European Union Law
INDEX
A.
Establishment and Development of the European Community
I.
II.
The Development of the European Idea
The Establishing Treaties
1. The European Coal and Steel Community (ECSC)
2.
The European Atomic Energy Community (EAEC)
3.
The European Economic Community (EEC)
III. The Single European Act (SEA)
IV. The Maastricht Treaty
V. The Treaty of Amsterdam
VI. The Treaty of Nice
VII. The European Council Meetings in Laeken and Copenhagen
VIII.The Convention on the Future of the European Union
B. The Institutions of the Community
I.
II.
The Council
1. Legislative Power
2.
Representation of the European Community
3.
Control of the Budget
4.
Other Powers
5.
Majority Requirements
The Commission
1. Legislative Initiative
2.
Executive Power
3.
Guardian of the Treaty
III. The European Parliament
1. Legislative Powers
2.
Budgetary Powers
IV. The European Court of Justice and the Court of First Instance
V. Other Community Organs
1. The Court of Auditors
C.
2.
The Economic and Social Committee
3.
The Committee of Regions
Legal Order and Legislation of the European Community
I.
II.
The Nature of European Community Law
1. Intergovernmentalism vs. Supranationality
2.
Transfer of Authoritative Powers to the Community
3.
The Doctrine of Direct Effect
Sources of EC Law
1. Primary Law
2.
Secondary Law
III. Legislative Power
1. The Principle of "Limited Singular Authorisation"
2.
Art. 308 EC
3.
Art. 95 EC
IV. The Relation between Community and National Law
1. Conflict Situation (Collision)
2.
V.
D.
Solution: The Principle of Supremacy
The Principle of State Liability for Breach of EC Law
1. General Principles
2.
Conditions for Liability
3.
Procedural Enforcement
The Enforcement of EC law by the European Court of Justice and the Court of First
Instance
I.
The Procedure in Cases of Failure to Fulfil Obligations under the EC
(Art. 226 EC)
II. Review of the Legality / Action for Annulment (Art. 230 EC)
III. The Procedures of Failure to Act (Art. 232 EC)
IV. Action for Damages caused by Institutions or Servants of the European
Community (Arts. 235, 288 (2) EC)
V. Preliminary Rulings (Art. 234 EC)
E. The European Fundamental Rights and General Principles of Law
I.
The Legal Basis for the Protection of Fundamental Rights by Community Law
1. Enacted Law
2.
General Principles of Law
3.
The Constitutions of the Member States
4.
The European Convention for the Protection of Human Rights and Fundamental
Freedoms
5.
The Declaration on Fundamental Rights
6.
II.
F.
Charter of Fundamental Rights of the European Union
The Protection of Particular Fundamental Rights
1. The Right to Property
2.
Freedom of Profession
3.
Protection against Seizures
4.
Equality / Non-discrimination
5.
Other Fundamental Guarantees
Fundamental Principles of the Commercial Law of the EC
I.
The Economic Constitution of Europe
1. Objectives
2.
II.
G.
Basic Structures
The Fundamental Freedoms
1. Free Movement of Goods
2.
Free Movement of Persons (Arts. 39-42, 43-48 EC)
3.
Freedom to Provide Services (Art. 49-55 EC)
4.
Free Movement of Capital and Payments
The Competition Policy
I.
The Prohibition of State Aids
1. Definition of a State Aid
2.
II.
Content of Art. 87-89 EC
Art. 81 EC - Restrictive Agreements (Cartels)
1. The elements of an infringement
2.
Exemptions - Art. 81 (3) EC
3.
Summary
III. Art. 82 EC - Abuse of a Dominant Position
IV. Enforcement of Art. 81 and 82 EC
1 A.
Establishment and Development of the European Community
1.1 I.
The Development of the European Idea
Although the idea of a politically and economically integrated Europe reaches back as far
as to the Middle Ages, no serious attempts towards European integration were ever made
before the end of World War I, which demonstrated all negative impacts of nationalism in
the most dramatic way. The idea to safeguard peace by creating supranational organisations
and to boost the national economies through free trade and movement policies was by no
means a new one. Nevertheless, the idea prompted the French Foreign Minister, Aristide
Briand, to place the “European Union” on the political agenda for the first time ever. Yet,
before European Leaders were able to put forward a serious initiative, the outbreak of
World War II had struck down all attempts to overcome national boundaries in central
Europe. It was not until after the end of World War II, that the British Prime Minister,
Winston Churchill, took up the torch of European integration and federation as a means to
speed up the recovery of a European economy devastated by two world wars and to
overcome the roots of fascism. In 1949, the Council of Europe was established in
Strasbourg in order to provide for a European integration at the political level. Its purpose
was to create a close link between Member States and to protect and foster all ideals and
principles that may be called the common European heritage. In 1950, as a consequence
of this movement, the European Convention on Human Rights was passed by the Council of
Europe, which established a European Human Rights Commission (ECHR) and the
European Court of Human Rights (ECHR). The Convention’s catalogue of fundamental
rights may be compared to that of the Basic Law of the Federal Republic of Germany,
although
it
is
slightly
narrower
in
scope.
At
the
military
level,
NATO
(http://www.nato.int/) was established in 1949. It was originally intended to be followed
by the European Defence Treaty (EDT) in 1952. Yet, this treaty has until today still not
come into force due to the French National Assembly’s refusal to ratify it.
In the beginning the focus of European integration was on the economic sector. After the
Organisation for European Economic Cooperation (OEEC) had been founded in 1948, six
more states joined in 1951 to form what was then to be known as the European Coal and
Steel Community (ECSC). The idea to establish such a community was first brought up by
the former French Foreign Minister Robert Schuman, who shared the common scepticism
towards the political development of a divided Germany facing the onset of the “cold war”.
He considered the Community as an instrument to limit and control Germany’s access to
coal and steel as basic raw materials for arms production. As a result both in France and
Germany the idea of further economic integration in Europe gained more and more
attraction, which lead to the establishment of the treaties of the European Economic
Community (EEC) and of the European Atomic Energy Community (EAEC) that were signed
on March 25, 1957 in Rome.
Although one usually talks about the “Community” as one single organisation, there are,
strictly speaking, three independent treaties that originally established three independent
communities. Yet, since this construction soon proved to be very ineffective, a treaty was
signed on April 8, 1965 which merged the councils and the commissions of the different
communities into one Council of the European Communities and one European Commission.
A uniform European Court of Justice and the European Parliament had already been formed
in 1957. Thus, today all three communities dispose of one set of common organs.
1.2 II.
1.
The Establishing Treaties
The European Coal and Steel Community (ECSC)
(http://www.europa.eu.int/abc/obj/treaties/en/entoc29.htm)
The Treaty establishing the European Coal and Steel Community contained provisions on
competition, prices, free movement of coal and steel workers and subsidies for the coal,
iron and steel industry. Its objective was to set up a common market for heavy-industry
products. The Treaty was of declining importance, since it proved to be unable to solve
the structural crisis within the industry. The solution of all problems was finally left to the
national governments themselves. The ECSC Treaty had been concluded for a period of 50
years and expired at the end of 2002.
2.
The European Atomic Energy Community (EAEC)
(http://www.europa.eu.int/abc/obj/treaties/en/entoc38.htm)
The French government promoted the European Atomic Energy Community in order to
provide for a common and peaceful utilization of atomic energy. The Treaty contains
detailed provisions on atomic energy research and on the development and the diffusion of
atomic energy technologies. It also provides for subsidies and for the creation of a
European Atomic Energy Commission, whose purpose is to control the acquisition and
diffusion of nuclear fuels.
3.
The European Economic Community (EEC)
(http://www.europa.eu.int/abc/obj/treaties/en/entoc05.htm)
The Treaty establishing the European Economic Community is the most important Treaty of
all.
It
was
promoted
by
the
Federal
Republic
of
Germany,
which
considered
the
establishment of an internal European market as a perfect instrument to foster its rapidly
growing industrial exports. The final objective of the Treaty is to provide for one large and
uniform economic region for all positive impacts such region has on the development and
the stability of the economy and on the common wealth of its citizens.
The following Treaties - the SEA, the Maastricht Treaty, The Treaty of Amsterdam and the
Treaty of Nice - were all designed to push forward the integration movement within the
European Communities. Each of these treaties, which are usual contracts according to
public international law, provides for certain changes to the three establishing Treaties.
Therefore they cannot be considered separately but always in conjunction and in their timely
order.
1.3 III. The Single European Act (SEA)
(http://www.europa.eu.int/abc/obj/treaties/en/entoc113.htm)
During the fifties and sixties, several attempts to establish a politically uniform Europe had
failed. The integration efforts of the seventies finally also came to a standstill. However, on
February 28, 1986, the so-called Single European Act was signed with the intention to
revive the process of European integration. In order to reinforce political and economic
integration, December 31, 1992 was set as a final deadline for the establishment of an
internal European market (Art. 14 EC). The most important steps to be taken before that
date were to abolish border controls, to harmonize trade provisions and to co-ordinate the
national tax systems. The legislative competences of the Community organs were extended
to enable them to pass all legislation necessary to enforce the development. The position
of the European Parliament within the legislative process was strengthened. Finally, all
members agreed upon a European political co-operation in foreign policy matters with the
objective to have only one European voice speaking on international issues.
1.4 IV. The Maastricht Treaty
(http://www.europa.eu.int/abc/obj/treaties/en/entoc01.htm)
A new stage in the process of European integration was marked by the Maastricht Treaty
on European Union. The Treaty was signed February 2, 1992 and entered into force
November 1, 1993. Germany's ratification was delayed, as Parliament had to wait for the
"blessing" of the German Constitutional Court, which had to cast its judgement on a
number of constitutional claims concerning that issue.
The Maastricht Treaty contains the most remarkable changes of the three establishing
treaties (of the EEC, the ECSC and the EAEC) since the foundation of the Communities
in 1952 and 1957. It set up a three-pillar structure for the co-operation between Member
States, which is referred to as the "European Union". The notion of a European Union
clearly has to be distinguished from that of the European Community. The Treaty aimed at
the creation of a Union in the political sense of the word. This was a huge step forward
and would require the extension of the co-operation between Member States from mainly
economic issues to political and social ones. Thereby it was clear that the rules applying
to economic questions like border controls and customs duties could not apply to issues
like foreign policy or domestic security. That is why the Maastricht Treaty created the
system of the so-called "Three Pillars":
-
Amending the existing Community Treaties, Title II of the Maastricht Treaty contains
changes of the EEC Treaty (which was afterwards named the EC Treaty); Title III
and IV include the respective amendments to the ECSC Treaty and to the EAEC
Treaty. Originally all three, and since the expiration of the EAEC the remaining two
European Community Treaties jointly form the First Pillar of what is called the
European Union. Every activity of the Community under the first pillar is of a
supranational character. Supranationality as opposed to intergovernmentalism will
be the issue of chapter C.
-
Maastricht introduced provisions on a Common Foreign and Security Policy (CFSP)
(Title V of the Treaty), which forms the Second Pillar. The CFSP pillar is of a
purely intergovernmental nature, which means that it follows the rules of classic
public international law. It is dominated by the role of the Council while the
Commission has to be "fully associated" with all activities in this area.
-
The same applies to the provisions on Co-operation in the fields of Justice and Home
Affairs (Title VI of the Treaty). This Third Pillar is also of an intergovernmental
nature with the Council as the main actor.
These three pillars carry a roof, which is what we call the European Union today. Although
the activities within the separate pillars differ in their legal nature and procedural conditions
according their supranational or intergovernmental character, all action is directed towards
"an ever closer union between the peoples of Europe" as it is stated in the preamble of
the EC Treaty.
The widening of the scope of issues dealt with at the European level emphasized the need
for a stronger democratic legitimization of Community action. First of all it became
necessary to regulate the allocation of competences between the Member States and the
Community. For that purpose the Maastricht Treaty introduced the principle of subsidiarity
(Art. 5 (2) EC). Remarkable was also the increase of the European Parliament's powers
by the Maastricht Treaty, which was an effort to reduce the often criticized democratic
deficit in the European Union. According to Art. 214 (2) EC, e.g., the Parliament has to
be consulted before the governments of the Member States nominate the person they
intend to appoint as President of the Commission. The new Art. 251 EC provides for the
Parliament's right to participate decisively in the legislative process in some substantial
policy areas. Furthermore the Maastricht Treaty set out the schedule for the establishment
of an economic and monetary union (Title I Art. B EU) among Member States.
1.5 V.
The Treaty of Amsterdam
(http://europa.eu.int/abc/obj/amst/en/)
The Treaty of Amsterdam, revising the founding Treaties of the European Union, is the
result of the work undertaken by the Intergovernmental Conference (IGC) from March 1996
to June 1997 and became effective on May 1, 1999. The Treaty changes relating to the
fields freedom, security and justice are: Common action on issues such as asylum, visas,
immigration and controls at external borders, which was formerly part of the third pillar of
the EU (“Justice and Home Affairs” which was then renamed to “Police and Judicial Cooperation in Criminal Matters”), has been moved to the first pillar of the EU. Since the
objectives of the Schengen Agreement (http://ue.eu.int/uedocs/cmsUpload/SCH.ACQUIS-
EN.pdf), which had already established a zone of free movement of persons among
thirteen Member
States, coincide with those contained
in the new
EC
Treaty, the
achievements of Schengen were incorporated into the framework of the European Union
(exceptions apply to the United Kingdom, Ireland and Denmark). The operational impact of
the European Police Office (Europol) was also significantly increased.
Furthermore there are new EU policies for the benefit of citizens, e.g. concerning the
problem of unemployment: While the competence for employment matters remains essentially
with the Member States, now the employment issue could also be addressed at the
European level, supported by actions of the Member States. The new EC Treaty specifies
the promotion of a high employment rate as an objective. It also includes an explicit Treaty
basis for a coordinated strategy for employment and introduces a coordination process on
employment policy at Community level, involving the adoption of guidelines for employment
and annual assessments of national measures with a view to ensuring consistency. Incentive
measures designed to encourage co-operation between Member States and to support
innovative action in this field may also be adopted. Other EU policies, which were stressed
in the Treaty of Amsterdam, are the abolition of gender based discrimination, environmental
protection, health and consumer protection.
In the field of external policy the Common Foreign and Security Policy (CFSP) has been
improved in the following ways: Overall consistency will be strengthened by enhancing the
role of the European Council in defining common strategies for the Union’s foreign policy
which will set out their objectives, duration and the means to be made available by the
Union and the Member States. A new post was created, which is called the High
Representative for the CFSP, who will assist the Council in CFSP matters. Finally the
decision-making procedures were significantly improved.
A number of important institutional changes have been introduced by the Treaty of
Amsterdam: First of all the role of the European Parliament as a genuine co-legislator with
the
Council
has
been
recognised
by
changing
the
legislative
procedure
known
as
codecision. The revised Art. 251 EC places the Council and the European Parliament on
an equal footing. Secondly the scope of the legislative areas where this procedure applies
has been increased significantly. There was also an extension of the areas where qualified
majority voting (instead of unanimity) is required for the adoption of acts by the Council,
which will facilitate decision-making. A more effective and efficient Commission, which plays
a central role in the institutional structure as initiator, administrator and guardian of the
Treaties, will be achieved by:
-
giving the President of the Commission greater powers in selecting Commissioners
and exercising policy leadership;
-
improving the internal organisation of the Commission and the structuring of its
departments;
-
ensuring that, as the Community enlarges, the composition of the Commission will
evolve.
The powers of the Court of Justice have been extended and clarified in relation to the
safeguarding of fundamental rights.
The buzzwords "closer co-operation" and "flexibility" refer to the possibility for a number
of Member States to co-operate more closely in specific areas inside rather than outside
the Union. The concept of flexible arrangements in the Union is not new. The existing
Treaty provisions, for example, allow Member States to move at different speeds towards
the objective of a full Economic and Monetary Union (EMU).
1.6 VI. The Treaty of Nice
(http://europa.eu.int/eur-lex/en/treaties/dat/nice.html)
At the end of the year 2000 the European Council met in Nice to negotiate the necessary
changes and institutional reforms within the EU in order to face the future enlargement of
the Community. The Nice summit was the longest and most fragmented in the European
Union's history. The major results of the conference were the following:
-
A Charter on Fundamental Rights of the European Union was proclaimed jointly
by the Council, the EP and the Commission. The Charter is a summary of the level
of protection of fundamental rights throughout the EU at the beginning of the new
millennium. It is addressed to the citizens of the Member States. However, for now
the Charter is not (yet) legally binding. But Commission, Council and EP bound
themselves to observe the Charter by proclaiming their intention to do so.
Moreover, the ECJ will take the Charter into consideration when elaborating on the
general principles of law common to all Member States.
-
The notion of "closer cooperation" was given a deeper meaning by enabling those
countries that wish to speed up the integration process to do so. When there are at
least eight Member States intending to take a further step towards a closer Union,
they are allowed to proceed, while all other members may join this forward heading
group at any point in time.
Council:
-
The number of votes of each Member State in the Council was reassessed with a view
to the population of each country and the 12 candidate countries, which were to
become Member States in the near future (2004-2007). A new and complex voting
scheme was developed, which is supposed to enter into force in 2005. According to
this new system, future decisions by qualified majority vote would not just require
73 % of the total votes, but also the representation of a minimum of 62 % of the
EU population. This gives Germany, with 82 million, a heavier weight than that of
France and Britain, which have 60 million inhabitants each.
-
The list of about 70 issues to be decided with unanimity has been reduced to a
number of approximately 40. However, the abolition of the national veto in 30
policy areas sounds more impressive than it is. Most of these areas are relatively
minor. Key questions like taxes and social matters, asylum and immigration law,
trade and industrial/commercial property still depend on the veto right of each
Council member. The Community's inability to act in problematic areas has
therefore not been sufficiently removed. In today´s union of 27 members (Bulgaria
and Romania joined the Community on 1 January, 2007) it is hard to see how any
contentious measure will be able to win unanimous support.
Parliament:
-
The composition of the European Parliament was adapted to the future situation of 27
Community
members.
Only
Germany
will
keep
its
current
number
of
representatives (99) while the remaining 14 present Member States have to stand
aside for delegates from the ten (twelve) new Member States. The future European
Parliament will better mirror the population of the Members States than it has done
in the past.
Commission:
-
From November 2004 onwards each Member State will send only one Commissioner,
which means that the five biggest countries (Germany, France, UK, Italy and Spain)
will renounce their second one. Once the remaining 2 candidate countries (Bulgaria
and Romania) have joined the EU, membership of the European Commission will be
reduced to a yet unspecified number. The Member States will then each provide
their representatives on a rotating basis.
-
The position of the President of the European Commission has been strengthened. He
will now be elected by a qualified majority.
According to the Treaty of Nice the four biggest Member States (Germany, France, Britain
and Italy) would have a stronger combined hand in decision-making to re-balance voting
power when the EU expands eastwards over the next decade. This agreement was found
at the expense of the smaller and less populous states. The reassessment of voting
powers was an indispensable reform, because without it, enlargement would have enabled a
cluster of small states to outvote countries containing a clear majority of the EU's
population. However, this solution is too complicated and has already been put in question
even before it is supposed to become effective in 2005. And the debate on a constitution
for the EU, which was opened in 2003, took up the question of voting powers again. The
outcome
might
result
in
yet
another
voting
scheme,
which
could
render
the
Nice
compromise invalid before it has ever been applied.
The Treaty was widely criticised in Europe as a disappointing minimum. After endless talks
about streamlining the EU's cumbersome institutions they look more cumbering than before.
The European Commission will grow fatter, and so will the European Parliament with up to
740 members. Another criticism has been that certain policy reforms, which are by
common consent vital to enlargement, have been omitted, such as the common agricultural
policy or the structural and cohesion funds.
The bigger states wanted to leave Nice having agreed on a leaner, more streamlined
Commission. In the end, they were forced to agree to the opposite, since the smaller
countries insisted on retaining one commissioner each. The only sense in which the EU will
become more flexible as it expands is through "enhanced co-operation" - groups of states
forging ahead on integration projects that not all wish to join. Britain feared this would lead
to a two-speed Europe, but signed up after winning certain safeguards - that is, forfeiting
the so-called "emergency brake" or veto on groups of countries embarking on a project in
return for an appeal to the Council of Ministers. Whether in practice "enhanced cooperation" generates greater harmony or greater discord remains to be seen. The summit
amply showed the need for a thorough overhaul of the EU's decision-making machinery.
Unfortunately it failed to provide one. It can be said that the EU's leaders agreed enough
in Nice to keep the reunification of Europe on track, but only just.
1.7 VII. The European Council Meetings in Laeken and Copenhagen
As the Nice Treaty had not brought about the changes required in order to prepare the
European Union for the approaching enlargement, the expectations were now directed
towards the summit of the European heads of state in Laeken in December 2001.
The Laeken summit evolved around one major issue: the future shape of the European
Union and the reforms required in order to progress on the road to an "ever closer union
between the peoples of Europe". Its main result was the establishment of a Convention,
whose task would be to prepare the necessary reforms of the future Union. The
Convention - under the chairmanship of the French former prime minister Valerie Giscard
D'Estaing - was composed of 15 representatives of the heads of the Member States, 30
members of the national parliaments, 16 members of the European Parliament, two
Commission representatives and representatives from the new Member States. It convened
for the first time on March 1, 2002 and operated until June 2003. The following issues
were placed on the agenda for the Convention:
-
The simplification and reorganisation of the founding Treaties, which is required
in order to achieve more transparency within the EU,
-
A new allocation of competences between the Member States and the Community,
-
The legal status of the European Charter of Fundamental Rights and its possible
inclusion in the Treaties.
In a nutshell, the Convention was supposed to draft what could be called a constitution for
the future European Union.
The second major topic of the Laeken summit was the fight against terrorism and the
development of a joint European military force. Clearly these issues had been put on the
agenda due in large to the events of 11 September, 2001 and the global political
developments.
When the European Council reassembled one year after the Laeken summit in Copenhagen
(December 2002), the 15 heads of state decided that ten countries - Cyprus, Estonia,
Hungary, Latvia, Lithuania, Malta, Poland, the Slovak Republic, the Czech Republic and
Slovenia - were to join the EU on May 1, 2004, just in time to take part in the new
elections for the European Parliament. The Eastern enlargement process, which had been
set out at the Luxembourg Council in 1997, was now approaching its final stage. Bulgaria
and Romania became members of the Community on 1 January, 2007.
1.8 VIII. The Convention on the Future of the European Union
(http://european-convention.eu.int/bienvenue.asp?lang=EN)
The Convention, operating from March 2002 to June 2003, was in search of solutions for
the Union's most urgent questions:




The simplification and consolidation of the existing Treaties which are often
overlapping and confusingly complex,
The (re-)allocation of competences between the European Community and its
Member States,
The legal status of the "European Charter of Fundamental Rights" and its inclusion
in the Treaties,
And last but not least, the institutional changes required to make the EU "fit" for
the Eastern enlargement in 2004.
