The Public Administration of the Internal Market [1 ed.] 9789089521668, 9789089521651

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The Public Administration of the Internal Market Edited by Francisco Velasco Caballero & Fernando Pastor-Merchante

The Public Administration of the Internal Market

Europa Law Publishing, Groningen 2015

The Public Administration of the Internal Market Edited by Francisco Velasco Caballero & Fernando Pastor-Merchante

Europa Law Publishing is a publishing company specializing in European Union law, international trade law, public international law, environmental law and comparative national law. For further information please contact Europa Law Publishing via email: [email protected] or visit our website at: www.europalawpublishing.com. All rights reserved. No part of this publication may be reproduced or transmitted, in any form or by any means, or stored in any retrieval system of any nature, without the written permission of the publisher. Application for permission for use of copyright material shall be made to the publishers. Full acknowledgement of author, publisher and source must be given. Voor zover het maken van kopieën uit deze uitgave is toegestaan op grond van artikel 16h t/m 16m Auteurswet 1912 juncto het Besluit van 27 november 2002, Stb. 575, dient men de daarvoor wettelijk verschuldigde vergoedingen te voldoen aan de Stichting Reprorecht (Postbus 3060, 2130 KB Hoofddorp). Voor het overnemen van (een) gedeelte(n) uit deze uitgave in bloemlezingen, readers en andere compilatiewerken (artikel 16 Auteurswet 1912) dient men zich tot de uitgever te wenden. © Europa Law Publishing, the authors severally, 2015 Typeset in Scala and Scala Sans, Graphic design by G2K Designers, Groningen/Amsterdam NUR 828 ISBN 978-90-8952-165-1 (paperback) ISBN 978-90-8952-166-8 (e-book)

Preface This book is borne out of the observation of a certain gap in the legal literature on the European internal market, which has traditionally focused on substantive issues – such as the content and the scope of the rules on free movement – and on their impact on the allocation of powers between the European institutions and Member States. Little attention has been devoted to the way in which these rules shape the administrative institutions in charge of securing the internal market. This is, precisely, the subject of this book. The book builds on the notion of ‘European administrative union’ and, hence, on an understanding of the European administration as a sum of institutions, bodies or agencies – both European and national – which act cooperatively. It is against this complex reality that the different chapters of the book scrutinize the organizational and procedural specificities of the different public administrations that interact in the internal market. The book undertakes this endeavor from three different perspectives. The idea in chapters 2, 3, 4 and 5 is to explore some of the key administrative developments brought about by each of the four fundamental freedoms that support the internal market. These chapters bring to light the intense connections that link the public administrations acting within the framework of the four fundamental freedoms, be it through information-exchange or through mutual-recognition mechanisms. Juan Antonio Chinchilla Peinado focuses on food regulation as a case study of the ‘cooperative mechanisms’ created to facilitate and supervise the free movement of goods. His study shows that both the system of risk management and of administrative authorizations in this area rest on a complex mechanism of horizontal cooperation, which assigns coordination functions to the Commission or to EU agencies. Jorge Agudo González tackles the same issue in relation to the free movement of workers. The cooperative system that he depicts is markedly horizontal, one where transnational administrative acts play a prominent role. Mónica Domínguez Martín examines the impact that the free movement of services – and, in particular, the Services Directive – has had on administrative controls within the internal market. She shows that the interaction between the public administrations involved in this domain also follows cooperative patterns, yet with a very limited role for the Commission. Finally, Federico Steinberg traces the journey of the EU institutions towards the European banking union, pinpointing some of the institutional problems raised by the free movement of capital – and, more specifically, by the monetary union. This turns out to the be the only area where the coordinative role of the European Central Bank matches the horizontal cooperative design of the administrative union. The perspective changes in Chapters 6, 7 and 8. These chapters examine some of administrative innovations fostered by three policies that can be thought

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of as ‘adjacent’ to the core freedoms of the internal market: competition law, State aid law and public procurement. Julia Ortega Bernardo scrutinizes the administrative network that ensures the enforcement of the European rules on competition, which is probably the area in which the various procedural interconnections between the Member States and the Commission are more developed. Fernando Pastor-Merchante examines some of the administrative challenges raised by the enforcement of the rules on State aid – and some of the administrative solutions devised to address them. Finally, Silvia Díez Sastre explores the impact that the European rules on public procurement have on the institutional structures of the national administrations targeted by these rules. Granted, EU public procurement legislation has not set up any kind of administrative network. However, its focus on non-discriminatory bidding has brought about an intense transformation of certain administrative schemes. The focus shifts again in Chapters 9, 10 and 11, from the sector-specific approach of the preceding chapters to a more transversal approach that examines various administrative topics that cut across sectors. César Martínez Sánchez reflects on the constraints that EU law places on the taxation powers of Member States. Francisco Velasco Caballero looks at the configuration of independent regulatory agencies within the internal market. His study highlights the propensity of EU law to create European regulatory agencies in which both EU institutions and national independent regulatory agencies are represented, with the goal of providing for a homogenous regulation of their respective markets. Finally, Jorge Agudo González wraps up the book with an attempt to draw a typology of the different types of cooperative administrations that coexist within the internal market. All these chapters are preceded by a brief economic introduction to the internal market written by Asunción López and José María Mella. The editors of this book gratefully acknowledge the funding received to carry out this research project from the Universidad Autónoma de Madrid (Spain), within the framework of the program ‘Campus de Excelencia Internacional UAM+CSIC’, and from the Spanish Ministry of Economy, within the framework of the project ‘El Desarrollo del Mercado Interior a través de los Gobiernos Locales’ (DER 2012-34855). They also thank Sofia Simou, who coordinated the different seminars in which the different chapters that make up this book were periodically presented. Finally, the editors of the book acknowledge the assistance of Javier and Guillermo Frutos-Miranda in translating into English the original Spanish versions of chapters 1 to 6 and 8 to 10, as well the assistance of the Oficina de Asesoramiento Lingüístico de la UAM in translating chapter 11. The English versions of these chapters were revised by their respective authors. Chapter 7 was originally written in English. Francisco Velasco Caballero and Fernando Pastor-Merchante

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contents

Contents Authors

vii xiv

chapter 1 An Economic Introduction to the European Internal

Market: Current Situation and Regulatory Challenges Asunción López and José M. Mella

1 Introduction 2 The IM Freedoms 3 Economic analysis of the Internal Market 3.1 Costs and benefits 3.2 Economic development of the ‘four freedoms’ 3.2.1 Goods 3.2.2 Services 3.2.3 Capital 3.2.4 Workers 4 IM legislation is not enough 5 Towards a better integration of the Internal Market 5.1 Governance of the Internal Market 5.2 The services markets 5.3 Energy markets 5.4 Transport markets 5.5 Digital markets 5.6 Taxation 6 Future challenges Bibliography

3 3 5 5 6 6 7 8 9 10 12 12 13 15 15 16 16 17 19

chapter 2 Cooperative Administrations and Free Movement Goods:

The Example of Food Safety Management in the European Internal Market Juan Antonio Chinchilla Peinado

1 Introduction 23 2 Human health protection in EU law 23 2.1 Treaty provisions 23 2.2 Risk management and the precautionary principle 24 3 Horizontal and vertical cooperation between EU and national authorities 25 3.1 Indirect enforcement by Member States: a horizontal, non-hierarchical network 25 3.1.1 Transnational administrative acts 26 3.1.2 Composite decision making procedures 28 3.1.3 Institutional balance: the role of traders and interested third parties 29

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3.2 The procedures for direct implementation of EU law by the European Commission 3.2.1 Authorization procedure centralized at EU level 3.2.2 Institutional balance: the role of traders and interested third parties 4 RASFF: a cooperation network under the direction and supervision of the European Commission 5 The role of EFSA 6 Conclusion Bibliography

30 30 32 32 36 38 39

chapter 3 Free Movement of Professionals: the Mutual Recognition

Administration

Jorge Agudo González 1 Introduction 2 Recognition of qualifications. State of affairs 2.1 Transnational acts and horizontal procedures 2.1.1 Professional activity and free provision of services 2.1.2 Professional activity and freedom of establishment  2.2 The mutual recognition administration from a procedural perspective 2.2.1 The formal dimension of the principle of mutual recognition as a structural principle governing administrative action 2.2.2 The mutual recognition principle as a governing principle for complex procedures: an operationally integrated administration  3 The mutual recognition principle as a guiding principle for the establishment of a (weak) cooperative and assistance organisational structure 4 Final remarks. Administrative law for an ex parte civium administration Bibliography

45 46 48 48 52 57 57

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63 65 68

chapter 4 Administrative Controls and Free Movement of Services

within the Internal Market Mónica Domínguez Martín

1 Introduction 71 2 Freedom to provide services and ‘European administrative union’ 72 3 Principle of mutual recognition and cross border acts regarding the freedom to provide services and the freedom of establishment 76

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4 Horizontal and vertical cooperation between European and national administrations within the scope of the Services Directive. 4.1 Horizontal procedures 4.2 Vertical procedures 5 Institutional and organisational elements derived from the Services Directive Bibliography

79 79 83 85 88

chapter 5 The Banking Union as an Integration and Consolidation

Tool of the European Internal Market Federico Steinberg

1 Introduction 2 Why a Banking Union? 3 Building the Banking Union 4 Will it be enough? 5 Impact on internal markets and European treaties 6 Conclusion Bibliography

93 94 96 98 100 102 103

chapter 6 The Administration for the Enforcement of European

Competition Law

Julia Ortega Bernardo 1 Introduction 107 2 General outline of the system setting up the administration structure for the enforcement of European competition law 109 2.1 Reasons underlying the evolution towards a “decentralised model” 109 2.2 Model of concurrent and complementary exercise of powers according to flexible allocation rules 111 2.3 Simultaneous application of European and national competition law 114 3 Organisational, procedural and substantive mechanisms to counterbalance decentralisation 116 3.1 Organisational instruments 116 3.1.1 The implementation of a Verwaltungsverbund – Administrative European Union with the establishment of a network. 116 3.1.2 Requirements regarding the organizational structure of NCAs 117 3.1.3 Implementation of a public execution model complemented by private or judicial execution 120 3.2 Procedural coordination mechanisms 122

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3.2.1 Supply of information and cooperation regarding inspections122 3.2.2 The need for consultation prior to the adoption of decisions 123 3.3 Substantive coordination mechanisms 124 4 The demand for greater judicial control of administrative decisions on the enforcement of competition law 124 5 Conclusion 126 Bibliography 129 chapter 7 The Administration of the Rules on State Aid

Fernando Pastor-Merchante 1 Introduction 2 The rules on State aid 3 The governance of the system of State aid control: main features and challenges 4 The association of national courts to the task of enforcing State aid law 5 The juridification of compatibility assessment 6 The decentralization of State aid control 7 Conclusion Bibliography

133 133 135 138 142 145 148 149

chapter 8 Organisational Forms and Structures of the Public

Procurement Administration in the European Internal Market Silvia Díez Sastre

1 Introduction 2 Redefining the concept of administration in the public procurement domain 2.1 An administration defined under a functional perspective 2.2 An administration defined as opposed to the market 2.3 An administration defined under a national perspective 3 Organisational forms and structures in public procurement 3.1 The awarding administration 3.1.1 An increasingly centralised administration 3.1.2 A cooperative administration with the private sector 3.1.3 A professionalised administration 3.2 The performing administration 3.3 The enforcing administration 3.3.1 Networked administration for the exchange of information and monitoring the compliance with public procurement regulation 3.3.2 A national, independent, and growingly centralised administration for the protection of tenderers x

153 156 156 157 160 161 161 162 164 165 166 167

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contents

4 Closing remarks Bibliography

169 171

chapter 9 Limitations on Fees Levied to Finance the Administrations

of the Internal Market

César Martínez Sánchez 1 Introduction 2 Starting point: Member States’ tax powers 3 Member States’ tax powers regarding the financing of administrative costs 3.1 The overcoming of the instrumental nature of Budgetary and Tax Law 3.2 The lack of principles of fiscal justice in EU Law 3.3 Restriction of the Member States’ tax powers to merely covering costs 3.4 Taxes as distortions to the internal market 4 Conclusion Bibliography

177 177 179 179 180 181 185 187 191

chapter 10 The ‘Union of Independent Regulatory Authorities’ of the

European Internal Market Francisco Velasco Caballero

1 Introduction 2 The asymmetrical regulatory union 3 Symmetrical regulatory union 3.1 Description of the administrative organisation 3.2 The Meroni doctrine and the lack of legal legitimacy of the EIRAs 3.3 Recomposition of the EIRAs’ legal legitimacy 3.3.1 Constriction of delegated power 3.3.2 A quest for legitimacy through organisational forms 3.3.3 A quest for operational legitimacy 4 Conclusion Bibliography

195 198 201 201 205 207 207 209 212 212 214

chapter 11 The Cooperative Administration in the Internal Market:

In Search of a Typology Jorge Agudo González

1 Introduction 2 The administration of the internal market inside the European administrative space

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219 220

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2.1 Determinations from the functional point of view 222 2.2 Determinations from an organisational-procedural point of view 225 3 Criteria for building a typology for the administration of the internal market within the European administrative space 228 3.1 Supranationality of administrative actions 228 3.2 Legal mechanisms that articulate administrative cooperation231 4 Types of cooperative administrative action 234 4.1 Joint Administration. Complex administrative procedures 235 4.2 Administration of mutual recognition. The transnational administration 236 4.3 European Committees. The ‘collegiate’ administration 242 4.4 ‘Decentralised Integration’: Agencies and Agencies’ networks 246 4.5 Independent Authorities and independent authorities’ networks 248 5 Conclusion 252 Bibliography 254

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Authors

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Jorge Agudo González is Senior Lecturer in Administrative Law at the Universidad Autónoma de Madrid. He holds a bachelor degree in Law, a Master in EU law and a Ph.D. law by that university. His research interests include the transformation of Administrative law, with a special focus on EU law. He has presented his work in Italy (Università degli Studi di Milano and Università degli Studi di Torino), England (Centre for Transnational Legal Studies), the Netherlands (University of Utrecht), Sweden (University of Uppsala), Poland, Colombia, Mexico, Brazil, Chile and Argentina. Juan Antonio Chinchilla Peinado is Lecturer in Administrative Law at the Universidad Autónoma de Madrid and the director of the Master in Local Law and Government of the Local Government Institute. His research interests lie in the field of urban planning law, sustainable development, water and coast law, expropriation, public procurement and food regulation.  Silvia Díez Sastre is Lecturer in Administrative Law at the Universidad Autónoma de Madrid and the Director of the Research Centre on Administrative Justice at the same University. She holds a bachelor degree in Law (2002) and a Ph.D. in Law (2008) by the Universidad Autónoma de Madrid. In 2010 and 2014 she was awarded a fellowship from the Alexander-von-Humboldt Foundation. Her research agenda focuses on issues of public procurement law, administrative justice, local government law and legal methodology. Mónica Domínguez Martín is Lecturer in Administrative Law at the Universidad Autónoma de Madrid. She holds a Ph.D. in Law, a bachelor degree in Law and a bachelor degree in Political Science by that university. She was visiting scholar at Boston University and at Birmingham University. Her main research interests lie in the field of administrative organization (including public services in sectors such as health and social protection, both at the local and regional level), urban planning law, and local democracy. Asunción López, Ph.D. in Economics and Senior Lecturer in Applied Economics at the Universidad Autónoma de Madrid, where she teaches Economic Policy. She is the coordinator of the inter-university Master in Innovation Economics and Management, which is also the main focus of her research. César Martínez Sánchez, Ph.D. in Law, is Lecturer in Tax Law at the Universidad Autónoma de Madrid (Spain). He is currently coordinating the Seminario Permanente de Financiación Local, an advisory body composed of scholars, judges and civil servants with expertise in local taxation. He has influenced decisionmaking processes through his work for Fundación Alternativas, a Spanish think tank which provides new ideas and alternatives to contemporary problems.

xiv

authors

José M. Mella, Ph.D. in Economics, Professor of Applied Economics and holder of a Jean Monnet Chair at the Universidad Autónoma de Madrid. He was a visiting scholar at LSE, UCSC, Leuven, Pau, Sfax, Rabat, Managua, Oruro and Montevideo. His publications deal with the EU, cohesion policy and regional and urban development. Julia Ortega Bernardo is Lecturer in Administrative Law at the Universidad Autónoma de Madrid and Researcher at the Institute of Local Government of this University. She holds a bachelor degree and Ph. D. in Law by the Universidad Autónoma de Madrid. She has been a visiting researcher at the Albert-LudwigsUniversität of Freiburg and worked as a legal adviser for the National Department of Educational Administration and for several local entities. Her research projects focus on issues of Environmental law, Local government law, European administrative Law and Competition law. Fernando Pastor-Merchante, bachelor degree in Law and Political Science (Universidad Autónoma de Madrid), LL.M. (Columbia University School of Law) and Ph.D. in Law (European University Institute). He is acting Lecturer in Public International Law at the Universidad Autónoma de Madrid and the scientific coordinator of its Research Centre on Administrative Justice. His research interests lie in the field of EU administrative law, with a special focus on State aid law. Federico Steinberg is Senior Analyst at the Elcano Royal Institute and Lecturer in Political Economy at the Universidad Autónoma de Madrid. He holds a Ph.D. in Economics from the Universidad Autónoma, an MSc in Politics of the World Economy from the London School of Economics and a Master in International Affairs from Columbia University. He is an expert in international political economy. Francisco Velasco Caballero is Professor of Administrative Law at the Universidad Autónoma de Madrid. He was a legal clerk at the Spanish Constitutional Court (1999-2001) and a visiting scholar at the University of Erlangen-Nürnberg (Germany) and at the University of Illinois (USA). He is the author of several studies on legal methodology, local government and fundamental rights, including Administraciones públicas y derecho a la tutela judicial efectiva (Barcelona: Bosch, 2001) and Derecho público más Derecho privado (Madrid: Marcial Pons, 2014).

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An Economic Introduction to the European Internal Market: Current Situation and Regulatory Challenges Asunción López and José M. Mella

chapter 1



an economic introduction to the european internal market

1 Introduction

At a time when Europe is engulfed in a deep economic crisis, it needs to outline a strategy for economic growth in order to recover the path of prosperity and job creation. The EU is aware that the Internal Market (IM) has brought great benefits and opportunities since its creation in 1992. However, the EU is also aware that there is not always mobility of goods, services and production factors. Nor is there an actual European single market in important sectors of the economy. Different barriers hold back the full potential of the IM for the benefit of European citizens, workers, consumers and SMEs. In 2012, the European Commission (EC) considered a number of measures (Single Market Acts I and II) to develop such path. In April 2011, the EC put forward twelve levers to boost growth, and in October 2012 set out a second package of actions to exploit certain untapped possibilities as drivers for growth. Previously, in 2010, the EC commissioned a report on the IM (known as Monti Report)1 with the aim of relaunching it. The grounds were that the IM was far from realising its full potential, there was an obvious rise of economic nationalism as a form of haven, and a critical review of market performance was repeatedly raised in the debates.



2 The IM Freedoms

As is well known, the IM is a stage in the European integration process in which barriers to the free movement of goods, services and production factors (labour and capital) are removed. The completion of the IM requires, on the one hand, the removal of obstacles to integration; on the other, common sector–specific policies regarding social affairs, transport, regulatory harmonisation, competition and the environment. In other words, the IM requires the abolition of all internal customs tariffs and the establishment of a new common external customs tariff. Free movement of persons is essential, considering the IM is a common area shared by 28 Member States and 500 million people. However, progress in this regard is slower than with goods and capital (although such fields are recently experiencing an increase in trade barriers and protectionist measures, contrary to the spirit of the IM), at the expense of a social Europe and the extension of the same labour and social standards across the entire European market. Free movement of persons includes mobility of workers pursuing higher household incomes and better working conditions. It is essential for economic growth and job creation, apart from being a social right enshrined in the EU Charter of Fundamental Rights and a key element for the European citizenship.2 Nevertheless, it is generally accepted that there are still several important 1

Monti (2010).

2

Consejo Económico y Social (2009).

3

the public administration of the internal market

barriers to mobility regarding access to the health system and Social Security, the portability of pensions, the obtaining of work and residence permits and the recognition of professional qualifications. Free movement of goods implies the abolition of customs duties on imports and exports, the establishment of a common external customs tariff in relations with third countries and the removal of non–tariff barriers. These entail more difficulties given the great divergence among the existing legislations in the Member States. Harmonisation through Directives is a complicated progress towards free movement of goods. Hence the frequent recourse to the principle of mutual recognition of national legislations facilitates and makes faster the free movement of goods by removing numerous technical barriers. Despite the relative importance of the service sector in the whole of the economy and in the employment (around 70%), the freedom to provide services has been subject to multiple limitations due to the strategic role of many of its activities for market stability. The same applies to the freedom of establishment in a Member State other than that of the natural or legal person for the provision of services. Therefore, a reform of service regulation was set for incorporation into national law with a view to further liberalisation.3 Free movement of capital, both between Member States and between Member States and third countries, was allegedly set to achieve a better allocation of capital within the EU. In this sense, the euro has been a major catalyst for the integration of financial markets (interbank markets in the euro area, euro–denominated private bond markets and equity markets). The financial market infrastructure has been developed to eliminate differences between national and cross–border payments. Investment companies, banks and stock markets offer their services in all the territory of the EU. However, the degree of financial integration reached in the EU varies depending on the specific market. Full integration of monetary markets within the euro area contrasts with the still very limited integration of retail financial services, which are primarily local –especially in retail banking. The insufficient integration of retail financial services is one of the current challenges to make progress on the internal market, to provide corrective instruments for financial crises and ensure financial stability. It is actually one of the biggest weaknesses of the IM. Such removal of barriers is necessary to realise the four traditional freedoms of the IM: free movement of persons, free movement of goods, freedom to provide services and free movement of capital. A ‘fifth freedom’ –still with a long way to go– should be added, consisting in the free movement of knowledge; i.e. of researchers, lecturers and students, alongside greater transfer of knowledge to industry, the promotion of world– class research centres and fostering mutual recognition of qualifications. This 3

Directive 2006/123/EC of the European Parliament and of the Council of 12 December 2006 on services in the internal market (OJ L 376/36, 27.12.2006, p.1).

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an economic introduction to the european internal market

would help to increase EU’s innovation and creativity potential, while also promoting scientific excellence.



3 Economic analysis of the Internal Market 3.1 Costs and benefits

The incorporation of a country to the IM implies a series of benefits and costs (Figure 1) which must be assessed in order to know the efficiency and optimisation of the integration process with regard to the different economic sectors. 4 A cost–benefit balance of the integration is thus necessary. Figure 1. Costs and benefits of integration in the Internal Market Benefits • Trade creation • Greater competition • Greater economies of scale and scope • Greater innovation • Positive cross–border externalities • Improvement of national policies Costs • Losses for trade diversion • Loss of political autonomy • Subsidiarity–related losses • Costs of compliance with EU law

Benefits of trade creation are the consequence of eliminating tariff and non– tariff barriers and of the increase in trade between Member States within the IM. Trade creation consists in replacing in each country the more costly domestic production of a specific good by cheaper imports from a partner country. Benefits of greater external competition come from the trend to drop prices for consumers, to foster technical progress and to enhance efficiency in the allocation of resources within the companies and between them. Benefits of economies of scale and scope result from direct access to larger markets for companies that can operate on a greater scale. At the same time, free movement of capital and workers allow for a reallocation of resources towards a more efficient production due to the scale (higher levels of production entail lower prices) and the scope (productive resources can be used with different purposes). Benefits of innovation are the result of greater exchange of ideas and methodologies fostered by the IM, which is also a driver for creativity and develop4

Brunet (2010).

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ment of new products and more advanced organisational and commercial processes and systems. Positive cross–border externalities bring benefits because of the exchange in environmental policy and higher education. Another benefit comes from the improvement opportunities for national policies thanks to external influence; i.e. the incorporation of better practices already tested in partner countries of the IM. However, such potential benefit may be affected by political mistrust and scepticism towards EU initiatives, as seen in recent times. Costs of trade diversion are due to the replacement of cheaper imports from third countries by more costly ones from a Member State of the IM. Actually, they are losses for trade inefficiently diverted from the exterior to the IM. Costs for loss of political autonomy derive from the limitations on sovereignty and democratic control that can be experienced by some countries, even when there are some external advantages. The exercise of rights and the decision–making power become somehow restricted. According to the subsidiarity principle, decisions should be taken as closely as possible to the citizen. In the absence of such political proximity, the exercise of competences may be sub–optimal at a local level and the provision of related services can be economically inefficient. That gives rise to subsidiarity–related costs. Costs of compliance with EU law result from the need to amend national rules and regulations, to implement the acquis communautaire and new procedures, which imply costly modifications for the public treasury and private resources.



3.2 Economic development of the ‘four freedoms’

It is important to assess the economic development of the abovementioned ‘four freedoms’5 (i.e. free movement of goods, services, capital and workers).



3.2.1 Goods

Although at a slower pace, the integration of the goods market is still progressing two decades after the launch of the IM. Intra–EU trade (exports and imports) accounted for 17% of EU GDP in 1999 and 22% in 2013. The growth of extra–EU exports has been more dynamic, but they only represent 12% of EU GDP. This indicates that the IM is still significantly important for European companies and that there is still potential in order to stimulate growth of intra–EU trade. 5

Report from the Commission to the European Parliament, the Council, the European Central Bank, the European Economic and Social Committee of Regions and the European Investment Bank State of the Single Market Integration 2013, Contribution To The Annual Growth Survey 2013 (COM/2012/0752 Final).

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However, such positive general trend hides serious contrasts among Member States. There are positive trends towards integration of the goods market (in Denmark, Hungary, Poland, Slovakia, among others), whilst some negative trends or stagnation can be seen in countries like Spain, Greece, Finland, France, Ireland, Luxembourg and the United Kingdom. The Spanish case shows a clear downturn in the relative weight of the EU both as supplier and customer of the Spanish economy, to the benefit of other regions within the developing world.6 From 1996 to 2013, Spanish export trade to the EU–15 fell from 71.3% to 49.2% of total exports, and import trade fell from 66.4% to 41.0% (with regard to the EU–28, such ratios fell in the same period from 73.3% to 53.2% and from 67.4% to 51.6% respectively, according to the Bank of Spain). This decline in exports is partly due to a relatively low demand growth in their economies, but also to the penetration of Spanish exports in new markets. On the side of imports, it is important to note the rise of new powers – especially China – and the increase of oil prices from non–EU areas. Economic integration is already a fact as regards GDP per capita convergence among the EU Member States, although this trend was interrupted by the crisis, giving rise to divergences –particularly in the Spanish case. In any case, such tendency is not translated into an internal convergence among the different regions within each country, which raises a serious issue of regional inequality and lack of territorial cohesion. Currently the EU is undergoing integration processes with third countries at a faster pace than with its Member States, reflecting the globalisation process and the rapid growth in demand in emerging markets. This is not necessarily negative, since there is no trade–off between intra–EU trade and global trade. Overall, the Member States that have increased their integration in global economy are also those with higher integration dynamics within the EU.



3.2.2 Services

Intra–EU trade in services has followed a similar pattern to that of goods, but the degree of integration in this field (70% of the economy) is still considerably lower than in the goods market. Furthermore, there are no signs of recovery. However, price dispersion upward trends indicate persisting and serious intra–EU barriers to the trade in services. Whereas the difference in the level of dispersion are to a certain extent normal, resulting from lower transportability, tradability and heterogeneity of services, the differences in the trends between services and goods –in which the dispersion declined– may point to an insufficient level of competition in that sector. The most significant price dispersion trends can be seen in the oldest Member States. 6

A lonso (2013).

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the public administration of the internal market

The non-tradability of numerous services implies that market integration is achieved by the establishment of foreign companies. According to Eurostat, the presence of foreign-controlled companies –in terms of corporate added value- is much lower in services than in the economy as a whole. In Spain, such foreign control is among the lowest of the EU. Spain stands out for the high share of travel & tourism in service exports, much higher than the weight of imports in that sector. Export/import coverage rate is very high, thanks to the competitiveness of Spanish tourism companies. However, export shares of Spanish trade services in the world market are behind those of other EU neighbouring countries (like France, Germany or Italy). The lower growth of hourly productivity in the service sector and our lower productivity levels compared to the EU-28 are the result of little or no competitiveness in most of the activities.7 The causes of such insufficient competitiveness are to be found in the lobby groups existing in important tertiary sectors, the entry barriers for new businesses and a timid competition policy that encourages oligopolistic activities. Despite all these shortcomings, progress has been made in achieving a certain level of competition in telecommunications services (often hampered by the dominant operator), air transport in the busiest routes (although not in the others), postal services and retailing (with considerable differences among Autonomous Communities). Major restrictions on competition occur in the commercialisation of products through specific distribution channels (pharmaceuticals, oil products and automobile spare parts).8 Slow progress in productivity explains that prices in services have increased in Spain at a higher rate than in the other sectors, diminishing the competitive capacity of the former and affecting the economy as a whole.



3.2.3 Capital

Intra-EU investment is a key factor of integration underlying the establishment of companies in other Member States. Foreign or cross-border investment has stalled due to the financial crisis, and it has not yet recovered. Financial markets have suffered setbacks in the integration process and deep restructuring in several countries. During the first years of this century, the IM and then the EU monetary union experienced an extraordinary global growth of cross-border capital flows that was reinforced by the creation of the euro. Euro-area peripheral countries accumulated large financial account surpluses before the crisis (almost 15% of the peripheral Member States’ total GDP), which was mirrored in the financial account deficit of the euro-area core countries.9 7

Picazo and Gil (2013).

8

Matea and Mora (2012).

9

Darvas, Hüttl, Merler, de Sousa and Walsh (2013).

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Portfolio instruments (especially debt instruments) dominated such flows, while foreign direct investment (FDI) played a marginal role. By contrast, FDI accounted for a large share of gross flows in the countries from Central and Eastern Europe that joined the EU. In 2008, portfolio net financial inflows into the EU periphery contracted, and became negative between summer 2011 and 2012. This fact reflected the intensification of the euro crisis and the investors’ fear of the European periphery. However, such development was neutralised by other investment flows of an opposite sign related to ECB’s financial assistance and liquidity provision. In other words, an analysis of net flows during the financial crisis shows a substitution between private and public flows, particularly in peripheral Member States. In this regard, EU financial disintegration during the most intense period of the ‘euro crisis’ deserves special attention. Cross-border asset flows between EU banks, and particularly in the Eurozone, increased sharply with the intensification of the crisis, but reduced significantly by 2013. The national bias in banks’ holdings of debt increased, fuelling the so-called ‘doom-loop’ between banks and sovereign debt financing in the most vulnerable countries. The share of non-residents in holdings of public debt securities reduced during the crisis in vulnerable Member States, while it continued to increase in core countries like Germany and France. The main conclusion that can be drawn is that the financial disintegration, which started with the euro crisis, has not been reversed, as indicators of financial stocks and flows show. Some price indicators, such as risk premiums, narrowed significantly after the introduction of large-scale purchases of government bonds in the secondary market (i.e. the ECB purchases the securities to the holders like the banks). Other indicators such as capital flows, cross-border loans and government bond holdings stopped deteriorating. There are, however, only limited signs of a reversal of the financial disintegration undergone by the EU.



3.2.4 Workers

Although the number of EU residents working in other Member States is increasing, labour mobility across Europe is too low compared to the potential and expectations in an IM.10 Economically active EU citizens in other Member State account for only 3.1% of the workforce, and their annual increase is only 0.1%. Labour mobility across Europe is very limited compared to the US, Canada or Australia, which can be explained by linguistic diversity and institutional differences. Such comparisons suggest that there is scope to increase geographical mobility of workers in the EU.

10

OECD (2012).

9

the public administration of the internal market

According to a Eurobarometer survey,11 28% of the working-age European citizens would consider working in another Member State, while 15% would not consider moving because of too many barriers. More than half of them regard language and family as the main obstacles to mobility. Administrative barriers such as bureaucratic formalities, recognition of professional qualifications and social security are also cited as reasons for not working in a different Member State. To this could be added the differences in pension schemes, as well as the workers’ unawareness of their rights and obligations. A report of the European Commission12 stresses the importance of macroeconomic drivers of mobility. Factor such as income level differences (as evidenced by the outflows of workers from the poorer Member States), unemployment rates and social information networks also affect migration patterns.



4 IM legislation is not enough

IM regulations can only achieve their goals if they are fully and correctly incorporated into national law by the agreed deadline. Transposition monitoring helps ensure the proper functioning of the IM. Hence the concepts of transposition deficit (the gap between the number of IM Directives adopted at EU level and those in force in the Member States) and compliance deficit (number of incorrectly transposed Directives). As of 11 May 2014, the transposition deficit has remained unchanged at 0.7%. 13 Member States reduced their deficit and 7 have equalled their results from November 2013; 8 Member States have a higher deficit now and 5 Member States have exceeded the 1.0% target established by the European Council (Romania, Belgium, Cyprus, Slovenia and Austria). Currently, 11 Member States have a transposition deficit of 0.5% or less, which is the target proposed by the Commission in the 2011 Single Market Act. Six months earlier, only 8 Member States had reached that target. The average transposition deficit is 0.6% instead of 0.7%. Heads of State and Government set a ‘zero tolerance’ target for delays of two years or more in transposing Directives. However, the number of these overdue Directives remains too high. Fourteen Member States have increased their transposition delays (between 6.8 and 1.3 months). This is not only a legal problem; it deprives citizens and businesses of certain rights and may undermine confidence in the EU. For this reason, the Treaty of Lisbon provided for the possibility of imposing penalties for cases of non-transposition of Directives.

11

European Commission (2013).

12

European Commission (2011).

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But the proper functioning of the IM does not only depend on timely transposition, but also on a correct one. The average compliance deficit dropped to 0.6%, the best result ever, after a slight increase six months earlier. The compliance deficit measures the number of Directives transposed where infringement proceedings for non-conformity have been initiated by the European Commission, as a percentage of the number of IM directives notified to the Commission as transposed or which do not require any further implementation measures. The IM Scoreboard13 shows that during the last 16 years, the average transposition deficit in the EU has decreased steadily since 1997 until reaching the best result ever (0.6%) between November 2012 and May 2013. However, the Single Market is incomplete when its rules are not applied or the rights derived from them cannot be exercised uniformly in all Member States. One of the main problems continues to be the failure by one or more Member States to transpose a given Directive. The major concerns remain in the areas of environment, financial services and energy, showing that the IM has yet to become a reality in such economic sectors. The main results of these indicator s show that the mere correct transposition of rules and guarantees for their implementation are not enough to achieve full market integration.14 In this regard, the key index to know if the IM is complete is the so-called ‘incompleteness rate’ (Percentage of outstanding IM Directives not yet transposed at least by one Member State, so the IM is not a reality in the areas covered by such Directives). It shows whether a Directive is already in force in all EU Member States. Such index has reduced from 5% in 2009, but it is still relatively high (the Commission’s current objective is to reduce it to 1%, but it remains unchanged at 4%: in absolute terms, 50 Directive have not been transposed on time in at least one Member State). Therefore, it can be said that the IM is not functioning at its full potential. This is a serious problem for businesses and citizens, and it is the reason for launching two solution mechanisms: ‘package meetings’ between the Commission and national administrations and the SOLVIT co-operative network for the solution of conflicts between economic operators (with a resolution rate of 87%, although cases closed within 10 weeks are still only 54%, which requires an improvement in its performance).15 In conclusion, although legal regulation of the IM is at an advanced stage, there are still important problems in its ordinary implementation that prevent it from deploying its full integration potential, as well as the expected micro and 13

European Commission (2014).

14 15

Roca (2010).

European Commission (2014).

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the public administration of the internal market

macroeconomic effects. It is therefore essential to determine what can be done to integrate EU goods and services market.



5 Towards a better integration of the Internal Market



5.1 Governance of the Internal Market

Over the last few years, the European Commission has proposed a number of initiatives to unlock the full potential of the IM.16 Based on certain economic indicators, services, financial services, transport, digital market and energy have been identified as key areas for policy action and implementation of the IM. In parallel, it is also important to improve the functioning of the IM for industrial products, identifying the barriers still blocking the free movement of products and enhancing the quality and efficiency of legislation. The application of mutual recognition in the IM should be closely monitored. At the same time, it is necessary to set ambitious targets for transposing, implementing and complying with IM rules in order to deliver its full potential. Although the Internal Market Scoreboard shows certain progress, especially with regard to transposition and compliance deficit, the number of Directives for which transposition is overdue by two years or more has increased. The European Commission calls for zero tolerance when it comes to transposing and implementing rules regarding the abovementioned key areas. It also pleads for fast-track resolution procedures as regards infringements. The available data show17 that only one Member State (Denmark) complies with all the targets set by the Commission, while more than half of the Member States have not reached more than three targets. The longest delays regarding transposition can be noted in energy while transport is an area where targets are missed almost systematically by most Member States. Member States must make the necessary efforts to ensure an effective implementation of the IM legislation, and they should offer good quality information, e-government tools and procedures and invest in mechanisms to rapidly resolve problems. For instance, the potential of SOLVIT remains underused as a resolution tool at national level (300 cases per year), partly due to insufficient staffing in some of its centres.

16

Report from the Commission to the European Parliament, the Council, the European Central Bank, the European Economic and Social Committee of Regions and the European Investment Bank State of the Single Market Integration 2013, Contribution To The Annual Growth Survey 2013 (COM/2012/0752 Final).

17

European Commission (2014).

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5.2 The services markets

The Service Directive18 is the cornerstone of IM integration in the service area. A recent study19 estimates that additional gains could result from this Directive if the Member States increased their efforts to implement it. In a scenario in which all Member States achieved the average level of the best five countries in terms of barriers per sector (which would imply the removal of almost all restrictions covered by the Directive), the economic impact would yield a 1.6% increase in GDP. This Directive contains some important unequivocal obligations not yet complied with by half of the Member States. In some of them, there are still restrictions based on the nationality or the residence of the providers (e.g., patent agents, professional insurance, services in the tourism sector), thus exposing them to unjustified double regulation. Moreover, in several Member States there is uncertainty about the applicable rules to providers wishing to provide services on a temporary basis and those wishing to establish themselves. Such uncertainty may result in temporary service provision being considered as establishment, which entails a double regulatory burden and prevents cross-border provision of services. Services include many professions regulated at national level. These regulations take the form of entry barriers (requirement of specific qualifications for the exercise of certain activities) and/or barriers to businesses on capital ownership. In some Member States, there are still requirements fixing tariffs for certain professions (e.g., engineers, architects, accountants, veterinarians, tax advisors). Concerning governance in the services market, the Points of Single Contact (PSCs) and the Internal Market Information (IMI) system are key tools for an efficient functioning of the market. In particular, the economic effect of the administrative simplification achieved through PSCs is estimated at 0.13% of GDP in the short term, 0.15% in the medium term and 0.21% in the long term.20 This suggests that Member States can obtain additional gains if they introduce substantial improvements in the implementation of PSCs (total automation, accessibility for users in different countries, etc.) for the benefit of businesses involved in service activities. It should be noted, however, that the use of IMI is still low in most of the Member States. Among the services market, the sectors with the most significant weight in terms of GDP and employment, as well as growth potential, are business

18

Directive 2006/123/EC of the European Parliament and of the Council of 12 December 2006 on services in the internal market (OJ L 376/36 EN, 27.12.2006).

19

Monteagudo, Rutkowski and Lorenzani (2012).

20

Monteagudo, Rutkowski and Lorenzani (2012).

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services, retail and wholesale trade, construction, public procurement and retail banking.21 In many Member States, business services are still subject to heavy regulation limiting free choice of the legal form and imposing requirements on capital ownership, which hamper the development of cross-border professional services. In Spain, restrictions on retail competition consist basically of limitations on the opening of large establishments with efficient production scales, requirements for discounters and restrictions on business hours. Significant regulatory differences among regions –more specifically, regarding the requirements for the opening of new establishments- hinders the development of the market. However, two laws (Royal Decree-Law 19/2012 and Royal Decree-Law 20/2012) were recently passed with the purpose of reducing the barriers to competition in retail trade, particularly in major tourist areas.22 Construction activities within the EU face obstacles because of the lack of mutual recognition of authorisation schemes or the certification of specialised services (for instance, regarding environmental certification of buildings). Public procurement is an important market (almost 3.7% of EU GDP in 2010 and over 40% of total contracts) for the service industry. However, only 3.5% of procurement contracts are awarded cross-border,23 which requires a better implementation of procurement rules in Member States in order to obtain efficiency gains. Given the importance of public procurement, it is of special concern to solve the serious payment problems regarding contracts signed by public administrations. According to the Late Payment Directive -under which public authorities have the obligation to pay within 30 days- Spain is not in a good position, since its average payment time is 90 days.24 This has naturally led to liquidity problems for businesses, which is an additional obstacle to overcome the current economic crisis. This is a particularly serious issue, especially for SMEs, which are forced to reduce their investment, to cut jobs and even to close down. From a consumer perspective,25 retail banking is perceived as the worst market on conditions offered, fees, choosing the best deal or switching to another provider. In Spain, for instance, during 2013 there has been a considerable increase in claims before the Bank of Spain.26 21

Report from the Commission to the European Parliament, the Council, the European Central Bank, the European Economic and Social Committee of Regions and the European Investment Bank State of the Single Market Integration 2013, Contribution To The Annual Growth Survey 2013 (COM/2012/0752 Final).

22 23

Picazo and Gil (2013).

Sylvest (2011).

24 25

Asociación de Trabajadores Autónomos (2014).

European Commission (2012).

26

See Market Conduct and Claims in the web of Banco de España (http://www.bde.es/bde/en/secciones/ servicios/Particulares_y_e/Servicio_de_Recl).

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5.3 Energy markets

The economic importance of energy markets in European and Spanish economy goes beyond their share in production and employment. Energy is a critical input for the rest of the economy and contributes significantly to their cost competitiveness. Electricity prices in the EU have increased at a slower pace than those of primary energies and inflation, particularly in countries where energy markets are more efficient.27 However, gas and electricity are perceived as lacking transparency or insufficiently open to new operators.28 The lack of integration of these markets is clearly visible in the little convergence –or plain divergence- in gas and electricity retail prices across the EU. This is due to regulatory measures, lack of diversity of supply, vertical integration of energy companies, limited cross-border interconnection, differences in network costs, taxation and labour costs. Price regulation has discouraged energy efficiency, competition and transparency; it has provided incentives for market concentration and it has led to low satisfaction of the consumers for energy services. With regard to wholesale energy markets, price convergence is higher than in retail markets. Intra-EU coupling of energy markets has allowed for greater integration, more intense competition for energy flows and greater price convergence.



5.4 Transport markets

Transport is a key sector for an efficient functioning of the IM, not only due to its considerable size (it accounts for 5% of EU total value added). Hence, market opening in the different transport modes (road, rail, air and sea) is essential. However, the IM for transport is generally insufficient, due to difficulties in transposing and implementing Directives on the freedom of access and tender procedures.29 Although rail services –freight and passenger- have been formally open to competition for years, national markets –with few exceptions like Denmark, Sweden and the United Kingdom- remain relatively closed. Port services are still fragmented, which implies a logistical cost in terms of time, efficiency and traffic reliability. Moreover, cargo-handling services are 27

Communication From The Commission To The European Parliament, The Council, The European Economic And Social Committee And The Committee Of The Regions Making the internal energy market work (COM/2012/0663 final).

28

Ibid.

29

Communication From The Commission To The European Parliament, The Council, The European Economic And Social Committee And The Committee Of The Regions Making the internal energy market work (COM/2012/0663 final).

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the public administration of the internal market

often restricted to monopolies or oligopolies acting as entry barriers to port markets. Intra-EU short-sea shipping is considered beyond the boundaries of the IM, which requires additional administrative procedures de facto restricting access for non-national EU operators. There has been a significant opening of the air transport market, resulting in an increase of the number of passengers and the number of routes within the EU, along with a decrease in fares. However, Europe’s airspace is still fragmented, which entails extra costs to both clients and businesses.



5.5 Digital markets

Digital markets -and in particular broadband Internet- constitute a platform for extraordinary current and potential growth due to its applications, reduction in prices and increasing levels of competition derived from EU regulations. Nevertheless, according to the European Commission the remaining price differences indicate that the IM is still incomplete in that sector.30 The broadband gap, an indicator of penetration across Member States, continues to decline, and there is a clear trend towards higher speeds. The Digital Agenda provides investment incentives, and despite the strong competition in the mobile sector, there are still certain areas (such as roaming) impervious to competition, which calls for an ad hoc legislation. Despite the strong growth of the Internet economy in the EU, cross-border e-commerce remains very low, although there has been some progress.31 There appears to be two distinct groups: northern countries with high e-commerce growth rates and southern countries with slower rates. This widens the gap between north and south. In spite of the great potential, the number of companies engaged in e-commerce is still very limited, requiring greater integration of this market. The technical possibilities are huge, but lack of trust, information, privacy, security and concerns about getting redress in the event of an error continue to restrain consumers.



5.6 Taxation

Notwithstanding the progress in tax harmonisation, the IM is still fragmented in as many tax areas as Member States.32 Tax disparities hinder the achievement of the IM goals, being contrary to the common market 30

Report from the Commission to the European Parliament, the Council, the European Central Bank, the European Economic and Social Committee of Regions and the European Investment Bank State of the Single Market Integration 2013, Contribution To The Annual Growth Survey 2013 (COM/2012/0752 Final).

31

Ibid.

32

Brunet (2010).

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and affecting fairness by discriminating both producers and consumers on the grounds of their tax residence. They also encourage tax evasion, speculation and fraud, and prevent an optimal allocation of resources. There has been some progress with regard do indirect taxation (a definitive system of collection in the country of origin and harmonisation of tax rates are still pending), but there has been very little harmonisation of direct taxation. Harmonisation of corporate income tax is essential in order to prevent company relocations and fraud. The lack of harmonisation of personal income tax affects the free movement of workers, leads to double imposition of crossborder workers and damages bank interests of non-residents. These elements distort the proper functioning of the IM. Fiscal competition affects mainly the less mobile factors (labour), preventing the reconciliation of social and economic aspects within the IM.33 On the other hand, it is hard to imagine the IM without a fiscal integration of the EU; i.e., without budgetary and Treasury integration.



6 Future challenges

Political ambition is needed in order to achieve the full integration of the IM. It also requires the adaptation of national legislations to the Service Directive and the whole of the IM rules. In the field of business services, this implies reviewing and removing unjustified requirements. With regard to retail trade, access barriers and operational restrictions must be reduced. An effective implementation of the Points of Single Contact and the Late Payment Directive could play a key role. In the energy sector, implementing the ‘third legislative package’ -transposed in 2012 with the purpose of achieving an efficient and competitive gas and electricity IM- should be a priority. At the same time, consumers should be empowered by introducing more competitive prices, incentives for energyefficient behaviour and protection mechanisms for the most vulnerable homes and businesses. Considerable investments will be necessary in infrastructures such as pipelines, electrical grids, storage and transport of liquefied natural gas in order to complete the internal market integration and guarantee security of supply. As regards transport, an effective transposition and implementation of European standards should be ensured, particularly in the area of road, railways and sea transport. It is necessary to open rail passenger services to competition ensuring equal access to infrastructure for all operators. The same applies to port services, where more cabotage opportunities should be offered to nonnational carriers. The implementation of the Single European Sky should also be accelerated. 33

Roca (2010).

17

the public administration of the internal market

In the ‘digital economy’, efforts should be made to increase the deployment of broadband and improve its quality, ensuring the correct application of the E-commerce Directive and the Consumer Rights Directive, in order to reinforce consumer confidence and protection. The availability of online public services, cross-border interconnection and infrastructures should also be increased,34 introducing digital services in health systems and making E-Procurement interoperable and mandatory. The new E-Consumers Rights Directive, in force since June 2014, can be an essential contribution for overcoming such difficulties and strengthening consumer protection. The supervisory and regulatory framework for the banking sector (fragmented and complex) has proved insufficient to mitigate the effects of the crisis in the European financial system. It is necessary to move towards a banking union (a single supervisory mechanism, a single deposit guarantee mechanism and a single banking crisis resolution mechanism).35 The banking union shall not only act on banking crisis; it has to prevent them,36 reducing financial fragmentation and integrating access to banking services.37 It should also absorb shocks in the EU by transferring surplus liquidity in order to reduce the impact of credit crunches, foster investment and growth. For the IM to play a stabilising or counter-cyclical and redistributive role, it requires a large-scale European budget (certainly greater than the current and decreasing 1% of GDP). The mutualisation of debt would also help, so that Eurobonds could be issued to prevent the moral hazard related to negative incentives in the least fiscally disciplined Member States. Given the crisis of confidence in the EU, it is essential to move towards an IM for the citizens, integrating the social dimension in all its policies. The increasing territorial inequalities within the EU, linked to the income concentration trend, must also be taken into account in order to strengthen the European cohesion policy.

34 35

European Commission (2015).

Howarttn and Quaglia (2013).

36 37

Benink and Huzinga (2013).

Sander and Kleimeier (2004).

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Bibliography J.A. Alonso, “Comercio exterior”, en J.L García y R. Myro (eds.), Lecciones de Economía Española, (11 Edición, Madrid: Thomson Reuters, 2013), 341–38. Asociación de Trabajadores Autónomos, Observatorio del Trabajo (http://www.ata.es/sites/ default/files/np_deudas_morosidad_septiembre_2014.pdf. 2014). F. Brunet, Curso de Integración Europea (Madrid: Alianza Editorial, 2010). H. Benink and H. Huzinga, “The urgent need to recapitalise Europe’s banks” (05 June 2013) Vox CEPR’s Policy Portal, 1–3. Consejo Económico y Social, Los Retos del Mercado Interior Europeo (Madrid: Consejo Económico y Social de España, 2009). Z. Darvas, P. Hüttl, S. Merler, C. de Sousa and T. Walsh, “Analysis of developments in EU capital flows in the global context” (2013) Bruegel. MARKT/2013/50/F European Commission, Employment and Social Developments in Europe 2011 (Luxemburgo: Oficina de Publicaciones de la Unión Europea, 2011) European Commission, 8th Consumer Markets Scoreboard (Luxemburgo: Oficina de Publicaciones de la Unión Europea, 2012). European Commission, Special Eurobarometer 363 (http://ec.europa.eu/public_opinion/ archives/ebs/ebs_363_en.pdf. 2013) European Commission, Digital Agenda for Europe. A Europe 2020 Initiative ( http://ec.europa. eu/digital-agenda/en/digital-agenda-europe-2020-strategy, 23/02/2015) European Commission, The Single Market Scoreboard (http://ec.europa.eu/internal_market/ scoreboard/index_en.htm. 2014) J.C. Fariñas y C. Díaz, “Balanza de Pagos y Equilibrio Exterior”, en J.L García y R. Myro (eds.), Lecciones de Economía Española, (11 Edición, Madrid: Thomson Reuters, 2013), 327–340 D. Howarth and L. Quaglia, “Banking Union as Holy Grail: Rebuilding the Single Market in Financial Services” (2013), 51 Journal of Common Market Studies, 103–123. J. Monteagudo, A. Rutkowski, and D. Lorenzani, “The economic impact of the Services Directive: A first assessment following implementation” (June 2012), Economic Papers 456, 1–86 M. Monti, A New Strategy for the Single Market (http://ec.europa.eu/bepa/pdf/monti_report_ final_10_05_2010_en.pdf) M. Matea, J. Mora, “Comercio minorista y regulación autonómica: Efectos en la densidad comercial, el empleo y la inflación” (2012), XX (59) Revista de Economía Aplicada, 5–54. OECD, Economic survey of the EU, 2012, (http://www.oecd.org/eco/49950244.pdf 2012). A. Picazo y S. Gil, “Sector Servicios”, en J.L García y R. Myro (eds.), Lecciones de Economía Española, (11 Edición, Madrid: Thomson Reuters, 2013), 191–210. A. Roca, “El Estado del Mercado Único: Un Relanzamiento Necesario. Balance y Desafíos Pendientes” (2010), Investigaciones Regionales, 18, 155–188. H. Sander and S. Kleimeier, “Convergence in euro–zone retail banking?” (2004) Journal of International Money and Finance, vol. 23(3), 461–492. J. Sylvest, Cross–border procurement above EU thresholds (Brussels: European Commission, DG Internal Market and Services, 2011).

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Cooperative Administrations and Free Movement Goods: The Example of Food Safety Management in the European Internal Market Juan Antonio Chinchilla Peinado

chapter 2



cooperative administrations and free movement goods

1 Introduction

The food industry1 is one of the most important sectors in the European Common Market. But it is also one of the sectors that can have a greater negative impact on the health of its citizens, especially due to globalization.2 Recent years have witnessed a large number of health risk situations, as can be seen in the RASFF Annual Reports. The qualitative impact of these situations is important as well, not only in terms of human lives, but also in terms of economic costs, if only because of the psychological impact that they have on consumer confidence. This is confirmed by a quick look into the most relevant crises. The Mad Cow disease and its human variant (the CreutzfeldtJakob disease) were responsible for more than 250 deaths in Europe since 1995.3 Contamination from Enterohaemorrhagic Escherichia coli left 54 deaths in Germany and France in 2011. 4 Other crises have only left economic traces, although their future effects on public health are still unknown. Food contamination by dioxins has been common in the EU: Belgium 1999,5 Ireland 2008,6 and Germany 2011. Those crises have not resulted in human deaths, but they have had a serious impact both on consumer confidence and on economic output. Finally, it is also necessary to mention cases of fraud in the food industry. These cases also undermine consumer confidence, as shown by the recent horsemeat scandal of 2013. This case seems to raise no risks for human health. However, it is unknown whether unauthorized drugs have been given to animals commercialized for human consumption and whether these animals have suffered from any illnesses as a result of the need to bypass official drug tests.



2 Human health protection in EU law



2.1 Treaty provisions

Food safety regulation is, without any doubt, one of the first material issues of EU law (both in chronological and in structural sense).7 Over the past decades, its development and importance have turned it into a sector 1

It is the main activity of the manufacturing industry in Europe, representing a 14.6%, with a higher value to 1.048.000.000.000 € in 2013. See 2013 Annual Report of Food Drink Europa http://www.fooddrinkeurope.eu/uploads/publications_documents/FoodDrinkEurope_Annual_Report_2013.pdf.

2 3

Havinga (2012) 4.

De Marcos Fernández (2012) 2.

4 5

Rodríguez Font (2011) 43.

Francisco Polledo (2006) 643.

6 7

Casey-Lawless (2009) 10.

As Knipschild (2011) 121 notes, prior to the formation of the EEC in 1957, the original Member States held meetings on veterinary security where they agreed on the principles to be developed for subsequent regulation adopted by the EEC on food security.

23

the public administration of the internal market

of reference within the ‘European administrative union’.8 The evolution in this sector is clear. Whereas at the beginning the main focus was on preventing danger and on removing barriers to the free movement of goods, the focus has now shifted to preventing the risks associated to a technological and industrial society, without hampering the single market. Thus, the main substantive goal of food regulation is to protect human health against illnesses coming from animals, from animal products, or from any other foodstuffs.9 The challenge is to combine reactive regulation (against effective dangers) and preventive regulation (against risk situations).10



2.2 Risk management and the precautionary principle

The core idea of food regulation is the prima facie priority of food safety over the free movement of goods, in line with the precautionary principle and with health risk management. The organization and the procedures of public authorities and European institutions must respond to this material criterion when enforcing EU law.11 There are two basic principles. Firstly, the principle of national or indirect application of EU law, except when there is a need for it to be applied by the EU institutions.12 And, secondly, the related principle of loyal cooperation enshrined in Article 4(3) TEU.13 From an organizational perspective, the EU legal order lacks a uniform solution to the tension between nationality and supra nationality – between fragmentation and unity. The legal response depends on the degree of uncertainty 8

On this terminology (European Composite Administration, ‘Europaischer Verwaltungsverbund’), see Rohol (2008) 122 and ff.; Schneider (2008) 26; Ruffert (2008) 88; Von Bogdandy and Dann (2008) 2014; Schmidt-Aßmann (2011) 6.

9

Article 2 of Regulation (EC) No 178/2002 of 28 January 2002, laying down the general principles and requirements of food law, establishing the European Food Safety Authority and laying down procedures in matters of food safety (OJ L 31, 1.2.2002, p.1).

10 11

Knipschild (2011) 122.

Chiti (2009) 11, who notes that the administrative structure in each subject area is established as an adaptive answer to specific legal needs. See also López-Jurado Escribano (2008) 146; Sommermann (2012) 6.

12

Velasco (2008) 4. See Case C-72/12 Gemeinde Altrip, Gebrüder Hört GbR, Willi Schneider v Land Rheinland-Pfalz [2014] n.y.r., para. 45; Case C-416/10 Jozef Križan and others v Slovenská inšpekcia životného prostredia [2013] n.y.r., para. 106: ‘Where, there being no rules fixed in this sphere by Union law, it is for each Member State to lay down, in its legal system, the detailed procedural rules governing actions for safeguarding rights which individuals derive from Union law, those detailed rules, in accordance with the principle of equivalence, must not be less favourable than those governing similar domestic actions and, in accordance with the principle of effectiveness, must not make it in practice impossible or excessively difficult to exercise rights conferred by Union law’.

13

Chiti (2010) 7; Schmidt-Aßmann (2013) 4. This principle refers to both vertical cooperation between the Union and the States, and to the horizontal cooperation among Member States, in the terms established by Article 197 TFEU.

