inferior courts as

EC Article 220—The Court of Justiceshall ensure the interpretations andapplication of this Treaty

EC Article 225—A Court of FirstInstance shall be attached to the Court

Justice on points of law only, certainclasses of action.

392 T H O M A S C F I S C H E R

the Congress may from time to timeordain and establish.

Article III, Section 2, clauses 1 and 2

The judicial power shall extend to allcases, in law and equity, including con-troversies to which the United Statesshall be a party and controversiesbetween two or more states. In allcases affecting ambassadors, otherpublic ministers and consuls, andthose in which a state shall be party,the Supreme Court shall have originaljurisdiction. In all the other casesbefore-mentioned, the Supreme Courtshall have appellate jurisdiction, bothas to law and fact, with such excep-tions, and under such regulations asthe Congress shall make.

EC Article 227—A Member Statewhich considers that another MemberState has failed to fulfill an obligationunder this Treaty may bring the matteragainst another Member State beforethe Court of Justice, after bringing itbefore the Commission.

EC Article 230—The Court of Justiceshall review the legality of actsadopted jointly by the EuropeanParliament and the Council and havejurisdiction in actions brought by aMember State, the Council or theCommission on grounds of lack ofcompetence, infringement of an essen-tial procedural requirement, infringe-ment of this Treaty or of any rule oflaw relating to its application, or mis-use of powers.

EC Article 234—The Court of Justiceshall have jurisdiction to give prelimi-nary rulings concerning interpretationof the Treaty and acts of institutions,where such a question is raised beforeany court or tribunal of a MemberState, if that court or tribunal consid-ers a decision on the question neces-sary to render a judgment.

Full faith & credit

Article IV, section 1

Full faith and credit shall be given ineach state to the public acts, records,and judicial proceedings of every otherstate.

Brussels Convention on Recognition ofJudgments in Civil Matters (1968)

A judgment given in a ContractingState shall be recognised in the otherContracting States without any specialprocedure being required.

United States Constitution Treaty of AmsterdamTreaty of Amsterdam

of Justice with jurisdiction to hear anddetermine at first instance, subject to aright of appeal to the Court of Justiceon points of law only, certain classes ofaction or proceeding.

European ‘Citizenship’ 393

Article IV, section 2, clause 1

The citizens of each state shall be enti-tled to all privileges and immunities ofcitizens in the several states.

EC Article18—Every citizen of theUnion shall have the right to move andreside freely within the territory of theMember States.

EC Article19—Every citizen of theUnion residing in a Member State ofwhich he is not a national shall havethe right to vote and to stand as a can-didate in municipal and EuropeanParliament elections in the MemberState in which (s)he resides.

Supreme Law

Article VI, section 1, clause 2

This Constitution, and the laws of theUnited States which shall be made inpursuance thereof; shall be the supremelaw of the land;

EU Article 6 (4)—The Union shall pro-vide itself with the means necessary toattain its objectives and carry throughits policies.

EU Article 5—The Community shallact within the limits of the powersconferred upon it by this Treaty and ofthe objectives assigned to it therein.

Individual Protections,

Amendment I

Congress shall make no law respectingan establishment of religion, or pro-hibiting the free exercise thereof; orabridging the freedom of speech, or of the press; or the right of the people peaceably to assemble, and topetition the government for a redressof grievances.

EU Article 6(2)—The Union shallrespect fundamental rights, as guaran-teed by the European Convention forthe Protection of Human Rights and Fundamental Freedoms.

EC Article 17—Citizens of the Unionshall enjoy the rights conferred by thisTreaty.

EC Article 21—Every citizen of theUnion shall have the right to petitionthe European Parliament, and apply tothe Ombudsman.

Amendment IX

The enumeration in the Constitution,of certain rights, shall not be construedto deny or disparage others retained bythe people.

Amendment X

The powers not delegated to the UnitedStates by the Constitution, nor prohib-ited by it to the states, are reserved tothe states respectively, or to the people.

EC Article 5—In areas which do notfall within its exclusive competence,the Community shall take action, inaccordance with the principle of sub-sidiarity, only if and insofar as theobjectives of the proposed action can-not be sufficiently achieved by theMember States. Any action by theCommunity shall not go beyond whatis necessary to achieve the objectives ofthis Treaty.

394 T H O M A S C F I S C H E R

United States Constitution Treaty of Amsterdam

Amendment XIV

All persons born or naturalised in theUnited States and subject to the juris-diction thereof, are citizens of theUnited States and of the state whereinthey reside.

EC Article 17—Citizenship of theUnion is hereby established. Everyperson holding the nationality of aMember State shall be a citizen ofthe Union.

Amendment XVI

The Congress shall have power tolay and collect taxes on incomes.

EC Article 269—Without preju-dice to other revenue, the budgetshall be financed wholly from ownresources.

18

The Draft EU Constitution—FirstImpressions

ALAN DASHWOOD

I. INTRODUCTORY

THE CONVENTION ON the Future of Europe, which cametogether in the spring of 2002, completed its work in June 2003. Inthe event, the various tasks that were set for the Convention by the

Laeken Declaration of December 2001 on the Future of the EuropeanUnion1 came to be subsumed in the overall task of devising a Constitutionfor the Union. A sufficient degree of consensus was achieved by theConvention to enable its President, Mr Valery Giscard d’Estaing, to presentthe outcome of the deliberations of the past 15 months, in the form of aDraft Treaty Establishing a Constitution for Europe, to the EuropeanCouncil of Thessaloniki. So it is through the proposed ConstitutionalTreaty (referred to hereinafter as ‘the Convention text’) that the specificobjectives identified in the Nice and Laeken Declarations, such as those ofre-legitimating the Union order and rendering the primary law of the Unionmore comprehensible to its subjects, now fall to be achieved.

The Convention had no formal status under the procedure laid down byArticle 48 TEU for adopting amendments to the Treaties on which the Unionis founded. It was a body established pursuant to a political decision of theEuropean Council,2 and could do no more than provide advice to the consti-tution-making authority of the Union. However, the composition of theConvention, and in particular the inclusion of representatives of the Headsof State or Government of the Member States, as well as of the EuropeanParliament and of national Parliaments, means that its deliberations carrysignificant political weight3.

1 This was annexed to the Presidency Conclusions of the European Council of Laeken. It gaveconcrete content to the broad remit established by the Nice Declaration of the previous December.2 See Part III of the Laeken Declaration.3 The composition of the Convention, fixed by the Laeken Declaration, was as follows:Chairman, Valery Giscard d’Estaing; Vice-Chairmen, Giuliano Amato and Jean-Luc Dehaene;

The procedure of Article 48 TEU requires the calling of a conference ofrepresentatives of the governments of the Member States (‘an IGC’) for thepurpose of determining by common accord the amendments to be made tothe Treaties. The agreement reached at governmental level must then be rat-ified in accordance with the constitutional requirements of each of theMember States. The IGC that will begin its work in the autumn of 2003under the Italian Presidency is expected to be concluded some time early in2004. The Italian Government is believed to be hoping that the negotia-tions will be complete by December, but this seems excessively optimistic,since there remain areas of substantial disagreement.

At the time of writing, it was too early to attempt a systematic analysisof the wide-ranging proposals contained in the Convention text. This paperis simply a collection of first impressions of the text itself, and of theConvention process from which it emerged. By way of a conclusion, somethoughts are offered on the likely impact of a Constitutional Treaty broadlyincorporating the Convention text, on the relationship between the Unionand the Member States. Where appropriate, the Convention text will becontrasted with the draft which was prepared by a team from Cambridge,at the invitation and with the support of the Foreign and CommonwealthOffice, and which was presented to the Convention on 22 October 2002 byMr Peter Hain, the British Government’s representative on the Convention,though in the names and under the responsibility of the authors (‘theCambridge text’)4.

II. THE CONVENTION PROCESS

The success of the Convention process, as a technique of constitution-makingfor the EU, may be judged, it is suggested, on the basis of three criteria: thetransparency of the process; its legitimacy, in terms of the democraticaccountability of those taking part; and its effectiveness, in leading to theestablishment of a broadly agreed text that will provide a satisfactory basisfor the work of the ensuing IGC.

The test of transparency appears, at first sight, to have been passed withflying colours. Convention documents have been made freely available, andthose with a particular interest in observing the process have been able toobtain access to meetings of Working Groups, and to the salle d’ecoute atplenary sessions. Moreover, through its website, the Convention has been

396 A L A N D A S H W O O D

15 representatives of Heads of State or Government; 30 members of national Parliaments (2 perMember State); 16 members of the European Parliament; and 2 Commission representatives.The Praesidium consisted of the Chairman, Vice-Chairmen and 9 members of the Convention.There were also representatives of the countries due to accede to the Union in 2004.