Soon this body was uniformly called "The Constitutional Convention" and its goal was
clearly to produce a draft constitution for the European Union. The debate within the
working groups was intense and - as expected - highly controversial, "eurosceptic
minimalists" and "europhoric federalists" pulling from the far ends of the rope. However, it
resulted in a proposal for a Constitution for the European Union which was adopted by all
convention members in June 2003.
(http://european-convention.eu.int/docs/Treaty/cv00850.en03.pdf)
The draft - although nothing more than a proposal without any legislative or political
authority - has been criticised on several grounds. First of all, it does not shed
considerable light on the systematics of the founding Treaties of the European Union in
order to make them more understandable to the Union's citizens. Further the Convention
has failed to define a clear division between Community and Member State powers and to
assign them to the institutions accordingly. The text on this issue is still vague and does
not
provide
subsidiarity.
sufficient
support
for
the
essential
but
yet
unenforceable
principle
of
The constitution is vague on numerous issues, like a European tax-raising power or a
common foreign policy, and confines itself to anticipating them, hinting at their possible
development in the future. This technique unfortunately serves to further enhance already
existing instabilities and legal uncertainty within the European Union.
On the other hand the draft puts forward a number of measures that will strengthen the
process of integration and bring the EU closer to its citizens. These proposals include a
formal legal personality for the EU, a European foreign minister and an expansion of the
Community's power to adopt legislation by majority vote.
In order to enter into force, the draft constitution requires the unanimous agreement of all
heads of state, which was scheduled for a European Council meeting in December 2003.
But the intergovernmental conference (IGC) taking place in Brussels failed to find
consensus on the draft constitution during the summit, driven apart by national interests.
The most controversial issue brought to attention was the weighting of votes of the EU
countries in the Council of Ministers. The Nice Treaty had established a complex voting
system benefiting smaller countries. The new draft proposed a simpler "double majority"
system. This would require a new piece of legislation to be supported by the majority of
the Member States representing at least 60% of the Union's population, and thereby give
the more populous countries a heavier weight. While the small countries would retain their
influence through the simple majority rule, medium-sized countries - meaning Spain and
Poland - would clearly be disadvantaged compared to the Nice agreement. Against the
strong support for the constitution from Germany and France, the stance of Spain and
Poland precluded an agreement or even a compromise at the summit in Brussels.
In the meantime unexpected political developments caused a shift in the European political
landscape with its apparent divide between Germany and France on the one side and
Spain and Poland on the other. Following the terrorist bombing in Madrid on March 11,
2004, the Spanish elections removed the ruling conservative People's Party under José
Maria Aznar from power and put the Socialists in their place. The future Prime Minister
José Luis Rodríguez Zapatero has already signalled that Spain will renew its formerly strong
ties with Germany and France, which translates into a shifting towards the other side of
the European divide. Zapatero has also indicated that he will agree to "double majority",
thereby leaving Poland isolated and opening the road to an agreement on the European
Constitution in 2004.
Nevertheless, the failure of the IGC in Brussels has hinted at the problems arising in the
process of enlargement. If agreement cannot be achieved among 15 Member States, what
are the perspectives of a Union of 27? The non-workability of current structures,
institutions and decision-making processes is becoming more and more apparent but
solutions are far from being identified or even introduced.
2 B.
The Institutions of the Community
According to Art. 7 EC the institutions of the Community are the Council (Council of
Ministers), the European Commission, the European Parliament, the European Court of
Justice and a Court of Auditors. Originally, each of the three treaties (ECSC, EAEC and
EEC Treaty) provided for separate organs. Thus, there were three Councils, three
Commissions and three Assemblies. The situation was changed with the Merger Treaties of
1957 and 1965: The institutions of the three Communities were merged into one common
set of organs. Today, there is one Council, one Commission, one Parliament, and one
Court of Justice, any of which has authority for all Treaties.
Last but not least, there is the European Council, which is not a European Community
body, but a genuine organ of the European Union. It consists of the heads of state of
the Member States and the president of the Commission. Art. 4 EU describes its role as
the generator of the major political guidelines along which the Union develops. Therefore
the European Council is the political steering wheel of the Union; it is a body with
extraordinary powers and of great political significance. The European Council has to be
strictly distinguished from the "Council of Europe" in Strasbourg, which is an independent
institution, based on international law, with miscellaneous functions outside the scope of the
European Community.
2.1 I.
The Council
(http://ue.eu.int/cms3_fo/showPage.asp?id=242&lang=en&mode=g)
The Council is the highest ranking body of the Community with decision-making power. It
is composed of representatives of the Member States, which delegate one member of their
government (Art. 203 EC). Accordingly, since 1995 the Council has been composed of
15 members. Today there are 27 of them. The presence in the Council changes according
to the issues discussed. National governments usually send the ministers responsible for the
particular political field in question. There is the Council of Ministers of Agriculture,
Employment or Foreign Affairs. The chairmanship rotates on a six-months-basis according
to a firm
schedule (http://ue.eu.int/cms3_fo/showPage.asp?id=695&lang=EN&mode=g).
The Convention's draft constitution puts away with this rotation system as it causes policy
discontinuity and institutional strain. Instead the draft suggests the extension of the term of
the Council presidency to two and a half years. Considering the decision making power of
the Council and the influence of its president on all EU policies, this change will elevate
the President of the Council to what could become the "President of Europe". This idea is
supported by a provision in the constitution which preserves the possibility of an eventual
merger of the presidencies of the Commission and the Council, combining the powers of
two institutions in the hands of one person.
The competences of the Council as the most important institution of the European
Community are the following:
1.
Legislative Power
The Council as the main decision making body of the Community can pass regulations or
directives and make decisions (Art. 249 EC). These are the three major legislative
instruments available for the Community under the first pillar. The Council is also the main
actor in the amendment procedures of the Treaty (Art. 48 EU).
2.
Representation of the European Community
The Council represents the Community in relation to third countries, for instance by signing
international
agreements
or
association
treaties
with
overseas
countries
and
territories
(Art. 182 EC) or the admission of new members to the Community (Art. 49 EU).
3.
Control of the Budget
According to Art. 272 EC the Council has the final say in all budgetary matters. It passes
the budget after it has been discussed with the other organs of the Community. Because
of these competences in financial matters, the Council has a crucial influence on all
developments within the Community.
4.
Other Powers
In addition the Council is responsible for the coordination of the Member States' economic
policies. Being the dominant actor under the 2nd (Common Foreign and Security Policy,
CFSP) and 3rd pillar (Police and Judicial Cooperation in Criminal Matters, PJCC), it has
the power to agree on joint actions and Community programmes in these areas.
5.
Majority Requirements
The Council decides on all issues of fundamental significance to the Community. It is the
central legislative Community organ. Decisions of the Council are subject to varying majority
requirements, according to the importance of the issue discussed. In general, the Treaty
provides for a simple majority of the Council members.
Unanimity is required for issues touching upon the foundations of the Community, like the
admission of new members (Art. 49 EU), the association of third countries and the
extension of competences (Art. 308 EC). Before the Single European Act was passed,
unanimity was also required for the harmonisation of diverging legal provisions in the
respective Member States.
In 1986 the SEA introduced Art. 95 EC, which formalised so-called harmonisation
measures. Following this provision the Council can take legislative steps aimed at the
adjustment of the laws and administrative rules of the Member States, as long as this is
necessary for the materialisation of the internal European market. Today such a piece of
harmonising legislation requires a qualified majority vote (Art. 95 (1) EC). The number
of policy fields demanding qualified majority voting has been growing over the last years.
For this voting system each Council member is accorded a certain amount of votes,
depending on the size of the country he or she represents. Currently the "big five"
dispose of 10 votes each, while Malta as the smallest Member State has got one vote. A
qualified majority can be reached with 88 out of 124 votes.
According to the Treaty of Nice from 2005 onwards a qualified majority vote will be subject
to three conditions: (1) a positive vote of the majority of the Council members, (2) a
minimum number of votes in the Council and (3) on the request of one of the Council
members, the representation of at least 62 % of the EU.
(1) After the accession of Bulgaria and Romania 14 out of 27 Council members must
vote in favour of a qualified majority decision.
(2)
The Treaty of Nice will introduce a revised scheme for the distribution of voting
weights in a Council of 27 members. The range of votes will be broadened, giving
29 votes to the biggest Member States and 3 votes to little Malta. In the past a
qualified majority vote required 232 out 321 votes. Since Bulgaria and Rumania
have joined the European Union, and the Council comprises of 27, the barrier for a
qualified majority will be set at 258 out of 345 votes.
(3)
The Nice Treaty provides for the possibility of each Council member to request a
check, whether or not the favourably voting countries represent at least 62 % of
the population of the European Union.
Although in many of its provisions the Treaty provides for simple majorities, political practice
follows the so-called Luxembourg compromise of 1966. According to that compromise, any
Member State may call for a unanimous decision, even if the Treaty only requires a simple
or qualified majority, whenever the issue in question is a vital or essential one for the
country demanding unanimity. This practice slows down the integration process decisively,
since many members, for national reasons, tend to block decisions which are indispensable
to a fast integration. Although this blocking instrument has been used on very few
occasions in the past, its pure existence has an impact of policy and decision making in
the Community.
2.2 II.
The Commission
(http://www.europa.eu.int/comm/index_en.htm)
The Commission has a very central position in the Community's institutional system, which
is not expressed very clearly by the wording of Art. 211 EC. Its role is one of an
animator, manager and balancer within the EC. It represents the common interest of the
Community as opposed to the different national interests of its Member States, which are
represented in the Council. The Commission as such and its president have to be
approved by the governments of the Member States in consent with the European
Parliament (Art. 215 (2) EC).
Until recently the Commission was composed of 20 members. Larger members (Germany,
France, UK, Spain and Italy) appointed two commissioners each, while each of the
remaining ten appointed one. Since May 1, 2004 the number of commissioners has - for
a short time - risen up to 30, as each of the ten new Member Sates is sending one
Commissioner, according the current "old" system. Since November 2004 each country
appoints only one commissioner. So the number of Commission members amounts 27 now.
Already at the summits in Nice and Laeken the composition of the Commission had been
a point of discussion. Problems like lower efficiency and impracticality are arising while the
institution is "gaining weight". The Commission will lose some of its dynamic and flexibility
in the course of its very own enlargement process. The Convention on the Future of the
European Union also had this question on its agenda and came up with the following
solution: There will be 15 "proper" commissioners with a vote and 15 non-voting ones
with an office, a staff but little to do. It seems inevitable that the Commission size will
soon be back on the agenda for discussion.
1.
Legislative Initiative
The most important right of the Commission is the right to initiate legislation and all other
kinds of action of the Community. It is the Commission who has to draw up a proposal or
to make recommendations to the Council on steps to be taken according to the Treaty
before the Council is allowed to put it in action. Since the Commission is the only body
with such a right, one can say that it has got the monopoly of initiative for Community
actions. The Council may set aside such recommendations by unanimous vote only.
2.
Executive Power
Furthermore, the Commission has executive competences, founded in several clauses of the
Treaty, in particular the agricultural and antitrust provisions of Art. 81 et. seq. EC. Finally,
the Commission executes the budget and administers agricultural, social, regional and
development funds.
3.
Guardian of the Treaty
An assignment of particular importance to the Commission is its responsibility for the proper
application of the EC Treaty (Art. 211 et. seq. EC). Whenever there are indications that
a Member State has failed to fulfil an obligation under the Treaty, the Commission may
invoke procedures against that country on the ground of Treaty violations (Art. 226 EC).
In a nutshell, the Commission has the right to put forward legislative proposals and is the
main executive body of the Community (Art. 211 EC). In addition it has got even quasijudicial competences, like in the area of competition policy (Arts. 87, 88 EC).
Since both the Council and Commission are responsible for drawing up new legislation and
for the execution of Community law, they are often characterised as the "dynamic organs"
of the Community. This statement may be true for the Commission which, according to
Art. 211 EC, is the "guardian of the Treaties". It controls the observance of Community law
and guarantees the development and well-functioning of the internal market. The Council,
on the other hand, is of course a crucial instrument of European integration and the
highest-ranking decision-making body under the Treaty. Yet, since it is composed of
government executives of the Member States, it is heavily influenced by general politics and
national interests. Government representatives have to give account in their home countries
for every decision taken by the Council. Therefore they will only back up decisions they
are able to justify at home later. As a result decision-taking within the Council is an
extremely difficult procedure which may not be called dynamic at all.
2.3 III. The European Parliament
(http://www.europarl.eu.int/home/default_en.htm)
The European Parliament (EP) constitutes the democratic element within the Community.
Until 1979 the members of the EP were envoys of the national parliaments. Based on the
Elections Act of 1978, they are now elected by general and direct vote of the citizens of
each Member State for a five year term. Electoral procedures within the Member States
have not been harmonised yet.
The number of representatives elected in each of the Member States depends on the
countries´respective populations. The smallest Member State (Malta) has been allocated
five seats, while the most populated Member State (Germany) has got 99. Due to the
enlargement of the Community the number of MEPs in the electoral term 2004-2009 will
rise from 626 to 732. The number of representatives elected in each of the Member
States depends on the countries' respective populations. The smallest Member State
(Malta)
has
been
allocated
(Germany) has got 99.
five
seats,
while
the
most
populated
Member
State
1.
Legislative Powers
The function of the EP can hardly be compared to that of national parliaments. In
particular, the EP does not have the crucial power in the legislative area. Originally it was
given only minor rights to participate in the legislative process. These rights have - to a
limited extent - been strengthened by the Treaties of Amsterdam and Nice. If the draft
constitution enters into force it will give a major boost to the EP's powers, getting it
involved in important legislative areas like justice and agriculture.
a)
Co-Operation Procedure
According to Art. 252 EC the EP can modify legislative proposals of the Commission, which
have already been accepted by the Council. The Council may oppose such modifications by
unanimous vote only (co-operation procedure). Yet, up to now, the Council has never
rejected any proposal of change made by the Parliament.
b)
Co-Decision Procedure
Much more important are the powers of the EP provided for in Art. 251 EC (co-decision
procedure). Whenever a clause of the Treaty refers to the co-decision procedure, the
Commission cannot decide on the matter without the consent of the EP. Such matters are,
for example, the free movement of persons (Art. 40 EC), the right of establishment
(Art. 44-47 EC) and consumer protection (Art. 153 EC).
This procedure involves the following steps: When the EP has issued its opinion on a
legislative proposal of the Commission, the Council has to adopt a common position by
qualified majority. The EP is given three months time to react to that position. It can
either approve or remain silent, in which case the Council adopts the measure. Alternatively
it can reject or amend the proposed measure, which requires only an absolute majority
vote. In the latter case the Council in turn is given three months time for a reaction. It
can approve the Parliament's amendments; depending on a positive or negative opinion
issued by the Commission, such an approval would require qualified majority or even
unanimity. If the Council does not accept the amended proposal, the matter is referred to
a Conciliation Committee which seeks a compromise between the three institutions within
six weeks. If a joint text is approved, the Council and the EP may jointly adopt the
measure. If a consensus cannot be found, the Council is given another six weeks to
confirm its "old" position, which is the common position issued in the beginning of the
procedure. Following this confirmation, at the very end of the process, the EP can use its
veto power and finally reject the measure within further six weeks.
2.
Budgetary Powers
The influence of the EP on budgetary matters of the Community is also limited, although
the control of the budget is a traditional right of parliament. Its decision-making power in
relation to the budget is limited to the provision of financial means for voluntary tasks. In
the field of mandatory responsibilities, the EP may only make proposals of change or call
for a new budget plan. Finally, the EP may express its lack of confidence to the
Commission and, thereby, cause it to rescind (motion of censure). Yet, it has no influence
on the composition of the new Commission whatsoever. This demonstrates that, despite the
immense political influence of the European Parliament, its competences are by no means
sufficient.
The present structures of the European Union are criticised for their democratic deficit, and
therefore their sustainability must be doubted. There is no separation of powers in the
sense of checks and balances. Yet, such separation of powers is indispensable to any
efficient democracy, at least to a certain degree. Right now, the Community is based on a
natural antagonism between Council and Commission. Both organs control and limit each
other. This "balance" is based on the fact that the Council primarily represents national
interests, while the Commission is first of all obliged to foster the interest of the
Community as such.
European integration cannot go ahead without the democratic element within the Community
being decisively strengthened. For the reasons indicated above, a change towards more
democracy may not be expected from the Council of Ministers. If the intention is to
establish a dynamic institution, legitimised by the European peoples, which controls the
integration process in a democratic way, the European Parliament would have to take over
large parts of the competences presently assigned to the Council. This might require a
significant reconstruction of the whole
body of European institutional
law. The draft
constitution has not brought about a radical change of ideas as far as the current
institutional set-up and power distribution is concerned. The European Parliament remains a
secondary player, even if it is catching up, and the power of the Council is left
untouched. In any case, sooner or later the Member States of the European Union will
have to pass more national competences (tax-sovereignty, administrative powers) to the
European Union. The future of the European movement will to a large extent depend on
whether the Member States are willing and prepared to do so and on the responsible
handling of powers by the European institutions.
2.4 IV. The European Court of Justice and the Court of First Instance
(http://curia.eu.int/en/index.htm)
The European Court of Justice (ECJ) and the European Court of First Instance (CFI) - both
located in Luxembourg - exercise the judicial power in the Community system. It is their
task to "[...] ensure that in the interpretation and application of the Treaty the law is
observed" (Art. 220 EC). The EC Treaty sets out different kinds of judicial procedures,
comprehensively enumerated in Art. 226 et. seq. EC, which enable the ECJ and the CFI
to comply with their duties.
The European judicial system, as it exists today, was subject to a major reform by the
Treaty of Nice. In the early days of the Community, the ECJ was the one and only
judicial body in the Community system. The European Court of First Instance was first
established in 1988 with the purpose to support the ECJ, whose growing workload started
to overextend its capacities. The jurisdiction of the CFI was initially limited to first instance
claims of non-privileged applicants, including competition and anti-dumping cases, and to
claims of Community employees (staff cases). The Treaty of Nice applied a completely
new allocation of competences between the ECJ and CFI. Today the role of the CFI is
not merely one of an assistant to the ECJ, but it has been upgraded to an equal and
independent body with a responsibility for the jurisdiction of Community cases.
According to Art. 221 EC the ECJ is composed of one judge from each Member State,
which results in a current number of 27. The CFI is composed of at least one judge from
each Member State, which implies that it can have more members than there are Member
States (Art. 224 EC). The ECJ - other than the CFI - is backed up by eight so called
Advocates General who are - like the judges - independent from any national or political
influence. They have to responsibility to prepare advisory opinions on the pending cases
and the right to plead.
Art. 225 EC is the core provision for the division of competences between the two courts.
According to the changes of the Nice Treaty, the Court of First Instance has jurisdiction
over all direct claims (action for annulment [Art. 230 EC], action for failure to act
[Art. 232 EC], action for damages [Arts. 235, 288 (2) EC]). The ECJ therefore is left
with the jurisdiction of cases of failure to fulfil Treaty obligations (Arts. 226, 228 EC)
and preliminary rulings (Art. 234 EC). But there is an exception to this general division
of tasks: all direct claims brought by Community organs or Member States have to be
dealt with by the ECJ (Art. 51 of the Statute of the ECJ)
2.5 V.
1.
Other Community Organs
The Court of Auditors
The fifth body mentioned in Art. 7 EC is the Court of Auditors. Its task is to scrutinise
the finances of the Community and to ensure sound financial management. Examining all
accounts and all expenditure of the Community the Court of Auditors reports to the
Parliament and the Council - who are in control of the budget - on the legality of all
transactions, on the reliability of the accounts and of irregularities on their occurrence.
2.
The Economic and Social Committee
The Economic and Social Committee (ECOSOC) is an advisory body which assists the
Council and the Parliament (Art. 7 (2) EC). The Committee consists of representatives
of the various economic and social interest groups all over Europe. Each country has a
specified number of representatives, who are selected according to a nationally regulated
procedure and finally appointed by the Council. During the legislative process or in various
other instances ECOSOC must be consulted (by the Council, the Commission or the
Parliament) and given a certain time period for the issuing of its opinion on the subject
matter.
3.
The Committee of Regions
The Committee of Regions (CoR) represents the interests of the numerous regional and
local bodies throughout Europe, like the "Länder" in Germany or the Swedish counties.
Members of the CoR - like those of the ECOSOC - must be independent and act in the
Community's general interest. The Treaty of Nice stipulates that they must have a mandate,
which is based on regional or local elections or they must be politically accountable to an
elected assembly. The CoR is also an advisory body. It has to be consulted where the
Treaties stipulate it, but it can be consulted also on other occasions, especially when
regional interests are particularly affected by a Community measure.
3 C.
Legal Order and Legislation of the European Community
3.1 I.
The Nature of European Community Law
In order to comprehend the nature of European Community Law, one has to depart from
the standard categories of national law and (public) international law. The Community legal
system is a system sui generis, an invention of the original signatory states of the
founding
Treaties,
developed
and
elaborated
by
a
very
progressive
and
integrating
jurisdiction of the European Court of Justice.
The nature of EC law is pre-determined by the nature and structure of the Community
itself. When signing the founding Treaties, the Member States agreed to transfer some of
their sovereign powers in defined and limited areas onto the European Community, with the
consequence that the contractors were no longer allowed to exercise these powers. In other
words: These states were prepared to limit their own sovereignty - the very characteristic
of state power - in favour of the Community. By shifting powers to another - common level, the signatories created a supranational (international) organisation, which has got
autonomous public power and the right to adopt rules binding on its members. Therefore
the European Community is neither merely an international organisation nor a super-state.
The Community is a creation sui generis.
1.
Intergovernmentalism vs. Supranationality
While the prefix "inter" indicates that intergovernmental acts are acts between governments,
or rather between states, which confront each other on the same level (coordination), the
prefix "supra" hints at a relation of subordination between the Community and the Member
States. A supranational organisation overlooks its members, it exists above them and not
merely between them. But at the same time the notion of subordination must be handled
with great caution, as the Member States are and remain the "Masters of the Treaties". It
was for the autonomous decision of each Member State that they subordinated themselves
voluntarily to the legislative power of the Community. At any point in time a Member State
can decide to resign its participation in the EuropeanCommunity and to withdraw (elude)
from its contractual obligations at the European level. Although this power could in the past
not be found in any of the founding Treaties, it always existed as a factual right. The
draft constitution contains the first formal statement of the right to leave the EU. The only
- and probably unenforceable - condition is a two years' notice.
Some
parallels
can
be
drawn
between
supranationality
and
federalism,
although
the
association of the European Community with the notion of federalism is probably a
dangerous one in the view of many European leaders. In a federalist state like Germany
the sovereign power is divided up between different levels of power - in Germany between
the "Bund" (the federation) and the "Länder". Similarly in the European Community the
power to legislate or to act in the different policy fields is divided up in Community
competences and competences remaining at the national level. In both cases problems arise
when it comes to the definition and clear allocation of competences.