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cooperative administrations and free movement goods

over the effects of each product on health. So it is neither a matter of exclusive indirect enforcement by national governments or agencies, nor a matter of exclusive direct enforcement through Commission-led agencies; rather, it is a task in which they all simultaneously partake.14 Thus, this multilevel form of cooperation has a vertical and a horizontal dimension.15 This integration results from the creation of a multilevel, networked structure, which relies on administrative procedures in which national and (where necessary) EU administrative authorities take part and on information-exchange structures between public and private actors. From a procedural perspective, the administrative procedures in this sector are strongly directed or conditioned by EU law. Due to scientific uncertainty, food regulation tends to avoid substantive standards and to rely instead on uniform procedures whose basic elements are imposed upon Member States, so as to guarantee acceptable outcomes.16 In other cases, national procedures are open to participation by EU organs or by organs from other Member States. In the absence of substantive rules, procedural standards are meant to ensure legality and rationality. The ultimate goal is to reach a compromise between public and private interests, thereby securing acceptance by interested parties and by society as a whole.17



3 Horizontal and vertical cooperation between EU and national authorities

New governance in the area of food regulation (a trend launched in 2002) rests on networked and participative models (including participation by European and national authorities and by interested parties themselves). The underlying administrative structure is quite complex: this is because of the dense web of interactions that take place within the system, but also because of the dynamism of those interactions. In any case, this form of cooperative and deliberative governance takes place under the shadow of the powerful Commission.



3.1 Indirect enforcement by Member States: a horizontal, non-hierarchical network

EU Law gives member States the power to control the commercialization of foodstuffs. Leaving this broad regulatory field in the hands of member State leads to the creation of a horizontal collaboration network,18 where 14 15

Egerber and Trondal (2009) 780.

Von Bogdandy and Dann (2008) 2017.

16 17

Velasco (2008) 2.

López-Escudero Escribano (2008) 167.

18

Mathieu (2014) 18.

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the public administration of the internal market

neither the Commission nor the EFSA occupy (formally) a hierarchical superior position, all of which is a response to coordination problems. In this respect, it is possible to distinguish two different administrative models: a) Transnational internal market administration: the examination of the conditions to benefit from the free movement of goods is subject to an ex ante system of control, where the authorization granted by the competent authority within a Member State has cross-border effects throughout the European administrative space.19 The cooperation between Member States is based on the high degree of harmonization achieved by secondary legislation and on procedural uniformity, without any type of intervention by the Commission. The transnational effect does not require any specific action from the receiving national administration. It only imposes respect for the judicial situation created by another national administration.20 It follows that any modification or revocation of the original administrative decision has a direct impact on other Member States. The existence of procedural or substantive errors in the transnational act does not empower the receiving Member State to deny mutual recognition, but only to communicate this error to the issuing Member State and, if not corrected, to bring an action of infringement against that State (save in those cases of manifest invalidity, where it is possible to reject transnational effectiveness).21 b) Internal market administration subject to recognition: the assessment of the conditions to benefit from the free movement of goods is subject to ex ante authorization by the competent authorities of a Member State. This authorization may be recognized by other Member States through an ad hoc procedure. The renewal, annulment or modification of the original authorization affects the acts of reference.22 The cooperation between Member States is based on the procedural regulation laid down by secondary law.



3.1.1 Transnational administrative acts

The free movement of animals and of their genetic material can be dangerous for human health. The substantive requirements that need to be met are spelled out into quite detail by secondary law, which leaves the articulation of authorization procedures to the national laws of each Member State. Therefore, there are administrative transnational acts that extend their judicial effects beyond the borders of the state where they were adopted and where they were notified to their addressee, without the need of any type of individual decision from the receiving Member State.23 The high degree of 19

Ruffert (2008) 90; Bocanegra Sierra and García Luengo (2008) 19; Velasco (2008) 24; Di Lucia (2012) 20.

20 21

Wenander (2011) 768.

See Wenander (2011) 775.

22 23

Ruppert (2008) 91.

Ruffert (2011) 281; Wenander (2011) 759; Bocanegra Sierra and García Luengo (2008)19.

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harmonization achieved with regard to the substantive rules makes it unnecessary to provide for the participation of other Member States in the authorization procedure.24 This form of cooperation relies on information systems that seek to guarantee transparency (which is key to protect the confidence of Member States and consumers) and the monitoring of commercial transactions. In these cases, administrative controls adopt one of two forms: they either take the form of an authorization (general prohibition subject to authorization)25 or, more simply, of a statement of responsibility. The choice between these two techniques of control depends on the size of the health risks at stake. Although the review of the legality of the transnational act corresponds, exclusively, to the judicial system of its country of origin, the principle of cooperation allows other Member States to decide the temporary suspension of its cross-border effects (partial revocation) on health grounds.26 This is what happens, for example, with the authorization and registration of the centres of sperm collection and storage, centres for the collection and production of livestock embryos, quarantine centres and the distributors of this type of genetic material.27 This material, which is the first stage of the production and marketing process of the livestock sector, can only be shipped to other Member States if it has been collected, handled and produced in an establishment that has been duly authorized by the competent authority of the Member State where it is located. If this is the case, national law recognizes the automatic transnational effect of the acts adopted by another Member State on the basis of mutual recognition.28 Cooperation is made effective through information channels. On the one hand, there is a system of diffuse information with free access to the content of the national register (which gives publicity to the centres that are authorized in each member State, as a result of their compliance with the requirements set by EU law) for other Member States and the general public. We have thus shifted from a system that was centralized in the hands of the Commission to a decentralized system where each Member State publishes the list of authorized establishments within its territory, given that it is for each Member State to supervise these establishments and to ensure that they meet the legal requirements on animal health. This system eases the access by all stakeholders to the relevant information. On the other hand, cooperation is enhanced by the requirement to carry out at all times, during transportation and marketing, of a sanitary certificate which guarantees compliance with animal safety requirements (prophylaxis), in the terms laid down by EU law;29 a 24 25

Ruffert (2011) 287; Bocanegra Sierra and García Luengo (2008) 15.

Knipschild (2011) 124.

26 27

Ruffert (2008) 90; Bocanegra Sierra and García Luengo (2008) 23.

Articles 3.a) and 5.1 of Council Directive 88/407/EEC, of 14 June 1988, laying down the animal health requirements applicable to intra- Community trade in and imports of deep-frozen semen of domestic animals of the bovine species (OJ L 194, 22.7.1988, p. 10).

28

Ruffert (2011) 282; Bocanegra Sierra and García Luengo (2008) 16.

29

Article 3.d) of Council Directive 88/407/CEE.

27

the public administration of the internal market

certificate which must be produced to the veterinary authority of the receiving member State. And, finally, through the possibility of prohibiting or temporarily restricting the entry of genetic material from another Member State whenever an epizootic disease or any other serious and contagious animal illness appears.30



3.1.2 Composite decision making procedures

A clear example can be found in the commercialization of phytosanitary products, which (given their use on vegetables) can entail risks for human beings, for animals and for the environment. EU secondary law has undergone important changes in this area. We have thus witnessed a shift from a scarcely harmonized system which granted a wide margin of discretion to Member States, and which generated dysfunctional limitations on free movement,31 to a two-stage, complex system based on multilevel authorizations and horizontal cooperation procedures, in which the intervention of the EFSA has diluted the significance of comitology procedures. No intervention by the Commission is foreseen within the procedure leading to the concession of commercial authorizations. This is because the goal of the procedure is, in essence, to check that the active substances of the product have been previously authorized within the European Union. A horizontal cooperative procedure is thus put in place. It is generally necessary to have a previous authorization in each of the Member States.32 The authorization process works on the basis of the principle of horizontal cooperation. The manufacturer´s application is examined by the Member State chosen by the applicant amongst those located within the area of vegetal production for which the application has been made (which leaves the other applications provisionally suspended).33 In the aforesaid procedure the Member State will apply the uniform evaluation procedures previously laid down by EU law on the basis of scientific knowledge, granting the rest of countries an opportunity to submit observations. The assessment made by the Member State in charge of the application is put at the disposal of the other Member States; it forms the basis of their decision to grant or to deny the authorization at stake, notwithstanding the possibility to impose specific, national measures of risk mitigation. If the assessment is positive, the other Member States will only be allowed to deny the authorization if they consider that for technical or scientific reasons, or due to specific agricultural 30 31

Article 6.2 of Council Directive 88/407/CEE.

Tavares da Silva (2010) 57.

32

Article 33.1 of Regulation (EC) No 1107/2009 of the European Parliament and of the Council of 21 October 2009 concerning the placing of plant protection products on the market and repealing Council Directives 79/117/EEC and 91/414/EEC (OJ L 309, 24.11.2009, p. 1).

33

However, if there is an agreement between the Member States in the same area, the evaluation need not be carried out by the one proposed by the applicant, subject to the necessary collaboration of all Member States in the area. See Article 35 of Regulation (EC) No 1107/2009.

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environmental circumstances, the products in question pose an unacceptable risk for human or animal health or for the environment, in which case they will have to inform the Commission.34 As a simplified authorization procedure, it is possible for the holder of an authorization granted by a Member State to request equal recognition from any other Member State with comparable agricultural, plant protection and environmental conditions (whether they belong to the same area or not). The Member State in question will grant the authorization through a simplified monitoring procedure, in the same terms as the Member State that was responsible for the assessment in the first place.35 A similar cooperation procedure is foreseen for the renewal of authorizations, the coordinating task falling again on the Member State that made the initial evaluation.36 On the contrary, the authorization of active substances that can be used by producers is subject to an ex ante, multilevel authorization procedure. The producer is supposed to present an application before the competent authorities of a Member State, which will be the rapporteur in the evaluation process.37 The Member State issues a preliminary report 38 assessing whether the product is in conformity with the relevant technical and scientific regulatory standards.39 The preliminary report is made available to the Commission and to the EFSA, which forwards it to the other Member States and puts it through a public information procedure and, if necessary, through an expert consultation phase. The EFSA, after an independent scientific review, decides whether the product complies with regulatory health standards. 40 If positive, it is on the basis of this decision and of the opinion of the Standing Committee on Plants, Animals, Food and Feed that the Commission will then issue a regulation authorizing the use of the active substance. 41



3.1.3 Institutional balance: the role of traders and interested third parties

The regulation of the procedure of approval for active substances clearly falls short in terms of transparency. This is because it restricts, on industrial property grounds, the information rights of taxpayers and environmental associations. However the European courts have made an extensive 34 35

Article 36 of Regulation (EC) No 1107/2009.

Article 41 of Regulation (EC) No 1107/2009.

36 37

Article 43 of Regulation (EC) No 1107/2009.

Article 7 of Regulation (EC) No 1107/2009.

38

The assessment of the rapporteur Member State in the evaluation process is not binding. The Commission remains entitled to adopt risk management measures different from those proposed by the rapporteur Member State. See Case C-77/09 Gowan Comércio Internacional e Serviços Lda v Ministero della Salute [2010] ECR I-13533, para. 60.

39

Article 11 of Regulation (EC) No 1107/2009.

40 41

Article 12 of Regulation (EC) No 1107/2009.

Article 13 of Regulation (EC) No 1107/2009.

29

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interpretation of the right of access to information regarding environmental issues. 42



3.2 The procedures for direct implementation of EU law by the European Commission



3.2.1 Authorization procedure centralized at EU level

Due to greater uncertainty on the risks raised by some non-traditional foodstuffs on human health, the decision-making powers are placed in the hands of the Commission. This can be done through a procedure that leads to the approval of a list which is then incorporated into a EU regulation (a delegated act ex Article 290 TFEU) or through a procedure that leads to an implementing act (ex 291 TFEU). 43 This study is concerned with the latter. In this case, the harmonized rules lay down a procedure that guarantees the participation of Member States while assigning the ultimate decision to the Commission. Consequently, Member States may not demand national authorizations based on health or environmental considerations. 44 It is possible to observe in this field a progressive concentration of power in the Commission, which is subject to comitology controls. 45 By assigning to the Commission a broad spectrum of power, this creates a vertical collaborative network, with the EFSA occupying a superior hierarchical position as a result of its scientific expertise46 and as a response to coordination problems. This leads to two procedural models: In the first model, the power can formally belong to the Member State, provided there is a tacit agreement between all Member States and the European authorities. If not, the power is handed to the Commission. For example, the procedure for the commercial authorization of new foodstuffs or ingredients, 47 is articulated as a European authorization procedure with two possible levels. 48 The procedure starts with the interested party lodging an application before the authorities of the Member State where the product is to be commercialized for the first time. The competent scientific organism of the Member State in question will make an initial evaluation. If positive, it will then be notified to the Commission so that it forwards it to the other Member States. If negative, the authorization will be denied. Should the initial assessment be positive, both 42

Case C-266/09 Stichting Natuur en Milieu and Others v College voor de toelating van gewasbeschermingsmiddelen en biociden [2010] ECR I-13119, para. 38 and ff.

43

Mendes (2011) 343.

44

Case C-36/11 Pioneer Hi Bred Italia Srl v Ministero delle Politiche agricole alimentari e forestali [2012] n.y.r., para. 75.

45

Blom-Hansen (2014) 56 and ff.; Mathieu (2014) 4.

46 47

Article 53 of Regulation (CE) 178/2002.

Articles 4 and ff of Regulation (EC) No 258/97 of the European Parliament and of the Council of 27 January 1997 concerning novel foods and novel food ingredients (OJ L 43, 14.2.1997, p. 1).

48

Rizzioli (2012) 399; Mendes (2011) 334.

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the Commission and the remaining Member States will then make observations (on technicalities or content aspects that do not prevent the product from being authorized) or objections (fundamental issues which may halt the authorization) to the initial evaluation. If there are no observations or objections (tacit consent) the competent organism of the Member State where the application was lodged will notify the (national) authorization for commercialization to the applicant, 49 with effects in the entire European Union, with no need for further authorizations from any other Member State. If, on the contrary, observations or objections are made, they will have to be answered by the applicant and the power to decide will shift to the Commission. In this case, the Commission will only grant the authorization if it deems the applicant’s allegations sufficient. The Commission will otherwise request EFSA to give its scientific opinion, which will settle the issue.50 In both cases, the Commission will present the authorization proposal to the Standing Committee on the Food Chain and Animal Health.51 The Commission will adopt the proposal on the basis the necessary and binding opinion from the Committee (examination comitology procedure). The authorization may be granted (with or without conditions) or denied. In the latter case, the authorization denial is only binding upon the applicant. The second model places the competence to decide in the hands of the Commission. For example, the procedure for the authorization of genetically modified organisms for human or animal consumption52 is articulated under this model, although the uncertainty concerning their impact on health means that the decision-making power corresponds to the Commission in every single case. The applicant must enter the application before the competent authorities of a Member State, which will then send it to EFSA, so that the latter forwards it to the Commission and to the remaining Member States. EFSA will draft a report, which will be published and notified to the Commission, the Member States and the applicant. The Commission will then present its authorization proposal to the Standing Committee on the Food Chain and Animal Health. Again, the proposal will be adopted by the Commission on the basis of the binding opinion of the Committee (examination comitology procedure). If the Commission´s deviates from the opinion of EFSA, the final decision must be adopted by the Council of the European Union acting by a qualified majority (assuming the Commission´s proposal, or formally and expressly rejecting it, although if no decision is taken within three months, the Commission may adopt the decision). The authorization, which may be subject to conditions, will be valid for ten years, renewable successively for ten-year periods.

49 50 51

Mendes (2011) 338.

Articles 6, 7 and 13 Regulation (EC) No 258/97.

Craig (2011) 680.

52

Articles 5 and ff. of Regulation (EC) No 1829/2003 of the European Parliament and of the Council of 22 September 2003 on genetically modified food and feed (OJ L 268, 18.10.2003, p. 1).

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the public administration of the internal market



3.2.2 Institutional balance: the role of traders and interested third parties

In all these “centralized” authorization procedures, there are certain elements which are noteworthy: (i) The authorization procedure network structure allows all Member States (on the basis of the scientific opinion of their scientific agencies or on the basis of the political criteria of their administrative authority) to actively take part in these procedures, obtaining and contrasting any element of the information record or requesting any additional information that they deem necessary, deliberating on the basis of this information and putting forward alternative positions. This increases the likelihood of coming up with a correct risk assessment. (ii) The decisive risk evaluation is made by EFSA. The Commission´s decision requires a previous political evaluation made by the Standing Committee on the Food Chain and Animal Health of the scientific evaluation made by EFSA. This is the reason why, before any additional scientific evaluations are made, the Commission may not adopt any decision without consulting again the Standing Committee, so that the latter can give its opinion on the scientific evaluation as well as on the Commission’s proposal. The absence of this opinion is a breach of an essential procedural requirement. (iii) The applicants´ right to be heard, which must be adapted to the complexity of the procedure. At the national level, the right to be heard can only be effective if granted after the Commission and the other Member States have submitted their observations. In any event, it seems clear that the right to be heard of interested parties remains problematic.53 (iv) Information requests to access the scientific evaluations made by other Member States should be made to the Commission rather than to the Member State in question. The Commission is competent to share the information file compiled in the course of European administrative procedures.54



4 RASFF: a cooperation network under the direction and supervision of the European Commission

In order to be effective, risk management within the internal market needs a smooth mechanism of information sharing between Member States (i.e, quick and adequate). The system relies on a real-time information network between Member States, the Commission and national as well as European agencies, which allows for an exchange of information on real or potential risk situations and on the measures taken by each of them, making risk management faster, consistent and coordinated throughout the EU. This network, 53

Mendes (2011) 340.

54

Henning (2009) 332.

32

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whose structure is centralized,55 has fostered a process of normalization and rationalization of national alert systems, so as to guarantee their interconnection.56 The management of risk through information network is thus articulated by means of administrative procedures that incorporate policy decisions aimed to acceptance, reduction or minimization of risk along with the adoption of adequate implementation measures and its communication to public and private parties.57 RASFF was created as an information-exchange network,58 based on a normalized format, concerning risk situations related to unsafe foodstuffs or fodder, animal health or the environment. Given that risks are non-static, the information supplied by the system must be dynamic, responding to the specific evolution and nature of the risk.59 There are therefore different types of information obligations, each of which is subject to different time-limits. The information should preferably have its origin in the official controls carried out by Member States, be it inside their markets or at the border.60 The members of the network are the Member States´ food safety authorities (which usually act as contact points), but also the Commission and EFSA themselves, which take part as members on an equal footing.61 The basic organizational principle of the network is mutual trust amongst the different agents of the network (complete and timely information exchange) so as to carry out a correct risk management (adoption of adequate measures). It follows that the network has a seemingly horizontal structure. However, the Commission is formally entrusted with the task of managing the network.62 Does this managerial role imply a coordinating or decision-making power over the distribution, modification or withdrawal of notifications? The task of drafting and transmitting notifications to the Commission falls on the competent authority of the Member State where the risk situation takes place. It would be possible to infer from this that the transmission of information to the Commission is automatic, in the sense that the Commission is obliged to register the notification and to forward it to the other members of the network.63 However, the truth is that the Commission may reject certain notifications on formal grounds; this possibility emerged as a matter of administrative practice but was later validated by secondary law.64 The system imposes on Member States only (but not on the Commission) the burden of proving the 55

Schneider (2014) 90.

56 57

Petrelli (2010) 4.

Cassey-Lawless (2009) 1.

58

Art. 50 of Regulation (EC) 178/2002. On its origins, see May (2011) 73; Bánáti and Klaus (2010) 11.

59

Lawless (2010) 451.

60 61

Petrelli (2010) 4.

Also ESA, Norway, Liechtenstein, Iceland and Switzerland.

62 63

Article 50 of Regulation (EC) 178/2002.

Petrelli (2010) 14.

64

Santini (2012) 20; Lawless (2010) 453; Alemanno (2007) 206.

33

the public administration of the internal market

existence of a serious and immediate threat for consumer health and safety. The Commission does not carry out a scientific assessment of the analysis and findings that led national authorities to transmit this information in the first place. The only obligation of the Commission is to carry out a formal assessment of the notifications that it receives.65 In doing so, the Commission is supposed to verify that the notification falls within the scope of the system and that the information is plausible. If so, the Commission forwards the information to the other Member States, altering if necessary its classification.66 From a material perspective, the Commission may include its own objections to the communications made by national authorities, for it is also a member of the network. Granted, the opinion of the Commission does not invalidate the information produced by the national authority and it does not bind in any way the other authorities that form part of the network, which may also formulate their own complementary objections.67 Yet, as a result of the Commission´s politic and scientific pre-eminence within the network and given the assistance of EFSA, negative communications are generally not made public. The Commission is recognized the power to block the transmission of notifications that it deems inconsistent (be it because grounded on insufficient information or because there is no real risk) or to withdraw previous notifications if it comes to the conclusion that they are not substantiated. The upshot is that, in practice, RASFF information network operates horizontally, but with an important vertical element given the hierarchical pre-eminence of the Commission.68 The leading role of the Commission may hamper the smoothness of the system of information sharing by Member States, which is why it will only be effective and legitimate if it is backed by the scientific assessments made by EFSA, by those embodied in its own guidelines or by the opinion of the Standing Committee on the Food Chain and Animal Health.69 This should unify the different perceptions with regard to risk and risk management throughout Member States, guaranteeing as well that the final decision is taken by the actor that is accountable (in political and in legal terms) to the citizenry (be it the Commission or the Member State).70 The purpose of the notification system is to allow for an exchange of information between different authorities so as to guarantee the uniform implementation of EU food regulation, which is why notifications are only partially and anonymously published, even if they can be accessed by the public. However, and as a response to the public confidence problems generated by the latest 65

Article 8 Commission Regulation (EU) No 16/2011 of 10 January 2011 laying down implementing measures for the Rapid alert system for food and feed (OJ L 6, 11.1.2011, p. 7). On formal control, see Capelli (2011) 5.

66 67

Petrelli (2010) 17.

Case T-212/06 Bowland Dairy Products Ltd v Commission [2009] ECR II-4073. This allows the existence of conflicting communications: Santini (2012) 23; Lawless (2010) 454.

68

Lawless (2010) 453; Alemanno (2007) 204.

69 70

Lawless (2010) 454; Alemanno (2007) 206.

Szawlowska (2004) 1272.

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crises, RASFF has created a webpage, which is accessible to the general public since June 2014. The information available in that page relates to the product and risk that are notified, to the type of notification, to the notifying country, and to the countries to which the notification is forwarded, as well as to the final decision. It is only when the need to protect human health requires that the information be made public that the identity of the producer or distributor will also be displayed (despite its being, in principle, protected by professional secrecy),71 after being verified by the national authorities. Given that RASFF confines itself to transmitting information, it is not compulsory to inform in advance the producer or distributor, and this entails no breach of the rights of the defence.72 Yet, in practice, the affected manufacturer and distributor are normally consulted whenever this is possible. When the information turns out be inconsistent, the protection of affected manufacturers and distributors raises certain substantive and procedural problems. From a substantial perspective, the priority of health over economic considerations implies that the producer and distributor are under the legal obligation to bear the negative economic consequences, provided the information was credible. If it was not, the responsibility falls on the authority that transmitted and acted upon the information in question. From a procedural perspective, the Commission does not respond for any damages caused by the network, because the trigger of the alert mechanism depends solely on the initiative and the assessment of national authorities. Any possible claim for damages must made before the judiciary of the concerned Member State and it will be directed to the national competent authority (for breach of EU or national law).73 Needless to say, the claim should be addressed against the Commission if it was the author of the information and the measures at the origin of the injury. Formally, the purpose of RASFF network is not to coordinate decisions in the field of risk management, but only to share risk information.74 When the risk is clearly located and can be controlled by the affected Member States, it is for these states to adopt under their own responsibility the preventive measures required by the situation (such as withdrawal orders, the imposition of conditions on distribution authorizations, etc.). These measures may be different from those adopted by other national authorities. If, as a result of its size or importance, the risk cannot be sufficiently controlled through national measures, the task shifts to the Commission, which will adopt binding measures for all Member States.75 Should the Commission fail to act, Member States will be able to implement these measures by themselves. Given that the actions taken by the risk management authority need to be assessed under rational 71

In accordance with Article 10 of Regulation (EC) 178/2002 and with the principle of transparency enshrined in Article 15 TFEU.

72 73

Ibid.

74 75

Case T-177/02 Malagutti- Vezinhet SA v Commission [2004] ECR II-827.

Mahy (2011) 73.

Article 53 of Regulation (EC) 178/2002.

35

the public administration of the internal market

and precautionary standards,76 it is necessary to provide reasons for the decision to adopt different measures than those adopted by other authorities. This is the reason why it is possible to state that there is an informal network of risk management.77



5 The role of EFSA

The inefficiency of the horizontal cooperation network both in specific product authorization cases and, especially, in risk management decisions, has brought about a shift from a model based on several scientific committees to a model based on a single ‘expert’ agency.78 It is possible to observe nowadays an intense cooperation in this area.79 This is particularly true after the creation of EFSA,80 because the creation of a network of national administrative structures facilitates communication and coordination within decision-making procedures. Furthermore, the existence of this web of national agencies under the aegis of the Commission has brought about a great deal of uniformity in the application of EU law, avoiding fragmentation amongst national authorities. National agencies act simultaneously qua part of their national administration and qua part of the European administrative union (multilevel network), with the Commission and EFSA at its core.81 Although it depends on the degree of organic independence that it has vis-à-vis the relevant governmental branch, national agencies generally play a major role in the implementation of EU law. But they also play a certain role in the preparation of the work of the Commission and in the committees, which creates strong ties with the relevant DG at the Commission.82 EFSA is an independent agency that fulfils a coordination role between independent national authorities,83 both directly and through its involvement in the European Agency.84 Independent national authorities are integrated in a unitary network where there is a clear allocation of functions between national authorities, EFSA (which coordinates the system),85 and the Commission. EFSA is informed by the principles of technical decentralization and administrative inte76 77

González Vaqué (2004) 933.

Santoni (2012) 4; Maccioni (2011) 4.

78

Mathieu (2014) 9 and ff.

79

Sommermann (2012) 8.

80

Schmidt-Aßmann (2013) 6. The establishment of agencies responds both to the need for the Commission to “download” specific tasks, such as the interest of the Member States to influence the way in which such agencies implement these tasks.

81

Egerber and Trondal (2009) 781.

82

Egerber and Trondal (2009) 788 refer to a problem of ‘capture’ of the national agencies by the Commission.

83

Hoffman (2010) 2.

84 85

Chiti (2009) 23. The transnational element is thus corrected through a supranational component.

Hoffman (2010) 4.

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gration (there is no administrative decentralization);86 in other words, it is based on a model of technical horizontal decentralization, its task being to provide direct assistance to the Commission and to Member States on the basis of its scientific expertise and to coordinate the network of national agencies, ensuring technical and scientific assistance and adequate information gathering.87 Formally, EFSA has no rulemaking functions, but it plays an important role in administrative procedures. Its technical and scientific reports and recommendations are usually not binding for the Commission (whose decisions are adopted following the relevant comitology procedure). But they constrain the discretion of the Commission, insofar as the Commission only through proper motivation can not assume its recommendations.88 Furthermore, EFSA issues guidelines and conclusions, which are generally viewed as de facto rules by national agencies and which condition the behaviour of private operators89 – but also of Member States, because they promote administrative integration through the sector-specific networks that it coordinates. The adoption of these guidelines is presided by the principle of independence (organization-wise) and of participation and transparency (procedure-wise), in particular through the consultation of national administrations and private stakeholders. This procedure is not regulated into detail by EFSA, which simply lays down some basic and general principles that are hardly formalized.90 Despite its weak and informal position, EFSA is thus capable of fostering a process of administrative integration based on the non-binding parameters that its guidelines place on the different national administrations that participate in the network and on private operators. In any event, the main element of accountability of the system lies in the transparency requirements imposed on EFSA.91 In the context of the present study, it is necessary to connect this element to the neutrality and objectivity that must preside over its actions, i.e., to its independence. The substantive independence of EFSA,92 which stems from its technical and scientific expertise, is limited through organizational and procedural rules that are designed to ensure its accountability on the basis of political and legal standards. EFSA must be accountable to the EU and to national institutions but also to society,93 and most notably to interest groups. In this sense, EFSA works as an amplifier of the ‘private’ interests of the industry and of the ‘individual’ interests of the different Member States, but its independence is protected by its structure. This structure rests on two principles: 86 87

Chiti (2009) 28.

Hoffman (2010) 6. It is therefore a regulatory agency with a dual role: as a collaborative network and as an expert scientific committee. See Mathieu (2014) 5.

88

Hoffman (2010) 9.

89

Chiti (2013) 98.

90 91

Chiti (2013) 102.

Hoffman (2010) 12.

92 93

Wonka and Rittberger (2009) 15.

Esteve Pardo (2013) 89.

37

the public administration of the internal market

a) The principle of inter-state cooperation, which determines the presence of a representative from each Member State. The designation of their staff dilutes the political responsibility between Member States. However, insofar as its managerial structures are composed of national civil servants, the Board is unable to keep effective control over their actions.94 b) The principle of society participation, i.e, participation by stakeholders with the technical knowledge and in particular by scientific experts and industry representatives. There can be no doubt that specialist knowledge resides in the food industry rather than in governments. The insertion of a consultation phase in the adoption of its reports and opinion allows EFSA to gather relevant information from private operators, which complements the information produced by its own scientific committees and which ensures the rationality and legitimacy of its decisions.95 However, there is a clear flaw in the administrative procedure, because the principle of transparency requires that care be taken to avoid potential conflicts of interest. The principle of transparency also projects itself upon scientific reports. It is not only at stake in the procedures leading to the production of these reports, but also whenever there is a disagreement amongst the reports produced by different EU or national organs and agencies. When this is the case, the principle of transparency demands that they all collaborate in order to reach a common position or to produce a document that reflects their discrepancy, narrowing down the issues that are controversial and pointing to the problems raised by the data, all of which needs to be made public.96



6 Conclusion

The initial stance of the EU in this field was a policy of regulatory harmonization with no impact on the administrative competences of Member States. Several food crises and the perception that national responses were insufficient to deal with them (as well as the reluctance of national governments to bear their political costs) are all factors that have contributed to the transfer of competences to the EU institutions.97 There has thus been a centralization shift towards procedures that reserve a greater role for the Commission. This is not to say that the principle of institutional balance is overlooked; it is indeed protected in part through the regulatory comitology procedure (which ensures the participation of Member States’ representatives) and in part through the creation of EFSA (an independent agency in which Member States also participate).

94 95

Schmidt-Aßmann (2013) 7.

Chiti (2013) 107.

96 97

Article 30 of Regulation (EC) 178/2002.

Mendes (2010) 320.

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Bibliography A. Alemanno, Trade in Food: Regulatory and Judicial Approaches in the EC and the WTO (London: Cameron May Ltd, 2007). D. Bánáti and B. Klaus, “30 Years of the Rapid Alert System for Food and Feed. An overview on the European Alert Network, combined with a case study on melamine contaminated foods” (2010) 1 European Food and Feed Law Review, 10-21. J. Blom-Hansen, “Comitology choices in the EU legislative process: contested or consensual decisions?” (2014) 92 Public Administration, 55-70. R. Bocanegra Sierra and J. García Luengo, Javier. “Los actos administrativos transnacionales” (2008) 177 Revista de Administración Pública, 9-29. A. Von Bogdandy and P. Dann, “International Composite Administration: Conceptualizing Multi-Level and Network Aspects in the Exercise of International Public Authority”, (2008) 11 German Law Journal, 2013-2039. D. Casey and J. Lawless, “The parable of the poisoned pork: network governance and the 2008 irish pork dioxin contamination”, (2009) 19 UCD Working Papers in Law, Criminology & Socio-Legal Studies, Research Paper. E. Chiti, “The administrative implementation of European Union law: a taxonomy and its implications”, in H. Hofmann and A. Türk, Legal Challenges in EU Administrative Law Towards an Integrated Administration (Cheltenham: Elgar  Publishing, 2009), 7-35. E. Chiti, “European Agencies’ Rulemaking: Powers, Procedures and Assessment”, (2013) 19 European Law Journal, 93-110. M.P. Chiti, “¿Existe un derecho público europeo? Una pregunta retórica” (2010) 41 Revista catalana de dret públic , 117-142. L. De Lucia, “Administrative Pluralism, Horizontal Cooperation and Transnational Administrative Acts”, (2012) 5 Review of European Administrative Law, 17-45. M. Egerber and J. Trondal, “National Agencies in the european administrative space: government driven, Commission driven or networked?” (2009) 4 Public Administration, 779-790. J. Esteve Pardo, La nueva relación entre Estado y Sociedad. Aproximación al trasfondo de la crisis (Madrid: Marcial Pons, 2013). J.J. Francisco Polledo, “Contaminación por dioxinas en 1999: un fantasma atraviesa Europa” (2006) 4 Revista de Administración Sanitaria Siglo XXI, 643-54. L. González Vaqué, “La sentencia Malagutti-Vezinhet, ¿quien es responsable de la información facilitada por le sistema comunitario de alerta en el ámbito de la seguridad de los productos?” (2004) 19 Revista de Derecho Comunitario Europeo, 917-33. T. Havinga, “Transitions in food governance in Europe from national towards eu and global regulation and from public towards hybrid and private forms of governance” (2012) 2 Nijmegen Sociology of Law Working Papers Series. K. Henning, “Public Authority Communication on Consumer Protection” (2009) 5 European Food and Feed Law Review, 329-34. K. Knipschild, “European veterinary and food law and the European Composite Administration”, in O. Jansen and B. Schöndorf-Haubold, The European Composite Administration, (Cambrigde: Interentia, 2011), 121-31.

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J. Lawless, “Conflicting Notifications in the EU’s Rapid Alert System for Food and Feed (RASFF): ‘Destabilization’ in Food Risk Communication?” (2010) 4 European Journal of Riks Regulation, 451-54. F.B. López-Jurado Escribano, “Los procedimientos administrativos de gestión del riesgo”, in J. Barnes Vázquez, La transformación del procedimiento administrativo, (Sevilla: Global Law Press, 2008), 82-115. G. Maccioni, “Il Sistema di allarme rápido” (2011) 2 Rivista di diritto alimentare, 1-11. E. Mathieu, “Networks, committees or agencies? The many faces of the EU regulatory space” (2014) A. Mahy, “Clear-cut Legal Basis for the RASFF: Mere Formalisation or a Concrete Move Forward?” (2012) 1 The European Journal of Risk Regulation, 72-80. J. Mendes, Participation in EU Rule-making: A Rights-Based Approach (Oxford: Oxford University Press, 2011). L. Petrelli, “Il Sistema di allarme rapido per gli alimenti ed i mangimi” (2010) 4 Rivista di diritti alimentare, 1-26. S. Rizzioli, “Novel foods”, in L. Costato and F Albisinni, European Food Law, (Padua: Cedam, 2012), 393-401. M. Rodríguez Font, “La aplicación del sistema de análisis de riesgos alimentarios por Alemania. La crisis del pepino y sus implicaciones” (2011) 22 El Cronista del Estado Social y Democrático de Derecho, 42-49. H.C. Röhl, “El procedimiento administrativo y la administración ‘compuesta’ de la Unión Europea,” in J. Barnes Vázquez, La transformación del procedimiento administrativo, (Sevilla: Global Law Press, 2008), 117-39. M. Ruffert, “De la europeización del Derecho Administrativo a la Unión Administrativa Europea”, in F. Velasco Caballero and J.P. Schneider, La unión administrativa europea (Madrid: Marcial Pons, 2008), 87-108. M. Ruffert, “European Composite Administration: The transnational administrative act”, in O. Jansen and B. Schöndorf-Haubold, The European Composite Administration, (Cambrigde: Interentia, 2011), 277- 306 A. Santini, “Il sistema di allarme rapido per gli alimenti e i mangini: brevi considerazioni alla luce del recente regolamento della Commissione contenente le dispozioni di aplicacione” (2012) 1 Quaderni del Dipartimento di Scienze Politiche dell`Università Cattolica del Sacro Coure, 13-26. E. Schmidt-Abmann, “European Composite Administration and the role of European Administrative Law”, in O. Jansen and B. Schöndorf-Haubold, The European Composite Administration, (Cambrigde: Interentia, 2011), 1-24. E. Schmidt-Abmann, “La Administración europea por las Agencias europeas”, (2013) 2 Lex Social, 1-11. J.P. Schneider, “Estructuras de la unión administrativa europea –observaciones introductorias”, in F. Velasco Caballero and J.P. Schneider, La unión administrativa europea (Madrid: Marcial Pons, 2008), 25-50. J.P. Schneider, “Basic Structures of Information Management in the European Administrative Union” (2014) 20 European Public Law, 89-106. K.P. Sommermann, “El desarrollo de una cultura administrativa europea” in Les

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administracions en perspectiva europea (Barcelona: Escola d’Administració Pública de Catalunya, 2012), 55-74. K. Szawlowska, “Risk Assessment in the European Food Safety Regulation: Who is to Decide Whose Science is Better? Commission v. France and Beyond…” (2004) 10 German Law Review, 1259-74. S. Tavares da Silva, Direito Administrativo Europeu (Coimbra: Imprensa da Universidade de Coimbra, 2010). A.M. Troncoso González, “Alimentos seguros y agencias de seguridad alimentaria” (2010) Anales Real Academia de Nacional de Farmacia, 1-18. H. Wenander, “Recognition of Foreign Administrative Decisions. Balancing International Cooperation, National Self-Determination, and Individual Rights” (2001) 71 ZaöRV, 755-85. A. Wonka and B. Rittberger, “How independent are EU Agencies?” (2009) RECON Online working papers.

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chapter 3

Free Movement of Professionals: the Mutual Recognition Administration Jorge Agudo González

chapter 3



free movement of professionals: the mutual recognition administration

1 Introduction

Article 57(1) of the Treaty of Rome 1957 (present Article 54(1) Treaty on the Functioning of the European Union, TFEU) accounts for the first reference made by European law to the principle of mutual recognition tied to the basic freedoms of the internal market. The provision empowered the Council to issue all necessary Directives in order to apply the mutual recognition rule both to the mutual recognition of diplomas, certificates, and other evidence of formal qualifications, as well as for the coordination of the provisions laid down by law, regulation or administrative action in Member States concerning the access to and exercise of certain professions. This statement conflicts with the common understanding that this principle was originally recognised within the scope of the free movement of goods, on the basis of the judgment delivered by the Court of Justice on 20 February 1979 in Case 120/78 (Cassis de Dijon). The original Treaty’s wording shows the inaccuracy of the said assertion. However, it shall be acknowledged that the mentioned provision was not awarded as much practical significance as the Cassis de Dijon judgment. The original wording of the Treaty of Rome provides another opposing consideration: the alleged dissociation between the harmonisation of Member State laws and regulations and mutual recognition. If there is a clear conclusion to be drawn from the letter of ex Article 57 is the in origine coordination between both mechanisms. It is a different issue altogether that the acceptance of this complementary nature has had a much greater impact on the implementation of the European Commission’s ‘New Approach’ to technical harmonisation.1 Thirdly, it follows that the principle of mutual recognition applies both to all European freedoms, without prejudice to its varying applicability, as well as to harmonised (the ‘New Approach’ and Article 57 Treaty of Rome) and non-harmonised areas (the original expression of mutual recognition regarding the free movement of goods). In any event, it should be acknowledged that the principle’s application is always similar, since those principles governing its applicability are, and always have been, the same: principles of equivalence, mutual trust, cooperation, country-of-origin, and subsidiarity.2 The foregoing shall not lead to hiding the existing nuances, although these are becoming increasingly blurred. On the one hand, the distinction between automatic recognition-harmonised areas versus conditional recognition-non-harmonised areas can only be admitted in broad terms, since harmonisation does not imply automatic recognition. On the other hand, regardless of the kind of mutual recognition to be performed, the solution to the conflict underlying the relevant principle (home Member State) is based on a cooperative scenario. This scenario crystallises in the estab1

Communication from the Commission concerning the consequences of the judgment given by the Court of Justice on 20 February 1979 in Case 120/78 (‘Cassis de Dijon’) (OJ C 256, 03.10.1980, p. 2) and White Paper from the Commission to the European Council on Completing the Internal Market (COM/85/310 final).

2

See Gnes (2004) 322 ff; Nicolin (2005); Bassi (2008); and De Lucia (2009).

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lishment of shared inter-administrative ties, which move beyond subtle distinctions between harmonised and non-harmonised areas. This clarification takes us to the last consideration to be drawn from Article 57 Treaty of Rome, although the Cassis de Dijon doctrine remains tremendously important in this regard. The principle of mutual recognition was laid down as a governing principle of administrative action within the Community right from the start. As it has already been stated, this principle’s cooperative dimension has prevailed over its conflictual dimension. In fact, it could be asserted that the mutual recognition principle’s legal dimension consists in providing principles for the cooperative structure of the European administration area, particularly among Member State administrations. In other words, the principle of mutual recognition shall assert itself as an enabling mechanism for free movement in the internal market. Precisely in this context we can clearly notice the connection between the principle’s substantive dimension (effectiveness of basic freedoms) and the consequences of its application to all sorts of administrative aspects: organisational, institutional and procedural or operational aspects. The principle of mutual recognition fosters economic activity. Because of that, it can be embedded in a non-bureaucratic, non-hampering and non-duplicating of costs and efforts administration. This starting point allows for understanding the legal flexibility brought along by the principle’s optimisation and its subsequent focus on complex procedures. These procedures, regardless if they are more or less formalised, involve various national administrations. The said procedures are aimed at the recognition of transnational acts (thus with a transnational scope) seeking to safeguard Community freedoms. This study shall focus on these issues within the framework provided by the free movement of professionals. The choice of topic for this paper is far from accidental. In the first place, it is due to the close connection between the free movement of professionals and the principle of mutual recognition enshrined in the old Article 57 Treaty of Rome. Secondly, because the free movement of professionals perfectly exemplifies the principle’s evolution in the various domains that have already been pointed out. Finally, because we must emphasize that this study’s subject accounts for an assessment on the effects of the principle of mutual recognition on the administrations’ organisation and operation. From this perspective, the free movement of professionals accounts for a domain which adequately portrays these consequences.



2 Recognition of qualifications. State of affairs

Directive 2005/36/EC of the European Parliament and of the Council, 7 September 2005, on the recognition of professional qualifications3 3

OJ L 255, 30.9.2005, p. 22.

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merges into a single legislative act the three applicable general Directives, 4 as well as the twelve sector-specific Directives existing hitherto.5 The new Directive repealed the previous Directives with effect from 20 October 2007 (Article 62). However, it is true that it does not affect ‘other specific arrangements directly related to the recognition of professional qualifications,’ as provided by Article 2(3) of the said Directive.6 Directive 2005/36 has not been affected by subsequent Directives, such as Directive 2006/123, of 12 September, on services in the internal market. As Article 3(1)(d) of this Directive sets out, if its provisions conflict with a provision of another Community act on specific aspects of access to or exercise of a service activity in specific sectors or for specific professions, ‘the provision of the other Community act shall prevail and shall apply to those specific sectors or professions.’ These other provisions referred to by Article 3 include Directive 2005/36. Directive 2005/36 sets forth the legal framework to which Member States shall subject the ‘access to or pursuit of a regulated profession in its territory contingent upon possession of specific professional qualifications’ (Article 1).7 For that purpose, Article 1 provides that the host Member State ‘shall recognise professional qualifications obtained in one or more other Member States’ (home Member State) which allow the holder of the said qualifications to pursue the same profession there. Article 1 of this Directive discloses the formal-cooperative dimension in which mutual recognition of qualifications crystallises, along with the substantive dimension, which results in the exercise of a Community freedom. This European legislative act devotes most of its provisions to the first dimension. The second shall be deemed as an immediate result of the mutual recognition procedure, as set forth by Articles 1 and 2 of this Directive. Notwithstanding, the ultimate expression of this second dimension shall be found in Article 4(1), which establishes that ‘the recognition of professional qualifications by the host Member State shall allow beneficiaries to gain access in that Member 4

Council Directive 89/48/EEC of 21 December 1988 on a general system for the recognition of highereducation diplomas awarded on completion of professional education and training of at least three years’ duration (OJ L 019, 24.01.1989, p. 16), Council Directive 92/51/EEC of 18 June 1992 on a second general system for the recognition of professional education and training to supplement Directive 89/48/EEC (OJ L 209, 24.07.1992, p. 25), and Directive 1999/42/EC of the European Parliament and of the Council of 7 June 1999 establishing a mechanism for the recognition of qualifications in respect of the professional activities covered by the Directives on liberalization and transitional measures and supplementing the general systems for the recognition of qualifications (OJ L 201, 31.7.1999, p. 77).

5

Concerning doctors, nurses, dental practitioners, veterinary surgeons, midwives, pharmacists and architects.

6

Council Directive 77/249/EEC of 22 March 1977 to facilitate the effective exercise by lawyers of freedom to provide services (OJ L 078, 26.03.1977, p. 17) and Directive 98/5/EC of the European Parliament and of the Council of 16 February 1998 to facilitate practice of the profession of lawyer on a permanent basis in a Member State other than that in which the qualification was obtained (OJ L 77, 14.3.1998, p. 36), are still in force.

7

For a comprehensive analysis on this issue, see Ares (2005) 91 ff and Vesperini (2011) 29 ff.

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State to the same profession as that for which they are qualified in the home Member State and to pursue it in the host Member State under the same conditions as its nationals.’8 In brief, the substantive dimension giving rise to the mutual recognition system as a whole is based on a formal structure deeply rooted in horizontal composite administrative procedures, which therefore rely on the interaction amongst Member State administrations. Yet this does not exclude the existence of certain top-down or bottom-up composite procedures,9 nor the presence of certain mixed elements (whether horizontal or vertical) which could have an impact on the final decision in any of the said procedures (horizontal and vertical). This study shall only focus on the horizontal relations characterizing the mutual recognition administration. Within this framework, as we shall also put forward, the dynamic perspective on inter-administrative relations through composite procedures shall be completed with a weak, yet significant, organicstructural perspective.



2.1 Transnational acts and horizontal procedures



2.1.1 Professional activity and free provision of services

Procedures for the mutual recognition for the purposes of access to and pursuit of the professional activities differ in their temporary and occasional nature. On the basis of these criteria, a difference can be made between the exercise of a profession as an expression of the freedom to provide services, and the purpose of pursuing a profession in the host Member State as an expression of the freedom of establishment. Article 5(2) of Directive 2005/36 refers to the first case, establishing that Directive provisions relating to the free provision of services are ‘only’ applicable when ‘the service provider moves to the territory of the host Member State to pursue, on a temporary and occasional basis’ a profession requiring professional qualifications. The provision also points out that ‘the temporary and occasional nature of the provision of services shall be assessed case by case, in particular in relation to its duration, its frequency, its regularity and its continuity.’ The provision of professional services is regulated in Articles 5 to 9. The system is based on an automatic application of the principle of mutual recog8

According to the Article 2(1), ‘this Directive shall apply to all nationals of a Member State wishing to pursue a regulated profession in a Member State, including those belonging to the liberal professions, other than that in which they obtained their professional qualifications, on either a self-employed or employed basis’. Article 3(1)(a) defines ‘regulated profession’ as ‘a professional activity or group of professional activities, access to which, the pursuit of which, or one of the modes of pursuit of which is subject, directly or indirectly, by virtue of legislative, regulatory or administrative provisions to the possession of specific professional qualifications’.

9

See Article 57 for an example of a top-down procedure, and Article 15, on common platforms, for an example of a bottom-up procedure. The latter will be discussed later.

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nition on the basis of a set of requirements, the compliance with which must be certified by the host Member State (Article 7). This (conditional) automatic recognition is clearly enshrined in Article 5(1): ‘Without prejudice to specific provisions of Community law, as well as to Articles 6 and 7 of this Directive, Member States shall not restrict, for any reason relating to professional qualifications, the free provision of services in another Member State: (a) if the service provider is legally established in a Member State for the purpose of pursuing the same profession there (hereinafter referred to as the Member State of establishment), and (b) where the service provider moves, if he has pursued that profession in one or several Member States for at least one year during the last 10 years preceding the provision of services when the profession is not regulated in the Member State of establishment. The condition of one year’s pursuit shall not apply if the profession or the education and training leading to the profession is regulated.’ Hence, the host Member State shall be entitled to ascertain both aspects, insofar as the profession is not regulated, since if it is, the host Member State shall not be entitled to check the professional experience acquired by the applicant. The automatic nature of recognition is self-evident, to the extent that those professional qualifications certified by the competent authorities in the home Member State shall be effective in the host Member State. The legal framework is as follows: 1) The professional activity shall be exercised on the basis of a professional title; certificate or vocational training formal qualification obtained in compliance with the home Member State rules and regulations and shall also be awarded by the competent authority. Exceptionally, the service can be provided on the basis of a formal professional qualification issued by the host Member State in cases specified in Title III Chapter III, i.e., harmonised professions (Article 7(3)). However, as for the verification of professional qualifications regarding professions that have public health or safety implications other than those governed by Title III Chapter III, the relevant activity can be exercised on the basis of the host Member State’s professional title (Article 7(4)). 2) The exercise of the professional activity in the host Member State shall be subject, at all events, ‘to professional rules of a professional, statutory or administrative nature which are directly linked to professional qualifications, such as the definition of the profession, the use of titles, and serious professional malpractice which is directly and specifically linked to consumer protection and safety, as well as disciplinary provisions which are applicable in the host Member State to professionals who pursue the same profession in that Member State’ (Article 5(3)). The legal framework’s specific applicability implies the application of two legal systems (the home Member State’s along with the host Member State’s). However, in some cases, this twofold applicability is limited to the acknowledgment of the professional status obtained in the host Member State. This is particularly true if the service is provided under the professional title of the host Member State and if the service provider becomes subject to the host Member

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State’s disciplinary provisions. Furthermore, these connections between legal systems, although with varying intensity, may be a two-way street, since the application of disciplinary sanctions on the basis of the host Member State rules and regulations may have a direct impact on the home Member State’s administrative act. This effect can be limited in those instances in which the service is provided under the professional title issued by the host Member State, because in those cases the consequences are the same as if the professional activity was performed on the basis of professional qualifications obtained in the host Member State (Article 7.3 and 7.4.V). As we said before, as regards the freedom to provide services, we are confronted with an automatic yet limited application of the principle of mutual recognition. Along the lines of automatic recognition, Article 6 sets out some exemptions for those service providers established in another Member State. In broad terms, these exemptions relate to the registration with or membership of professional organisations or bodies as well as with public social security bodies.10 Article 7 accounts for ‘an uprising’ against fully automatic recognitions, regulating the ‘declaration to be made in advance, if the service provider moves:’ 1) The automatic nature of recognition depends on the host Member State’s decision, since Article 7 does not provide for any verification to be performed by the host Member State when the service provider first moves from one Member State to another. 2) Member States may require that the service provider makes a declaration in advance ‘by any means,’ where he first moves from one Member State to another. Such declaration shall be renewed once a year if the service provider continues to carry out the relevant professional activity, and it shall ‘include the details of any insurance cover or other means of personal or collective protection with regard to professional liability.’ Recital 7 of the Preamble of the Directive clarifies that the host Member State may provide for declaration requirements ‘where necessary and in accordance with Community law. These requirements should not lead to a disproportionate burden on service providers nor hinder or render less attractive the exercise of the freedom to provide services.’ 3) Article 7(2) enables Member States to decide whether they require, also when the service provider first moves or in virtue of modifications affecting any documents listed in the said paragraph, that the declaration to be made in advance has to be accompanied by a proof of the service provider’s nationality, by evidence of professional qualifications, and by an attestation certifying that the holder is legally established in a Member State for the purpose of pursuing the activities concerned. In addition, he shall certify that he is not prohibited from practising, even temporarily, at the moment of delivering the attestation.

10

On the exception concerning professional organizations or bodies, see Case C-475/11 Konstantinides [2013] n.y.r.

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This additional request is designed to ensure verification, which implies further conditions to be set than in the above case.11 4) The greatest interference by the host Member State in the provision of services is established by Article 7(4). It must be clarified that this possibility does not apply to the professions governed by Chapter III of Title III (regulated professions harmonised by the Directive). These professions may be exercised, at most, subject to the documentation requirements set out in Article 7(2). It should be noted that this provision, among others, allows for the host Member State to certify those documents attesting professional qualifications. As for the remaining regulated professions, insofar as they have public health or safety implications (besides those harmonised by the Directive), the host Member State’s competent authority may verify the provider’s professional qualifications prior to the first provision of services. As Recital 15 of the Preamble points out, this measure ‘should be proportionate and, in particular, take account of the applicant’s professional experience.’12 This previous verification shall only be possible when the purpose of the check is to avoid serious damage to the health or safety of the service recipient due to a lack of professional qualification of the service provider, inasmuch as the check does not go beyond what is necessary for that purpose. No later than one month after receipt of the declaration and accompanying documents, the competent authority shall inform the service provider of its decision on whether to check the service provider’s professional qualifications or, where appropriate, on the outcome of the relevant verification. Where there is a substantial difference between the professional qualifications of the service provider and the training required in the host Member State, to the extent that the said difference is such as to be harmful to public health or safety, and that it cannot be compensated by the service provider’s professional experience or by knowledge, skills and competences acquired through lifelong learning formally validated to that end by a relevant body, the host Member State shall give that service provider the opportunity to show, by means of an aptitude test, that he has acquired the knowledge, skills or competence that were lacking.13 In any case, it must be 11

In this vein, Article 8 provides that ‘the competent authorities of the host Member State may ask the competent authorities of the Member State of establishment, for each provision of services, to provide any information relevant to the legality of the service provider’s establishment and his good conduct, as well as the absence of any disciplinary or criminal sanctions of a professional nature’.

12

In Case C-458/08 Commission v Portugal [2010] ECR I-11599 the Court declares that Portugal has failed to fulfil its obligations under Article 49 EC ‘by requiring providers of building services established in another Member State to satisfy all the requirements imposed by the national scheme at issue […], in order to obtain authorization to exercise, in Portugal, an activity in the construction sector, thereby precluding the possibility of account being duly taken of equivalent obligations to which such providers are subject in the Member State in which they are established, or of the verifications already carried out in that regard by the authorities of that Member State’.

13

Article 3(1)(h).

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possible to provide the service within one month of a decision being taken. In the absence of a reaction of the competent authority within the said period, the service may be provided (‘affirmative silence’). Finally, as it has already been stated, in cases where professional qualifications have been verified pursuant to the aforementioned terms, the service shall be provided under the professional title of the host Member State. Finally, in cases where the service is provided under the professional title of the home Member State (therefore not in the cases foreseen by Article 7(3) and 7(4)V), the competent authorities of the host Member State may require the service provider to furnish the recipient of the service with any or all of the information relating to the official register in which he is registered, information on the enabling professional title, his membership of professional bodies, tax identification information, and ‘details of any insurance cover or other means of personal or collective protection.’ The Directive is intended to provide users and patients with knowledge about the service provider’s specific qualifications, as well as with those details governing the provision of the relevant service, some of which are important, such as the exemptions from registration with professional organisations or bodies and with a public social security body.



2.1.2 Professional activity and freedom of establishment

The exercise of a regulated profession in a host Member State may be subject to three different legal frameworks. These legal frameworks are going to be set out according to the degree of control to which host Member States may subject access to a profession. a) Recognition system i) Recognition of evidence of training (Title III Chapter I). This mechanism has a subsidiary nature, since it applies to all professions which are not covered by Chapters II and III of Title III, notwithstanding its applicability to those cases in which the applicant, for specific and exceptional reasons, does not meet the necessary conditions (Article 10). Therefore, it relates to those activities listed in annex IV, as well as to certain activities established in annex V in the said specific and exceptional cases. For the purposes of recognition of evidence training, professional qualifications shall be grouped under five levels (Article 11 without prejudice to equal treatment qualifications regulated by Article 12): 1) Basic or primary education shall be recognized for those who hold an attestation of competence issued by a competent authority in the home Member State referred to: a) either a training course not forming part of a certificate or diploma (within the meaning of the qualification levels set out below), or a specific examination without prior training, or full-time pursuit of the profession in a Member State for three consecutive years or for an equivalent duration

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on a part-time basis during the previous ten years; or b) general primary or secondary education, attesting that the holder has acquired general knowledge. 2) Secondary education shall be recognized for those who hold a certificate attesting: a) that a general secondary course has been successfully completed, supplemented by a course of study or professional training (other than those referred to in the provisions regulating the next level), and/or by a professional practice period; or b) that a technical or professional secondary course has been successfully completed, duly supplemented in the terms referred to above. 3) Post-secondary education shall be recognized for those who hold a certificate attesting: a) either training at post-secondary level (other than that referred to in the provisions governing the two following levels), of a duration of at least one year or of an equivalent duration on a part-time basis, one of the conditions of entry of which is, as a general rule, the successful completion of the secondary course required to obtain entry to university or higher education or the completion of equivalent school education of the second secondary level, as well as the professional training which may be required in addition to that post-secondary course; or b) regulated education and training or, in the case of regulated professions, vocational training with a special structure included in annex II, equivalent to the level of training provided for under the previous case, if such training provides a comparable professional standard and prepares the trainee for a comparable level of responsibilities and functions. 4) Post-secondary education ranging between three and four years shall be recognized for those who hold a diploma attesting that the holder has successfully completed post-secondary training of at least three and not more than four years (or of an equivalent duration on a part-time basis), at a university or establishment of higher education or another establishment of equivalent level and, where appropriate, that he has successfully completed the professional training which may be required. 5) Post-secondary education of more than four years shall be recognized for those who hold a diploma attesting that the holder has successfully completed post-secondary training of at least four years (or of an equivalent duration on a part-time basis), at a university or establishment of higher education or another establishment of equivalent level and, where appropriate, that he has successfully completed the professional training which may be required. As for the five cases which have been pointed out, Articles 13 and 14 provide for the conditions for recognition of attestations of competence or evidence of formal qualifications issued by the home Member State’s competent authority: 1) As for the corroborations of competence and the evidence of formal qualifications, the minimum condition (Article 13) shall be to certify a professional qualification equivalent to ‘the level immediately preceding the level required in the host Member State,’ to access a profession in any of the five levels of qualification regulated by means of Article 11.14 14

Some specific rules in Article 13(2) and (3) concerning conditions for recognition based on professional experience and attestations of competence or documents providing evidence of formal qualifications.