4 The Cambridge text, with a commentary, has been published in (2003) 28 European LawReview 3.

open to ideas put forward by individuals and groups outside its ranks. Inall these respects, the comparison with the hermetic process of IGCs ishighly favourable. Nevertheless, it may not be unduly cynical to wonderhow far the more controversial elements of the Convention text, on institu-tional matters in particular, genuinely reflect criticisms and reservationsthat have been voiced in the wider debate, within the Convention andbeyond it. Inevitably, perhaps, a very strong lead was given by thePraesidium; indeed anecdotal evidence would suggest that drafting wasdone by a narrow group surrounding the President, and that ‘ordinary’members of the Praesidium were sometimes presented, at short notice, withtexts already fully formulated, which they had an opportunity of influenc-ing only at the margins. Further research is needed before any firm conclu-sion can be reached as to whether the transparency of the Conventionprocess may not have been more apparent than real.5

When considering the legitimacy of the process, some scepticism is surelyin order. In crude terms, the Convention was no Philadelphia, but an unusu-ally constituted gathering of the European political elite, many of its mem-bers self-selected from among those enthusiastic for, or hostile to, Europeanintegration. In particular, the representatives of the European Parliament inthe Convention were vociferous in debates and active in promoting amend-ments; however, they were without any mandate from their electors to takepart in the refashioning of the Union, since this was simply not on theagenda at the time of the last European Parliamentary elections. Nor is thewriter aware of any attempt having been made by participating MEPs tocanvass the views of those on whose behalf they purported to be speaking.On the other hand, in some Member States—most certainly in the UnitedKingdom—both the Government and the Parliamentary representativeshave been held to account for their contribution to the work of theConvention through the national political process and by the nationalmedia.

The point being made here is that the composition of the Convention pro-vided an opportunity for a wider range of views to be made available tothose drafting the text that may eventually become the ConstitutionalTreaty, than would otherwise have been the case, and that is to be welcomed;but the Constitutional Treaty can only be given the stamp of democraticlegitimacy through the political processes of the Member States—either by parliamentary endorsement of the results of the forthcoming IGC, or inreferenda, depending on different national traditions. Those taking part inthe IGC need, therefore, feel under no democratic inhibition in agreeingamendments to the Convention text.

The Draft EU Constitution—First Impressions 397

5 The writer is undertaking research on the Convention process, but this remains at an earlystage.

The third criterion—that of an effective outcome of the Convention—hasbeen satisfied, at least so far as concerns the attainment of a sufficient con-sensus for the Convention text to go forward to an IGC. It remains to beseen whether the broad convergence of views within the Convention will betranslated into agreement between the Governments of the Member Stateson a formal Draft Constitutional Treaty, and whether it will be possible tosecure the ratification of such a Draft. It will be at the stage of ratificationthat the representativeness of the Convention, and its viability as a perma-nent element of the procedure for the amendment of the Constitution,6 willfinally be proved or disproved.

III. AN INTEGRATED TREATY STRUCTURE

There were, the writer has suggested,7 essentially three possible models fora Constitutional Treaty:

(i) A ‘constellation’ of TreatiesA new basic Treaty could have been concluded, additional tothe existing Treaties, so as to form with the latter (amended, sofar as necessary) a cluster of distinct instruments linked byappropriate language, rather in the manner of the present rela-tionship between the TEU and the Community Treaties. Thismodel would have had two advantages: the basic Treaty couldhave been a short, crisp text confined to the constitutional essen-tials; and the specificity of the constitutional arrangementsorganising different Union activities would have been veryclearly preserved. However, little would have been done to meetthe concern, which was expressed by the European Council ofLaeken, for simplification of the Treaties.

(ii) A constitutional Treaty with annexesThis was the model adopted in the Cambridge text. The pro-posal was for a main Treaty setting out the common and funda-mental principles of the constitutional order, with annexed‘Acts’ which would contain legal bases for the development andimplementation of Union policies. One of the substantive Actswould be concerned with social and economic policy and theother with foreign, security and defence policy. Such a model, itwas thought, would serve the purposes both of simplification—by eliminating the distinction between the European Union and

398 A L A N D A S H W O O D

6 See Convention text, Art IV–6 (2).7 See Dashwood, ‘The Elements of a Constitutional Settlement for the European Union’, 4 Cambridge Yearbook of European Legal Studies (2001) 1.

the European Communities, thereby establishing an integral constitutional order—and of transparency, with the Annexesclearly bringing out any continuing differentiation between policyareas.

(iii) A single Constitutional TreatyThis model differs from the previous one, in that the substantivelegal bases are included in the main body of the Treaty itself. Itraises issues as to the possible unwieldiness of the text, and as towhether any intended differentiation between policy areaswould be effectively preserved. Since the single Treaty option isthe one the Praesidium favoured, and for which the Conventionhas now opted, those issues will be considered in the course ofreviewing the structure of the Convention text.

A single ‘Treaty establishing a Constitution for Europe’ is to replace the pres-ent TEU and EC Treaty, which would be repealed.8 Activity of the Unionwhich was previously organised under Title V TEU—the so-called ‘SecondPillar’, comprising the Common Foreign and Security Policy (CFSP)—andunder Title VI TEU—the ‘Third Pillar’, comprising Police and JudicialCooperation in Criminal Matters—would no longer be the subject of provi-sions contained in a legal instrument distinct from the instrument organisingactivity on the basis of the Community method. The EURATOM Treatywould be retained as a legally distinct instrument, but would be amended bya Protocol to bring it into line with the new constitutional dispensation.

Besides the Preamble, the Convention text is divided into four Parts:

— Part One sets out the core principles of the Constitution.— Part Two comprises the Charter of Fundamental Rights,

including—bizarrely—the Charter’s Preamble.— Part Three, which is by far the bulkiest Part, contains provisions

on the substantive policies of the Union, together with moredetailed institutional, procedural and financial provisions. Itlargely incorporates, with adaptations, provisions which arepresently found in Part Three of the EC Treaty and in Titles Vand VI TEU.

— Part Four consists of General and Final Provisions.

The Convention text has thus been structured, like the Cambridge text, soas to distinguish clearly between the fundamental concepts and principles ofthe Union order set out in Part One, and the legal bases of substantive poli-cies, which are consigned to Part Three. In contrast to the Cambridge text,

The Draft EU Constitution—First Impressions 399

8 Art IV–1.

however, the Charter of Fundamental Rights is to be included in full. Themodel of a main Treaty with annexes would have allowed the Charter to beattached as an annex, including its preamble, thereby avoiding the sole-cism, found in Part Two of the Convention text, of a preamble containedwithin the body of a broader instrument.

How well does the proposed structure address the objective of renderingprimary Union law more accessible to ‘the well intentioned generalreader’—that is to say, a person who is willing to make a certain effort inorder to achieve an understanding of the essential character of the Unionand the basic arrangements under which it operates? The division into Partsis helpful; it means, in effect, that anyone who does not have a professionalinterest in EU law need read no further than Part Two. However, even thatwould amount to a tough assignment. Part One of the Convention text has59 Articles—as compared with the 28 Articles of the Cambridge draft—andsome of these are long and complicated: examples would be Article I–25 onthe European Commission, and the two provisions relating to the exerciseof Union competence in the field of external relations, Article I–39 on theCFSP and Article I–40 on the common security and defence policy. TheCharter in Part Two has an additional 54 Articles. So, without taking intoaccount the detailed substantive, institutional and procedural provisions ofPart Three, the Convention text will still not be a slim volume.Disappointingly, too, some of the drafting is loose and inelegant, and failsto give effect to the existing legal position when it purports to do so. Theseare technical defects which could be addressed by a committee of expertsworking under the political cover of the IGC.

Although the ‘pillar structure’ is to be abandoned, the need to preservethe difference between the constitutional arrangements applicable, underthe present Treaties, respectively to the EC (the ‘First Pillar’) and to theCFSP ( the ‘Second Pillar’) was acknowledged by the Praesidium from theoutset: this was indicated by the reference, in the Explanatory Note on draftArticle10 in the text as originally proposed by the Praesidium,9 to ‘the specific nature of the Union’s competence’ in CFSP matters. However, thatspecificity was reflected only imperfectly in the structure of the Praesidiumdraft, and the defect has been carried over into the Convention text.

On the one hand, care has been taken in Part One of the text to mark theparticularity of the Union’s competence in CFSP matters. Thus in Title III ofPart One, on ‘Union Competences’, the drafting of Article I–11 on cate-gories of competence, and the separate Article I–15 relating to the CFSP,make clear that CFSP competence does not fall within the general categoriesof exclusive or shared Union competence, and is not to be regarded as anarea of supporting, coordinating or complementary action within the meaning

400 A L A N D A S H W O O D

9 The forerunner to Art I–15 in the Convention text.

of Article I–16.10 Similarly, Articles I–39 and I–40, to which reference hasalready been made, are located, not among the ‘Common provisions’ inChapter 1 of Title V on ‘Exercise of Union Competence’, but among the‘Specific provisions’ of Chapter II.

On the other hand, in Part Three of the Convention text, the moredetailed substantive and procedural provisions relating to foreign policy,security and defence are juxtaposed, in Title V on ‘External Action of theUnion’, with the mass of provisions governing matters that are dealt withby the institutions operating in accordance with the Community method.Title V begins with a Chapter I containing ‘Provisions having GeneralApplication’, which apply to all aspects of the Union’s external relationsactivity. Chapter II is on the CFSP, divided into sections on common foreignpolicy and common security and defence policy, and this is immediately fol-lowed by a Chapter III on the common commercial policy, and by chaptersrelating to other matters presently governed by the EC Treaty, such as devel-opment cooperation, humanitarian aid and economic sanctions.