2.
Transfer of Authoritative Powers to the Community
The Treaties as described above have been designed to convey authoritative - originally
national sovereign - powers from the Member States to the Community bodies. In the
Federal Republic of Germany the basis for such a transfer of powers has formerly been
found in Art. 24 of the Basic Law, according to which "the Federation may transfer
authoritative competences upon international institutions by enacting a statute". This clause,
which is often characterised as the "integration lever", enables the Federation to confer
competences of the Federation itself as well as competences of the German "Länder" (the
latter are not generally agreed upon) to international institutions. Such conferral can be
conducted by enacting a simple law but can cause a material change of constitutional law
with respect to the national balance of power. Once the Federation has transferred
competences
to
a
supranational
organisation
like
the
European
Community
(i.e.
an
international organisation in the terminology of Art. 24 of the Basic Law), this organisation
has the right to pass legislation being immediately effective within the territory of the
Federal Republic of Germany. The Federation, e.g., has transferred its powers to regulate
the field of agricultural subsidies to the European Community by means of the EC Treaty.
Consequently the agricultural sector may no longer be subsidised by national authorities. All
regulative steps within this sector now have to originate in Brussels.
The Federal Republic of Germany has obliged itself within the Maastricht Treaty to transfer
more authoritative powers to the European Community in order to support the integration
development of the Community towards a European Union. As it was doubtful whether
Art. 24 of the Basic Law would still provide a sufficient constitutional basis for this step,
Art. 23 of the Basic Law was introduced in 1992. Therefore it is Art. 23 of the Basic
Law, which regulates any transfer of authoritative powers to the European Community. It is
lex specialis to Art. 24 of the Basic Law as far as the EC is concerned.
Art. 23 (1) expressly refers to Art. 79 (3) of the Basic Law, where the limits of such
a transfer of competences to supranational organisations are laid down. According to this
clause, which may be characterised as a "guarantee of eternity", a legislative act affecting
the division of the Federation into "Länder", the participation of the "Länder" in the
legislative process as such or the basic principles laid down in Art. 1 and 20 of the Basic
Law is prohibited and would be illegal. Therefore the process of European integration and
the materialisation of the European Union must not cause a factual change of German
constitutional law. If, e.g., the Federation was going to transfer all competences of the
"Länder" to the European Union, in particular in the field of culture and public order, this
would clearly violate the principle of federalism as protected by Art. 79 (3) and Art. 23
of the Basic Law. This issue became crucial when the EC developed harmonisation rules
for the law on media. In October 1989, the Council of the European Community passed
the EC Broadcasting Directive (89/552/EEC, Official Journal L 298, p. 23, amended in
1997 by Directive 97/36/EC), which provided for a certain quota of American series on
the European TV-market and furthermore for certain restrictions on commercials. Asked for
the legal basis of this drective, the Council referred to Art. 47 (2) and Art. 55 EC,
which state that the Council is responsible for the coordination of the provision of services
within the internal market. According to the Council, commercials on television and television
in general have to be understood as one form of commercial services, which may be
regulated through directives of the European Union. The German "Länder", on the other
hand, referred to their legislative powers in cultural matters, which must not be infringed,
because they are protected by Art. 79 (3) and Art. 20 (1) of the Basic Law. They
argued that authoritative powers of the "Länder", like the legislation in cultural matters,
must never be transferred to the European Community.
The issue has been judged upon by the German Federal Constitutional Court. It stated that
the directive does not essentially infringe the federal doctrine of the Basic Law. Therefore
the transfer was made without touching upon the fundamentals of federalism. The German
government, however, should have asked for the opinion of the "Länder" and taken their
position into consideration while discussing and acting in the Council.
3.
The Doctrine of Direct Effect
The most prominent feature of EC law is the so-called direct effect of provisions adopted
at the Community level. The jurisdiction of the European Court of Justice has played an
essential role in the development of the concept of direct effect. In a number of very early
and bold judgements, inspired by the political and legal order the founding Treaties intended
to establish, the ECJ ruled that not only the Member States themselves can be subject to
legal acts of the Community, but also individuals can derive rights and obligations directly
from Community provisions and can therefore - under certain circumstances - invoke
Community rules in front of a national court.
The significance of this legal invention of the ECJ as a major step in the history of
international law should not be underestimated. The direct effect doctrine is the very
characteristic that differentiates EC law from the classic law of nations. Treaties according
to international law bind the contracting parties (states) only, and usually have to be
implemented by the national parliaments in order to create applicable rules for private
individuals under domestic law. As opposed to this two-step system Community provisions
can affect a single person in a Member State immediately when they enter into force, and
give him or her the opportunity to enforce a Community rule before a domestic judge
(so-called direct applicability).
In the following it will be elaborated which types of Community rules exist, which can have
direct effect and under which conditions.
3.2 II.
Sources of EC Law
The law of the European Community can be divided into two major bodies. The so-called
primary law consists of the establishing Treaties of the Communities and the EU Treaty,
including amendments and supplementary provisions thereto; customary law and the general
principles
of
Community
law.
Primary
law
may
be
characterised
as
some
kind
of
constitutional law which determines the basic structures of the European Union. On the
other hand, the so-called secondary Community law comprises all legal acts passed by
institutions of the Community. All secondary legal acts, among them are regulations,
directives, decisions and legal acts sui generis, are based on primary Community law.
Secondary law forms the more voluminous set of rules and has major effects on the
European citizens' rights and duties.
1.
Primary Law
The founding Treaties - especially the EC - regulate mainly the institutional system of the
European Community. They spell out the general aims and basic principles of the
Community; furthermore they establish rights and obligations of the Member States and the
Community bodies.
The least recognised source, but also part of primary law, are the general principles of EC
law. As pointed out by the ECJ in the case "Internationale Handelsgesellschaft" (11/70
[1970] ECR 1125), the general principles of the Community are an autonomous source of
law, not merely borrowed from the Member States. Nevertheless, the legal systems of the
Member States are more than just an inspiration for the development of general principles
of Community law.
Based on a very broad definition, general principles of European Law embrace fundamental
rights, the four economic freedoms, rules of administrative justice and political rights. The
first two categories will be the subject of chapter E and F, while the last category lacks
legal enforceability. Therefore this chapter will focus on rules of administrative justice or
procedural rights.
a)
The Principle of Proportionality
The principle of proportional action is the most significant legal principle, which underlies all
activities - legislative or administrative - of the EC bodies. It is explicitly mentioned in
Art. 5 (3) EC. Essentially it requires four conditions to be fulfilled:
(1) The public authority must pursue a legitimate goal with its action.
(2) The action chosen must be suitable to achieve the aforementioned goal.
(3) It must also be necessary to that end, which means it has to be the least
incriminating on the individual of all available measures.
(4) Last but not least the action taken has to be proportional in the sense of just, taking
into consideration the circumstances of the specific case at hand.
b)
The Right to a Hearing
Any person who will be aversely affected by a measure of a European public authority is
entitled to be given the opportunity to explain himself and to give his opinion on the
situation. His arguments have to be taken into account when the public authority finally
decides which measure to take.
c)
Other Principles
Further principles recognised and elaborated by the ECJ are the guarantee of legal
proceedings, the principle of legitimate expectations and the principle of legal certainty.
Primary Law and Direct Effect
In exceptional cases primary legal provisions can be directly effective and comprise
prerogatives for natural or legal persons in the Member States. The first and most
important judgement of the ECJ concerning the direct effect of Community law was the
case - Van Gend & Loos - (26/62 [1963] ECR 3) dealing with the direct effect of a
provision of the EC Treaty. The ECJ held that a Treaty provision, even if - according to
its wording - it is addressed to the Member States, can have direct effect, if the following
criteria are met:
-
The provision must be sufficiently clear and precise in order to enable its direct
application.
-
It has to be unconditional, which means it must not be "qualified by any reservation
on the part of the (Member) states, which would make its implementation
conditional upon a ... (national) legislative measure ..."
Examples for Treaty provisions having direct effect are Arts. 12, 25, 28, 29, 39, 43, 49,
56 and 141 EC. It should be noted, that the directly applicable Treaty provision can only
be invoked in a "vertical" litigation between an individual and a Member State. As a basic
rule there is no "horizontal" direct effect between two private individuals.
2.
Secondary Law
According to Art. 249 EC the institutions of the European Community may pass regulations,
issue directives, make decisions, give recommendations or deliver opinions. Among these
instruments, regulations, directives and decisions are legally binding.
a)
Regulations
Regulations are generally and directly applicable throughout the Community. They are of a
binding nature and become immediately effective in all Member States instantly when they
are adopted. A regulation bears all characteristics of a statute; its provisions take effect in
all Member States without any further requirements, especially without any legislative
transposition act of each Member State.
Regulations and Direct Effect
A regulation carries direct effect by its very nature, irrespective of the conditions for direct
effect set up by the ECJ in the Van Gend & Loos case.
b)
Directives
Directives are addressed to the governments of the Member States but not to individuals.
They are legally binding only upon the Member States. Therefore they can basically not
have direct effect. A directive is an assignment to or obligation for the Member States to
enact national measures which are required to implement the directive's content into national
law. It is binding as to its contents but leaves to the particular state to choose means
and modes for the materialisation of the directive's stipulations (Art. 249 (3) EC).
Most of today's directives are based on Art. 95 EC, according to which the Council can
pass directives to harmonise the national bodies of law. This technique enables every
member of the Community to decide individually, which way to head in order to adapt its
legal system to the Community standard.
In the 1990s several directives in the area of consumer protection were passed in order to
install a uniform protection standard in Europe (e.g. Directive 85/577/EEC on consumer
protection
in
respect of
contracts
negotiated away
from business
premises,
Directive
87/102/EEC concerning consumer credit [amended by Directive 90/88/EEC] and Directive
97/7/EC on the protection of consumers in respect of distance contracts). The directives
obliged every Member State to take the appropriate steps according to and adjusting the
respective national law, if it did not already comply with the standards set up by the
directive. The Federal Republic of Germany did so by enacting consumer protection statutes
in 1986 (Haustürwiderrufsgesetz, BGBl I p. 122), 1990 (Verbraucher-kreditgesetz, BGBl I
p.
2840)
and
2000
(Fernabsatzgesetz,
BGBl
I,
p.
897).
All
these
acts
were
incorporated in the German civil code (BGB) in 2002 when a major reform statute of the
law of obligations entered into force (BGBl 2001 I p. 3138).
This example demonstrates how the growing body of European law increasingly limits the
freedom of national legislatures. After a directive has been transformed into national law,
the legislature of the Member State no longer has any jurisdiction in the particular field.
Accordingly, any Member State will have to modify its national body of law to a large
extent, as required by the directives.
Directives and Direct Effect
Only under exceptional circumstances a directive may become directly effective and can be
invoked by an EU citizen before a national court. The ECJ has developed three essential
criteria for the direct applicability of a directive:
(1) The time limit for the implementation of the directive must have expired without
(sufficient) transposition into national law.
(2) The provision in question must be sufficiently precise and unconditional.
(a) Sufficiently precise is a self-executing provision - when its wording is clear and
its meaning so obvious, that it can be applied by national administrative bodies or
courts without any legislative intervention.
(b) Unconditional means that there must be no condition or reservation which would
require a substantiating, discretionary national measure.
(3) Originally the ECJ established as a third criterion that the directive has to confer a
right upon the individual. Recently the Court has elaborated on this requirement
and is now slowly changing its jurisdiction. Instead of establishing rights for
individuals, the provision must have some kind of "objective effect". This could
mean that a directive is not required to aim at the protection of individuals but
should intend to establish an obligation for the national public authorities.
Example: As part of its social program under Art. 141 EC, the Council of Ministers
adopted two directives on January 1, 1993. The first one states that 'Member States shall
take such steps as they consider appropriate to encourage employers to adopt the same
pension arrangements for men and women doing the same kind of work.' The second one
provides that 'Member States shall ensure that employers do not discriminate against
men or women doing the same kind of work in respect of holiday entitlement.' The
Member States were given a time frame of two years for the implementation of both
directives. In February 1995 France had not yet taken any steps to implement either
directive.
In December 1993 EDF engaged Mrs. X and Mr. Y as clerks. Their work is the same and
they are paid the same. However, Mr. Y's contract of employment provides that he is
entitled to four weeks annual holidays and is included in the company's own pension
scheme, whereas Mrs. X's contract of employment provides that she is entitled to three
weeks annual holidays and is excluded from the company's pension scheme. In January
1995 EDF engaged a further clerk, Mrs. Z, who is employed on the same terms as Mrs. X.
Mrs. X and Mrs. Z are unhappy with their contracts of employment. Mrs. X made a claim
in December 1994, and Mrs. Z claimed in February 1995. Are there any provisions of EC
Law, which they could rely on bringing an action before a French court or tribunal?
Mrs. X and Mrs. Z can rely directly on the European directives to give them rights
enforceable in the national courts if the following requirements are fulfilled:
(a) The directive is not implemented by the time the implementation period expires.
(b) The provisions of the directive are sufficiently clear and unconditional.
(c) The provisions of the directive confer rights on individuals or have an objective
effect.
ad (a): France should have implemented the directive by January 1, 1995. When Mrs. X's
claim was put forward the time limit had not yet expired and so the directives could not
have given rise to directly effective individual rights at that time. So, for the present,
Mrs. X will stay unhappy.
Mrs. Z's claim was put forward in February 1995, when the time limit had expired. So we
can move on and consider whether the remaining requirements for direct applicability are
fulfilled.
ad (b): What might not be clear enough is the meaning of the words 'Member States
shall take such steps as they consider appropriate to encourage...' Due to these
uncertainties concerning the wording of the first directive, it cannot have direct effect and
also cannot be relied upon before the French national courts. The second directive,
however, is clear and precise. It also imposes an unconditional obligation on the Member
States to ensure that employers do not discriminate against men and women doing the
same kind of work in respect of holiday entitlement.
ad (c): The provisions do not merely impose a duty on the public authorities (objective
effect) but intend to confer the right to equal holiday entitlement for men and women to
any individual in France.
The provision therefore meets the requirements for direct effect, and can be relied on
before a national court by Mrs. Z.
The ECJ pointed out, that directives - which are binding only upon the member States could not impose obligations on individuals and therefore could not be invoked in litigation
between two individuals (case C-91/92 "Faccini Dori" [1994] I-3325). In other words:
a directive can not have "horizontal" effect. According a directive horizontal effect would
blur completely the distinction of this legal instrument from that of a regulation, which is
opposed to the clear wording of Art. 249 EC.
Other Effects of Directives
In the case of Francovich (C-6 & 9/90 [1991] ECR I-5357) the ECJ established the
principle of Member State liability for the failure to implement a directive in due time. If an
individual suffers loss as a result of the failure of proper implementation, a Member State
can be held liable for the damages incurred by the individual, on the condition that the
directive itself defined and conferred a right on individuals, the content of which was clear
from the wording of the concerned directive (see also case 178/94 "Dillenkofer" [1996]
ECR I-4845).
c)
Decisions
According to Art. 249 (4) EC, decisions are immediately binding in their entirety to all of
their addressees. Unlike regulations, decisions are addressed towards one or several
particular legal entities or towards a determinable number of those. The addressee may be
a Member State, an individual private or legal person. Other than a directive, a decision is
binding in its completeness. Thus, it may be compared to the German "Verwaltungsakt".
Decisions and Direct Effect
Under the conditions set out in Van Gend & Loos, decisions have direct effect on their
addressees (case 9/70 - Franz Grad vs. Finanzamt Traunstein - [1970] ECR 825).
d)
Recommendations and Statements
Recommendations and statements have no legally binding force (Art. 249 (5) EC). They
are directed towards an undetermined group of addressees and are not of direct effect.
Recommendations and statements usually bear the character of declarations of intent and,
as such, are first of all of political impact.
e)
Other legal acts
Besides the types of action listed above, the institutions of the European Community
dispose of further instruments of acting as provided for and specified by special clauses of
the law. These clauses primarily deal with the administration and organisation of the
Community and with the conclusion of treaties by the Community. According to Art. 300
EC the Community can enter into international agreements. The ECJ held that provisions of
these agreements can in certain circumstances be directly effective and therefore be invoked
by private persons (cases 21-24/72 - International Fruit Company - [1972] ECR 1219).
3.3 III. Legislative Power
1.
The Principle of "Limited Singular Authorisation"
The Treaties do not generally authorise the Community institutions to pass legislation in any
random policy field. The area of regulative Community competences is dominated by the
doctrine of "limited singular authorisation" (Art. 5 [1] EC). According to this doctrine, any
legal act passed by Community institutions requires a particular authorisation, which has to
be found within the EC Treaty. When such authorisation is granted, Community organs are
usually at the same time bound to a certain form of action. Art. 47 EC e.g., permits the
Council to pass directives on the mutual recognition of diploma, exams and other licenses.
This clause includes the right to pass legally binding acts in that policy field, but
simultaneously provides for a particular type of act: a directive (Art. 249 EC). Other
available instruments are regulations and decisions.
However, the ECJ - once again trying to push forward the integration movement - does
not strictly adhere to the wording of the Treaty and interprets provisions dealing with
competences rather generously in favour of the Community. According to the "implied
powers" doctrine developed by the ECJ, the Community has got the complementing
competences which are necessary for the effective and reasonable performance of expressly
given legislative powers ("effét utile"). The implied-powers doctrine is i.e. applied in the
field of external relations: In all policy fields covered by its internal competences (internal
power) the Community is empowered to conclude international agreements with third
countries (external power). Further the ECJ makes rather extensive use of Art. 308 EC
in order to broaden the competences of the EC.
2.
Art. 308 EC
In order to provide for a fast and effective reaction to new situations, the Treaties dispose
of so called "loophole-clauses". The loophole-clause of the EC Treaty is found in
Art. 308 EC. According to that provision, the Council, acting on an initiative of the
Commission and having consulted the Parliament, may take the appropriate measures in
order to attain action by the Community, whenever such action should prove necessary to
achieve of the objectives of the Community, while the Treaty does not explicitly provide the
necessary powers. As Art. 308 EC can only be invoked, when there is no explicit
authorisation given within the Treaty, it is a subsidiary competence. Important is the
requirement of a unanimous Council decision. Yet, the loophole-power of Art. 308 EC is
effective only within the competences of the Community, as transferred by its members.
Thus, the Community may never extend its powers through independent acts. Its actions
always have to be based on authoritative powers transferred upon it by the Member States
(in the Federal Republic of Germany according to Art. 23 of the Basic Law). The
Community does not hold the power to define its own competences; it is lacking the socalled "competence-competence", which is a genuine characteristic of a sovereign state. In
fields for which the Member States have not passed any competences to the EC yet, they
must not be acquired via Art. 308 EC.
Recently, this issue has gained particular importance in the law on media in Germany. If
the regulation of the European media market is understood as a part of the regulation of
the European economic order, Community institutions might have acquired competences in
that field via Art. 23 of the German Basic Law in connection with the establishing Treaties.
If, however, the law on media is understood as a cultural rather than an economic issue,
the Federation has not transferred any competences in that field yet. (Apart from the
problem of whether it may transfer such state-powers to Brussels at all, as discussed
above (p. 8 et seq.)) In the latter case, legislative power concerning the law on media
rests with the German "Länder".
3.
Art. 95 EC
Art 95 EC provides for the competence of the Community to adopt harmonising measures,
which are legal measures designed to adjust the different European legal systems in a
certain policy field to a common European legal standard. It has to be noted that Art. 95
EC applies only if more specific Treaty provisions (like Art. 37, 44 or 71 EC) do not
exist. Like Art. 308 EC it is of subsidiary applicability.
3.4 IV. The Relation between Community and National Law
The relation between European Community law and the law of the Member States, in
particular German law, is predetermined by the structure of the Community system. As to
that issue, the Federal Constitutional Court of Germany (BVerfG) held that Community law
is neither part of the national bodies of law nor international law. It is rather a genuine
legal order of autonomous origin (BVerfGE 37, 271).
To begin with, three types of relations have to be distinguished: first of all there is the
relation of two purely national provisions (in terms of hierarchy), which is not a question
of European but of national law. Secondly there is the relation between national and
(public) international law. Finally there is the relation between the national (German,
French or English) legal system and the Community law system, which will be dealt with
in the following.
Although they are completely autonomous systems, yet, national law and the legal order of
the European Community are by no means unrelated to each other. They are interacting in
miscellaneous ways. The links that exist between the two bodies of law become obvious in
particular when European law is executed. Except for the European rules concerning
competition, the execution of Community law is the responsibility of the administrative
authorities of the Member States. In the absence of appropriate European rules - this is
usually the case - or if those rules are insufficient, national authorities apply their own
rules of procedure when administering EC law.
Obviously the Community legal system, which provides for two legislators (the Member
States and the Community) in every country within EC borders, holds a considerable
conflict potential. The question, whether or not Community law has to be given priority over
national law, has occupied many judges and has filled many pages of legal textbooks in
the past.
1.
Conflict Situation (Collision)
First of all one has to consider, in which constellations European Community law affects
the application or validity of the law of the Member States. The question of priority arises
only in situations of collision of Community law and national law, in other words: when
legal rules for one specific area exist on both levels - the European and the national one.
(1) Are there two legal rules enacted on two different levels dealing with the very same
issue?
If that is the case one needs to ask whether the Community rule is valid according to
Community law itself and whether it is applicable within the Member State in question. The
latter question can only be answered according to the respective national constitutional law.
(2) Is the provision of Community law valid and applicable in the Member State in
question?
But it is not sufficient that the provision of Community law is generally applicable in the
concerned Member State, it has to be directly applicable in order to have an effect on the
rights of the Member States' individuals. Here a distinction needs to be drawn between
directly applicable measures of Community law (like regulations and decisions) and
measures addressed to the Member States only, which require transposition into national
law in order to take (direct) effect within the national boundaries. The latter category of
regulating instruments is called directives. Due to their lacking direct applicability directives
can - as a basic rule - never cause a clash between Community and national law. A
provision, which is not applicable, simply cannot collide with the (national) provision in
application. There are exceptions to that rule in the case of a directly effective directive.
The specific conditions for direct effect have been described above.
(3) Is the provision of Community law directly applicable in the Member State?
Finally one needs to analyse whether these two legal norms provide for a different
regulation of the concerned issue.
2.
Solution: The Principle of Supremacy
As far as the two provisions collide with each other, the conflict must be resolved in
favour of Community law.
a)
The Jurisdiction of the ECJ
In its famous judgement in the case of "Costa vs. ENEL" (6/64 [1964] ECR 585) the
European Court of Justice held that the very nature of European Community law demands
that it has to gain priority over all national legislation. If it was possible for the Member
States to simply overrule a provision of Community law with a national legal act, the idea
of common rules for a legal Community would be contradicted and the essence of the
Community idea itself would be put in question. The concept of supremacy of Community
law is affirmed by Art. 249 EC, which states that regulations are legally binding and
directly applicable in all Member States. This Treaty provision would be meaningless if the
Member States had the power to remove its effect unilaterally.
b)
The Jurisdiction of the German Federal Constitutional Court
This position of the ECJ has been upheld by the German Federal Constitutional Court as
to the relation between European law and "ordinary" German law. According to the
decision of the Court, German authorities have to apply any clause of Community law that
surmounts or sets aside national law, since this is the only way to ensure the uniform
application of EC law and to enforce the rights, Community law grants to the citizens of
the Member States (BVerfGE 31, 45).