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2) Compensation measures. The host Member State may require the applicant to complete an adaptation period of up to three years or to take an aptitude test under the circumstances specified by Article 13(1), referred to instances in which the qualifications obtained in the home Member State differ from those required by the host Member State, either in the duration of the training, in the matters (because they are ‘substantially different’ in terms of Article 14(4)), or in the actual regulated activity. If the host Member State chose to implement compensation measures, the applicant must be offered the choice between an adaptation period and an aptitude test, notwithstanding that the principle of the right of the applicant to choose may be derogated in the terms laid down by Article 14(2), or imposed on the applicant pursuant to Article 14(3). Article 14(5) sets forth that the principle of proportionality shall govern the enforcement of the said provision,15 imposing on the relevant host Member State to ascertain whether the knowledge, skills, and competences acquired by the applicant in the course of his professional experience or through lifelong learning in another Member State or third country may cover, in full or in part, the existing qualification differences.16 3) Finally, Article 15 establishes a mechanism for waiving compensation measures on the basis of ‘common platforms.’ These ‘common platforms’ relate to title recognition within the general framework established by Articles 10 et seq., although they also have an impact on compensation measures that host Member States may impose on relevant applicants. The said article provides for a procedure aimed at waiving the enforcement of those measures on the basis of what is being designated by the Directive as ‘common platforms.’ A ‘common platform’ is ‘a set of criteria which make it possible to compensate for the widest range of substantial differences which have been identified between the training requirements in Member States, including all the Member States which regulate that profession.’ As for determining those differences, Article 15(1) provides for a comparison between the duration and contents of the training in at least two thirds of the Member States, including all Member States which regulate this profession. Member States or professional associations or organisations which are representative at national and European level shall submit to the Commission the aforesaid common platforms. To that end, the Commission shall consult all Member States (which accounts for a new horizontal element) and shall issue a draft report in accordance with the procedure regulated by Article 58(2) of the Directive, insofar as it considers the platform facilitates mutual recognition.17 The compliance of the applicant’s professional qualifications with 15

See Case C-197/06 Confederatie van Immobiliën-Beroepen van België VZW [2008] ECR I-0627.

16

At this regard the case-law is quite demanding with Member States in their role as host State, as shown by Case C-330/03 Colegio de Ingenieros de Caminos, Canales y Puertos v Administración del Estado [2006] ECR I-801 (which concerned Directive 98/48), and Case C-575/11 Eleftherios-Themistoklis Nasiopoulos v Ypourgos Ygeias kai Pronoias [2013] n.y.r. (which concerned Directive 2005/36).

17

According to Article 15(2) of Regulation (EC) No 1137/2008 of the European Parliament and of the Council of 22 October 2008 adapting a number of instruments subject to the procedure laid down in Article

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the criteria laid down by the Commission shall have the effect of suspending the application of compensation measures. ii) Recognition of professional experience (Title III Chapter II) If in a Member State access to or pursuit of one of the activities listed in Annex IV is submitted to the possession of general, commercial or professional knowledge and aptitudes, such Member State shall recognise previous pursuit of the activity in another Member State as sufficient proof of such knowledge and aptitudes (Article 16). Recognition of professional experience shall be performed in accordance with Article 17 (regarding the activities in list I of Annex IV), Article 18 (as for the activities in list II of Annex IV), and Article 19 (regarding the activities in list III of Annex IV). These three provisions have been worded in similar terms as for how they take into account the professional experience periods for recognition purposes. iii) Automatic recognition (Title III Chapter III). Title III Chapter III regulates the so-called automatic recognition applicable to harmonised professions. Articles 24 et seq. set out the minimum regulation on the qualification requirements applicable to certain professions, which coincide with those professions which have been subject to harmonisation since the 1970s. Although qualified by paragraphs 2 et seq. of Article 21 for certain professions, the general rule laid down by its first paragraph is as follows: ‘Each Member State shall recognise evidence of formal qualifications as doctor giving access to the professional activities of doctor with basic training and specialised doctor, as nurse responsible for general care, as dental practitioner, as specialised dental practitioner, as veterinary surgeon, as pharmacist and as architect, listed in Annex V, points 5.1.1, 5.1.2, 5.2.2, 5.3.2, 5.3.3, 5.4.2, 5.6.2 and 5.7.1 respectively, which satisfy the minimum training conditions referred to in Articles 24, 25, 31, 34, 35, 38, 44 and 46 respectively, and shall, for the purposes of access to and pursuit of the professional activities, give such evidence the same effect on its territory as the evidence of formal qualifications which it itself issues.’ Such evidence of formal qualifications must be issued by the competent bodies in the Member States and accompanied, where appropriate, by a certificate.18 As we shall see below, the automatic nature of recognition does not imply the absence of control by the host Member State administration, but it simply entails that the professionals must not obtain or evidence the obtainment of additional professional qualifications.19

251 of the Treaty to Council Decision 1999/468/EC (OJ L 311, 21.11.2008, p. 1). 18

Note that all these provisions must be taken into account without prejudice to the acquired rights recognised to the professionals according to Articles 23 ff.

19

See Case C-365/13 Ordre des architectes v Belgium [2014] n.y.r., where the Court declared that ‘Directive 2005/36 leaves the Member States no discretion’ and that, for this reason, professionals ‘must be permitted to practise the profession of architect in another Member State, without the latter being able to require him to obtain additional professional qualifications or to prove that he has done so’.

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b) Procedure for recognition. Common provisions As for the three kinds of recognition exposed above, Articles 50 and 51 regulate the accreditation procedure for professional qualifications. Hence, in the three recognition levels the qualifications of the applicant must be subject to documentary evidence. Nevertheless, only regarding the recognition of evidence of training (the first among the abovementioned cases) may Member States decide to impose compensation measures. Therefore, we must acknowledge that the automatic nature prescribed by Article 21 has a relative nature, inasmuch as automatic recognition shall be considered as such if it only requires documentary verification with no prior administrative decision needed from the host Member State. In fact, under this circumstance, as in every other, competent authorities from the host Member State shall authorise the establishment as well as access to the profession (Article 51). The documentary accreditation and verification procedure is set out as follows: - Application. Member States may decide whether they require applications for authorisation to practise a regulated profession to be accompanied by the documents listed in Annex VII. - Acknowledgement of receipt. The competent authority of the host Member State ‘shall acknowledge receipt of the application within one month of receipt and inform the applicant of any missing document.’ (Article 51(1)). - Consultations and verification. In the event of ‘justified doubts,’ Article 50(2) and (3) empower host Member States to: a) ‘require,’ in the words of the Directive, from the competent authorities of a Member State confirmation of the authenticity of the attestations and evidence of formal qualifications for any of the professions referred to in Title III Chapter III, as well as confirmation of the fact that the beneficiary fulfils the minimum training conditions required by the Directive for those same professions; b) ‘verify with the competent body in the Member State of origin’ whether the formal qualifications issued by it were awarded by a legally recognised establishment. It shall also verify the professional rights recognised therein. The Directive grants a ‘verification right,’ which by no means empowers the host Member State to rule over the home Member State administration’s decisions. Notwithstanding, the host Member State shall be entitled to require active cooperation. - Final decision. The procedure for examining ‘an application for authorisation to practise a regulated profession’ (Article 51(2)), shall lead to a duly substantiated decision by the competent authority in the host Member State in any case within three months after the date on which the applicant’s complete file was submitted. This period may be extended by one month in the specific cases regulated therein. Although there is no express reference to administrative silence, it shall be construed, where appropriate, as negative. This is due to the fact that Article 51(3) provides that the decision, ‘or failure to reach a decision within the deadline,’ shall be subject to appeal.

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c) Access to the profession and use of professional titles Those applicants who gain access to a regulated profession in the host Member State shall be required, in the first place, to swear a solemn oath or make a sworn statement, without prejudice to this requirement’s adaptation (by means of an appropriate equivalent wording) where the wording of that oath or statement cannot be used by nationals of other Member States (Article 50(4)). Secondly, regarding the exercise of the profession on the basis of the professional title issued by the home Member State or by the host Member State: 1) Pursuant to Article 52(1), the general rule is that nationals of Member States who are authorised to practise a regulated profession on the basis of Title III shall use the professional title of the host Member State. Therefore, it can be concluded that the authorization to access the relevant profession allows for some sort of acceptance of the professional title issued by the competent authority of the home Member State. 2) Notwithstanding, if an academic title of the home Member State is liable to be confused in the host Member State with a title which, in the latter Member State, requires supplementary training not acquired by the beneficiary, the host Member State may require the beneficiary to use the academic title of the home Member State (Article 54). 3) Where a profession is regulated in the host Member State by an association or organisation within the meaning of Article 3(2), nationals of Member States shall only be authorised to use the professional title issued by that organisation or association, or its abbreviated form, if they furnish proof that they are members of that association or organisation. If the association or organisation makes membership contingent upon certain qualifications, it may do so only under the conditions laid down in this Directive (Article 52).



2.2 The mutual recognition administration from a procedural perspective 2.2.1 The formal dimension of the principle of mutual recognition as a structural principle governing administrative action

The principle of mutual recognition accounts for a structural principle which articulates inter-administrative relations. The optimisation of this principle is tied to the ordering functions underlying administrative law’s governing powers. In fact, it is tied to the formal structuring of national administrations. In other words, the structure of national administrations’ behaviour within horizontal relations governed by the mutual recognition principle is grounded on ‘infrastructural’ and dynamic or procedural elements. Therefore, it would be no overstatement to say that organisational rules and regulations -understood as instruments allowing for structuring those duties conferred upon administrations regarding community freedoms- play a promi-

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nent role as for ensuring the effectiveness of the mutual recognition principle. On the one hand, the mutual recognition principle lays the foundations for a regulatory strategy, the main consequence of which is awarding a paramount importance to organisational rules and regulations as well as to administrative procedures in the role they play as structuring instruments for administrative action.20 On the other hand, it must be recalled that the administrative action’s structure stemming from the mutual recognition principle shows that organisational/procedural aspects do not only have operational consequences. In other words, it does determine how the involved administrations’ functions shall be structured in order to achieve the set targets, but it is also decisive for the accomplishment of substantive objectives. By way of explanation, it can be asserted that the mutual recognition principle orients regulatory structuring towards purely formal behavioural rules. Therefore, the ‘regulatory depth’ of those rules stemming from the said principle shall be labelled as formal. However, these rules are aimed at accomplishing purely substantive goals, such as ensuring community freedoms. In other words, the rules stemming from the regulatory optimisation of the principle have a low substantive ‘regulatory depth’ compared to their formal ‘regulatory depth.’ Notwithstanding, the way decision-making processes are structured is decisive as for accomplishing the set objectives, and thus to ascertain the effectiveness of the free movement of professionals or the free provision of services or establishment. It appears from the foregoing that regulatory structuring prompted by the mutual recognition principle basically simplifies administrative and regulatory action. Consequently, it has limiting effects on any burden or unjustified constraint in terms of adequacy and necessity (proportionality). The main role featured by formal behavioural rules in administrative structuring seems to conflict with the idea that applying the mutual recognition principle leads to automaticity. If recognition has to be automatic, it could be asserted that the said consequence is incompatible with the regulation of an administrative procedure which could hamper such automaticity. At this point, there are various considerations to be restated. In the first place, the relative automatic nature in the application of mutual recognition clearly shows up as we move beyond nationality regarding inter-State relations. Mutual recognition allows for structuring transnational relations among national administrations, i.e., accounts for the foundations of an operationally integrated administration. This also demonstrates the cooperative dimension underlying this principle. Secondly, the principle of mutual recognition brings along the effective enforcement of community freedoms, but that by any means excludes administrative control. However, the mutual recognition principle does proscribe bureaucratised, duplicated administrations, as well as those administrative actions which entail disproportionate burdens. As a result, leaving this clarification aside, we must take into account that the widespread consideration asserting that the 20

This is a common element both in EU Law and in the Member States’ legal orders, one that goes beyond the principle of mutual recognition. See Ruffert (2008) 99 and Schmidt-Assmann (2011) 13.

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mutual recognition principle’s enforcement leads to ‘one-stop’ automatic recognition scenarios concerning transnational acts -i.e., requiring no administrative action whatsoever from either the host or the home Member State- is not necessarily true on a general basis. There are many domains, such as the free movement of professionals, within which the recognition provided by EU law, although self-proclaimed as ‘automatic,’ does not account for a true mechanical recognition of a single decision issued by the competent authority of the home Member State. The truth is that within the free movement of professionals there is always a task for the host administration. This task, which is increasingly intense, normally entails either mere documentary verification or oversight, or intervention or authorisation acts which do not truly replace the home Member State’s decision, yet they do allow for its effectiveness in the host Member State. In sum, although the tendency towards automaticity of mutual recognition, particularly in harmonised areas, and notwithstanding the letter of Directive 2005/36 (automatic recognition of harmonised regulated professions: doctors, nurses, dental practitioners, veterinaries, midwives, architects and pharmacists), it cannot be asserted that recognition is purely unconditional or automatic, i.e., that it does not require a ‘receiving act’ by the host Member State administration. Furthermore, there is an ‘automaticity’ scale, in accordance with the existing kinds of recognition, tied to the freedom the effectiveness of which is advocated. The aforementioned scale can be summarised in the following statement: the more stable the final relation with the host Member State is, the stricter the recognition shall be. This statement provides justification for the fact that the principle of mutual recognition, as a principle structuring cooperative relations among national administrations, results in a purely procedural and variable structure from the standpoint of its ‘depth’ (greater or lesser control in the host Member State).



2.2.2 The mutual recognition principle as a governing principle for complex procedures: an operationally integrated administration

The following key element of the regulatory structuring of national administrations stemming from mutual recognition follows from the previous one. This formal structuring serves the purpose of connecting: 1) The application of a national legal system’s relevant rules and regulations (on professional titles or qualifications in general) by the home Member State administration in order to declare an active legal situation (the granting of the title in question) in a given case; with 2) the non-application of equivalent rules and regulations in the host Member State and the recognition of such active legal situation recognised in the home Member State as if it had been granted by the latter in accordance with its own legal system. The premises from which this formal structure departs reveal a complex and transnational procedural path. Therefore, a reasonable outcome of the foregoing is that this structure is articu-

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lated by means of composited procedures which organise the ‘division of labour’ between national administrations.21 From this perspective, the mutual recognition principle allows for ‘balancing out’ the existing divergence between the sole administrative task to perform (recognising the exercise of the profession) and the diversity of administrative powers conferred upon the various national administrations to which the principle of territoriality a priori applies. In other words, the mutual recognition principle allows for balancing out both dimensions through procedural structuring. It brings together in a single procedure the exercise of diverse administrative powers in two different national scopes, giving rise to a single ‘administrative task’ in the European Union as a whole. Thus, balancing out powers/ tasks allows for considering administrative action as single or unique, i.e., as an operational continuum. How is this powers-and-tasks equilibrium specifically articulated? The essential precondition is that the administrations involved acts on the basis of loyal cooperation criteria, which consequently do not include any subordination elements. In broad terms, the common structure can be described as follows: 1) The administration of the home Member State issues administrative acts (awards evidence of formal qualifications) which are potentially effective in other Member States. The administration acts in accordance with its own legal system without prejudice to the qualifications provided by EU law. 2) The act’s transnational effectiveness revolves around the choice and the application for recognition before the host Member State administration of the title issued in the home Member State performed by whoever holds the title in question. The host Member State administration’s legal action is subject to the choice of applicable law and thus by the subsequent efficiency of the act issued by the home Member State. 3) The mutual recognition principle prevents host Member State action from duplicating that of the home Member State. The host Member State administration has variable duties. According to the constraints set on recognition (automatic versus conditional), these duties crystallise in a scaled set of oversight, verification, and control powers: - The host administration acts in its own name and on its own account. The host Member State administration shall verify documents, impose compensation measures, or give authorisations subject, at all times, to the proportionality principle. This conclusion applies even where the host administration’s interference is more intense, such as for regulated non-harmonised professions and for the eventual aptitude test. This is because in these cases a favourable presumption regarding professional activity is set out, leading to an affirmative administrative silence. Paradoxically, there shall be a negative administrative silence as for the recognition of harmonised professions, probably due to its health implications. 21

See Nicolin (2005) 215 and De Lucia (2009) 21 ff.

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- Regarding the home administration, once recognition has been applied for, it must be stated -from an operational perspective- that its performance mainly revolves around transmitting information. The home Member State provides the host Member State with information in its verification or control duties. When performing these duties, the home Member State administration acts, for that purposes, in its own name and on its own behalf.22 - In any event, this ‘information assistance’ has a reciprocal nature. There are some cases in which there is a two-way transfer of information notwithstanding the greater importance of the assistance provided by the home Member State at the request of the host Member State administration. - Concerning this cooperative assistance function, there are certain provisions of Directive 2005/36 which seem to provide for subordination relations. Exceptionally, it is established that the home Member State administration shall act in virtue of the instructions issued by the host Member State (see, for instance, Article 50(2) of Directive 2005/36). In these cases, the Directive appears to entitle a Member State administration to directly give instructions to another Member State administration, thus acting on the initiative of the host Member State authorities. The wording of the provision could lead to think that in these cases the administration to which the request is addressed is not acting on its own account and that it could not refuse to comply with the request, even though this relation is based on a cooperative framework. In order to adequately assess the aforementioned cases, we must recall that within the context of mutual recognition, national authorities act in its own name and on its own account. Pursuant to the duty of loyal cooperation and to the duty of mutual cooperative assistance, Member State administrations shall meet the requests issued by other Member States. However, they are not required to comply with those requests insofar as they consider that the conditions allowing for information requests are fulfilled. Notwithstanding, this does not mean that the administration to which the request is addressed acts on behalf of the requiring administration. The inter-administrative context is still of a cooperative nature, and thus there are neither hierarchical relations nor transfer of powers. We are confronted with two separate administrations which do not make up a single administration from an organisational-institutional perspective. The foregoing consideration aims at highlighting that with this starting point the defining features of national legal categories such as administrative delegation are not to be applied to the already assessed cases. Therefore, it shall be concluded that in cases such as the previously analysed one, EU law calls for an utmost diligence within the context of loyal cooperation among Member States. - Directive 2005/36 provides for two-way effects of the interconnections between legal systems which are not limited to a mere information cooperation. As a result of mutual recognition of professional qualifications, professionals 22

See Wettner (2011) 311.

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may exercise their profession on the basis of the title, certificate or evidence of professional training in conformity with the rules and regulations of the home Member State, or in some cases, on the basis of the title issued by the host Member State. Notwithstanding, what accounts for a truly remarkable fact is that professionals can be subject to the disciplinary provisions of the host Member State, which can lead to administrative actions with ‘return effects’ in the home Member State. The second main consequence arising from these complex procedures is that the decision putting an end to the transnational procedure has a variable content. Nevertheless, it implies recognising the full effectiveness of an act issued in the home Member State. It accounts for an act with transnational effects, to which another act may be added, where appropriate, which shall by no means replace it. This latter act shall have a complementary or supplementing nature with regards to the first, thus enabling its full supranational nature. Consequently, the key is that as a principle which breaks the long-standing ‘effectiveness-implies-territorial-competence’ maxim regarding administrative decisions, the principle of mutual recognition provides grounds for the supraterritorial effectiveness of administrative action. The implications of the foregoing are the following: 1) From the administration’s perspective, the first implication is that we are moving beyond the once defining unilateral nature of the administrative act from the performing administration’s standpoint, since for the host administration the effects are the same as if it had issued the act itself. This is because this act enjoys the presumption of validity and the effectiveness characterizing its own administrative action. In other words, those acts issued by the home administration are attributed to the host Member State administration. This is clearly noticeable when the relevant profession is exercised due to the ‘internalisation’ of the title, certificate or evidence of professional training obtained in conformity with the rules and regulations of the home Member State where the professional activity is performed on the basis of formal professional qualifications of the host Member State. In this connection, mutual recognition underpins the multilateral nature of administrative acts, yet from the competent administration’s perspective (subjective multilateral decision-making). 2) From the standpoint of the addressee of the act and third parties, the following relations can be established in virtue of the addressee’s decision, the conditions set on the supraterritorial effectiveness, as well as in virtue of the subsequent multilateral nature of administrative acts: a) legal relations between the home administration and the addressee, as well as the same kind of relations between both of the latter and third parties (patients, clients or users, among others); and b) legal relations between the host administration and the addressee, as well as the same kind of relations between third parties with both of the latter (patients, clients, and users, among others). By way of clarification, the establishment of multilateral legal-administrative relations is based on the

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understanding of the relevant transnational act as a subjective multilateral act; both from the addressee’s and the competent administration’s perspective.



3 The mutual recognition principle as a guiding principle for the establishment of a (weak) cooperative and assistance organisational structure

The enforcement of the principle of mutual recognition is based on cooperative structures articulated by means of horizontal composite procedures. Notwithstanding, this dynamic-procedural dimension is supplemented by certain organisational elements, which in any event have a complementary nature. There are up to three kinds of mechanisms: 1) The designation of competent authorities in each Member State (Article 56(3)) along with a coordinator for the recognition of professional qualifications (Article 56(4)); 2) The establishment of a Committee on the recognition of professional qualifications (Article 58); and 3) The establishment of contact points (Article 57). We shall focus on the third organisational element. Contact points (regulated by Article 57 Directive 2005/36) are not specific to this Directive. They account for a common element in harmonising rules and regulations within the principle of mutual recognition and the exercise of community freedoms. Designating these contact points normally lies with parts of the administrative body or with administrative units which are conferred assistance and information management powers. The focus on this administrative units relates to the fact that they account for the basic organisational structures on which inter-administrative coordination and cooperation are based, as are citizen information and assistance duties within the internal market. The broadening application of mutual recognition to community freedoms has been accompanied by an applicability with varying intensity, which has been in accordance with the intensity defining the legal relation established, along with the active legal position underlying the given community freedom at stake. What the principle declares is that the more intense the relation is (in terms of time), the less immediate the assertion of the principle of mutual recognition has been. Moreover, it must be recalled that community freedoms are rights recognised with an economistic outlook, which call for means to generate trust and to foster exchanges. Both considerations have had consequences as for the kind of administration structuring the internal market administrative union: 1) The executive mutual recognition administration does not have a single essence, yet it shows a cooperative nature and it is operationally integrated. The fact that we are talking about rights which in many cases are just temporarily acknowledged, allows to understand how replacing national administrative action by a supranational and single administrative activity is inappropriate as well as unnecessary in terms of effectiveness.

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The kind of administration designated to meet the requirements stemming from the principle of mutual recognition is closely tied to the principle’s substantive dimension: a) we might be confronted by an executive, interventionbased home administration with somewhat intense verification duties in the host Member State. Thus, this would be an administration designed by public authorities to control citizens, although the general construction of the procedure is aimed at promoting the exercise of community freedoms; or b) we might encounter an administration with a diminished structural relevance, a nonexecutive, cooperative, and assisting administration. Its functions in the host Member State would be essentially of an advisory, information and settlement nature. In brief, it would be designed to oversee the administration itself and to ensure the effectiveness of rights. 2) What is new here is the creation of the said non-executive, ‘cooperative and assisting’ administration. It is a kind of administrative structure specifically designed to maximise the effectiveness of EU law, and therefore exclusively intended to cooperate in order to ensure the enforcement of the EU legal system, particularly concerning the preservation of community freedoms. It does not have a single nature either. It is a sort of administration operationally separate from national administrations -although it can be organisationally involved with them-. This kind of administration’s duties are tied to the compliance with EU law by its own State at the request of both the European Commission and citizenship. Contact points are administrative units interlinking citizens, national administrations, the Commission and, by extension, the remaining Member State administrations. These organisational structures serve the purpose of facilitating the exercise of those rights recognised by EU law. In other words, they account for an emerging, non-decision-making administration, specifically targeting an adequate exercise of community freedoms by transferring information, assisting citizens, and resolving conflicts by means of consensual dispute resolution mechanisms (SOLVIT Network).23 Ultimately, we are talking about an administration which generates the confidence needed by economic activity and which enables an effective and fruitful exercise of community freedoms. This sort of administration shall have specific functions, which will differ from those of competent authorities in each Member State appointed to enforce the Directive. 3) What is really interesting about the mutual recognition administration, besides its twofold operational nature, is the cooperative and assistance administrative activities. From a strictly organisational outlook, the analysis of the same is far from revealing, since as we have already pointed out, EU law respects Member States’ institutional autonomy regarding the creation of organisational structures. In other words, as opposed to what happens in many other sectors, contact points do not have to be established as autonomous legal entities with operational independence. Structural-organisational requirements are much 23

See Lottini (2010) and (2014); Musselli (2012); and Galetta (2014).

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lighter, and only their operational perspective stirs up interest. Hence, their core element is that they are set up as a cooperative and assistance-oriented administrative unit. Firstly because this sort of administration overcomes the understanding that public administrations shall only have a top-down nature, i.e., designed to exercise public power addressed to citizens. Secondly, because its functions are conceived from the citizen’s standpoint, i.e., this kind of administration is intended to help citizens to exercise their rights. In the third place, because it accounts for an administration whose functions revolve around information management, either to report on a general basis on EU law enforcement -and thus on the level of protection of community freedoms- or to assist or mediate in a given case. The central idea here is that protection is provided by means of information: this cooperative and assistance-oriented administration shall be construed as an administration which provides information as a safeguarding mechanism for community freedoms. 4) The fourth conclusion to be drawn from the foregoing is that the said ‘weak institutionalisation’ stemming from the principle of mutual recognition, precisely due to what has been stated, comes in response to mainly economic criteria. This mutual recognition administration is the internal market administration, which is called for building the necessary trust in order to promote trade. Difficult access to information shall be put forward as an element affecting the exercise of community freedoms in a context of competition among legal systems. Ultimately, the mutual recognition principle releases economic agents from the burden of accessing comprehensive information. The economic operator, i.e. the professional, neither has to know the host Member State’s legal system in depth nor requires legal advice in order to perform his activity. This is due to the fact that the principle of mutual recognition structures administrative action, thus allowing for a simplified and increasingly automatic recognition of professional qualifications, particularly regarding access to information, by means of an administration purposefully established as a source of information and assistance. In a manner of speaking, this assisting administration plays the role of professional associations regarding its associates (Article 3(2) Directive 2005/36). In this connection, it must be recalled that according to Directive 2005/36, professionals may be exempt from registering with a professional association. Therefore, inasmuch as professionals are not duly protected or assisted by their professional association, it is certainly understandable that those functions are supplied by an assistance-oriented institutional scheme.



4 Final remarks. Administrative law for an ex parte civium administration

The structural nature of the mutual recognition principle makes it a general EU law principle, formally articulated, yet showing a teleological connection with the effectiveness of community freedoms. These freedoms 65

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govern the existing relations among European citizens, EU institutions, and Member States.24 The importance of the foregoing is out of the question, since it allows for understanding that the formal structuring underlying the principle of mutual recognition comes in response to material aims. However, it is increasingly becoming a decisive element for the fulfilment of those aims. In this sense, it is true that the free movement of professionals could also be attained through traditional intervention mechanisms but this would not eliminate bureaucratic obstacles, unreasonable time limits, disincentive effects or barriers hampering the actual effectiveness of community freedoms.25 Therefore, substantive goals affect and predetermine the way transnational horizontal relations governed by the principle of mutual recognition are organisationally and procedurally structured. More precisely, the mutual recognition principle –in its formal dimension- governs administrative organisation in terms of cooperation and simplification, and allows for recognizing and exercising the right to free movement as well as the right to provide services on a permanent or occasional basis. In other words, in the formal dimension, the principle accounts for an expression of the principle of minimum intervention and thus of the favor libertatis principle. The important part is that the pursued objectives are the ones leading to that outcome, accounting for what could be labelled as an ex parte civium or bottom-up expression of European administrative law.26 Community freedoms are either effective at the highest jurisdictional/ territorial level (at European level) or they simply cease to be such freedoms, inasmuch as their effectiveness in the EU as a whole is part of their essence (Article 52(2) CFREU) and inherent to those rights. There is no other possible interpretation for Article 15(2) CFREU when it establishes that ‘every citizen of the Union has the freedom to seek employment, to work, to exercise the right of establishment and to provide services in any Member State.’ This decisive premise has a definite effect on the kind of inter-administrative relations established among Member States. First of all, the principle’s consolidation as a governing principle within the internal market administration has allowed for the said relations to evolve from being relations among sovereign States originally subject to international law provisions, to becoming interadministrative relations governed by EU law. In other words, mutual recognition is now deeply rooted as a relational principle within the sphere of ius publicum europeum which is binding on the administrations designated to comply with EU law. The principle of mutual recognition governs transnational inter-administrative relations, yet it does not apply to international governmental relations. This is the only conclusion in line with the said automaticity (of both of the aforementioned kinds) implying the application of the mutual recognition principle. Only this answer allows for the principle to become a governing principle for the internal market administrative union, understood as a shared admin24 25

See, in this regard, De Lucia (2009).

E.g. Case C-575/11 Eleftherios-Themistoklis Nasiopoulos v Ypourgos Ygeias kai Pronoias [2013] n.y.r.

26

Von Bogdandy (2013) and Schneider (2008) 44 ff.

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istrative domain, which does not have a single nature from an institutional perspective yet it is operationally integrated. Finally, due to all these reasons, it can be stated that this principle is intended to comply with EU law by ensuring community freedoms. The direct consequence arising from the terms characterising transnational horizontal relations has an effect on the structuring of those administrative procedures which allow for attaining the relevant substantive objective. This is why the principle of mutual recognition can only be optimised by means of the least possible host Member State intervention, thus avoiding administrative control faults through duplication.27 On the other hand, as national administrations performance in favour of community objectives (ensuring community basic freedoms) is subject to EU law, it allows for thinking of these administrations as an operationally European administration. This has an impact on administration-citizens relations, because those relations are not to be construed as merely domestic legal relations. Therefore, since the mutual recognition administration is conceived as essentially European, its performance is fully governed by the standards stemming from the right to good administration.28

27

Corso (2007) 131-132.

28

See Fuentetaja (2008) 143; Nieto and Martín (2010) 118 et seq.; and Agudo (2013) 75.

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Bibliography J. Agudo, “Sobre la europeización del Derecho y la evolución de la teoría del procedimiento administrativo”, 45 (2013) Revista Española de Derecho Europeo, 61-111. E. M. Ares, “El reconocimiento de cualificaciones profesionales, un paso más hacia la liberalización”, 41 (2005) Revista de Estudios Europeos, 89-118. N. Bassi, Mutuo riconoscimento e tutela giurisdizionale (Milan: Giuffrè, 2008). G. Corso, “Mutuo riconoscimento e norma applicabile”, in A. Plaia (ed.), La competizione tra ordinamenti giuridici (Milan: Giuffrè, 2007). L. De Lucia, Amministrazione transnazionale e ordinamento europeo (Torino: Giappichelli, 2009). J. A. Fuentetaja, “El derecho a la buena administración en la Carta de los Derechos Fundamentales de la UE”, 15 (2008) Revista de Derecho de la Unión Europea, 137-57. D-U. Galetta, “Informal Information Processing in Dispute Resolution Networks”, 20 (2014) European Public Law, 71-88. M. Gnes, La Scelta del Diritto. Concorrenza tra ordinamenti, arbitraggi, diritto comune Europeo (Milan: Giuffrè, 2004). M. Lottini, “Correct Application of EU Law by National Public Administrations and Effective Individual Protection”, 3 (2010) Review of European Administrative Law, 5-26. M. Lottini, “An Instrument of Intensified Informal Mutual Assistance”, 20 (2014) European Public Law, 107-25. L. Musselli, “Administrative Cooperation between Member States: The SOLVIT Network”, in L. Ammannati (ed.), Networks (Turin: Giappichelli, 2012). S. Nicolin, Il mutuo riconoscimento tra mercato interno e sussidiarietà (Milan: CEDAM, 2005). E. Nieto and I. Martín, Derecho Administrativo Europeo en el Tratado de Lisboa (Madrid: Marcial Pons, 2010). M. Ruffert, “De la Europeización del Derecho Administrativo a la Unión Administrativa Europea”, in F. Velasco and J-P. Schneider, La Unión Administrativa Europea (Madrid: Marcial Pons, 2008), 87-107. E. Schmidt-Assmann, “European Composite Administration and the Role of European Administrative Law”, in O. Jansen & B. Schöndorf-Haubold (eds.), The European Composite Administration (Cambridge: Intersentia, 2011). G. Vesperini, Il vincolo europeo sui diritti amministrativi nazionali (Milan: Giuffrè, 2011). A. Von Bogdandy, “El Derecho Administrativo en el Espacio Jurídico Europeo”, A. Von Bogdandy & O. Mir (eds.), El Derecho Administrativo en el espacio jurídico europeo (Valencia: Tirant lo Blanch, 2013). F. Wettner, “The General Law of Procedure of EC Mutual Administrative Assistance”, O. Jansen & B. Schöndorf-Haubold (eds.), The European Composite Administration (Cambridge: Intersentia, 2011).

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Administrative Controls and Free Movement of Services within the Internal Market Mónica Domínguez Martín

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administrative controls and free movement of services within the internal market

1 Introduction

According to Article 26, paragraph 2, of the Treaty on the Functioning of the European Union (TFEU), the internal market comprises an area without internal frontiers in which the free movement of services is ensured. Such provision is given effect by Article 43, on the freedom of establishment, and Article 49 on the freedom to provide services within the Union. There are, however, a large number of barriers which are preventing or slowing down the development of services between Member States. These include, among others, excessive administrative burdens, legal uncertainty associated with cross-border activity and the lack of mutual trust between Member States (recital 3 of Directive 2006/123/EC of the European Parliament and of the Council of 12 December 2006 on services in the internal market, the so-called ‘Services Directive’). It is therefore necessary to remove barriers to the freedom of establishment for providers in Member States and barriers to the free movement of services as between Member States and to guarantee recipients and providers the legal certainty necessary for the exercise in practice of those two fundamental freedoms of the Treaty (recital 5 of the Services Directive). One of the proposals set out in the Europe 2020 (‘A strategy for smart, sustainable and inclusive growth’) is to reshape or reorient the rules that regulate the functioning of national public administrations. Indeed, an essential part of the European rules aimed at establishing the internal market are intended to avoid distortions to its good functioning caused by the intervention of public administrations. In particular, one of the issues broached within these initiatives is the regulatory role of the administration regarding private activities, establishing restrictions or barriers to their implementation, which affects the development of the internal market. Services are the engine of economic growth, accounting for over 70% GDP and employment in most Member States, which is why a fragmentation of the internal market for services has a negative impact on the entire European economy (recital 4 of the Services Directive). These are the factors that have led to the adoption of EU measures aimed at removing unjustified obstacles imposed by the States. In this way, economic operators can pursue a stable and continuous activity in one or more Member States and offer temporary services in another Member State without having to be established there. An example of the above is the Services Directive, which tries to facilitate access to and exercise of service activities within the EU by limiting the authorisation scheme to the cases expressly provided for by law and subject to the strict compliance with the principles of non-discrimination, necessity and proportionality. In this regard, the preamble of the Directive acknowledges as an essential goal the establishment of a competitive internal market in services which compels the Member States to eliminate restrictions on cross-border provision of services while at the same time increasing transparency and information for consumers, offering them a wider choice and better services at lower prices.

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Article 4(1) of the Directive defines service as ‘any self-employed economic activity, normally provided for remuneration, as referred to in Article 50 of the Treaty.’ Recital 33 acknowledges that ‘the services covered […] concern a wide variety of ever-changing activities,’ and Article 2 specifies and defines the objective scope.1 In short, the Services Directive enshrines the principle of administrative simplification for the ultimate purpose of facilitating freedom of establishment for service providers. It limits the obligation of prior administrative authorisations to cases in which it is essential and objectively justified by an overriding reason relating to the public interest, non-discriminatory or in which the objective pursued cannot be attained by means of a less restrictive measure. Any restriction on the freedoms of establishment and to provide services shall be therefore considered as an exception. The point of departure of the Services Directive is the Report from the Commission to the Council and the European Parliament on the state of the internal market for services of July 2002.2 It draws up an inventory of a large number of barriers which are preventing or slowing down the development of services between Member States. The report concludes that a decade after the envisaged completion of the Internal Market, there is a huge gap between the vision of an integrated EU economy and the reality as experienced by European citizens and European service providers. These barriers affect a wide variety of service activities across all stages of the service provider’s activity and have a number of common features, including the fact that they often arise from administrative burdens, the legal uncertainty associated with cross-border activity and the lack of mutual trust between Member States (recital 3 of the Services Directive).



2 Freedom to provide services and ‘European administrative union’

The Services Directive is framed within the proposals for a change of the current administration model. It aims at overcoming a type of administration that assumes and performs directly any function or activity concerning public interest, subjects all private activity to prior administrative enabling acts (authorisations, licences, concessions) and regulates in detail the activities imposing numerous burdens… The new administration would tend to withdraw, promote the start of new activities by simple prior notifications or statements of responsibility by the individuals; it would privatise the management of public services and relinquish direct control of the activities by 1

On this concept, see Jiménez García (2007) 807; and Barnard (2013) 365-6, 369-78 and 415-6. See also Case 452/04 Fidium Finanz AG v Bundesanstalt für Finanzdienstleistunggaufsicht [2006] ECR I-9521, para. 32.

2

http://eur-lex.europa.eu/legal-content/EN/TXT/?uri=COM:2002:0441:FIN.

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transferring such functions to the private sector (audits, technical inspections, certifications), which would be granted wide self-regulatory powers without undermining the protection of public interest.3 An actual European administrative union ‘consists of a combination of cooperative and hierarchical elements that open cracks in the tight areas of executive powers or give rise to new shared –and in any case integrated– executive powers. The traditional distinction between implementation of EU law by the Union itself (usually referred to as ‘direct’) and by the Member States (‘indirect’) is thus blurred. 4 This concerns not only vertical separation among Community bodies and national executive authorities (organised according to the principle of institutional autonomy), but also horizontal autonomy, as well as the territorial delimitation of powers between Member States.’5 It is the consequence of generating a unified structure for the implementation of law exceeding both the State level and, strictly speaking, that of the EU institutions.6 An integration of national administrations and the EU administration is thus achieved in a multi-level system structured on three organisational principles: organisational separation, functional cooperation or coordination and supranational hierarchy.7 Underlying the idea of a European administrative union, there are certain ‘unifying, interconnecting or integrating elements regarding the different administrations’. They focus on ‘the different ways of interweaving the European administration with the administrations of the Member States’ and ‘the integration of supranational administrative activities and national authorities of the Member States in a fragmented European administrative space.’8 The initiatives to simplify administrative procedures included in the Services Directive need to be put in context. In order to facilitate access to service activities and the exercise thereof in the internal market, the Directive establishes an objective, common to all Member States, of administrative simplification and to lay down provisions concerning the right to information, procedures by electronic means and the establishment of a framework for authorisation schemes (recital 46 of the Services Directive). With the aim of administrative simplification, general formal requirements should not be imposed, and it is also necessary to ensure that an authorisation as a general rule permits access to, or exercise of, a service activity throughout the national territory, unless a new authorisation for each establishment or an authorisation that is restricted to a specific part of the national territory is objectively justified by an overriding reason relating to the public interest (recital 47 of the Services Directive). 3

Gamero Casado (2013) 4.

4 5

Chiti (2010) 10-1: Hofmann and Türk (2009) 107-8; Nickel (2006) 133; Hofmann (2011) 441-2.

Schneider (2008) 26.

6 7

Chiti (2004) 37.

Chinchilla Peinado (2015); Chiti (2004) 37-8; Hofmann and Türk (2009) 108; Eckes and Mendes (2011) 651-2; Schmidt-Assmann (2011) 6 and 13-4.

8

Ruffert (2008) 88 and 107.

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The Directive is firmly committed to the principle of administrative simplification, including important examples of the simplification of procedures. Among them, the organisational simplification aims at enhancing public structures and organisations, and comprises organisational and technological measures intended to increase the efficiency of administrative activities. Another goal is procedural simplification, which sets out to make administrative procedures less complex and more efficient, simplifying the formalities and reducing the burdens by rationalising, streamlining and ‘accelerating’ the administrative procedure in order to achieve speediness, efficiency and effectiveness in the administrative activities.9 The main problems involved in transforming the authorisations scheme into prior notifications and statements of responsibility are of an organisational kind. Although both cases (licences or authorisation and prior notification or statement of responsibility) are control mechanisms of private activities, they are not equivalent. While the licence or authorisation entails a prior administrative control, prior notifications or statements of responsibility are notifications from the interested party to the administration regarding the activity in question, being able to carry it out immediately or after a short period if the administration raises no objection. It implies, at least in theory, low-intensity participation on the part of the administration and protection of the public interest with minimum bureaucratic burden, achieving an obvious administrative simplification. On the other hand, the reduction of bureaucratic burdens in the authorisation procedure must be accompanied by an increase of personal and material resources for administrative inspections. Checks and verifications will be needed to ensure the prevention of illegal conducts. Hence, general administrative control and supervisory powers become much more relevant as regards the role of the administration in the start and development of private activities. Until now, such powers had been secondary due to the prior authorisation or licence scheme.10 Simplifying administrative procedures requires a parallel and considerable reorganisation so that the principle of administrative simplification does not collide with another legal principles or values (e.g., security and risk management; environmental protection, etc.). The point is to maintain the same level of compliance, which makes necessary to couple the lessening of preventive control with an increase in supervision. The simplification of administrative procedures has been criticised on the grounds that it often relegates the public interest with the mere purpose of deregulating, without sufficient consideration of all the interests at stake.11 From this standpoint, the increase of ex post controls seems inadequate and misleading. Actually, what prior notification of the activity calls for is a better ex ante definition of the requirements and conditions service providers have to meet. In order to adjust to such requirements, 9

Gamero Casado (2014) 5-6.

10 11

Parejo Alfonso (2013) 26-7; Rivero Ortega (2009) 18.

Gamero Casado (2014) 55; Domínguez Martín (2013); De La Quadra-Salcedo Fernández Del Castillo (2013); Parejo Alfonso (2013); Vaquer Caballería (2013); Nogueira López (2011).

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public administrations will need to adopt a large volume of regulations lest they be responsible for the lack or inadequacy of relevant standards. They will also have to adapt their organisational apparatus to such prior regulatory dynamic, as well as decide ex ante on how to address the ex post control or supervisory obligations.12 Furthermore, the abolishment of authorisations does not necessarily mean the establishment of statements of responsibility or prior notifications: in particular, in matters where different administrations are responsible for issuing the authorisations, a possible simplification technique would be to replace authorisations by (mandatory and binding) reports. The latter would be requested by the administration considered responsible for handling the procedure. Or, going further, by assuming the ‘one-for-all principle.’ Alongside all the referred provisions related to administrative simplification on the elimination of barriers to the freedom of establishment for providers in the Member States and to the free movement of services, the Directive sets out a regulation on administrative cooperation between States. The principle of administrative cooperation is ‘essential to make the internal market in services function properly’, as stated by recital 105. The purpose is that the administrations of the Member States assist each other (horizontal cooperation) and the Commission (vertical cooperation) to determine whether a service provider complies with the legal requirements regarding cross border provision of services or the establishment in another Member State.13 Although already in place in other areas, the ‘horizontal’ innovation of the Directive is a firm step towards a European administrative union, defining mutual assistance obligations and information exchange.14 The Directive is silent on the jurisdiction regarding the acts of the Member States in this field, which are subject to the general regime. The individuals concerned shall be able to give effect to the control of these acts, which in the European administrative union would not be primarily attributed to the administration of their own Member State. Acts resulting from horizontal cooperation, i.e., those of other Member States’ authorities, must be subject to control and, therefore, there must be a simplification and strengthening of cross border judicial control. This implies overcoming the classic distinction under which implementing acts of EU bodies have to be contested before EU courts and Member States’ acts before national courts.15 The regulation of private economic activities is originally based on the protection of individuals (prior authorisations as a control and risk-avoidance measure). However, due to the impulse of European regulations on services, the regulation of private economic activities has had to adjust to the internal market. EU law has thus set a new purpose for the regulations on administrative action, 12 13

De La Quadra-Salcedo Fernández Del Castillo (2013) 78-84.

Velasco Caballero and Simou (2009) 167.

14 15

Rivero Ortega (2009) 17; Sommer (2011) 55-6; Wettner (2011) 310.

Ruffert (2008) 105; Schneider (2008) 39-43.

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compelling all Member States to review and redefine their respective authorisation schemes regarding access to a service activity or its exercise thereof. The Services Directive has had a great impact on the legal framework for the enabling requirements for access to service activities and their exercise. Its transposition into national law has entailed the modification of a significant number of national standards and regulations (at all regulatory levels), and such changes have equally affected all national public administrations. This translates into the submission of all levels of power to European standards, without any difference as for the legal framework for administrative action depending on the implementing authority. It can be argued that we are facing a paradigm shift in the legal framework regarding the activity of the public administration, at least from a theoretical point of view.16 Overall, it seems clear that the Services Directive is fostering a partial review of administrative law, limiting at least in appearance the intervention of public powers to areas where the public interest requires a strong presence of the public administration. When this is not the case, it is assuming a secondary or indirect role.17



3 Principle of mutual recognition and cross border acts regarding the freedom to provide services and the freedom of establishment

The signatories of the Treaty of Rome of 1957 declared in its Preamble to be ‘resolved to ensure the economic and social progress of their countries by common action to eliminate the barriers which divide Europe,’ ‘recognising that the removal of existing obstacles calls for concerted action in order to guarantee steady expansion, balanced trade and fair competition,’ and they expressed their desire to ‘contribute, by means of a common commercial policy, to the progressive abolition of restrictions on international trade.’ Article 56 of the present Treaty on European Union sets out the prohibition of restrictions on freedom to provide services within the Union in respect of nationals of Member States who are established in a Member State other than that of the person for whom the services are intended. Freedom to provide services and the principle of mutual recognition are necessarily linked. Such principle has been a driving force in European integration and played a key role in the establishment of the internal market. The economic freedoms of the internal market, including freedom to provide services, were built and have evolved around the principle of mutual recognition. It was soon enshrined in the case law of the Court of Justice in its famous judgment in the Cassis de Dijon case,18 and it implies recognition of the country16

Domínguez Martín (2013); De La Quadra-Salcedo Fernández Del Castillo (2013); Parejo Alfonso (2013); Vaquer Caballería (2013); Rivero Ortega (2009) 17.

17

Arana García (2012).

18

Case 120/78 Cassis de Dijon [1979] ECR 649.

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of-origin principle in the absence of Community legislation or harmonisation. It is not simply a rule for the allocation of competences or powers of control, but a higher commitment on the part of the Member States in the development of a common project. Accordingly, the EU courts have noted that ‘Member States must rely on trust in each other to carry out inspections on their respective territories […] A Member State may not unilaterally adopt, on its own authority, corrective or protective measures designed to obviate any breach by another Member State of rules of Community law.’19 In Case C-433/04 (Commission v. Belgium),20 the Court recalled that Article 49 EC requires not only the elimination of all discrimination on grounds of nationality against service providers who are established in another Member State, but also the abolition of any restriction on the freedom to provide services, even if it applies without distinction to national providers of services and to those of other Member States, which is liable to prohibit, impede or render less advantageous the activities of service providers from other Member States who lawfully provide similar services in their Member State of origin. The principle of mutual recognition is based on mutual trust between Member States (Bouchara case)21 embodied in the principle of sincere cooperation (Article 4(3) TFEU). It informs horizontal cooperation between national administrations. Cooperation implies facilitating the movement and recognition of legal situations hindered -or simply prevented- by legal and physical borders inherent to the sovereignty of the Member States.22 On the basis of this case law, the principle of mutual recognition extended to all fundamental freedoms due in part to the role played since the 1980s by the regulatory harmonisation approach called ‘New Approach’ or ‘New Strategy’. It combines a horizontal harmonisation limited to general aspects and principles with coordinating duties for mutual recognition of authorisations.23 Unlike in non-harmonised areas, in those harmonised the administrations of the Member States where the service is provided have less control and supervisory powers. These are limited to recognition of an administrative act or procedure issued under other national legislation. Regulatory harmonisation helps reduce the controversial nature of the principle, highlighting its cooperative dimension. The principle of subsidiarity reflects the balance resulting from regulating a subject at a European level and implementing such regulation at a national level, giving rise to inter-administrative links that result in a cross-border divi19

Jiménez García (2007), 786. Case 5/94 Hedley Lomas [1996] ECR I-2553, para. 19-20; Opinion of Advocate General Geelhoed in Case 212/03 Commission v. France [2005] ECR I-4213, para. 39.

20 21

Case 433/04 Commission v Belgium [2006] ECR I-10653.

Case 25/88 Bouchara [1989] ECR 1105.

22 23

Jiménez García (2007) 779.

Comunication ‘Cassis de Dijon’, 1980 [C 256] and specifically, Completing the Internal Market: White Paper from the Commission to the European Council [June 1985] [COM [85] 310]. Agudo González (2015); Schneider (2008) 35-6; Corso (2007) 127.

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sion of roles.24 Furthermore, large sections of the European legislation on the internal market combine three elements: ‘approval’ of national authorities and procedures in the European interests (indication of powers and regulation of procedures), strict administrative cooperation in both directions and European administrative coordination under the guidance of the European Commission, assisted by the corresponding committees created by the relevant regulations.25 As a country-of-origin principle, the principle of mutual recognition is generally assumed by the European legislation on the provision of services. However, part of such legislation establishes mechanisms that downplay the principle by granting supervisory powers to the State where the service is provided: principle of control by the home State under a notification system and a responsibility system that offer the State where the service is provided a relatively accurate knowledge of the service; prior statement to the authorities of the State where the service is provided in the cases of first movement of the provider; insurance guarantees or analogous personal or collective protection mechanisms, etc.26 The tension between the freedom to provide services enshrined in the Treaty and administrative controls by the States is solved through a delicate balance. It has to ensure, on the one hand, effectiveness and actual competition regarding the basic freedoms of the internal market and, on the other, a high degree of legal integration and protection of ‘overriding reasons relating to the public interest’ (environmental protection, the social model, public policy and public security and health). Given the loss of national autonomy27 both in defining the objectives of administrative action and in establishing its specific mechanisms, the term ‘functionalised autonomy’ may be used to describe the balance between institutional autonomy and the requirements arising from the loyal cooperation between States.28 Prior administrative authorisation schemes must be based on objective, non-discriminatory criteria which are known in advance, in such a way as to circumscribe the exercise of the national authorities’ discretion, so that it is not used arbitrarily, as well as on a procedural system which is easily accessible and capable of ensuring that a request for authorisation will be dealt with objectively and impartially.29 It is therefore essential that Member States are informed of their respective decisions, and to allow them inquiring or requesting additional information if needed. This is why the European legislation on free movement -the reason at the core of the European integration- is always accompanied by provisions on cooperation between Member States.30 Such provisions on administrative coop24 25

Agudo González (2015); Corso (2007) 131.

Jiménez García (2007) 785.

26 27

Jiménez García (2007) 789.

Chiti (2004) 51

28

Lafarge (2010) 133-4.

29 30

Case 157/99 Smits and Peerboms [2001] ECR I-05473, para. 90. Jiménez García (2007) 776-8.

Lafarge (2010) 121; Sommer (2011) 55-56.

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eration can be of two kinds: those establishing cooperating duties and those that set forth recommendations for cooperation (under which the EU has no competence to impose cooperation upon Member States). The choice between one and the other depends on the powers of the Union in each case.31 It is precisely in this context where the consequences of the principle of mutual recognition become particularly noticeable with regard to organisational, institutional and procedural or operational aspects: complex procedures involving several national administrations, cross-border acts with supranational effectiveness, and in any case an administration aimed at safeguarding community freedoms. The consequences for administrative organisation and action derived from this principle are discussed on the following pages.



4 Horizontal and vertical cooperation between European and national administrations within the scope of the Services Directive.



4.1 Horizontal procedures

According to the system put forward by the Services Directive, the administrative decision allowing in each Member State the establishment of an operator is directly or indirectly binding for the public administrations of the other Member States (cross-border model, ‘one-for-all,’ ‘one size fits all’).32 In a harmonised and simplified authorisation system under the principles of non-discrimination, necessity and proportionality, the State of origin is generally competent for the control of the access to the service. Any administrative decision by a national authority allowing the establishment of an operator in its territory becomes an act with cross-border effects binding for the other national authorities. The latter will have to accept -without any prior control- the services provided by undertakings with an authorisation of establishment in another Member State.33 It should not be possible for Member States to circumvent the rules laid down in the Directive by conducting discriminatory or disproportionate checks, inspections or investigations (Article 31). The Services Directive model is based on horizontal cooperation procedures. The system is thus defined by an automatic application of the principle of mutual recognition. There are, however, certain restrictions, since the host State is entitled to carry out some checks, although it cannot replicate the administrative actions already taken in the home State.34 It is a procedure that implies

31

Lafarge (2010) 126-7; 134-7.

32 33

Barnard (2013) 366.

Velasco caballero and Simou (2009) 172; Hofmann (2011) 444.

34

Barnard (2013) 428.

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‘an extraordinarily sophisticated cooperation between administrations in the European area.’35 The core of the principle is set forth in Article 16(2), but it is projected, complemented and further developed throughout the whole Directive. The main provisions in which the system is embodied are: • Art. 10 SD: The conditions for granting authorisation for a new establishment shall not duplicate requirements and controls which are equivalent or essentially comparable as regards their purpose to which the provider is already subject in another Member State or in the same Member State. • Art. 14 SD: Prohibited requirements with regard to the freedom of establishment of service providers. • Art. 18 SD: Provides for the adoption, in exceptional circumstances, of measures relating to the safety of services in respect of a provider established in another Member State, subject to compliance with the mutual assistance procedure established in Article 35 and provided that the conditions set out in Article 18(2) are fulfilled. • Art. 23(2) SD: Member States may not require professional liability insurance or a guarantee from the provider where he is already covered by a guarantee which is equivalent, or essentially comparable as regards its purpose and the cover it provides in terms of the insured risk, the insured sum or a ceiling for the guarantee and possible exclusions from the cover, in another Member State in which the provider is already established. Where equivalence is only partial, Member States may require a supplementary guarantee to cover those aspects not already covered (restriction to equivalence). • Art. 27.3: Member States shall recognise equivalent guarantees lodged with a credit institution or insurer established in another Member State where a financial guarantee is required for compliance with a judicial decision. The Directive fails to centralise the information on alert mechanisms (Article 32) and on the good repute of providers (Article 33), which remains in charge of the competent national authorities subject to their own national legislation. For the system to function, it is necessary to establish clear and legally binding obligations so that the Member States may cooperate in an effective manner.36 It is particularly important to supply enough and relevant information in order for the supervisory State to control the provider resident or established in the State which supplies the information. Although such purpose is stated in the preamble to the Directive, the cooperation system is excessively discretionary and largely conditioned by the limited operational capacity derived from national legislations. This could increase the prominence of the Commission and strengthen its role as guarantor. Article 22 contains the sole provision in this regard, requiring Member States to ensure that providers communicate the recipient, in a clear and unambiguous manner, and in good time, comprehen35

Barnés (2010) 91.

36

Sommer (2011) 55-6.

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sive information on the legal status of the provider, the conditions and factors affecting the provision of services, including the characteristics of the use of non-judicial means of dispute settlement. Member States shall ensure that such information, according to the provider’s preference, is supplied by the provider on his own initiative, is easily accessible to the recipient at the place where the service is provided or the contract concluded, either by electronic means or by appearing in any information documents supplied to the recipient by the provider.37 Article 28(1), on its part, sets out a general obligation for Member States to give ‘mutual assistance’ and to ‘put in place measures for effective cooperation with one another, in order to ensure the supervision of providers and the services they provide.’ According to its own legislation, the Member State of establishment shall take appropriate measures to give effect to the request for assistance (Article 29(2)). The cooperation is thus carried out without being subject to the superior guidance or direction of the requesting Member State, which may only make suggestions.38 Therefore, although mutual assistance is a two-way obligation, assistance from the State of establishment -at the request of the host State- seems to take precedent, and is focused on an ‘assistance by information’39, i.e., establishing the facts and data relevant for the decision. In order to comply with this obligation, the Member States must designate one or more ‘liaison points’ and communicate their contact details to the other Member States and the Commission, which will publish and regularly update the list of liaison points (Article 28(2)). The liaison points shall assist the competent authority by providing any necessary information regarding the conditions and requirements for granting authorisation (Article 10(3)). In the case of urgency regarding control or supervision, the procedure to be followed is the one outlined in Article 35 on mutual assistance in the event of case-by-case derogations. More specifically, an exception thereof enables the host State to take the measures it deems appropriate, outside administrative cooperation between the States concerned. In such cases, the Commission’s role is to ensure compliance with EU legislation, including the possibility to start an infringement procedure in accordance with Article 28(8) of the Directive. Article 39 puts forward another horizontal procedure (paragraphs 1 to 4). It provides for a mutual evaluation mechanism between Member States, which shall present a report to the Commission containing the information on their own authorisation schemes, the requirements to be evaluated and multidisciplinary activities). The Commission, on its part, will forward the national reports to the other Member States, with the participation of the support Committee established by Article 40. This procedure ends with a summary report presented by the Commission to the European Parliament and to the Council. Also in this respect, the leading role of the Commission is undeniable. 37

Jiménez García (2007) 810-1.

38

Wettner (2011) 310-1.

39

Wettner (2011) 310.