It is troubling that an approach which is acceptable as a way of progres-sively assimilating the Third Pillar to the First Pillar, should also be appliedto the Second Pillar. The authors of the Convention text appear not to havetaken sufficiently into account the differences that presently separate theSecond and Third Pillars from the Frst Pillar, and from each other. Thosedifferences are not confined to the powers of the institutions or the proce-dures that govern the interactions between them, but extend to the wholeorganisation of legal relations, including the operation of the general prin-ciples of law, and of the principles of direct effect and primacy. The pro-posed structure would tend to conceal the specificity of Second Pillararrangements, and so to counteract the aim of enhancing transparency, if itdid not actually undermine that specificity. A suggestion for the IGC is thatthe provisions of the Constitutional Treaty relating to the CFSP be movedinto a Title separate from those relating to other aspects of the Union’sexternal relations activity, and that the Title be introduced by languagewhich makes clear that both primary and secondary Union law on foreign,security and defence policy is incapable of having internal effect within theconstitutional orders of the Member States.

IV. THE IDENTITY OF THE UNION

What is the European Union for, and—constitutionally speaking—whatsort of animal is it? A well made constitutional text ought to provide ashort, clear answer to those questions, even if this may require some further

The Draft EU Constitution—First Impressions 401

10 The new categorisation of Union competences is further discussed below.

elucidation. The answer supplied by the Convention text is to be sought inits preamble and in Article I–1 on the establishment of the Union.

The preamble was one of the last elements of the Convention text to seethe light of day. At its head, stands a quotation from the famous funeralspeech of Pericles, extolling the virtues of Athenian civilisation, in Book IIof Thucydides’ Peleponnesian War: ‘Our Constitution is called a democ-racy because power is in the hands not of a minority but of the greatestnumber’. The epigraph is quite ludicrously inapt. Later in the same speech,Pericles is recorded as having addressed the widows of the fallen soldiers hewas eulogising, in these words:

Your great glory is not to be inferior to what God has made you, and thegreatest glory of a woman is to be least talked about by men, whether theyare praising you or criticising you.11

Evidently, the values of Athens in the fifth century BC—an imperialist city-state where there were no political rights for women, slaves or the hugepopulation of resident aliens—had little in common with those of theUnion. More seriously, by drawing a false parallel with the Athenian sys-tem of direct democracy (for adult male citizens), the epigraph is a gift tothose critics of the Convention text who seek to belittle the real advancesthe Constitution could bring about, towards a more democraticallyaccountable Union order.

The last recital of the preamble expresses gratitude ‘to the members ofthe European Convention for having prepared this Constitution on behalfof the citizens and States of Europe’. This is not only cringe-making butinaccurate. The text that becomes the eventual Constitution of the Unionwill be the one that emerges from the debates of the IGC, and it may wellbe significantly different from the Convention text.

In between those unfortunate poles, the preamble is rather well done. Itis short, clear and drafted in inspirational language.

The first recital credits Europe with having ‘brought forth civilisation’—a matter on which Iranians, Indians and Chinese, among others, might havea word to say. However, it goes on—more appropriately—to recall that‘[Europe’s] inhabitants, arriving in successive waves since the first ages ofmankind, have gradually developed the values underlying humanism:equality of persons, freedom, respect for reason’. That is a genuinelyEuropean achievement, and it is right that the different waves of migrantsto our continent, including recent ones, be given collective credit for it. Thespirit of the second recital is similarly inclusive: the recital speaks of ‘thecultural, religious and humanist inheritance of Europe’ as having ‘embed-ded within the life of society its perception of the central role of the human

402 A L A N D A S H W O O D

11 Penguin Classics, translated by Rex Warner, p 122.

person and his inviolable and inalienable rights, and of respect for law’, no particular cultural or religious tradition being singled out.

There follow recitals emphasising the benign consequences of theEuropean integration process. The belief is expressed that ‘reunited Europeintends to continue along [its] path of civilisation, progress and prosperity…’,‘wishes to remain a continent open to culture, learning and social progress’,and ‘wishes to deepen the democratic and transparent nature of its publiclife, and to strive for peace, justice and solidarity throughout the world’.The peoples of Europe, ‘while remaining proud of their own national identi-ties and history’, are said to be ‘determined to transcend their ancient divi-sions, and, united ever more closely, to forge a common destiny’. Thus‘united in its diversity’, Europe is seen to offer ‘the best chance of pursuing …the great venture that makes of it a special area of human hope’.

Nothing in any of that need alarm those who, like the writer, are concernedthat the European Union retain its unique character as a constitutional ordercomposed of States which remain sovereign in both the legal and the politicalsenses. It must be said, though, that ‘reunited Europe’ seems an oddly unhis-torical expression—unless it be intended to hark back to the Roman Empire,which would have interesting implications for the meaning of ‘EuropeanStates’ in Article I–57 of the Convention text. In the writer’s view, the phrase‘united ever more closely’ is a distinct improvement on the familiar ‘evercloser Union’, which presently figures in the first recital of the EC Treaty andin Article 1, second paragraph of the TEU. It was possible to understand thelatter phrase as referring to a continuous process of political unification;whereas the new phrase is more naturally to be taken, in the context of anexpressed determination to transcend ancient divisions and to forge a com-mon destiny, as a reference to a growing unity of sentiment among Europe’speoples. Nevertheless, the aspiration to create an ever closer union survives—unhappily—in the first recital of the preamble to the Charter of FundamentalRights which, we have seen, the Convention text places in Part Two.

Article I-1 of the Convention text provides as follows:

1. Reflecting the will of the citizens and States of Europe to build acommon future, this Constitution establishes the EuropeanUnion, on which the Member States confer competences to attainobjectives they have in common. The Union shall coordinate thepolicies by which the Member States aim to achieve these objec-tives, and shall exercise in the Community way the competencesthey confer on it.

2. The Union shall be open to all European States which respect itsvalues and are committed to promoting them together.

Four possible names were initially put forward by the Praesidium for the entityit was proposing to furnish with a constitution: ‘European Community’,

The Draft EU Constitution—First Impressions 403

‘European Union’, ‘United States of Europe’ and ‘United Europe’. Thename ‘European Union’ had the clear advantage of already being in com-mon usage, and of being recognised internationally, eg for the purposes ofthe accreditation of third country delegations. ‘European Community’ hasbecome a term of art for the sub-order of the Union that is organised on thebasis of the ‘Community method’. Its adoption as the general designationof the constitutional order would have been taken as implying that theorder as a whole, including the second pillar, was being communitarised, orwas destined to be so. That does not appear to be the intention of theConvention, and it would certainly be unacceptable to the Governments ofsome of the Member States. Similarly, ‘United States of Europe’ would havegiven a false impression of the Union, which is a unique polity because—unlike the United States of America—it is composed of entities that retainthe quality of sovereign States and are full subjects of the international legalorder. Finally, ‘United Europe’ may sound all right in the French version(Europe Unie), but it has an odd ring in English, and possibly in other lan-guages. Also, it seems wrong to pre-empt the notion of ‘Europe’ in this way:even after the accession of all present and potential candidates for member-ship, the countries that can claim to be European in a geographical or cul-tural sense will not have been united under the proposed constitution.Tellingly, after raising the naming issue, the Praesidium’s original textreferred thereafter to ‘the Union’; and ‘European Union’ is the designationwhich has now been adopted in Article I–1 of the Convention text.

Considered as a whole, Article I–1 is sadly limp as the opening provisionof a constitutional instrument. In its favour, it can be said that the Articlemakes explicitly clear that any competences which the European Unionenjoys have been conferred on it by the Member States: the Union is thusacknowledged to be the creation of its Member States, and derives its legit-imacy from the grant of powers which it has received from them. However,the identity and nature of the Union remain obscure. The best that could bemade out of the Article as presently drafted would be to say that the Unionis an entity which coordinates the policies by which its Member States aimto achieve certain objectives they have in common, and which exercises ‘inthe Community way’ the competences they confer on it. Such an answerwould be both unenlightening and misleading. The reference to exercisingcompetences ‘in the Community way’ would mean nothing to a person whowas not already well acquainted with the pre-history of the Union; andthose who did understand it, would be misled into thinking that theCommunity method of decision-making was being extended to all aspectsof the Union’s activities—an outcome, we have been led to believe, theConvention did not intend.

The present drafting of Article I–1 replaces an earlier version in whichthe Union was defined as one ‘within which the policies of the MemberStates shall be coordinated, and which shall administer certain common

404 A L A N D A S H W O O D

competences on a federal basis’. The distinction there drawn between coordinating policies at the European level, and administering certain com-mon competences ‘on a federal basis’, was intended, presumably, to reflectthe differentiation presently expressed through the pillar structure.However, some hesitation may justifiably have been felt about characterisingfirst pillar arrangements as ‘federal’ in the absence of balancing languagethat recalls Member States’ sovereign nature.