However, the relation between European Community law and German constitutional law, in
particular the catalogue of fundamental rights of the Basic Law, is not as clear. The core
of the problem can be found in Art. 23 of the Basic Law, which permits the transfer of
sovereign national powers to European institutions. Such a transfer is limited by Art. 79
(3) of the Basic Law, which prohibits the violation of any of the basic principles laid
down in Art. 1 and 20, or one of the other basic principles mentioned in Article 79 (3)
itself. If the law of the European Community did not grant fundamental rights comparable to
those of the Basic Law, a transfer of powers would be blocked by Art. 79 (3) of the
Basic Law (which is called the "guarantee of eternity" of the fundamental rules of the
constitution).
For several years, the jurisdiction of the German Federal Constitutional Court on that issue
was vacillating. In an early decision, the Court had preserved itself the right to review
secondary EC law as to the question of whether it complies with the fundamental or basic
rights of the Basic Law. This preservation would exist as long as the European integration
had not reached the point, when European law contained a catalogue of fundamental rights
passed by the European Parliament and comparable to the catalogue of the Basic Law
("Solange I", BVerfGE 37, 271 et seq.). Clearly the Court had the intention to subject
European law to the fundamental rights of the German Basic Law. For this attitude, the
Federal Constitutional Court was heavily attacked by the European Parliament and by many
authors, who accused it of violating the European Treaties. They argued that the wording
and the spirit of the Treaties of Rome did not allow any clause of national law to be
superior to the law of the European Community, even if it were part of a national
catalogue of fundamental rights. Consequently, it would be impossible to use German
constitutional law as a yardstick for European law. With this opinion of the Federal
Constitutional Court it would have become possible to control and limit the speed of the
integration process from the national level. During the years following that decision, the
European Court of Justice extended the protection of fundamental rights by European law in
order to overcome the decision of the Federal Constitutional Court and outweigh its
arguments. The ECJ increasingly applied fundamental rights and other basic principles of
justice in order to control acts of Community institutions.
The position of the German Federal Constitutional Court on that issue finally changed with
a third judgement ("Solange II", BVerfGE 73, 339). In that decision, the Court held that
It will
no longer
make use
of Its jurisdiction over
secondary Community law
and
consequently no longer examine whether this body of law complied with the fundamental
rights of the Basic Law, provided that the ECJ guaranteed in practice a generally efficient
protection of the fundamental rights of citizens against authoritative acts of Community
institutions equivalent to the degree of protection regarded to be indispensable under the
Basic Law. The Court now believed that the level of protection of fundamental rights by
Community law, as developed by the European Court of Justice in several decisions, may
in fact be compared to the protection of fundamental rights under the German Basic Law.
Therefore, the supremacy of European Community law may no longer be restricted by the
fundamental rights of the Basic Law. Although the Federal Constitutional Court now seemed
to affirm the general supremacy of Community law over German constitutional law, Its
position seemed to be neither final nor without exception. The Court had decided only on
the ranking of secondary Community law and had held this law to be superior over
German fundamental rights only "provided that..."
The question of jurisdiction was at stake again in the "Maastricht"-case (BVerfGE 89,
155) before the Federal Constitutional Court, where a private person claimed that the
German ratification act of the EC Treaty was violating his fundamental rights under the
German
Basic Law. The
Court specified
its "Solange
II"-ruling
and
stated that it
guaranteed the effective protection of fundamental rights of every German citizen by
assuming jurisdiction even against acts of Community bodies on the national level. Thereby
the Court confirmed its jurisdiction on fundamental rights issues. But in the following the
Court elaborated that - although it had the competence - it would not make use of it as
long as the ECJ provided a generally comparable level of protection of fundamental rights
for all Community citizens. In a co-operative relationship between the two courts the ECJ
would have jurisdiction over each individual case throughout the Community, while the
German Federal Constitutional Court would confine itself to the review of the general
guarantee of the unalterable standard of fundamental rights (of course limited to the
German
borders).
This
position
was
upheld
and
specified
later
in
the
"Bananenmarkt"-decision (BVerfGE 102, 147) of the Federal Constitutional Court.
so-called
The influence of European Community law on the national rules of state-organisation, in
particular on the distribution of competences in the German federal system by the German
Basic Law, is also unclear. Whenever an act of a European Community body infringes the
competences of the German "Länder" (e.g. legislative competence in cultural matters), the
right of the Federation ("Bund") to transfer authoritative power to the Community according
to Art. 23 of the Basic Law is subject to heavy arguments. The only point commonly
agreed upon in that context is, that the "guarantee of eternity" (Art. 79 (3) of the
Basic Law) is the final limit to any transfer of competences.
c)
The Situation in the UK
The British answer to the question of supremacy is extraordinarily interesting, because the
UK does not have a written constitution like all other Member States. Amendments or
adjustments of the constitutional system are therefore difficult to make. Nevertheless, in
1972 the British Parliament passed the European Communities Act, which provided in
section 2 (1):
"... All such rights, ..., obligations created by ... the Treaties ..., as in accordance with
the Treaties are without further enactment to be given legal effect or used in the United
Kingdom shall be recognised and available in law, and be enforced, allowed and followed
accordingly; ... "
This section aims at importing the principle of direct effect of Community law into the
English legal system, and proves the willingness of the UK to accept the principle of
supremacy. But at the same time it has to be taken into consideration, that the British
constitutional system is based on the fundamental principle of Parliamentary sovereignty,
which means that the Parliament - as the highest ranking state power - is free to do
anything but not bind future Parliaments. The English courts have no power to control
decisions of Parliament; they merely interpret and apply the parliamentary will. From that
point of view the European Communities Act 1972 is very vulnerable and could be
contravened by any future Parliament.
However, the English courts have reconciled the principle of supremacy of Community law
with the principle of parliamentary sovereignty during their jurisdiction in the last 30 years.
English judges proposed initially two different approaches:
-
In Macarthy's vs. Smith ([1979] 3 All ER 325) the court ruled that in the case of
contradiction between a Treaty article and a provision of English law the Treaty
provision should be given priority and be directly applied by the English
authorities.
-
Another way was chosen in the case of Garland vs. British Rail Engineering Ltd.
([1983] 2 AC 751). It was suggested to take a "construction approach" and
interpret the English Act in accordance with European law. Such an interpretation
would enforce the will of Parliament, which naturally would want to comply with its
obligations under the European Communities Act 1972.
The second approach is not unproblematic for two reasons. First of all it does not comply
with the concept of direct effect as developed by the ECJ. Secondly a constitutional conflict
could arise, whenever Parliament had the clear intention to contradict or depart from
Community law with its legislation.
Yet, the construction approach - which seems to be the one chosen by Parliament and
expressed in section 2 (1) of the European Communities Act 1972 - has been upheld by
the courts until today, but extended in two directions. On the one hand side there is a
clear willingness to enforce directly effective Community law, even if that requires setting
aside an Act of Parliament (Factortame (2), [1991] 1 AC 603). On the other hand the
courts also give effect to non-directly effective provisions of EC law by interpretation of the
disputed
national
law
in
accordance
with
the
Community
rules,
even
if
such
an
interpretation is incongruent with the prima facie interpretation of the national authorities
(Pickstone vs. Freemans, [1992] 2 All ER 43).
Although the British authorities generally accept the superiority of Community law, this
acceptance is based on the will of Parliament and not on the obligations set out by the
European Treaties. The courts feel responsible only to their Parliament and will enforce the
Parliamentary will, even if that means departure from the Community legal system.
d)
The Situation in France
The situation in France is different. The French Courts are divided into two separate
hierarchies, each with its own appeal and final appeal courts. The two branches have had,
however, different attitudes towards Community law, despite the fact that both are subject
to Art. 55 of the (monist) French Constitution. Art. 55 ranks provisions of international
law above municipal law but is silent as to their effect on the constitution. This silence
has led to the discrepancies mentioned.
The courts of ordinary jurisdiction gave supremacy to Community law on the basis of
Art. 55 of the Constitution. The French Supreme Court of Ordinary Jurisdiction, le Cour de
Cassation, went even further and found for supremacy of Community law without direct
reference to the Constitution (Administration des Douanes v. Societé Cafés Jacques Vabre
& J. Weigel et Cie Sarl, (1975) 2 CMLR 336).
On the other hand, there are the French administrative courts, which deal with complaints
by citizens against any acts of the state authorities. The Supreme Administrative Court, the
Conseil d'Etat, has from time to time completely denied the supremacy of Community law
or the need to make reference to the ECJ.
Recently, however, cases have demonstrated a much more cooperative attitude on the part
of the French administrative courts. In the case Nicolo ((1990) 1 CMLR 173) the
Conseil d'Etat reviewed the supremacy of international law including EC Treaty articles and
held the latter to take precedence over subsequent national law, largely on the basis of
Art. 55 of the Constitution. In the case Boisdet ((1991) CMLR 3), incompatible national
law was declared invalid in the face of a Community regulation. The Rothmans case
((1993) CMLR 253) confirms the supremacy of Community directives over subsequent
national laws and that public authorities must not enforce incompatible national laws.
Finally, in the case Dangeville (AJDA 1992, p. 768), the Conseil d'Etat upheld the ruling
of the European Court of Justice in Francovich (C-6, 9/90 [1991] ECR I-5357) but
rejected the claim based on two other principles of French law. However, in the case
Revert et Badelon (CE, Ass, 30 Octobre 1996, SA Cabinet Revert et Badelon, Rec
p.339), though substantiated on similar grounds, the court ruled in favour of the plaintiffs
and imposed a liability on the French State to pay damages for the failure to implement a
Community directive.
We have observed that there have been problems among the Member States concerning
the reconciliation of the principle of supremacy of European Community law with the
national legal systems. Although further issues are certain to arise in the future, generally
speaking the supremacy of Community law is gaining increasing recognition and application
within the Member States. Hence European Union law continues to increasingly leave its
mark on their national legal orders.
3.5 V.
The Principle of State Liability for Breach of EC Law
As in all major areas of European Community law concerning the enforcement of rights
conferred upon European citizens by the Treaties, the ECJ has also played a major role in
the development of the principle of state liability for breaches of Community law.
1.
General Principles
According to the ECJ the principle of state liability for damages caused by a violation of
Community law is inherent in the Community law system. The Court emphasises that the
Treaties have created a system sui generis, with rules imposing obligations on individuals
but also conferring rights upon them. Art. 10 EC establishes - among others - the
obligation of all national courts to apply the rules of Community law, to give full effect and
protect the rights which they confer on individuals. These rights would be significantly
weakened if an individual could not claim compensation for damages caused by their
infringement.
2.
Conditions for Liability
In the absence of a Treaty provision, the ECJ defined the conditions under which an
individual is entitled to reparation as follows:
(1) The violation of a provision of Community law which is intended to confer a
right upon an individual, the content of which must be sufficiently clear and
precise
(2) A direct causal link between the breach of this rule of law and the harm sustained
by the individual
(3) The qualification of that violation as sufficiently serious
The ECJ has provided some guidance for the interpretation and application, especially
concerning the third condition. It suggests a number of criteria to evaluate the seriousness
of a breach of Community law, as follows:
-
The level of clarity and precision of the violated rule of law
-
The margin of discretion left by the norm to the national administrative or legislative
bodies
-
Whether it was an intentional or negligent/involuntary breach
-
The (non-) justifiability of an error of law
-
The likelihood that the conduct of a Community institution has contributed to the
action taken by the national body
Fault - unlike in many liability systems of the Member States - is not a requirement for
damage claims based on the breach of European law. But the concept of fault is taken
into consideration when the seriousness of a breach of law is tested.
In addition to the three basic conditions, the success of a claim for damages depends on
the specific type of violation of Community law. Three different types of violations can be
distinguished: legislative, administrative and judicial infringements of EC law.
a) Violations by a legislative body: Concerning legislative acts one must take into account
that
the
legislator
disposes
of
a
considerable
amount
of
discretionary
power
when
implementing Community policies. Also, the work of the Member States' legislative organs
shall not be impeded by the permanent concern about innumerable, potential individual
claims for damages. Therefore a legislative act can be considered as a sufficiently serious
breach of Community law only if the legislative body manifestly and gravely disregarded the
limits on its discretion.
b) Violations by national administrative bodies:
The
breach
of
Community
law
by
administrative bodies is more common and the typical case for damage claims. It may
often occur when national officials misinterpret Community rules, misapply them or ignore
the applicability of a Community directive.
c) Violations by national courts: The principle of state liability applies also to decisions of
Member State courts which are in breach of Community law, if the decision in question
was taken by a national court of last instance. But special consideration has to be given to
the particular function of judges within the national legal system as well as in the system
of European Community law. The decision of a court adjudicating at last instance becomes
irrevocable and definitive after all rights of appeal have been exhausted, irregardless of its
unlawfulness. Therefore the disadvantaged individual must at least be offered the possibility
to hold the Member State liable for such a violation of his or her rights. Furthermore the
national courts play a significant role in the application of Community law provisions and
the enforcement of rights conferred by them upon individuals. The effectiveness of these
provisions would be significantly hampered if the courts were excluded from the principle of
state liability. However, the state incurs liability for faulty decisions of its courts only in the
exceptional case that the breach of Community was obvious. For the definition of the term
"obvious" the ECJ refers again to the criteria used for the establishment of a sufficiently
serious breach of law, but adds a couple of additional aspects. So it should be considered
if the court has ignored its obligation to make a reference to the ECJ under Art. 234 EC
or if the national court's decision is clearly opposed to the relevant jurisdiction of the
ECJ.
3.
Procedural Enforcement
Originally the ECJ had declared that the EC Treaty does not require the national courts to
introduce "new" remedies for breach of Community law but could apply their existing
procedural rules and conditions. These conditions were subject only to the principles of
equivalence and practical possibility. Equivalence or non-discrimination means that the
remedies and procedures available for a claim under national law must be comparable or
basically the same as those for a claim based on a breach of Community law. The
principle of practical impossibility states simply that the conditions must not be designed in
a way as to render a claim for damages based on Community law practically impossible.
In addition the Court stressed a number of legal principles that national remedies (or
rather
their
procedural
conditions)
have
to
comply
with,
namely
the
principle
of
proportionality (e.g. national penalties imposed must not be disproportionate to the
significance of the rule infringed), the principle of adequacy (e.g. of a compensation in
relation to the damage sustained) and the principle of effectiveness of a penalty for breach
of EC law. All of these additional requirements seem to be concerned with the material
justice achieved by the national system of remedies. The Court obviously tries to rule out
or to prevent efforts by the Member States to circumvent their liability through procedural
restrictions.
4 D. The Enforcement of EC law by the European Court of Justice and the
Court of First Instance
According to Art. 220 EC the European Court of Justice and the Court of First Instance
shall ensure that in the interpretation and application of the Treaty the Community law is
observed. The ECJ cannot be compared to any type of a national court. Whenever the
Court examines a violation of the establishing Treaties by a Member State or a preliminary
question, it does so in the function of a constitutional court (Art. 226 EC). If it holds
that decisions of Community institutions are null and void, it acts as a court of
administrative jurisdiction (Arts. 230, 232 EC) and finally it acts as a civil court, when it
decides on claims for damages (Art. 288 (2) EC).
4.1 I.
The Procedure in Cases of Failure to Fulfil Obligations under the EC
(Art. 226 EC)
The action for failure to comply with EC Treaty obligations has the purpose to induce a
Member State, who has infringed the EC Treaty, to remove the situation of noncompliance. Two separate phases of the procedure have to be distinguished: a first
'administrative' phase, which serves the mutual information and consultation. The subsequent
official or court phase - action before the ECJ - is entered into only if a solution could
not be found during negotiations.
(1) The preliminary/administrative phase
If the Commission considers a Member State having failed to fulfil an obligation under the
EC Treaty, it will issue a 'Formal Letter of Notice' to the concerned Member State, which
describes the suspected Treaty violation and invites the concerned state to give its opinion
on the allegations. Furthermore the letter will set a certain time limit for the Member State
to submit its observations, which also implies the opportunity to take the action required in
order to comply with its obligations (Art. 226 (1) EC).
There are various possibilities of Treaty infringements. It could consist in incorrect or nonapplication of EC regulations, directives or decisions; in non-transposition of a directive into
national law or in non-compliance with ECJ judgements.
According to Art. 227 EC the action for failure to comply with the Treaty obligations can
also be initiated by another Member State. The alleging Member State will first of all
inform and engage the Commission with its concerns in relation to the Member State
infringing the EC Treaty. The Commission will again enter into a preliminary procedure,
giving both involved Member States the opportunity to submit their observations. The
administrative stage is concluded by a reasoned opinion of the Commission.
(2) If the matter cannot be resolved during this negotiating stage, the Commission may
proceed to the next stage - which is bridging the administrative and the court stage issuing a 'reasoned opinion'. The reasoned opinion clearly states the legal grounds of the
Treaty violation and thereby justifies the commencement of legal proceedings. Again the
concerned Member State is given a certain time period to rectify the situation.
(3) The court phase
If the Member State does not comply with the opinion of the Commission, the latter may
refer the issue to the ECJ (Art. 226 (2) EC). If the Court finds that there is in fact a
failure to fulfil Treaty obligations, its judgement will state that such a Treaty violation exists
and that the state is required to take the measures demanded by the Commission. The
judgement does not imply any penalty; it is of purely declarative nature.
However, if the Member State fails to take the necessary measures in order to comply
with the Court's judgement within a time-limit laid down by the Commission, the latter may
bring the case before the ECJ again according to Art. 228 EC. If the Court finds that the
Member State has failed to comply with the judgement it will impose a lump sum or
penalty payment on it. The amount to be paid will be based on a suggestion of the
Commission
according
to
what
it
considers
to
be
appropriate
in
the
circumstances
(Art. 229 (3) and (4) EC). But the Court is neither bound to the Commission's
recommendation, nor is there an upper limit to the pecuniary penalty.
In addition there is the possibility for the concerned individuals to claim compensation from
their Member States provided the requirements for Member State liability are fulfilled. Such
damage claims could amount to or be considered as a sanction.
4.2 II.
Review of the Legality / Action for Annulment (Art. 230 EC)
Any legal system, which adheres to the rule of law, will offer a mechanism to review the
legality of measures taken by its governors. Within the EC system the central Treaty
provision dealing with this issue is Art. 230 (1) EC, which assigns the responsibility for
the review of Community measures to the Court of First Instance (Art. 225 EC) and in
cases of claims by Member States or Community organs to the European Court of Justice.
The European courts have the power to scrutinise acts of the Community institutions other
than recommendations or opinions.
Basically four requirements have to be met in order to challenge an act in Court. The act
must be open to a challenge (1), the applicant must have the standing (locus standi)
for the particular challenge (2), the ground of the challenge must be one of those listed
in Art. 230 (1) EC (3) and finally the time limit provided for in Art. 230 (5) EC
must be observed (4).
(1) Acts open for review
Art. 230 EC clearly states that only measures other than recommendations and opinions
are open to review. That implies that the remaining measures listed in Art. 249 EC regulations, directives and decisions, which are the ones having a legally binding effect,
can be challenged. Other kinds of acts can be reviewed if they are of a legally binding
nature.
(2) Locus standi of the applicant
Regarding the institution or person bringing an action under Art. 230 EC, privileged and
non-privileged applicants have to be distinguished.
(a) Privileged applicants are the Council, the Commission and the Member States,
who have locus standi to challenge all kinds of (legally binding) Community
measures. Furthermore the Court of Auditors or the European Central Bank can
bring an action when their own (participatory or procedural) rights were affected by
the disputed measure. Since the Treaty of Nice entered into force February 01,
2003 the European Parliament belongs to the group of privileged applicants, who
are granted locus standi without having to prove a special interest or affection by
the contested measure.
(b) Individuals (natural or legal persons) are so-called non-privileged applicants. A
non-privileged applicant can bring an action only for the review of a decision (or a
disguised decision in the form of a regulation) which is either addressed to
him/her, or which is of direct and individual concern to him/her.
(aa) Direct concern means that the decision must have an immediate impact on the
legal position of the applicant. Usually the measure is not of direct concern if a
measure of the national authorities is required in order to implement the Community
measure.
(bb) Individual concern is given if the decision affects the applicants "by reason of
certain attributes which are peculiar to them or by reasons of circumstances in which
they
are
differentiated from
all
other
persons
and
by
virtue
of these
factors
distinguishes them individually just as in the case of the person addressed" (ECJ in
case 25/62, Plaumann Co. v. Commission (1963) ECR 95).
(3) Grounds of challenge
The four possible grounds for a challenge are specified in Art. 230 (1) EC: The
procedural shortcomings of a Community measure can consist in the lack of competence of
the acting institution (see chapter C III above) or the infringement of an essential
procedural requirement (like the duty to provide reasons or to consult). As substantive
reasons for illegality the applicant can claim the infringement of the Treaty or of any rule of
law relation to its application or the abuse of power.
(4) Time limit (Art. 230 V EC)
The possibility to claim the illegality of a Community measure is restricted by a time limit
of two months after the publication of the measure in question. As far as decisions are
concerned, the time period starts with notification to the addressee or the day, the
applicant can in fact take notice of the decision's content.
If the Court believes that the particular institution has acted outside its competences or has
violated essential rules of procedure or material rights of the plaintiff, the act will be
declared null and void.
Example: If the Council passes a regulation according to Art. 308 EC, which provides for
a warning to be printed on all products containing chemicals that might intoxicate the
environment, with nine to three votes, any producer of such product within the internal
market may call for a review of the regulation under Art. 230 EC, because it was not
passed unanimously as required by Art. 308 EC. If he fulfils the conditions of direct and
individual concern and observes the time limit, the regulation will be declared null and
void by the CFI.
4.3 III. The Procedures of Failure to Act (Art. 232 EC)
According to Art. 232 (1) EC, the Member States or the other institutions of the
Community may bring an action before the Court of Justice, if the European Parliament,
the Council or the Commission infringe the EC Treaty by failing to act. Also natural and
legal persons can put forward such a claim (Art. 232 (3) EC), but they have to
approach the Court of First Instance. This action is structured parallel to the action under
Art. 230 EC. The question of applicability of the claim therefore needs to address the four
conditions mentioned above:
(1) Which omissions are revisable? - Only those omissions, where the applicant can
show that there was an obligation to act.
(2) Who can bring an action for failure to act? - Privileged and non-privileged applicants
have to be distinguished, while the latter must be directly concerned by the
wrongful failure to act (Art. 232 (3) EC).
(3) The grounds such a claim can be based on the simple failure to take an action which
is required under the Treaty.