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A similar procedure (Article 39(5)) is followed for the mutual evaluation of certain elements regarding the freedom to provide services referred to in Article 16 (requirements justified for reasons of public policy, protection of the environment, non-discrimination and in compliance with the proportionality principle). The support Committee of Article 40 does not participate in this case, nor is there a final report of the Commission to the European Parliament and to the Council, but the Commission shall provide analyses and orientations on an annual basis regarding the application of these provisions. These are examples of administrative procedures under which different national administrative authorities are closely interlinked in a model of highly integrated administrative cooperation. Each national administration shifts from the legislation of the State where the service is provided to that of the State of the establishment, while taking into account the principle of mutual recognition of authorisations. 40 Article 15 also includes self-evaluation criteria by requiring Member States to examine whether, under their legal system, the (non-discriminatory) requirements listed in paragraph 2 are imposed. They shall also ensure that such requirements are compatible with the Directive’s provisions. It could be argued that, in general terms, the Services Directive favours horizontal administrative cooperation (between the administrations of the Member States), leaving the Commission’s supervisory role in the background. 41 According to Article 40, the obligations of the Commission would consist mainly in supervising compliance with EU law and issuing certain periodic reports on the progress made with regard to harmonisation (Article 39). Actually, alongside the cited mechanisms, which could be considered strictly horizontal, the Services Directive attributes a leading role to the Commission in certain cooperation mechanisms between Member States. It plays a support/ coordinating/supervisory role 42 (‘support in supervisory relationships’)43 with regard to the States. These are cooperation mechanisms but driven or controlled by the Commission, and as such they could be considered vertical or mixed: • Art. 7.5 SD: Member States and the Commission shall take accompanying measures in order to encourage points of single contact to make the information available in other Community languages. • Art. 21.3 SD: Together with the Commission, Member States shall put in place practical arrangements necessary to ensure that recipients are informed in their States of residence. • Art. 26 SD: Member States shall, in cooperation with the Commission, take accompanying measures to encourage providers to take action on a voluntary basis in order to ensure the quality of service provision, and establishes the specific methods thereof; to encourage professional bodies, as well as 40 41

Velasco Caballero and Simou (2009) 172-3; Jiménez García (2007) 806.

Velasco caballero and Simou (2009) 172.

42 43

Schmidt-Assmann (2011) 19-21.

Wettner (2011) 312-4.

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chambers of commerce and craft associations and consumer associations to cooperate; to encourage the development of independent assessments; to encourage the development of voluntary European standards with the aim of facilitating compatibility between services supplied by providers in different Member States, information to the recipient and the quality of service provision. • Art. 34 SD: The Commission, in cooperation with Member States, and in order to support administrative cooperation between Member States, has established ‘The Internal Market Information System’ (IMI), which is an electronic system that allows each competent authority to exchange information easily and rapidly and tries to explain the different obligations, scenarios and functions of administrative cooperation. 44 It is conceived as a horizontal support instrument to promote administrative cooperation. It enables competent authorities to easily find the relevant interlocutor in other Member States and offers the possibility to exchange electronic documents, files, certificates, etc. in order to accelerate administrative procedures and reduce bureaucratic burdens. Member States shall, with the assistance of the Commission, take accompanying measures to facilitate the exchange of officials in charge of the implementation of mutual assistance and training of such officials. The Commission shall assess the need to establish a multiannual programme in order to organise relevant exchanges of officials and training. • Art. 37 SD: Member States shall, in cooperation with the Commission, take accompanying measures to encourage the drawing up at Community level of codes of conduct aimed at facilitating the provision of services or the establishment of a provider in another Member State



4.2 Vertical procedures

A European administrative union implies a combination of cooperative and hierarchical elements inherent to such concept. 45 Although the regulation of the freedom to provide services is based, in principle, on cooperative horizontal procedures as the ones already described, vertical procedures (and, therefore, European institutions and bodies) play an essential role in the Services Directive. The Commission’s part is particularly important in this regard. Such procedures are defined by the integration of different administrative levels (European, national) in a single procedure, incorporating horizontal elements (e.g., consultations with other Member States). These procedures can be classified according to the ‘conduct’ of the procedure (bottom-up and top-down, depending on the level -European or national- where the decision is made). Nevertheless, the powers attributed to each administration (decision44 45

http://ec.europa.eu/growth/single-market/services/services-directive/documents/index_en.htm

Ruffert (2008) 98; Schmidt-Assmann (2011) 5; Wettner (2011) 307.

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making, consultative…) and the subordination of some administrations (generally, the national ones) to others (the European Commission) varies in each procedure. 46 Apart from the procedures referred to in the previous section (in which the cooperative horizontal element prevails, despite the participation of the Commission), the Services Directive provides for other in which the Commission ‘conducts’ the procedure. The Services Directive establishes in particular that the Commission may introduce harmonised forms at Community level equivalent to certificates, attestations and any other documents required of a provider (Article 5(2)). It may also do so in order to facilitate the interoperability of information systems and use of procedures by electronic means between Member States, taking into account common standards developed at Community level (Article 8(3). Furthermore, the Commission may present proposals for harmonisation instruments on access to the activity of judicial recovery of debts and private security services and transport of cash and valuables (Article 38), as well as adopt and regularly update detailed rules concerning the management of the European network of Member States’ authorities (Article 32(3). Article 21(4) allows the Commission to adopt measures for the implementation of the duty to inform the recipients in their Member State of residence, specifying the technical mechanisms for the exchange of information between the bodies of the various Member States and, in particular, the interoperability of information systems, taking into account common standards. Article 36 contains a similar provision. Likewise, the Commission may specify the content of the information on providers and their services and specify the practical means of implementation (Article 22(6)). It may also establish a list of the services that exhibit the characteristics of direct and particular risk and adopt measures designed to amend non-essential elements of this Directive by supplementing it by establishing common criteria for defining, for the purposes of the professional liability insurance or guarantees, what is appropriate to the nature and extent of the risk (Article 23(4)). In the cases of case-by-case derogations referred to in Article 18, where the Commission concludes that the measure is incompatible with Community law, it shall adopt a decision asking the Member State concerned to refrain from taking such measures (Article 35). There are several provisions in the Directive requiring Member States to notify certain information or activities to the Commission: • Any new laws, regulations or administrative provisions which set requirements that subject access to a service activity or its exercise thereof to certain non-discriminatory conditions established in Article 15(2) (Article 15(7)), together with the reasons for those requirements. The Commission shall communicate the provisions concerned to the other Member States, 46

Cananea (2004) 199-205.

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although such notification shall not prevent Member States from adopting the provisions in question. Within a period of 3 months from the date of receipt of the notification, the Commission shall examine the compatibility of any new requirements with Community law and, where appropriate, shall adopt a decision requesting the Member State in question to refrain from adopting them or to abolish them. • The text of the laws, regulations and administrative provisions necessary to comply with the Directive (before 28 December 2009), as well as the text of the main provisions of national law which they adopt in the field covered by this Directive (Article 44). • The names and contact details of the bodies designated by the Member States to inform the recipients in their Member State of residence. The Commission shall transmit them to all Member States (Article 21(2)). • The cases where other Member States do not fulfil their obligation of mutual assistance. Where necessary, the Commission shall take appropriate steps in order to ensure compliance with such obligation. The Commission shall periodically inform Member States about the functioning of the mutual assistance provisions (Article 28(8)). In other occasions, the requirement to notify the Commission is complemented by the obligation to notify the other Member States: any conduct or specific acts by a provider that, to its knowledge, could cause serious damage to the health or the safety of persons or to the environment (Article 29(3)); with regard to the alert mechanism (Article 32); and the adoption of measures pursuant to Article 18, i.e. case-by-case derogations (Article 35).



5 Institutional and organisational elements derived from the Services Directive

There are certain procedural, as well as organisational, governing mechanisms in the European administrative union. Although the application of the principle of mutual recognition is based, mainly, on cooperative structures articulated by means of horizontal composite procedures, it may also embody other organisational elements. 47 Cooperation requirements entail legalorganisational innovations, either through independent administrative units integrated in the central administration of the European Union, or through administration networks or horizontal cooperation committees. 48 From an organisational perspective, the coordinate system of the European administrative union is defined, on the one hand, by the Commission’s centralised administration structures and the Member States’ decentralised adminis47

Ruffert (2008) 99; Schmidt-Assmann (2011) 13-4.

48

Ruffert (2008) 99.

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tration; and, on the other hand, by the responsibility of the Member States and common cooperative responsibility. 49 Certain provisions of the Services Directive refer to institutional implications both at a European level and within Member States, although it does not call into question the allocation of the competences, at a local or regional level, of the Member States’ authorities granting authorisations (Article 10(7)). With regard to the Union, Article 40 establishes that the Commission shall be assisted by a Committee, referring to Decision 1999/468/EC laying down the procedures for the exercise of implementing powers conferred on the Commission. Furthermore, Article 32(2) establishes that the Commission shall promote and take part in the operation of a European network of Member States’ authorities in order to channel the alert mechanisms and protect consumers. The cooperation designed by the Services Directive has the features of a network and one stop administration. Legal-administrative and economic controls on cross-border provision of services are performed by a network of authorities derived from the connection of different interlinked national points. Although the country-of-origin principle was not expressly enshrined in the Directive, Member States shall designate one or more ‘liaison points,’ the contact details of which shall be communicated to the other Member States and the Commission in order to give effect to the principle of mutual assistance (Article 28(2)). Pursuant to Article 16 and Chapter VI, on administrative cooperation, national liaison points have sole responsibility for undertaking checks on the compliance with legal-substantive requirements for approval of a service activity and on the economic-administrative grounds for the authorisations (one stop principle). They are the recipients of the relevant information from the State of origin and the liaison authorities decide which (additional) proportional requirements may be imposed on the provider.50 Among the obligations of the liaison points are: assisting the competent authority by providing any necessary information regarding the requirements and conditions for granting authorisation (Article 10(3)). These administrative units conform the coordination, cooperation and information structures, as well as the basic organisational structure of the internal market administration. With regard to the organisational implications at a national level, they appear to be institutional but with procedural relevance. Related to the right to information of Article 7, Article 6 requires Member States to ensure that it is possible for providers to complete the procedures and formalities through points of single contact. The Directive considers that, in order to further simplify administrative procedures, it is appropriate to ensure that each provider has a single point through which he can complete all procedures and formalities (referred to as ‘points of single contact’, one-stop Government). The number of points of single contact per Member State may vary according to regional or local competencies or according to the activities concerned. 49 50

Ruffert (2008) 100.

Velasco Caballero and Simou (2009) 172; Ruffert (2008) 94-5.

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The creation of points of single contact should not interfere with the allocation of functions among competent authorities within each national system. Where several authorities at regional or local level are competent, one of them may assume the role of point of single contact and coordinator. Points of single contact may be set up not only by administrative authorities but also by chambers of commerce or crafts, or by the professional organisations or private bodies to which a Member State decides to entrust that function. Points of single contact have an important role to play in providing assistance to providers either as the authority directly competent to issue the documents necessary to access a service activity or as an intermediary between the provider and the authorities which are directly competent (recital 48). Noteworthy is the extraordinary utility of electronic points of single contact as a tool for the simplification of procedures, particularly for matters involving different public administrations. A good functioning of the points of single contact would remove (or at least significantly reduce) most of the barriers currently derived from territorial decentralisation, since it allows each public administration to exercise their own powers without generating obstacles for the citizens. The Services Directive is based on them as a tool to promote administrative simplification. In order to establish its point of single contact, Spain launched the eugo.es portal. It integrates in a single electronic point of access the set of hyperlinks that would theoretically allow completing all the requirements to start up a service activity, either with the Spanish Tax Agency (Agencia Tributaria), Social Security, different administrations, etc. But due to interoperability problems and divergences between administrations, most of the formalities lack hyperlinks, so they cannot be completed online.51 The Directive also includes an ‘institutional or organisational suggestion’: Member States may confer responsibility of informing the recipients in their Member State of residence on points of single contact or on any other body, such as the centres of the European Consumer Centres Network, consumer associations or Euro Info Centres (Article 21(2)). Finally, it should be considered whether the Services Directive could have organisational implications, leading to a recentralisation process in certain countries, like Spain, with decentralised administrative structures. Although the Directive emphasises that it should not interfere with the division of competences within Member States (recital 48, recital 60, Article 10(7)), the requirement of inter-administrative coordination for the purposes of realising the European internal market could have that effect.52

51

Gamero Casado (2013) 31-2.

52

Rivero Ortega (2009) 19-20.

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Bibliography J. Agudo González, “Free Movement of Professionals: the Mutual Recognition Administration”, in this book. E. Arana García, in J.F. Granados Rodríguez, Directiva de servicios, licencias urbanísticas y ejercicio de actividades (Granada: Editorial Comares, 2012). C. Barnard, The Substantive law of the European Union: the four freedoms (Oxford: Oxford University Press, 2013). J. Barnés Vázquez, “El procedimiento administrativo y el gobierno electrónico” (2010 I) 22 Fundación Democracia y Gobierno Local, 83-95. G. Cananea, “The European Union’s mixed administrative proceedings” (2004) 68 Law and Contenporary Problems, 197-217. J. A. Chinchilla Peinado, “Food Safety Management in the European Internal Market”, in this book. M. P. Chiti, “¿Existe un derecho público europeo? Una pregunta retórica” (2010) 41 Revista catalana de dret públic, 1-15. M. P. Chiti, “Forms of european administrative action” (2004) 68/37 Law and contemporary problems, 37-57. G. Corso, “Mutuo riconoscimento e norma applicabile”, in A. Plaia, La competizione tra ordinamenti giuridici (Milan: Giuffrè, 2007) 127-34. T., De La Quadra-Salcedo Fernández Del Castillo, “Corporaciones locales y defensa del interés general en la intervención en actividades y servicios” (2013) 6 Anuario de Derecho Municipal 2012, Instituto de Derecho Local/UAM, 63-99. M. Domínguez Martín, “La Directiva de Servicios y su plasmación en el control municipal de los actos de uso del suelo y la edificación en la normativa española hasta la Ley 8/2013, de 26 de junio, de Rehabilitación, Regeneración y Renovación Urbanas”, (2013) 285 Revista de Derecho Urbanístico, 128-219. C. Eckes and J. Mendes, “The Right to Be Heard in Composite Administrative Procedures: Lost in between Protection?” (2011) 5 European Law Review, 651-70. E. Gamero Casado, “Hacia la simplificación de los procedimientos administrativos: el procedimiento Administrativo adecuado”, IX Congreso de la Asociación Española de Profesores de Derecho Administrativo Santiago de Compostela (2014). F. Jiménez García, “Variaciones sobre el principio de reconocimiento mutuo y la Directiva 2006/123/CEE en el marco de la libre prestación de servicios” (2007) 28 Revista de Derecho Comunitario Europeo, 777-817. H. C. H. Hofmann and A. Türk, Legal challenges in EU administrative law: towards an integrated administration (Edward Elgar Publishing Ltd, 2009). J. Hofmann, “Legal protection and liability in the European Compositive Administration”, in O. Jansen and B. Schöndorf-Haubold, The European Composite Administration, (Cambridge: Intersentia, 2011) 441-66. F. Lafarge, “EU Law implementation through administrative cooperation between Member States” (2010) Rivista Italiana de Diritto Pubblico Comunitario, 119-44. R. Nickel, Participatory governance and European administrative law: new legal benchmarks for the new European public order (European University Institute, 2006).

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A. Nogueira López, “Crisis económica y cambios estructurales en el régimen de ejercicio de actividades: ¿reactivación económica o pretexto desregulador?”, in A. Blasco Esteve, El Derecho público de la crisis económica. Transparencia y sector público. Hacia un nuevo Derecho administrativo (Actas del VI Congreso de la AEPDA) (Madrid: INAP, 2011) 212-187. L. Parejo Alfonso, “Las transformaciones en curso en la intervención administrativa de actividades: evolución, déficit y demandas regulatorias”, in L. Parejo Alfonso, Autorizaciones y licencias, hoy. Un análisis sectorial tras la Directiva de Servicios (Valencia: Tirant lo Blanch, 2013) 19-40. R. Rivero Ortega, “Antecedentes, principios generales y repercusiones administrativas de la Directiva de Servicios: problemas de su transposición en España”, (2009) 122 Revista de Estudios Locales, 8-21. M. Ruffert, “De la europeización del Derecho Administrativo a la unión administrativa europea”, in F. Velasco Caballero and J.P. Schneider, La unión administrativa europea (Madrid: Marcial Pons, 2008), 87-108. J.-P. Schneider, “Estructuras de la Unión Administrativa europea- observaciones introductorias-”, in F. Velasco Caballero and J.-P. Schneider, La unión administrativa europea (Madrid: Marcial Pons, 2008), 25-50 E. Schmidt-Assman, La teoría general del Derecho administrativo como sistema (Madrid: Marcial Pons-INAP, 2003). E. Schmidt-Assman, “Introduction: European Composite Administration and the Role of European Administrative Law”, in O. Jansen and B. Schöndorf-Haubold, The European Composite Administration (Cambridge: Intersentia, 2011) 1-24. J. Sommer, “Information cooperation procedures- with European environmental law servien as an illustration”, in O. Jansen and B. Schöndorf-Haubold, The European Composite Administration (Cambridge: Intersentia, 2011) 55-90. M. Vaquer Caballería, “Las licencias de obras”, in L. Parejo Alfonso, Autorizaciones y licencias, hoy. Un análisis sectorial tras la Directiva de Servicios (Valencia: Tirant lo Blanch 2013) 41-88. F. Velasco Caballero and S. Simou, “Cooperación interadministrativa en la Directiva de Servicios” (2009) 122 Revista de Estudios Locales, 166-77. J. Vida Fernández, “Estrategias para alcanzar un verdadero mercado interior de servicios”, in T. De La Quadra-Salcedo, El mercado interior de servicios en la Unión Europea, estudios sobre la Directiva 2006/123/CE relativa a los servicios en el mercado interior (Madrid: Marcial Pons 2009) 202-44. F. Wettner, “The general law of procedure of EC mutual administrative assistance”, in O. Jansen and B. Schöndorf-Haubold, The European Composite Administration (Cambridge: Intersentia, 2011) 307-34.

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The Banking Union as an Integration and Consolidation Tool of the European Internal Market Federico Steinberg

chapter 5



the banking union as an integration and consolidation tool of the european internal market

1 Introduction

In June 2012, confronted with the growing fragmentation of European financial markets and with widespread doubts over the stability of the Euro, the European Council agreed to launch the European Banking Union. The objective of this flagship project was to restore the Euro and to ensure the survival of the European Monetary Union (EMU) and, as a corollary, of the internal market and the European Union itself. The first step has been the creation of a single financial supervisor within the ECB, with the mission of ensuring compliance with the new financial rules adopted by Member States, after the outbreak of the financial crisis, in order to comply with the Basel III agreements. The creation of a single supervisory mechanism is supposed to be followed by the establishment of a single resolution mechanism for banks in need of recapitalization or liquidation and, finally of a European deposit guarantee scheme, for which no specific schedule has been set yet. In the long term, they will both have to be supported by European rather than national resources, which means that the Banking Union is the first step towards a fiscal union.1 Furthermore, to minimize the burden on taxpayers for bank bailouts, rules have been implemented to establish a system of debt write-down for shareholders, bondholders, and depositors, before public money is used to recapitalize banks in need – the so-called Bail-in procedure included in the EU Bank Recovery and Resolution Directive. 2 Although important steps have been taken in order to pool resources, the reluctance of northern countries (and, in particular, of Germany) to go down that road is giving rise to an incomplete banking union – one which minimizes the pooling of risks, thereby raising doubts on its effectiveness in case of a new banking crisis. This chapter examines the implications of the Banking Union process on the European Internal Market and on the functioning of the EMU. It departs from a “neofunctionalist” reading of the process of European integration,3 according to which the preservation and extension of the internal market depends, to a large extent, on the good functioning of the EMU – which in turn depends on the strong commercial interdependence among EU countries brought about by previous integration steps. The outbreak of the Eurozone debt crisis at the end of 2009 drove the European financial market into a fragmentation spiral, which 1

Vernon (2013).

2

Directive 2014/59/EU of the European Parliament and of the Council of 15 May 2014 establishing a framework for the recovery and resolution of credit institutions and investment firms and amending Council Directive 82/891/EEC, and Directives 2001/24/EC, 2002/47/EC, 2004/25/EC, 2005/56/EC, 2007/36/EC, 2011/35/EU, 2012/30/EU and 2013/36/EU, and Regulations (EU) No 1093/2010 and (EU) No 648/2012, of the European Parliament and of the Council (OJ L 173, 12.6.2014, p. 190)

3

For a detailed analysis of the functionalist and neofunctionalist logic of European integration see Lindberg (1970), Haas (1958), Dehousse and Majone (1994), Spolaore (2013). For a critique of this approach see Moravcsik (1998).

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hampered the good functioning of the single monetary policy and threatened the very foundations of the internal market, insofar as ‘north’ EMU companies would finance themselves at much lower costs than those in the ‘south’. 4 This is the reason why this chapter contends that the Banking Union has been a neofunctional response to the problems stemming from the EMU’s inadequate original design and from the global financial crisis, which has also hit Europe. Yet this chapter also shows that, in view of the way in which the Banking Union has unfolded so far, there are reasons to question its capacity to address the problems that justified its establishment in the first place. Finally, the chapter suggests that the achievement of the level of banking, fiscal and economic integration that is necessary to ensure the sustainability of the Eurozone will generate new problems to maintain the single market amongst those countries that belong to the EU but not to EMU.



2 Why a Banking Union?

Although the global financial crisis did not reach Europe until 2009, the European leaders already noticed that the European financial regulation framework was extremely weak before the fall of the US bank Lehman Brothers, in September 2008. They created the European Systemic Risk Board (ESRB), based in Frankfurt, as well as three specific regulatory agencies: the European Banking Authority (EBA), based in London; the European Securities and Markets Authority (ESMA), based in Paris; and the European Insurance and Occupational Pensions Authority (EIOPA), based in Frankfurt. The creation of these institutions was an important step because it was the first time that the EU equipped itself, at the supranational level, with a set of financial regulatory institutions designed to ensure the well-functioning of the internal market. There was again a strong neo-functionalist logic behind these developments, insofar as the EMU had intensified the level of EU financial integration, making the national financial systems more interdependent amongst themselves. It was therefore necessary to set out new common rules in order to ensure the correct functioning of the European economic structure. However, the actions of these institutions turned out to be rather disappointing. For instance, the EBA was responsible for the stress tests that the most important EU banks underwent in 2010 and 2011. Eventually, many of the banks that passed these tests had to be rescued or liquidated– including several Spanish and Cypriot banks. The failure of these tests was partly due to the fact that the EBA contented itself with the task of coordinating the process, the actual tests being performed by national regulators. Hence the suspicion that may have been excessively lenient towards their own banks. In any case, the worst part of the Eurozone’s financial crisis was still to come. Indeed, it was only in 2012 that the so-called ‘diabolical loop’ between 4

Dullien (2012), Enria (2013).

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banks and sovereign debt started, which led to the renationalization of the European financial systems and put the Euro on the verge of collapse.5 Faced with the deterioration of the balance sheet of the Eurozone’s southern banks, the ECB decided to launch several Long Term Refinancing Operations (LTROs) in order to provide liquidity to the European financial system and, in particular, to Italian and Spanish banks. Banks used this liquidity to buy public debt from their respective countries, which allowed them to make important profits, given that the interest rates that they could get for the debt were higher than its financial cost. However, the banks’ preference for national assets over assets from other EMU countries represented a dangerous step towards the financial renationalization of Europe, which threatened to revert years of banking integration. The doubts over the sustainability of the peripheral countries’ debt were exacerbated by the ongoing recession and by the increase in the default rates and in the risk premium of southern countries. Financial markets started to fear that banks would experience enormous losses, requiring in some cases a rescue, if governments were unable to pay their debts. But as the rescue would have to come from the same governments, public debt would increase even more, making banks increasingly vulnerable. In sum, it was necessary to break the vicious circle between banks and sovereign debt making it possible to inject European rather than national funds into bankrupt banks.6 On the ‘real economy’ side, these tensions in the capital markets led to an increase of the gap between the finance costs faced by companies from central and peripheral countries (especially SMEs). Besides deepening the recession and increasing unemployment in southern countries, this gap also put at risk the functioning of the internal market, because it threatened the level playing field amongst EU companies.7 As Enria put it: ‘The disappearance of a functioning area-wide money market had a major impact, in terms of funding conditions, on the functioning of the Single Market, which started fracturing along national lines. The alignment of banking business with the domestic safety net led to what has been labeled as the “balkanisation” of the Single Market.’8 It was against this background that European leaders were forced to take a leap forward. In the conclusions of the June 29, 2012 Euro Summit Declaration they ‘affirm[ed] that it is imperative to break the vicious circle between banks and sovereign issuers.’9 The banking union was thus making its first steps. In a typically functionalist fashion, the banking union had thus become necessary to ensure the correct functioning of the previous integration steps 5

Pickford et al. (2014).

6 7

Draghi (2012).

Dullien (2012).

8

Enria (2012) 51.

9

Available at http://www.ecb.europa.eu/ssm/pdf/statement/Euroareasummitstatement2012-06-29ES. pdf

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(namely, the internal market and the EMU). Were it not for the banking union, the survival of the Euro and of the internal market and the EU as a whole would, very possibly, have been put in question. This neofunctionalist rationale was precisely what the EU ‘founding fathers’ had in mind: the march towards an ‘ever closer union’ by small steps, each step making the following one necessary.10 However, as we will see next, the crisis also gave rise to new expressions of inter-govermentalism within the EU and, in particular, to an asymmetric form of inter-governmentalism where northern creditor countries have much more power than southern debtors. This is problematic, for it means that the formation of the banking union is taking place under Germany’s authority and that it is incomplete, which calls into question its effectiveness.11



3 Building the Banking Union

At the European Council in June 2012, European leaders agreed to take an unprecedented leap towards European integration and to establish a Single Supervisory Mechanism (SSM) connected to the ECB.12 They were seeking to avoid collusion between regulators and national banks, to reduce the increasing fragmentation of the Eurozone financial markets and to break the vicious circle between banks and sovereign debt which threatened the financial equilibrium of southern countries and the internal market itself. The SSM is a major step. It is therefore regretful that the United Kingdom has decided to stay out of this initiative, if only because this may be problematic for the functioning of the internal market, as we shall wee below. The SSM started to operate in November 2014, with the human and technical capacities to directly supervise the 129 biggest banks in the Eurozone (and in other EU countries joining the initiative), which are those with over 30,000 million Euro in assets, and with jurisdiction and intervention powers over 6,000 medium and small banks.13 Up to this point there seems to be a clear. However, the single supervisor is only the first pillar of the banking union. It is also necessary to articulate a banking resolution mechanism capable of recapitalizing or liquidating banks, as well as European deposit guarantee schemes aimed at ensuring that the value of each euro in the EMU is the same irrespectively of the country of deposit. No progress has been made so far with regard to the deposit guarantee scheme, because it requires a risk pooling that creditor countries are not yet willing to assume.14 10 11

Spolaore (2013).

Pickford et al. (2014), Herring (2013).

12

At the same time, the ECB announced that it would do whatever it took to save the euro, which was the game changer for reducing the tensions in the European debt markets.

13

Constâncio (2013).

14

Schoenmakers and Gros (2012).

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However, the creation of the Single Resolution Mechanism (SRM) was decided in March 2014, with the capacity to refinance or liquidate banks into difficulties. The agreement was only possible after tough negotiations. Overall, the majority of debtor countries, including France, considered that it would be legally and politically possible to unify national resolution systems into a supranational body. The European Commission supported this interpretation of the treaties and put forward a proposal to that end in July 2013.15 The idea was to create a European resolution committee, with representatives from the Member States and the ECB, but leaving the final decision on whether to liquidate a bank to the Commission, even with national authority opposition. However, for Germany and for other creditor countries such as Finland and Holland, the creation of a SRM concealed a scheme of risk pooling which was not acceptable under the legal framework provided by the Treaty of Lisbon.16 This is because it represented the creation, in real terms, of a backdoor fiscal union17 and a premature step if European centralized fiscal control mechanisms were not previously put in place.18 These countries proposed the creation of an inter-governmental resolution council in which all members should have veto power. This option ensured that each country would be responsible for the recapitalization and liquidation of its own banks in the first place and that, should EU funds become necessary, creditor countries would be able to impose certain conditions on the countries receiving them. In parallel to the discussions on the creation of a resolution mechanism, the European Council approved the new directive on Bank Restructuration and Resolution, also known as Bail-In Directive, in late June 2013. This directive provides that resolution and deposit safeguard mechanisms shall be the same throughout the EU and that the bankruptcy of a bank shall activate an internal debt resolution process (bail-in) which will result in progressive debt write-offs for subordinated and senior debt holders, and, where appropriate, for depositors with funds over €100,000, as happened with the rescue of Cyprus in May 2013. This system ensures that European taxpayers are the last resource when it comes to financing resolution operations. The resolution of any national bank would thus firstly fall on its creditors, then on national resolution mechanisms and, only where these funds prove to be insufficient, on European funds, be it on the European Stability Mechanism (ESM) or on a new fund specifically created for this purpose, and financed by the banking sector. Under the new Directive, creditor bail-in must shoulder at least 8% of all bank liabilities, and from there onwards, national resolution authorities will have a public intervention margin of only 5% of liabilities, which must be approved by Brussels. If this was not enough, then the ESM would 15

Proposal of the European Commission on the establishing of a Single Resolution Mechanism and a Single Bank Resolution Fund (COM (2013) 520 final).

16 17

Schäuble (2013).

Pissani Ferry and Woolf (2012).

18

Barker and Ehrlich (2013).

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provide up to 80% (the country in question would provide the remaining 20%) of all funds necessary to reach the 9% level of capital required by the Basel III framework regulation. However, the ESM’s direct recapitalization powers have been limited to €60 billion. In addition, there is another fund with another €55 billion to be financed with a tax on all banks and which will be completely mutualized by 2024 (until then the fund will have ‘national’ compartments to confront ‘national’ rescues). Both the ESM’s €60 billion and the financial sector’s €55 billion seem insufficient to face the type of problems that may affect the EMU’s largest banks, whose assets reach €33 trillion, i.e., three and a half times Eurozone’s GDP.19 To date, it has not been necessary to verify whether these resources are sufficient, because the stress tests carried out by the ECB at the end of 2014 (the so-called Asset Quality Review [AQR]) did not detect excessively large holes in any of the banks under scrutiny, with the exception of some Italian institutions which are already undergoing recapitalization plans. It follows that, in principle, the ECB takes over the supervision of a system that is free of ‘toxic’ assets, in the sense that it does not inherit the type of impaired assets to which national regulators may have turned a blind eye in the past, due to political interferences. Yet the AQR could lose credibility over time if the recession and the drop in prices in the Eurozone continue to hamper recovery and to affect the solvency and viability of some banks. Should that happen, we would witness new recapitalizing needs, which should be covered, according the logic of the banking union, through national rather than European funds. Germany and the remaining creditor countries have made it clear that the resources of the ESM and (once it is created) of the fund financed by the banks will be used in the future; but that it will be for states themselves to use their own resources in order to recapitalize the banks that need it over the coming years, issuing debt if necessary. This is a risky bet, because markets may become unstable if countries like Italy do not have enough public resources to face the recapitalization needs of its own banks and if Eurosceptic parties come into power.



4 Will it be enough?

In theory, the resolution structure described so far is coherent, and it would probably be effective if the banks affected by the launch of the banking union were completely healthy. One element of the banking union which is particularly important to garner public support is the attempt to protect the taxpayer. It should not be possible in the future to repeat the experience of the Irish and the Spanish banking rescues, where private creditors bore hardly any costs, which will also benefit national taxpayers. The new European model will thus resemble the one followed in the US during the crisis, when the 19

Munchau (2014), Thomson (2013).

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Federal Deposit Insurance Corporation (FDIC) applied the bail-in rationale to liquidate around one hundred banks. There is however a difference, which lies in the word ‘federal’. If a bank in Florida fails and the FDIC does not have enough resources to cover its losses and to return their deposits to protected depositors, it is not the state of Florida which bears responsibility for the expenses, but rather the US federal government. In other words, it is the taxpayers of the federation as a whole who guarantee these deposits. On the contrary, the application of the bail-in rationale in Europe could still trigger the diabolical loop between national banks and national states, notwithstanding the participation of the ESM. As De Grauwe has pointed out,20 this dependence between states and national banks makes the bail-in rationale a very dangerous one, especially for large countries going through economic difficulties such as Spain or Italy. In this sense, and in the absence of a system of fiscal backstop at the European level, it is highly likely that the cost of financing for Spanish banks and SMEs will continue growing in the short term. It should be noted that that the US FDIC has only applied the bail-in logic in the resolution of minor banks. Whenever faced with a risk of systemic failure, the US government has systematically opted (irrespectively of its political colour) for full rescues with federal funds. The rescue of Lehman Brothers was the only exception and its effects were so devastating that it sufficed to convince the US authorities of the fact that some institutions are too big to fail. In view of the repercussions of Lehman’s rescue, the Eurozone national authorities would probably opt for the rescuing strategy if they were to face the collapse of one of their largest banks. Politicians would always choose to rescue if they had to choose between avoiding moral hazard and widespread bank panic leading to an economic depression.21 This is the reason why the Directive in question lays down certain exceptions to the bail-in rule, including the risk of systemic contagion. Yet the rescue of a systemic bank would throw doubts on the sustainability of the public accounts of the country in question. It is therefore likely that the sovereign state would lose its financing capacity, which would bring tension back to sovereign debt markets and exacerbate the Eurozone crisis. It is therefore necessary to articulate a European fiscal backstop and to provide it with unlimited capacity, so that it enjoys credibility in the markets. The only way to preserve ECB’s credibility as a supervisor is to break the diabolic loop between banks and sovereign debt and to restore the monetary policy transmission mechanism. This requires a single resolution mechanism with a common and appropriate fiscal support,22 something that is currently missing due to the resistance from creditor countries. Given the legal and democratic constraints, it will be necessary to modify the treaties and to create a fiscal union in order to move in that direction.23 20 21

De Grauwe (2013).

De Grauwe (2013).

22 23

Coeuré (2013).

Pickford et al (2014).

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5 Impact on internal markets and European treaties

The banking union is the most significant development on the road to European integration since the creation of the Euro in 1999. As such, it entails important challenges in terms of adjusting and adapting legislation. These challenges are twofold: some affect the internal market and some have an impact on the Treaties. The analysis of the impact of the banking union on the internal market can itself be divided in two parts. On one hand, the banking union tries to preserve the internal market and to protect it from the threats that the euro crisis represents for its good functioning,24 as has been explained. A situation that was unsustainable, as explained above, although it is not clear whether in its current form the banking union will be capable of reintegrating European financial markets. Yet, paradoxically, the creation of the banking union has raised a new challenge for the internal market: the increasing divergence, integration-wise, between Euro-countries and EU countries that have not adopted the single currency. This increasing divergence may be an important challenge for the internal market because two different jurisdictions will be created with different banking rules in the EU. We will now analyze this in greater detail. The banking union is open to all EU members, irrespectively of whether they have adopted the Euro or not. However, the reaction to the creation of the Euro of non-EMU countries has been of two kinds. On one hand there are the countries which do not belong to the euro today but are expected to join the single currency in the future, known as pre-ins. There are all non-EMU countries except those which have signed opt-out clauses (namely, UK and Denmark) and those which decided not to comply with the Maastricht conversion criteria and, hence, to stay out of the EMU without an opt-out clause (namely, Sweden). The most influential and significant amongst the pre-ins is Poland. In their case, the banking union should not affect the functioning of the internal market. On the contrary, given that it is in their interest to join the Euro as soon as possible, Poland may actually take action to accelerate the process of convergence. This may include the adoption of reforms to ensure the good functioning of the internal market as well as greater integration in the field of services, which is where the internal market is lagging behind. The real problem lies with the countries that have opted out from the Euro and from the banking union and, more specifically, with the UK. This is because the UK is home to the largest financial hub in Europe but also because it is reconsidering its EU membership, precisely as a result of the Euro-crisis and of the process of banking union. As the banking union unfolds, financial 24

‘The breaking down of this mechanism [it refers to the financial integration of the interbanking market that took place since the creation of the euro in 1999 until 2010] implies that the Single Market is impaired in fulfilling its key function, that of recycling savings from countries in surplus to countries in déficits’ Enria (2013) 53.

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regulation in the City and in the EMU will diverge. The European model of financial regulation is much more interventionist than its British counterpart, which is why the process of divergence could threaten the good functioning of the internal market and its management. The Commission’s role in that respect will be crucial. This is particularly true with regard to its internal market and competition services, which will have to confront the problems that may arise in the upcoming years. The EBA will also play an important role in trying to minimize regulatory divergence in the banking sector between London and the rest. Its main weapon will be the Single Rulebook, which has been approved by all EU countries and which lays down a common regulatory framework for all EU countries. The national authorities of countries outside the banking union must not use their margin for maneuver to break-up the internal market. When it comes to the impact of the banking union on the treaties, it must be pointed out that the steps taken so far (single supervisor and common resolution fund) have been carried out through regulations and directives, that is, without modifying the treaties. However, the architectural reforms that are necessary for the Euro to work properly (which include a common deposit guarantee scheme and a fiscal union financed through Eurobonds), would require some treaty modifications.25 Furthermore, it would be apposite to incorporate to EU law many of the intergovernmental agreements reached throughout the Euro-crisis (such as the creation of the ESM or the fiscal pact). This raises an important challenge because the current political situation in Europe, characterized by increasing Euroscepticism and the rise of Eurocritic and Europhobic political parties, is not the best to negotiate a new treaty or to hold a referendum in those countries which require one as a precondition to ratify a reform of the treaties. The situation becomes even more complicated if we consider hat the UK may hold a referendum, at some point during 20152016, on the possibility to leave the EU, which would force a renegotiation of the treaties if the UK decided to stay in the EU but on the condition of regaining some of the powers currently held by the Union. In this context, it is quite possible that central continental European countries would do everything in their power to prevent the possibility of a treaty reform from being placed in the political agenda. It is therefore unlikely that we will witness a reform of the treaty in the upcoming years although, once the European economy starts to thrive, the political situation becomes stable and European citizens regain some confidence in the EU, European leaders may seek to adapt the regulatory framework in order to advance towards the banking and fiscal union. The aim shall be to build a Real European Economic and Monetary Union, capable of surviving in the long run and of preserving a well-functioning internal market. Lastly, the euro crisis – and the creation of a banking union as a response to it – calls for a reflection on the EU principle of subsidiarity. This principle, which is enshrined in Article 5 TEU and which underscores the need for administrative decentralization within in the EU in the areas of shared competence (so 25

Pickford et al. (2014).

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that that decisions are taken as closely as possible to citizens), has not proven to be useful to regulate the financial system. As a matter of fact, the lack of a common bank supervisor at the supranational level partially explains the European financial and banking crisis. The connivance between national regulators and national banks thwarted the possibility to tackle the EU banking problem in time, which is why the cost of solving the crisis ended up being much higher than it would have been if a centralized response had been articulated from the very beginning (and with less political interference). The upshot is that the principle of subsidiarity is not appropriate in the field of banking regulation and supervision and that it is preferable to exercise these powers at the supranational level. Any other solution would probably increase the risk of another banking crisis erupting in the future.



6 Conclusion

This chapter has argued that the banking union is necessary to ensure the correct functioning of the monetary union, the single market and the very survival of the Euro. The chapter has traced the different measures adopted to that end, underlining the power struggles between creditor and debtor countries, as well as the need to centralize banking supervision and resolution at the EU level. This shows that in some areas the application of the principle of subsidiarity is not efficient. The chapter has also argued that it is important that the Commission and the ECB take a more federal-type stance in the future, so as to protect the Union’s interests. In order to do this, they will have to confront creditor countries and most notably Germany, which has done everything it could to minimize the funds that were used to create the fiscal cushion that the banking union demands. Finally, the chapter has explained that, in the long term, it will be necessary to reform the treaties in order to allow the completion of the banking union with a common deposit guarantee scheme and to introduce solidarity elements leading to a real fiscal union. They are both necessary to ensure the sustainability of the Euro, yet they cannot fit the legislative framework of the EU that is currently in force.

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Bibliography F. Allen et al. (eds.), Political, fiscal and banking union in the Eurozone? (Philadelphia: FIC Press, 2013). B. Coeuré, “The Single Resolution Mechanism: Why it is needed” Speech to the ICMA Annual General Meeting and Conference (Copenhagen, 23 May 2013). V. Constâncio, “Establishment of the Single Supervisory Mechanism: the first pillar of the Banking Union” 11th Annual European Financial Services Conference (Brussels, 31 January 2013). P. De Grauwe, “Fighting the wrong enemy” (2010) VoxEu. P. De Grauwe, “The New Bail-in Doctrine: A recipe for banking crisis and depression in the Eurozone”, (4 April 2013) CEPS Commentary. R. Dehousse and G. Majone, “The institutional dynamics of European integration”, in S. Martin (ed.), The Construction of Europe (Dordrecht: Kluwer Academic Publishers, 1994). M. Draghi, “Rationale and principles for Financial Union”, 22nd Frankfurt European Banking Congress (Frankfurt, 23 November 2012). S. Dullien, “Why the Euro crisis threatens the European single market” (2012) ECFR policy memo. A. Enria, “Establishing the Banking Union and repairing the Single Market”, in F. Allen et al. (eds.), Political, fiscal and banking union in the Eurozone? (Philadelphia: FIC Press, 2013). E.B. Haas, The Uniting of Europe. Political, Social and Economical Forces 1950-1957 (London: Stevens and Sons, 1958). R. Herring, “The danger of building a banking union on a one-legged stool”, in F. Allen et al. (eds.), Political, fiscal and banking union in the Eurozone? (Philadelphia: FIC Press, 2013). D. Howarth, and L. Quaglia, “Banking Union as Holy Grail: Rebuilding the Single Market in Financial Services, Stabilizing Europe’s Banks and ‘Completing’ Economic and Monetary Union” (2013) 51 Journal of Common Market Studies, 103-23. P. Krugman, “Revenge of the Optimum Currency Area”, in D. Acemoglu, J. Parker and M. Woodford (eds.), NBER Macroeconomics Annual 2012, 27 (Chicago: University of Chicago Press, 2013). L.N. Lindberg, “Political Integration as a Multidimensional Phenomenon Requiring Multivariate Measurement” (1970) 24 (4) International Organization. A. Moravcsik, “Europe After the Crisis. How to Sustain a Common Currency” (May/June 2012) Foreign Affairs. A. Moravcsik, The Choice for Europe: Social Purpose and State Power from Messina to Maastricht (Ithaca: Cornell University Press, 1998). W. Munchau, “Europe should say no to a flawed banking union” (16 March 2014) Financial Times. S. Pickford, F. Steinberg and M. Otero-Iglesias, “How to fix the euro: Strengthening Economic Governance in Europe” (2014) A joint Chatham House, Elcano and AREL Report. J. Pissani Ferry and G. Wolff, “The Fiscal Implications of a Banking Union” (2012) Bruegel Policy Brief No. 2012/2. W. Schauble, “Banking union should be built on firm foundations” (12 May 2013) Financial Times.

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K. Schoenmakersand and D. Gros, “A European Deposit Insurance and Resolution Fund: An Update” (2012) DSF Policy Paper Series No. 26. E. Spolaore, “What Is European Integration Really About? A Political Guide for Economists” (2013) 27(3) Journal of Economic Perspectives, 125–44. H. Thompson, The crisis of the euro: The problem of German Power Revisited (2013) SPERI Paper No.8. G. Underhill, “The political economy of (eventual) banking union”, in T. Beck (ed.), Banking Union for Europe: Risks and Challenges (London: Centre for Economic and Policy Research, 2012). N. Vernon, “A Realistic Bridge towards European Banking Union” (2013) Bruegel Policy Brief No. 2013/09.

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The Administration for the Enforcement of European Competition Law Julia Ortega Bernardo

chapter 6



the administration for the enforcement of european competition law

1 Introduction

EU competition law aims above all to protect the public interest. It conceives free competition as a goal that transcends private interests, directly affecting the structures and the functioning of the European internal market, along with the economic activities of all its operators.1 This is why administrative authorities –instead of judicial bodies– have primary responsibility for prosecuting and sanctioning anti-competitive practices.2 Competition rules underwent a major transformation ten years ago. A centralised Administration model was replaced by a decentralised one,3 conferring powers both on the European Union (EU) and the Member States (MS) for the full implementation of Articles 101 and 102 TFEU (former Articles 81 and 82 EC). Council Regulation (EC) No. 1/2003, 4 along with an accompanying package of measures,5 extended the powers vested in national authorities (National Competition Authorities, hereinafter NCAs). This is a change with regard to the first Regulation implementing Articles 81 and 82 of the Treaty (Regulation 17/62), which gave the Commission sole authority to enforce and establish exceptions to such provisions on the basis of Article 81(3) EC. This two-tier and decentralised implementation of EU competition law by NCAs, as well as the direct applicability of the exceptions laid down in Article 81(3) EC (current Article 101(3) TFEU) without any prior administrative authorisation, show the maturity of the system6 and a highly developed culture of free competition within the EU. The system has also evolved considerably in terms of rationality.7The most significant changes in this regard are: i) the possibility for undertakings to assess for themselves whether their restrictive agreements may be nonetheless 1

Signes de Mesa, Fernández Torres and Fuentes Naharro (2013) 291.

2

Note that the enforcement of competition law may result in the imposition of sanctions to private as well as public actors. On the latter, see Costas Comesaña and Hortala I Vallve (2013) and – with a specific focus on local authorities – Ortega Bernardo (2014).

3

Fuchs (2005) 77-118; Di Federico (2011) 241-242.

4

Council Regulation (EC) No. 1/2003 of 16 December 2002 on the implementation of the rules on competition laid down in Articles 81 and 82 of the Treaty (OJ L, 4.1.2003, p. 43)

5

Regulation No. 773/2004 relating to the conduct of proceedings by the Commission, pursuant to Arts 81 and 82 of the EC Treaty (OJ L 123, 24.04.2004, p. 18); Commission Notice on the handling of complaints by the Commission under Arts 81 and 82 of the EC Treaty (OJ C 101, 27.04.2004, p. 65); Commission Notice on the cooperation between the Commission and the courts of the EU MS in the application of Arts 81 and 82 EC (OJ C 101, 27.4.2004, p. 54), Commission Notice on cooperation within the Network of Competition Authorities (OJ C101/43, 27.4.2004, p.43) (ECN Notice); Communication from the Commission - Guidelines on the application of Article 81(3) of the Treaty (OJ No C 101, 27.4.2004) and Commission Notice on the Guidelines on the effects of trade concept contained in Articles 81 and 82 of the Treaty (OJ C 101, 24.4.2004).

6 7

Bulzomi (2008) 79.

Gerard (2011).

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lawful under Article 101(3), i.e. if they do not cause disproportionate damage and entail general benefits; ii) the increase in the amounts of the penalties within the framework of the Commission Guidelines;8 and iii) the establishment of processes for the negotiation and adoption of agreements on infringement procedures by accepting commitments and introducing leniency programs.9 Although this has widened the Commission’s margin of discretion, it has exercised its power mainly through Communications and Guidelines, which by themselves lack effectiveness as control rules.10 All these elements call for an effective enforcement of competition rules that, at the same time, guarantees the rights and legitimate interests of the parties concerned, who must be given adequate protection by the courts.11 This is the reason underlying the new Directive on antitrust damages actions.12 In light of the above, the next pages will address and analyse the features of this type of administration and its main inconveniences and problems, as well as the possible solutions set forth by the law and/or proposed by the specialised literature on the issue. For this purpose, two major blocks are considered: on the one hand (2), the general outline of the system setting up a decentralised administration structure for the enforcement of competition law, with different levels of organisational structures and interconnection procedures in order to assume competences; on the other (3), the main organisational, procedural and substantive mechanisms available to ensure its functioning and prevent the risks derived from this type of decentralised administration. Attention will also be drawn (4) to the need to intensify judicial control of the decisions made in this area. From an empirical approach, it has been consistently argued that this administrative system for the enforcement of competition law is working satis8

Commission Guidelines on the method of setting fines imposed pursuant to Article 23(2)(a) of Regulation (EC) No 1/2003 (OJ C 210, 1.9.2006, p. 1).

9

See infra note 74.

10

Hoffman (2006) 155. In this sense, see Joined Cases C-189, 202, 205, 208 & 213/02 P Dansk Rørindustri and others v. Comission [2005] ECR I-5425, para 209: The Court has already held, in a judgment concerning internal measures adopted by the administration, that although those measures may not be regarded as rules of law which the administration is always bound to observe, they nevertheless constitute rules of practice from which the administration may not depart in an individual case without giving reasons that are compatible with the principle of equal treatment. Such measures therefore constitute a general act and the officials and other staff concerned may invoke their illegality in support of an action against the individual measures taken on the basis of the measures (see Case C-171/00 P Libéros v Commission [2002] ECR I-451, para. 35).

11

Gerard (2011).

12

Directive 2014/104/EU of the European Parliament and of the Council, of 26 November 2014, on certain rules governing actions for damages under national law for infringements of the competition law provisions of the MS and of the European Union (OJ L 349, 5.12.2014, p. 1). Member States shall bring into force the laws, regulations and administrative provisions necessary to comply with this Directive by 27 December 2016.

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factorily and effectively, although a greater degree of effectiveness13 and judicial control14 could be achieved. The main issues that, in our opinion, underlie the configuration of the European competition system should also be taken into account, i.e.: to what extent decentralisation informs the allocation of powers between EU institutions and MS and whether it allows for a balanced and appropriate exercise of such powers; whether individual legal protection has been effectively reinforced and, last but not least, whether the discretionary powers assumed by such administration regarding individuals are sufficiently harnessed by judicial control.



2 General outline of the system setting up the administration structure for the enforcement of European competition law

The European administration model for the enforcement of competition law is mainly decentralized, providing for two levels of administration. The European Commission has traditionally been the competition enforcement authority. However, since May 2004 there is a second level where the national authorities exercise some powers. These authorities must apply the same substantive standards (Articles 101 and 102 TFEU) in order to ensure compliance with Council Regulation (EC) No. 1/2003. It should be borne in mind that the decentralisation process has developed differently. Council Regulation (EC) No. 139/2004 of 20 January 2004 on the control of concentrations between undertakings, developed by Commission Regulation (EC) No. 802/2004 of 7 April 2004, still provides for an exclusively centralised enforcement of merger controls. The Commission is the sole competent authority to enforce these rules on concentrations having a Community dimension –defined according to turnover thresholds.15 The allocation of powers between the Commission and the MS concerning merger control is organised through a “one stop shop” system. The Commission has exclusive competence on mergers having a Community dimension, but there are certain referral mechanisms between MS authorities and the Commission which could result in the Commission authorising mergers with a merely national dimension.



2.1 Reasons underlying the evolution towards a “decentralised model”

Antitrust powers are transferred to MS with the purpose of both easing the Commission’s workload (although it retains the most important cases or those with community interest for the development of EU competition 13

Alfaro Águila-Real (2009) 4.

14 15

Gerard (2011).

See Articles 1.2 and 1.3 of Regulation No 139/2004.

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policy), and enforcing effectively the competition rules. Both reasons are closely related. Effective enforcement of EU competition law was at risk at one point due to a backlog of cases arising from the EU enlargement. The enforcement deficit also responded to the Commission’s inability to build and display an extensive public power, as it lacked material and human resources to enforce European competition law to its full extent. Decentralisation appeared as a key option after such mitigating measures like the exemptions provided in so-called agreements of minor importance (de minimis)16 proved to be insufficient. This way there are more competition authorities investigating, sanctioning and preventing infringements of Articles 101 and 102 TFEU. The European Commission can thus devote to the most distorting anti-competitive practices.17 Anyhow, it must also be taken into consideration that this reform occurs in a context where policies and their implementation are deeply changing towards a network governance system,18 integrating different levels of administration. Under the newly implemented model, the most significant change –along with the decentralised enforcement of competition rules– is that undertakings are no longer required to notify their market agreements to the Commission. The latter, as the sole competent authority, would assess and authorise the agreements if it considered them consistent with Articles 101(3) TFEU (former Article 81(3) EC). With the entry into force of Council Regulation (EC) No. 1/2003 on 1 May 2004, that requirement is removed, moving towards a “directly applicable exception system”. The Commission and the national authorities are no longer bound to decide on the authorisation of restrictive agreements which nevertheless comply with Article 101(3) of the TFEU. The undertakings involved are now responsible for that assessment without the need to seek an administrative authorisation. This has been considered a great step towards decentralising the enforcement of European competition law. It also fosters private enforcement,19 given that the courts too could decide whether a potentially restrictive agreement is valid and effective without a prior evaluation of the Commission.20 Some authors view favourably the elimination of the Commission’s authorisation powers.21 They argue that, since 1962 until its removal, only nine of the hundreds of agreements notified to the Commission were eventually forbidden. This shows that only the agreements that posed no problems were notified. Another argument against the authorisation powers is based on the confidential and –in most cases– unreasoned nature of the comfort letters sent by the Commission. Moreover, the Court of Justice did not follow a coherent line regarding the enforcement of former Article 81(3) EC (current Article 101(3) 16 17

Guillén Caramés (2011) 37.

Gippini Fournier (2008) 6.

18

See Cengiz (2009).

19

Bulzomi (2008) 103.

20

Communication from the Commission - Guidelines on the application of Article 81(3) of the Treaty (OJ C 101, 27.4.2004).

21

Ortiz Blanco and Jiménez (2004).

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TFEU.22 However, it should be recalled that Article 101(3) TFEU has a limited scope; it only applies to the agreements that do not fall within the block exemption Regulations.



2.2 Model of concurrent and complementary exercise of powers according to flexible allocation rules

The allocation of powers between the Commission (Article 105 TFEU) and the MS is only possible within the context of the enforcement of EU law. EU law applies to agreements or practices affecting trade between MS. The European case law has set out certain criteria determining when such agreements and practices “may affect trade between MS”. Currently, according to the Commission Notice on the Guidelines on the effects of trade concept contained in Articles 81 and 82 of the Treaty, the following conditions must be met: i) it must be possible to foresee such effect on trade with a sufficient degree of probability; ii) the agreement or practice must have a an influence, direct or indirect, actual or potential, on exchanges and iii) they must hinder the objective of a single market. The criteria for the allocation of powers regarding the enforcement of competition law are flexible, which allows adapting to substantive issues. The Commission is competent (Council Regulation 1/2003) in three cases: if it affects more than three MS, if it has an impact at EU level, or on a Commission’s decision (recovery clause) but with the participation of the European Competition Network (ECN). This clause implies a (discretional) call-back power in the hands of the Commission according to Article 11(6) of Regulation 1/2003.23 The Commission notice on best practices for the conduct of proceedings concerning Articles 101 and 102 TFEU of 20 October 2011, specifies the Commission’s activities, the time limits and the rights of the parties in the procedures. In practical terms, re-allocation rates have been very low, around 1% of cases, but it does not mean that there will not be more in the future.24 Regarding the allocation rules between MS, the “best placed authority” criterion (paragraph 8 ECN Notice) sets forth three cumulative conditions: the practice must have effects on competition within its territory, the authority must be able to bring an end to the infringement and sanction it, the authority must be able to gather the evidence required to prove the infringement. Only one authority will handle the case when its action is enough to effectively bring the infringement to an end. Otherwise, the “best placed authority” criterion requires two authorities to take action in parallel. In this last case, the NCAs may designate one of them as coordinator, although each authority is accountable for the development of its own procedure. Before adopting the decision to bring the proceedings to an end (in certain situations: disciplinary proceedings, 22 23

Ibid.

Guillén Caramés (2011) 29.

24

At the time of writing Givaja (2007) 13-38.

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proceedings accepting commitments or withdrawing the benefit of a block exemption Regulation), the national authority must inform the Commission 30 days in advance.25 This model for the allocation of powers makes it possible to minimise the number of authorities handling an investigation.26 In any case, since this is a concurrent exercise of powers, the principle of (relative) freedom of action applies. National authorities are in principle absolutely free to investigate a case or not. If a case is already being handled, the NCAs “may” suspend or terminate proceedings or reject the complaint. Article 13 and Recital 18 of Council Regulation (EC) No. 1/2003 show the wide margin for appreciation granted to national authorities within the ECN in order to ensure that cases are dealt with by the most appropriate authorities. According to Article 7 of Council Regulation (EC) No. 1/2003, the Commission may initiate proceedings acting on a complaint or on its own initiative. According to the Commission notice on best practices for the conduct of proceedings concerning Articles 101 and 102 TFEU, the Commission focuses its resources on cases with the most significant impact on the functioning of competition in the internal market and risk of consumer harm, as well as on those likely to contribute to defining EU competition policy and/or to ensuring the coherent application of Articles 101 and/or 102 TFEU. If the Commission decides to act, it shall inform the NCAs and consult with those already acting, which shall provide the Commission with the documents gathered to that date, as set in Article 11(6) of the Council Regulation (EC) No. 1/2003. The General Court of the European Union has declared that the Commission and NCAs can work in parallel at least through the first stages of the procedure and in the investigations.27 If the Commission decides to act, it shall replace the national authority if the latter was already dealing with the case, and not vice versa. Paragraph 6 of Article 11 of the Council Regulation (EC) No. 1/2003 provides that once the Commission has initiated proceedings, national authorities cannot initiate their own proceedings for the enforcement of Articles 101 and 102 regarding the same agreement or practice of the same company and for the same relevant geographic and product market. The Court of Justice stated that: “Article 11(6) of Regulation No 1/2003 essentially maintains the rule in Article 9(3) of Council Regulation No 17 of 6 February 1962, First Regulation implementing Articles [81] and [82] of the Treaty, that the competition authorities of the MS are automatically relieved of their competence where the Commission initi25

Since May 2004, the Commission has looked into potentially anti-competitive practices in virtually every economic sector, adopting over 120 decisions. NCAs, on their part, have investigated over 1.600 cases in the same period, giving rise to more than 600 enforcement decisions – Report on Competition Policy 2013, from the Commission to the European Parliament, the Council, The European Economic and Social Committee and the Committee of the Regions (COM(2014) 249 final).