Article 1 of the Cambridge text defined the Union as ‘a constitutionalorder of sovereign States’, and went on to explain what that descriptionentailed.12 The drafting was designed to convey the reality of the relation-ship between the Union and the Member States. By adhering to the Union,the Member States have not divested themselves of their several sovereign-ties; they have chosen, rather, to ‘pool’ aspects of their sovereignties, byexercising them through the common institutions.

If the notion of a constitutional order of States seems too much of a mouthful, then—it may tentatively be asked—why not ‘a federation of sovereign States’? Paradoxical as it sounds, that is as accurate (and memorable) a description of the Union as can be provided in a few words.

V. REINFORCEMENT OF THE SUBSIDIARITY PRINCIPLE

The principle of subsidiarity is formulated in the first subparagraph ofArticle I–9 (3) in these terms:

Under the principle of subsidiarity, in areas which do not fall within its exclu-sive competence the Union shall act only if and insofar as the objectives of theintended action cannot be sufficiently achieved by the Member States, eitherat central level or at regional and local level, but can rather, by reason of thescale or effects of the proposed action, be better achieved at Union level.13

The italicised words indicate changes as compared with the formulation inthe present Article 5, second paragraph EC. ‘Union’ has been substitutedfor ‘Community’, which would extend the application of the principle toareas of Union activity presently governed by The TEU, notably the CFSP.The insertion of a reference to Member States’ inability to achieve theobjective in question ‘either at central level or at regional and local level’ isdesigned, presumably, to cater for the sensibilities of important sub-Stateentities such as the German Lander. The substitution of the word ‘rather’ for‘therefore’ in the present text improves the logic of the sentence, by making

The Draft EU Constitution—First Impressions 405

12 See the Cambridge text, Art 1, second and third paragraphs: (2003) European Law Review,at p 6.13 Emphasis added.

clear that the better prospect of success at Union level is the corollary of theinadequacy of action at the level of the Member States.

The second subparagraph of Article I–9 (3) cross-refers to the Protocolon the Application of the Principles of Subsidiarity and Proportionalitywhich is to be reinforced, notably, by the establishment of a proceduredesigned to ensure stricter compliance with the subsidiarity principle.

Point 3 of the Protocol imposes a duty on the Commission to ‘to send allits legislative proposals and its amended proposals to the nationalParliaments of the Member States at the same time as the Union legislator’.The European Parliament and the Council are placed under a similar dutywith regard, respectively, to their legislative resolutions and common posi-tions. It is worth remarking that the Commission’s obligation to send thenational parliaments all its amended proposals must be taken to includeany amendments agreed to in the course of the Council’s decision-makingprocess, in order to facilitate the adoption of a Presidency compromise by aqualified majority:14 this would entail a change of legislative practice, sincein the current practice it may be only at the last moment before the adop-tion of a measure by the Council that the Commissioner attending the rele-vant Council session indicates—on the basis of a mandate previouslyreceived from the College—the willingness of the Commission to make thePresidency compromise its own.15

The procedure would be given ‘teeth’ by points 5 and 6 of the Protocol. Anational Parliament would have six weeks, from the date of transmission ofthe Commission’s legislative proposal, in which to send to the Presidents ofthe European Parliament, the Council and the Commission a reasoned opin-ion stating why it considers that the proposal in question does not complywith the principle of subsidiarity. For the purpose of evaluating the strengthof such expressions of dissent, two ‘votes’ are given to each nationalParliament (this enables the chambers of bi-cameral Parliaments to vote dif-ferent ways, if they so wish); and, where reasoned opinions on a proposal’snon-compliance with the subsidiarity principle represent at least one third ofall the available votes, the Commission is required to review its proposal.Following such a review, the Commission may decide to maintain, amend orwithdraw its proposal, and it must give reasons for its decision.

That the Commission should be entitled to maintain its proposal in suchcircumstances, is consistent with its constitutionally-protected independ-ence, and by no means robs the procedure of its effectiveness. At theCouncil meeting where the proposal would subsequently be discussed, therewould be Ministers present from the Member States whose Parliaments had

406 A L A N D A S H W O O D

14 If the Commission does not rally to the Presidency compromise, the Council can act only byunanimity: see Art 250(1) EC; Art III–297 of the Convention text.15 The legitimacy of this practice has been endorsed by the Court of justice: Case C–280/93,Germany v Council [1994] ECR I–4793, paras 35 to 37.

issued reasoned opinions. The Commission would have to be very persuasiveindeed in order to convince those Ministers, who would face the wrath oftheir Parliaments when they returned home, that no change to the proposalwas necessary.

Post hoc judicial control would be enhanced by point 7 of the Protocol.This provides for judicial review under Article 230 EC (Article III–226 inthe Convention text) to be available in respect of alleged infringements ofthe subsidiarity principle, not only in proceedings brought by MemberStates, but also in proceedings ‘notified by them in accordance with theirlegal order on behalf of their national Parliament or a chamber of it’. Thatraises the intriguing prospect of a possibly unwilling Government beingcompelled to notify to the Court of Justice an action, challenging the valid-ity of a measure it may not itself have found objectionable, on behalf of aparliamentary chamber where, in the current political conjuncture, it doesnot command a majority.

These reinforcements of the subsidiarity principle represent clear gains inthe ability of national Parliaments to exercise democratic political controlover law-making at the level of the Union.

VI. EXCLUSIVE UNION COMPETENCE

The Convention text distinguishes, as does the Cambridge text, betweenthe categories of exclusive, shared and supporting (or complementary)Union competences.

So far as concerns the last two categories, no extensive commentary iscalled for. It would be a useful clarification to identify the areas in which thecompetence of the Union is confined to ‘supporting, coordinating or com-plementary action’, though there is room for disagreement as to which theseshould be.16 Shared competence is recognised as the residual category,17 as itis in the Cambridge text, but an indicative list of areas subject to such com-petence is provided in Article I–13 (2).18

The definition of exclusive competence is provided by Article I–11:

When the Constitution confers on the Union exclusive competence in a spe-cific area, only the Union may legislate and adopt legally binding acts, theMember States being able to do so themselves only if so empowered by theUnion or for the implementation of acts adopted by the Union.

The Draft EU Constitution—First Impressions 407

16 In Art I–16 of the Convention text, the areas of supporting competence comprise: industry;protection and improvement of human health; education, vocational training, youth and sport;culture; and civil protection. Art 10 of the Cambridge text also includes economic policy,employment, trans-European networks, research and (tentatively) consumer protection. 17 Art I–13 (1).18 Comprising: internal market; area of freedom, security and justice; agriculture and fisheries,excluding the conservation of marine biological resources; transport and trans-European

We are here concerned with exclusive Union competence which exists a priori, that is to say, by the very nature of the areas of activity in question.The importance of precisely identifying those areas is twofold. First, it is aconstitutional issue of central importance that there are certain matters inrespect of which the legislative powers of the Member States may no longerbe exercised autonomously. Secondly, where Union competence is exclu-sive, the principle of subsidiarity does not apply.

The ‘specific areas’ of exclusive Union competence in that a priori senseare defined in paragraph (1) of Article I–12, as follows:

The Union shall have exclusive competence to establish the competition rulesnecessary for the functioning of the common market, and in the following areas:— monetary policy, for the Member States which have adopted the euro,— common commercial policy— customs union,— the conservation of marine biological resources under the common fish-

eries policy.

The description of the competition rules subject to exclusive Union compe-tence as being ones that are ‘necessary for the functioning of the internalmarket’ was added by the Praesidium at a latestage, presumably in order tomake clear that national measures, such as the United Kingdom’sCompetition Act 1998, would not be outlawed, in so far as they applied toanti-competitive behaviour not affecting trade between Member States. Ifthat is so, and the reference in Article I–12 (1) is to rules applicable tobehaviour that has an impact on competition beyond the boundaries of asingle Member State, then its inclusion seems mistaken. It has been clearlaw since 1969 that national rules on competition must not applied in away that prejudices the uniform application of the EC rules on competitionthroughout the internal market19—not because the maintenance of effec-tive competition is an area of a priori Union competence, but through thestraightforward application of the principle of loyal cooperation in Article10 EC, which is given concrete force, in case of any incompatibility betweennational rules and Community rules, by the principle of the primacy ofCommunity law.20

The four listed instances of exclusive Union competence existing a priorihave long been recognised in the case law, and are uncontroversial. It oughtto be reassuring to those who regard the Union as a Leviathan, that the listis such a short one.

408 A L A N D A S H W O O D

networks; energy; social policy ‘for aspects defined in Part Three’; economic, social and territorial cohesion; environment; consumer protection; and common safety concerns in publichealth matters.

19 Case 14/68, Wilhelm v Bundeskartellamt [1969] ECR 1.20 As to this, see section VIII below, regarding Art I–10 (1) of the Convention text.