(4) Is there a time limit for filing a claim? - In the case of Art. 232 EC no time limitation
seems to be indicated by the Treaty. Art. 232 (2) EC simply states that the
applicant first has to call upon the responsible institution to act before he can put
forward his claim. The ECJ has developed the rule that if the institution has not
defined its position within two months of being so called upon, the action may be
brought to court only within a further period of two months.
The Court will establish an infringement of the Treaty, if the institution was obliged to act
under the Treaty or under secondary Community law. According to Art. 233 (1) EC, the
institution whose failure to act has been declared to be contrary to the Treaty, shall be
required to take the necessary measures to comply with the judgement.
4.4 IV. Action for Damages caused by Institutions or Servants of the
European Community (Arts. 235, 288 (2) EC)
The CFI and ECJ also have jurisdiction on certain cases on non-contractual liability. If an
institution or a servant of the Community damages a natural or legal person by acting or
by failing to act, this person may sue for compensation of damages. One can also think
of situations, where a member State suffered loss due to an illegal Community act, and
wants to take action for damages against the Community.
The suit may be filed against the European Community directly, without the requirement to
bring an action for review of legality or of failure to act first. As the actions under
Art. 230 (1) EC and Art. 288 (2) EC pursue completely different legal goals -
annulment of an act on the one side and recovery of losses on the other - the action for
damages has to be considered as an independent or autonomous procedural instrument. But
it should be noted that the possibility to bring an action for annulment might restrict the
admissibility of a claim for damages. If the applicant would have been able to proceed
according to Art. 230 (1) EC against the Community act causing the damages, but
simply failed to keep the time limit (two months) set out in Art. 230 (5) EC, he is
precluded from taking an action under Art. 288 (2) EC. The reason for this limitation is
the fact, that the damages claimed by the applicant could have been avoided, if he had
taken an action for annulment in due time.
Since European law does not dispose of any special set of rules on state liability, the
legal basis for such claims has to be derived from national law. According to Art. 288
(2) EC the conditions for a successful claim have to be established in conformity with
the general principles of state liability common to the laws of the Member States. The
conditions found by the ECJ were laid down in the case Aktien-Zuckerfabrik Schöppenstedt
vs. Council (5/71, Schöppenstedt, [1971] ECR 975).
(1) A Community organ or an official of the EC must have acted in its/his official
function. One needs to distinguish between legislative and administrative acts and
omissions.
(2) The alleged act must be unlawful; it must be a "flagrant violation of a superior rule of
law for the protection of the individual".
(a) Considering legislative acts, a qualified infringement needs to be established: not
just an unlawful act, but a manifest and grave violation or a sufficiently serious
breach of the law must have occurred.
(b) Administrative acts simply need to be in breach of a (superior rule of) law which
protects individual rights.
(3) The applicant must have suffered substantial losses or financial damages.
(4) There must be a direct causal link between the unlawful act and the incurred
damages.
The definitions elaborated by the Court in its judgments on the principle of state liability,
especially Brasserie du Pêcheur and Factortame (C-46, 48/93 [1996] ECR I-1029)
apply also in the area of Community liability. In these judgements the ECJ for example
specified the factors indicating a sufficiently serious breach of law.
4.5 V.
Preliminary Rulings (Art. 234 EC)
According to Art. 234 EC, the European Court of Justice shall have jurisdiction to give
preliminary rulings concerning the interpretation of the Treaty, the validity and interpretation
of acts of the institutions of the Community and of the European Central Bank (ECB,
http://www.ecb.int/home/html/index.en.html).
When
one
of
these
questions
is
raised
before any court or tribunal of a Member State, that court or tribunal may request the ECJ
to give a ruling thereon (Art. 234 (2) EC), if it considers that a decision on the
question is necessary to enable it to give a judgement. The ruling of the ECJ can only
give abstract and general answers to the questions referred to it. It will link its ruling to
the specific questions of the case at hand, but the ECJ cannot decide on the facts of the
case itself, as this is and remains the responsibility of the national court.
Art. 234 EC may be compared to Art. 100 of the Basic Law of Germany. Its purpose is
to guarantee a uniform application of the law and not to leave it to the various national
courts to decide on how to interpret the Treaty. Other than Art. 100 of the Basic Law,
Art. 234 EC does not generally oblige national courts to obtain a decision from the
European Court of Justice. Such an obligation exists only in two situations: (1) when a
question is raised in a case before a court of a Member State against whose decisions
there is no judicial remedy under national law (a court of last instance in the material
sense); (2) when the domestic court does not merely doubt the correct interpretation of
a Community rule but its validity (Art. 234 (3) EC).
At this point it is important to make a clear distinction between the interpretation of the
Treaty or of acts of Community organs on the one hand and the validity of Community
acts on the other. While a court is free to decide whether or not to make a reference to
the ECJ on the interpretation of Community law, it is obliged to refer questions of validity
to the ECJ. It is the European Court of Justice who has the final say on the interpretation
and validity of Community law. Thus, any national court or tribunal within the Community
has got either the opportunity or the duty to refer disputes concerning the interpretation or
validity of particular clauses of Community law to the ECJ, whenever such an issue
becomes crucial for the decision of a case in litigation.
Example: If a French accountant wants to establish an office in the Federal Republic of
Germany and the German Association of Registered Accountants denies to grant a
license, he has to bring a suit before the German fiscal courts, according to § 33 (1) no.
3 of the Act on Fiscal Procedure (Abgabenordnung), in order to attain a decision on
whether this denial of license violates the freedom of services under the EC Treaty. The
court then has the opportunity to request the European Court of Justice to give a ruling
on that issue. The German Higher Federal Court (as court of last instance), however,
would be obliged to file a request.
However, there is no need to initiate preliminary proceedings if the question of EC law is
irrelevant, has been decided before by the ECJ or if there cannot be any reasonable doubt
as to the correct application of the provision neither for the ECJ nor the courts of the
Member States (so-called "acte claire"). Moreover Art. 234 EC must not be abused.
The admissibility of a preliminary ruling therefore requires the existence of a genuine legal
dispute and will be denied if only hypothetical questions are referred to the ECJ. The ECJ
rejects questions if they are irrelevant for the facts of the case at hand or if the facts are
so unclear that there is no evidence that they could be relevant.
As seen above, a preliminary ruling will be admissible if three conditions are fulfilled:
(1) A national court or tribunal is the applicant for a preliminary ruling by the ECJ.
(2) The applicant refers one or several questions to the ECJ, concerning either the
interpretation of primary or secondary law, or the validity of legal acts of the
Community organs. A distinction can be made between the right of the national
court or tribunal to initiate a preliminary proceedings and its obligation to do so.
(3) The questions raised by the applying court are crucial for the decision of the case
before the national court or tribunal.
5 E.
The European Fundamental Rights and General Principles of Law
Originally the body of European law did not dispose of any set of fundamental rights
comparable to that of the German Basic Law or the French Constitution, which refers to
the French Declaration of Human- and Civil Rights of 1789 and the Preamble of a former
French
Constitution
-
both
documents
containing
a
catalogue
of fundamental
rights.
However, this does not mean that there are no fundamental rights on the European level.
The situation could be compared to that in the United Kingdom, where an efficient
protection of fundamental rights is granted despite the absence of any written catalogue.
During the last 30 years, the European Court of Justice has in numerous decisions
developed a system of fundamental rights comparable to the catalogue contained in the
German Basic Law. One might even say that it was for the German Federal Constitutional
Court and other Member States, who initially rejected the supremacy of Community law for
the lacking acknowledgement and protection of fundamental rights at the European level that
the ECJ turned to the question of the existence of European fundamental rights. The first
document for the protection of fundamental rights within the European Community is the
"Stauder"-decision (29/69 [1969] ECR 419), in which the Court mentioned that it felt
obliged to protect the fundamental rights of individuals. The Court's jurisdiction has been
acknowledged by the German Federal Constitutional Court in Its decision ("Solange II"
BVerfGE 73, 339 et seq.).
However, in the course of time provisions have been included in the Treaties, which
explicitly address the fundamental rights issue, the introduction of which can be seen as a
reaction of the European political bodies to the jurisdiction of the ECJ. Art. 6 (2) EU
states that the European Union shall respect the fundamental rights as guaranteed by the
European Convention on the Protection of Fundamental Rights (ECHR) and as they are
common to the different constitutions of the Member States. According to Art. 6 (1) EU
- which was introduced by the Treaty of Amsterdam in 1998 and goes even further - the
Union is founded (amongst other principles) on the respect for human rights and
fundamental freedoms.
The culmination of this development was the proclamation of the European Charter of
Fundamental Rights at the IGC in Nice, 2000. Although the Charter is not yet legally
binding, it has been included in the draft constitution and will acquire legal - or rather
constitutional - status whenever the constitution enters into force.
5.1 I.
The Legal Basis for the Protection of Fundamental Rights by
Community Law
1.
Enacted Law
Although the EC Treaty does not dispose of a catalogue of fundamental rights in a strict
sense, it contains clauses which may be employed as a basis to derive a protection of
such rights. The first to be mentioned among those are the so-called anti-discrimination
clauses (see e.g. Art. 12, 13, 34 (3) and 141 EC), which guarantee equal protection
in particular fields of the law. Furthermore, the four fundamental freedoms laid down in the
EC Treaty are of importance in that context. Although they are no fundamental rights in
the strict sense, these economic freedoms state obligations for the Member States, and
therefore guarantee the individual citizen rights and freedoms against authoritative action.
The main difference between fundamental rights and the four fundamental freedoms consists
in the nature of their protection: While fundamental rights contain a negative protection prohibiting the interference of public authorities with an individual's sphere of freedom - the
four fundamental freedoms are positive guarantees. They open up additional space for
individual (economic) activity.
2.
General Principles of Law
In the absence of Art. 6 EU the ECJ in Its earlier decisions on the protection of
fundamental rights under Community law in had to look for possible sources for the
establishment of European fundamental rights. Its first instrument was a reference to the
general principles of the law. This method, which is frequently used in French law, enabled
the ECJ to make use of legal systems not only within but also outside the Community.
Later the constitutional traditions of the Member States and international treaties on the
protection of fundamental rights, signed by all Member States prevailed as major sources
for European fundamental rights.
3.
The Constitutions of the Member States
The method of recourse to the constitutions of the Member States is closely related to the
method described above. In Its "Nold"-decision (4/73 [1974] ECR 491), the Court held
that it was not going to accept any act that clearly violated the fundamental rights
acknowledged and protected by the constitutions of the Member States. Consequently, in
later decisions, the Court used a comparative method to delineate the degree of protection
granted by the constitutional orders of the Member States. However, the expectation that
the Court would try to transfer the maximum protection possible under national constitutions
to the European platform was disappointed.
4.
The European Convention for the Protection of Human Rights and Fundamental Freedoms
Since all European States have ratified the European Convention on Human Rights and
Fundamental Freedoms (http://conventions.coe.int/treaty/EN/cadreprincipal.htm), this set of
rules has also been employed by the European Court of Justice as a source of protection
of fundamental rights within the Community, although it is not part of Community law in
the strict sense. The Convention on Human Rights had a particular influence on the
jurisdiction
of
the
Court
on
the
protection
of
property
(see
Art. 1
of
the
First
Supplementary Agreement to the Convention).
5.
The Declaration on Fundamental Rights
Another source of European fundamental rights is found in a number of declarations of
Community
institutions
on
that
issue.
The
ECJ
has
several
times
referred
to
the
Declaration of the European Parliament, the Council and the Commission on the Protection of
Fundamental
Rights
Within
the
Community
of
April
(http://www.europarl.eu.int/charter/docs/pdf/jointdecl_04_77_en_en.pdf).
4,
1977
By
this
declaration, the institutions acknowledged the importance of fundamental rights and promised
to regard them in the execution of their duties. On December 4, 1989, the European
Parliament
passed
a
Declaration
on
Fundamental
Rights
and
Freedoms
(http://www.europarl.eu.int/charter/docs/pdf/a2_0003_89_en_en.pdf), which for the first
time ever contains a thorough catalogue of fundamental rights. Since 1993 the European
Parliament issues annual reports on the respect for human rights within Community.
6.
Charter of Fundamental Rights of the European Union
On December 8, 2000 the European Parliament, Commission and Council proclaimed jointly
the
"Charter
of
Fundamental
Rights
of
the
European
Union"
(http://db.consilium.eu.int/df/default.asp?lang=en), including the economic and social rights
of European citizens. The Charter is a summary of the level of protection of fundamental
rights achieved throughout the EU at the beginning of the new millennium and is based
inter alia on the jurisdiction of the ECJ. It is addressed to the citizens of the Member
States.
However, the Charter is still a purely political declaration without any legal enforceability;
nevertheless, Commission, Council and European Parliament bound themselves to observe
the Charter by means of the proclamation. The Constitutional Convention (see chapter A
IV) suggested the insertion of the Charter in its draft constitution for the European Union,
thereby giving it a legally binding status.
5.2 II.
1.
The Protection of Particular Fundamental Rights
The Right to Property
In several cases, the ECJ has held that the law of the European Community guarantees
the right to property (44/79, Hauer [1979] ECR 3727, 3745 ff.). The character and
limits of this guarantee are similar to that of Art. 14 of the German Basic Law. The
parallels are due to the fact that the German Federal Constitutional Court had to decide on
miscellaneous property cases, and therefore had the opportunity to intensively analyse this
field of law. The ECJ based its own judgements on the results found by the German
judges. The guarantee of the right to property on the European level extends to all rights
of property value. Based on the European Convention on Human Rights, the ECJ also
distinguishes between expropriation and the social limits of property rights, as the German
Constitutional Court does.
2.
Freedom of Profession
The freedom of profession in general has not yet been of decisive importance within the
European Community. However, the ECJ, by citing the constitutions of several Member
States, has held that this right is also guaranteed by EC law (234/85, Keller [1986]
ECR 2897). In order to determine whether a limitation of the freedom of profession by
authorities is permitted, the Court distinguishes between different degrees of burden and
between rules of access and rules of professional practice, similar to the jurisdiction of the
German Federal Constitutional Court on Art. 12 of the Basic Law. The doctrine of
proportionality is also of major significance in that field.
Particular aspects of the freedom of profession are covered by the fundamental freedoms,
explicitly provided for in the EC, e.g. the free movement of workers (Art. 39 EC), the
freedom of establishment (Art. 43 EC) and the freedom to provide services (Art. 49
EC).
3.
Protection against Seizures
This fundamental right is an example for the differences between the protection granted by
the Basic Law of the Federal Republic of Germany and by European law. While both do
protect the privacy of one's home, the attitude towards commercial premises is different. In
Its "Hoechst"-decision (46/87 & 227/88 [1989] ECR 2859, the European Court of
Justice held that the protection does not apply to such premises, while, according to the
German Constitutional Court, business premises are also within the sphere of protection of
the home granted by Art. 13 of the Basic Law. According to the ECJ, this difference is
founded in the different attitudes the constitutions of the European states take towards that
issue.
4.
Equality / Non-discrimination
The European Court of Justice has acknowledged the right to equal protection as a
fundamental principle of law, far beyond the scope of the particular anti-discrimination
clauses of the EC Treaty. In Its "Wagner" decision (case 8/82, ECR [1983], 371,
387),
the
Court
even
cites
the
German
Constitutional
Court
when
holding
that
discrimination is unfair and, thus, illegal, whenever equal cases are arbitrarily treated
unequally or unequal cases are arbitrarily treated equally.
5.
Other Fundamental Guarantees
Additional fundamental rights are the freedom of expression (43 & 63/82, "Flämische
Bücher" [1984] ECR 19, 62; [1989] ECR 4304); freedom of assembly and association
(175/73, "Gewerkschaftsbund" [1974] ECR 917, 924), freedom of religion (130/75,
"Prais" [1976] ECR 1589, 1599) and so on. Beyond the "classical" fundamental rights,
the ECJ has recognised the protection of several rules of quasi-fundamental character. The
first to mention among these is the doctrine of proportional action. According to this
doctrine, European institutions may not act in a way which is unsuitable or not necessary
with regard to the pursued objective. Another fundamental principle is the protection of
legitimate expectations. The ECJ guarantees the protection of any legitimate confidence in
the maintenance of a particular factual situation or a particular rule of law. However, the
withdrawal of an administrative action or a retroactive legal provision does not always
infringe upon vested rights. It is permitted if (1) the public interest outweighs the
legitimate expectations of an individual that a particular present status is preserved, (2) if
it is necessary and (3) suitable in order to reach the (legitimate) goal pursued. Besides
the question of justification of infringements of fundamental rights, this is another example
for the importance of the doctrine of proportionality.
The principles of proportionality and legitimate expectations are not only quasi-fundamental
rights themselves, but at the same time limitations for potential restrictions of fundamental
rights by European public bodies.
Further
general
principles
granted
by
European
law
are
the
doctrine of legality of
administrative action, the right of due process and the rule that no one may be punished for
the same act more than once (ne bis in idem).
6 F.
Fundamental Principles of the Commercial Law of the EC
6.1 I.
1.
The Economic Constitution of Europe
Objectives
The foundations and objectives of the European Union are summarised in the Preamble and
the first Articles (Art. 2 and 3) of the EC Treaty. They are led by the determination to
"lay the foundations of an ever closer union among the peoples of Europe".
The general objectives with an economic background listed in the Preamble are
-
to ensure the economic and social progress of the Member States;
-
to constantly improve the living and working conditions of their peoples;
-
to harmonise their national economies; and
-
to contribute to the progressive abolition of restrictions on international trade.
Further specifications can be found in Art. 2 EC:
"The Community shall have as its task, by establishing a common market and an
economic and monetary union and by implementing common policies or activities referred to
in Art. 3 and 4, to promote throughout the Community a harmonious, balanced and
sustainable development of economic activities, a high level of employment and of social
protection, equality between men and women, sustainable and non-inflationary growth, a
high degree of competitiveness and convergence of economic performance, a high level of
protection and improvement of the quality of the environment, the raising of the standard of
living and quality of life, and economic and social cohesion and solidarity among the
Member States."
In order to achieve these objectives, Art. 3 EC gives several specific assignments:
-
to eliminate customs duties and quantitative restrictions on the import and
export of goods as well as all other measures having equivalent effect between
the Member States;
-
to adopt a common policy in the sphere of agriculture and transport;
-
to establish a uniform system of commercial law and to abolish all obstacles to the
freedom of movement for persons, services and capital;
-
to co-ordinate the employment policies of the Member States; and
-
to approximate the legal systems of the Member States.
There is a general consensus that these objectives are not merely a program. They have
to be understood as legally binding obligations of the Community institutions. In order to
achieve these goals the Community institutions basically dispose of two different but
complementing instruments: First, the establishment of an internal or common market and
the safeguarding of its proper functioning. Yet, as such an internal market alone is not
sufficient to reach the high goals set out by the Treaties, especially taking into account the
immense economic and social differences among the Member States, the coordination of
economic policies of the Member States becomes an indispensable second instrument.
When the European Economic Community was founded, the particular means required to
achieve these goals could not be foreseen. Therefore Art. 2 and 3 EC should not be
understood as a final enumeration, but rather as an indication for what was deemed
necessary in 1957 to "lay the foundations of an ever closer union among the peoples of
Europe".
During the following years day to day policy proved that it would be extremely difficult to
reach the goals expressly mentioned in Art. 2 and 3 EC. After the integration movement
had
come
to
a
standstill
in
the
1970s,
the
Single
(http://www.europa.eu.int/abc/obj/treaties/en/entoc113.htm)
was
European
passed
Act
(SEA)
in
February
1986. It provided for particular actions promoting the internal market (see also chapter A
III). The Treaty Establishing the European Economic Community (EEC) was amended by
inserting Art. 14 EC, which obliged the Community to establish the
internal market
progressively until December 31, 1992. The "internal market" is defined as an area without
internal frontiers in which the free movement of goods, persons, services and capital is ensured
in accordance with the provisions of the Treaty. The most important steps within this
development were and will be the assimilation of the national laws or at least their mutual
recognition, the creation of uniform technical standards and the abolition of national policies
on tariffs and trade, i.e., the obligation to speak with one voice on tariffs and trade policy
to third countries. Furthermore, a harmonisation of indirect taxes, in particular of the Value
Added Tax, is an indispensable prerequisite for the establishment of an internal market, like
the liberalisation of the assignment of public contracts, the free movement of workers and
the freedom of establishment, of services and of the movement of capital. Many of these
aims have already been achieved.
2.
Basic Structures
The basic structure of the European economic order may be characterised as follows: All
trading and commercial activity is free as a matter of principle, and may not be interfered
with by governmental measures. This freedom can be limited either by Community law
(regulations) or by national legislation, if such restrictions are necessary in order to protect
higher ranking values like public health, public security etc. The Treaty provisions and
jurisprudence of the ECJ dealing with the fundamental economic freedoms have the difficult
task to draw a line between necessary limitations of the fundamental freedoms and acts of
protectionism. Apart from provisions on the free movement of goods, workers, services and
capital, the EC contains specific rules on agriculture and transport. The Treaty also
specifies the common competition policy to be developed, the economic policy, the
commercial and social policy and the harmonisation of laws.
One could ask, whether the EC Treaty provides for a particular economic system, some
kind of "economic constitution" for the EU. The conclusion that can be drawn from the
entirety of the relevant Treaty provisions is that the EC does not permit one of the
extreme positions: neither Manchester-Liberalism at the one end of the scale, nor pure
Socialism at the other. The latter is definitely excluded by the firm position the Treaty
takes on the issue of fundamental economic freedoms, the free movement of productionfactors, anti-discrimination and by the position the ECJ has taken on the protection of
fundamental rights. On the other hand, the European Union has to raise the living standard
of its citizens, improve the labour market, finance a European Social Fund and harmonise
national social policies. This excludes a too liberal approach, too. The result is the Treaty's
permission to operate within the scope given to achieve the goals of the European Union
and to respect the fundamental freedoms granted by the Treaty. This "soft" interpretation of
the Treaty is supported by two arguments: First, it improves the adaptability of the Union
to new developments, permitting very flexible reactions. Second, it leaves enough room to
the Member States to develop their own ideas about economic policy.
6.2 II.
The Fundamental Freedoms
The four fundamental freedoms set out in Part Three of the EC can be described as the
"Foundations of the Community". Their significance must not be underestimated. The
economic freedoms are the essential instruments forming the internal market which Art. 2
EC calls for, above all the free movement of goods (Art. 23-31 EC), which is ensured in
particular by the establishment of a customs union. The Treaty furthermore guarantees the
free movement of workers within the Community (Art. 39-42 EC), including the freedom of
establishment (Art. 43-48 EC), the freedom to provide services (Art. 49-55 EC) and
the free movement of capital and payments (Art. 56-60 EC).