26 27

Cengiz (2009) 11.

Case T-340/04 France Télécom [2007] ECR II-575, para. 86 and 123.

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ates its own proceedings (see in that connection the 17th recital in the preamble to Regulation No 1/2003).”28 The substitution of NCAs by the Commission has certain temporal and substantive limits put in place by the Commission itself. During the initial assignment period –a two month term–, the Commission can, after mere consultation, initiate proceedings with the effects provided in Article 11(6) of Council Regulation (EC) No. 1/2003. After this, the Commission may only call back the proceedings if the national authority does not oppose it or in the cases provided in paragraph 54 of the ECN Notice. Therefore, before opening a procedure, the Commission must verify if one or more national authorities are examining the same case. This verification is facilitated by the national authorities’ obligation to inform under Article 11(3) of Council Regulation (EC) No. 1/2003. 29 Should the Commission not share the same appreciation on the application of Articles 101 and 102 of the TFEU laid by the NCA in its draft recommendation, or should it have any doubts thereof, it is not necessarily obliged to initiate proceedings under Article 11(6) of Council Regulation (EC) No. 1/2003. The Commission is not obliged to intervene,30 but it may do so. It can even start another investigation, even if it has not made use of the possibility provided in Article 11(6) of Council Regulation (EC) No. 1/2003 upon the notification of a draft decision by a NCA in a similar case. This line of argument, which was also laid down in the Orange case,31 is related to settled case law according to which the Commission, responsible under Article 105(1) TFEU for the enforcement of the principles set in Articles 101 and 102 TFEU, is responsible for the definition and implementation of EU competition policy. With the aim of efficiently fulfilling this task, the Commission has a discretionary power to set priorities in the handling of complaints. The Court considers that this is also the case for the application of Article 11(6) of Council Regulation (EC) No. 1/2003. Regarding the remaining NCAs, there are no information duties between them; such possibility is merely provided for. As established in paragraph 18 of the ECN Notice, re-allocation issues should be resolved swiftly, normally within a period of two months, starting from the date of the first information sent to the network. What is intended is that NCAs make an effort to reach an agreement on the authority or authorities competent to handle the case. In recent years, no specific problems have arisen for the allocation and reallocation of cases between the Commission and the NCAs or between the latter. 28

Case C-53/03 Syfait and others v GlaxoSmithKline [2005] ECR I-4638, para. 34.

29

The number of new case investigations initiated by NCAs and communicated to the network is considerable, well over one hundred new cases every year. Overall, at the time of writing, the MS which have communicated the most new cases to the network were France, Germany, The Netherlands, Hungary, Denmark, and the United Kingdom, in this order. Gippini Fournier (2008) 73.

30 31

Case T-402/13 Orange v. Commission [2014] n.y.r., para. 36

Ibid., para. 30.

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The assumption of powers by a national authority or the Commission and the reallocation of powers do not constitute a decision as per Article 288 TFEU, and therefore cannot be subject to judicial control.32 The initiation of proceedings by the Commission –for which it enjoys wide discretion– cannot be controlled under Article 263 TFEU either.33 Criticism has been levelled at this, and it has been considered to adversely affect the right to an effective legal remedy enshrined in Article 47 of the European Charter of Fundamental Rights.34 This scheme of parallel exercise of powers has nothing to do with the exclusive exercise of powers provided in Council Regulation (EC) No 139/2004 with regard to merger control.35



2.3 Simultaneous application of European and national competition law

The application of European competition law does not exclude the application of national competition law (Article 3 of Council Regulation (EC) No. 1/2003). It has been accepted from the outset that undertakings must observe the principles of free competition and comply with the prohibitions set out in European and national law. This is the so-called “double barrier” theory, which was first spelled out in Wilhelm case36 and then confirmed in later cases.37 This theory is based on the premise that EU law and national law consider restrictive practices from different points of view.38 According to the double barrier theory, a business practice must comply with both European and national law in order to be admissible. This double enforcement of different legal systems regulating infringements of competition law cannot be affected by the ne bis in idem principle specifically enshrined in Article 50 of the European Charter of Fundamental Rights, although relating to criminal charges and sanctions. Such derogation of the cited principle in 32 33

Di Federico (2011) 249.

Ibid. See Notice on cooperation within the Network of Competition Authorities (OJ C101, 27.04.2004, p. 43) (the “Network Notice”), para. 31: The allocation of cases therefore does not create individual rights for the companies involved in or affected by an infringement to have the case dealt with by a particular authority.

34 35

Andreangeli (2006) 350.

See, for further developments on the difference between merger referrals and case allocation within the ECN, Brammer (2005).

36 37

Case 14/68 Wilhelm and others v Bundeskartellamt [1969] ECR 1.

Case 253/78 Procureur de la République v Bruno Giry and Guerlain SA and others [1980] ECR 232; Case C-137/00 Milk Marque and National Farmers’ Union [2003] ECR I-7975, para. 61; Joined Cases C-295 to 298/04 Manfredi and others [2006] ECR I-6619, paragraph 38.

38

 Wilhelm, cited above, para. 3; Manfredi, cited above, para. 38,; and Case C-550/07 P Akzo Nobel Chemicals and Akcros Chemicals v Commission [2010] ECR I-8301, para. 103. Their scope is not the same: Case C-505/07 Compañía Española de Comercialización de Aceite [2009] ECR I-8963, para. 52.

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European competition law is justified because these rules address legal persons and do not provide for criminal sanctions. However, although it follows from the above case law that the ne bis in idem principle is not applied, all decisions should be fair. Therefore, in order to prevent a violation of the principle of natural justice, the second sanction to be imposed must take into account the previous one.39 The fact that there are two different legal systems leads to that conclusion, even if national markets and the European internal market are clearly interrelated. This solution does not avoid the coexistence of two investigation procedures and two administrative resolutions, and it is justified because the legal basis of the sanctions will not be identical, although the legal and economic circumstances are. 40 In any case, and in line with the principle of primacy of EU law, national law can be applied only in so far as it does not prejudice the uniform application of the European competition rules throughout the single market. This is also the purpose of the rule set out in Article 3(2) of Council Regulation (EC) No. 1/2003, 41 although its application is always permitted when it aims at protecting other legitimate interests other than market competition under Article 8 of Council Regulation (EC) No. 1/2003, e.g. unfair competition. Furthermore, it must be taken into account that MS national legal systems often lay down convergence rules, expressly stating that national competition law will be enforced in accordance with European law. 42 National legal systems are becoming ever more similar to European competition law. 43 The latter gives MS leeway to regulate their sanction procedures and the exercise of the rights of defence of the parties concerned, but certain convergence is still required. This is particularly true in relation to protection parameters with regard to the gathering of information, i.e. the exercise of inspection powers (Article 12(3) of Council Regulation (EC) No. 1/2003; on this question see section 3.2.1; on the legal regime applicable to actions for damages, see section 3.1.3.

39

Case 14/68 Wilhelm and others v Bundeskartellamt [1969] ECR 1.

40

Di Federico (2011) 256. An important justification for this arrangement is that it should preclude a party to a proceeding from claiming that the relevant competition authority has used the wrong legal basis for its actions (Gerber and Cassinis (2006)).

41

Article 3.2 of Regulation 1/2003 provides a ‘convergence rule’ which requires that NCAs and national judges may not issue a prohibition decision – with reference to bilateral agreements – on the basis of national competition law that is more restrictive than would be required in applying European Competition Law.

42

Gerber and Cassinis (2006) 13 give as an example Italian Law and British law and in other MS such as France, the NCAs often make reference to Community competition principles and case law when applying their domestic rules.

43

Gerber and Cassinis (2006), 14. Despite this convergence, there remain significant differences.

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3 Organisational, procedural and substantive mechanisms to counterbalance decentralisation

Several mechanisms have been set up to compensate the possible consequences of differential, non-unified or even inconsistent 44 application, whether voluntary or involuntary, that could actually result from a decentralised administration with multiple competent authorities for the interpretation and enforcement of competition law. These mechanisms try to ensure a consistent, effective and foreseeable, enforcement of European competition regulations, considering that the applicable (national) rules on administrative sanction procedures have not been harmonised yet. 45



3.1 Organisational instruments



3.1.1 The implementation of a Verwaltungsverbund – Administrative European Union46 with the establishment of a network.

The European Union has set up a European Public Administration model put forward by Council Regulation (EC) No. 1/2003 through the European Competition Network (ECN), integrated by the European Commission (Article 105 TFEU) and the NCAs. Detailed regulation on this network can be found in the Commission Notice on cooperation within the Network of Competition Authorities 2004. 47 It creates a discussion and cooperation forum for the application and enforcement of competition policy. Although the ECN does not adopt decisions with ad extra effects, it plays an essential role. It is based on the need to make possible the communication between different levels of administrative authorities, as well as to achieve effectiveness, coherency and consistency in the application of European competition law. 48 This network allows for an exchange of information and opinions in order to ensure greater effectiveness in the enforcement of European competition law. The challenge of a decentralised enforcement of competition law is addressed through various administrative union techniques (apart from the direct and indirect enforcement of European competition law). The idea is to keep the other MS constantly informed of the ongoing administrative procedures, and to enable 44

Critical to the success of this project is the capacity of the new system to achieve an acceptable degree of consistency in the application of Community competition law: Gerber and Cassinis (2006) 10.

45

After the inception of the ECN, the process of voluntary harmonization of national procedural rules under the Community model has been accelerated. Cengiz (2009) 19.

46 47

On this concept, see Velasco Caballero and Schneider (2008) 33-4.

Commission Notice on cooperation within the Network of Competition Authorities (OJ C 101, 27.04.2004, p. 43-53).

48

Cengiz (2009) 4 and Gippini Fournier (2008) reveal that sceptical academic predictions regarding the functioning of this network have in general not been realized.

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consultations with the Commission, and between the Commission and the MS, on the decisions envisaged thereto (horizontal and vertical relations). According to Cengiz, 49 the network is created due to the Commission’s dependence on the cooperation between authorities in order to effectively enforce European competition law.50 A decentralised model is thus implemented with strong cooperative elements.51 Its functioning is governed by the principle of cooperation (Articles 11 and 12 of Council Regulation (EC) No. 1/2003), which translates into a duty of mutual information and collaboration articulated through different types of procedural interconnection.52 The network regulation does not contemplate any dispute settlement mechanisms. It should be noted that the Advisory Committee, where both the Commission and the NCAs are represented, is the only forum within the network where debates take place. Even so, the ECN is a peculiar network, as it has a hierarchical structure, which works through certain cooperation mechanisms, some voluntary and other compulsory, with an operational strategy based on consensus.53 In many cases it actually works through informal conversations54 with the Commission playing the leading role.55 It is also formed by NCAs with different positions and experience. Some come from MS with a long history and experience in enforcing competition law, closely related to the Commission and participating at the European decision-making level. Others come from countries that joined the EU more recently, where the enforcement of European competition law is totally new. That is why there are references to multiple speeds within the network, due to the different positions, experience and political weight of the MS.56



3.1.2 Requirements regarding the organizational structure of NCAs

NCAs organisational structures have evolved towards greater autonomy and effectiveness although Council Regulation (EC) No. 1/2003 does 49 50

Cengiz (2009) 8.

Recital 15 of Council Regulation (EC) No. 1/2003 and the Notice on cooperation within the Network of Competition Authorities (OJ C101, 27.04.2004, p. 43).

51

Schneider (2005) 146.

52 53

For the comparison of this network with the communications network see De Visser (2009).

Cengiz (2009) 12.

54

On the opinion of Cengiz (2009) this informality renders the network extremely opaque and it becomes difficult to observe the relative roles played by the members and their contributions to the investigation and the final decisions.

55

Cengiz (2009): It was uncertain whether the NCAs would build that kind of trust and solidarity in their relations with the Commission, and whether in particular the well-established NCAs would agree to play a subordinate role to that of the Commission in the enforcement and design of EC competition policy.

56

Gippini Fournier (2008) 177.

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not expressly provide for any requirement. The Council Regulation granted MS freedom to set their own procedures and sanctions when enforcing EU competition rules in their territory. Together with a general obligation for MS to ensure such enforcement, especially by means of the principles of effectiveness and equivalence, EU legislation does not regulate nor harmonise these issues. EU law leaves MS a high degree of flexibility in the design of their competition law enforcement procedures. An exception is provided in Article 35 of Council Regulation (EC) No. 1/2003. It requires, in general terms, that all powers necessary to comply with the purposes of an effective enforcement of European law shall be granted (by lawmakers, it is assumed). According to this provision, and the related European case law, national legislation cannot deprive competition authorities of their power to defend their interests and invoke their legal powers before national courts.57 Therefore, and due to the lack of explicit EU law requirements concerning NCAs, Article 35 is most significant. According to it, MS can be required (even if it is indirectly) to confer NCAs the structure, status and resources necessary to ensure an effective performance of their duties. Hence, the principle of effective compliance of EU law leads to a loss of institutional autonomy for MS.58 As a matter of fact, some countries benefitting from the financial-assistance programme (the so-called “Programme countries”) within the framework of the Memorandum of Understanding of Specific Economic Policy Conditionality (MoU), or following certain specific recommendations in the context of the European Semester,59 have been obliged to grant their NCAs sufficient resources. At present, two models can be distinguished among the NCAs. The most common one60 is the administrative model, where an administrative authority investigates and takes decisions subject to judicial control, with variations in the internal structures of the authorities (the main difference here would be that some have separated the investigative and the decision-making stages, and others have not). Along with this, a small number of MS operate a judicial model, where an administrative authority handles the investigation and brings the cases before a court, responsible for the decision.61 57

Case C-439/08 Vebic [2010] ECR I-2471.

58

Becker (2007).

59

Communication from the Commission to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions, 2014 European Semester: Countryspecific recommendations (COM (2014) 400 final).

60

This is the case for Belgium, Bulgaria, Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Italy, Lithuania, Latvia, Luxembourg, Malta, the Netherlands, Poland Portugal, Romania, Slovakia, Slovenia, Spain, Sweden, the United Kingdom and the European Commission. See ECN Decision-Making Powers Report, see the Internet (http://ec.europa.eu/competition/ecn/ documents.html). See also ECN Brief, Special Issue, A look inside the ECN: its members and its work, December 2010, see thttp://ec.europa.eu/competition/ecn/brief/05_2010/brief_special.pdf.

61

Austria and Ireland.

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The European Commission has recently listed62 the feature requirements for NCAs and the main guidelines governing their activities, and has assessed them across the MS. A number of conclusions have been drawn from such analysis. Regarding the exercise of their duties, they enjoy a certain degree of independence. In many MS, the NCAs are set as public legal entities. Most of them are not subject to supervision or instructions from other State bodies, save for concentrations.63 Even when they are subject to ministerial or parliamentary supervision, it is more a question of general guidelines, or the requirement to carry out studies or analyses on competition issues, but without interfering in the investigation or decision on individual cases. In terms of accountability, almost all NCAs are required to appear before parliamentary commissions or to submit an annual report to the parliament. A vast majority of NCAs enjoy functional, organisational and financial independence, although only very few generate their own income.64 Most of them hire their employees through the application of public employment rules, although there are considerable differences concerning the appointment of the top management and the criteria for such appointments, which in many cases is the government’s responsibility. Their mandate varies in each MS between 3 to 7 years, and in the majority of the cases it is renewable without limitation. With regard to the rules on conflicts of interests or incompatibilities for the top management, they are outlined in general civil service rules or anti-corruption legislation. Regarding the need for coordination with sector-specific regulators, the Commission insists that this can happen as long as an effective enforcement of competition law is guaranteed, in the sense that it does not hinder its fulfilment. To the extent that the rules on regulation are applied ex ante, they are supervision or monitoring standards. Competition law, on the contrary, is enforced ex post, performing a subsequent control role (sanctions and penalties). It is thus clear that, for the implementation of competition law, the guidelines imposed or induced on market players by sector-specific regulators must be taken into account. This is where the need for coordination between them and the competition authorities65 comes into play. In this respect, the Commission has noted that only a minority of NCAs assume powers exclusively on competition enforcement. The majority have additional competences in areas like consumer protection (this is the case of Poland and Italy, and also the UK), public procurement and the supervision of regulated and liberalised sectors such as energy, telecommunications, railway and postal services. In the case of Spain, this integration 62

SWD (2014) 231/2 DOCUMENT Commission Staff Working Document. Enhancing competition enforcement by the MS’ competition authorities: institutional and procedural issues accompanying the document Communication from the Commission to The European Parliament and The Council. Ten years of Antitrust Enforcement under Regulation 1/2003: Achievements and Future Perspectives (COM (2014) 453).

63

Ibid.

64 65

Ibid.

The same experience in German Law. See Britz (2008) 172-3.

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was performed through the CNMC (Comisión Nacional de los Mercados y la Competencia) (National Markets and Competition Commission).



3.1.3 Implementation of a public execution model complemented by private or judicial execution

In general terms, during the last decade of enforcement of Council Regulation (EC) No. 1/2003, administrative –instead of judicial– proceedings have been considered the best way to accomplish the purpose of competition regulations, i.e. guarantee free competition. The present trend is not to turn competition law from a public sanctioning system into a set of rules applied by individuals and by civil judges at their request –the US model. Its aim is to ensure judicial redress for the victims,66 as provided in Article 47 of the European Charter of Fundamental Rights. The reasons underlying public enforcement of competition law are that, as a general rule, private parties are worse placed than the administration. They are not coordinated between them, and they are often oblivious to the damages they have suffered. It is very difficult for them to prove such damages, they have to bear litigation costs, they lack the powers to investigate, and they would scarcely benefit from the termination of the cartel (compensation for damages).67 The administration enforces competition law while restoring legality (competition rules) and resolving disputes between private parties, but it does not directly compensate the damages arising out of the infringement. However, administrative procedures provide for means of redress when a consensual dispute resolution is reached. This is expressly addressed in Recital 5 of new Directive 2014/104/EU of the European Parliament and of the Council of 26 November 2014, referring to public enforcement decisions that give parties an incentive to provide adequate compensation. That is why access to ordinary courts was established as an alternative and complementary avenue, as stated in Sabam case.68 This judgment upheld that Articles 81 and 82 EC, in addition to imposing obligations, created and conferred rights on individuals who were therefore entitled to request their enforcement and effectiveness before the courts. These provisions have direct effects on individuals and protect their subjective rights, which the courts shall apply. The rulings of the Court in cases like Leclerc 69 and Courage and Crehan 70 laid down the foundations for the private enforcement of competition law, later acknowledged in Council Regulation (EC) No. 1/2003 and in the Notice on coop66 67

Alfaro Águila Real (2009) 3-5.

Ibid., 13.

68

Case 127/73 Sabam [1974] ECR 313.

69 70

Case T-19/92 Leclerc v. Commission [1996] ECR II-1851.

Case C-453/99 Courage and Crehan [2001] ECR I-6297.

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eration.71 Since then, infringements of European competition rules entail two major civil consequences: nullity of the restrictive agreement, and compensation for the damages caused by such conduct, admitted in rulings of the Court of Justice of the European Union.72 Until recently, the judicial enforcement of competition laws has been somewhat problematic (technical complexity, difficulties regarding evidence access and identification by claimants, lack of incentives, as set out in the Commission’s White Paper of 2 April 2008 on Damages actions for breach of the EC antitrust rules). However, since the Council Regulation (EC) No. 1/2003 came into force, no prior administrative decision is required for national judges to define the civil consequences arising from the infringement of such rules (Article 6 of Council Regulation (EC) No. 1/2003). Furthermore, the Regulation entitled national courts to request opinions from the Commission on the implementation of competition rules (Article 15 of Council Regulation (EC) No. 1/2003). It also lays down the possibility for the Commission and the NCAs to participate in the proceedings as amicus curiae, although their observations are not binding on the courts (Article 15(3) of Council Regulation (EC) No. 1/2003). The new Directive on damages in antitrust cases has been approved in order to guarantee the coherence and effectiveness of the system, and to optimise the interplay between the private and public enforcement of competition law. In the event of national law infringements, the Directive only comes into play when both EU and national law can be applied in parallel to the same case. The purpose of the new Directive is to achieve more convergence between the civil liability regimes of the MS, thus preventing unequal conditions of competition due to regulatory divergences on actions for damages. Such divergences have given rise to competitive advantages for undertakings in breach of Articles 101 and 102 TFEU, while discouraging the exercise of the right of establishment and the supply of goods and services in those MS where regulations on damages actions were applied with greater effectiveness. In order to offset these drawbacks, Directive 2014/104/EU provides substantive and procedural rules on essential aspects of damages actions, including among others the right to full compensation (Article3), certain issues concerning the disclosure of evidence (Article 5 to 8), the 5-year limitation period for bringing actions for damages (Article 10), or the presumption of damages in cartel infringements, as well as uniform rules on the burden of proof regarding actions for damages by claimants from different levels in the supply chain (Article 15). The Communication from the Commission on quantifying harm in actions for damages based on breaches of Article 101 or 102 of the TFEU73 serves the same purpose. 71

Commission Notice on the co-operation between the Commission and the courts of the EU MS in the application of Articles 81 and 82 EC (OJ C 101, 27.4.2004).

72 73

Case C-234/89 Delimitis [1991] ECR I-93 and Case C-230/96 Cabour [1998] ECR I-2055.

 Communication from the Commission on quantifying harm in actions for damages based on breaches of Article 101 or 102 of the Treaty on the Functioning of the European Union (OJ 2013/3340, 11.6.2013).

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However, the main goal of the Directive remains an effective enforcement of competition law, rather than a full guarantee of the individual legal positions of those who suffered harm caused by an infringement of competition law. This becomes clear in the regulation of the evidence obtained through voluntary and self-incriminating statements. In order to encourage undertakings to voluntarily appear before NCAs, the new Directive (Article 6(6)(a)) excludes the disclosure of certain categories of evidence submitted under leniency programmes.74 These programmes are very useful tools for the enforcement of competition law, since they contribute to the detection, prosecution and imposition of penalties for the most serious infringements.



3.2 Procedural coordination mechanisms75



3.2.1 Supply of information and cooperation regarding inspections

As previously said, the first obligation of NCAs is to supply information to the Commission when intending to act in order to initiate proceedings –not if they are going to close a case. They may optionally inform the other NCAs of the closure (Article 11 of Council Regulation (EC) No. 1/2003).76 Hence, vertical cooperation is mandatory, whereas horizontal cooperation (Article 12) is voluntary. This way, the Commission receives complete information on the enforcement strategies envisaged by NCAs and on the economic and legal analyses prior to the decision. Three types of inter-administrative cooperation can be distinguished with regard to inspections: the provision of information (Article 11(3) and 18(6) of Council Regulation (EC) No. 1/2003), investigations by national competi74

The term “leniency” refers to immunity as well as a reduction of any fine which would otherwise have been imposed on a participant in a cartel, in exchange for the voluntary disclosure of information regarding the cartel which satisfies specific criteria prior to or during the investigative stage of the case (see paragraph 37 of the Commission Notice on cooperation within the Network of Competition Authorities and ECN Model Leniency programme. On this, see Dekeyser and Jaspers (2007) 16-22 and Commission notice on immunity from fines and reduction of fines in cartel cases, (OJ C 298, 8.12.2006, p. 17), revised in November 2012.

75

Consultation and cooperation tools have been introduced to ensure the effective and coherent application of the common competition rules. See SWD (2014) 231/2. Commission Staff Working Document. Enhancing competition enforcement by the MS’ competition authorities: institutional and procedural issues accompanying the document Communication from the Commission to The European Parliament and The Council. Ten years of Antitrust Enforcement under Regulation 1/2003: Achievements and Future Perspectives (COM (2014) 453).

76

There are different regimes for the exchange of information in cross-border competition cases. Nowag (2010) argues that the co-operation and information exchange mechanisms in competition cases established by Regulation 1/2003 have been overtaken by the means provided by the European Evidence Warrant which was developed under the former third Pillar (Co-operation in Criminal Matters).

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tion authorities as the Commission’s inspecting bodies (Article 22 of Council Regulation (EC) No. 1/2003), even those of other MS (Article 22(1)), assistance to the Commission and its agents (Article 20(5) of Council Regulation (EC) No. 1/2003).77 These cooperation mechanisms are essential for an effective enforcement of European competition law and in particular to detect and prove infringements committed by undertakings. Success in enforcing European competition law depends on an efficient use of such instruments. At the same time, the rights of the undertakings under investigation must be protected.78 In this regard, the European legislation entails a convergence of the levels of protection under national laws and retains the most protective standards. Indeed, Article 12(3) of Council Regulation (EC) No. 1/2003 provides that the information exchanged between MS can only be used as evidence if the protection requirements of the receiving authority (rather than the transmitting one) are met. It should also be borne in mind that these powers are often subject to prior judicial authorisation in the MS where the inspection is being carried out (as expressly provided in Article 21(3) of Council Regulation (EC) No. 1/2003 with respect to the rights of individuals).



3.2.2 The need for consultation prior to the adoption of decisions

With the aim of ensuring coherence in the enforcement of European competition law, NCAs are obliged to consult the Commission before adopting decisions on this area, whether prohibition decisions, decisions accepting commitments or withdrawing the benefit of a block exemption Regulation (Article 11(4) of Council Regulation (EC) No. 1/2003). On the other side, the Commission is obliged not only to inform but to consult an Advisory Committee (Article 14(1) of Council Regulation (EC) No. 1/2003) prior to the taking of any decision under Article 7 (adoption of cease and desist orders and imposition of behavioural or structural remedies), Article 8 (adoption of interim measures), Article 9 (adoption of commitments), Article 10 (finding of inapplicability of Article 101 TFEU), Article 23 (imposition of fines), Article 24 (imposition of penalty payments) and Article 29(1) (withdrawal of exemptions in individual cases). The Commission is also required to consider the opinion of the aforesaid advisory committee, and must inform it of the manner in which its opinion has been taken into account (Article 14(5) of Council Regulation (EC) No. 1/2003). Such obligation is not imposed on the NCAs (Article 14(7) of Council Regulation (EC) No. 1/2003). This means that the Commission’s final decisions on the enforcement of European competition law are adopted after a multilevel cooperation procedure (integrated administration), whilst NCAs final decisions are adopted after a national procedure, where only the Commission is informed. In 77

Guillén Caramés (2011) 34-5.

78

On the different types of restrictions with regard to the gathering, exchange and use of information, see Nowag (2010), 113-9.

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the latter case, then, there is no use of an integrated administration. However, in order to efficiently enforce European competition law, NCAs should make use of the vertical cooperation mechanisms provided in Council Regulation (EC) No. 1/2003 –with the possibility of previously consulting the Commission (Article 11(5))– and of the horizontal cooperation mechanisms, designed to communicate with each other, and specially to gather information and assistance from the other NCAs within markets potentially affected by the purported infringement (Article 11(3) and (4) and Articles 12 and 22(1) of Council Regulation (EC) No. 1/2003).



3.3 Substantive coordination mechanisms

Article 16 of Council Regulation (EC) No. 1/2003 imposes a preferential application of the Commission’s previous decisions over MS administrations: “They cannot take decisions running counter to the decision adopted by the Commission”. This had already been declared by the European case law.79 This implies a substantive recentralisation of competition law, leading to the harmonisation and displacement of national competition rules.80 This is illustrated by the fact that the cases governed exclusively by national law are those of minor importance, with no effects outside the national territory. The Commission continues to issue guidelines and communications which, along with its own decisions, set its position. Therefore, rather than an enforcer it can be considered a policymaker.



4 The demand for greater judicial control of administrative decisions on the enforcement of competition law

The changes in competition law seem to foster a necessary intensification of the judicial control (under Article 31 of Council Regulation (EC) No. 1/2003) of administrative decisions, and particularly of the Commission’s discretion. The demand for greater reach of judicial review is inherent to the legal administrative context where competition laws are enforced. It is closely related to the fact that we have shifted from direct enforcement by the Commission to direct and indirect decentralised enforcement, concurrent and shared with the NCAs. An efficient functioning of the system calls for judicial controls by the GC and the ECJ ensuring the legality of the Commission’s activities and –regarding national courts– the primacy of the rules applied by the Commission, as well as consistency among administrative decisions. The need to increase judicial controls also results from the changes introduced by Regulation (EC) No. 1/2003 in the classification of collusive behaviour 79

Case C-344/98 Masterfoods [2000] ECR I-11412, para. 51; Case C-234/89 Delimitis [1991] ECR I-935, para. 41; Case C-453/99 Courage and Crehan [2001] ECR I-6297, para. 13.

80

Fuchs (2004) 78-89.

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exempt from competition law. As previously said, Council Regulation (EC) No. 1/2003 led to a direct application of Article 101(3) TFEU by undertakings. Once the obligation to notify and request authorisation from the Commission is removed, economic operators must assess their own behaviour and determine whether their potentially restrictive agreements fall within the exemptions. Obviously, that suppression of prior controls may lead to the reinforcement of ex post controls. The resulting legal uncertainty is somehow offset by the established Commission precedents in form of opinions and communications (soft law), in spite of their non-binding nature.81 Regarding the judicial control exercised by European courts on the administrative enforcement of competition law, there are different possibilities depending on the activity subject to control and the applicable rules. It is quite different for the courts to uphold an appeal and declare an act of the Commission void under Article 263 TFEU than to review and change a fined imposed by the Commission under Articles 261 TFEU and 31 of the Regulation 1/2003. Such enhanced control with regard to fines and penalties imposed by the Commission within a sanction procedure may be due to the fact that determining the amount of a fine involves more administrative planning. The progress made in this field (determination of the amount of sanctions) is also relevant, although the general criteria and calculation methodology set by the Commission are not binding on the courts, as already noted. As for the first possibility, some progress has been made regarding the judicial control of competition cases, despite its complexity. The GC has declared that the Court dealing with an application for annulment of a decision applying competition law must –when faced with complex economic assessments– confine its review, as regards the merits, to verifying the accuracy of the facts, the lack of any manifest errors of appraisal and the accuracy of the legal consequences deduced.82 The GC must not completely refrain from controlling the Commission’s interpretation of the economic data. This is what clearly emerges from the Tetra Laval judgement.83 The judge can verify the material accuracy of the evidence invoked, its reliability and consistency, and also check whether such evidence makes up a relevant dataset that should be taken into consideration in order to assess a complex situation and if it adequately supports the conclusions derived from it.84 Therefore, the real limit, unlike in the case of the judicial control on the imposition of sanctions (see Articles 261 TFEU and 31 of Council Regulation (EC) No. 1/2003), is determined by the Commission’s wide margin of discretion that the Court cannot fully control in these cases. There is

81

See above note 10.

82

Case T-168/01 GlaxoSmithKline Services Unlimited v Commission [2006] ECR II-2969, para. 241-3. See Fernández Vicién and López Garrido (2012).

83

Case C-12/03P Treta Laval [2005] ECR I-1113, para. 19.

84

Ibid.

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a certain asymmetry between the rule of conduct and the rule of control.85 This is not the case of the control of decisions imposing sanctions. Anyhow, as one can easily imagine, judicial control cannot be the same with respect to the different decisions provided in Article 101 as compared to Article 102 TFEU or to merger control. These empirical studies suggest86 that the GC has exercised an intense control through which it has defined and refined regulatory standards in the light of modern economic theory when reviewing decisions related to competition restricting agreements and merger control. But it has also been more deferential,87 less intense in its control, when reviewing administrative decisions related to the abuse of a dominant position under Article 102 TFEU. In fact, there is no record of any Commission decisions annulled in this field. This difference in the intensity of judicial control may be justified in that cartels are considered as the practice most damaging to competition and that unauthorized mergers would have the same effects. Regarding the second possibility, i.e. decisions on sanctions, one could think that given that the procedure and methodology for imposing sanctions has been much clarified, and considering the unlimited jurisdiction provided in Article 261, control would be greater, but this has not been the case. Quite the contrary, the Commission’s discretionary margin has widened, since the case law has been limited to reviewing manifest errors of assessment hence ensuring internal consistency of the Commission’s policy on fines.88 The paradox here is that the scope of judicial control over fines is considerably limited in practical terms. It is almost confined to a mere review of the legality. In several rulings, control means substitution of the decision due to error, but in no case are the calculation methodology or the Commission’s criteria questioned.



5 Conclusion

In terms of the balance of powers between the EU and the MS, the allocation of powers and the enforcement of European competition law make it possible to speak of a dual, parallel and partially decentralised model of administration based, at least in part, on the EU scheme (Verwaltungsverbund), or integrated administration. This is characterised by strong cooperative elements laid down through interconnection procedural and organisational instruments –a network of authorities– used for the allocation of competences, the exchange of information and the cooperation on investigation and collection of evidence, as well as to prepare the substantive content of the decision. 85

García-Andrade Gómez (2014).

86 87

Geradin and Petit (2010).

Nazzini (2012) concludes that the current system under Regulation 1/2003 is unconstitutional insofar as judicial review of Commission decisions by the EU courts is deferential.

88

Gerard (2011).

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However, the European Administrative Union is only partially implemented; final decisions rest with the Commission or a NCA, but are not adopted by a mixed administration or an organisation where both levels of administration, the Commission and the national authorities, are integrated. The advantage of this scheme is that it adequately guarantees access to an effective legal remedy regarding final decisions putting an end to the procedure. At this point, it should be recalled that at present the European effective legal protection is based on a dual system under which enforcement acts of the EU institutions and bodies must be appealed before European courts and the acts of the MS before the respective national courts.89 The exercise of powers is also dual and concurrent at the initial procedural stages –before adopting a final decision–, when the competence can be exercised in parallel by the Commission and the NCAs. The adoption of final decisions putting an end to the competition infringement procedure is either centralised (the decision is adopted by the European Authority, i.e. the Commission) or decentralised (the decision is adopted by the NCAs according to their respective national procedures). In the first case, such decisions are the result of a procedure with interconnections inherent to the European Administrative Union, including mandatory consultations to the Advisory Committee of the ECN. In this second case of decentralised enforcement – excluding the authorisation of merges with a community dimension, which remains a centralised competence –, there is no obligation to follow an integrated administration procedure, with procedural interconnections regarding the exchange of information or prior consultations. Despite their optional nature, it may be convenient to follow such kind of procedures in order to ensure an effective and uniform implementation of European legislation. European law and reciprocal influences have contributed, after ten years, to a convergence between the organisational administrative structures in the majority of MS. These organisational administrative structures are generally defined by an independent, responsible and to a certain point autonomous exercise of public powers, with the exceptions referred to certain issues and the duration of the mandate. According to certain European requirements, these structures must have sufficient resources and funding to carry out their responsibilities. In order to ensure a uniform, coherent and consistent application of substantive European competition law –substantive centralisation– by national authorities, certain procedural and substantive coordination instruments are laid down. There are several examples of this; for instance, the requirement that the Commission should be informed at all moments of the investigations and cases opened by NCAs; or the fact that it retains a call-back prerogative (of assuming and replacing the respective national authorities) regarding the cases being handled by NCAs; and the binding nature of its decisions when it is necessary to prevent inconsistencies or conflicts with decisions adopted at a national level and the judicial control by national courts. 89

See Schneider (2008) 40.

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Ultimately, it is a system relatively decentralised in the exercise of powers, while granting the Commission a wide margin of discretion in order to ensure an effective and consistent enforcement. Such discretion can be controlled by the courts. There has been some criticism regarding the deference shown by the European courts when reviewing the Commission’s decisions on competition policy. Steps have also been taken towards greater judicial protection of individual legal positions, at least with respect to subjects who suffer damages caused by infringements of competition rules. This is particularly the case of the recent Directive on claims for damages caused by EU competition infringements. However, the Directive shows that the priority of the European legislator is to ensure a high degree of effectiveness in the public enforcement of competition law, rather than fostering the use of all the instruments that would ensure full compensation for the individuals harmed by the infringements. Perhaps the latter is not really possible without the former.

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Bibliography J. Alfaro Águila Real, ‘Contra la armonización positiva: la Propuesta de la Comisión para reforzar el prívate enforcement del Derecho de la Competencia’ (2009) 1 InDret, 1-35. available at http://www.indret.com. A, Andreangeli, ‘The impact of the Modernization Regulation on the Guarantees of Due Process in Competition Proceedings’ (2006) 3 European Law Review, 342-363 F. Becker ‘Aplication of Community law by Member States public authorities: Beetween autonomy and effectivenes’ (2007) 44 Common market law review, 1035-1055. S. Brammer ‘Concurrent Jurisdiction under Regulation 1/2003 and the Issue of Case Allocation’ (2005) 42 Common Market Law Review, 1383-1424. G. Britz ‘Estructuras de la Unión Administrativa Europea en la regulación de los mercados de la energía alemán y europeo’ in F. Velasco Caballero and J.P. Schneider, J-P, La Unión Administrativa Europea (Madrid-Barcelona-Buenos Aires: Marcial Pons, 2008) 159-191. C. Bulzomi ‘Changes in the enforcement of EC Competition Law’ in L. Ortiz Blanco, S. Cohen, A. Sequeros, Derecho de la competencia europeo y español: curso de iniciación (Madrid: Vol. 8, Dykinson, 2008) 77-118. J. Costas Comesaña, J. Hortala i Vallve, ‘La tipificación de la actividad de la administración como facilitadora de cárteles’ (2013) Anuario de la competencia, 13 ff. M. De Visser Network-based Governance in EC Law. The Example of EC Competition and EC Communications Law, (Oxford: Hart Publishing Ltd., 2009) G. Di Federico ‘EU Competition Law and the Principle of Ne bis in Idem’ (2011) 2 European Public Law, 241-260. C. Fernández Vicién, C. Lopez Garrido ‘Procedimientos en materia de derecho de la competencia ante los tribunales de la Unión Europea’, in Procedimientos administrativos y judiciales de la Unión Europea (Madrid: Difusión Jurídica y Temas de Actualidad, 2012). A. Fuchs ‘Kontrollierte Dezentralisierung der europäischen Wettbewerbsaufsicht’ in J.P. Schneider, J.P. Schwarze, P-C Müller-Graff, Vollzug des Europäischen Wirtschaftsrechts zwischen Zentralisierung und Dezentralisierung, (Baden-Baden:, Nomos: XVIII. Kolloquium der Wissenschaftlichen Gesellschaft für Europarecht am 26./27. November 2004 in Osnabrück, 2005) 77-118. J. García-Andrade Gómez ‘Norma de conducta y norma de control en el Derecho de la Unión Europea (La intensidad del control judicial de la discrecionalidad económica)’. (IV Seminario de Teoría y Método de Derecho Administrativo, Barcelona, 28 de noviembre de 2014). F. Cengiz ‘The European Competition Network: Structure, Management and Initial Experiences of Policy Enforcement’. (European University Institute Working Paper. Max Weber Programme 2009/05). D.J. Gerber, P. Cassinis ‘The Modernisation of European Community Competition Law: Achieving Consistency in Enforcement’. (2006) 1 European Competition Law Review, 10-19. E. Gippini Fournier, ‘Community Report to the FIDE Congress 2008, The Modernisation of European Competition Law: First Experiences with Regulation 1/2003’, (2008), available at SSRN: http: //ssrn.com/abstract=1139776. D.M.B. Gerard ‘Breaking the EU Antitrust Enforcement Deadlock: Re-empowering the

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Courts?’ (2011) 36, 4 European Law Review; 457-479. D. Geradin, N. Petit ‘Judicial Review in European Union Competition Law: A Quantitative and Qualitative Assessment’. Tilburg Law and economics Center (TILEC), Law and Economics Discussion Paper Nº. 2011/8 and Tilburg Law School Legal Studies Research Paper No. 1/2001. A. Givaja Sanz, ‘La red de autoridades de competencia’, in L. Ortiz Blanco, S. Cohen, A. Sequeros, Derecho de la competencia europeo y español: curso de iniciación (Madrid: Vol. 7, Dykinson, 2007). J. Guillén Caramés, ‘La ejecución del derecho comunitario de la competencia por las autoridades nacionales’, (2011) Revista de Derecho de la Unión Europea, 15-42. H. Hofmann ‘Negotiated and non negotiated administrative rule-making: the example of EC Competition policy’. (2006) 43-1 Common market law review, 153-178. R. Nazzini ‘Administrative enforcement, judicial review and fundamental rights in EU competition law: a comparative contextual-functionalist perspective’ (2012) 43-3 Common market law review, 971-1006. J. Nowag ‘The Exchange of Information and Risk of Hindering Effective Cross-border Co-operation in Competition Cases’ (2010), 7 The Competition Law Review, 105-127. J. Ortega Bernardo ‘La aplicación de las normas de la competencia a los Gobiernos y Administraciones locales y sus excepciones al amparo de la legislación de régimen local’. 50 aniversario de la primera Ley de Defensa de la Competencia. (2014) 876 ICE, 57 ff. L. Ortiz Blanco, L. León Jiménez ‘Reforma revolucionaria de la aplicación del Derecho de la competencia comunitario: análisis y comentario’. in L. Ortiz Blanco, S. Cohen, A. Sequeros, Derecho de la competencia europeo y español: curso de iniciación (Madrid: Vol. 4, Dykinson, 2004). A. Ottow ‘Europeanization of the Supervision of Competitive Markets’ (2012) 18-1 European Public Law, 191–221. J.P. Schneider ‘Vollzug des Europäischen Wirtschaftsrechts’ in J.P. Schneider, J.P. Schwarze, P-C Müller-Graff, Vollzug des Europäischen Wirtschaftsrechts zwischen Zentralisierung und Dezentralisierung, (Baden-Baden: XVIII. Kolloquium der Wissenschaftlichen Gesellschaft für Europarecht am 26./27. November 2004 in Osnabrück, Nomos. 2005), 141 ff. J.P. Schneider ‘Estructuras de la Unión Administrativa Europea – Observaciones Introductorias –’ in F. Velasco Caballero and J.P. Schneider, J-P, La Unión Administrativa Europea (Madrid-Barcelona-Buenos Aires: Marcial Pons, 2008) 25-49. L. Signes de Mesa, I. Fernández Torres, M. Fuentes Naharro. Derecho de la Competencia. (Navarra: Civitas.Thomson Reuters, 2013).

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The Administration of the Rules on State Aid Fernando Pastor-Merchante

chapter 7



the administration of the rules on state aid

1 Introduction

This chapter is concerned with the administration of the rules on State aid. After a brief overview of the main rules that govern the European system of State aid control (section 2), the chapter looks at the main challenges raised by the governance of this system, the main one being the mismatch between the breadth of this task and the relatively limited administrative resources available to that end (section 3). It is in light of this observation that the rest of the chapter outlines the main strategies developed by the Commission – which is the main institution in charge of ensuring compliance with the rules on State aid – in order to live up to this challenge: the association of national courts to the task of enforcing the rules on State aid (section 4), the juridification of the process of State aid review (section 5) and the decentralization of the system of State aid control through de minimis and block exemption regulations (section 6).



2 The rules on State aid

The basic rules on State aid are laid out in Articles 107 to 109 TFEU. Article 107 TFEU lays down the substantive rules: the first section defines the notion of State aid and provides that as a general rule State aids are prohibited within the EU; the other two sections list several exceptions to this rule. Article 108 TFEU lays down the institutional and procedural rules that govern the system of State aid governance. Finally, Article 109 TFEU is the legal basis that empowers the EU legislator to adopt secondary law in this field. It is on the basis of this provision that the EU legislator adopted the Procedural Regulation1 and the Enabling Regulation.2 The latter will be analysed into more depth in the last section of this chapter. Article 107(1) TFEU is, thus, the cornerstone of the system. It defines the notion of State aid on the basis of four criteria: state resources, selective advantage, distortion of competition and effect on trade. This is an objective notion, in the double sense that it leaves no margin of discretion to the Commission3 and that its application depends on the effects rather than on the goals of the measures under scrutiny. 4 The case law of the European Courts has made an extensive interpretation of the notion of aid, bringing within the definition 1

Council Regulation (EC) No 659/1999 of 22 March 1999 laying down detailed rules for the application of Article 108 of the Treaty on the Functioning of the European Union of the EC Treaty (Procedural Regulation) (OJ L 83/1, 27.03.1999, p. 1).

2

Council Regulation (EC) No 994/98 of 7 May 1998 on the application of Articles 92 and 93 of the Treaty establishing the European Community to certain categories of horizontal State aid (Enabling Regulation) (OJ L 142, 14.5.1998, p. 1).

3

Case C-487/06 P British Aggregates Association v Commission [2008] ECR I-10515, para. 111.

4

Case 173/73 Italy v Commission [1974] ECR 709, para. 13.

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a broad range of measures: public subsidies granted to private firms are the paradigmatic example of the notion of aid, but the definition is broad enough to encompass many other forms of financial assistance to firms: regulatory benefits in the form of exemptions from taxes or social security contributions, overpriced purchases, under-priced sales, preferential loans or guarantees, etc.5 The finding that a measure fulfils the four criteria laid down by Article 107(1) TFEU – and that it falls, accordingly, within the definition of State aid – has several legal implications. The first one is the activation of the general prohibition of State aid contained in that very same provision, but this prohibition is ‘neither absolute nor unconditional’6 because it is subject to several exceptions. The administration of these exceptions falls within the exclusive purview of the Commission,7 which is why the second implication is the activation of the standstill and notification obligations of Article 108(3) TFEU, so that the Commission decides whether it is possible to go ahead with the implementation of the State aid plan. The definition of State aid can thus be read as a jurisdictional clause that defines the conditions under which the power to decide on the implementation of state measures of financial support to firms shifts to the Commission. There are two types of exceptions. Article 107(2) TFEU contains a set of three exemptions that leave no margin of discretion to the Commission (‘The following shall be compatible with the internal market’). The situations they contemplate are rare (aid for individual consumers, aid linked to natural disasters, aid linked to the reunification of Germany) and their use is very marginal. Article 107(3) TFEU, on the other hand, lists various exemptions whose administration is discretional8 (‘The following may be considered to be compatible with the internal market’). They contemplate several economic and social factors that come often into play: aid to promote the economic development of certain areas; aid to promote the execution of important projects of common interest; aid to facilitate the development of certain activities or sectors; and aid to promote culture and heritage conservation. These are the exemptions that are at stake in most cases, which is why they constitute the backbone of the Commission’s State aid policy.9

5

On ‘The Forms of Governmental Action covered by EC State Aid Rules’, see, e.g., Rubini (2010) 151-80.

6

Case C-143/99 Adria-Wien Pipeline GmbH and Wietersdorfer & Peggauer Zementwerke GmbH v Finanzlandesdirektion für Kärnten [2001] ECR I- 8365, para. 30.

7

Case 78/76 Steinike & Weinlig v Germany [1977] ECR 595, para. 9.

8

Case 78/76 Steinike & Weinlig v Germany [1977] ECR 595, para. 8; Case 74/76 Iannelli & Volpi SpA v Ditta Paolo Meroni [1977] ECR 557, para. 12-3.

9

Mederer (2008) 21.

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3 The governance of the system of State aid control: main features and challenges

The system of State aid control revolves around the central role of the Commission as the main institution in charge of monitoring the conformity of national subsidies and subsidies-like measures with the rules on State aid. In order to discharge this function, the Commission exercises various forms of supervision. There is, on the one hand, the control of new State aids, which is supposed to take place through the ex ante, authorization procedure laid down by Articles 108(2) and (3) TFEU (‘Procedure regarding notified aid’),10 but also through the reactive procedure developed by the practice of the Commission and the case law of the European Courts for unlawful State aid (‘Procedure regarding unlawful aid).11 There is, on the other hand, the permanent supervision of existing aid, which is governed by Articles 108(1) and (2) TFEU (‘Procedure regarding misuse of aid’12 and ‘Procedure regarding existing aid schemes’).13 In this sense, one of the most distinctive features of the system of State aid control is its high degree of centralization – in other words, the concentration of power held by the Commission. In a way, the centralization of the system of State aid control operates along two axes. Vertically, the centralization of the system of State aid control stems from the fact that this is one of the few areas of ‘direct administration’ foreseen by EU law, where the implementation and enforcement of the rules corresponds to the EU institutions rather than to the national administrations of the different Member States. This is the reason why the rules on State aid are such an important ‘reference sector’ in the literature on EU administrative law.14 Horizontally, one of the most distinctive features of the system of State aid control is the extent to which the powers of the Commission are shielded from the input of the other EU institutions. The power of the Commission to administer the exemptions of Article 107(2) and (3) TFEU is exclusive, which is why the outcome of State aid procedures is a decision by the Commission itself rather than by the Council – as in antidumping –15 or by the Court – as in the framework of the general infringement procedure.16 Granted, the third paragraph of Article 108(1) TFEU provides that ‘[o]n application by a Member State, the Council may, acting unanimously, decide that aid which that State is granting or intends to grant shall be considered to 10 11

Articles 2 to 9 PR.

Articles 10 to 15 PR.

12 13

Article 16 PR.

Articles 17 to 19 PR.

14 15

Hofmann (2006) 185.

See Article 9(4) of Council Regulation (EC) No 1225/2009 of 30 November 2009 on protection against dumped imports from countries not members of the European Community (OJ L 343, 22.12.2009, p. 51).

16

Articles 258 and 259 TFEU.

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be compatible with the internal market’, yet this is an exceptional mechanism that is hardly ever used. This is because it requires unanimity, but also because it is only available to the Council so long as the Commission has not closed the file with a formal decision.17 It follows that the role of the Council in State aid governance is mostly restricted to the adoption of secondary legislation, on the basis of Articles 107(3)(e) and 109 TFEU, and to the control – via the Advisory Committee on State aid – of the delegated legislation adopted by the Commission.18 As far as the European Parliament is concerned, it plays no role whatsoever in this field, save for the consultation prerogative that it has in the adoption of secondary legislation.19 The powers of the Commission under the rules on State aid are thus unparalleled. But so are, arguably, the strains placed by these powers upon its administrative resources. In order to substantiate that proposition, it is useful to break down the role of the Commission in the administration of the rules on State aid into two distinct tasks: the task of spotting State aids (detection) and the task of telling apart good and bad State aid (assessment). Detection The system of State aid control relies on the obligation of Member States to notify in advance any plan to put into effect measures that meet the definition of aid of Article 107(1) TFEU. It is thus informed by a strong prophylactic concern that seeks to block State aids before they even see the light of the day. Consequently, it further relies on a broad definition of State aid, which guarantees that all potentially harmful State aids go through the preventive control of the Commission. Thus, the first challenge raised by this system is to ensure that Member States actually comply with the standstill and notification obligations of Article 108(3) TFEU. In the jargon of the discipline, State aids granted in breach of these obligations are referred to as ‘illegal’ or ‘unlawful’. The detection of unlawful State aid is a very demanding task from the perspective of the Commission. The volume of State aid granted every year within the EU stays high.20 This is the result of the political choices made at the national level, but also of the very design of the system, which relies on a 17

Case C-110/02 Commission v Council [2004] ECR I-6333, para. 33.

18

Article 8 of Council Regulation (EC) No 994/98 of 7 May 1998 on the application of Articles 92 and 93 of the Treaty establishing the European Community to certain categories of horizontal State aid (Enabling Regulation) (OJ L 142, 14.5.1998, p. 1).

19

Article 109 TFEU.

20

According to the 2013 State Aid Scoreboard compiled by the Commission, the total amount of State aid expenditure in 2012 within the then 27 Member States was € 67.2 billion or 0,52 % of the EU GDP. This figure excludes State aid to the railway industry (governed by Article 93 TFEU) and State aid to the financial sector granted in the context of the on-going crisis, which amounts to an additional € 591,9 billion or 4,6 % GDP. It only comprises State aid authorized by the Commission or implemented under the Block Exemption Regulation. Source: http://ec.europa.eu/competition/state_aid/scoreboard/index_ en.html (last accessed on 7 January 2015).

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sweeping definition of aid that brings within the purview of the Commission a broad and diverse set of measures.21 The underlying policy choice in favour of over-inclusion at the jurisdictional stage, with the possibility of narrowing down the prohibition at the compatibility stage, adds to the complexity of the task. Furthermore, Member States often omit for strategic reasons the notification of those measures that are most likely to distort competition and trade.22 Assessment The second task of the Commission in the enforcement of the rules on State aid is the administration of the exemptions of Article 107(2) and (3) TFEU. Once a measure of state assistance to firms is found to meet the definition of State aid of Article 107(1) TFEU, the Commission needs to assess its compatibility with the common market. There are at least two reasons why this is also a very demanding task. First, it is a task that the Commission cannot escape – the exclusive character of this task prevents the Commission from discharging it selectively, focusing on the most distortive or otherwise significant measures while turning a blind eye to the seemingly less worrisome ones.23 The upshot is that the Commission is expected to screen every single State aid measure brought to its attention, be it through notifications24 or through third-party complaints.25 Secondly, the reliance of modern State aid law on the ‘refined economic approach’ 26 implies that this task cannot be discharged on the basis of a cursory examination of the measures under scrutiny. Telling apart ‘good’ and ‘bad’ State aid therefore calls for the type of sophisticated market analysis that is common to disciplines like antitrust. Besides requiring the compilation of a reliable and complete information record and the prospective analysis of the effects of each measure, this task entails complex economic assessments and difficult policy choices on the weight that should be given to efficiency and socio-economic considerations in the application of the exemptions. The preceding analysis suggests that the breadth of the tasks assigned to the Commission under the rules on State aid represents an important challenge from the perspective of its relatively ‘weak administrative capacity’,27 not least because of the fact that these rules constitute a sensitive area of law that impinges, more often than not, on important regulatory policies of Member 21

Rubini (2010) 151-80.

22 23

Nolin (1997) 142.

Opinion of Advocate General Bot in Case C-521/06 P Athinaïki Techniki AE v Commission [2008] ECR I-5829, para. 122.

24 25

Articles 4(1) and 7(1) PR.

Provided the complainant satisfies the conditions inserted into Article 20(2) PR by Council Regulation (EU) No 734/2013 of 22 July 2013 amending Regulation (EC) No 659/1999 laying down detailed rules for the application of Article 93 of the EC Treaty (OJ L 204, 31.7.2013, p. 15).

26

‘State Aid Action Plan. Less and better targeted state aid: a roadmap for state aid reform 2005-2009’ (COM (2005) 107 final), para. 18.

27

Kelemen (2010) 610.

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States.28 This observation calls for an examination of the strategies followed by the Commission (with the support, where need be, of the EU legislator and judiciary) to ensure an efficient management of the system of State aid control – i.e., one that maximizes compliance while minimizing the demands placed on the Commission’s resources. The rest of this chapter analyses the three main strategies deployed to that end in the field of State aid: the association of national courts to the task of detecting State aids (section 4), the juridification of the criteria followed by the Commission in the assessment of the compatibility of State aids (section 5) and the partial decentralization of the system of State aid control through the adoption of de minimis and block exemption regulations (section 6).



4 The association of national courts to the task of enforcing State aid law

The system of State aid control revolves around the central role assigned to the Commission, which is the only institution empowered to apply the exemptions laid down by Article 107(3) TFEU. In order to protect this prerogative, the Commission has sought the assistance of national courts in the task of ensuring that Member States abide by the notification obligation of Article 108(3) TFEU. It has done so on the basis of the case law of the European Courts, which recognized at an early stage the direct effect of the standstill clause of Article 108(3) TFEU, laying down the foundations for the development of a system of private enforcement in the field of State aid. The Court of Justice recognized for the first time the direct effect of the standstill clause of Article 108(3) TFEU in its seminal Costa v Enel ruling, despite its not being in question in that case.29 It was then confirmed in Lorenz, where the Court declared that ‘the prohibition on implementation referred to in the last sentence of Article [108(3) TFEU] has a direct effect and gives rise to rights in favour of individuals, which national courts are bound to safeguard’ and that ‘the direct effect of the prohibition extends to all aid which has been implemented without being notified and, in the event of notification, operates during the preliminary period, and where the Commission sets in motion the contentious procedure, up to the final decision’.30 By empowering individuals to invoke the standstill clause of Article 108(3) TFEU, Lorenz turned national courts into the Commission’s ally in the task of detecting unlawful State aid. The Court of Justice would tackle this issue more squarely in Steinike & Weinlig, decided only three years later. It held, first, that the assessment of the compatibility of State aids with the common market falls within the exclusive purview of the Commission,31 which means that ‘[t]he parties concerned cannot 28

Schwarze (2006) 383-4; Cini (2001), 198; Hofmann (2006) 186.

29 30 31

Case 6/64 Flaminio Costa v Enel [1964] ECR 585, p. 596.

Case 120/73 Gebrüder Lorenz GmbH v Germany [1973] ECR 1471, para. 8.

Case 78/76 Steinike & Weinlig v Germany [1977] ECR 595, para. 9.