The suggestion which has been made by several Advocates General, thatthe internal market should be recognised as another instance of a prioriexclusivity, was explicitly rejected by the Court of Justice in the TobaccoAdvertising case; subject to the directly effective prohibitions in the ECTreaty against restrictions on free movement, the Member States are at lib-erty to regulate matters affecting the market, unless and until approxima-tion measures have been adopted by the Union.21 The latest version ofArticle I-12 (1) has been brought into conformity with that judgment,through the deletion of a reference to the four freedoms which was previ-ously found there.22 With luck, the inappropriate reference to the competi-tion rules will go the same way, in the course of the technical cleaning-upoperation which, it is hoped, the IGC will instigate.

Paragraph (2) of Article I–12 provides:

The Union shall have exclusive competence for the conclusion of an interna-tional agreement when its conclusion is provided for in a legislative act of theUnion, is necessary to enable the Union to exercise its competence internally,or affects an internal Union act.

The Praesidium’s commentary on this text claims that it ‘faithfully reflectsthe Court of Justice case law’. That claim is seriously misleading as regardsthe second and third situations which are mentioned in the paragraph.

The second situation is expressed as being where the conclusion of aninternational agreement ‘is necessary to enable the Union to exercise itscompetence internally’. This appears to be an inept rendering of the princi-ple first established in Opinion 1/76,23 which was re-examined by the Courtof Justice in Opinion1/94,24 and was recently explained in the Open Skiesjudgment, in these terms:

… the hypothesis envisaged in Opinion 1/76 is that where the internal compe-tence may be effectively exercised only at the same time as the external com-petence (Opinion 1/94, paragraph 89), the conclusion of the internationalagreement thus being necessary in order to attain objectives of the Treaty thatcannot be attained by establishing autonomous rules.25

Such was the case in Opinion 1/76, where a project for the laying up of Rhine barges, in order to reduce over-capacity, would not have been

The Draft EU Constitution—First Impressions 409

21 Case C–491/01, Ex parte British American Tobacco.22 See the trenchant criticism of the previous version of Art I–12 by Dougan, ‘Assessing the“legal legitimacy” of the Draft Constitutional Treaty’.23 [1977] ECR 741.24 [1994] ECR I–5257, at paras 82 to 86.25 Case C–467/98, Commission v Denmark, judgment of 5 November 202, not yet reported, para 57. Emphasis added.

practicable unless the internal Community measure were complemented byan international agreement with Switzerland, extending the arrangementsto operators from that country. As the Court made clear in Opinion 1/94,implied exclusive EC competence arises under the principle of Opinion 1/76in those exceptional cases where the internal and external competences ofthe Community are so ‘inextricably linked’ that the one can only be exer-cised at the same time as the other.26 The word ‘necessary’ in the paragraphunder discussion is ambiguous, and certainly does not bring out the nar-rowness of the principle which has been developed in the case law. If theintention were to embody that principle in paragraph (2) of Article I–12,and not to enlarge it, the phrase ‘necessary to enable the Union to exerciseits competence internally’ would have to be replaced by a reference to theconclusion of the agreement’s being ‘inextricably linked to the exercise ofan internal competence of the Union’.

The third situation—where the conclusion of the agreement ‘affects aninternal Union act’—must refer to the principle that was first enunciated bythe Court in its famous AETR judgment.27 The principle, as reformulatedin paragraph 22 of the judgment,28 is:

that to the extent to which Community rules are promulgated for the attain-ment of the objectives of the Treaty, the Member States cannot, outside theframework of the Community institutions, assume obligations which mightaffect those rules or alter their scope.

There is a complex and subtle case law on what amounts to an ‘AETReffect’ such as to render the Community exclusively competent to under-take the international commitments in question, which it would be impossi-ble to do justice to here.29 Suffice it to say that the present wording ofArticle I–12 (2) could be read as meaning that, if any elements of an inter-national agreement relate to matters which are the subject of Communitylegislation, then the whole of the agreement would fall within the exclusivecompetence of the Union, including those elements not covered by existinginternal rules; and if that were the intended effect of the provision, it wouldreverse the ruling of the Court of Justice in Opinion 1/94, and would virtu-ally abolish the practice of concluding ‘mixed agreements’ having both theCommunity and the Member States as parties. Assuming that was not thesecret wish of the Praesidium, and eventually of the Convention, the final

410 A L A N D A S H W O O D

26 At Para 86. 27 Case 22/70, Commission v Council [1971] ECR 263.28 The initial formulation of the principle is at para 17 of the judgment.29 Besides AETR itself, the leading cases are: Opinion 2/91 [1993] ECR I–1061; Opinion 1/94,see n 24, above; Opinion 2/92 [1995] ECR I–521; Case C–467/98, Commission v Denmark,see n 25, above. For an authoritative survey and analysis of the case law, see O’Keeffe,‘Exclusive, Concurrent and Shared Competence’ in Dashwood and Hillion (eds) The GeneralLaw of EC External Relations, p 179.

phrase of the paragraph ought to have been drafted thus: ‘in so far as theagreement affects common rules which have been established at internallevel’.30

In the writer’s view, however, by far the best solution for paragraph (2) ofArticle I–12 would be deletion. The exclusivity to which the paragraphrelates is different in its nature from the a priori exclusivity of paragraph (1).In the three cases of exclusive external relations competence which arereferred to, the underlying logic is that of the principle of loyal cooperation.That principle has been explicitly identified by the Court of Justice as thebasis of the AETR effect,31 and it is clearly the same obligation—to ‘abstainfrom any measure which could jeopardise the attainment of the objectivesof this Treaty’—that explains why Member States may not autonomouslyaccept international commitments in cases where the Union legislator hasalready decided that negotiations should take place at Union level, or wherethe exercise of internal and external Union competences are inextri-cably linked. The incorporation of the principle of loyal cooperation inArticle I–5 (2) of the Convention text is quite sufficient to preserve the caselaw on the AETR principle and on Opinion 1/76 under the new dispensa-tion of the Constitutional Treaty. Even if they were amended in the wayssuggested by the writer, the provisions of Article I–12 (2) would be liable tocreate new uncertainties, and to provoke the kind of extravagant claims ofexclusive external relations competence for the Union, which the Court ofJustice roundly rejected for the Community in Opinion 1/94.32

VII. THE UNION’S INSTITUTIONS

The ‘institutional framework’ of the Union is said by Article I–18 (2) of theConvention text to comprise: the European Parliament; the EuropeanCouncil; ‘the Council of Ministers’ (sensibly renamed, to avoid confusionwith the European Council);33 ‘the European Commission’ (making officialwhat has, for some time, been the Commission’s favoured informal desig-nation); and the Court of Justice (defined by Article I–28 (1) as including‘the European Court of Justice, the High Court and specialised courts’).Thus ‘Court of Justice’ is to be the collective designation of the Europeanjudicature: the name ‘European Court of Justice’ (‘ECJ’ for short), which

The Draft EU Constitution—First Impressions 411

30 See Opinion 1/94, para 77.31 AETR judgment, para 21.32 See the position taken by the Commission in the Opinion 1/94 proceedings: [1994] ECRI–5267, at 5323 to 5324 regarding the GATS, and 5336 to 5337 regarding the TRIPS.33 The European Council is the Union’s supreme political authority, composed of Heads ofState or Government, together with the Commission President (see Art 4 TEU); whereas theCouncil (of Ministers) is the main decision-making body, composed of representatives of eachMember State, at ministerial level, who are authorised to commit the government of thatMember State (see Art 203 EC).

has been in common use, would become official; and the Court of FirstInstance would be renamed ‘the High Court’—appropriately, since italready hears appeals in certain disputes relating to Community trademarks, and the likely increase in the number of specialised tribunals willbring an expansion of its appellate jurisdiction.

The Convention text would effect a considerable range of amendmentsto the institutional arrangements laid down by the present Treaties.Discussion here focuses on the proposed changes the writer would regardas the most radical, namely the creation of the offices of European CouncilChair and of the Union’s Foreign Minister.

The basic provision on the European Council Chair is Article I–21.Under paragraph (1) of the Article, the Chair would be elected by theEuropean Council acting by a qualified majority, for a term of two and ahalf years, which would be renewable once. As defined by paragraph (2),his/her role would be: to chair the European Council and ‘drive forward itswork’; in cooperation with the President of the Commission, and on thebasis of the work of the General Affairs Council, to ‘ensure proper prepara-tion and continuity’; and ‘to facilitate cohesion and consensus within theEuropean Council’. After each meeting of the European Council (requiredby Article I–20 to take place quarterly), the Chair would have to present areport to the European Parliament. He/she would also ensure, at their‘level’, the external representation of the Union in CFSP matters, ‘withoutprejudice to the responsibilities of the Minister for Foreign Affairs’: pre-sumably, the representative role would be taken by the European CouncilChair on political occasions where other international actors were repre-sented at the level of Heads of State or Government.