The fundamental freedoms are to some extent comparable to fundamental rights (see
chapter E). They constitute individual rights which every citizen of the EU can invoke
against national and European authorities, but not against other private parties. Given that
all freedoms are directly effective rules of law in the Member States, every citizen of the
EU can, for example, argue that a provision of national law applicable to his or her case
infringes one of the fundamental freedoms. If the competent court agrees with him or her,
the provision of national law must not be applied.
The main provision of the fundamental economic freedoms is their inherent obligation of the
Member States to treat goods, workers, services and capital from other Community
members exactly like they treat their domestic goods, workers and so on. The fundamental
freedoms demand non-discrimination between domestic and foreign economic factors of
production with the aim to create equal market conditions and fair, undisturbed competition
within and between all Member States. Thereby they specify the general prohibition of
discrimination on grounds of nationality contained in Art. 12 EC, which is of subsidiary
application. Regarding discriminatory barriers to trade, which can be set up by a state,
direct and indirect discrimination have to be distinguished:
-
Direct discrimination occurs where a state distinguishes explicitly between its own
and foreign nationals or goods, overtly treating their domestic ones more
favourably than those from other Member States.
-
In other situations national laws are indifferent towards nationality or origin at first
glance. Nevertheless a legal provision or administrative practice can have a
discriminatory effect on imported goods or on workers from other Member States.
These kind of measures apply indistinctly to nationals and foreigners but
nevertheless amount to indirect discrimination.
The ECJ has made extensive use of the concept of free movement of goods to strike down
national legislation contrary to the free trade principle. Employing means of interpretation
and the "spirit of the Treaty" the Court broadened the content of the fundamental freedoms
from the prohibition of discrimination to a general prohibition of national measures which
restrain or hinder intra-Community trade, even if those measures uniformly apply to
domestic and imported goods, to the state's own and foreign nationals (case C-55/94
"Gebhard" [1995] ECR I-4165).
In this context it is important to note that all the fundamental freedoms of the EC only
operate in cases concerning cross-border traffic within the Community. Only if goods,
services or workers cross the border between two Member States the fundamental freedoms
can be invoked. If a provision of national law infringes Community law - e.g. one of the
fundamental freedoms - this does not mean that the whole provision is invalid: Community
law applies only to cross-border situations and can render a contravening national provision
of law inapplicable in such a case (for the principle of supremacy see chapter C IV). But
at the same time the national provision remains in force and continues to regulate purely
national situations. This means: A court of a Member State cannot declare this national
provision generally invalid, if its decision is based only on the requirements of EC law. In
cases lacking a cross-border dimension, the national provision, which was contested under
Community law, remains applicable. In individual cases this can result in a less favourable
treatment of a Member State's own nationals in comparison to citizens of other Member
States ("reverse discrimination").
1.
Free Movement of Goods
Articles 25 and 28 et seq. EC are addressed to the Member States, obliging them to
refrain from hindering the attainment of the Treaty objectives by unjustifiable restrictions on
trade. The provisions are exclusively directed against measures of the Member States
related to the movement of goods across country borders within the Community. This
means that Art. 28 EC is a measure of national statutes, laws, administrative or other
legal acts by public authorities.
The concept of free movement of goods is determined by the structure given in Articles
25 and 28 et seq. EC. The starting point are two basic rules - the abolition of customs
duties (Art. 25 EC) and the prohibition of quantitative restrictions (Art. 28 EC) - which
grant
freedom
to
the
individual,
simultaneously
prohibiting
or
restricting
state
action.
Secondly, since some exceptions to the principle of free movement are reasonable with
regard to higher ranking national interests, there is the possibility for the Member States to
derogate from these rules under the circumstances prescribed in Art. 30 EC. But such a
unilateral derogation is permitted only if the pursuit of the aims mentioned in Art. 30 EC
is not simply used as a "formal excuse" for national acts of protectionism. If a supposedly
justified measure de facto constitutes a disguised support of the national economy, it is not
covered by Art. 30 EC.
(1) Area of Applicability
(a) When talking about the principle of free movement of goods as the corner-stone of
the European economic order, one first comes across the question what constitutes a
"good" in the sense of the EC. As the ECJ specified in the Kunstschätze-case (7/68
[1968] ECR 623, 632) goods are "products which can be valued in money and which
are capable, as such, of forming the subject of commercial transactions". A good is called
a Community good either if it was produced within the Member States or if it stems from
a third country, but has been lawfully imported and marketed in the Community (Articles
23 (2), 24 EC).
(b) Customs Duties and Charges Having Equivalent Effect
According to Art. 25 EC customs duties and charges having equivalent effect (CHEE) are
prohibited. Customs duties are pecuniary dues, which are levied solely on the ground that
a good wants to cross the border between two Member States. A broad definition of a
CHEE was given by the ECJ in the Diamandarbeiders-case (cases 2, 3/69 [1969] ECR
211),
according
to
which
"Any
pecuniary
charge,
however
small
and
whatever
its
designation and mode of application, which is imposed unilaterally on domestic or foreign
goods by reason of the fact that they cross a frontier, and which is not a customs duty
in the strict sense, constitutes a charge having equivalent effect within the meaning of
Articles 9 and 12 (now Art. 25) of the Treaty, even if it is not imposed for the benefit
of the state, is not discriminatory or protective in effect or if the product on which the
charge is imposed is not in competition with any domestic product.". However, three
situations can occur, when a pecuniary charge is not considered as a customs duty or
CHEE:
(aa) Charges which constitute a proportionate remuneration for services rendered (if the
service is in the interest of the importer/exporter and is offered on a voluntary
basis), (case 87/75 "Bresciani" [1976] ECR 129);
(bb) Charges in accordance with a general domestic tax system (Art. 90 ff. EC);
(cc) Charges which are explicitly allowed or even required under Community law (case
46/76 "Bauhuis" [1977] ECR 5).
(c) Quantitative restrictions and Measures Having Equivalent Effect
Similar to the structure of Art. 25 EC, Art. 28 and 29 EC state that not only quantitative
restrictions on trade, but also all measures having equivalent effect (MHEE) are prohibited.
A quantitative restriction is a national measure which, by imposing quotas, fully or partially
restricts the import or export of a given product by amount or value. This includes a total
ban on the import or export of a product. The interpretation of the notion "measures
having equivalent effect" is more difficult. According to the case law of the ECJ this
concept includes all trading rules enacted by the Member States which are capable of
hindering, directly or indirectly, actually or potentially intra-Community trade (Dassonvilleformula, case 8/74 [1974] ECR 837, 852). If, for example, a Frenchman wants to
import goods into Germany and is prevented from doing so by a German statute, the
German law violates Art. 28 EC and therefore must not be applied in that case.
Noteworthy is the wording of the ECJ's definition of a MHEE, which requires the potential
of the measure to hinder intra-Community trade, but not the factual existence or proof of
such an effect.
Examples: imposition of prior administrative authorisations on imports/exports;
requirement of certificates, licenses, visas; health and phytosanitary inspections;
compulsory declaration of origin.
In its remarkable "Cassis de Dijon" decision (case 120/78 Rewe-Zentrale AG vs.
Bundesmonopolverwaltung
für
Branntwein
(1979)
ECR
649)
the
ECJ
stated
that
indistinctively applicable measures - those which apply equally to the state's own nationals
and other EU citizens - can also constitute measures having equivalent effect in the sense
of Art. 28 EC. Merely the fact that a measure is non-discriminatory is not sufficient for its
compliance with Art. 28 EC. Thus the ECJ has considerably enlarged the area covered by
this Treaty provision from the demand of non-discrimination to a general prohibition of
restrictions on trade. Any national law or administrative practice, which is applied equally to
domestic and imported goods, but automatically puts a heavier burden or incurs higher
costs on the importer or exporter of a good as compared to a domestic trader, is a
potential violation of Art. 28 et seq. EC.
Examples: marketing regulations; compulsory process of production; restrictions on the
shape, size, weight, composition, labelling and packaging of certain products; regulations
on advertising and promotion.
More than two decades after widening the scope of the concept of the free movement of
goods in the "Cassis de Dijon" - case, having witnessed a fast increase of the number
of cases referred to the ECJ in that field, the Court made an effort in the case "Keck"
(C-267, 268/91 [1993] ECR I-6097) to restrict its jurisdiction on the concept of
MHEEs. It held that certain indistinctively applicable provisions, which constitute mere selling
arrangements, are not considered to be a hindrance to trade in the sense of Art. 28 EC,
provided that they "apply to all relevant traders operating within the national territory and
so ... they affect in the same manner, in law and in fact, the marketing of domestic
products and of those from other Member States". It is the purpose of the measure which
determines if it is a selling arrangement or an obstacle to intra-Community trade. Productrelated measures fall in the range of Art. 28 EC prohibitions, while provisions determining
the way, time and place a certain product can or has to be sold, applying both to
domestic and imported goods, are mere selling arrangements, even if they can affect the
volume of trade between two Member States.
(d) Grounds of Justification
Community law offers two different ways to justify a national trade-restricting measure. One
way is offered by the EC Treaty itself, the other one has been developed in the
jurisprudence of the ECJ. Both alternatives are open for a Member State trying to legitimise
a measure in favour of its national economy. However, their conditions must be clearly
distinguished and not be mixed up.
(aa) Derogation under Art. 30 EC
If a measure falls within the scope of Art. 28 or 29 EC, it has to be questioned whether
or not it can be justified under Art. 30 EC. The exemptions granted under Art. 30 EC are
subject to very tight conditions, but both distinctively applicable (i.e. discriminatory)
measures as well as indistinctively applicable ones are justifiable under Art. 30 EC. The
article offers exclusively extra-economic grounds of justification (case 72/83 "Campus Oil"
[1983] ECR 2727); therefore it is not a safeguard-clause. Besides public morality, public
policy and public security, it also lists the protection of health and life of humans, animals
or plants, national treasures and industrial and commercial property. The power of the
Member States to derogate from Art. 28 and 29 EC is an exceptional one and leaves
them only with a limited discretion, which is subject to judicial control.
-
The list of reasons, which can be invoked by a Member State, is exhaustive and
underlies narrow interpretation;
-
A reference to Art. 30 EC can only be made if the Treaty itself does not offer sufficient
protection for the endangered national interest;
-
The derogating measure has to be necessary to achieve the desired result; no less
restrictive means must be available;
-
There must be a direct causal link between the measure and the desired result.
In short: the measure must be proportionate to the aim pursued and must not contain an
arbitrary discrimination of imported goods.
(bb) Alternative Justification: "Cassis de Dijon"
The ECJ - again developing and forming unwritten "inherent" Community law - has gone
beyond this system and created with its so-called "Cassis de Dijon" formula a second path
for the Member States to legitimise a questionable national measure. According to the
Court's decision in the "Cassis de Dijon" case (120/78 [1979] ECR 649, 662) a
measure can not only be justified by reasons given in Art. 30 EC, but also if it is
"necessary
in
order
to
satisfy mandatory requirements
relating
in
particular
to
the
effectiveness of fiscal supervision, the protection of public health, the fairness of commercial
transactions and the protection of the consumer". The measure must pursue an objective of
general interest and non-economic character and must be proportionate to that aim. The
"Cassis de Dijon" formula can only be invoked to justify indistinctively applicable measures.
The classification of these "mandatory requirements" stipulated by the ECJ is unclear. As
opposed to the ECJ's restrictive interpretation of Art. 30 EC, the Court creates the notion
of "mandatory requirements" with an open, expandable list of justifying national interests.
Taking this contradiction into consideration, "mandatory requirements" can be categorised as
a teleological reduction (i.e. a rule of exemption taking the purpose of the original
measure into account) of Art. 28 EC. It is important to recognise the systematic difference
between Art. 30 EC and the "Cassis de Dijon" formula. Art. 30 EC offers grounds of
justification for measures that are clearly in breach of Art. 28 EC. Whenever a measure
can be defended under the "Cassis de Dijon" formula, it is considered not to be in
breach of Art. 28 EC in the first place. Therefore the second approach can also be called
a justification, but systematically it is an exemption to the principle of free movement of
goods and therefore does not even fall in the scope of application of Art. 28 EC.
As a methodological consequence the first test is always, whether or not Art. 28 EC is
applicable to the contested national measure, because it hinders cross-border trade.
Secondly it has to be established if the explicit measure can be justified on the explicit
grounds of Art. 30 EC. As a third step it must be asked, whether a teleological reduction
of Art. 28 EC is necessary, because "mandatory requirements" of general interest require
that national measure to restrict trade.
Example: ECJ case 120/78 [1979] ECR 649, "Cassis de Dijon"
Company R wants to sell French "Cassis de Dijon" in Germany which has an alcohol
content of 15-20%. However, Article 100 (3) of the German Branntweinmonopolgesetz
(Law on the Spirits Monopoly) permits only liqueurs that have a minimum alcohol content
of 25% to be marketed in Germany. This provision therefore prohibits the import of
French "Cassis de Dijon" into Germany.
Since a French product shall be imported into Germany, cross-border trade is affected
and Art. 28 EC applies. Art. 100 of the Branntweinmonopolgesetz does not contain a
quantitative restriction. However, since it practically prohibits the import of Cassis de
Dijon, it is a restriction on trade and therefore a measure having equivalent effect in the
sense of Art. 28 EC. Doubts about the applicability of Art. 28 EC could stem from the fact
that not only foreigners are prohibited from importing Cassis de Dijon, but the sale of the
liqueur - regardless if by German nationals or by foreigners - is prohibited in general in
Germany. But since the "Cassis de Dijon"-decision the ECJ has consistently held that
indistinctive applicability is irrelevant for the compliance of a provision with Art. 28 EC.
The decisive question is whether the provision has the (potential) effect of restricting
trade, which is the case here.
As Art. 100 of the Branntweinmonopolgesetz does not comply with Art. 28 EC, one might
consider, whether the rule can be justified with reference to Art. 30 EC Treaty.
Justification would be possible, if the law had been adopted with the objective to protect
the public health. The German government argued that the prohibition of the sale of
beverages with an alcohol content of more than 15% does protect human health.
However, that argument did not make sense, as the Branntweinmonopolgesetz
nevertheless permits the sale of beverages with an alcohol content of more than 25%.
There is no reason why beverages with an alcohol content of between 15 and 25%
should be particularly harmful. Justification under Art. 30 EC is therefore not possible.
Limiting its decision to this reasoning, the ECJ could have ruled that Art. 100 (3) of the
Branntweinmonopolgesetz is inapplicable in cases of cross-border trade. Instead, the Court
invented the "Cassis de Dijon" formula - without a particular occasion in this case - and
even incorporated the protection of public health as one possible mandatory requirement into
the formula, although this is one of the items listed in Art. 30 EC. However, the formula
should be applied only in relation to objects of legal protection, which are not mentioned in
Art. 30 EC, such as consumer protection or the protection of the environment.
In its more recent case law the European Court of Justice locates the protection of health
methodologically correct within the scope of Art. 30 EC. According to the Court it is not
sufficient for a Member State to invoke that article or the "Cassis de Dijon" formula,
simply paying lip service to honourable policy goals. Reference to the possible grounds of
justification must not lead to the promotion of arbitrary discrimination or a disguised
restriction on trade between the Member States. Searching for the true intention behind a
measure is a difficult and politically sensitive task. One tool is extremely helpful in this
respect: the proportionality test. If, for example, a national measure restricting the free
movement of goods has been adopted allegedly on grounds of the protection of public
health, the question whether this measure really serves this purpose or in reality constitutes
a disguised restriction on trade, can be answered by applying the principle of
proportionality. Disproportionality is a strong indication for the Member State's wish to create
a disguised restriction on trade by adopting a provision under the label of health protection.
In that case the provision would be declared inapplicable (only) to cross-border trade. It
would remain in force for all purely domestic trade cases.
The Branntweinmonopolgesetz could not be exempted from Art. 28 EC based on the
mandatory requirement of public health in Germany, as the prohibition contained in
Art. 100 (3) was not necessary in order to secure public health and therefore not
proportionate to the general interest pursued with it.
Example: ECJ case 362/88 [1990] ECR I-667, "GB-INNO-BM"
A Belgian company operates supermarkets on Belgian territory. After it has distributed
advertising leaflets in Belgium as well as in Luxembourg, a consumers' association
applies for an injunction, claiming that the leaflets infringed Luxembourg competition law
by making reduced-price offers, stating the duration of the offer and referring to previous
prices. The court in Luxembourg referred the question to the ECJ whether those
competition rules are compatible with the EC.
According to the ECJ such a case concerns the free movement of goods. That principle
requires, particularly in areas along national frontiers, that consumers residing in one
Member State may travel freely to the territory of another Member State to shop under
the same conditions as the local population does there. That freedom for consumers
would be compromised if they were deprived of access to advertisements available in the
country where purchases are made. Consequently rules regulating the advertising of
goods must also be examined in the light of Art. 28 EC. The ECJ went on to deal with the
question whether - in accordance with the "Cassis de Dijon" formula - the relevant
prohibitions could be justified on the grounds of mandatory requirements relating to
consumer protection. However, the ECJ has repeatedly stated that it can hardly be
justified as being in the interests of consumer protection, if the consumer is prevented
from having access to information. Under these circumstances the measure is
disproportionate and violates the principle of free movement of goods. The
Luxembourgian provision is therefore inapplicable to cross-border trade.
Example: ECJ case 178/84 [1987] ECR 1227, "Reinheitsgebot (Purity requirement for
beer)"
Art. 9 (1) of the German Biersteuergesetz (Law on Beer Duty) provides that bottomfermented beers may be manufactured only from malted barley, hops, yeast and water.
Imports of foreign beers containing other substances face an absolute marketing
prohibition. Does this legislation infringe Art. 28 EC?
Art. 9 et seq. of the Biersteuergesetz establish restrictions on trade in the sense of
Art. 28 EC, because they hinder trade between the Member States. A beer brewer
outside Germany using substances other than those four allowed in the Biersteuergesetz
and wanting to import that product into Germany is confronted with a marketing
prohibition (Art. 11 (1), (2) of the Law on Food and other Consumer Goods). The purity
requirement of the Biersteuergesetz therefore constitutes a restriction on trade and a
measure having equivalent effect to a quantitative restriction within the meaning of
Art. 28 EC. It is questionable if the provisions of the Biersteuergesetz can be justified
under the "Cassis de Dijon" formula because they serve the mandatory requirement of
consumer protection. For a German consumer, the designation "Bier" is linked to a
beverage manufactured in accordance with the purity requirement of the
Biersteuergesetz. If the beer contains other substances, he is misled as to the nature of
the beverage. Consequently the Biersteuergesetz serves the protection of the consumer.
However, the provisions can be justified under the "Cassis de Dijon" formula only if they
do not constitute a disguised restriction on trade. This must be judged with reference to
the principle of proportionality. To avoid any deception of consumers, it would be
sufficient to use a label clearly showing which substances the product contains. Since
there is a less drastic measure available, which would serve the goal of consumer
protection to the same extent as the purity requirement itself, the marketing prohibition
is disproportionate. It is not justifiable and therefore, according to Art. 28 EC, illegal as
far as cross-border trade is concerned. Consequently foreign producers may import and
market beer that does not satisfy the purity requirement in Germany, whereas German
producers still have to observe the Biersteuergesetz. This is a case of so-called "reverse
discrimination".
(In relation to the purity requirement in force since 1994, see the amendment to the
Biersteuergesetz as adopted in the course of the harmonisation of EC-excise duties, BGBl
I 1992, 2158 et seq., and the Provisional Beer law ("Vorläufiges Biergesetz"), BGBl I
1993, 1399 et seq.)
In practical terms Art. 28 and 30 EC are among the most important provisions of the EC
Treaty. This situation has not changed with the completion of the single market. Crucial for
the debate on Art. 28 EC is the question whether, and to what extent, Member States
have
retained
a
sovereign,
national
discretion
in
relation
to
the
protection
of
the
environment, consumers and technical standards, e.g. for the protection of workers. For
example in a case of uncertainty about the noxiousness of substances or the dangerous
nature of certain goods, the decision whether or not the goods may enter and be marketed
in a Member State is in principle left up to the importing country. With regard to the
import of foodstuffs, the usual diet and the state of health of the population in question
can be taken into account. However, the ECJ holds the view that it is in any case
entitled to check if there is a disguised restriction on trade.
2.
Free Movement of Persons (Arts. 39-42, 43-48 EC)
The concept of free movement of persons contains two elements: a) the free movement of
workers (Art. 39-42 EC) and b) the freedom of establishment (Art. 43-48 EC).
a)
Free Movement of Workers (Art. 39-42 EC)
Art. 39 EC is concerned both with the boost of labour mobility and the protection of
(social) rights of individuals. The ECJ as well as the European legislature have developed
the scope of rights conferred upon the migrant worker, which has led to an extensive and
detailed range of benefits. The essential provisions of Art. 39 EC are first of all the right
to move freely between Member States in order to take up employment, and secondly to
enjoy non-discriminatory conditions of employment and access to social protection once
installed in the host Member State.
Although the Treaty provisions on the free movement of workers have direct effect,
important secondary legislation has been adopted, which substantiates and elaborates upon
the basic Treaty articles and which confers complementing rights upon the family members
of the worker (see Regulation 1612/68). Major acts of secondary law comprise Directive
68/360
(entry
and
residence
rights),
Regulation 1612/68
(employment
access
and
conditions) and Regulation 1251/70 (right to remain).
(1) Area of Applicability
The right to free movement is available only to workers who are nationals of the Member
States; nationality being determined by the respective national law. Third country nationals
can be entitled to certain limited rights as family members of the worker, if the latter is an
EU citizen.
The Treaty does not offer a definition of what a "worker"is.However, the ECJ has
emphasised on many occasions that the definition of this term is not up to the differing
national laws but has a Community meaning. Otherwise the Member States would be able
to modify its meaning and the free movement rules could be frustrated because national
legislators would be able to exclude at will certain categories of persons from the benefit of
the Treaty.
The Court interprets the notion "worker" in a very broad sense. It stated in Lawrie-Blum
v. Land Baden-Württemberg (case 66/85 [1986] ECR 2121) that the essential feature of
an employment relationship is that for a certain period of time a person performs an
"effective and genuine" economic activity for and under the direction of another person in
return for which he or she receives remuneration. The decisive factor for the definition of a
worker - as opposed to a self-employed person - is his dependence and integration in
his employer's business. Furthermore the Court held to be a "worker" under Community
law a person who was currently out of work but was capable of taking up a job and was
seeking employment (case C-85/96 Maria Martinez Sala [1998] ECR I-2691). A parttime worker, whose income was below the minimum means of subsistence in the host
state and who needed to supplement that income by drawing state benefit, is also a
worker in the sense of Community law (case 53/81 Levin v. Staatssecretaris Van Justitie,
[1982] ECR 1035).
But the rights of free movement and associated benefits conferred by the Treaty and
secondary legislation do not apply in situations which are wholly internal to one Member
State. This means that a national worker cannot, in his or her home country, invoke
Community rights relating to the freedom of movement, which are granted to nationals of
other Member States working there ('reverse discrimination', case 175/78 Saunders [1979]
ECR 1129).