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(…) challenge the compatibility of an aid with Community law before national courts or ask them to decide as to any compatibility.’32 It further held that national courts ‘may [however] have cause to interpret and apply the concept of aid contained in Article [107 TFEU] in order to determine whether State aid introduced without observance of the preliminary examination procedure provided for in Article [108(3) TFEU] ought to have been subject to this procedure.’33 Lorenz and Steinike & Weinlig gave rise to a long line of cases on the role of national courts in the enforcement of the standstill clause of Article 108(3) TFEU. It is not necessary to go over the details of these cases here, but it is worth noting that the Court has systematically favoured an extensive interpretation of the powers of national courts, stressing times and again their obligation to infer all the necessary inferences to remedy the breach of that provision34 – including, if need be, suspension of the unlawful aid but also its recovery 35 and the compensation of any damages caused by its premature implementation.36 It has also underscored the independence of national courts, holding that national courts need not – in fact, may not – stay proceedings where the Commission takes up a case37 and that a final positive decision by the Commission does not cure the initial unlawfulness of a State aid.38 The involvement of national courts in the enforcement of Article 108(3) TFEU is not exempt from difficulties, the main one being the risk of parallel proceedings leading to contradictory outcomes.39 But it undoubtedly represents an attractive opportunity from the perspective of the Commission, insofar as it turns national courts into its allies in the task of spotting State aids. No wonder, then, that the Commission has been eager to exploit this opportunity, inviting market actors to resort to national courts whenever they face an allegedly unlawful State aid and inviting national courts themselves to make full use of the remedial toolkit placed in their hands by the European case law. The origins of this policy can be traced back to the first Notice on cooperation between national courts and the Commission in the State aid field, 40 32 33

Ibid., para. 10.

Ibid., para. 14.

34

Case C-354/90 Fédération Nationale du Commerce Extérieur des Produits Alimentaires (FNCEPA) and Syndicate National des Négociants et Transformateurs de Saumon v France [1991] ECR I-5505, para. 12.

35

Case C-368/04 Transalpine Ölleitung in Österreich GmbH and others v Finanzlandesdirektion für Tirol and others [2006] ECR I-9957, para. 56.

36

Case C-39/94 Syndicat Français de l’Express international (SFEI) v La Post and others [1996] ECR I-3547, para. 75.

37

Ibid., para. 44.

38

Case C-354/90 Fédération Nationale du Commerce Extérieur des Produits Alimentaires (FNCEPA) and Syndicate National des Négociants et Transformateurs de Saumon v France [1991] ECR I-5505, para. 16.

39

Köhler (2012) 381.

40

Notice on cooperation between national courts and the Commission in the State aid field (OJ C 312, 23.11.1995, p. 8).

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adopted by the Commission in 1995. Most of the Notice was actually devoted to summarizing the case law on the allocation of tasks between the Commission and national courts in the system of State aid supervision. 41 Yet the Notice also evinced the willingness of the Commission to promote the national course of action. Its basic assumption was that ‘[w]hile the Commission is not always in a position to act promptly to safeguard the interests of third parties in State aid matters, national courts may be better placed to ensure that breaches of the last sentence of Article [108(3) TFEU] are dealt with and remedied.’42 Accordingly, the Commission set itself the objective of working ‘towards closer cooperation with national courts’. 43 Its policy would follow two axes. First, it would commit itself to ‘a policy of openness and transparency’ aimed at facilitating the knowledge of the rules on State aid; 44 the Notice itself was a first step in that direction. Secondly, it would set two specific channels of cooperation with national courts, namely, the possibility to request information from the Commission in order to determine whether it has taken up specific cases45 and the possibility to ask the Commission for guidance on the application of the definition of aid. 46 The Commission took up the issue again in its 2005 State Aid Action Plan, a consultation document aimed at launching a comprehensive reform of the system of State aid control. 47 The State Aid Action Plan presented itself as a modernization project inspired by the need to adjust the focus of the Commission’s policy so as to give priority to the most distortive cases. 48 One of the strategies that the plan proposed in order to achieve this objective was the continuation of the Commission’s efforts to mobilize national courts in the fight against unlawful aid. Indeed, the Commission pinned high hopes on private litigation as a means to increasing compliance in this field, announcing its intention to continue its strategy of advocacy in order to strengthen the knowledge of the rules on State aid by the general public 49 as well as by national judges.50 Pursuant to the State Aid Action Plan, the Commission requested a study on the enforcement of State aid law by national courts.51 The study was published in 2006 and its results indicated that ‘classical private enforcement’ (i.e., ‘actions by private parties against member States or aid recipients alleging that the aid 41

Ibid., para. 4-22.

42 43

Ibid., para. 3.

Ibid., para. 26.

44 45

Ibid., para. 27.

Ibid., para. 28.

46 47

Ibid., para. 29.

State Aid Action Plan. Less and better targeted state aid: a roadmap for state aid reform 2005-2009 (COM (2005) 107 final), para. 2.

48

Ibid., para. 17.

49 50 51

Ibid., para. 55.

Ibid., para. 56.

Jestaedt, Derenne and Ottervanger (2006).

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granted in a specific case was unlawful’) had played a limited role in this field.52 The rules on State aid were mostly invoked as a shield to resist the payment of discriminatory taxes; they were also routinely invoked by State aid beneficiaries to resist recovery. But the evidence indicated that they were rarely if ever used to attack unlawful State aid (use as a sword), hence the claim that the ‘private enforcement of State aid law [was] still in its infancy.’53 One of the recommendations put forward by the study was the adoption of a new notice on cooperation, ‘which should address all aspects of the application of EC State aid law by Member States’ courts’ and, in particular, ‘should clarify that pursuant to most recent case law of the European Court of Justice (…) competitors and other parties affected by a measure granting aid must be granted a remedy in national courts.’54 The Commission followed this recommendation and adopted in 2009 a new Notice on cooperation aimed at providing national courts with an updated summary of the rules on the enforcement of State aid law.55 The new Notice replaced the previous one,56 but its content was similar, in that it reviewed the relevant case law of the Court of Justice and laid down the same cooperation mechanisms, namely, information and opinion requests.57 This Notice would be followed by other related policy documents, such as the Notice on recovery (which sought to achieve the same pedagogical function in relation to the rules on the enforcement of recovery decisions)58 and the State Aid Manual of Procedures (an internal working document of the Commission which was made public on the website of the Commission).59 The advocacy strategy of the Commission has taken other forms, including the compilation and diffusion of information in the form of State Aid Scoreboards, State aid register and State aid weekly e-newsletter,60 as well as the subsidisation of training programs for national judges.61 52 53

Ibid., at 33.

Ibidi., at 34.

54 55

Ibid., at 35.

Notice on the enforcement of State aid law by national courts (OJ C, 9.4.2009, p. 1), para. 6.

56 57

Ibid., para. 7.

The recent reform of the Procedural Regulation has incorporated these mechanisms into that instrument. See Article 23(a) PR, introduced by Council Regulation (EU) No 734/2013 of 22 July 2013 amending Regulation (EC) No 659/1999 laying down detailed rules for the application of Article 93 of the EC Treaty (OJ L 204, 31.7.2013, p. 15).

58

Notice from the Commission – Towards an effective implementation of Commission decisions ordering Member States to recover unlawful and incompatible State aid (OJ C 272, 15.11.2007, p. 4), para. 6.

59

State Aid. Manual of Procedures. Internal DG Competition working documents for the application of Articles 107 and 108 TFEU (Luxembourg: Publication Office of the European Union, 2013).

60 61

Szyszczak (2007) 25.

See calls periodically published on the website of the Commission (http://ec.europa.eu/competition/ court/training.html, last accessed on 28 February 2015)).

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5 The juridification of compatibility assessment

The previous section has analysed the strategy followed by the Commission to strengthen its administrative capacity in terms of detection. This section looks at the main strategy followed by the Commission to ensure an efficient discharge of its assessment task. The starting point of this analysis shall be the observation that the Treaty expects the Commission to check the compatibility with the common market of all State aids, before they are put into place, but offers very little guidance in that regard. This is because the Treaty contents itself with listing a series of open-textured exemptions,62 with no indication whatsoever as to the method that is supposed to govern their application. The Commission first attempted to fill in this gap by proposing the adoption of secondary legislation under the legal basis provided for by Article 109 TFEU.63 But it soon became clear that the Council was not ready to go down that way, which meant that the Commission would have to operate on the basis of the meagre legislative provisions of the Treaty itself. Granted, this could be seen as an opportunity, for it meant that the Commission had ample space to mould (as it would) its own State aid policy. Yet it was also a challenge, insofar as it placed on the Commission the burden of operationalizing, on a case-by-case basis, the open-textured parameters of Article 107(3) TFEU. This, in turn, left the Commission unshielded against the ‘sometimes intense political pressures brought to bear on state aid cases by Member States governments’.64 The Commission’s response to this challenge is well known: it would use its wide margin of discretion under Article 107(3) TFEU to progressively develop a thick web of soft-law instruments with a more precise definition of the methodological and substantive criteria that would guide State aid analysis.65 This phenomenon started in 1971, with the adoption of the first guidelines on State aid for the textile industry, 66 but it would then be extended to other industries as well and, more importantly, complemented with horizontal rules – i.e., rules intended to apply across sectors, such as rules for regional aid or aid for firms in difficulty.67 These instruments normally adopted the form of ‘Communications’ or ‘Guidelines’, yet other denominations such as ‘Codes’ or ‘Frameworks’ were not unheard of.68 In any event, the point to note is that the only legal basis for their adoption was the Commission’s broad margin of discretion under Article 107(3) TFEU and its power of self-organization, hence their consideration as ‘internal administrative rules’.69 62 63

Schweda (2010) 153

Sinnaeve and Slot (1999) 1153.

64 65

Smith (1998) 57.

See Rawlison (1993); Cini (2001); Blauberger (2009); Stefan (2012).

66 67

Rawlinson (1993) 54.

Stefan (2012) 51.

68

Bacon (1997) 408.

69

Hofmann (2006) 158.

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The scope and content of these instruments has changed over time, but the Commission’s reliance on soft-law to structure the administration of the exemptions has remained intact. Indeed, State aid analysis is still governed by a superstructure of horizontal70 and sector-specific instruments71 that cover most cases in which State aid is granted. It follows that it is only in rare cases that the Commission is called to decide on the basis of Article 107(3) TFEU itself. In most instances, State aid analysis is a rule-based exercise consisting in checking the conformity of the measure at stake with the criteria defined in the relevant piece of soft-law. The administrative rules adopted by the Commission in the field of State aid produce two types of effects.72 On the one hand, they are self-binding for the Commission. The European Courts have relied on different principles to justify this result (legitimate expectations,73 legal certainty,74 or equal treatment 75), but it is settled case law that that the Commission may not depart from its own guidelines, provided the guidelines themselves do not depart from primary and secondary legislation.76 In other words, the main effect of the Commission’s soft-law instruments in the field of State aid is to constrain the very discretion on the basis of which they were adopted in the first place. This is what Hofmann describes as their ‘internal’ effect.77 Technically, the Commission’s soft-law instruments do not bind Member States, because they are the product of the Commission’s right to self-organ70

E.g., Communication from the Commission — Criteria for the analysis of the compatibility with the internal market of State aid to promote the execution of important projects of common European interest (OJ C 188, 20.06.2014, p.4); Communication from the Commission - Criteria for the compatibility analysis of state aid to disadvantaged and disabled workers subject to individual notification (OJ C 188 of 11.8.2009, p.6); Communication from the Commission - Criteria for the compatibility analysis of training state aid cases subject to individual notification (OJ C 188 of 11.8.2009, p.1); and Framework for State aid for research and development and innovation (OJ C 198 of 27.06.2014, p. 1).

71

E.g., Guidelines on risk finance aid for 2014-2020 (OJ C19, 22.01.2014, p. 4); Guidelines on State aid for rescuing and restructuring non-financial undertakings in difficulty (OJ C 249, 31.07.2014, p.1); Communication from the Commission on State aid for films and other audiovisual works (OJ C 332, 15.11.2013, p. 1); EU Guidelines for the application of state aid rules in relation to the rapid deployment of broadband networks (OJ C 257, 27.10.2009, p. 1); Notice from the Commission on the application of the competition rules to the postal sector and on the assessment of certain State measures relating to postal services (OJ C 39, 06.02.1998, p.2); Framework on state aid for shipbuilding (OJ C364 of 14.12.2011, p.9); Communication from the Commission: Rescue and restructuring aid and closure aid for the steel sector (OJC70, 19.3.2002, p. 21); and Communication from the Commission: Multisectoral framework on regional aid for large investment projects (OJ C 70, 19.03.2002, p.8).

72 73

Case C-189/02 Dansk Rorindustri [2005] ECR I-5425, para. 211.

74 75

Hofmann (2006a) 195.

Case C-310/99 Italy v Commission [2002] ECR I-2289, para. 52.

Case T-214/95 Vlaamse Gewest v Commission [1998] ECR II-717.

76 77

Case T-35/99 Keller v Commission [2002] ECR II-261, para. 77.

Hofmann (2006a) 195.

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ization.78 It follows that, in principle, they do not narrow down the scope of the exemptions as defined in primary law, which means that nothing prevents Member States from invoking the treaty itself as a standalone justification for State aid plans falling outside the scope of the Commission’s guidelines. Yet this is unlikely to work in practice, because Article 107(3) TFEU is a textbook example of ‘classic discretion’ – proving that a State aid plan satisfies the conditions defined therein empowers but does not oblige the Commission to authorize a derogation from the general prohibition laid down by Article 107(1) TFEU.79 It should come as no surprise, then, that the administrative guidelines of the Commission produce a certain ‘limited external effect’ too.80 This is because they create a strong incentive for Member States to accommodate their State aid policy to the Commission’s preferences, as expressed in its guidelines.81 There is thus an important ‘steering effect’ associated to their information-value,82 insofar as they allow Member States to anticipate the Commission’s scrutiny and to avoid the risk of having their State aid plans blocked by the Commission.83 Note that this brings to the area of State aid control a positive integration dimension that is alien to its original design,84 which is premised on the distinction between State aid policy (national competence) and marginal State aid control to avoid cross-border externalities (EU competence).85 Both types of effect explain the added value that State aid guidelines have from the viewpoint of the Commission’s efficient management of its limited resources. Their self-binding effect ties the hands of the Commission, whose margin of manoeuvre is reduced once it spells out the way it intends to go about in examining a certain type of State aid – but this also relieves the Commission from the need to decide, on a case by case basis, the type of State aid that qualifies for an exemption. Hence the view of the Commission’s guidelines as a ‘time-saving device’.86 On a different level, the steering effect produced by the Commission’s guidelines reduces the volume of hard cases faced by the Commission. True, the administrative guidelines of the Commission cannot modulate the obligation of Member States to notify in advance any plan that matches the objective definition of State aid – they cannot modulate, in other words, the total number of cases that the Commission needs to scrutinize. Yet by facilitating the alignment between the Member States’ plans and the 78

Hofmann (2006) 164.

79

Craig (2012) 430.

80 81

Hofmann (2006) 163.

Blauberger (2009) 727.

82 83

Hofmann (2006b) 196.

Ibid.

84 85

See Blauberger (2009).

Hence the definition of State aid control as a ‘functional, cross-sectoral competence’ (Von Bogdandy and Bast (2009) 294).

86

Rawlinson (1993) 56.

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Commission’s preferences, they facilitate the latter’s task, hereby contributing to a smoother operation of its procedures.



6 The decentralization of State aid control

The last part of this paper looks at the third strategy followed by the Commission to improve the efficiency of the system of State aid control – namely, the decentralization process fostered by the Commission in order to reduce the volume of State aid measures that go through its ex ante scrutiny. The starting point of this section needs to be Article 109 TFEU, which provides that the Council ‘may make any appropriate regulations for the application of Articles 107 and 108 and may in particular determine the conditions in which Article 108(3) shall apply and the categories of aid exempted from this procedure’. Although the content of this provision has not varied from the entry into force of the Treaty of Rome in 1957, the EU institutions did not make use of it until the late 1990’s, when they finally adopted the so-called Enabling Regulation.87 The Enabling Regulation empowers the Commission to adopt two different types of delegated acts through which it may manage the flow of State aid measures that are subject to its preliminary scrutiny. On the one hand, Article 1 ER empowers the Commission to declare, by means of regulations, that certain categories of aid ‘should be compatible with the common market and shall not be subject to the notification requirements of Article 108(3) TFEU.’ The Enabling Regulation itself determines the categories of aid that may be exempted – originally, aid in favour of small and medium-sized enterprises; research and development aid; environmental protection aid; and employment and training aid, yet these categories have been broadened as a result of the last reform of the Enabling Regulation – but it leaves it for the Commission to decide whether it puts into the operation the exemptions and under what precise conditions. The Commission made use of this power for the first time in 2001, with the adoption of the Regulation on training aid88 and the Regulation on State aid to SMEs.89 This package was later complemented with the Regulation on State aid for employment90 and the Regulations on State for SMEs active in the agricul87

Council Regulation (EC) No 994/98 of 7 May 1998 on the application of Articles 92 and 93 of the Treaty establishing the European Community to certain categories of horizontal State aid (Enabling Regulation) (OJ L 142, 14.5.1998, p. 1).

88

Commission Regulation (EC) No 68/2001, on the application of Articles 87 and 88 of the EC Treaty to training aid (OJ L 10, 13.1.2001, p. 20).

89

Commission Regulation (EC) No 70/2001 of 12 January 2001 on the application of Articles 87 and 88 of the EC Treaty to State aid to small and medium-sized enterprises (OJ L 10, 13.1.2001, p. 33).

90

Commission Regulation (EC) No 2204/2002 of 12 December 2002 on the application of Articles 87 and 88 of the EC Treaty to State aid for employment (OJ L 337, 13.12.2002, p. 3).

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tural and fisheries sectors.91 All of them were later replaced by the 2008 General Block Exemption Regulation,92 which was in turn recently superseded by the 2014 version that is currently in force.93 The General Block Exemption Regulation relieves Member States from the need to notify State aid schemes, individual State aids adopted under those schemes and ad hoc State aid measures that satisfy the general conditions defined in Chapters I and II as well as the specific conditions laid down in Chapter III for each category of aid (i.e., regional aid, aid to SMEs, aid for R&D&I, training aid, aid for disadvantaged workers and workers with disabilities, aid for environmental protection, aid to make good the damage caused by certain natural disasters, social aid for transport for residents of remote regions, aid for broadband infrastructures, aid for culture and heritage conservation, aid for sport and multifunctional recreational infrastructures, and aid for local infrastructures). The fulfilment of both sets of conditions has two implications for any State aid measure: it means, first of all, that the measure in question shall be compatible with the internal market within the meaning of Article 107(2) or (3) TFEU; as a corollary, it further means that it shall be exempted from the need to go through the control of the Commission foreseen in Article 108(3) TFEU. Article 2 of the Enabling Regulation empowers the Commission to adopt a second type of regulations – namely, regulations providing that ‘certain aids do not meet all the criteria of Article 107(1) TFEU and that they are therefore exempted from the notification procedure provided for in Article 108(3) TFEU, provided that aid granted to the same undertaking over a given period of time does not exceed a certain fixed amount’. It is on the basis of this provision that the Commission has adopted the different de minimis regulations that have existed since 2001, including the one in force, which dates from 2013.94 Under the latter, the general rule is that aid measures in favour of a single undertaking which do not exceed EUR 200 000 over any period of three fiscal years do not constitute State aid for the purpose of Article 107(1) TFEU and, hence, do not trigger the notification obligation of Article 108(3) TFEU – that is, provided they satisfy the rest of conditions defined in the same regulation. The operation of the General Block Exemption and the de minimis regulations is, thus, different: whereas the former declares the compatibility with 91

Commission Regulation (EC) No 1/2004 of 23 December 2003 on the application of Articles 87 and 88 of the EC Treaty to State aid to small and medium-sized enterprises active in the production, processing and marketing of agricultural products (OJ L 1, 3.1.2004, p. 1).

92

Commission Regulation (EC) No 800/2008 of 6 August 2008 declaring certain categories of aid compatible with the common market in application of Article 87 and 88 of the Treaty (General Block Exemption Regulation) (OJ L 214, 9.8.2008, p. 3).

93

Commission Regulation (EU) No 651/2014 of 17 June 2014 declaring certain categories of aid compatible with the internal market in application of Articles 107 and 108 of the Treaty (General Block Exemption Regulation) (OJ L 187, 26.6.2014, p. 1).

94

Commission Regulation (EU) No 1407/2013 of 18 December 2013 on the application of Articles 107 and 108 of the Treaty on the Functioning of the European Union to de minimis aid (OJ L 352, 14.12.2013, p. 1).

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the common market of certain State aid measures, the latter excludes from the definition of State aid certain measures of state assistance to firms. This difference notwithstanding, the end result of both instruments is to provide Member States with a ‘safe harbour’ – in other words, with an indication of the way in which they need to design their State aid measures in order to shield them from the control of the Commission and, hence, from the risk of their being declared contrary to the rules on State aid. By the same token, they both provide a strong incentive for Member States to accommodate their State aid policy to their provisions. Thus, they produce the same type of steering effect described earlier in relation to the Commission’s soft-law. No wonder, then, that almost 20% of the volume aid granted each year over the EU is covered by the GBER.95 From the perspective of the Commission, this is the most radical amongst the different strategies outlined here, in that it implies a complete overhaul of the standard system of State aid control – from a centralized system of ex ante control by the Commission to a decentralized system, where it falls on national authorities to ensure the conformity of their own plans with the rules of the de minimis and general block exemption regulations. Indeed, the main purpose of these regulations is ‘to relieve the Commission from the vast majority of often time-consuming assessments of rather small aid measures with relatively minor effect on competition and intra-Community trade and to enable it to concentrate on the more important cases in terms of potential effect on competition and intra-Community trade.’96 The shift towards a more decentralized system of State aid control brought about by these regulations alters the role of all the parties involved in its operation.97 It recasts the function of national authorities and national courts, whose role is no longer restricted to verifying the procedural regularity of State aid programs but also their substantive compatibility with the interpretation of Articles 107(2) and (3) TFEU spelled out by the Commission in the regulations. It also enhances the importance of private parties’ involvement, since they are expected to act as watchdogs and to bring to their national courts’ attention any measure that fails to meet the conditions defined by secondary law to relieve them from the preventive check of the Commission.98 More importantly, the de minimis and block exemption regulations transform the role of the Commission itself. In relation to the measures that fall within their scope, the Commission is simply expected to discharge its general, ex post, monitoring function, rather than the prophylactic control that it normally exercises in the field of State aid. It is however interesting to note that the Commission does not hereby relinquish all control over the enforcement of the rules on State aid. 95

State Aid Scoreboard: http://ec.europa.eu/competition/state_aid/scoreboard/graph8.jpg (last accessed 8th January 2015).

96 97

Zuleger (2010) 421.

Sinnaeve (2001) 1500; Berghofer (2009) 327.

98

Ibid.

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First of all, the de minimis and general block exemption regulations are delegated acts adopted by the Commission itself, with no interference from the Council – save for the need to consult the advisory committee prior to their adoption. This is important, for it means that it is for the Commission to decide the type of measures that may be implemented without its prior authorization. In this sense, the system seems to be informed by an ‘experimentalist governance’ philosophy – the Commission is to draw on its own experience in the application of the rules on State aid (be it through individual State aid decisions or through soft-law measures of general application) when it comes to codifying certain solutions in its own regulations.99 Second, both the de minimis and the general block exemption regulations condition their application to the fulfilment of a number of transparency and reporting obligations on the part of the granting Member State. 100 These obligations are meant ensure that the Commission is in a position to exercise its monitoring function effectively. The general block exemption regulation contains a powerful tool in that regard, since it allows the Commission to withdraw the exemption where a Member State fails to abide by these obligations.101 Thus, both regulations push the Commission back to its standard role in EU administrative law, but lay down the conditions to ensure that it may discharge this function in the best possible conditions. Arguably, both mechanisms strike a certain trade off between the need of the Commission to manage its enforcement resources more efficiently while keeping control over State aid policy.



7 Conclusion

This chapter has identified one of the main administrative challenges raised by the administration of the rules on State aid: the mismatch between the breadth of the tasks assigned to the Commission and its limited administrative resources. It has also identified three of the strategies deployed by the Commission itself (with the support of the EU legislator and judiciary) in response to this challenge: first, the involvement of national courts in the fight against unlawful State aid, which multiplies the resources available to detect (and channel through the appropriate procedures) the high volume of State aid granted within the EU; secondly, the development of a superstructure of soft-law rules designed to operationalize the rules of the Treaty, which streamlines the assessment of the compatibility of State aids; finally, the adoption of de minimis and general block exemption regulations, which diverts from the Commission’s purview a great deal of cases on the basis of the experience acquired by the Commission over the course of many years of State aid enforcement. 99

This idea informs recital 4 of the Enabling Regulation and recital 4 of the GBER.

100 101

A rticle 6 of the de minimis Regulation and Articles 9 to 12 GBER.

A rticle 10 GBER.

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Bibliography K. Bacon, European Community Law of State Aid (Oxford: Oxford University Press, 2009). M. Berghofer, “The General Block Exemption Regulation: A Giant on Feet of Clay”, 8 (2009) European State Aid Law Quarterly, 323-36. M. Blauberger, “Of ‘Good’ and ‘Bad’ Subsidies: European State Aid Control through Soft and Hard Law”, 32 (2009) West European Politics, 719-37. M. Cini, “The Soft Law Approach: Commission Rule-Making in the EU’s State Aid Regime”, 8 (2001) Journal of European Public Policy, 192-207. P. Craig, EU Administrative Law (2nd edn.; Oxford / New York: Oxford University Press, 2012). H. C. H. Hofmann, “Administrative Governance in State Aid Policy”, in H. C. H. Hofmann and A. H. Türk (eds.), EU Administrative Governance (Cheltenham UK / Northampton USA: Eward Elgar, 2006), 185-214. H. C. H. Hofmann, “Negotiated and non negotiated administrative rulemaking: The example of EC competition policy”, 43 (2006b) Common Market Law Review, 153-78. T. Jestaedt, J. Derenne and T. Ottervanger, Study on the enforcement of State aid law at national level (Brussels: Jones Day, Lovells, Allen & Overy, 2006). R. D. Kelemen, “Adversarial Legalism and Administrative Law in the European Union”, in S. Rose-Ackerman and P. L. Lindseth (eds.), Comparative Administrative Law (Cheltenham / Northampton: Edward Elgar, 2010), 606-17. M. Köhler “Private Enforcement of State Aid Law – Problems of Guaranteeing EU Rights by means of National (Procedural) Law”, European State Aid Law Quarterly, 11 (2012), 369-87. M. Nolin, “Les droits des plaignants dans le secteur des aides d’État”, in Association Europénne Des Avocats (ed.), Un rôle pour la défense dans les procédures communautaires de concurrence: Congrès organisé les 25 et 26 novembre (Brussels: Bruylant, 1997), 141-52. W. Mederer, “Evolution of State aid control”, in W. Mederer and others (eds.), EU Competition Law (IV; Leuven: Claeys & Casteels, 2008), 19-63. F. Rawlinson, “The Role of Policy Frameworks, Codes, and Guidelines in the Control of State Aid”, in I. Harden (ed.), State Aid: Community Law and Policy (Cologne: Bundesanzeiger Verlagsgesellschaft, 1993), 52-60. L. Rubini, The Definition of State Aid: WTO and EC Law in Comparative Perspective (Oxford: Oxford University Press, 2010), at 151-80. J. Schwarze, European Administrative Law (Rev. 1st edn.; Luxembourg / London: Office for Official Publications of the European Communities / Sweet & Maxwell, 2006). M. Schweda, “Compatibility of State Aid Pursuant to Article 87(3) EC”, in M. Heidenhain (ed.), European State Aid Law (Munich: Verlag C.H. Beck, 2010), 151-82. A. Sinnaeve and P. J. Slot, “The New Regulation on State Aid Procedures”, 36 (1999) Common Market Law Review, 1153-94. A. Sinnaeve, “Block Exemptions for State Aid: More Scope for State Aid Control by Member States and Competitors”, 38 (2001) Common Market Law Review, 1479-501. M. P. Smith, “Autonomy by the Rules: The European Commission and the Development of State Aid Policy” 36 (1996) Journal of Common Market Studies, 55-78. O. Stefan, “Hybridity before the court: a hard look at soft law in the EU competition and state aid case law”, 37 (2012) European Law Review, 49-69

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E. M. Szyszczak, The Regulation of the State in Competitive Markets in the EU (Oxford: Hart, 2007) A. Von Bogdandy and J. Bast, “The Federal Order of Competences”, in Armin von Bogdandy and Jürgen Bast (eds.), Principles of European Constitutional Law (2nd edn.; Oxford/Munich: Hart/Verlag CH Beck, 2009), 257-307. V. Zuleger, “Block Exemption Regulations”, in in M. Heidenhain (ed.), European State Aid Law (Munich: Verlag C.H. Beck, 2010), 419-46.

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Organisational Forms and Structures of the Public Procurement Administration in the European Internal Market Silvia Díez Sastre

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organisational forms and structures of the public procurement administration in the european internal market

1 Introduction

1. According to the estimates from the European Commission, in 2010 about one fifth of the EU GDP was allocated to procure goods, works, and services. During that same period, 3.7 per cent of the EU GDP was spent on the award of public contracts above the EU thresholds, resulting in an expenditure of over EUR 447 billion.1 These large figures, which were recorded in spite of the economic downturn, show the importance of public procurement at European level and justify the interest of EU institutions in ensuring its proper functioning. EU authorities have tried to guarantee equal treatment to all economic operators through transparency, adequate publicity, and nondiscrimination rules for the last four decades. Safeguarding competition has been of great concern as well. More recently, they try to ensure the most efficient use of public funds.2 The aforesaid objectives have been decidedly pursued both by means of case law from the European Court of Justice (hereinafter referred to as ECJ) and EU legislation. The last Public Procurement Package is along these lines, yet providing for certain regulatory innovations: it introduces new contracts –namely concession contracts–, new procedures –such as innovation partnerships–, it is aimed at procedural simplification, and it provides for new rules on the performance of the contract.3 However, it can be asserted that EU public procurement law remains a fragmented set of rules, which is exclusively addressed to Member States4 and mainly targeted to ensure the well-functioning of the Internal Market. 2. The EU is not competent to regulate public contracts concluded by or on behalf of Member State authorities, which can be explained by the requirements stemming from the principles of subsidiarity and proportionality. EU Directives only provide for the regulatory framework applicable to the so-called ‘harmonised contracts’ (public contracts above the EU thresholds), characterised by the kind of contracting entity –a contracting authority–, the subject matter of the contract, and the economic thresholds –periodically revised by the Commission. Member States are obliged to transpose Directives into national Law and they shall also ensure compliance with EU public procurement principles of contracts not subject to harmonised legislation (‘non-harmonised contracts’).5 1

 Annual Public Procurement Implementation Review 2012. COM STAFF Working Document 9.10.2012.

2 3

Recital 2 Directive 2014/24/EU.

The new Public Procurement Reform Package comprises the following Directives: Directive 2014/23/ EU of the European Parliament and of the Council, of 26 February 2014, on the award of concession contracts (OJ L 94, 28.3.2014, p. 1); Directive 2014/24/EU of the European Parliament and of the Council, of 26 February 2014, on public procurement and repealing Directive 2004/18/EC (OJ L 94, 28.3.2014, p. 65); and Directive 2014/25/EU of the European Parliament and of the Council, of 26 February 2014, on procurement by entities operating in the water, energy, transport and postal services sectors and repealing Directive 2004/17/EC (OJ L 94, 28.3.2014, p. 243).

4

Article 55 Directive 2014/23/EU; Article 94 Directive 2014/24/EU; and Article 110 Directive 2014/25/ EU.

5

Recital 1 Directive 2014/24/EU.

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Member States deal with this situation differently, thus leading to a legally fragmented panorama within the EU. Some countries, such as Austria or Sweden, choose to extend EU rules to all of their contracts, whereas others –such as Spain– 6 feel it would be beneficial to do so. Conversely, some other countries try to maintain their identity sticking to their long-standing public procurement rules in those areas which remain outside the scope of the Directives, Germany being an excellent example of the latter.7 The foregoing shows how a high level of asymmetry within the legal framework of contracts not subject to harmonised legislation is reached. It must be recalled that such contracts account for more than 90 per cent of the overall contracts awarded in the EU. 3. It must be taken into account that EU rules on public contracts are issued on the basis of Articles 53(1), 62 and 114 Treaty on the Functioning of the European Union (hereinafter referred to as TFEU). These provisions relate to the establishment and functioning of the internal Market and especially to the guarantee of the freedom to provide services. Therefore, the EU legislator shall focus on problems arising from the operation of the internal market, which particularly have an impact at the stage prior to the conclusion of the contract, i.e., when the contract is awarded. The truth is that ECJ case law and the most recent Directives have laid down certain rules and conditions on the contract performance stage. Furthermore, the new Directive 2014/24/EU refers to public procurement and not exclusively to the coordination of procedures for the award of public contracts –as the already repealed Directive 2004/18/EC did. In addition, Europe 2020 Strategy regards public procurement as a key instrument for economic growth. Nevertheless, the main reason why the European legislation tackles the problems experienced after the conclusion of the contract still is to prevent distortions of competition, which arise at the contract performance stage. Of course, it cannot be denied that public procurement has aims other than ensuring the proper functioning of the internal market, as is shown by the inclusion of social, labour, and environmental requirements in public procurement or by the existing concerns about corruption and the good use of public funds.8 However, for the moment, the underpinning objective of European public procurement legislation continues to be promoting and ensuring a wellfunctioning internal market and competition between economic operators. 4. To achieve this goal, European Law has traditionally focused on substantive and procedural rules applicable to the award of public contracts. These rules address the procurement documents and the procedures for the selection of the most economic advantageous tender, with special emphasis on publication and transparency specifications. The European legislator also regulates review procedures that have to be available in all EU countries in cases where

6 7

Gimeno Feliu (2015) 10.

Knauf and Streit (2009) 38.

8

Gimeno Feliu (2014) 15 et seq.

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economic operators consider that procurement rules were infringed.9 However, administration organisation forms remain within the scope of Member States organisational autonomy. EU public procurement Directives set out several organisational forms –such as central purchasing bodies or occasional joint procurement–10 along with a few provisions on forms of cooperation between Member States and between Member States and the European Commission.11 Thus, there is little direct regulation of national administration organisational forms. However, compliance with EU requirements relating to public procurement has an important impact on the kind of administrative organisation called upon to enforce public procurement rules. There are central factors which constrain the model of public administration which is de facto imposed on Member States in order for them to manage public procurement, namely: the complexity of substantive and procedural rules, the demand for using electronic means, the requirement to draft information on the relevant contractual activity, the duty to protect economic operators, the intertwining of public procurement and competition rules, as well as the duty not to violate market rules. 5. The purpose of this study is to analyse the organisational forms and structures of the public procurement administration imposed thereon –whether directly or indirectly– by European provisions. In concrete terms, the aim is to identify a number of features specific to the organisation of the public procurement administration. To that end, there are two core issues examined herein: in the first place, the redefinition of the very concept of administration undergone by public procurement law (II.): administration can be defined under a functional perspective (II.1), as opposed to the market and (II.2) under a national perspective (II.3); secondly, the distinct organisational forms and structures adopted by the public procurement administration (III.). This point provides a differentiated analysis of the administrative forms and structures on the basis of the particular functions entrusted to the administration, namely: awarding (III.1), performing (III.2) and enforcing the management of public contracts (III.3). Each of them has particular characteristics which shall be subject to a close examination. The 9

The so-called ‘Remedies Directives’ foresee these review procedures and remain applicable after the entry into force of the new Public Procurement Reform Package: Directive 89/665/EEC of the Council, of 21 December 1989, on the coordination of the laws, regulations and administrative provisions relating to the application of review procedures to the award of public supply and public works contracts (OJ L 395, 30.12.1989, p. 33); Directive 92/13/EEC of the Council, of 25 February 1992, coordinating the laws, regulations and administrative provisions relating to the application of Community rules on the procurement procedures of entities operating in the water, energy, transport and telecommunications sectors (OJ L 76, 23.3.1992, p. 14); and Directive 2007/66/EC of the European Parliament and of the Council, of 11 December 2007, amending Council Directives 89/665/ECC and 92/13/ECC with regard to improving the effectiveness of review procedures concerning the award of public contracts (OJ L 335, 20.12.2007, p. 31).

10 11

Articles 37-39 Directive 2014/24/EU; Articles 55-57 Directive 2014/25/EU.

Articles 39, 84-86 Directive 2014/24/EU; Articles 57, 100-102 Directive 2014/25/EU.

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study concludes with a set of closing remarks on the problems arising from the implementation of new organisational schemes in Member States (IV.).



2 Redefining the concept of administration in the public procurement domain

6. Apparently, Member States are given a large measure of organisational autonomy by European Public Procurement Law. In practice, however, European rules have had a significant impact on the organisational forms of national administrations. This is firstly due to the redefinition of the very concept of administration performed by the European legislator. Determining which entities and under what circumstances shall they be subject to public procurement rules represents a clear transformation of the national and long-standing notion of administration. It must be recalled that this concept has been traditionally connected with the various expressions of public or private legal personality. In the light of the content of EU provisions, it can be stated that public procurement law is applied to an administration defined on a functional basis: moving beyond the public-private distinction specific to national law; as opposed to the market: since the capacity of self-organisation shall be dependent on where market boundaries are to be drawn; and under a national outlook: public procurement tasks are carried out by Member States in an autonomous fashion. Contrary to other sectors of the Internal Market, the procurement administration is almost free from vertical and horizontal linkages with the European administration and other Member States administration. These characteristic features that shape, in my view, the new concept of administration in the field of public contracts shall be analysed below.



2.1 An administration defined under a functional perspective

7. The shaping of public procurement rules subjective scope of application is grounded on a functional definition of ‘contracting authority.’ Given that Member States administration is the addressee of EU public procurement law, we would be confronted with an administration featuring various legal personifications (whether of a public or a private nature) which shall not be defined in organic terms, but rather under a functional perspective. What really matters is for the administration to be considered a contracting authority involved in the market, which can lead to potential distortions of competition among economic operators. Central government and sub-central contracting authorities, as well as bodies governed by public law, are to be considered as contracting authorities. The inclusion of bodies governed by public law –defined by European rules– in the concept of contracting authorities has reshaped the traditional concept of administration. Public procurement rules shall apply to bodies established for the specific purpose of meeting needs in the general interest, not having

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an industrial or commercial character, and closely linked to other contracting authorities by means of financing or administrative, managerial or supervisory boards, regardless of their public or private legal personality.12 This way, European public procurement law moves beyond the traditional public-private distinction deeply rooted in the national legal orders of Member States. Additionally, it prevents the adoption of organisational forms of private law, since the degree of application of public procurement rules is the same as for organisational forms of public law. The most important transformation of Member States administrative organisation is probably due to this new functional understanding of public entities within the administration, given a wide meaning. This results in a considerable disparity in the number of contracting authorities or entities in each Member States dependent upon the various administrative organisational forms.13



2.2 An administration defined as opposed to the market

8. The definition of administration under a functional perspective is complemented by its opposition to the market. In the new public procurement package the European legislator clarifies the notion of body governed by public law in contrast to persons acting in the market: if a body operates in normal market conditions, trying to make a profit and bearing the losses resulting from the exercise of its activity, it is not subject to the application of public procurement Directives.14 This is how a line is drawn between public or private entities which shall be subject to EU public procurement rules and those which operate freely in the market. However, ascertaining who is to be governed by public procurement law says nothing at all about to what extent shall a relevant contracting authority be obliged to contract out. In other words, there is still a question pending with regards to the entities which make up the ‘public procurement administration:’ do they have the obligation to resort to the market and thus to contribute to enlarge the market? Or, on the other hand, shall each national administration be considered as free to decide whether it meets its needs with its own resources or rather resorting to economic operators within the internal market? The answer to such questions is decisive in order to mark the boundary between the concept of administration vis-à-vis the market as well as to predict the future set up of the public procurement administration.15 9. European public procurement rules leave national contracting authorities free to contract out or remain in house. They state explicitly that Member States are free to use their own resources to carry out their tasks or to external12 13

Subparagraphs 1-4 in Paragraph 1 of Article 2 Directive 2014/24/EU. Gimeno Feliu (2014) 63.

For instance, in 2010 there were 350 contracting authorities in Denmark, 132.652 in France and 8.339 in Spain. Information obtained from the Annual Public Procurement Implementation Review 2012. COM STAFF Working Document 9.10.2012.

14 15

Recital 10 Directive 2014/24/EU.

In this vein, Sosa Wagner and Fuertes López (2007) 1678; more recently, Vilalta Reixach (2012) 403.

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ise the provision of services. Moreover, European law recognises the freedom of national contracting authorities to choose from these options when they perform public service tasks and works or provide services, inasmuch as a noncontractual relationship exists.16 This is the so-called principle of free administration by Member States. 17 The legal scientific community has traditionally interpreted European law in this sense.18 10. However, an in-depth analysis of the effects of public procurement legislation may lead to a different conclusion. One of the main risks for the compliance with EU public procurement rules stems from the use of administrative forms or transfers of powers –administrative agreements, management delegations, etc.–,which could be used to bypass the application of these rules. By means of these instruments, national administrations may avoid the market protection obligations laid down by EU law. It is in order to adopt this situation that EU legislation defines ‘contract’ as any relationship between the administration and economic operators, as well as between the administration and its own entities or bodies. In the latter cases, the notion of contractual relationship accounts for the negative mirror of the merely administrative relationship. Hence, when the relationship has a contractual nature it shall be subject to EU public procurement rules. The problem is that the European definition of administrative relationship is incomplete, and only a few hints are given: a relationship is 16

Recital 5 Directive 2014/24/EU: ‘It should be recalled that nothing in this Directive obliges Member States to contract out or externalise the provision of services that they wish to provide themselves or to organise by means other than public contracts within the meaning of this Directive.’ Recital 31 Directive 2014/24/EU: ‘the application of public procurement rules should not interfere with the freedom of public authorities to perform the public service tasks conferred on them by using their own resources, which includes the possibility of cooperation with other public authorities.’ Paragraph 6 in Article 1 Directive 2014/24/EU: ‘Agreements, decisions or other legal instruments that organise the transfer of powers and responsibilities for the performance of public tasks between contracting authorities or groupings of contracting authorities and do not provide for remuneration to be given for contractual performance, are considered to be a matter of internal organisation of the Member State concerned and, as such, are not affected in any way by this Directive.’ Recital 5 Directive 2014/23/EU: ‘This Directive recognises and reaffirms the right of Member States and public authorities to decide the means of administration they judge to be most appropriate for performing works and providing services. In particular, this Directive should not in any way affect the freedom of Member States and public authorities to perform works or provide services directly to the public or to outsource such provision by delegating it to third parties.’ Paragraph 1 in Article 2 Directive 2014/23/EU: ‘This Directive recognises the principle of free administration by national, regional and local authorities in conformity with national and Union law. Those authorities are free to decide how best to manage the execution of works or the provision of services, to ensure in particular a high level of quality, safety and affordability, equal treatment and the promotion of universal access and of user rights in public services. Those authorities may choose to perform their public interest tasks with their own resources, or in cooperation with other authorities or to confer them upon economic operators.’

17

Paragraph 1 in fine in Article 2 Directive 2014/23/EU; Recital 7 Directive 2014/25/EU.

18

See Williams (2012) 3. In Spain, Rebollo Puig (2003) 379 and González García (2007) 220.

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of an administrative nature and non-contractual, when a legal entity is obliged to carry out orders given to it by a contracting authority and has no influence on the remuneration for its performance.19 11. The extension of the concept of contract to inter-administrative relations allows for presuming the submission to European rules: typically, contractual relationships shall be established pursuant to EU public procurement law. Given that some scope of self-organisation shall be conferred upon Member States, EU authorities provide for a set of exceptions to the application of public procurement rules. 20 If the requirements which are increasingly stemming from EU Directives or ECJ case law are met, public procurement demands are not to be applied. This is the case for the shaping of the notion of ‘in house providing’ or ‘public-public cooperation.’21 We are also referring to other exceptions created by EU law, such as the use of central purchasing bodies by contracting authorities, which is expressly left outside the scope of application of the relevant Directives.22 12. Therefore, it may be concluded that EU law indirectly drives contracting authorities towards contracting out, inasmuch as it turns the notion of contract into a far-reaching concept applicable to internal organisation forms of the administration, whilst subjecting the latter to a stringent compatibility test with the internal market. The provision of services and works and the supply of goods can only remain ‘in house’, when the requirements established by European law are met. In all other cases, the administration is compelled to contract out. This conclusion is reinforced by the fact that the exceptions to the application of EU public procurement law stem from ECJ case law. The ad casum and thus incomplete determination of the said exceptions, has led to a sufficient amount of legal uncertainty as to bring along an incentive to resort to the market and avoid potential EU law infringements. Indeed, the European legislator acknowledges that there is considerable legal uncertainty as to how far contracts concluded between entities in the public sector should be covered by public procurement rules and with .

19

Recital 34 Directive 2014/24/EU. Along these lines, in Spain, Vilalta Reixach (2012) 275 et seq.

20

In this connection, Karayigit (2010) 192; Pedersen and Olson (2013) 234; Falle (2014) 132; Wiggen (2014) 92; Jaeger (2014) 260 et seq.

21

Recital 33 Directive 2014/24/EU. In this regard, Ruiz Castañeda de la Llave and Bernal Blay (2011) 34-35; Vilalta Reixach (2014) 941; and Santiago Iglesias (2014) 902.

22

Paragraph 6 in Article 1 Directive 2014/24/EU: ‘Agreements, decisions or other legal instruments that organise the transfer of powers and responsibilities for the performance of public tasks between contracting authorities or groupings of contracting authorities and do not provide for remuneration to be given for contractual performance, are considered to be a matter of internal organisation of the Member State concerned and, as such, are not affected in any way by this Directive’; and Article 12 Directive 2014/24/EU. Concerning in house agreements: Avarkioti (2007). With regard to administrative cooperation Bernal Blay (2011) and Gimeno Feliu (2013). See also, paragraph 4 in Article 37 Directive 2014/24/EU: ‘Contracting authorities may, without applying the procedures provided for in this Directive, award a public service contract for the provision of centralised purchasing activities to a central purchasing body.’

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regard to the different interpretation of the relevant case-law of the European Court of Justice between Member States and even between contracting authorities.23 13. In addition to the foregoing, alongside this collateral effect of EU public procurement legislation, the twofold constrains laid down by the economy and competition law concerning the optimum size of the administration shall be taken into account. It seems like the greater efficiency of the market regarding the provision of goods and services is taken for granted –although scientific studies in this regard do not necessarily substantiate such a thesis.24 That is the tenor of New Public Management approaches, which have been awarded a warm welcome in Europe in the context of the cutbacks made throughout the economic downturn.25 Similarly, at regulatory, scholarly, and judicial levels, an interpretation of public procurement law in favour of competition is becoming increasingly present, i.e., an interpretation which fosters the greatest competition possible in the market, within the framework provided by EU legislation.26 Such an interpretation is grounded on the priority allegedly granted by EU public procurement law to competition over any other principle.27 In spite of the fact that this tendency does not directly stem from EU authorities or from EU law provisions, it must be taken into consideration as for adequately understanding the administration’s current role in public procurement: it seems to be better for the economy and for the administration itself to contract out instead of using the resources at disposal.



2.3 An administration defined under a national perspective

14. European public procurement law is exclusively addressed to Member States, not to European institutions. In addition, it departs from the premise that Member States shall be free to set up the organisation called for complying with EU prescriptions. Although it does not account for a full organisational freedom, the truth is that the scope of self-organisation granted to Member States is barely affected by linkages with other Member States’ national administrations. In this sense, the administration of public contracts is defined under a national perspective; in other words, its scope of action is essentially national. 15. As opposed to other internal market sectors, public procurement law takes as a starting point the separate exercise of powers to enter into public contracts by each national administration. It is true that new cross-border joint procurement rules have been incorporated. In this vein, the new Directives provide for the possibility of contracting authorities from different Member States to act jointly in the award of public contracts.28 However, these mechanisms should be 23

Recital 31 Directive 2014/24/EU; Recital 45 Directive 2014/23/EU; and Recital 38 Directive 2014/25/EU.

24 25

For all, Bel i Queralt and Estruch Manjón (2012).

Braziel (2009) 868, 886.

26 27

For all, see Sánchez Graells (2009) 15 and (2011) 4. See also Estevan de Quesada (2014) 231.

Sánchez Graells (2011) 12.

28

Article 39 Directive 2014/24/EU; Article 57 Directive 2014/25/EU. Sánchez Graells (2014) 130.

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articulated by Member States. Also, the problems arising at national level from the application of other Member States’ rules to the contracting authority’s activity may hinder this task.29 In fact, European legislation emphasizes the need for solving these problems, for instance, by allowing the setup of joint entities established under national or Union law.30 Conversely, the EU administration’s intervention, embodied in the Commission, takes place to a lesser extent and is limited to controlling the compliance with public procurement rules [see below § 33]. From the foregoing it follows that the public procurement administration has a ‘national DNA.’ The only existing connections in this sector between administrations at different levels –national and European– occur in order to foster enforcement oversight regarding public procurement rules, yet not to shape the typically administrative contract -awarding and performing functions.



3 Organisational forms and structures in public procurement

16. In accordance with the foregoing, the public procurement administration is defined on a functional basis, moving beyond public-private distinctions and widening the scope of the long-standing concept of administration. In addition, this administration has to contract out, save the exceptions provided by EU law. It is also an administration which performs its functions at national level and in an autonomous manner; it barely establishes any connections with other national administrations or with the European administration when dealing with public procurement. However, this is not very telling about the forms and organisational structures specific to this administration. In order to analyse this issue, a distinction shall be drawn in order to differentiate on the basis of the functions performed by the administration: awarding, performing the contracts, and controlling the compliance with EU rules in this domain. One of these functions comes in response to diverse objectives, and is subject to EU provisions with varying degrees of intensity. In turn, this translates into a strong asymmetry regarding the conditions set on administrative organisation.



3.1 The awarding administration

17. Compliance with the competition principle in the internal market is one of the core elements of European public procurement law. In fact, most procurement rules are designed to guarantee the award of the contract to the most economically advantageous tender. Until the adoption of the new Directive 2014/24/EU, public procurement Directives solely regulated ‘procurement or awarding procedures.’ At least until this moment, the typical public 29

Regarding the provisions on procurement involving contracting authorities from different Member States, Risvig Hamer (2014) 209.

30

Recital 73 Directive 2014/24/EU.

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procurement administration has been an awarding administration. Rules aimed at ensuring that the contract is awarded on the basis of fair treatment guarantee competition among economic operators within the internal market. They also ensure a good use of public funds by contracting authorities, thus avoiding possible corruption networks, which have a particularly intense impact on this sector. Safeguarding competition is such an important goal, that an interpretation in favour of competition of public procurement rules is rapidly becoming widespread, as it has been pointed out before [§ 13]. In accordance with this approach, it is not only about complying with EU provisions, but also a practical application shall be carried out, meant to maximise competition in the internal market: by means of publicity or transparency rules, by determining award criteria, or by choosing a contract award procedure. The aim is not only to increase competition through contract award procedures, but also to implement a sort of administrative organisation capable of maximising competition. Some of the main features of the contemporary contract-awarding administration can be found within this context, namely: aggregated procurement is fostered; cooperation with the private sector is promoted; and there is a trend towards professionalization of the procurement staff.



3.1.1 An increasingly centralised administration

18. The new public procurement Directive contains a catalogue of procedural and organisational techniques in order to articulate aggregated procurement: framework agreements, dynamic purchasing systems, electronic auctions, electronic catalogues, central purchasing bodies and central purchasing activities, occasional joint procurement, and procurement involving contracting authorities from different Member States.31 This ‘tool box’, which is meant to aggregate the purchasing power of different contracting authorities, does not establish a general obligation for the Member States to promote aggregated procurement. However, providing for specific organisational forms in addition to the economic advantages attributed to the concentration of public procurement in a smaller number of awarding entities, entails a clear incentive to use these techniques at national level. This is how administrative is being reshaped and a centralised award model is becoming widespread.32 19. The notion that aggregating public procurement allows for creating better economies of scale and for saving on transaction costs has gained ground. Since the market shall be closed for a longer period of time, economic operators will submit more competitive and better bids. These brings along lesser costs for contracting authorities and economic operators alike, which are conducive to a better value for money for the administration.33 In addition, it results in greater transparency, since a larger amount of contracts is associated with more strin31

Articles 33-39 Directive 2014/24/EU.

32 33

Racca (2014) 456.

Risvig Hamer (2014) 201.

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gent transparency requirements.34 To add to that, competition is enhanced, given that small-scale and frequent contracting is more prone to collusion or distortion than large-scale and less frequent contracting.35 Notwithstanding the foregoing, the Commission unsuccessfully attempted to include in the new Directive the obligation of Member States to contract by means of central purchasing bodies. It was based on the understanding that this scheme enhanced market functioning.36 20. The truth is that statistics on contracts awarded by entities other than contracting authorities clearly show this trend –which is confirmed by the legislator itself.37 In accordance with the Annual Public Procurement Implementation Review 2012, the share of contract notices published by contracting authorities buying on behalf of other authorities rose from 3,14 in 2006 to 5,73 % in 2011.38 United Kingdom is one of the Member States where this trend has been more successful: more than 10 per cent of its procurement procedures are carried out through entities other than contracting authorities.39 In fact, many central purchasing bodies have been established in this country at different levels: state and local level, and in several fields: universities, fire services, etc. 40 Central purchasing bodies have also spread very rapidly in Italy, where small municipalities are obliged to go down this road in order to contract. This is also largely due to the willingness to prevent possible mafia interference, which are more frequent at a local level. 41 21. Notwithstanding the foregoing, the growing concentration or centralisation of contracting powers also shows some disadvantages, which are expressly acknowledged by the EU legislator. 42 The most important one might be the barrier to access public procurement suffered by small and medium-sized enterprises (hereinafter referred to as SMEs), which account for more than 99 per cent of European enterprises. 43 In this connection, Germany is a good example of how contracting with SMEs can be fostered. A principle of division of contracts into lots prevails in this country, and the techniques for the aggregation of the buying power have not encountered the success that have experienced in 34 35

Gallego Córcoles (2013) 123.

Chard (2008) 28.

36

Risvig Hamer (2014) 209. Paragraph 1 in Article 37 Directive 2014/24/EU foresees the existence of central purchasing bodies, but contracting authorities are not obliged to resort to them.

37

Recital 59 Directive 2014/24/EU: ‘There is a strong trend emerging across Union public procurement markets towards the aggregation of demand by public purchasers, with a view to obtaining economies of scale, including lower prices and transaction costs, and to improving and professionalizing procurement management.’

38

 Annual Public Procurement Implementation Review 2012. COM STAFF Working Document 9.10.2012.

39

 Idem.

40 41

Chard (2008) 28.

Di Lascio (2014).

42 43

Recital 59 Directive 2014/24/EU.

Risvig Hamer (2014) 207; Burgi (2007) 290.

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other countries. 44 In fact, the trend towards purchasing centralisation is hardly compatible with enabling SMEs to enter into public contracts, yet this also accounts for a clear aim of the public procurement Directive. 45 Furthermore, resorting to central purchasing structures affects the market structure and may lead to a lessening of competition. 46 Procurement by central purchasing bodies can create a market structure conducive to tacit collusion when the following circumstances are involved: more transparency, market concentration, stability, symmetry, and less complexity. The said tacit collusion situations are particularly hard to remove by means of EU competition law, and the same applies to public procurement rules. 47 It shall also be taken into account that in the United Kingdom, where several central purchasing bodies have been implemented, challenges to contract awards have undergone a significant growth. 48 Although this might not be happening in other Member States, attention shall be paid to the possibility of this effect becoming widespread.



3.1.2 A cooperative administration with the private sector

22. Alongside centralisation of the powers to award contracts, the close cooperative ties between the public procurement administration and the private sector is another defining feature of the first. Public procurement implies, per se, that the administration shall cooperate with private economic operators. Nevertheless, contemporary public procurement administration moves beyond such mere cooperation and sets forth actual cooperation or association mechanisms with private economic agents. This is how the administration can easily obtain project funding as well as benefit from private entities know-how, in addition to benefitting from the fact that such private entities bear the relevant risks. 49 The public-private partnership accounted for one of the most important contractual techniques within this context, although some regulatory shortcomings thereof can still be noticed.50 Innovation partnerships, introduced by the new public procurement Directive,51 are along these lines. This innovative instrument requires a highly qualified and fully developed administration, along with a previous innovation environment. This is probably why such mechanism is particularly put in place in Scandinavia –Sweden, Denmark, and Finland– as well as in Germany, which are countries undoubtedly placed at the forefront of European innovation.52 Finally, it must be recalled that the new public procure44 45

Burgi (2014).

Williams (2014) 79.

46 47

48

Chard (2008) 33.

49 50 51

Chard (2008) 26.

Estevan de Quesada (2014) 230. Míguez Macho (2014) 168.

Bovis (2013) 198. Hernando Rydings (2012).

Recital 49 Directive 2014/24/EU; Article 31 Directive 2014/24/EU.

52

Cerqueira Gomes (2014) 216.

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ment Directive has granted more flexibility to choose a procurement procedure, which provides for negotiations, in order to increase cross-border trade;53 which also calls for a strong administration capable of putting itself on an equal footing with economic operators when negotiating. 23. The public procurement administration’s cooperative approach is consistent with the said centralisation trends undergone by the powers to contract. In general, small administrations shall not be able to engage with economic operators capable of developing complex projects, or otherwise might not have enough economic resources as to invest in innovation. This is mainly due to their budgetary constraints and their borrowing limits, as well as to the lesser know-how in particularly complex sectors. The same applies to contract negotiation mechanisms, which require a certain level of technical training, often lacking within the aforesaid small administrations. Thus, the trend towards aggregated or centralised procurement is clearly in line with fostering publicprivate cooperation and with the need to professionalise the administration, which is examined below. Consequently, a decided commitment to centralised and specialised national administrations regarding the award of public contracts on the part of EU law can be clearly noticed.