In the writer’s view, this innovation would be welcome. Ever since theMaastricht Treaty, it has been explicitly recognised in the primary law ofthe European Union that the task of setting the Union’s political agendabelongs to the Heads of State or Government, meeting periodically, togetherwith the President of the Commission, in the European Council. Hitherto,however, the business to be undertaken by a given session of the EuropeanCouncil has been dictated, to a considerable degree, by the particular polit-ical concerns of the Member State holding the Presidency for the time being,and the quality of preparation has been variable. Nor has there beenmachinery in place to ensure that decisions taken by the European Councilare systematically followed up. A European Council Chair, in post for aperiod of at least two and a half years, and possibly for five years, would beable, indeed bound, to shape an agenda conceived from the point of view ofthe Union as a whole; and he/she would have the authority to insist on theeffective implementation, by the other institutions of the Union, each inaccordance with its respective role under the Constitution, of the policyguidelines set by the European Council. For the latter purpose, it is a pitythe Convention text does not provide for the European Council Chair also

412 A L A N D A S H W O O D

to preside over the General Affairs formation of the Council of Ministers,which is charged, under Article I–23 (1), second subparagraph, in liaisonwith the Commission, with preparing, and ensuring follow-up to, meetingsof the European Council. It is hoped that the IGC will repair that deficiency.

There is said to be disquiet about the proposal for a European CouncilChair, more particularly among the smaller Member States which see theCommission as their protector, because of the perception that the institu-tional balance would be tipped in favour of the European Council and theCouncil. To the writer, that concern seems misconceived. It is part of currentpolitical reality that the role of demiurge of the European Union—that ofimagining the future, and fixing the broad lines of Union policies—haspassed from the Commission to the European Council; quite rightly so,because the democratic accountability of the Heads of State or Governmentlends legitimacy to the act of agenda-setting. An institutional change thatwould bring greater coherence and effectiveness to the deliberations of theEuropean Council ought to be hailed as a contribution towards democratis-ing the constitutional order. Critics of the proposal appear to ignore the factthat the President of the Commission is a member of the European Counciland therefore in a position to help shape its decisions. It is true that, as pro-vided by Article I–24 (5) of the Convention text, ‘[w]ithin the EuropeanCouncil, its President and the President of the Commission do not vote’.However, that provision is contained in an Article about qualified majorityvoting (QMV), in which, by definition, neither President could be involved.Where the European Council was acting by consensus, as it would normallybe required to do,34 and certainly when fixing policy objectives, theCommission President would have to be part of any such consensus. In theend, what would determine the relative standing of the two Presidents wouldbe the quality of the individuals elected to serve. An important element ofthis equation would be the political adroitness of the Commission Presidentin winning the confidence and support of the European Parliament.

Greater hesitation may be felt about the proposal in Article I–27 that a‘Foreign Minister’ be appointed (by the European Council acting by QMV)to conduct the Union’s foreign policy and its security and defence policy.The person appointed would chair the Foreign Affairs Council,35 butwould, at the same time, be one of the Vice-Presidents of the Commission.In the latter capacity, he/she would be ‘responsible for handling externalrelations and for coordinating other aspects of the Union’s external action’.It is provided that ‘[i]n exercising these responsibilities within theCommission, and only for these responsibilities, the Foreign Minister shallbe bound by Commission procedures’.36

The Draft EU Constitution—First Impressions 413

34 Convention text, Art I–20 (4).35 Convention text, Art I–23 (2).36 The provisions on ‘double-hatting’ are in Convention text, Art I–27 (3).

The writer takes mild exception to the title ‘Foreign Minister’—bothgrandiose and misleading. The person holding the office will not be a mem-ber of the government of a sovereign State which is a full subject of theinternational order. His/her role will be more like that of the SecretaryGeneral of a major international organisation. A preferable designationwould be ‘External Affairs Secretary of the European Union’.

A more serious objection would be the impracticability of ‘double-hatting’the Foreign Minister. It is very hard to see how it would be possible for oneand the same person loyally to prepare and execute Council policies onexternal relations, while remaining true to his/her role as a CommissionVice-President bound by the discipline of collegiality. It is not the case thatthere is one sphere of external relations for which the Commission hasexclusive responsibility (trade, development aid, etc) and another spherefor which responsibility is vested exclusively in the Council (the CFSP).Decision-making on trade, aid and the other external relations matters cur-rently governed by the EC Treaty are powers of the Council, while theCommission has its customary role of initiating and implementing Councildecisions. International agreements relating to such matters are negotiatedby the Commission, but it must first obtain authorisation from the Council,and it is bound by the negotiating directives the Council issues.37 Moreover,power to conclude international agreements under the EC Treaty belongsto the Council in almost all cases.38 Which side would the Foreign Ministertake in disputes of the kind that have frequently arisen between the Counciland the Commission, over issues such as whether the Community is exclu-sively competent in the matters to which a given agreement relates, or whatis the correct legal basis in the Treaty for concluding an agreement?

A concrete example may be used to illustrate the problem. There wasjust such a dispute about competence to conclude the package of instru-ments attached to the WTO Agreement, and about the legal basis for doingso. The Commission took the view that the whole package fell within theexclusive competence of the Community, either because it was covered byArticle 113 EC (now Article 133) on the common commercial policy,39 orthrough an extensive application of the AETR and Opinion 1/76 principles.On the other hand, the Council’s view was that exclusive EC competenceexisted only in respect of the elements of the Agreement relating to trade ingoods, and of certain other elements liable to produce an AETR effect; forthe rest, competence was either shared or belonged to the Member States.So the package could, and should, be concluded as a mixed agreement,

414 A L A N D A S H W O O D

37 EC Treaty, Art 300 (1). See Convention text, Art III–222.38 EC Treaty, Art 300 (2). See Convention text, Art 222. The primary role of the Council inconcluding Treaties on behalf of the EC was confirmed in Case C–327/91, France vCommission [1994] ECR I–3641.39 The exclusive competence of the Community in the field of the common commercial policywas first recognised in Opinion 1/75 [1975] ECR 1355.

enabling the Member States to become members of the WTO in their ownright. That was a perfectly genuine difference of view, with respectablearguments both ways, which could only be resolved finally by the Court of Justice in Opinion 1/94.40 Were such a dispute to occur under the newdispensation—as it almost certainly will, when the time comes for conclud-ing the next WTO package—a double-hatted Foreign Minister would bedragged in different directions by conflicting loyalties.

Similarly, Article III–195 of the Convention text envisages that proposalson CFSP matters may be submitted to the Council by, among others, ‘theMinister with the support of the Commission’. How would the same indi-vidual be able to perform the metaphysical feat of reaching a decision in hiscapacity as Minister, and giving support to that decision in his capacity as aCommission Vice-President?

Another issue raised by the double-hatting proposal is that the ForeignMinister’s staff would be drawn partly from the General Secretariat of theCouncil and partly from the Commission’s services.40a There is no balkingthe fact that the ideologies of the two civil services are very different, reflect-ing the creative tension between the institutions they respectively serve, andthe Minister might well receive different advice, depending on whether itcame from a Council or from a Commission official. Particularly delicatewould be the status of the Union’s military staff. Is it conceivable that theycould be located anywhere other than within the Council?

Double-hatting would, of course, have a serious purpose—that of betterensuring the overall consistency of the external relations activity of theUnion. It would certainly be an advantage if the Foreign Minister were ableto contribute to the Commission’s decision-making on the different aspectsof external economic relations that impinge on the CFSP, without compro-mising either his/her position as a loyal executant of Council policy, or theindependence of the College. A possibility which, it is suggested, the IGCshould explore would be that of giving the Foreign Minister the status of anobserver at meetings of the Commission where any aspect of the Union’sexternal relations is being discussed, with a right to speak, but not to vote.

VIII. CONCLUSION: THE RELATIONSHIP BETWEEN THE UNION AND THE MEMBER STATES

Would a Draft Constitution based on the Convention text fundamentallyalter the relationship between the Union and the Member States, setting theUnion on a course that would lead ineluctably to its becoming a fully

The Draft EU Constitution—First Impressions 415

40 See n 24, above. The dispute was resolved by the Court in the Council’s favour.40a See the Declaration on the Creation of a European External Action Service.

fledged federal State? For the reasons that are set out below, the writer hasno hesitation in replying to that question with a resounding ‘No’.

First, the competences of the Union are explicitly, and repeatedly, statedto be conferred on it by the Member States.41 The Union is thus acknowledgedto be the creation of the Member States. On the other hand, Article I–9 (2)provides, in its second sentence: ‘Competences not conferred upon theUnion in the Constitution remain with the Member States’. The use of theindicative mood shows that this is simply a description of what is the case.There is no purported conferment of powers on the Member States by theConstitution. The powers of the Member States are derived from their ownsovereignties.

Secondly, there is stronger and more specific language in the proposedArticle I–5 (1) than in the present Article 6(2) TEU, requiring the Union torespect the national identities of its Member States, which are said to residein the Member States’ ‘fundamental structures, political and constitutional,including for regional and local self-government’. The Union must ‘respecttheir essential State functions, including for ensuring the territorial integrityof the State, and for maintaining law and order and safeguarding internalsecurity’.

Thirdly, the procedure for revising the Constitution, which is found inproposed Article IV–6, provides for the summoning of a Convention by theEuropean Council, but requires, as now, that any amendments be estab-lished by common accord of the Member States and be ratified by them.Thus the Member States remain, collectively, the masters of theConstitution.