(2) Content of the Free Movement Provisions for Workers
(a) Free Movement (Art. 39 (1) EC)
Art. 39 (1) EC entitles any worker within the Community to move around in the Member
States in order to search for work, to enter the host country in order to take up a job, to
stay there during the time of employment and to remain in that Member State after the
termination of his employment there. The right to reside in a host state for the purpose of
searching employment but without having entered a labour contract yet can be limited to
approximately three to six months.
(b) Non-Discrimination (Art. 39 (2) EC)
The guarantee of free movement of workers comprises - besides the right of free
movement - the abolition of discrimination against nationals of other Member States based
on nationality with respect to payment and conditions of employment. Similar to the
provisions on the free movement of goods Art. 39 (2) EC covers direct and indirect
discrimination, irrespective of the violation's severity. However, different treatment of nationals
and non-nationals is not prohibited as long as the differentiation is not based on
nationality. Job entrance requirements, like proof of language or professional skills, are
permissible if they are indispensable prerequisites for a certain employment and comply with
the proportionality principle.
(c) General Prohibition of Restriction
Regarding indistinctively applicable measures the ECJ has developed a jurisprudence parallel
to its decisions concerning the free movement of goods. The Court has extended the
prohibition of discrimination
to a general
prohibition of measures restricting the free
movement of persons. The most significant judgement in this area is the Bosman case
(C-415/93 [1995] ECR I-4921). Nevertheless, this kind of measures can be justified
according to the ECJ's "Cassis de Dijon"-formula. Measures restricting the free movement
of workers are legitimate if they are based on mandatory requirements, i.e. overriding
national interests, if they are indistinctly applicable and proportionate to the aim they
pursue. The "Cassis de Dijon" jurisprudence of the ECJ concerned first of all the free
movement of goods, but applies to all fundamental freedoms contained in the EC.
(3) Limits of the Guarantee of Free Movement of Workers
(a) Public Policy
Art. 39 (3) EC allows the Member States to restrict the right of entry and residence on
grounds of certain public policies ("ordre public" - public order, security and health). This
provision is specified by Directive 64/221. Since the principle of free movement of persons
within the Community's internal market is of fundamental importance, the Court of Justice
interprets the limitations stipulated by the Treaty very restrictively. Therefore, e.g., previous
criminal convictions can only be taken into account when denying the right of entry, if the
circumstances
which
gave
rise
to
that
conviction
are
evidence
of
personal
conduct
constituting a present (!) threat to the requirements of public policy. This can be the
case only where the concerned individual shows a propensity to act the same way in the
future (R. v. Bouchereau, case 30/77 [1977] ECR 1999). Furthermore the person's
conduct must constitute a "genuine and sufficiently serious threat" which affects one of the
fundamental interests of society.
(b) Employment in the Public Service
A second limitation is contained in Art. 39 (4) EC, which allows Member States to deny or
restrict access to employment in the public service on grounds of a worker's nationality. It
is clear that the restriction applies only to the admission to the public service. Once a
national of another Member State has been appointed such a position, any discrimination
on grounds of nationality with regard to remuneration or other conditions of employment will
infringe the free movement provisions. Potentially, Art. 39 (4) EC gives wide scope for
discrimination, particularly in those Member States where the term "public service" covers a
broad spectrum of activities. However, the meaning of "public service" is determined not by
the Member States but by the ECJ, which has defined the term restrictively. According to
the Court the Art. 39 (4) EC exception applies only to jobs requiring a particular
allegiance to the state. These might include, for instance, high-ranking positions in the
police force, armed forces, civil service and the judiciary, but it does not include civil
servants in general (Lawrie-Blum v. Land Baden-Württemberg, case 66/85 [1986] ECR
2121).
(4) Family Members
Art. 39 EC in conjunction with the relevant secondary legislation does not only provide
rights for workers, but also for the workers' family members. Those are derived rights, i.e.
they depend upon the worker's status as a worker and do not exist independently. They
are conferred upon a family member irrespectively of his or her nationality, but the worker
himself must be a citizen of a Member State. The term "worker's family" covers the
worker's spouse and descendants who are under the age of 21. It also includes ancestors
of the worker or the worker's spouse who are dependent on maintenance by the worker.
The status of dependency in this context results from a factual situation in which the
worker is actually providing support for the family member and not from any objective
factors indicating the need for support. The meaning of "spouse" is restricted to persons
who are married to a worker. Consequently, a cohabitee cannot claim rights as a spouse.
Although the ECJ has not yet given a definite ruling as to the rights of a former spouse
after divorce, it is clear that the free movement and associated rights of a worker's spouse
are unaffected by separation (case 267/83 Diatta [1985] ECR 567).
Like the worker himself, the benefited persons are entitled to enter the host country and to
reside there (Art. 10 of Reg. 1612/68). Children of a worker have the right to schooling
and complete professional education. Family members who are third country nationals are
allowed to take up employment according to Art. 11 of Reg. 1612/68. All others are
covered by Art. 39 EC directly, as they are nationals of an EU Member State and enjoy
naturally the right of free movement.
b)
Freedom of Establishment (Art. 43-48 EC)
Art. 43 EC grants every citizen of an EU Member State the freedom to establish and run
a business as a self-employed person anywhere within the Community on the same terms
as nationals of the host state. It also provides the freedom for enterprises to move their
main seat from one to another Member State or to set up branches and agencies in a
country other than the one of establishment. In that sense Art. 43 EC is a nondiscrimination clause, specifying (subordinate) Art. 12 EC. The underlying objective of the
elimination of discrimination is the promotion of market integration.
(1) Area of Application
(a) Establishment in another Member State involves setting up and running a business
or practising a professional activity (for instance as a doctor or a lawyer) there on a
permanent or semi-permanent basis. This step might be taken by a sole trader, a
partnership or a company. Therefore establishment refers to the performance of an
economic activity on a stable and continuous basis in another Member State, with the aim
of complete and indefinite integration in the economic system of the host country (case C
55/94 Gebhard [1995] ECR I-4165). By contrast, when a business is established in one
Member State and simply provides services in another without being at least semipermanently installed there, this constitutes the "provision of services", which is protected
under Art. 49 EC.
Moreover
the notion of establishment
covers situations where an already established
business wishes to move its administrative centre (main seat) from the country of
establishment to another Member State, or where a corporate body intends to set up
branches or agencies in a Member State other than the one where its main seat is
located.
(b) Art. 43 EC can be invoked only by nationals of the Member States. Art. 48 EC
extends
the
freedom
of
establishment
to
all
(private)
legal
entities
(companies,
partnerships, firms,), which have been set up in accordance with the law of a Member
State and have their administrative centre within the Community. Taking the objectives of
the EC into consideration, these Treaty stipulations obviously cover only profit making bodies
corporate, i.e. those pursuing economic interests.
(c) Like every fundamental freedom the freedom of establishment requires a cross-border
situation in order to be relied upon. Although it should be noted that a person can claim
free establishment rights in his own Member State, if he has completed his professional
education in another Member State and on his return wants to set up a business on a
self-employed basis in his home country.
(2) Content of the Provisions on the Freedom of Establishment
According to the ECJ Art. 43 EC grants directly effective rights as far as discrimination on
grounds of nationality and residence are concerned. Consequently, directives issued under
Art. 47 EC are intended not to establish the right of free movement but simply to facilitate
and specify it.
(a) Entry and Residence Rights
Comparable to the rights of a worker a self-employed person must be allowed to enter the
host country and to reside there so he can establish and run his business, as well as he
can remain there under certain circumstances after having closed his business down. The
family members of a self-employed person enjoy entry and residence rights, too.
Again, secondary legislation has been adopted to specify and shape the rights of entry and
residence of the self-employed and their families (Directive 73/148 - entry and residence;
Directive 75/34 - right to remain).
(b) Non-discrimination
As already mentioned above, Art. 43 (2) EC is a directly effective prohibition of
discrimination on grounds of nationality. For a non-national establishment in the host state
must be possible "under the conditions laid down for its own nationals". The clause covers
direct and indirect discrimination, and - again - has been extended to a general
prohibition of restrictive measures, even if they are indistinctively applicable to nationals and
non-nationals and therefore of a formally non-discriminatory nature (case 107/83 Klopp
[1984] ECR 2971). As far as this extension is concerned, a distinction has to be made
between those national laws concerning cross-border market access and those concerning
professional rules of conduct. A general prohibition of restrictive measures applies only to
the former type of laws, not to the latter. Professional rules of conduct are considered to
be a necessary means of protection for particular groups of professionals and their
customers or clients. However, even these rules have to serve overriding national interests
(mandatory requirements, "Cassis de Dijon"); they must be indistinctively applicable and
proportionate.
(3) Limitations of the Freedom of Establishment
Member States are entitled to restrict entry and residence rights of self-employed persons
on certain grounds, which are comparable to those concerning the worker. The freedom of
establishment is subject firstly to limitations justified on grounds of public policy, public
security and public health (Art. 46 EC, substantiated by Directive 64/221). Secondly
Art. 45 EC constitutes the equivalent to Art. 39 (4) EC. It contains an exception to the
freedom of establishment for professions which are connected with the exercise of public
authority. It has been argued that the profession of a lawyer falls into this category as
lawyers are entrusted with the conservation and application of the national legal system.
Nevertheless the ECJ found that lawyers work in the private and not public sphere and
therefore do not perform state functions (case 2/74 Reyners [1974] ECR 631). On the
other hand notaries are said to exercise (partially) public authority and therefore nationals
of other Member States can be denied admission as a notary in the host country based
on Art. 45 EC.
(4) Harmonisation Measures
In the field of company law a substantial harmonisation program has been undertaken,
based on Art. 44 EC. Taking into account the propensity for divergent company law
regimes in different Member States, which partitioned the market by inhibiting exercise of
the freedom of establishment, this was a necessary step for the achievement of a properly
working internal market as one of the prior Treaty objectives. A series of directives, which
have their legal base in Art. 44 (2) EC, have narrowed the gaps between national
company laws.
In addition to the harmonisation strategy, the Community has begun to establish an
independent body of Community company law. In this field regulations are employed rather
than directives, because they involve the creation of directly effective new legal rules
instead of the assimilation of existing ones, which is less time-demanding and more
efficient. The European Economic Interest Grouping (EEIG) Regulation (Reg. 2137/85) is
based on Art. 308 EC. An EEIG can be set up by parties in two or more Member
States. It is designed as a catalyst for cross-border activities between small- and mediumsized enterprises that might otherwise find existing legal forms inappropriate to their crossborder collaborative ventures.
c)
Mutual Recognition of Qualifications
A number of cases raised the question whether Art. 39 and 43 EC could be invoked
directly by individuals who were refused permission to work, to run a business or practice
a profession in another Member State because they did not satisfy national rules relating to
professional qualifications and educational requirements (e.g. case 340/89 Vlassopoulou
[1991] ECR I-2357). As such rules may not be easily satisfied by a non-national, they
can constitute a very serious obstacle to the free movement of persons within the
Community. These are intrinsic difficulties of the principle of non-discrimination, which simply
demands equal treatment of nationals and non-nationals, as expressed in Art. 39 (2) and
43 (2) EC.
A possible solution to this dilemma is a situation where educational or professional
qualifications, which a person achieves in one Member State, are recognised in all other
Member States as having an equal standard compared to the qualifications achievable in
the host country.
The original harmonisation approach taken towards the achievement of mutual recognition of
qualifications consisted in the enactment of specific directives relating to one particular trade
or profession only. Accordingly, directives were passed covering the qualification, amongst
others, of doctors, nurses, dentists, veterinary surgeons and self-employed persons in a
wide range of industries. However, progress was very slow.
A new approach was adopted with Directive 89/48. It provides for the mutual recognition
of
qualifications
in
all
professions
requiring
a
diploma
of
higher
education
(now
supplemented by Directive 92/51 on the mutual recognition of qualifications obtained on
completion of non-degree post-secondary education). The directive applies to a number of
professions, such as legal advising, accountancy, surveying and town planning, but not to
those already covered by former specific directives. Under its provisions, an individual
holding a higher education diploma awarded on completion of at least three years of
professional education and having completed the professional training required for that
profession is, in principle, entitled to pursue that profession in any other Member State.
However, if training and education fall short of the requirements set up by the host state
by at least one year, or the individual has not undertaken the entire period of supervised
practice required by national rules, evidence of professional experience might be necessary.
The directive allows Member States, in certain circumstances, to ask a non-national to
pass an aptitude test examining knowledge appropriate to the profession or to complete an
adaptation period (a period of supervised training in the host state). This applies for
instance, where there is a substantial difference between the matters covered by training in
the host state and the state where training was undertaken.
Rules of professional conduct,
regulating
such
matters
as
professional
ethics
and
organisation, can also constitute real obstacles to the movement of persons because nonnationals may find it difficult or costly to comply with them. Nevertheless, with respect to
non-nationals who exercise their right to work or their right of establishment in other
Member States, conditions relating to the exercise of particular professions may be imposed,
provided that those conditions apply equally and without discrimination to nationals and nonnationals. This is the corollary of the non-national's right to equality of treatment in the
exercise of a trade or profession. In some areas of professional activity, directives have
been adopted providing for the harmonisation and recognition of rules of conduct. Where a
directive has been adopted providing for harmonisation or mutual recognition of particular
professional rules of conduct, only those national rules which are compatible with its
provisions will be permissible. It is for the Member States to decide whether national rules
are covered by the relevant directive.
3.
Freedom to Provide Services (Art. 49-55 EC)
The structure of Art. 49 et seq. EC
is
similar
to
the
structure
of
the
freedom
of
establishment. It guarantees the freedom of the person providing a service to pursue his or
her activity temporarily in another Member State, according to the principle of equal
treatment with that state's own nationals.
(1) Area of Application
(a) Art. 49 EC applies to EU citizens and enterprises which are established in one of
the Member States (Art. 55 in conjunction with Art. 48 EC). Art. 49 EC can be invoked
by the service provider but also by the person who receives or wishes to receive the
service.
(b) According to the Treaty definition in Art. 50 EC a "service" is an economic activity
on a self-employed basis, which is usually performed for remuneration.
(c) The case must involve a cross-border situation, which requires either the provider of
the service to enter the Member State where his customer resides ("positive" freedom) or
the recipient of the service to move temporarily to another Member State, where the
service provider is established ("negative" freedom). Furthermore it is by no means
necessary for the supplier or the customer to make a move to another Member State, it is
sufficient that the service itself crosses the border (e.g. telecasts or TV advertisements:
case 352/85 Bond van Adverteerders [1988] ECR 2085). It is even possible that both
the provider and the recipient of the service are residents of the same Member State, but
the service is performed in another Member State, like it is the case for certain travel
guides (cases 286/82 & 26/83 Luigi and Carbone [1984] ECR 377).
(d) Arts. 49, 50 EC are not applicable whenever the questionable situation is covered
by the free movement of goods, persons or capital (Art. 50 (1) EC). Therefore a clear
definition of and distinction between the four fundamental freedoms is necessary.
(2) Content of the Provisions on the Freedom to Provide Services
(a) The supplier or recipient of a service - like a worker or a self-employed person has got the right of entry and residence in the host state for the purpose and time period
of providing or receiving a service (see Directive 73/148).
(b) Arts. 49, 50 (3) EC prohibit any discriminating measure, i.e. any measure that
stipulates different treatment for national and non-national service providers and recipients.
Prohibited are not only measures explicitly discriminating against foreign EU-citizens, but
also provisions applying without distinction to a state's own nationals and foreigners, but
nevertheless prejudice the freedom to provide services. Such "non-discriminating" measures
can be justified according to the "Cassis de Dijon" judgement - based on mandatory
requirements and proportionality. In addition the ECJ remarked that whenever the national
interest pursued is already preserved by measures in the Member State where the service
provider is established, the protecting rule in the host country is not applicable (cases 369
and 376/96 Arblade a.o. [1999] ECR I-8453).
(3) Limits of the Freedom to provide Services
Pursuant to Art. 55 in conjunction with Art. 46 (1) EC, restrictions can be imposed for the
same reasons applicable to the freedom of establishment: public policy, public security and
public health. An exception to the freedom to provide services exists for activities
associated with the exercise of public authority (Art. 55 in conjunction with Art. 45 EC).
(4) Relation to the Freedom of Establishment
The distinction between the freedom of establishment (Art. 43 EC) and the right to
provide services (Art. 49 EC) is often criticised as a rather artificial one, and can indeed
present problems in one case or the other. Only at first glance are both freedoms
protected to the same extent. The former requires a rather permanent and stable presence
in the host Member State while the latter envisages a temporary sojourn limited to the time
required for the provision of a particular service, but a dividing line is hard to define.
There is always a margin where the correct classification may be extremely difficult.
However, the ECJ has recognised the similarities between the two and the common Treaty
objective behind the principles, and consequently shows its willingness to interpret them
alike. One could say the Court applies Arts. 43 and 49 EC in a complementing rather
than mutually excluding manner (case 48/75 Royer [1976] ECR 497; case 36/74
Walrave and Koch [1974] ECR 1405).
Example: ECJ case 205/84 Commission vs. Germany [1986] ECR 3755 - "Freedom to
provide services in the insurance sector"
According to German insurance law, foreign insurance companies wishing to carry out
direct insurance operations in Germany through intermediaries have to be authorised
(Art. 105 (1) Versicherungsaufsichtsgesetz (VAG, Insurance Supervision Law). Pursuant
to Art. 106 (2) of the VAG, those companies must set up an establishment in Germany
and keep available there all the commercial documents relating to that establishment.
Under Art. 105 (2) of the VAG, a foreign insurance undertaking is not authorised to carry
out its operations without such an establishment.
The first question is whether this case concerns the freedom of establishment or the
freedom to provide services. The feature distinguishing both freedoms is a temporal one:
while establishment is durable, i.e. it involves economic activity on stable and permanent
terms, a service is of a temporary nature. Since foreign insurance undertakings are
particularly interested in selling insurance in Germany without creating a fixed
establishment in the form of an office or storage room, they only want the service
"insurance" to cross the border. This case therefore does not concern an establishment
but the provision of services within the meaning of Art. 49 EC. The obligation under the
VAG to set up an establishment makes it much more difficult for a foreign undertaking to
sell insurance in Germany. Such an undertaking is necessarily faced with competitive
disadvantages, because the obligation to create a further branch of business entails
higher costs. The relevant VAG-provisions could therefore be in conflict with Art. 49 EC.
However, they could be permissible under Art. 55 and 46 EC, if they were justified on
grounds of public policy or public security. More precisely: the protection of the insured
persons' interests (consumers) could require the establishment of a foreign undertaking
in Germany. In order to enable the monitoring of the operation of an undertaking and in
particular its compliance with the law, measures concerning the supervision of the
commercial documents of the undertaking are needed. This in turn suggests that an
establishment is necessary. But since the validity of such an exception to Art. 49 EC
depends on its proportionality, the applicability of Art. 46 EC seems doubtful. Effective
supervision by national authorities does not inevitably call for an establishment, but can
also be guaranteed in other ways which are less burdensome for foreign undertakings. If
one decided otherwise, each Member State could undermine the fundamental freedoms
by administrative means until they lost their effect. Insofar as the VAG requires an
undertaking to set up an establishment so that documents may be supervised, it violates
the EC Treaty.
Example: The Council of Ministers adopts a regulation which prohibits television
companies in the Member States to broadcast movies within two years after their release
in the movie theatres of one Member State. A German television company thinks that
this regulation is illegal under EC Law.
In order to establish a potential breach of Community Law, one needs to question
whether the Council is entitled to adopt such a piece of legislation. According to Art. 249
EC the Council can in principle issue regulations, but of course only within the
competences of the European Community. The Treaty of Rome has defined the
Community powers with regard to the regulation of the economy and the free market
including the provision of services. Meanwhile the Community has no power to regulate
cultural matters; the competence for those remain with the Member States. The
broadcasting of a movie can on the one hand be considered a cultural matter, on the
other hand it can - when a television station reaches several Member States - also be
defined as a provision of services. Since the activities related to the preparation and
broadcasting of telecasts are primarily economic ones, the broadcasting of a movie via
television falls within the power of the EC (Art. 49 EC). Therefore the Council of Ministers
was allowed to enact the regulation. Further it is doubtful whether this piece of secondary
legislation complies with the fundamental rights and the fundamental freedoms,
especially the freedom to provide services. The question of proportionality has to be
discussed but can be answered in the affirmative.
4.
Free Movement of Capital and Payments
In an internal market goods and services must not only be freely negotiable as well as
workers and self-employed persons must be able to choose their place of activity, but the
flow of capital must also be liberalised as far as possible. When this is achieved, one can
speak of unlimited mobility of the means of production and products.
(1) Area of Applicability
Art. 56-60 EC are applicable to the movement of capital as well as to the movement of
payments. Everyone whose capital "resides" in the European Community is a beneficiary of
the free movement of capital, regardless of his or her nationality. Under the free movement
of capital fall direct investments, like equity participation in an enterprise, as well as loans,
guarantees, credits or investments securities.
In contrast to the free movement of capital the free movement of payments protects the
unilateral transfer of capital that constitutes the consideration owed under a contract.
Previously the free movement of payments was the subject of Art. 107 EC. According to
this provision, each Member State undertook to authorise the transfer of payments made as
consideration for a transaction connected with the free movement of goods, persons or
capital.
The free movement
fundamental
freedoms:
of payments
Insofar
as
the
is thus
fundamental
the equivalent counterpart
freedoms
offer
of the
protection,
the
consideration in respect of the fundamental freedoms is also exempted from restrictions.
(2) Provisions of the Free Movement of Capital and Payments
According to Art. 56 (1) EC, any restriction on the movement of capital between the
Member States or between the Member States and third countries is prohibited. Since
Art. 56 EC does not - in contrast to its predecessor ex-Art. 67 EC Treaty - provide for
any exceptions, the free movement of capital must be considered as a directly applicable
rule of law throughout the EU.
Since January 1, 1994, Art. 56 (2) EC governs the free movement of payments, widely
prohibiting restrictions.
(3) Limits of the Free Movement of Capital and Payments
However, this does not mean that the free movement of capital is now possible without
any limits: Art. 57 et seq. EC provide for a (definite) number of exceptions to the free
movement of capital, which are fixed in the Treaty itself. According to Art. 57 EC, e.g.,
certain restrictions in respect of the movement of capital to or from third countries, which
already existed on December 31, 1993, may remain in force.
Concerning the free movement of payments, the exceptions permitted under Art. 57 et seq.
EC are even tighter than those with regard to the free movement of capital.
7 G.
The Competition Policy
Distortions of the internal market can result not only from restrictions on imports and
exports or measures having equivalent effect, but also from two other sources. One is the
conduct of private undertakings and the other one are state aids for single undertakings or
certain economic sectors, both of which have an impact on economic competition within the
Community. The competition policy is one of the furthest developed EC common policies
and is an essential complement to the fundamental freedoms of the Treaty, designed to
create and ensure the proper functioning of the internal market. It takes a high-ranking
position among the numerous EU policies, which is reflected not only in its location in the
very first chapter of the EC Treaty, but also in the extraordinary size of the DG
Competition in the Commission. Its objectives are the following:
-
Maximizing consumer welfare and achieving the optimal allocation of resources,
-
Protecting consumers and smaller firms from large aggregations of economic power,
-
Facilitating the creation and maintenance of a single European market.