3.1.3 A professionalised administration

24. Another administration’s distinguishing feature indirectly provided for by EU legislation on contract awards is its high degree of specialization. If a given administration is to award significant contracts, with highly sophisticated procedural rules –in spite of the efforts put into procedural simplification–, and requiring an in-depth knowledge of both the regulatory framework and the market within which it operates, its staff must have specialised technical expertise. The aforesaid specialisation goes hand in hand with the need for professionalization. Accordingly, the trend towards centralisation is closely linked with the need for further professionalising procurement management.54 An administration lacking in adequate technical expertise is not able to award complex contracts of a greater economic value and on a less frequent basis. Similarly, the gradual inclusion of IT and electronic means along with the flexibilisation of procurement procedures, call for a highly developed awarding administration. 25. In order to achieve the said professionalisation objective, there shall be a full understanding of every subject involved in the procurement procedure, and a practical approach shall be adopted thereto.55 There are certain Member States in which this demand may be conducive to amending the rules applicable to the allocation of contracting powers. As for Spain, for instance, the legislator designates as a contracting entity elected members within the administrative 53

Recital 42 Directive 2014/24/EU. Williams (2014) 80. Gimeno Feliu (2014) 97.

54

Recitals 59, 69 Directive 2014/24/UE. Moreno Molina and Domínguez Alonso (2014) 159; Racca (2014) 480.

55

Sanmartín Mora (2012) 421 et seq.

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organisation (ministers, majors, councillors).56 The commitment to professionalisation shall result in a better distribution of responsibilities amongst elected members within administrative organisations and officials or public employees. It shall be on elected members to draft public policies meant to be implemented by means of public procurement. However, drafting contract documents and carrying out awarding procedures shall be on highly qualified staff subject to strict rules and regulations on conflicts of interest, in order to ensure objectivity and avoid corruption.57



3.2 The performing administration

26. EU law has not been traditionally concerned with contract performance. However, ECJ case law has provided for certain requirements on the modification of public contracts as well as on the need to comply with competition rules even at the contract performance stage. This comes in response to the need for the safeguards attached to public procurement principles beyond the time the contract is concluded.58 This by no means alters the fact that EU public procurement law still revolves around internal market well-functioning. The regulation of public contract performance is somewhat slim, yet even these rules come in response to a competition protection rationale. The regulation of several conditions to be imposed on contract performance, such as modifications of contracts during their term, termination of contracts and subcontracting, aims to avoid the award of the contract to an offer that was not the most economically advantageous tender.59 27. From an administrative organisation point of view, this means that there are no requirements related to the performance stage specific needs. However, the organisational changes made to the awarding administration have an impact on the administration responsible for enforcing the relevant public contracts. Centralising or aggregating powers to contract may often imply a separation between the awarding authority and that responsible for managing the performance of the contract. Hence, although there are no organisational requirements applicable to the performing administration, it must be taken into account that, on one side, a parallel awarding administration is created, and on the other, a performing administration is also established. This may lead to dysfunctions of which the EU legislator is unaware. It is on the national legislators, when confronted with this situation, to implement a single and comprehensive monitoring process for the contract in full. In this connection, in Italy the role of ‘responsible for the contract’ has been awarded great importance, for the purpose of ensuring compliance with public procurement rules at every stage of the contract.60 56 57

Colás Tenas (2013) 189.

Gimeno Feliu (2015) 29 et seq.

58

In this vein, Racca, Cavallo Perin and Albano (2011) passim.

59

Díez Sastre (2013) 96.

60

Bercelli (2014) 91 et seq.

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3.3 The enforcing administration

28. Once the European requirements projected onto the administrative organisation for the award and performance of contracts have been examined, we still have to put forward the administration model responsible for performing control functions regarding EU public procurement rules. As opposed to the foregoing cases, in the latter case EU provisions are much clearer and much more precise, thus expressly establishing an organisational model. Nevertheless, a separation line shall be drawn between the various monitoring functions: on the one hand, information exchange and oversight, and on the other hand, the legal protection of economic operators involved in procurement procedures. Hence, it could be asserted that the EU legislator sets up a networked administration –by means of vertical and horizontal cooperation mechanisms– for the purpose of ensuring compliance with public procurement rules. It can also be concluded that the protection of economic operators is left to independent and growingly centralised national administrations.



3.3.1 Networked administration for the exchange of information and monitoring the compliance with public procurement regulation

29. Although the public procurement administration can be labelled as typically national, the information exchange and oversight functions are indeed set up through vertical and horizontal cooperation mechanisms which shape a networked administration.61 The exchange of information shall be considered as one of the oldest cooperation mechanisms within the EU,62 as well as a core element in order to conduct award procedures in cross-border situations.63 Along these lines, the new public procurement package foresees the designation of one single point of reference in each Member State for the cooperation with the Commission within the Internal Market Problem Solving Network (SOLVIT). Each single point of reference should act as a one-stop shop in all issues related to public procurement.64 Additionally, a pilot Project shall be launched by 18 April 2015 to test the suitability of using the Internal Market Information System (IMI)65 for the purpose of exchanging information in the field of public procurement.66 61

I refer to the concept of ‘network’ coined by Sydow (2004) 78 et seq.

62 63

Lafarge (2010) 611.

Recital 128 Directive 2014/24/EU.

64 65

Recital 125 and paragraph 5 in Article 83 Directive 2014/24/EU.

This system was set forth by means of Regulation (EU) No 1024/2012 of the European Parliament and of the Council, of 25 October 2012, on administrative cooperation through the Internal Market Information System and repealing Commission Decision 2008/49/EC (the ‘IMI’ regulation) (OJ L 316, 14.11.2012, p. 1).

66

Recital 128 and paragraph 3 in Article 86 Directive 2014/24/EU.

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30. In connection with monitoring, Article 81 Directive 2004/18/EC provided the possibility for Member States to establish independent bodies to the end of ensuring compliance with public procurement rules. In practice, however, this provision did not have great success. This is why the new public procurement package established that Member States shall ensure the monitoring of the correct implementation of public procurement rules. For that purpose, Member States shall indicate to the Commission all authorities, bodies or structures competent for those tasks. The results of the said monitoring activities shall be made available to the public through appropriate means of information and shall also be made available to the Commission.67 It seems like Member States are left free to decide how the organisation competent for performing those functions shall be structured. Italy was one of the first Member States to establish a monitoring authority regarding public procurement (Autorità di vigilanza sui contratti pubblici, AVCP) in 1994. Its powers have been increasingly reinforced by means of EU law.68 However, the tasks taken up by the AVCP have been recently transferred to the National Anti-corruption Authority (ANAC), which since 2009 is in charge of ensuring transparency and integrity within public administration.69 We will have to wait and see how Member States respond to the new mandate included in the Directives and whether or not there is some sort of trend regarding administration organisational forms or structures. So far there appears to be a trend towards centralising monitoring functions in certain organisations at national level. 31. Finally, it shall be highlighted that the new public procurement Directive provides for citizens, interested parties, and other persons or bodies having a legitimate interest –yet not qualified as economic operators– to be able to indicate possible violations of public procurement rules to the monitoring authority or body. This way, the protection against infringements of public procurement rules awarded by EU law moves beyond the requirements set out by the remedies Directives. This new provision does not necessarily involve that the said persons are given standing before national courts. However, it does oblige Member States to provide for review procedures before national authorities.70 In this case, we shall also wait and see how Member States comply with these requirements and upon which kind of administrative organisation confer such functions.



3.3.2 A national, independent, and growingly centralised administration for the protection of tenderers

32. With regard to public procurement, monitoring compliance with public procurement rules is left to Member States –as opposed to other 67

Paragraphs 1 and 3 in Article 83 Directive 2014/24/EU; also, Article 45 Directive 2014/23/EU.

68

Torricelli (2014) 496.

69 70

Piperata (2014) 36.

Recital 122 Directive 2014/24/EU.

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domains which confer such monitoring duties upon EU authorities, as it happens in State aid law; or on networks of independent authorities, as is the case of regulated markets. However, EU rules enshrined in the so-called remedies Directives provide for a set of conditions to be met by the procurement rules enforcing authority.71 Hence, bodies in charge of hearing the appeals may have a judicial or administrative nature. Both Spain and Germany have chosen to implement an administrative model for the compliance with remedies Directives. In such cases, the administration has to be independent, since it performs quasi-jurisdictional functions.72 Such need for independence prevents small administrations, once again, from directly enforcing such functions. Legal protection of the sector-specific economic operators shall be enforced by strong, centralised administrations sufficiently separated from the said operators. Therefore, a trend towards centralisation regarding administrative structures is also noticeable as for the monitoring administration. 33. Alongside these national review procedures, remedies Directives provided for complementary monitoring mechanisms for award procedures. Furthermore, they currently establish a single procedure, designated as corrective mechanism -the use of which shall be understood without prejudice to the possibility to bring infringement proceedings-. This procedure allows for the European Commission to control the award procedure of a public contract prior to its conclusion. It is foreseen for serious infringements of EU law, since it is intended to encourage those concerned to make greater use of the possibilities for review before the conclusion of a contract.73 This is why, in practice, the Commission has failed to frequently use this monitoring mechanism. Economic operators see their interests sufficiently safeguarded by means of national review procedures set out pursuant to EU law.



4 Closing remarks

34. Throughout this study the significant impact of EU public procurement law on the set up of national administrations has been put forward. Although it might seem like public procurement provision address substantive and procedural aspects, its indirect repercussion on organisational forms and structures of the public procurement administration has been very intense. The very concept of administration has been reshaped, and conditions have been set on its organisational mechanisms by setting diverse objectives, such as fostering competition within the internal market. This results in an administration defined on a functional basis, as opposed to the market, as well as under a national perspective. Such an administration is prone to a centralisation of 71

The terminology used herein has been taken from Velasco Caballero (2014).

72 73

In this regard, Díez Sastre (2012) 139-140.

Recital 28 Directive 2007/66/CE.

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awarding powers monitoring public procurement duties, as well as to a professionalisation of its staff. 35. Identifying the transformations undergone by the relevant administrative structures is just a first step when critically examining the impact of EU law on national rules on this specific sector. It is now necessary to assess to what extent the objectives attached to these modifications have been accomplished. In other words, it must be assessed whether the administrative structures truly serve the purpose for which they were put in place. This is far beyond the scope of the research performed herein, yet there are some issues raised in this respect which shall be pointed out. The transformations experienced by public procurement administrative structures have an impact on the market structure within which they operate and may lead to distortions of competition. Hence, in practice, competition may not be enhanced, at least not to a full extent. Along these lines, it must be taken into consideration that transparency rules might be troublesome from a competition standpoint, since they create an environment that can be conducive to tacit collusion.74 Similarly, fostering public-private partnerships might entail greater costs at the pre-contractual stage and might lead to higher transaction costs, which might offset the benefits stemming from public procurement management through these instruments.75 Additionally, it must be recalled that public procurement rules do not only focus on, nor should they only focus on, fostering competition in the market. This sort of public action is also governed by other objectives, among others: integrity, transparency, or wealth distribution.76 36. Conversely, awareness should be raised on how national law rules and categories can become blurred as a result of the new approaches to administrative organisation. Public procurement Directives’ transposition and interpretation shall be carried out in the context of the requirements stemming from Member State legislation. In this connection, awarding powers centralisation mechanisms might jeopardize administrative autonomy, particularly at a local level. In addition to the foregoing, centralisation and cooperation instruments might hinder the allocation of responsibilities amongst the various entities involved in the exercise of the relevant powers.77 In this vein, inter-administrative cooperation and joint and centralised procurement might pose problems as to determine the relevant judicial proceedings to initiate.78 Therefore, it could be stated that public procurement law poses several challenges, thus requiring the adoption of an approach which allows for making EU law and national law requirements compatible.

74 75

Estevan de Quesada (2014) 240.

Míguez Macho (2014) 196.

76 77

Estevan de Quesada (2014) 240.

Díez Sastre (2008) 157.

78

Hofmann (2005) 361 et seq.

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Bibliography F. Avarkioti, ‘The application of EU public procurement to ‘in house’ agreements’ (2007) 1 Public Procurement Law Review, 22-35. J. Bercelli, ‘L´assetto organizzativo delle stazioni appaltanti nelle procedure di gara e nella esecuzione del contratto,’ in F. Mastragostino (dir.), Diritto dei Contratti Pubblici. Assetto e dinamiche evolutive alla luce delle nuove direttive europee e del d.l. n. 90 del 2014 (Torino: G. Giappichelli Editore, 2014), 85-106. G. Bel i Queralt and A. Estruch Manjón, ‘La gestión de los servicios públicos locales: ¿por qué se privatizan los servicios públicos locales y qué efectos tiene la privatización?’ (2012) 5 Anuario de Derecho Municipal, 193-205. M. Á. Bernal Blay, ‘La cooperación interadministrativa horizontal como fórmula de organización. Su articulación desde la óptica del Derecho de los contratos públicos,’ in J. Mª. Gimeno Feliu (dir.), La organización local. Nuevos modelos (Cizur Menor: Civitas, 2011) 361-76. C. H. Bovis, ‘Efficiency and Effectiveness in Public Sector Management: The Regulation of Public Markets and Public-Private Partnerships and Its Impact on Contemporary Theories of Public Administration’ (2013) 8 European Procurement and Public Private Partnership Law Review, 186-99. T. L. Braziel, ‘Contracting out contracting’ (2009) 38 Public Contract Law Journal, 857-93. M. Burgi, ‘La transposición de las Directivas de contratación pública en Alemania’ (2014) Instituto de Derecho Local, UAM, Madrid, http://www.idluam.es/images/stories/ Convocatorias/Folien_ES_Martin_Burgi.pdf M. Burgi, ‘Small and medium-sized enterprises and procurement law – European legal framework and German experiences’ (2007) 4 Public Procurement Law Review, 284-94. P. Cerqueira Gomes, ‘The innovative innovation partnerships under the 2014 Public Procurement Directive’ (2014) 4 Public Procurement Law Review, 211-218. J. Chard, ‘Body beautiful or vile bodies? Central purchasing in the UK’ (2008) 2 Public Procurement Law Review, 26-34. J. Colás Tenas, ‘Las competencias en materia de contratación de los órganos de las entidades locales’ (2013) 161 Revista de Estudios Locales. Cunal, 183-203. F. Di Lascio, ‘La transposición de las nuevas Directivas de contratación pública en Italia’ (2014) Instituto de Derecho Local, UAM, Madrid, http://www.idluam.es/images/stories/ Convocatorias/DiLasci_seminario.pdf S. Díez Sastre, ‘La impugnación de las modificaciones de los contratos públicos’ (2013) 161 Revista de Estudios Locales. Cunal, 87-117. S. Díez Sastre, La tutela de los licitadores en la adjudicación de contratos públicos (Madrid: Marcial Pons, 2012). S. Díez Sastre, ‘La Administración mixta en España,’ in F. Velasco Caballero and J.-P. JensPeter Schneider (dirs.), La Unión Administrativa Europea (Madrid: Marcial Pons, 2008) 133-58. C. Estevan de Quesada, ‘Competition and Transparency in public procurement markets’ (2014) 5 Public Procurement Law Review, 229-44. J. Falle, ‘Hamburg again: shared services and public sector cooperation in the case of

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Technische Universität Hamburg-Harburg v Datenlotsen Informationssysteme GmbH’ (2014) 5 Public Procurement Law Review, 123-32. Mª. I. Gallego Córcoles, ‘Las centrales de contratación en clave local’ (2013) 161 Revista de Estudios Locales. Cunal, 119-46. J. Mª Gimeno Feliu, ‘La reforma comunitaria en materia de contratos públicos y su incidencia en la legislación española. Una visión desde la perspectiva de la integridad’ (2015) Available on line: http://www.aepda.es/AEPDAPublicaciones-863-Actividades-Congresos-de-laAEPDA-X-CONGRESO-DE-LA-AEPDA-PROGRAMA-Y-PONENCIAS.aspx, 1-53. J. Mª Gimeno Feliu, El nuevo paquete legislativo comunitario sobre contratación pública. De la burocracia a la estrategia (Cizur Menor: Thomson-Reuters Aranzadi, Universidad de Zaragoza, 2014). J. Mª Gimeno Feliu, ‘La contratación conjunta y las fórmulas de cooperación como mecanismos de gestión eficiente de la organización en el modelo local’ (2013) Observatorio de contratos públicos 2012, 71-84. J. V. González García, ‘Medios propios de la Administración, colaboración interadministrativa y sometimiento a la normativa comunitaria de contratación’ (2007) 173 Revista de Administración Pública, 217-37. Mª. Hernando Rydings, La colaboración público privada. Fórmulas contractuales (Madrid: Civitas, 2012). J. Hofmann, ‘Rechtsschutz und Haftung im Europäischen Verwaltungsverbund,’ in E. Schmidt-Aβmann and B. Schöndorf-Haubold (eds.), Der europäische Verwaltungsverbund (Tübingen: Mohr Siebeck, 2005) 353-81. W. Jaeger, ‘Die neue Basisvergaberichtlinie der EU vom 26.2.2014 – ein Überblick’ (2014) 5 Neue Zeitschrift für Baurecht und Vergaberecht, 259-67. M. T. Karayigit, ‘A new type of exemption from the EU rules on public procurement established: ‘in thy neighbour´s house’ provision of public interest tasks’ (2010) 6 Public Procurement Law Review, 183-97. M. Knauf, and T. Streit, ‘Die Reform des EU-Vergaberechtsschutzes. Überblick unter Berücksichtigung des Entwurfs des Vergaberechtsmodernisierungsgesetzes’ (2009) 2 EuZW, 37-40. F. Lafarge, ‘Administrative Cooperation between Member States and Implementation of EU Law’ (2010) 16 European Public Law, 597-616. L. Míguez Macho, ‘Fórmulas de colaboración público-privada contractual y crisis financiera del sector público,’ in R. Fernández Acevedo and P. Valcárcel Fernández (dirs.), La contratación pública a debate: presente y futuro (Cizur Menor: Thomson Reuters, Civitas, 2014) 165-98. J. A. Moreno Molina, and A. P. Domínguez Alonso, ‘El nuevo Derecho de la Unión Europea sobre contratación pública,’ in R. Fernández Acevedo and P. Valcárcel Fernández (dirs.), La contratación pública a debate: presente y futuro (Cizur Menor: Thomson Reuters, Civitas, 2014) 139-64. K. Pedersen, and E. Olsson, ‘Azienda – the creation of an exemption from public procurement law’ (2013) 6 Public Procurement Law Review, 225-35. G. Piperata, ‘L´attività di garanzia nel settore dei contratti pubblici tra regolazione, vigilanza e politiche di prevenzione,’ in F. Mastragostino (dir.), Diritto dei Contratti Pubblici. Assetto e dinamiche evolutive alla luce delle nuove direttive europee e del d.l. n. 90 del 2014 (Torino: G. Giappichelli Editore, 2014) 33-56. 172

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G. M. Racca, ‘Nuove prospettive per l´aggregazione dei contratti pubblici nel contesto europeo’ (2014), in R. Fernández Acevedo and P. Valcárcel Fernández (dirs.), La contratación pública a debate: presente y futuro (Cizur Menor: Thomson Reuters, Civitas, 2014) 455-92. G. M. Racca, R. Cavallo Perin, and G. L. Albano, ‘Competition in the Execution Phase of Public Procurement’ (2011) 1 Public Contract Law Journal, 89-108. M. Rebollo Puig, ‘Los entes instituciones de la Junta de Andalucía y su utilización como medio propio’ (2003) 161 Revista de Administración Pública, 359-93. C. Risvig Hamer, ‘Regular purchases and aggregated procurement: the changes in the new Public Procurement Directive regarding framework agreements, dynamic purchasing systems and central purchasing bodies’ (2014) 4 Public Procurement Law Review, 201-10. A. Ruiz de Castañeda de la Llave, Alfonso and M. Á. Bernal Blay, ‘La contratación pública y el Derecho comunitario. Cuestiones pendientes’ (2011) Observatorio de Contratos Públicos 2010, 23-41. A. Sánchez Graells, ‘Novedades en material de compra colaborativa y adjudicación de concesiones de servicios en las nuevas Directivas de febrero de 2014’ (2014) 7 Anuario de Derecho Municipal, 121-44. A. Sánchez Graells, Public Procurement and the EU Competition Rules (Oxford and Portland, Oregon: Hart Publishing, 2011). A. Sánchez Graells, ‘Competition and the Public Buyer Towards a More Competitionoriented Procurement: The Principle of Competition Embedded in EC Public Procurement Directives’ (2009) available in SSRN: http://ssrn.com/abstract=1928724 Mª. A. Sanmartín Mora, ‘La profesionalización de la contratación pública en el ámbito de la Unión Europea’ (2012) Observatorio de contratos públicos 2011, 407-29. D. Santiago Iglesias, ‘Los convenios interadministrativos,’ in M. Yzquierdo Tolsada (dir.), Los contratos públicos, Tomo XIV (Cizur Menor: Thomson Reuters, Aranzadi, 2014) 891-935. F. Sosa Wagner and M. Fuertes López, ‘¿Pueden los contratos quedar en casa? (La polémica europea sobre la contratación in house)’ (2007) 3 La Ley, 1669-80. G. Sydow, Verwaltungskooperation in der Europäischen Union (Tübingen: Mohr Siebeck, 2004). S. Torricelli, ‘L´autorità di vigilanza sui contratti pubblici in Italia,’ in R. Fernández Acevedo and P. Valcárcel Fernández (dirs.), La contratación pública a debate: presente y futuro (Cizur Menor: Thomson Reuters, Civitas, 2014) 493-510. F. Velasco Caballero, Derecho público (más) Derecho privado (Madrid: Marcial Pons, 2014). M. Vilalta Reixach, ‘Los llamados contratos de auto-provisión (o “contratos in-house providing”),’ in M. Yzquierdo Tolsada (dir.), Los contratos públicos, Tomo XIV (Cizur Menor: Thomson Reuters, Aranzadi, 2014) 941-87. M. Vilalta Reixach, La encomienda de gestión. Entre la eficacia administrativa y la contratación pública (Cizur Menor: Thomson Reuters, Civitas, 2012). J. Wiggen, ‘Directive 2014/24/EU: the new provision on co-operation in the public sector’ (2014) 3 Public Procurement Law Review, 83-93. R. Williams, ‘Modernising the EU Public Procurement regime. A summary of the key changes to the public sector’ (2014) 3 Public Procurement Law Review, 79-83. R. Williams, ‘Public-public cooperation – Teckal in practice’ (2012) 1 Public Procurement Law Review, 1-10.

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Limitations on Fees Levied to Finance the Administrations of the Internal Market César Martínez Sánchez

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limitations on fees levied to finance the administrations of the internal market

1 Introduction

This study examines the constraints that limit the powers of Member States to levy taxes1 – usually fees – in order to finance administrative bodies in charge of monitoring the internal market. These limitations affect the very possibility of levying taxes for this purpose and their quantification, as well as the allocation of the tax revenue. In this sense, the main purpose of this study is to ascertain whether the Treaties provide a sufficient legal basis for such limitations or whether, on the contrary, both the ECJ case law and the secondary EU legislation have gone too far in their desire to achieve a single internal market. Thus, we firstly assess the competences of the European Union in tax matters in the broadest sense. We then consider a specific case – the Telecommunications Directive –, which establishes a clear limit on the States’ ability to demand fees for the services provided by national regulatory bodies. The analysis of this particular constraint will allow us to reflect on the de facto lack of principles of fiscal justice in EU Law and the misguided theory that considers the imposition of any tax as a market distortion without further analysis. Finally, our concluding remarks focus on the extent of the harmonising function of the Union regarding fees on services related to the internal market.



2 Starting point: Member States’ tax powers

Taxation is, together with the military, one of the most defining characteristics of sovereignty.2 This explains the blunt reluctance of Member States when it comes to conferring competences to the Union in tax matters. The same could be said of budgetary powers, although that is less important for our research. Therefore, it should come as no surprise when experts state that ‘taxation is still firmly in the hands of national governments.’3 Indeed, EU competences in tax matters have historically been marginal or, to put it differently, instrumental in regard to the creation of a single market. Encroaching on the exclusive competence of the Member States was only allowed when necessary in order to ensure the removal of existing obstacles. From that standpoint we can understand the current situation, where three distinct categories of tax powers can be clearly differentiated according to the extent of the power conferred to the Union, i.e. customs powers, indirect taxation powers and direct taxation powers. First, customs (which are taxes, although they are usually treated differently) fall within the exclusive competence of the Union (Article 28 TFEU), as a conse1

In most Member States ‘fees’ are considered particular species of the genus ‘taxes’. Accordingly, in most European languages there are different names for taxes as genus (e.g. Abgabe in German) and taxes as species (e.g. Steuer in German).

2 3

See De Goede (2003).

Newton and Van Deth (2005) 332.

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quence of the completion of the Customs Union. This aim, already enshrined in the 1957 Treaty of Rome, materialises today both in the absence of internal barriers and the establishment of a common customs tariff. 4 Such field, apparently foreign to our purpose, is however interesting due to the stringent case law of the ECJ on this matter. In particular, cases where the annulment of certain administrative fees was sought on the grounds that they were charges having equivalent effect to customs duties5 (Article 28(1) TFEU) deserve our attention. For instance, more than forty years ago certain charges on imports and exports levied to cover the cost of a statistical survey on the flow of goods in Italy (diritto di stadistica) were considered incompatible with the Treaty. The Italian Government defended the validity of such charges arguing that they were the consideration (quid pro quo) for a statistical service that was also of benefit to competitors, since it provided them with accurate and up-to-date information on the actual commercial exchanges. The Court failed to uphold this argument, considering that such statistical information was beneficial to the economy as a whole (as well as to the relevant administrative authorities), so they could not be regarded as the legitimate consideration for a specific benefit rendered to importers and exporters.6 This case law has been further developed and outlined in subsequent rulings, resulting in the annulment of several fees imposed for administrative services because they entail the forbidden equivalent effect.7 It is worth considering the decision on the fees levied by some Länder in Germany – and contested by the Commission – on the importation of live animals from other Member States. They were allegedly justified on the grounds of veterinary inspections carried out in accordance with EU law. In an attempt to summarise its previous case law, the Court of Justice stated that a charge imposed on goods by reason of the fact that they cross an internal frontier could be lawful provided it fulfilled any of the following three conditions: if it applies to a general system of internal dues applied systematically; if it constitutes payment for a service in fact rendered to the economic operator of a sum in proportion to the service; or, subject to certain conditions, if it attaches to inspections carried out to fulfil obligations imposed by Community law. The Court considered that the latter exception applied in that case, stressing – for present purposes – the fact that the contested fee did not exceed the actual cost of the service, an essential requirement derived from the jurisprudence of the ECJ, as we shall see below. As for indirect taxation, there can be no doubt of the importance of approximating national laws on consumption taxes (VAT and excise duties) in order to achieve a real single market.8 The unanimity required for harmonising national provisions in this area (Article 113 TFEU) has not been an insurmountable 4

Regulation (EU) No 952/2013 of the European Parliament and of the Council of 9 October 2013 laying down the Union Customs Code OJ L 269, 10.10.2013, p. 1.

5

See Martos García (2012).

6 7

Case 24/68 Commission v Italy [1969] ECR 194 (Statistical levy).

Barnard (2010) 45-7.

8

Craig and De Búrca (2011) 631.

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obstacle to the adoption of directives on such taxes.9 Therefore, and in spite of the still existing significant differences, since the adoption of the first directive in 1967 substantial progress has been made in the regulation of indirect taxes within the European Union. On the other hand, the Treaties do not even provide a specific legal basis for direct taxation – the third of the aforementioned categories. Since Article 113 TFEU is only applicable to indirect taxation, any EU regulation on the matter has to be implemented through Article 115 TFEU.10 In this sense, it could be argued that Member States have exclusive competence as regards direct taxation, irrespectively of any progress achieved, mainly, by virtue of the case law of the Court of Justice.11 Needless to say, Member States must comply with EU Law when exercising their tax powers, and they must prevent all sorts of discrimination on the basis of nationality.12 In particular, it should be noted that the power to impose direct taxes is limited by the respect for fundamental freedoms and the prohibition of discrimination, as well as by the prohibition of State aid. Nevertheless, a number of directives are already in place to prevent the adverse effects caused by national divergences in cross-border direct taxation,13 along with the recurrent proposal for a common consolidated corporate tax base.14 In any case, these are sector specific regulations that mainly aim to prevent double taxation, a goal also pursued by Double Taxation Conventions at an international level.



3 Member States’ tax powers regarding the financing of administrative costs



3.1 The overcoming of the instrumental nature of Budgetary and Tax Law

In the mid-20th century, it was common in the legal literature to consider budgetary and tax law as instrumental, in the sense that ‘in order to manage the assets, to levy and collect taxes, preserve, allocate and invest the tax revenue, the State performs a number of activities that as a whole make up the financial activity, different from any other in that it is not an end in itself, or, in 9

Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax (OJ L 347, 11.12.2006, p. 1).

10 11

Adamczyk (2013) 24.

Indeed, some scholars argue that the case law of the ECJ calls into question the assumption that the EU has little impact on the Member States’ tax powers. See, e.g., Genschel and Jachtenfuchs (2011).

12 13

Englmair (2013) 46.

For instance, Directive 2005/56/EC of the European Parliament and of the Council of 26 October 2005 on cross-border mergers of limited liability companies OJ L 310, 25.11.2005, p. 1.

14

The last document of a very long list is the Proposal for a Council Directive on a Common Consolidated Corporate Tax Base (CCCTB) COM/2011/0121 final.

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other words, it does not address directly the satisfaction of a community need, but it plays an instrumental role of great importance, since its normal functioning is an essential condition for the development of all other activities.’15 In the Social State enshrined by the Spanish Constitution and many other constitutions of the Member States,16 there can be no doubt that today financial activity does not only aim at covering public expenditure. It also pursues the realisation of certain axiological principles. Hence, Article 31(1) of the Spanish Constitution (CE) – to take just one example – sets forth the establishment of a ‘fair’ tax system through which ‘everyone shall contribute to sustain public expenditure.’ As can be seen, the Constituent did not merely provide for the establishment of a tax system adequate to sustain public expenditure, but it went further. Material principles informing the public financial activity as a whole are laid out, thus overcoming the instrumental conception of budgetary and tax law and moving towards a substantive understanding thereof. Taxation, then, is not only the means to ensure the financing of public services, but it must also pursue the realisation of essential constitutional values such as equality (conceived not just as the prohibition of discrimination but also as a fair distribution of wealth) and justice. Ultimately, consistent with a legal order actually conceived as a system, budgetary and tax law must also aim at implementing the specific constitutional principles established for that purpose, while still playing an instrumental role in the realisation of the other constitutional goals. Therefore, when we analyse how public services should be financed, other than their economic viability, we have to consider whether the constitutional principles of fiscal justice are complied with. The other constitutional principles governing economic and social policy also have to be observed, insofar as they embody goals specifically related to public services.



3.2 The lack of principles of fiscal justice in EU Law

The overcoming of the instrumental nature of taxes discussed above is also evident in the European constitutional tradition,17 in the sense that public expenditure is not funded primarily through causal taxes (Kausalabgaben) imposing the cost of the administrative activity upon the user. On the contrary, public expenditure is financed by taxes on wealth (by definition, levies without a specific service or benefit provided in exchange), in accordance with the abilityto-pay principle.

15

Giannini (1945) 3 (translation mine).

16 17

See, e.g., Article 1 of the French Constitution and Article 20(1) of the German Constitution.

National constitutional traditions are not considered as direct source of law in EU law. Nevertheless they have been used as indirect source by ECJ, as explained in Groussot (2006) 32 ff.

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However, there is no express reference in the Treaties to the principles of fiscal justice in general or to the ability-to-pay principle in particular.18 At most, general references to ‘equality’ and ‘solidarity’ are made in Article 2 TEU. Likewise, the establishment of an internal market in Article 3(3) TEU comes with a reference to the development of a ‘highly competitive social market economy, aiming at full employment and social progress,’ adding that the Union ‘shall promote social justice and protection.’ In view of the above, it does not seem bold to conclude that primary law does not spell out any principle of fiscal justice, either the ability-to-pay principle or any other.19 Nevertheless, as we shall see next, secondary legislation has laid down significant constraints regarding the tax-raising powers of Member States, swiftly enshrining the pre-eminence of the principle of equivalence over the ability-to-pay principle.



3.3 Restriction of the Member States’ tax powers to merely covering costs

Before addressing the main issue of this work, and in order to make it accessible to a wider audience, it is necessary to clarify the terms used. While the ability-to-pay principle entails an obligation because wealth is owned, it could be argued that the cost-equivalence principle (also called benefit principle) entails an obligation because a cost is incurred. It is a direct application of the principle of commutative justice, under which the individual covers the expenditure incurred by the administration. In this sense, the triggering of the tax obligation would not differ much from the liability to compensate or indemnify under private law. The idea that public authorities can only levy taxes as a consideration for the expenditure incurred for the benefit of the taxpayer is at odds with the general perception that taxes ‘are not a consideration for a special service.’20 In fact, such unconditional nature of taxes has led to argue that they are per definitionem inadequate to establish equivalence between public benefits and tax levies.21 The impossibility of justifying taxation on a cost-equivalence basis is not only a consequence of the definition of taxes itself; it also has to do with the impossibility or at least the great difficulty in quantifying the cost to be passed to each citizen regarding the essential services provided by the State (defence, police, etc.).22 Unlike in the field of taxes, the levying of causal taxes (Kausalabgaben) – fees and special assessments – is justified on the grounds of a service or benefit 18

On the principle of fairness (under the formulation of Hart and Rawls) as a possible principle EU tax law, see Hemels (2013) 10-9.

19

On the limited role of the principle of economic capacity under EU law, see Vanistendael (2014).

20 21

 A bgabenordnung of 13 December 1919.

Hey (2002) 319.

22

Tipke (2000) 475-6.

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rendered to the taxpayer.23 German case law has openly admitted the legal justification for levying a fee (Gebühr) in order to cover, even partially, the expenditure incurred by the administration in providing the related service.24 Like in the abovementioned ability-to-pay principle as the basis for taxation, something similar can be done with regard to the principle of equivalence as a measure for taxation, or in other words, for the obligation to pay according to the expenditure incurred. It is not a matter of justifying a tax but of quantifying it. This dimension of the principle of equivalence is actually the strictest application of commutative justice in the field of taxation, as it pursues the arithmetic correspondence between the elements of the exchange between taxpayer and public authorities. Furthermore, it fully meets the demands of the advocates for the ‘voluntary exchange,’25 since the taxpayer only pays the amount corresponding to the service or benefit received. In this sense, it could be said that the above is the manifestation of the equivalence principle stricto sensu. 26 In these cases, the aim is to adjust as accurately as possible the amount of tax due to the cost of the public services giving rise to its levying. Hence, taxes inconsistent with this correspondence between the expenditure incurred and the tax rate would be deemed illegitimate. In this sense, the German Constitutional Court has stated that administrative fees (Verwaltungsgebühren) are governed by the cost-equivalence principle (Kostenäquivalenz). Therefore, although a perfect correspondence is impossible, there are limits preventing a ‘large disproportion’ (‘groben Missverhältnis’) between the costs incurred and the amount of the fees.27 When applying the cost-equivalence principle, both as the basis for taxation and – especially – in its quantifying role, it has to be determined whether the equivalence is considered individually or collectively. This can refer, as explained below, to the benefit or service giving rise to the tax or to the taxable person. From the standpoint of the provision of a public service, the equivalence can be considered individually (as would be the granting of a specific license to an individual) or it can refer to a public service as a whole (in the example, that would imply considering the entire administrative service in charge of granting the licenses). The strict application of the cost-equivalence principle implies an individual weighing up of the service or benefit in question, or at least of the cost share corresponding to each taxpayer. As regards the above distinction, the taxpayer’s perspective allows for an application of the individual cost-equivalence principle (Individualäquivalenz), according to which the taxpayer only pays for the expenditure caused; and of the collective cost-equivalence principle (Gruppenäquivalenz), under which the 23

Ibid., 476.

24 25

See inter alia BVerfG, 06.02.1979 - 2 BvL 5/76, BVerfGE 50/217.

See Mazzolla (1967) 37 ff.

26 27

Hey (2010) 136.

See BVerfG 19.3.2003 – 2 BvL 9, 10, 11, 12/98, BVerfGE 108,1 (21), where the German Constitutional Court annuled for that reason the enrolment fees of the University of Baden-Wurtemberg.

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taxpayer is considered within a group of citizens (e.g. the users of a public service) that give rise to a specific cost for the administration. It should be borne in mind that the bigger the group of citizens we consider, the more distorted the equivalence principle will be. On the contrary, the closer the amount of the tax due is to the cost corresponding to each taxpayer, the better will be the implementation of the cost-equivalence principle. In any case, as already pointed out by the academic literature,28 there are many situations in which quantifying the individual cost is simply not possible. This could be either because of practical reasons regarding the difficulty to weigh it up, or for other non-technical reasons, referred to generically as ‘political’ (which has to do with the fact that many users of public services cannot bear their cost). Taking up our argument, certain sector-specific directives often restrict – without further explanation – the administrations’ power to impose fees for the provision of services to the mere covering of the expenditure incurred (Kostendeckung).29 They set forth the cost-equivalence principle (a rule, stricto sensu) as a limitation of the States’ tax-raising power. It is noticeable that no specific legal basis is invoked to support this constraint. There is not even a consideration as to whether it refers to fees within the realm of indirect or direct taxation – which is far from being an obvious question. The cost-equivalence is simply assumed as a limitation inherent to the exercise of tax powers by the administration. Such approach seems to bring back the instrumental conception of tax law mentioned above. Although not always explicit, underlying this limitation is a very specific ideological position against ‘distortions to the market’ caused by taxation. This alleged and dubious fiscal neutrality, typical in our opinion of a biased understanding of the single market, has proved to be very popular among the EU institutions. However, it needs be reviewed considering the evolution of the single market concept since 1992. It is no longer just an economic area without trade barriers, but it also refers to substantive aspects such as social rights.30 The judgment of the Court in the Telefónica case provides a good illustration of this limitation of the Member States’ tax powers.31 This ruling was issued in response to a preliminary reference submitted by the Spanish Supreme Court concerning the interpretation of Article 6 of Directive 97/13/EC of the European Parliament and of the Council of 10 April 1997 on a common framework for general authorisations and individual licences in the field of telecommunications services.32 In essence, the national court asked whether the referred provision allowed imposing on holders of general authorisations in the field of 28

Hey (2010) 137.

29

On this principle, which is solidly established in German scholarship and case law, see Wienbracke (2004).

30 31

Craig and Búrca (2011) 606.

Case C-284/10 Telefónica de España SA v Administración del Estado [2011] ECR I-6991.

32

OJ L 117, 7.5.1997, p. 15.

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telecommunications an annual fee calculated on the basis of gross operating income (not exceeding two per thousand), applied for the purpose of defraying the costs incurred by the Telecommunications Market Commission (Comisión del Mercado de las Telecomunicaciones), as laid down in Article 71 of Spanish Law 11/1998 of 24 April 1998 on Telecommunications (now repealed). The ECJ recalled that Article 12 of Directive 2002/20/EC of the European Parliament and of the Council of 7 March 2002 on the authorisation of electronic communications networks and services established that ‘any administrative charges imposed on undertakings providing a service or a network under the general authorisation or to whom a right of use has been granted shall: a) in total, cover only the administrative costs which will be incurred in the management, control and enforcement of the general authorisation scheme and of rights of use and of specific obligations as referred to in Article 6(2).’ Hence, the Court concluded that EU Law did not preclude national legislation introducing a fee as the one considered ‘to the extent that the combined revenue received by that Member State by way of such a fee does not exceed all of those administrative costs,’ clarifying that the Directive ‘cannot be interpreted to the effect that there must be an exact correlation between the amount of the fee imposed on a chargeable operator and the costs annually incurred by the competent national authority and relating to that operator for a specific period’ (recital 28). The Court’s reasoning is fairly straightforward, merely pointing out the Directive’s requirement that the controversial charges ‘may “seek only” to cover the administrative costs incurred respectively in the issue, management, control and enforcement of the applicable general authorisations scheme or the individual licences,’ while referring to a ‘criterion of proportionality’ that relates to the ‘imposition of administrative costs upon chargeable persons and not to the relationship between the fee applicable to general authorisations and the work involved.’ From a dogmatic standpoint it could be argued that, as regards administrative fees, the Court upheld the collective equivalence rule (the total revenue collected must not exceed the overall costs intended to cover) but not the individual equivalence rule (each individual tax liability must not exceed the cost of the administrative activity corresponding to each taxable person), as claimed by the appellant. As can be seen, there is an evident encroaching on the Member States’ tax powers, given that a funding model is imposed upon the Administration with significant internal effects.33 However, it must also be noted that the Court of Justice has interpreted very restrictively the referred provision, and especially the limitations it imposes on fees. In the procedure followed by the Commission against France for the introduction of an additional charge on operators of electronic communications for the purposes of funding French public television, which far exceeded the costs of administrative management, the ECJ dismissed the Commission’s claim that it was an infringement of the abovementioned 33

It was on the basis of this observation that the Spanish Supreme Court annuled the taxes at stake in STS of 15 February 2012, RC 5033/2004, and STS of 16 February 2012, RC 316/2006.

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Article 12. The Court confirmed the French Government’s argument that it did not apply to the fee at issue. Recalling previous judgments,34 the ECJ based its decision on the grounds that the limitations set forth by Article 12 only relate to charges whose taxable event ( fait générateur) is linked to the general authorisation scheme granting access to the electronic communications services market. Conversely, if the taxable event is not linked to such scheme, but to the operator’s activity consisting in providing electronic communications services to endusers, it must be considered out of the scope of much quoted Article 12.35 The fact that the Court of Justice is very restrictive when interpreting the scope of the referred limitations as regards the configuration of fees should not overshadow the important doubts on the legal basis that could be invoked to restrict Member States’ tax powers. Neither Article 113 nor 115 TFEU has been invoked or considered; Directive 2002/20/CE refers instead to former Article 95 EC, currently Article 114 TFEU, and then (recitals 30-32) lays down guidelines and limitations regarding the imposition of administrative charges, which ‘should not distort competition or create barriers for entry into the market.’ As already noted, the underlying idea is that taxes are market ‘distortions’, without mentioning any principles of fiscal justice, which openly challenges Member States’ constitutional doctrine (for instance, by establishing a clear limitation on the applicability of the ability-to-pay principle to fees).



3.4 Taxes as distortions to the internal market

Limiting Member States’ tax powers on the grounds that otherwise competence may be distorted requires a detailed analysis of the underlying (ideological) concepts. We should focus in particular in the value of efficiency as the fundamental guiding principle for legal rules. Indeed, while it is an economic concept, most known through the ‘Pareto optimum,’ efficiency has gained ever-greater significance in the last decades along with the so-called ‘Law and Economics’ movement. According to a radical approach within this school of thought, efficiency is understood as maximization of wealth, and in this sense it becomes the standard of justice. A more moderate perspective attempts to determine the role efficiency should play in justice.36 The above remarks can be easily translated into the field of fiscal justice.37 In fact, tax policy makers and scholars often refer to tax efficiency criteria assuming Adam Smith’s fourth maxim -with regard to taxes in general- as the starting 34

Joined cases C-292/01 and C-293/01 Albacom SpA and Infostrada SpA v Ministero del Tesoro, del Bilancio e della Programmazione Economica and Ministero delle Comunicazioni [2003] ECR I-9449; and Case C-284/10 Telefónica de España SA v Administración del Estado [2011] ECR I-6991.

35

Case C-485/11 Commission v France [2013] n.y.r.

36 37

Hierro (1998) 131.

On efficiency and fairness in the field of taxation (albeit limited to the US context), see Ventry Jr. (2002) 25 ff.

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point: ‘Every tax ought to be so contrived as both to take out and to keep out of the pockets of people as little as possible, over and above what it brings into the public treasury of the State.’ Assuming the premises of welfare economics, tax policy makers and scholars have later been concerned with taxes not affecting the efficient allocation of resources achieved by competitive prices. It has therefore been argued that ‘any levy that leads to a divergence among relative prices paid and received in production and trade activities will entail economic inefficiency.’38 There is in this sense a typology of the main tax ‘distortions,’ which go beyond the scope of this work and refer to influences on consumer choices, production choices and the so-called ‘excessive tax burden.’39 The principle of fiscal neutrality seeks to prevent precisely such ‘distortions.’ It basically means that taxation should not affect competitive markets -by distorting them. Strictly speaking, this is one of this principle’s conceptions, but not the only one. According to the literature, the prime example of the principle of fiscal neutrality’s original outline was the Edinburgh ‘leave-them-as-you-findthem rule of taxation,’ whose classic wording we owe to James Mill. 40 Under this rule, opposed to any hint of redistribution, taxation must not alter the relative position of taxpayers when compared with each other. That is to say, the proportion between taxpayers’ wealth must be identical before and after the payment of taxes. Alongside this idea, there is however a less strict view of such conception that simply advocates for ‘fiscally pure’ taxation or, in other words, taxation governed exclusively by fiscal purposes. 41 In any case, as noted before, the current interpretation of the principle of fiscal neutrality refers to the non-distortion of competitive markets. 42 We consider that economic efficiency should be questioned as a scientific, ideologically neutral standard, as opposed to value-based and ideological principles of justice. We share the view, which still holds absolutely true today despite the time passed, that ‘it is impossible to build a social structure exclusively on economic grounds; the concept of economic efficiency is exposed to the most diverse ideological contents and, in the end, when a policy is defined in terms of its economic efficiency, we must make sure of the underlying ideology and the price we will be required to pay for such purported efficiency.’43 Since we do not share the alleged neutrality of the principle of efficiency and, therefore, the departure from the principles of fiscal justice, we consider that efficiency could be one of the standards of the idea of fiscal justice in the 38

Fuentes Quintana (1987) 126.

39

Ibid., 130 ff.

40 41

In this sense, Neumark (1994) 42.

Ibid., 43.

42 43

See ibid., 280, where Neumark refers to this conception as a ‘correct’ interpretation of tax neturality.

Rojo (1963) 152-3.

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broad sense, but necessarily subject to the principles of fiscal justice. 44 Efficiency would thus be a minor principle subordinated to the higher principles (generality, equality, ability-to-pay, etc.) with regard to fiscal justice. In accordance with the supremacy of what we have considered higher principles over efficiency, the principle of fiscal neutrality could be redefined in a more convincing way. From this approach, fiscal policy should not generate ‘distortions’ in competitive markets except when these are the inevitable effects of pursuing goals related to the higher principles of fiscal justice. 45 If we apply that reasoning to the case at issue, we hold that using the abilityto-pay principle to quantify the charges levied in order to finance the market regulatory bodies cannot be deemed, tout court, as a distortion that needs to be corrected. Distortion cannot be understood in such a broad sense as to include any kind of impact on market prices. It must be restricted to those situations in which the position of competitors is artificially altered, which did not happen in the case under consideration. In fact, when questioning the conformity with EU Law of the fees levied by the Spanish Telecommunications Market Commission, neither the applicants nor the Court itself referred to any distortion in the internal market that could have justified limiting Member States’ tax powers. The doctrine that can be drawn from the decision is clear: Member States are free to quantify fees according to the ability-to-pay principle as long as the overall revenue collected does not exceed the total cost of the service provided. As we anticipated, we are faced with the enshrining of the collective cost-equivalence rule in EU Law. The interpretation of the Directive is thus clarified. We do not question here the reasons for establishing this rule – although there are substantial grounds to do it. 46 What we do question is the Directive’s ability to impose such rule upon Member States, i.e., whether there is a sufficient legal basis for its adoption.



4 Conclusion

The division of competences between the European Union and the Member States has significantly evolved in the last decades. The Union has progressively extended its powers into areas hitherto reserved exclusively for Member States. However, it should not be forgotten that the Member States have 44

Indeed, after explaining the efficiency criteria which theoretically should govern taxation, Fuentes Quintana shows his skepticism towards them because they are in ‘conflict with the most deeply held conceptions of fairness.’ Further, he adds that ‘as long as it is not considered socially irrelevant ‘who’ receives ‘what’ regarding the distribution of tax costs (thus breaking with the third Harberger’s postulate), it is not possible to simply condemn the excess levy, since the efficiency cost derived from reduced taxes on basic goods could be offset by redistributive benefits resulting from such policies’ Fuentes Quintana (1987) 142.

45

In the same sense, yet with a slightly different formulation, see Neumark (1994) 281 ff.

46

See Martínez Sánchez (2014) 52 ff.

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a ‘general and full power, i.e., they can perform any activity necessary to achieve their purposes,’47 while the Union is subject to the principle of conferral of competences, meaning that it can only exercise the powers conferred by the Treaties. As a corollary of this principle, the ECJ has developed the so-called doctrine of implied powers, formulated for the first time in the AETR judgment. 48 Under this doctrine, the EU institutions may not only exercise ‘the powers expressly conferred upon them by the Treaty […], but also those necessary to attain the competences expressly conferred.’49 In essence, every act of the Union must be based on an appropriate legal basis. Since Article 12 of Directive 2002/20/EC of the European Parliament and of the Council of 7 March 2002 on the authorisation of electronic communications networks and services establishes that: ‘Any administrative charges imposed on undertakings providing a service or a network under the general authorisation or to whom a right of use has been granted shall: a) in total, cover only the administrative costs which will be incurred in the management, control and enforcement of the general authorisation scheme and of rights of use and of specific obligations as referred to in Article 6(2),’ we have discussed the legal basis empowering the Union to impose such constraint on Member States’ tax powers. We have ruled out that this is a customs case, within the exclusive competence of the Union (Article 28 TFEU), since the fees at issue cannot be considered a custom duty or a measure having equivalent effect. We have also rejected the possibility that it is a matter of approximation of laws regarding taxes on consumption (indirect taxation), which pursuant to Article 113 TFEU still requires the unanimous consent of the Member States. Furthermore, any EU regulation on direct taxation would have to be enacted through Article 115 TFEU, since there is no specific legal basis for this purpose in the Treaties (Article 113 TFEU applies only to indirect taxation). Actually, the Directive before us does not refer to any of the abovementioned legal bases, all of them related to taxation. It invokes instead previous Article 95 TEC, currently Article 114 TFEU, which sets forth the power of the Union to harmonise national regulations with the purpose of fostering the establishment and functioning of the internal market. This legal basis has been extensively used, and its interpretation by the ECJ has been described as paradigmatically broad.50 Even so, it is not easy to argue that it allows for a restriction of States’ tax powers like the one under consideration. Indeed, according to the ECJ’s interpretation, the EU will be competent to adopt a harmonisation measure of national provisions pursuant to Article 114 TFEU provided that such measure: a) actually contributes to eliminating obstacles to trade between Member States; or b) removes distortions of competition. 47

Hinojosa Martínez (2006) 74.

48

Case 22/70 Commission v Council [1971] ECR 263.

49 50

De la Quadra-Salcedo Janini (2006) 66-7.

Ibid., 70.

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As for the first possibility, it is hard to see how the quantification of the administrative charges imposed on undertakings providing a service or a network under the general authorisation or to whom a right of use has been granted could be an obstacle to trade between Member States. Not for nothing, this issue was not raised in the cited Judgment of the ECJ of 21 July 2011 (Case C-284/10). Emphasis was placed instead on the requirement that the fees in question ‘should not distort competition or create barriers for entry into the market.’ Therefore, the question is to determine whether the infringement of the collective cost-equivalence rule (i.e., the requirement that the revenue should not exceed the cost of the service) implies a distortion to competition or a barrier to market entry. In particular, according to the case law of the ECJ, the distortion has to be ‘appreciable.’51 We have already discarded the theories that, based on an abusive interpretation of the principle of fiscal neutrality, consider taxes as distortions to the market per se. Hence, the key will be to determine whether regulatory diversity on the quantification of administrative charges levied by national regulatory bodies can generate or not a distortion to the market that justifies harmonisation by the EU. It is a particularly complex issue, whose answer requires an in-depth economic analysis. Since this cannot be addressed here, we assume ex hypothesi that great divergences among quantification methods could entail distortions to the single market, which would entitle the EU to harmonise national provisions. However, our reasoning faces a final obstacle: Article 114(2) TFEU establishes that ‘paragraph 1 shall not apply to fiscal provisions.’ A restrictive interpretation would lead to the conclusion that the Directive went too far when it made use of Article 114(1) to harmonise in tax matters, since fees are charges forcibly levied by public authorities for the provision of public services. On the other hand, a wider interpretation would be possible, in line with the broad one usually advocated by the ECJ, under which Article 114(1) would cover any fee directly related to the provision of services linked to the internal market. Taxes would be excluded, in spite of being able to actually affect the conditions under which competitors operate (as in the abovementioned decision of the Court on French television). Surprising as it may be, the solution to the problem considered here comes hand in hand with the classic distinction between taxes and fees. While in the former the taxable event refers to a manifestation of wealth (generally the obtaining of an income, the ownership of wealth or an act of consumption) with no compensation on the part of the Administration levying the tax, the taxable event of the latter is defined by the provision of a public service, which is the consideration for the amount collected. Hence, when Article 114(2) excludes harmonisation of ‘fiscal provisions,’ it should be understood as referring only to taxes. Administrative fees related to the establishment and functioning of the 51

Case C-376/98 Germany v. European Parliament and Council [2000] ECR I-8419, para. 108.

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internal market could then be subject to the harmonisation of national provisions under Article 114(1) TFEU. As a result, and in spite of all the doubts raised throughout this work, we hold that limitations to Member States’ tax powers like the one set forth in Article 12 of Directive 2002/20/EC should not be deemed ultra vires provided that they are restricted to fees levied for administrative services directly related to the functioning of the internal market. It may seem a subtle distinction, even an ad hoc one, but it should not be forgotten that the division of powers between the Union and the Member States -especially with regard to areas that can be harmonised in order to ensure a good functioning of the internal market- is a dynamic issue, constantly evolving and therefore little prone to rigid and definitive categories.

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Bibliography L. Adamczyk, “The Sources of EU Law Relevant for Direct Taxation”, in M. Lang, P. Pistone, J. Schuch, and C. Staringer (eds.), Introduction to European Tax Law on Direct Taxation (3rd edn.; Wien: Linde Verlag, 2013), 13-42. C. Barnard, The substantive law of the EU (4th edn.; Oxford: Oxford University Press, 2010). P. Craig and G. De Búrca, EU Law. Text, cases and materials (5th edn.; Oxford: Oxford University Press, 2011). J. De Goede “European Integration and Tax Law” (2003) 43 European Taxation, 203-9. V. E. Englmair, “The Relevance of the Fundamental Freedoms for Direct Taxation”, in M. Lang, P. Pistone, J. Schuch, and C. Staringer (eds.), Introduction to European Tax Law on Direct Taxation (3rd edn.; Wien: Linde Verlag, 2013), 43-92. E. Fuentes Quintana, Hacienda Pública. Principios y estructura de la imposición (Madrid: Rufino García Blanco, 1987). P. Genschel and M. Jachtenfuchs, “How the European Union constrains the state: Multilevel governance of taxation” (2011) 50 European Journal of Political Research, 293-314. A.D. Giannini, Elementi di Diritto finanziario (Milano: Giuffrè, 1945). X. Groussot, General Principles of Community Law (Groningen/Amsterdam: Europa Law Publishing, 2006). S. Hemels, “Fairness: a legal principle in EU tax law?”, Paper for the 8th GREIT Annual Conference “Principles of Law: Function, Status & Impact in the EU tax law”, 2013, available online at http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2276626 J. Hey, “Kommunale Einkommen- und Körperschaftsteuer -Zugleich ein Beitrag zur Bedeutung des Äquivalenzprinzips für die Ausgestaltung kommunaler Steuern-” (2002) 4 Steuer und Wirtschaft, 314-25. J. Hey, “Vom Nutzen des Nutzenprinzips für die Gestaltung der Steurrechtsordnung”, in K. Tipke, R. Seer, J. Hey and J. Englisch (eds.), Festschrift für Joachim Lang zum 70. Geburtstag, (Köln: Verlag Dr. Otto Schmidt, 2010). L. Hierro, “Justicia, igualdad y eficiencia”, (1998) 9 Isonomía, 129-71. L. Hierro, Justicia, igualdad y eficiencia (Madrid: Centro de Estudios Políticos y Constitucionales, 2002). L.M. Hinojosa Martínez, El reparto de competencias entre la Unión Europea y su Estados miembros (Valencia: Tirant lo Blanch, 2006). H.D. Jarass and B. Pieroth, Grundgesetz für die Bundesrepublik Deutschland. Kommentar (10th edn.; München: Verlag C.H. Beck, 2009)C. Martínez Sánchez, El principio de equivalencia en el sistema tributario español (Madrid: Marcial Pons, 2014). J.J. Martos García “Las exacciones de efecto equivalente a los derechos de aduana en la Unión Europea” (2012) 144 Crónica Tributaria, 55-87. U. Mazzolla,“The formation of Prices of Public Goods”, in R.A Musgrave and A.T. Peacock (eds.), Classics in the theory of public finance, (New York: Macmillan, 1967). F. Neumark, Principios de la imposición (Spanish translation of the original Grundsätze gerechter und ökonomisch rationaler Steuerpolitik), (2nd edn.; Madrid: Instituto de Estudios Fiscales, 1994).