Fourthly, there would, for the first time, be an express ‘exit clause’.Proposed Article I–59 would give any Member State the right to withdrawvoluntarily from the Union, though the arrangements for withdrawalwould, of course, have to be agreed with the Union.

Fifthly, critics of the Convention text have pointed out that Article I–5would impose on the Member States a duty of loyal cooperation, but this isnothing new. Such a duty has existed throughout the whole history of theEC. So far as concerns the CFSP, the present Article 11 (2) TEU imposes asimilar duty.

Sixthly, another issue raised by critics has been that Article I–10 (1)provides: ‘The Constitution and law adopted by the Union’s Institutions inexercising competences conferred on it, shall have primacy over the law ofthe Member States’. The principle of the primacy of Community law overconflicting provisions of national law has been recognised ever since the deci-sion of the Court of Justice in Costa v ENEL in 1964.42 So, once again, thecontested principle is a perfectly familiar one, so far as concerns EC matters;

416 A L A N D A S H W O O D

41 See Art I–1 (1), Art I–9 (2).42 Case 6/64, [1964] ECR 585.

though it is a different issue whether, as with regard to the AETR principle,it is sensible to attempt to encapsulate in a constitutional provision, a prin-ciple which has been developed in jurisprudence, and which would con-tinue to be available in any event.43 A genuine objection to the principle, asdrafted, is that it could be taken to mean that national courts are requiredto give primacy over conflicting national provisions to all provisions ofUnion law, including those relating to CFSP matters. If that is not the inten-tion—and surely it cannot be—then the point should be clarified by theIGC.

Seventhly, no consequences, for the relationship between the Union andthe Member States, follow from the conferment on the Union of a singlelegal personality, replacing the separate personalities—of the Community,and of the Union in Second and Third Pillar matters—that presently exist.This is purely and simply a technical measure.

Eighth, and finally, there would be a significant extension of QMV, as aresult of the principle established by proposed Article I–33, that legislativeacts (in the form of ‘European laws’, corresponding to the present regula-tions, and ‘European framework laws’, corresponding to the present direc-tives) must be adopted jointly by the European Parliament and the Council,under what the Convention text refers to as ‘the ordinary legislative proce-dure’—otherwise known as ‘co-decision’44—except in the cases where PartThree of the Constitution provides for ‘special legislative procedures’. Inthe writer’s submission, this generalisation of co-decision, as the normalprocedure for enacting Union legislation, is very much to be welcomed,since it would reinforce democratic accountability. Nor would it affect thebalance of the relationship between the Union and the Member States, sincethe unanimity rule would be retained in respect of matters that impingeclosely on Member States’ sovereignty, such as taxation.45

In the result, it is the writer’s clear view that the Convention text has notbeen conceived as the foundational instrument of a new sovereign entity.The Union would retain its character, as a decentralised constitutional orderunder which the Member States have accepted the discipline of acting, foragreed purposes, through common institutions and under common rules,without compromising their own natures as self-authenticating sovereignentities.

The Draft EU Constitution—First Impressions 417

43 Dougan, see n 22, above, queries the wisdom of this ‘attempt to codify a principle charac-terised by sophisticated nuances in the case law, and extensive debate among academics’. 44 Presently laid down by Art 251EC.45 Art III–59 of the Convention text would allow the adoption by QMV of fiscal measuresrelating to administrative cooperation or to combating tax fraud, but only after the Councilhad made a unanimous finding that the proposal in question was genuinely concerned withthose matters.

Accounting Standards Board 120Acquired Rights Directive,

adoption 174aim 174–5case study 173–93definition of employee 184–9employees’ right to

object to transfer 175–84consequences of right 180–4existence of right 175–80

partial harmonisation 173–93Directive as example of 175–84, 189employees’ right to

object to transfer 175–84meaning 173

rights 174Acte clair 7–8Agriculture,

animal welfare 84–5Common Agricultural Policy 78, 87–8degression 88direct payments 86–7emerging trends 89–90European model 77–103

Agenda 2000 79assessment of 100–3Berlin Summit 82–4development 79–90implementation 81–9mid-term review 84–9

management requirements 86–7Millennium Round of

WTO negotiations 78, 93–101OECD 77reductions in direct payments 87Rural Development Regulation 89single farm payment 86Uruguay Round Agreement on

Agriculture (URAA) 77, 78, 91–3Aggregate Measure of

Support (AMS) 91Annual and Final Bound

Commitment Levels 91exceptions 92–3reduction commitments 91–2

world trade and 77–103Allott, P 228Anti-dumping,

common commercial policy and 201–3history of regulation 203–5policy 195–236

causal link between dumping and injury 210–11

Community interest clauses 211–12competition policy,

coherence with 206–14constitutional perspective 215–26economic analysis 207–8establishment 203finding of dumping 209future 205–32generally 195–9globalisation 226–32injury 209–10institutional perspective 215–26integration, European 226–32material injury 210rule-orientated policy 208–14sui generis nature of EC 199–200WTO regime and 213

Asian Pacific Economic Cooperation (APEC) 361

Asylum seekers,Race Directive 327–9

Atiyah, PS 294, 295Austria,

Race Directive 321, 323

Bankowski, Z 294Breach of contract,

Germany,basic governing rules 339damages and termination 338–45delay in performance 352–3European aspects 353–6European law of contract,

towards 355–6expectation interest,

breach without 339–40implementation of European

directives by central statutory provision 353–5

impossibility 346–9lack of conformity 349–52large-scale reform 334–8new rules 333–56qualitative defects 349–52special deficiencies in

performance 345–53standard contracts 333termination 343–5

Index

Breach of contract contd.Germany contd.

title, lack of 349–52traditional rules 333–4

Citizenship,Community law 361–2customary international law 361definition 359–62European 365–75

border control 382–3centralisation 377–8Common Commercial Policy 380common market 379–80defence 381–2economic and monetary union 380–1federal Europe, evolution of 376–7highest court, importance of 378–9immigration control 382–3income, sources of 383–5meaning 357problem 357–9tax, power to 383–5US system, similarities and

differences with 375–86globalisation 361, 362meaning 357nationality 360United Nations 361United States 357, 363–5

Bill of Rights 385–6border control 382–3centralisation 377–8defence 381–2EU system, similarities and

differences with 375–86Federal government 376fundamental rights 385highest court, importance of 378–9immigration control 382–3income, sources of 383–5tax, power to 383–5

World Trade Organization 361Clark, DS 295Collective dominance 151–72

Art 82 cases 163–5Commission view of 153economic links 155–7, 165emergence of concept 152–5evolution 151future 168–72individual dominance,

factors indicating 153–4merger control 157–63one or more undertakings 152recent cases 163–5three-stage test 167–8

Common Agricultural Policy 78

Common commercial policy 201–3Common Customs Tariff 201Competition law,

anti-dumping. See Anti-dumpingcollective dominance.

See Collective dominanceCompetition policy,

European Community 39Compte-Sponville 16Conseil d’Etat,

commissaire du gouvernement, status of 3

Constitutionalism,alternatives 135–41Commission’s White Paper on

Governance 143–5direct effect 126ECJ, jurisprudence of 126–9economic constitution,

theory of 125–31justification of supremacy of

European law 125–31law, economics and politics 123–49market without State,

Europe as 129–31multi-level system and

governance 141–9Commission’s White Paper on

Governance 143–5open method of coordination 145–6perspectives for constitutionalising

system 146–9nation state 139–40ordo-liberal economic

constitution theory 129–31regulatory state, Europe as 131–41

alternatives 135–41de-regulation 134–5downgrading of Europe as

association of states 137–41factual developments 132–5negative integration 132–4regulatory competition 132–4re-regulation 134–5special-purpose association 131

vertical 125–31, 138–9Convention on the Future of Europe 395

competences, Union 400–1, 407–11controversial elements 397exclusive union competence 407–11identity of the Union 401–5institutions, Union’s 411–15integration process 403name for new entity 403–4outcome 398parts 399process 396–8structure 399–400

420 Index

subsidiarity 405–7transparency 396

Council of Europe 238enlargement 254

Court of Justice,activism 3approach 8–9caseload 5consistency 9development of law by 10–13enlargement, effect of 9–10jurisprudence 126–9language 9–10national courts, relationship with, 5resources 10

De Tocqueville 358, 377Diesen 305Direct effect 3

constitutionalism 126Directive,

definition 4Draft EU constitution 395–417

See also Convention on the Future of Europe background 395–6

models,“constellation” of treaties 398constitutional treaty with

annexes 398–9single constitutional treaty 399

relationship between Union and Member States 415–17

repeal of treaties 399

Economics,constitutionalisation of

Europe 123–49market without State,

Europe as 129–31EFTA Court,

language 9Ely, JH 223Enlargement 9–10

European Monetary Union (EMU) 44Euro,

banknote,introduction of 59–70issue 68–70legal tender status 59–67

euro-zone 71–6France 72, 73, 74Germany 72, 73, 74, 75Italy 73Maastrict treaty 71, 74political problems 71–6poorer states, difficulties of 72Portugal 72, 73