The Community's competition law system consists of two pillars: the regulation of the
competitive conduct of undertakings within the Community (Art. 81, 82 EC) and the
monitoring and prohibition of state aids (Art. 87-89 EC). Both pillars aim at preventing
any interference with or disturbance of the free competition within the internal market. While
the former concerns private legal entities, the latter is directed towards the governments of
the Member States. The prohibition of state aids appears to be the connecting piece
between the majority of Treaty provisions, which are addressed to governmental bodies
(like the fundamental freedoms, which prohibit any free movement restriction effectuated by
a public authority within the Member States) and those addressed to private persons,
which are rare and exceptional in the EC. Therefore it will be dealt with first (I) followed
by the rules on cartels (II) and abuse of a dominant position (III, IV).
7.1 I.
The Prohibition of State Aids
Governments can have various motives to influence their national economies or to steer the
conduct of the market players. For the achievement of their policy goals they have several
instruments and measures at their disposition. A state can take legislative action with the
effect of limiting the free movement of goods and production factors. This conduct is
regulated by the EC provisions concerning the fundamental freedoms, as described in
chapter F. But it can also take administrative action, like granting aid to a single national
undertaking or to whole economic sectors. States can be very creative trying to boost or
protect their national economy, which requires the European competition policy to be
similarly "flexible".
The reasoning behind the state aid rules is the fact that subsidised goods can be sold at
a lower price (or better conditions) than comparable goods from abroad, which do not
benefit from governmental support. Therefore subsidies must be considered as (potential)
market distortions. Nevertheless the internal market does not allow the immediate elimination
of all state aids. Social and regional characteristics must be taken into account and it has
to be ensured that the decline of particular sectors of the economy does not endanger the
economy as a whole. Arts. 87-89 EC try to reconcile these conflicting aims.
1.
Definition of a State Aid
The EC Treaty does not provide a definition of what a state aid is or in which forms it
can occur, but generally speaking a state aid can be understood as any financial
advantage provided voluntarily by a state, which is specifically designed to favour or
support a certain company or business sector. Neither the rationale nor the form of a
measure, but its substance is the crucial criterion. The definition refers not only to direct
payments from the government to an enterprise, but also to indirect advantages granted,
e.g. the renunciation of payments of a particular company to the government (like a tax
waiver). Further examples are preferential interest rates or the provision of land, buildings
on special terms.
2.
Content of Art. 87-89 EC
Material state aid rules (Art. 87 EC) and provisions regulating the execution and
enforcement procedures (Arts. 88, 89 EC in connection with Regulation 659/1999) can
be distinguished.
Art. 87 EC applies to two types of aid: that given to public undertakings within Art. 86 EC
and that given to private companies. Art. 87 (1) EC states the principal prohibition of
state aids distorting competition within the internal market. The norm contains four conditions
to establish a state aid incompatible with the internal market:
1. A state aid,
2. granted by a Member State or through state resources,
3. distorting or threatening to distort competition,
4. affecting inter-state trade.
Art. 87 (2) and (3) contain a catalogue of measures, which by definition fall into the
category of prohibited state aids, but are exempted from Art. 87 (1) EC. While paragraph
(2) lists measures which are deemed compatible with the common market, an exemption
under the third paragraph requires a notification of the state aid to and a discretionary
decision by the Commission.
Art. 88 EC sets out the Commission's procedure for monitoring and controlling existing and
future state aids in all Member States. The distinction between existing and new state aids
is important and determines which (procedural) rules apply.
1.)
Existing or old state aids (Art. 88 (1), (2) EC) are those that have already
been in existence when the EC Treaty entered into force or at the moment the concerned
Member State joined the EU. Further they comprise state aids which have been legally
introduced in accordance with Art. 88 EC and those which have come under the statute of
limitation (10 years after their introduction). Existing state aids are subject to permanent
monitoring by the Commission in cooperation with the Member States (Art. 88 (1) EC).
When an existing state aid seizes to be justified or necessary, because e.g. a troubled supported - economic sector is recovering, the Commission either suggests changes to or
orders the abolition of the state aid (Art. 88 (2) EC). If the Member State does not
accept and comply with the suggestion, the Commission will initialize the formal procedure
according to Art. 88 (3) EC.
2.)
New state aids are simply all those which do not fall under the definition of
existing state aids. The Treaty does not contain an absolute prohibition of state aids of
any kind, but it provides for preventive measures. Art. 88 (3) EC requires the Member
States to register ("notify") every intended state aid with the Commission. The latter
conducts a preliminary revision of the planned national measure within two months. The
Member State has to await the Commission's approval before giving effect to the planned
measure (i.e. before issuing the money to the supported company). If the Commission
approves of the notified measure, it issues a decision, stating that the planned measure is
in accordance with EC state aid rules. If it comes to the conclusion that the measure
does not comply with Art. 87 EC, it will initialize the formal procedure according to Art.
88 (3) EC.
Example: Incentives to invest in the new German "Länder"
According to an agreement between the partners of the then-coalition government dating
from January 16, 1991, incentives to invest in the five new German "Länder" are
introduced in the form of special depreciation allowances which amount to 50% of the
initial or production costs of the subsidised economic asset. There are doubts that these
incentives are permitted under Community law.
Pursuant to Art. 87 (1) EC, any aid granted by a Member State - in any form whatsoever
- which distorts or threatens to distort competition by favouring certain undertakings or
the production of certain goods is incompatible with the rules of the internal market if the
aid affects intra-Community trade. The investment incentives in the form of special
depreciation allowances could be a measure prohibited by Art. 87 (1) EC. The notion of
"aid" within the meaning of this provision comprises, amongst others, subsidies,
exemptions from taxes or duties, interest subsidies and discounts on the sale of public
land. Special depreciation allowances are, as business-related tax benefits, aids within
the meaning of Art. 87 (1) EC. The special depreciation allowance interferes with the free
internal market because competitors investing in another region of the Community,
where such allowances do not exist, are faced with a competitive disadvantage. This
results at least in a threat to free competition. The application of Art. 87 EC requires the
concerned state aid to affect trade between the Member States. Since the subsidised
undertakings generally compete with undertakings in other Member States, the possible
effect on intra-Community trade can be established. Art. 87 EC is applicable.
According to Art. 87 (1) EC a state aid in the form of special depreciation allowances is
incompatible with the internal market and therefore prohibited under Community Law.
However, the aid could be exempted from that principle according to Art. 87 (2) (c) EC
which concerns aid granted to the economy of certain areas of the Federal Republic of
Germany affected by the division of Germany in so far as such aid is required in order to
compensate for the economic disadvantages caused by that division. If one considers
that this is not the case, the question whether the special depreciation allowance may be
granted depends on Art. 87 (3) EC. Since there is serious underemployment in the five
new "Länder", the Commission could tolerate aid pursuant to Art. 87 (3) (a) EC. At the
end of 1993 the Commission has expressed that it was taking a very reserved stance
with regard to aid for the new "Länder". Such aid would only be tolerated in the coal and
shipbuilding sectors. In the steel sector, highest priority would be given to the strict
control of aid. This shows that under Community law financial support for the
reconstruction of the industry in the new "Länder" is possible only to a very limited
extent. For that reason special aid for the brown coal industry and shipbuilding has to be
drawn up in close co-operation with the EC Commission.
Regarding the relation between national economic law and Community law, a question
currently of particular interest is whether, and under which circumstances, aid contrary to
Community law can be reclaimed from its beneficiary. As shown above, subsidies of
relevance for the national economy are, according to Art. 87 et seq. EC, only allowed
with the approval of the Commission. If such an aid is granted without or opposed to the
decision of the Commission, this national measure is incompatible with Community law. The
state in question can be subject to proceedings under Art. 226 EC (failure to fulfil Treaty
obligations) and must reclaim the aid from the favoured recipient. This (national) claim is
subject to national administrative law, as no European rules for administrative procedures
exist. According to the ECJ, the interpretation of that law must fully take into account the
special interests of the Community - "effét utile", which can lead to a partial or even
complete invalidation of national law.
Example: German Aluminium
In 1998, a German aluminium producer signed a new contract for the supply of
electricity, which led to steeply rising costs on his behalf and made his business
unprofitable. To persuade the undertaking out of closing down its factory, the state
government agreed to pay the undertaking a transitional allowance amounting to 8
million DM which was paid in 2000.
According to Art. 88 (1) EC, the Commission has to review constantly all systems of aid
existing in the Member States and has to control and authorize aids to be introduced in
the future. The Commission will notice that the above-mentioned allowance does not
comply with the types of aid which are permitted by Art. 87 EC and is thus illegal. It then
gives notice to the parties concerned, first of all to the German government. After that, it
may find that the aid must be abolished or altered. If that does not happen, it will refer
the matter to the ECJ under Art. 88 (2) EC. If the ECJ decides that the aid is indeed
illegal, the competent authority in Germany is, according to Art. 228 EC, "required to
take the necessary measures to comply with the judgement".
According to German law the granting of this aid by the state government is an
administrative act which results in a benefit. Its revocation is therefore governed by sec.
48 of the Verwaltungsverfahrensgesetz (VwVfG, Law on Administrative Procedure) which
provides that a benefit which has been granted illegally can only be reclaimed if the
beneficiary's reliance on the benefit is not worth of protection (principle of legitimate
expectations). According to sec. 48 (2) VwVfG, the beneficiary's reliance on the
maintenance of his advantage is a higher ranking interest than the restoration of legality,
if the beneficiary has already used up the benefit granted or has made arrangements
regarding his property. This is the case here. According to sec. 48 (2) VwVfG the aid can
only be reclaimed if the beneficiary has acted in bad faith. This cannot be presumed.
However, the highest German Administrative Court (BVerwG) found that section 48 of
the VwVfG has to be qualified with regard to EC law: The "effét utile"-formula of the ECJ,
which means that Community law has to be enforced as effectively as possible, has to
secure that the allowance is paid back to the Member State who granted it. In practice
this leads to the elimination of the national legal rules.
Nevertheless, the recipient of the aid can also take action at the European level. He can
challenge the validity of the Commission's decision obliging the Member State to reclaim the
aid granted with an action for annulment (Art. 230 IV EC) to the Court of First Instance.
The Commission's decision is likely to be addressed to the Member State and not the
company that received the aid. But the company is individually and directly concerned by
it, and therefore has got locus standi for such a claim.
7.2 II.
1.
Art. 81 EC - Restrictive Agreements (Cartels)
The elements of an infringement
Art. 81 (1) EC prohibits any cooperative anti-competitive behaviour of private undertakings,
seeking to distort the internal market by building cartels. The wording of the provision lists
four essential elements of an infringement:
(a) an agreement between undertakings, a decision by an association of undertakings or
a concerted practice,
(b) which may affect trade between Member States,
(c) with the objective or effect to prevent, restrict or distort the competition within the
internal market and
(d) affecting competition to a noticeable extent.
ad (a): An agreement between undertakings is not confined to a binding agreement, like
a legally enforceable contract or the constitution of a trade association, a gentlemen's
agreement is sufficient. However, two types of agreements fall outside Art. 81 EC: The
relationship between principal and its agent(s) is not subject to Art. 81 EC because
agents form an integral part of the principal's undertaking. Excluded are also agreements
between a parent company and its subsidiary because the subsidiary usually does not enjoy
freedom of economic conduct, but is predetermined by the parent company's decisions.
The notion 'undertaking' is interpreted by the ECJ in its widest possible sense, including
any legal or natural person engaged in some form of economic or commercial activity,
even if it does not pursue any profit-making interest. The undertaking must be able to
produce an impact on competition, which can also be achieved by a sole trader.
Similarly the term 'decisions by associations of undertakings' is subject to an extensive
interpretation and is not confined to binding decisions. Legally not enforceable decisions like
recommendations fall into this category, if the association's members in fact comply with it
and produce a significant effect on competition. If there is no proof of such an impact, the
non-binding decision can still amount to a concerted practice.
'Concerted practices' are altogether wider than agreements and decisions. A concerted
practice was defined by the ECJ as "a form of coordination between undertakings which,
without having reached the stage where an agreement properly so-called has been
concluded, knowingly substitutes practical co-operation between them for the risks of
competition". Questionable is what degree of coordination is required to establish a
concerted practice. Key element is a mental consensus between the involved undertakings,
which does not even have to be achieved verbally. Informal contact can suffice, like it was
the case in ICI vs. Commission (Dyestuffs Cartel), 48/69 [1972] ECR 619, where
evidence of a concerted practice was found e.g. in the similarity in amount and timing of
price increases. Concerted practices have to be distinguished from 'parallel behaviour' of
undertakings, which is not prohibited by Art. 81 EC. Parallel behaviour is the voluntary
adjustment of a competitor's conduct to the market situation.
ad (b): In order to violate Art. 81 EC the agreement, decision or practice must be one
which may affect trade between Member States. First, it has to be clear that inter-State
trade is concerned, and second, that trade must be affected. In Société Technique
Minièrev. Maschinenbau UlmGmbH (56/65 [1966] ECR 235), Art. 234 EC proceedings,
the ECJ held that an agreement was capable of affecting trade between Member States if,
on the basis of objective legal or factual criteria, it allows one to expect that it will
exercise a direct or indirect, actual or potential effect on the flow of trade between several
Member States. The test is thus very similar to the Dassonville test applied in the context
of Art. 28 EC, but broader since it requires simply an effect on - not a hindrance to trade between Member States. The effect on intra-Community trade can also be established
if one or more non-EC enterprises are involved, even if the agreement is concluded
outside the Community. What matters is the place where such an agreement, decision or
concerted practice takes effect.
ad (c): The agreement, decision or practice must have as its object or effect the
prevention, restriction or distortion of competition within the internal market. It becomes
obvious that EC competition law is not concerned with the question of increase or decrease
in trade between Member States, but with the distortion of the 'normal' competition, which
usually exists within the Community. In order to establish such a market impact, first of all
the relevant market needs to be identified, and secondly it has to be analyzed whether or
not the pattern of trade has been changed by the conduct of the undertakings. Protected
are all elements of competition (price, quality ...) and all its stages. Therefore competition
law
regulates
not
only
'horizontal'
agreements
(i.e.
between
manufacturer
and
manufacturer), which clearly restrict competition, but also with 'vertical' agreements (i.e.
between manufacturer and distributor) and of course mixtures of both.
ad (d): Finally, competition must be affected to a noticeable extent (= De Minimis Doctrine).
A breach of Art. 81 EC requires a sufficient degree of harmfulness to the market situation.
Essential factors for the determination of an agreement's effect on a certain product market
used to be the economic size of the parties to the agreement and, even more important,
their share in the relevant product market. In 1997 this double-approach was abandoned.
Since
then
the
Commission
focuses
only
on
the
market
share
of
the
concerned
undertakings. As a general rule, horizontal and mixed agreements between undertakings
which are engaged in the production and distribution of goods and services and do not
represent more than 5 % of the total market for such goods and services in the area
affected by the agreement, will not fall under the prohibition of Art. 81 EC. In the case of
vertical agreements the share must not exceed 10%.
2.
Exemptions - Art. 81 (3) EC
According to Art. 81 (3) EC, the prohibition of Art. 81 (1) EC can be inapplicable to
agreements or decisions under certain circumstances. Art. 82 (3) EC lists two positive
and two negative conditions for such an exemption:
-
The agreement must contribute to the improvement of the production or distribution
of goods or to the promotion of technical or economic progress.
-
Meanwhile it must allow consumers a fair share of the resulting benefit.
-
It must not impose restrictions on the undertakings concerned, which are not
indispensable to the attainment of these objectives.
-
The relevant undertakings must not be afforded the possibility of eliminating
competition in respect of a substantial part of the products in question.
In the past the Commission had the sole power to grant exemption under Art. 81 (3) EC
(Reg. 17/62 (Art. 9)). In order to obtain an exemption, the parties had to notify the
Commission of their agreements or decisions (Reg. 17/62 (Art. 4)). Because the
Commission was unwilling, or felt unable, to apply a rule of reason to many restrictions on
competition which were clearly justifiable on the principles outlined above, it chose to solve
the twin problems of uncertainty (for business people) and work-load (for itself) by
means
of
block
exemptions.
Block exemptions
dealt
with
certain
types
of
standard
agreements, containing permissible "white clauses" and prohibited "black clauses". The
areas selected for block exemptions were those which, although restricting competition within
the wide meaning of Art. 81 (1) EC, are over all economically beneficial and posed no
real threat to competition. Thus many agreements for which it would have been necessary
to seek individual exemptions did not have to be notified any more. Indeed, the block
exemptions were passed in order to avoid the need for individual appraisal by the
Commission, in the hope that parties would tailor their agreements to fit within these
general confines. In many cases this became standard practice. Block exemptions, being
enacted as regulations, could be directly applied by the national courts.
The requirement of seeking exemption - individual or en bloque - vanished with the new
Regulation 01/2003. According to its Art. 1 (2) any agreement that complies with the four
conditions listed in Art. 81 (3) EC is automatically exempted from the consequences of
Art. 81 (1) and (2) EC (prohibition and nullity) - it could therefore be called a legal
exemption. So in the future it will be up to every single undertaking to evaluate its own
agreements, decisions and concerted practices and to judge whether or not it complies with
Art. 81 EC. Consequently not the Commission but the national courts and private parties
will be the guards of EC competition law in the future. Companies will take their
competitors to court, consumers their contractors if they suspect a restrictive agreement; the
civil courts will have the power to control and revise competitive behaviour of European
undertakings with their judgments.
3.
Summary
In order to establish whether or not a certain conduct of a private undertaking is illegal or
a certain agreement is void because it infringes Art. 81 EC, the following fife questions
must be answered:
(1) Is there any agreement, decision or concerted practice?
(2) Does it affect trade between Member States?
(3) Does it prevent, restrict or distort competition?
(4) Is the agreement one of minor importance?
(5) Can it be exempted under Art. 81 (3)?
7.3 III. Art. 82 EC - Abuse of a Dominant Position
Art. 82 EC prohibits the abusive exercise of a dominant position on the internal market by
one undertaking. In contrast to Art. 81 EC, which requires the cooperation of two or more
companies in the form of agreements, decisions or concerted practices, Art. 82 EC
regulates the unilateral conduct of a company. Similar to the provision on cartels, the
prohibition
contained
in
Art.
82
EC
applies
only
where
intra-Community
trade
is
(potentially) concerned. The provision contains three elements which indicate that an abuse
of a dominant market position has occurred:
(a) a dominant position of the undertaking in the relevant product market,
(b) the relevant market covers either the internal market as such or a substantial part of
it,
(c) abusive conduct.
ad (a): First of all, the business must have a dominant position in the relevant product
market. The relevant market can be defined with reference to the criteria of product
substitution. The relevant market is one in which products are substantially interchangeable.
It includes identical products, or products considered by consumers to be similar in terms
of their physical characteristics, price or use (United Brands case, 27/76 [1978] ECR
207). Furthermore geographical aspects, as well as time (i.e. seasonal changes) have to
be taken into consideration when determining the relevant market.
A company is in a dominant position when it has the power to behave independently
without taking into account - to any substantial extent - its competitors, consumers and
suppliers. This is the case when the company is able to determine the prices or to control
the production or distribution of a significant part of the relevant goods. According to the
Commission the significant factors for a dominant position are:
-
the market share (always dominant, if > 40%);
-
the length of time during which a company has maintained its position in the relevant
product market;
and/or
-
the financial and technological resources.
ad (b): To fall within Art. 82 EC a company must be dominant 'within the common
market or in a substantial part of it'. Sufficient is a geographical market in which the objective
conditions of competition are the same for all traders; it is the market in which available
and acceptable substitutes exist, and in which consumers are willing to shop around for
substitute supplies or in which manufacturers are willing to deliver. For example one
Member State but also a certain part of a Member State (like "southern Germany") can
be considered as a substantial part of the common market (Suiker Unie vs. Commission,
40/73 [1975] ECR 1663).
ad (c): Being in a dominant position is nothing that deserves legal punishment. A breach
of Art. 82 EC requires an abuse of the company's dominant position. Examples of abusive
conduct are given in Art. 82 EC (letters (a) to (d)); the list is non-exhaustive.
Generally the abuses prohibited under Art. 82 EC can be divided into two categories:
exploitative and the anti-competitive ones.
Exploitative abuses occur when a company seeks to take advantage of its position of
dominance by imposing oppressive or unfair conditions on its trading partners, like unfairly
high or low pricing. The company makes profits, which would not have been achievable
under "normal" market conditions, with a high level of competition.
Anti-competitive abuses occur when a business uses its position in such a way as to
undermine or even eliminate existing competitions, thereby reinforcing or increasing its
dominance. Examples are discriminatory pricing for a uniform product, requirements contracts
or the refusal to supply.
7.4 IV. Enforcement of Art. 81 and 82 EC
The powers and procedures governing EC competition law used to be regulated in
Regulation 17/62, which has recently been replaced by Regulation 01/2003, in force since
May 01, 2004. In the past the Commission played the central role in the enforcement
procedures of Art. 81 and 82 EC. Under the mounting workload and with the EU
enlargement approaching, the Commission found itself unable to bear the responsibility
alone. The new Regulation 01/2003 shifts the responsibility for the application and
execution of Art. 81 and 82 EC from the Commission to the national competition authorities
and courts. The Commission will have less executive but more supervising and coordinating
tasks, guarding the coherence of the application of those provisions by the Member States.
It is responsible for
1. the formulation of the Community competition policy,
2. the coordination of the network of national cartel authorities,
3. the decision of individual cases of particular significance, like e.g. the Microsoft case.
In order to fulfil its tasks the Commission enjoys substantial powers and has even the right
to impose fines for breaches of Art. 81 and 82 and even for procedural violations. More
in detail the Commission disposes of:
1. Investigative powers: The Commission may conduct inquiries into whole sectors of
the economy, obtain all necessary information from Member States and companies
and undertake all necessary on-the-spot-investigations (Regulation 01/2003,
Articles 18-21).
2. To ensure the coherence of the application of Art. 81 and 82 EC, the Commission can
take the initiative to issue opinions to national courts dealing with European
competition cases (Reg. 01/2003 Art. 15). In turn the Member State courts are
obliged to take into consideration ongoing procedures of the Commission and if
necessary even suspend their own procedures (Reg. 01/2003 Art. 16).
3.
Fines and penalties: The Commission has power to impose fines for breaches of
Art. 81 or 82 EC of up to 1 Mio Euro on an undertaking, or 10 % of its turnover,
whichever is greater. For violations of the investigation procedure the Commission can
impose a fine of up to 5 % of the company's average daily turnover (Reg. 01/2003 Art.
24).