Stability and Growth Pact 71, 73, 74, 76UK and 35–58

Eurojust 383European Central Bank

(ECB) 41–3, 68, 72, 75European Community,

competition policy 39entry conditions 39trade barriers 39

European Convention on Human Rights 242–5, 385

application 243effective enforcement of rights 244–5friendly settlement 255–60general international law,

consequences in 243–4inter-State litigation under 247–55

abusive complaints 252administrative practice 248admissibility criteria 251–3advantages 254Committee of Ministers 249–50degrees of

wrongfulness 248–9, 253–4diplomatic relations 247effective use 254enlargement of Council of

Europe 254exhaustion of local remedies 253importance 254–5international crime 250neglect of procedure 247–55objective nature of

obligations 250–1official tolerance 248political complaints 252possibilities of 250–1preliminary examination

of merits 251–2public interest 254repetition of acts 248response to international crimes 249role 248six month rule 253

international public order and 237–70features of Convention 237–47

interpretation of powers of Convention bodies 246

judicial policies 245just satisfaction 260–9nature of obligations 241objective nature of

obligations 240, 250–1requirements of international

life and 246torture, freedom from 244Vienna Convention on the

Law of Treaties 244, 245–6

Index 421

European Economic Community,history 39objective 37–8

European Financial Reporting Advisory Group (EFRAG) 113–14

European Monetary Union (EMU),arguments against 47–52arguments in favour of 44–7central bank 41–2competition and 40effect of monetary policy 40–1enlargement 44fiscal policy 41political ends 37previous unions, comparison with 36–8regional union, as 43UK and 35–58

arguments in favour of membership 35–6

five tests 52–7institutional framework 36policy restraints 35tests for membership 52–7

unique features 36–44European Monitoring Centre on

Racism and Xenophobia 315European System of Central Banks

(ESCB) 68Europol 383

Financial reporting,European Financial Reporting Advisory

Group (EFRAG) 113–14European integration 105–22globalisation 105–22

implications 117–21International Accounting Standards

Board 107, 109, 115–16, 120, 121International Accounting

Standards Committee 107Monnet method 121new accounting legislation 109–10new accounting regime 110–17

committees, importance of 113Competent Independent

Administrative Authorities 112enforcement negotiations 112European Financial Reporting

Advisory Group (EFRAG) 113–14mandatory standards 111priority to international

accounting standards 111two-tier accounting system 110–11

new directions 116–17proposed directive 110regulation, new 109–10United States 117

France,Euro 72, 73, 74

judiciary 15–33access to judge 16civil liability 17–18compensation,

defective running of public justice system 21–4

detention in custody not followed by conviction 19–20

innocent after review, persons acknowledged to be 21–5

criminal responsibility 17defective running of public

justice system 21–4direct liability, case for 25–32disciplinary responsibility 17disciplinary system,

creation of 25–7erosion of

liability by State 18–25ethical obligations 29–32faute lourde 22–4gifts 17gross fault 22, 23independence 25–6justice 16Middle Ages, in 16–17no fault liability 18–19personal misconduct-, liability

for 24–5politics, relationship with 15–16powers 15–16private lives 31–2professional conduct 29–31publication of disciplinary

decisions 28–9responsibility 16role of law 16sixteenth century, in 17strict liability 18

national courts 3, 7

Germany,breach of contract,

basic governing rules 339damages and termination 338–45delay in performance 352–3European aspects 353–6European law of contract,

towards 355–6expectation interest,

breach without 339–40implementation of European

directives by central statutory provision 353–5

impossibility 346–9lack of conformity 349–52large-scale reform 334–8new rules 333–56qualitative defects 349–52

422 Index

special deficiencies in performance 345–53

standard contracts 333termination 343–5title, lack of 349–52traditional rules 333–4

Bundesfinanzhof 5Bundesverwaltungsgericht 6Euro 72, 73, 74, 75Federal Administrative Court 6lay judges, role of 307–8national courts 5, 6Race Directive 320, 321, 326Supreme Finance Court 5

Giscard d’Estaing 372Globalisation,

citizenship 361Golsong, H 245Greece,

Race Directive 320, 321

Hepple, Professor 186, 189Humanitarian law 240

Infranationalism 200Intergovernmentalism 200International Accounting

Standards Board 107, 109International Accounting

Standards Committee 107International Criminal Tribunal

for the Former Yugoslavia 240–1International Monetary Fund 120Ipsen 136Italy,

Euro 73

Joint dominance. See Collective dominanceJorgensen 120Judiciary,

France 15–33access to judge 16civil liability 17–18compensation,

defective running of public justice system 21–4

detention in custody not followed by conviction 19–20

innocent after review, personsacknowledged to be 21–5

criminal responsibility 17direct liability, case for 25–32disciplinary system,

creation of 25–7erosion of liability by State 18–25ethical obligations 29–32faute lourde 22–4gifts 17gross fault 22, 23

independence 25–6justice 16Middle Ages, in 16–17no fault liability 18–19politics, relationship with 15–16powers 15–16private lives 31–2professional conduct 29–31publication of disciplinary

decisions 28–9responsibility 16role of law 16sixteenth century, in 17strict liability 18

Jus cogens 241

Khan Commission 324

Landolf 306Language

Court of Justice 9–10EFTA Court 9

Lay judges 293–310common sense 296Germany 301–4

role 307–8importance 293independence 293justice and 294–5reasons for involvement 294–7role 293, 304–8

Germany 307–8Spain 304–5Sweden 305–7

Spain 297–9Juez de Paz 297–8Jurado 298–9role 304–5

Sweden 295, 296, 299–300role 305–7

training 296

MacDougall Report 50Majone, G. 136, 137Mitchell, Professor JDB 13Modéer, KA 299Monnet method 121

National courts 1–13See also Preliminary referencesacte clair 7–8approach 6–8Conseil d’Etat 3, 7direct effect in 3–5evolution of references 5France 3, 7Germany 5, 6judges 6Netherlands 3–5

Index 423

National courts contd.powerhorse of

Community law, as 2–14preliminary references, evolution of 5refusal to make reference 7–8remedies 11self-restraint 5

Nationality 360Netherlands,

national courts 3–5North American Free Trade

Agreement (NAFTA) 361Northern Ireland,

Race Directive 320, 326

O’Higgins, Professor 178Open method of coordination 145–6Ordo-liberal economic constitution

theory 129–31

Partial harmonisation,Acquired Rights Directive 173–93

Directive as example of partial harmonisation 175–84

employees’ right to object to transfer 175–84

meaning 173partial harmonisation

beyond 189–93allocating competences 191–2Community competence 190material scope of Directive 192scope of Community legislation 190

Political science,constitutionalisation of Europe 123–49

Portugal,Euro 72, 73

Preliminary references,approach of national courts 6–8Court of Justice, approach of 8–9development of law 10–12evolution 5higher court, challenging jurisprudence

through 6–7length 6number of 5refusal to make 7–8rubber-stamping 6

Public services and European law 271–91discrimination 272–5economic links 272economic service and publicly

funded benefit, connection between 274

free movement of services 271–2health services 275–80

Art 49, application of 288–90authorisation

requirement 275–6, 278–9

compulsory insurance systems 285–7

Kohll case 275–6Müller Fauré case 276–80new approach,

consequences of 280–4NHS systems 287–8Peerbooms case 276–80, 286reimbursement systems 288remuneration 284–8

prior authorisation requirement 271remuneration 273, 284–8requirements of Member States 271

Race Directive 311–31adoption 311, 315aims 311–12, 315, 317asylum seekers 327–9Austria 321, 323coming into effect 311, 315cultural racism 324duty of Member States to

implement measures 315equal treatment 319ethnicity 322–4Germany 320, 321, 326Greece 320, 321harassment 319historical context 312–15ICERD 323implementation 315institutional racism 329–30instruction to discriminate 319key features 315–17minimum standards 317Northern Ireland 320, 326policing function 317Portugal 323promotion of equal opportunities 315provisions 316race, meaning of 320–1refugees 327–9remedies 316sanctions for non-compliance 315–16scope 324–9textual ambiguity 319–24third country nationals 325–7transposition 317–19

Refugees,Race Directive 327–9

Rosamund, B 118, 120

Salas, D 293Schmitt, C. 136

Forsthogff, E 136Scholte, JA 115, 122Schuman, Robert 38Shklar, J 359Snyder, Professor Francis 105, 121

424 Index

Spain,lay judges 297–9

Juez de Paz 297–8Jurado 298–9role 304–5

Stability and Growth Pact,Euro 71, 73, 74, 76

Stein, E. 132Summers, RS 294, 295Sweden,

lay judges 295, 296, 299–300role 305–7

Third country nationals,Race Directive 325–7

United Nations 361Human Rights Committee 240

United States,American Convention of

Human Rights 239citizenship 357, 363–5

border control 382–3centralisation 377–8EU system, similarities and

differences with 375–86Federal government 376immigration control 382–3

financial reporting 117Universal Declaration of Human

Rights 242–3Uruguay Round Agreement on

Agriculture (URAA) 77

Vienna Convention on the Law of Treaties 244, 245–6

Wallace, H 120World Bank 120World Trade Organisation 120, 202

citizenship 361Millennium Round of

negotiations 78, 93–100

Index 425