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K. Newton, K. and J.W. Van Deth, Foundations of Comparative Politics (Cambridge: Cambridge University Press, 2005). T. de la Quadra-Salcedo Janini, El sistema europeo de distribución de competencias (Cizur Menor: Thomson-Civitas, 2006). L.A. Rojo, “Libertad y organización económica”, in J.L. Aranguren et alii, Libertad y organización, (Madrid: Ínsula, 1963). K. Tipke, Die Steurrechtsordnung (2nd edn.; Köln: Verlag Dr. Otto Schmidt, 2000). F. Vanistendael, “Ability to Pay in the European Community Law” 3 (2014) EC Tax Review, 121-34. D.J. Ventry Jr., “Equity versus Efficiency and the U.S. Tax System in Historical Perspective”, in J.J. Thorndike and D.J. Ventry Jr. (eds.), Tax justice: the ongoing debate, (Washington, D.C.: The Urban Institute Press, 2002). M. Wienbracke, Bemessungsgrenzen der Verwaltungsgebühr. Zugleich ein Beitrag zum Steuerstaatsprinzip, unter Berücksichtigung des Europarechts (Berlin: Duncker & Humblot, 2004).

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The ‘Union of Independent Regulatory Authorities’ of the European Internal Market Francisco Velasco Caballero

chapter 10



the ‘union of independent regulatory authorities’ of the european internal market

1 Introduction

1. There are many public entities in the European internal market (IM). Among them, this paper focuses on a distinct sort: Independent Regulatory Authorities (IRAs), both national (NIRAs) and European (EIRAs). Of the various legal-administrative issues posed by these independent authorities, we shall now pay attention to the relational perspective, i.e., how are the IRAs, both national and European, connected within the single internal market. The specific legal matters posed by each relational category shall also be analysed herein. To achieve this analytical goal we can draw a distinction between two structural models of IRAs in the internal market: the symmetrical and the asymmetrical model. The structure or configuration shall be considered symmetrical inasmuch as there are IRAs both at the national and European market levels. However, we will be confronted by an asymmetrical configuration insofar as IRAs exist at national level but not at European level. Hypothetically, there would still be room for a second kind of asymmetrical configuration, if there was an IRA only at European level and not in the Member States. This second variant of ‘asymmetrical regulatory union’ typically appears in secondary sectorspecific spheres of regulatory policy. In other words, it arises in areas where public administrations do not pursue economic objectives in a strict sense (the well-functioning of competition within the internal market), but rather aim for ‘social’ or ‘political’ goals which have indirect legal implications for economic operators. This is the case with EIRAs established for food, medicines or environmental control purposes.1 This asymmetrical alternative is tending to disappear, as a close examination shows that Member States increasingly create NIRAs where EIRAs already exist. This kind of asymmetrical regulatory union remains outside the scope of this study due to its temporary or contingent nature. 2. IRAs do not follow a single pattern, nor there is a sole cause or political or economic consideration underlying their creation. There are functional reasons (utility), sociological causes (imitation of organisational forms within a State and among various States) along with historical-institutional factors (degree of resiliency of the existing administrative structures vis-á-vis the new IRAs). However, none of these considerations accounts for every single sector-specific IRA example. In fact, all of these considerations account, to some degree, for the establishment of every specific IRA, yet with a particular explanatory relevance for each agency.2 In my view, there is a decisive functional reason for creating IRAs: IRAs’ inherent utility for market governance. From then onwards, imitation (or ‘isomorphism’) as well as historical-institutional contexts may simplify, speed up, or delay the establishment of IRAs. 3. In fact, nowadays it seems indisputable that market supervision and market operational regulation shall be performed through independent authori1

Gilardi (2005) 86.

2

Gilardi (2005) 97. See, nonetheless, supporting a historic-institutional explanation: Thatcher (2011) 793.

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ties.3 One could even argue that the market, although in need of institutions and authorities in order to correct its failures and ensure its very existence, 4 technically requires that these authorities regard it as an end in itself and not as an element subject to public policies. This does not mean that IRAs are meant to be apolitical (they are not), or that they should act with judge-like impartiality (they do not). Indeed, the foregoing means that IRAs shall be independent from the Government and from the ruling party at all times. Independent authorities govern the markets within the limits of the law. However, they do so at the service of the market, uncommitted to the political objectives of a given Government. This statement, as persuasive as topoi, owes much to the pattern provided by independent regulatory agencies in the US.5 Nevertheless, when we try to bring over the North American model, the fact that the American regulatory agency (as a form of government) is a national product rather than a universal one is usually overlooked. 4. American regulatory agencies come in response to a particular constitutional allocation of power, they are drawn from a very specific set of political beliefs (economic liberalism), and they are deeply rooted in the federal structure of the United States. On the one hand, the long-standing ‘small government approach’ (applicable to the Federal Government versus the State Government) has led to a functional expansion of the Federal Government developed on an ad hoc basis, by means of sector-specific agencies (whether independent or not) which are assigned ‘new’ specific public tasks. On the other hand, purely ‘independent’ North American agencies portray the existing tensions and balance of power issues between Congress and President.6 These become particularly evident as congressional supervision of independent agencies is carried out through committees and subcommittees of Congress.7 Finally, the legal neutrality and independence of independent regulatory agencies in the US show the distinct political compromise reached between the hitherto almost absolute freedom of the economic agents and the historically new Federal Government intervention on the markets. This political compromise is displayed, firstly, by means of the anti-party programme of the ‘Progressive Movement’ in the late 19th century, and subsequently by the federal expansion brought along by the New Deal in the 1930s. The essence of the said compromise was rooted in a federal intervention of a ‘regulatory,’ ‘technical,’ and ‘bipartisan’ nature. The foregoing truly accounts for the core elements of the American independent regulatory agencies. 3

See: Majone (2001) 57-78. Nevertheless, some empirical studies question this tenet. Regarding the independent banking authorities, see Jordana and Rosas (2014) 672.

4 5

For all: Badlwin and Cave (1999) 9 ff.

Muñoz Machado (2009) 2; Chamon (2011) 1073; Yataganas (2001) 45-51; García Álvarez (2014) 84 and 93.

6 7

Strauss (1984) 641; Shapiro (1997) 277; Pierce (2013) 78; and, more recently: Breger and Edles (2014).

Shapiro (1997) 288.

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5. Regulatory agencies in the European Union are somewhat different. In Europe, with regard to the establishment of liberalised and increasingly integrated markets, the independent regulatory agencies model is adopted and traditional bureaucratic bodies are reshaped as ‘independent administrations,’ i.e., public administrations with regulatory functions (not necessarily rulemaking powers yet effectively governing the economic operators), organically and operationally separate from the Government. In addition, they remain neutral towards market operators. This definition of independent administrations in Europe partially contrasts with the North American experience. In the first place because its first appearance occurs in the Member States, not in the Union. Secondly, because national independent administrations do not unfold ex nihilo; on the contrary, they stem from the remodelling of an existing administrative bureaucracy, closely tied to each country’s government. Thirdly, as we shall see, (infra §§ 25 and 26), one of the main features of the IRAs in the European internal market is that they perform their tasks cooperatively and in a coordinated manner (in relation to other States authorities and EU institutions).8 6. As it has been stated, there are various and very diverse independent administrative authorities within the European internal market. There needs to be clarification on how the internal market is a single reality with several operational thresholds (local, regional, national and European),9 which are duly identified and legally connected through undetermined legal notions (‘less significant banks,’ ‘systemic risk,’ ‘cross-border implications’). Properly identifying each market threshold determines the greater or lesser presence of the relevant regulatory authorities, whether national or European. As the internal market is a single economic reality -although with different thresholds or levels of relevance- it shall be understood that administrative authorities within the internal market must act through cooperative or integrated arrangements. This is the core idea of the ‘administrative European Union,’10 admittedly applicable also to the internal market. Given the unitary essence of the European internal market, the existing administrative authorities are to perform their tasks in an associated or integrated fashion. Not only as a ‘networked administration,’ but beyond that: in an integrated manner. This organizational reality, the ‘administrative union’ of the internal market, constitutes the focus of this paper. As we shall see, one of the defining features of the ‘administrative union’ within the European internal market is precisely the creation of European (independent) agencies, where national sector-specific authorities and the European institutions shall be integrated. 7. The activity of a number of authorities or administrative entities, both general and sectoral as well as national and European, is projected onto the European internal market. The scope of this study is limited to the IRAs, i.e., administrative organizations, normally independent legal persons, which carry 8

Hofmann (2011) 4.

9

For example, as to the energy market: Strielkowski, Mirvald and Pedersen (2014) 506-15.

10

Schneider (2005) 141; Ruffert (2007) 764.

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out market governance and supervision functions with a high level of autonomy with respect to the economic operators and each country’s government as well as with respect to the EU institutions. The designations and scope of these independent authorities amongst countries are very diverse. However, the fact that a given entity is formally labelled as ‘independent’ does not always mean that the entity in question is an autonomous regulatory authority. In the EU, IRAs are regulated as a unique type of agency. However, not every European agency is ‘independent,’ in the same way as not every autonomous or independent agency plays a regulatory role.11



2 The asymmetrical regulatory union

8. We can often find IRAs at the internal market’s national level. The Commission will show up at a European level of the market. This outcome can be grounded on different legislative foundations. a) Without being required by European law, Member States often create IRAs in order to regulate and ensure competition in the national markets. European competition law12 does not impose on Member States the duty to establish general IRAs seeking national market oversight and supervision. Nevertheless, Member States still create these general independent authorities.13 On the European side, pursuant to the provisions of Article 103(2) d) TFEU, Regulation No 1/2003 gives the Commission -together with national authorities- competition supervision tasks in the internal market as a whole. Attempts to create a European independent agency to ensure competition oversight have failed, precisely due to the open and forceful Commission’s opposition.14 b) Some other times European law requires certain national sector-specific markets to be governed by independent authorities created by Member States. However, these European law provisions fail to require the existence of independent authorities at European level of the same market. This is particularly the case for the postal sector, where secondary law requires Member States to designate one or more national regulatory authorities ‘operationally independent,’ from postal operators,15 although it does not provide for the existence of 11

Maggetti (2009) 450.

12

Article 35 of Council Regulation (EC) No 1/2003 of 16 December 2002 on the implementation of the rules on competition laid down in Articles 81 and 82 of the Treaty (OJ L 1, 04.01.2003, p.1) does not impose on Member States the creation of independent authorities. For a different opinion, see Codini and Frego (2014) 504.

13

See, e.g., the Italian Autorità Garante della Concorrenza e del Mercato, established by Law 287 of 1990; the French Autorité de la Concurrence, established by the Law 2008-776 of 4 August 2008, or the Spanish Comisión Nacional de los Mercados y la Competencia, established by Law 3/2013, of 4 October 2013.

14 15

Thatcher (2011) 800. See also Fuentetaja (2014) 223.

Article 22 of Directive 97/67/EC of the European Parliament and of the Council of 15 December 1997 on common rules for the development of the internal market of Community postal services and the improvement of quality of service (OJ L 15, 21.1.1998, p. 14).

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an ‘operationally independent’ European authority. This is also the case for the electronic communications market, where at national level there must be independent authorities,16 whereas at European level alongside the Commission there is only a consultative body, the Body of European Regulators for Electronic Communications (BEREC).17 9. There are several legal issues posed by this form of regulatory union. a) First of all, the asymmetrical character of the relevant authorities in each sector-specific regulatory union could appreciably affect the Commission’s institutional and operational position. As is the nature of the so-called ‘single-purpose administrations,’18 NIRAs naturally strive towards a high level of performance (since their very existence is grounded on their regulatory effectiveness) thus constraining the Commission’s operational sphere,19 particularly when this sphere is not clearly defined by the relevant rules. In addition to the foregoing, the operational position of the NIRAs is sometimes strengthened vis-á-vis the Commission through the establishment of coordination committees within the NIRAs. This is the case for the Body of European Regulators for Electronic Communications (BEREC). This European body does not reach an agency’s level of formalization, autonomy and stability, but there is no doubt that it weakens the Commission’s operational position,20 since, as it happens with agencies, it must provide assistance in the context of the relevant market analysis, and may have direct (technical) communication with the Parliament and the Council.21 On the other hand, integrating the Commission within a regulatory union right by the NIRAs, where priority is given to ‘technical’ or ‘standardized’ performances, highlights the Commission’s administrative or technical dimension at the expense of its political side. b) Secondly, the coexistence of NIRAs with the Commission, as for the application of the same regulatory law, may lead to distortions and inconsistencies. As we shall see below, in the symmetrical regulatory union these distortions and inconsistencies are solved by integrating NIRAs in a European agency. Concerning the asymmetrical regulatory union, interferences are solved -partially, at least- by setting out thresholds or other operational demarcation criteria for both NIRAs and Commission (for instance, in terms of competition), and by regulating joint procedures where both NIRAs and Commission are involved.22 The 16

Article 3 of Directive 2002/21/EC of the European Parliament and of the Council of 7 March 2002 on a common regulatory framework for electronic communications networks and services (Framework Directive) (OJ L 108, 24.4.2002, p. 33).

17

Regulation (EC) No 1211/2009 of the European Parliament and of the Council of 25 November 2009 establishing the Body of European Regulators for Electronic Communications (BEREC) and the Office (OJ L 337, 18.12.2009, p. 1).

18

Bañón and Carrillo (1997) 68.

19

Majone (2002) 284.

20 21

Thatcher (2011) 802.

Article 2 of Regulation (EC) No 1211/2009.

22

Della Cananea (2004) 198. See also Velasco (2008) 456.

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answer for any possible inconsistency, a natural consequence of the prevailing diversity among the entities applying the relevant rules and regulations (particularly given those entities’ different nature) is twofold. The first solution is based on deepening the operational standards shared by Commission and NIRAs. The second response has an organic nature, and lies in the creation of a third cooperative entity within the relevant ‘administrative union:’ a board of regulators (composed of NIRAs representatives). This is the case for the abovementioned European Regulators for Electronic Communications. c) Finally, two issues arise if European law provides for the existence of NIRAs. The first relates to the compatibility of the said duty imposed on the States with the principle of organisational autonomy. In this regard, lacking specific case law on NIRAs, it must be asserted that current European case law is not highly deferential to Member States regarding their organisational obligations laid down by European law. To the point that the actual existence of the organisational autonomy principle may be questioned.23 The second substantial legal issue pertains to the Member States’ obligation to create independent authorities. In the absence of specific case law on this point, yet with appropriate differentiation, European case law on independent national data protection authorities may be brought up. According to the Court of Justice: ‘It is true that Member States are free to adopt or amend the institutional model that they consider to be the most appropriate for their supervisory authorities. In doing so, however, they must ensure that the independence of the supervisory authority (…) is not compromised’. In this regard, independence shall be construed as a status that ‘precludes inter alia any directions or any other external influence in whatever form, whether direct or indirect, which may have an effect on their decisions [of the Independent Authority]’.24 In accordance with this jurisprudence, it may be considered that the Court of Justice does not require any particular legal form for independent authorities. However, it does specifically set forth that it must comply with certain legal aspects considered to be ideal for the purpose of ensuring operational independence, regardless of the organisational structure adopted by the relevant national authority. Namely, regarding the appointment and removal of members (or the head) of the independent authority. One could argue that the independence of an authority intended to protect fundamental rights (such as the national data protection authority) shall be substantially different from that of a market regulatory authority. Notwithstanding the foregoing, it is easy to assert that the general independence criteria set forth by the ECJ to this date (relating to data protection) are also applicable to independent regulatory authorities due to the general and minimal nature of these criteria.

23

Arzoz (2013) 176; Garcia Álvarez (2014) 105.

24

Case C-288/12 Commission v Hungary [2014] n.y.r., para. 60 and 51, respectively.

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3 Symmetrical regulatory union



3.1 Description of the administrative organisation

10. A second possible combination of IRAs occurs when at the national level of the market there is an administration or independent regulatory authority (NIRA) and at European level there is also some sort of independent authority (EIRA). Those administrative entities, whether national or European, which are not purely operationally autonomous, or that even if they are do not perform regulatory functions, do not fall within the scope of this study. 11. A very particular example is provided by industrial property protection and registration offices. At European level, for the purpose of protecting industrial property an agency was established, and it could tentatively be considered an IRA: the Office for Harmonization in the Internal Market (OHIM).25 On the other hand, in Member States it is not uncommon for the relevant industrial protection offices to be part of a department or ministry. In other words, they are not actual independent regulatory authorities.26 The unique nature of these national offices resides in the fact that, although they shall not be construed as independent authorities -operationally and organically speaking- they have traditionally carried out registration and decision-making duties (on trademarks and trade names) with a high degree of impartiality. These registration functions qualify as adjudication, meaning that they are -both substantially and in terms of their procedural regulation- very close to the exercise of judicial power. These offices do not exercise market management or technical regulation duties, but they carry out supporting functions for the purpose of ensuring legal certainty in trade relationships for the benefit of the internal market.27 Therefore, although they are part of the ordinary administration or bureaucracy of their respective States, industrial property offices are not subject to government instructions in the exercise of their duties. Also, their decisions are not subject to governmental review. Precisely because they do not adopt governmental options on the structure or power in the markets (not even those that could be labelled as technical), 25

Council Regulation (EC) No 207/2009 of 26 February 2009 on the Community trade mark (codified version) (OJ L 78, 24.3.2009, p. 1). See also regarding the industrial property of plants varieties: Council Regulation (EC) No 2100/94 of 27 July 1994 on Community plant variety rights (OJ L 227, 1.9.1994, p. 1).

26

Neither the British Office of Intellectual Property nor the Spanish Oficina de Patentes y Marcas are properly independent (although in the case of the former, a number of its decisions may be appealed before an independent administrative tribunal, namely, the Company Names Tribunal). The German Patentund Markenamt is statutory labeled as ‘independent’ (Article 26 of the German Law of Patents [1980]) though that independence refers to the quasi-judicial nature of the office and not to the characteristic administrative autonomy of the regulatory agencies.

27

See nevertheless the classification of the aforementioned agencies, together with other agencies that in this Paper are labeled as regulatory ones, in: Chiti (2013) 95.

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their legal organization as independent authorities has not been deemed necessary. These offices are, rather than properly independent, simply impartial28. 12. At the institutional level of the European Union, independent authorities are normally labelled as agencies. However, not every European agency, not even those within the internal market, may qualify as independent regulatory agencies (EIRAs). This is the case with the European Railway Agency. Although the objective of the Agency is to foster competition in the railway sector, its powers are completely internal; they do not have a direct impact on the market. Its power is limited to addressing recommendations to the Commission and issuing opinions to the Commission or the Member States railway authorities.29 These agencies do not have an effect on the institutional balance of the EU,30 and particularly not on the powers of the Commission. Thus, they do not trigger the problems specific to IRAs. 7. Having provided these clarifications, this study analyses national and European IRAs within two complex and leading markets: the financial market and the energy market. a) Let’s begin with the energy market. At national level, Member States have an independent authority or administration as is expressly required by European law.31 As for the European (transnational) energy market, the Union has created the Agency for the Cooperation of Energy Regulators (ACER).32 b) Concerning financial markets, three European agencies have been established in 2010: the European Banking Authority (EBA),33 the European Insurance 28

On this distinction, see Moliterno (2007) 53 and ff.

29

Article 2 of Regulation (EC) No 881/2004 of the European Parliament and of the Council of 29 April 2004 establishing a European railway agency (Agency Regulation) (OJ L 220, 21.6.2004, p. 3).

30 31

Thatcher (2011) 800.

Article 35 of Directive 2009/72/EC of the European Parliament and of the Council of 13 July 2009 concerning common rules for the internal market in electricity and repealing Directive 2003/54/EC (OJ L 211, 14.8.2009, p. 55).

32

Regulation (EC) No 713/2009 of the European Parliament and of the Council of 13 July 2009 establishing an Agency for the Cooperation of Energy Regulators (OJ L 211, 14.8.2009, p. 1).

33

Established by Regulation (EU) No 1093/2010 of the European Parliament and of the Council of 24 November 2010 establishing a European Supervisory Authority (European Banking Authority), amending Decision No 716/2009/EC and repealing Commission Decision 2009/78/EC (OJ L 331, 15.12.2010, p. 12). This Regulation was later partially amended by the Regulation (EU) No 1022/2013 of the European Parliament and of the Council of 22 October 2013 amending Regulation (EU) No 1093/2010 establishing a European Supervisory Authority (European Banking Authority) as regards the conferral of specific tasks on the European Central Bank (ECB) pursuant to Council Regulation (EU) No 1024/2013 (OJL 287, 29.10.2013, p. 5). The purpose of Regulation (EU) No 1022/2013 was to adapt the European Banking Authority to the new supervisory powers of the European Central Bank over the financial institutions, as provided by Regulation 1024/2013. Today, according to Regulation 1024/2013, the ECB wields supervisory powers akin to the ones conferred on the EBA by Regulation 1093/2010 (Recitals 2 and 80 of Regulation 1024/2013). However, the arguments and findings of the present study are not applicable to the ECB, mainly because the ECB is not a European agency, but an Institution of the EU (Article 13.1

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and Occupational Pensions Authority (EIOPA)34 and the European Securities and Markets Authority (ESMA).35 All of these agencies have predecessor agencies in somewhat informal prior intergovernmental committees. Nowadays they serve, among others, the objectives of the internal market.36 They act ‘independently, objectively and in a non-discriminatory manner’ and they are part, among other entities and committees, of the European System of Financial Supervision (ESFS).37 In contrast to the energy market, there is neither a transnational scope nor a specific threshold for European agencies (systemic risk is just an area of intervention for agencies), so these European authorities may take action in parallel with national financial supervision administrations, which in itself calls for strong cooperation and coordination instruments. Furthermore, although European law does not expressly and strictly establish that national financial oversight has to be performed by ‘independent authorities,’ it does require national financial supervision authorities to act ‘objectively and independently.’38 In practice, Member States generally confer oversight duties upon central banks or other independent administrations.39 13. It can be considered that the IRAs symmetry at national and European level of the internal market favours operational cooperation amongst the various agencies. Precisely because of the step backwards taken by governmental interTEU), and because the powers of the ECB are directly based on Article 127(6) TFEU. These two legal provisions render meaningless all possible inquiries on the legitimacy of the EIRAs that will be consider later (So, FERRAN and BABIS [2013] 4). 34

Regulation (EU) No 1094/2010 of the European Parliament and of the Council of 24 November 2010 establishing a European Supervisory Authority (European Insurance and Occupational Pensions Authority), amending Decision No 716/2009/EC and repealing Commission Decision 2009/79/EC (OJ L 331, 15.12.2010, p. 48).

35

Regulation (EU) No 1095/2010 of the European Parliament and of the Council of 24 November 2010 establishing a European Supervisory Authority (European Securities and Markets Authority), amending Decision No 716/2009/EC and repealing Commission Decision 2009/77/EC (OJ L 331, 15.12.2010, p. 84). By means of Regulation (EU) No 236/2012 of the European Parliament and of the Council of 14 March 2012 on short selling and certain aspects of credit default swaps (OJ L 86, 24.3.2012, p. 1) the ESMA received new delegated binding decision-making powers in emergency cases. The latter Regulation was challenged and upheld in Case C-270/12 United Kingdom v Parliament and Council [2014] n.y.r.

36 37

Article 5.1 a) of Regulations 1093/2010, 1094/2010 and 1095/2010.

Article 1(5) of Regulations 1093/2010, 1094/2010 and 1095/2010.

38

Article 4 of Directive 2013/36/EU of the European Parliament and of the Council of 26 June 2013 on access to the activity of credit institutions and the prudential supervision of credit institutions and investment firms, amending Directive 2002/87/EC and repealing Directives 2006/48/EC and 2006/49/EC (OJ L 176, 27.6.2013, p. 338).

39

E.g., in the United Kingdom the Prudential Regulatory Authority was created by the Financial Services Act (2012) and is a part of the Bank of England. It operates alongside another independent authority outside the Bank of England, namely, the Financial Conduct Authority. In Spain, the supervision is carried out directly by the Bank of Spain (Article 7.6 of the Law 13/1994, on Autonomy of the Bank of Spain).

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ferences in IRAs’ rather technical activity, even when this activity accounts for ‘quasi-rule-making’. 40 That said, there are several remarkable legal issues posed by this combination of authorities. 14. The first matter to be addressed is the real nature of the symmetry between the relevant national authority and the EIRA. At first glance, the said symmetry is more restricted than it would appear. In the first place, the nature of the independence granted to EIRAs and NEIRAs differ in structural terms. Whereas NIRAs seek independence with respect to national governments, EIRAs seek independence from the Commission, 41 which is not per se EU government. Moreover, the incompatibility and ineligibility rules concerning the members of the management boards of the IRAs, though formally akin, can determine different real levels of independence, when taking into account the real context in which the several IRAs operate. Conversely, where there are previous NIRAs in place, the relevant European agency has a limited operational scope. When NIRAs exist before the European agency, they tend to cover most of the sector-specific regulatory domain, leaving limited scope for European agencies. 42 In addition, the NIRA’s degree of operational independence, inasmuch as it results directly from the law, is considerably higher than the ‘independence’ of a European authority. As we shall see in detail (infra § 15), the EU institutional system set out in the treaties hampers the conferral of relevant powers upon ‘agencies’ or other European bodies other than the Commission through secondary legislation (directives, regulations, decisions). In this connection, national legislation has more scope to create independent authorities than secondary law provisions adopted by EU institutions. Consequently, EIRAs’ activity is at least partially different from that of national independent authorities. European regulatory agencies are basically going to issue guidelines (addressed to the Commission), to deliver recommendations to the economic operators, and to draft public monitoring reports. Regulatory rule-making (implementing technical regulations) and case by case decision-making duties, although they exist, are very limited. 43 In view of these duties, the utility and applicability of the very concept of independent regulatory authority to these EIRAs (which exercise limited or secondary direct functions over economic operators) could be questioned. 44 Despite these reasonable concerns, the actual economic impact on the markets of the non-decision making administrative activity (simply informative or admonitory), 45 allows for maintaining these ‘proposal and soft law-generating administrative structures’ within the concept of independent authorities. This is 40 41

Moloney (2013) 83.

This fundamental distinction is very precise in Shapiro (1997) 282.

42 43

Thatcher (2011) 790.

See, e.g.,, for the European Supervisory Agencies: Articles 8 to 10 of Regulations 1093/2010; 1094/2010 y 1095/2010, and regarding these agencies, Chamon (2011) 1069.

44 45

Chiti (201) 94; Malaret (2013) 4.

Majone (1997); Shapiro (1997) 285.

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due to the fact that these authorities, although lacking decision-making nature, have a remarkable and direct influence on the operation of the market. 46



3.2 The Meroni doctrine and the lack of legal legitimacy of the EIRAs

15. Since 1958, when the Meroni judgment 47 was delivered, European law sets a clear limit for the transfer of powers (delegation) from European institutions to agencies created by them. The Meroni judgment does not prevent the Commission from delegating powers to agencies on a general basis. However, it does prevent these delegations from encompassing fully discretionary powers. As the Court of Justice stated, such delegations ‘can only relate to clearly defined executive powers, the use of which must be entirely subject to the supervision of the High Authority [of the already extinct European Coal and Steel Community]’ (page 153). This doctrine has not been reviewed by the Court, yet it has been reaffirmed in the Romano judgment (1980)48 and much more recently in the ruling on certain decision-making powers delegated to the ESMA (2014). 16. However, it is true that in the current context of the European Union some objections may be raised in relation to the Meroni doctrine. 49 Firstly, because of the unique nature of the Meroni case (since it was about a subdelegation from the High Authority [of the former European Coal and Steel Community] and it was raised at a very initial stage of the Community’s legal existence).50 Secondly, due to the economic, social, and institutional evolution underwent by the European Union. The complexity featured by the contemporary European society as well as the remarkable expansion of EU powers since 1958, calls for new forms of administrative action. Thirdly, due to the actual evolution experienced by EU law, particularly because current Article 263 TFEU expressly provides that European agencies shall be subject to judicial review (which was not the case back in 1958, and it played a very prominent role in the Court’s reasoning in the Meroni judgment).51 However, and while updat46

E.g. ‘Draft of Inter-institutional Agreement on the Operating Framework for the European Regulatory Agencies’: COM (2005) 59 final, p. 4. This draft was withdrawn by the Commission and replaced with a more realistic proposal of inter-institutional discussion: Communication from the Commission to the European Parliament and the Council. European agencies-The way forward. (COM (2008) 135 final), 8.

47

Case C-9/56 Meroni v High Authority [1958] ECR 133.

48

Case C-98/90 Romano [1981] ECR 1241. This judgment was partially overruled in the ESMA case (Case C-270/12, United Kingdom v Parliament and Council [2014] n.y.r.), which turned on whether Union agencies may adopt acts of general application under Articles 163 and 277 TFEU. The Court had also mentioned the Meroni Ruling in several prior cases, though concerning issues no directly related with delegation to agencies: e.g., Case C-19/67 Van der Vecht [1967] ECR 345.

49 50

Schneider (2009) 32; Hofmann and Türk (2006) 89.

In this sense, regarding the ESMA, see: Case C-270/12, United Kingdom v Parliament and Council [2014] n.y.r, para. 43.

51

Chamon (2011) 1056.

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ing this doctrine would be desirable, the truth is that its original sense is still present within the applicable EU law,52 as it has been restated by the Court of Justice in relation to the ESMA.53 The main issue here revolves around preserving the original Treaty allocation of powers, as was the case when the Court delivered the Meroni judgment in 1958. In terms of the applicable UE law this has the following implications: it is lawful to grant a delegation of powers even if this delegation is not expressly foreseen in the Treaties (Articles 290 and 291 TFUE),54 but the delegation in question is strictly limited: it cannot include discretionary powers conceding a wide margin of discretion; it must allow for a strict review -to be performed by the EJC according to Article 263 TFEU55- on the exercise of the delegated powers in the light of the objective criteria determined by the delegation authority; and it must respect the institutional balance as was shaped by the treaties, especially with regard to the preferential position of the Commission according to Articles 290 and 291 TFUE.56 17. In the light of the Meroni doctrine, understood within the context of the EU law in place, it can be asserted that despite the EIRAs’ formal lawfulness (validity) they initially show a low level of legal legitimacy.57 This is precisely because they stem from a very limited power of the Council and the European Parliament to delegate functions to bodies or entities other than the Commission. However, this initially little legal legitimacy does not imply the delegation’s invalidity, since, as it has been said, it is possible to delegate powers to European agencies. This ‘low level of initial legitimacy’ does not relate to the twofold assessment ‘validity-invalidity,’ but to a scale or degree of legal legitimacy,58 based on the extent to which the European agency complies with EU law as a whole;59 not only with its principles or rules applicable to the delegation of powers, but also with other substantive principles or values embedded in primary law. Insofar as the Regulation stablishing every single EIRA strengthens diverse EU law principles, values or legal interests, the final legitimacy of each unique EIRA can also vary.60 18. The legal analysis suggested herein, which focuses on each EIRA’s ‘degree of legitimacy,’ takes a critical look at the concept of delegation as the most 52 53

Hofmann (2011) 10.

With regard to the ESMA, see Case C-270/12, United Kingdom v Parliament and Council [2014] n.y.r., para. 41.

54

Stelkens (2013) 27. According to Case C-270/12 United Kingdom v Parliament and Council [2014] n.y.r., para. 85, by expressly mentioning the acts of the ‘bodies’ and ‘agencies’ of the Union as possible objet of judicial review, Article 263 TFEU allows delegations of the Council to the European agencies. But see Ziller (2010) 904.

55

Case C-270/12 United Kingdom v Parliament and Council [2014] n.y.r., para. 53.

56 57

Chamon (2011) 1070; García Álvarez (2014) 94.

This is precisely the starting point of the Commission in its ‘Draft of Inter-institutional Agreement on the Operating Framework for the European Regulatory Agencies’: COM (2005) 59 final’, p. 6.

58

Velasco (2010) 92.

59

See Schneider (2009) 39, though referring only the different levels or grades of democratic legitimacy.

60

Vos (2000) 1123.

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suitable conceptual category in order to legally classify the EIRAs. The legal and political constructions on delegation and the principal-agent relationship still have much bearing in the long-standing explanations and legal assessments of independent administrations. The academic influence of the United States could have been important on this point, since North American independent agencies (as it normally happens with every infra-constitutional allocation of power) are construed as forms of power delegation. This approach suffers from explanatory shortcomings when applied to EU regulatory agencies.61 According to the political and public law approach, the concept of delegation refers to an empowerment between two subjects: one of them holds a function or power (principal) and the other one is invested with the other subject’s power (agent). The boundaries encountered by an agency (delegated entity), as well as the control maintained by the principal, can be explained on the basis of this empowerment rationale. However, this categorisation does not fully explain what accounts for a very distinct political phenomenon in the EU (infra § 25), where the EIRA, strictly speaking, is not a subject different from the principal. It is not even a subject which is granted delegations from other principals,62 but an instrumental entity shared by various organizations or bodies, both EU institutions (Commission, Council, European Central Bank) and national authorities. In accordance with the foregoing, independent regulatory agencies can be better explained if subsumed under the so-called ‘European regulatory union,’ i.e., under an organisational model of cooperative interaction among various primary law entities, both at national and European level.



3.3 Recomposition of the EIRAs’ legal legitimacy

19. In accordance with the foregoing, those European independent agencies analysed herein (ACER, EBA, EIOPA, and ESMA) initially display a low level of constitutional legitimacy. There are two main options in place, stemming from regulation, to try to overcome this legitimacy shortfall. The first is based on diminishing, to the greatest extent possible, the impact of the EIRA on the institutional balance (infra § 20). The second option departs from the premise that the mere creation of a European regulatory agency entails a serious disruption for the EU institutional balance. However, it tries to compensate (yet not to solve) such disruption by getting the most out of other EU structural principles (infra § 22).



3.3.1 Constriction of delegated power

20. As it has been stated, European regulations attempt to diminish the institutional balance disruption brought along by the very existence of a European Regulatory Agency (EIRA). This option is developed in the context of the Meroni doctrine, emanated from the ECJ.63 As it was explained 61

Busuioc (2009) 606.

62 63

See the theoretical proposal of Coen and Thatcher (2008) 50.

See for the European Supervisory Agencies (ESAs): Moloney (2011) 74.

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above, in the mentioned judgment, the Court stated that the delegation of power to bodies other than those which the Treaties have established shall be narrowly limited. Along these judicial provisions, the rules governing EIRAs lay down a rather precise operational outline applicable to agencies. They do not only provide for limited powers through concrete fact situations, but also by means of objectives or ends which guide the exercise of these powers. It is also stated that the powers conferred upon agencies have a technical nature, yet not a political character,64 and safeguard clauses are set out in order to shield the Commission’s institutional position. It must be clarified that the Commission is the European institution which is most affected by the establishment of independent regulatory agencies. In this connection, ESAs regulations emphasize that agencies powers do not challenge or aimed at restricting the powers of the Commission pursuant to Article 258 TFEU65 and it is reaffirmed that the Commission’s final decision-making power remains unaffected.66 Some other times, an explicit statement is made as to how the powers conferred upon independent agencies have a delegated nature (from the Council or from both the Council and the European Parliament). It is also stated that these powers are revocable and even limited in time,67 that they are subject to delegated or implementing regulations issued by the Commission,68 as it is declared that the agency in question ‘shall be accountable to the European Parliament and to the Council.’69

64

‘Regulatory technical standards shall be technical, shall not imply strategic decisions or policy choices and their content shall be delimited by the legislative acts on which they are based’ (Article 10(1) of Regulations 1093/2010, 1094/2010 and 1095/2010).

65

Articles 1(4), 18(4) and 19(4) of Regulations 1093/2010, 1094/1095 and 1095/2010.

66

Regarding the ‘Regulatory Technical Standards’ that can draft the supervisory agencies: Article 10(3) of Regulations 1093/2010, 1094/2010 and 1095/2010.

67

Regarding the power yielded to the supervisory agencies to draft ‘Regulatory Technical Standards’: Article 11(1) of Regulations 1093/2010, 1094/2010 and 1095/2010. On the relevance of the possible revocation of the delegation, as a means of control on delegated powers, according to the Meroni doctrine, see Moloney (2011) 67 and 75.

68

With regard to the extraordinary powers endowed to the ESMA, the previously mentioned Regulation No 236/2012 (Article 30) empowers the Commission to adopt delegated acts which are to be followed by the ESMA when wielding its delegated powers (As an example of the delegated rules passed directly by the Commission, see: Commission Delegated Regulation (EU) No 918/2012 of 5 July 2012 supplementing Regulation (EU) No 236/2012 of the European Parliament and of the Council on short selling and certain aspects of credit default swaps with regard to definitions, the calculation of net short positions, covered sovereign credit default swaps, notification thresholds, liquidity thresholds for suspending restrictions, significant falls in the value of financial instruments and adverse events [OJ L 274, 9.10.2012, p.1) . This narrow submission of the ESMA to the criteria set up by the Commission was a critical founding of the EJC when applying the Meroni doctrine in Case C-270/12 United Kingdom v Parliament and Council [2014] n.y.r., para. 51.

69

Article 3 of Regulations 1093/2010, 1094/2010 and 1095/2010.

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21. The oversight of EIRAs’ delegated power is also reinforced by means of legal control instruments. Therefore, we are first confronted with the specific internal remedies system, before boards of appeal, for those decisions issued by EIRAs. This is the case of the Joint Board of Appeal, which has been introduced to protect effectively the rights of parties affected by decisions adopted by the three agencies which make up the European Supervisory Authority (ESA).70 These internal legal remedies systems optimise the accountability of the EIRAs’ decisions, and thus the compliance with the relevant limits set on every agency regarding delegated powers.71 Besides, all agencies are subject to the ordinary judicial review provided for in Article 263 TFEU.



3.3.2 A quest for legitimacy through organisational forms

22. The second option to rebuild EIRAs legal legitimacy consists in providing them with an organisational or operational design aimed at optimising other legal interests, principles, or values arising from European primary law. The means to be considered herein as for enhancing EIRAs’ initial legitimacy are going to be the inclusion of EU institutions and national authorities in EIRAs´management bodies as well as the regulation of open and participating procedures in their operation. 23. EIRAs characterization as ‘technical’ or ‘expert’ agencies shall not be considered as a way of enhancing their initial legitimacy. ‘Technical’ qualification is a prius or a defining feature for EIRAs, which -precisely because it expresses independence or political separation with respect to EU institutionshas to be offset with other legal legitimacy sources stemming from EU Treaties. 24. A first legislative option is based on compensating the undisputed initial legal legitimacy shortfall of EIRAs by means of organisational structures encompassing every public entity within the material scope of each EIRA. Hence, as opposed to executive agencies dependant on the Commission,72 EIRAs are regulated as stable instruments. Within them, all the organizations, authorities, or institutions (whether national or European) competent in the given EIRA’s sector-specific area shall cooperate. Therefore, we are confronted with a stable cooperative structure between Member States and EU institutions, rather than with a truly distinct entity dependant on the principal (in terms of the theory of delegation).73 This organisational scheme departs from the premise that various administrations, authorities, or institutions act within the relevant sectorspecific market; sometimes provided with well-defined thresholds or spheres of action (cross-border implications, systemic risk situations) and others -most 70 71

Article 60 of Regulations 1093/2010, 1094/2010 and 1095/2010.

Hofmann and Morini (2012) 35.

72

Regulated in Council Regulation (EC) No 58/2003 of 19 December 2002 laying down the statute for executive agencies to be entrusted with certain tasks in the management of Community programs (OJ L 11, 16.1.2003, p. 1).

73

An early proposal in this sense: Schneider (2009) 43. See also: Hofmann and Morini (2012) 7.

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of the time- with undefined spheres of action. In these operational overlap domains, national authorities and EU institutions act associatively and in an integrated manner, as a ‘regulatory union.’ Precisely the EIRA accounts for the ultimate organisational expression of this regulatory union. 25. The legal legitimacy enhancement occurs, in the first place, due to the strong presence of Member States in the governing bodies of European regulatory agencies74 through NEIRAs’ representatives. Since the European institutions powers stem from Member States by means of the conferral principle and Article 4(3) TEU provides for the general application of EU law by Member States, the EIRAs will have all the more legitimacy if national authorities are present therein. Thus, power partially returns to its original source (States). In this connection, it could be stated that integrating national authorities within each EIRA serves a similar purpose as that served by comitology.75 This is the case, in which Member States play a prominent role, of the ESAs’ Board of Supervisors. This organisational scheme, markedly intergovernmental, lies in the lack of determination of a characteristic operational scope (supranational) for ESAs, which in principle may take direct action on financial markets, and not only in cases of systemic risk.76 The potentially broad scope of the European agency (and thus its difficult position within the narrow framework provided by the Meroni doctrine) is offset by a complementary source of legal legitimacy, such as the distinctive EU conferral principle. 26. Secondly, organisational legitimacy may be also attained by means of the involvement of EU institutions (Council, Parliament, Commission, and, where appropriate, the European Central Bank) in the governing bodies of European agencies. If those powers ‘delegated’ to the EIRA originally belong to EU institutions (to the Council and Parliament), the presence of these institutions within the European agency’s governing body entails a partial recovery of original power belonging to EU institutions, and thus an enhancement of every EIRA’s legal legitimacy.77 27. Once we have seen that the integration of EU institutions and NIRAs may, at least in a complementary fashion, enhance EU agencies’ legitimacy, it also has to be highlighted that each and every EIRA shall integrate, to a greater or lesser extent and with a somewhat prominent role, the various actors according to the economic and political particularities of each relevant market. a) Hence, in the energy market a far-reaching integration occurs.78 Both national independent authorities and European institutions are included in ACER’s organisational structure, which results in a complex balance: on the European institutional side (among the Council, the Commission and the European Parliament) and at national level (among the national independent 74 75

Hofmann (2011) 3; García Álvarez (2014) 93.

Hofmann (2011) 2.

76 77

Article 1.5 of Regulations 1093/2010, 1094/2010 and 1095/2010.

Hofmann and Morini (2012) 32-3.

78

Britz (2008) 163.

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authorities and their governments represented in the European Council).79 On this point, ACER reproduces the organic balance of the European Central Bank,’80 which allows to speak of some sort of ‘composite administration.’81 The said integration among European authorities and national authorities is performed by means of three bodies, among which ACER’s functions are allocated: an ‘Administrative Board’ (with a majority of members appointed by the Council and also including members appointed by the Parliament and the Commission), a ‘Board of Regulators’ (with representatives from national regulatory authorities); and a Director (elected by the ‘Administrative Board’ following approval by the ‘Board of Regulators’). In short, ACER’s organic structure comes in response to the various kinds of cooperation purposes which the agency serves: internal and external cooperation. Regarding ACER, to the extent that it is conferred upon a limited and properly supranational sphere of action (the transnational energy market), the involvement of national authorities (in the Board of Regulators) is more balanced if the EU institutions (Commission, Council, and Parliament) take part in ACER’s Administrative Board. b) The cooperative integration model featured by EU financial oversight agencies (EBA, EIOPA, and ESMA) is partially different. These agencies purposefully include national independent authorities, and each of them has a voting representative in the Board of Supervisors (which is the main governing body).82 However, the integration of European institutions has a more limited range: only the Commission and the European Central Bank have one representative each in the EIRA Board of Supervisors.83 Moreover, within the Board of Supervisors the European Central Bank is non-voting, and the Commission can only vote on the agency’s budgetary issues.84 It shall also be pointed out that, since the Commission has limited budgetary powers over the ESAs, the in other domains informal dominant position exercised by the Commission over other independent agencies (by means of the availability of financial resources) could not take place.85 The Commission’s secondary role in the ESAs could probably be explained by the non-existence of prior relevant powers of the Commission. Similarly, NIRAs’ prominent role, as well as the Commission’s weak position, account for the leading operational position of ESAs.86

79

Thatcher (2011) 803.

80 81

Malaret (2013) 4.

Díez Sastre (2008) 155.

82 83

Articles 47 and 53 of Regulations 1093/2010, 1094/2010 and 1095/2010.

Article 40(1) of Regulations 1093/2010, 1094/2010 and 1095/2010.

84 85

Article 63 of Regulations 1093/2010, 1094/2010 and 1095/2010.

This informal power is nevertheless considered by Busuioc (2009) 612.

86

Moloney (2011) 49. Chamon (2011) 1068.

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3.3.3 A quest for operational legitimacy

28. There are various ways by which EIRAs’ operational regulations may account for a source of legitimacy. Only those operational rules which enhance a given agency’s initial legitimacy are considered herein, such as transparency (publicity of statements, work programmes and minutes of internal meetings) as well as the involvement of private subjects in the agency’s performance.87 We are referring to either public participation (by means of open public consultations), 88 or specific and qualified participation of certain economic agents representing relevant interests. ACER is particularly characteristic on this point. In addition, as for agencies within the European System of Financial Supervision (EBA, EIOPA, and ESMA) the relevant regulations insist on the publicity of monitoring or inspection schemes on national authorities and private financial entities. These same regulations provide for consultations (of a mandatory nature in certain matters) with a non-governmental group which represents relevant interests (Banking Stakeholder Group, for EBA; Insurance and Reinsurance Stakeholder Group and Occupational Pensions Stakeholder Group, for the EIOPA; and Securities and Markets Stakeholder Group, for the ESMA).89



4 Conclusion

Independent Regulatory Authorities (IRAs) proliferate in the European Internal Market, both at the European and at the national thresholds of the single market. Those independent authorities act with a remarkable level of functional integration, which allows us to speak of a ‘European Regulatory Union.’ The strong integration of the IRAs, both European (EIRAs) and national (NIRAs) authorities, shows up in several different ways. In this study attention has been given to a twofold outline of independent authorities: symmetrical and asymmetrical. The so-called ‘asymmetrical regulatory union’ integrates the Commission, on the one side, and independent national authorities, on the other. Instead, the ‘asymmetrical union’ is made up of national independent authorities and European independent agencies. The symmetrical-asymmetrical distinction, taken as an analytical cornerstone, makes sense for the diversity of legal problems that arise in each of these two different ‘regulatory unions.’ The ‘asymmetrical regulatory union’ does not raise serious constitutional concerns as long as the Commission remains formally stable in its institutional position. Nevertheless, the integration of the Commission in the ‘regulatory union,’ alongside with the national IRAs, indirectly affects its performance, by imitating the more objectively technical patterns of NIRAs. 87

Chiti (2013) 107.

88

Article 10(1) of Regulations 1093/2010, 1094/2010 and 1095/2010

89

Article 37(2) of Regulation 1093/2010, 1094/2010 and 1095/2010, respectively.

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More complex and relevant are the legal issues arising in the ‘symmetrical regulatory union,’ all of them deriving from the presence of European independent agencies within the Union. These European regulatory agencies encounter the same constitutional legitimacy problems common to all European agencies. They are concerned, above all, with the limits to delegated powers established by the Court of Justice in the so-called Meroni doctrine, lately reaffirmed by the Court in 2014. Taking the samples of European agencies in the energy and financial markets, it can be concluded that the primary legitimacy objections are overcome in legislation by two complementary ways. Firstly, through agency regulations that put real limits and controls to delegated powers to the EIRAs. And secondly, by means of rules that activate complementary sources of legitimacy, that is, organizational and procedural rules that optimize other principles and objectives of the European treaties. A principal form of organizational legitimation of the EIRAs is the integration of the independent national authorities and the European institutions within the management boards of the EIRAs. On the other hand, rules regarding transparency and participative functioning of the EIRAs can be accounted as tools to reinforce their legal legitimacy.

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The Cooperative Administration in the Internal Market: In Search of a Typology Jorge Agudo González

chapter 11



the cooperative administration in the internal market: in search of a typology

1 Introduction

Events over the last decades in the EU have made it possible to overcome the limited administrative machinery with which the EEC started out and, as a corollary, its dependence on national administrations for the implementation of European law. Strictly speaking, the evolution of European Law has allowed the forging of a new paradigm for public Administration. This new administrative paradigm unfolds within the European legal space proclaimed in the Article 3(2) TEU.1 Behind this statement stands the construction of the EU as a ‘political-juridical domain’ founded on the constitutionalisation of the Treaties2 and on the subsequent autonomous validity of European law, by which Member States abide (Article 1 TEU).3 This appreciation has important consequences in the absolute and indivisible conception of the sovereignty of the national State and its renewal through a statehood that is open, permeable and favourable toward integration, and ready to progress beyond the interpretation of the European system as ‘executive federalism.’4 The integrated nature of the European legal order, the creation of a European legal space and the extensive sharing of competences dominant in the Treaties form the basis for an integrated implementation of European law, articulated in the so-called ‘European Administrative Space’5 that includes the ‘European Administrative Union’ for the internal market.6 Indeed, to the constitutional structure set forth in the Treaties corresponds an administrative area accommodating a wide range of intense cooperation made up of the structures within an administrative union, which transpose the constitutional union to the administrative level.7 The EU, therefore, becomes the ‘headquarters’ for the construction of an emerging European Administrative law, which presupposes the ‘liberation’ of Administrative law from being anchored to the State.8 The denominations used to qualify the new model for Administration configured in European law vary greatly. In some cases, the notion of ‘integrated administration’ is referred to,9 while in others the idea of ‘common administration’ is used.10 Nevertheless, behind both conceptualisations there is a common 1

Concerning this question and the relevant consequences from a methodological point of view, see von Bogdandy (2012).

2

We refer to the Treaties as a constitutional framework, in line with the early doctrine of the Court of Justice, taken as a binding rule for Member States and citizens alike.

3

See Chiti (2011) 10.

4 5

See Hormann and Türk (2006a) 581.

Schmidt-Assmann (2003) 384; M. Chiti (2005) 378-80 and (2011) 9; Hofmann (2008).

6 7

Schneider (2008) 26; Ruffert (2008) 88; Britz (2008) 160.

De Lucia (2009) 4.

8

This consequence has led to the double discourse of ‘the end of Administrative Law’ of French origin and ‘the new Administrative Law’ of German origin, which supports a renewed Administrative Law.

9

See Hofmann and Türk (2006a) 583 and (2007) 262; Hofmann (2008) 671; Chiti (2004) 405 and (2011) 10; Schmidt-Assmann (2011) 6; Bogdandy (2012) 18.

10

Cassese (2004a) 32; Sticchi Damiani (2006) 74.

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theme: both convey the idea of a trend toward unification (a common Administration without a unitary organisational structure) managed by means of functional cooperation and legal figures regulating their composition and co-dependency.11 The current state of affairs regarding European law demonstrates that this trend is unstoppable: not yet, perhaps, on an organisational level, but certainly as far as sectorial integration is concerned from a functional viewpoint, which, despite what has been said, is articulated increasingly through growing cooperation of an organisational nature. The high risk that the construction of a European legal-administrative spce may prove to be an empty claim requires an effort leading to a wide range of transformative consequences on administrative legal science. Though the degree of imbrication among the various administrative levels has been thoroughly aligned with the political scientists’ work, it still poses a major challenge for legal-administrative dogmas: from the origins and State background of the legal organisational and procedural concepts, a dogmatic that responds to the administrative activity currently taking place in the EU must be built up.12 The dimensions of this challenge are huge. This paper aims at achieving a modest target, although such moderation should not mask the fact that the terms in which the set objectives will be pursued represent an indispensable first step toward engaging in an in-depth and complex analysis. The proposal is structured on three levels: 1) To identify the ‘constitutional’ principles governing the Administration of the European legal space; 2) The heterogeneous nature of European law supports an inductive construction that, by examining the forms of administrative action in different sectors, allows legal criteria for common actions to be identified; 3) The identification of these common parameters will allow characteristic types of cooperative action to be determined, from an organisational-procedural viewpoint, that are shared by different sectors.



2 The administration of the internal market inside the European administrative space

The inexistence of clear constitutional bases for a European Administration and the absence of a sharp distinction between legislative and executive powers have been characteristic in European law.13 The progresses made in the Treaty of Lisbon and the Charter of Fundamental Rights (CFREU), in characterising the legal/administrative function in the EU,14 despite its 11

Craig (2012) 28 uses the term ‘shared administration’ and Schütze (2010) 1405 ‘mixed administration’. Following Schmidt-Assmann (2011), Bogdandy and Dann (2008) 2013, as well as Hofmann (2008) 665, use the concept of ‘composite administration’.

12 13

See Bogdandy (2000) 209 and (2012) 22-4.

Chiti (2004) 42.

14

Schütze (2010) 1397; M. Chiti (2011) 2; Bogdandy (2013) 324.

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limitations,15 are the basis for the construction of a principle-based system incorporating the values immanent to a European legal order – a higher law – 16 that: 1) bestows coherence and unity on the European legal order; 2) fuels the construction of an Administrative law for the European administrative space;17 3) as a consequence, determines the parameters governing all administrative actions; and 4) at the same time, fulfils the function of reconducting Member States’ legal orders to a state of unity.18 From this point of view, we can express as follows the principles that govern the actions of the Administration within the European administrative space: a) Principles linked to the Rule of law: 1st) Rule of law’s classic principles [Article 2 TEU, and the Preambles of the TEU and the CFREU]; 2nd) Fundamental rights protection [Article 6 TEU]: ‘good administration’ [Article 41 CFREU]; access to documents [Article 15(3) TEU, and Article 42 CFREU]; effective remedy and fair trial [Article 47 CFREU]; b) Principles relating to the ‘proper functioning’ of the European administrative space: 1st) Responsibility and distribution of powers [Articles 4(3), 5(1), 13 and 17 TEU, 1-4 (types and subjetc matter of EU powers), 7, 197, 291(1) and 298(1) TFEU, and Article 51(1) CFREU]; 2nd) Coherence in inter-administrative relationships [Articles 5(3), 11(3) and 13(1) TEU, and 7 TFEU]: cooperation [Articles 4(3) and 13(2) TEU, and Articles 6(g) and 197(3) TFEU); mutal recognition; coordination [Article 17(1) TEU] and colaboration [Articles 4(3) TEU, and Articles 197(2), 291(1) and 298(1) TFEU]; 3rd) Effectiveness [Aticles 4(3), 13(1) and 17(1) TEU, and Articles 197(1)-(3), 291(1) and 298(1) TFEU]; 4th) Transparency [Articles 11(3) TEU, Articles 15(1), 298(1) TFEU, and Article 42 CFREU]; 5th) Participation [Article 11(3) TEU, and Article 15(1) TFEU]. This principle-based system is sufficiently flexible to recognise that the Treaties admit a determinable set of administrative steering models. However, it can be affirmed that whichever legal solution is ultimately chosen by the European legislation will be conditioned by a common parameter: competence sharing, determining an integrative model for multi-level, mainly cooperative, relations. The fact that competence sharing is the dominant form of competence distribution is confirmed both in the residual nature given in Article 4(1) TFEU to this type of competences, and because, as shown later, competence sharing is even included in the exclusive EU powers. Secondly, that this power sharing system provides the basis for an integrative and cooperative model is made clear, for example, in Article 4(3) TEU when, referring to the principle of loyal cooperation, it is also stated that the EU and its Member States ‘shall, in full mutual 15

For two different perspectives on this matter, see Hofmann and Türk (2007) 255 and Craig (2004) 107.

16 17

Franchini (2010) 13.

Scholarship generally assumes that the determination of these framework principles is the basis for reaching such an outcome: see, amongst others, Vagaluzza (2008) 30; Schwarze (2006); Auby (2005) 367; De La Sierra (2005); Bogdandy (2000) 229.

18

Vesperini (2011) 4.

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respect, assist each other in carrying out tasks which from the Treaties’; and also, with regard to the competence for supporting, coordinating and complementing the actions of Member States referred to in Article 6(g) TFEU, in which the EU is granted competences for ‘administrative cooperation’; but it becomes especially clear when Article 197(1) TFEU provides that the ‘effective implementation of Union law by the Member States, which is essential for the proper functioning of the Union, shall be regarded as matter of common interest.’ The logic underlying the Treaties leads to the configuration of a non-exclusive, and therefore, disaggregating, administrative model. This logic requires that the determinable set of steering models, admissible all of them under the Treaties, are governed by the idea of integration. This principle-based proposal has several legal consequences. The first refers to the lack of symmetry between the tasks to be performed and the competences awarded to each administrative level: one objective, several competences. On a vertical plane, this lack of symmetry materialises in the competence sharing between European and national Administrations, and on a horizontal plane it is visible in the territorial principle, which conditions the jurisdiction of each national Administration. The second consequence is a result of the first, and highlights the fact that symmetry in the tasks to be performed and the complex system of competence distribution can only be achieved through the complementariness of concurrent administrative actions (administrative integration) and in granting supranational effects to administrative actions pro unione. The above premises guide our interest toward the organisational and procedural mechanisms that articulate administrative action within a European space shaped in such moulds. Considering this circumstance, it is reasonable to assume that the analysis must be approached from the principles of responsibility and coherence above mentioned, as it is these principles that: 1) Regulate the distribution of competences and the attribution of responsibilities in function of the conferred powers (functional perspective); and 2) Determine the regime of inter-administrative relations within the framework of a complex system with multiple actors and different levels of political and administrative action (organisational-procedural perspective).



2.1 Determinations from the functional point of view

The functional perspective has played a determinant role in European law implementation, conditioning national authorities’ action to comply efficiently with European policy objectives,19 and to guarantee the implementation of European law in the most uniform and coherent manner possible.20 Despite the corrections exposed by Harlow (1998) to the functionalism inherent to European law, administrative actions in the EU are chiefly defined on this perspective. 19

Hormann (2010) 39.

20

Franchini (2002) 657.

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The distribution of competences in the EU is based on two criteria which may be contradictory from a functional perspective: 1) Broad and variable competence sharing, fomenting dependence among different levels of actions; and 2) A balance of powers, such as the organisational-procedural solutions provided for in European law, are, in many cases, rather the result of striving for the composition of interests and the harmonisation of powers at the Community and national headquarters, than of striving for more efficacious solutions. The contradiction between these two criteria stands out on observing that some of the organic-procedural solutions that have been ‘designed’ are highly dysfunctional, and the only reason for their existence is the quest for a balance of powers.21 However, it cannot be concealed that cooperative action can also contribute to greater efficacy and uniformity in the achievement of goals by means of incorporating supranational, national and transnational actions, as well as operating as an element for cohesion and to overcome the limitations of strictly multinational cooperation, contributing to fomenting the idea of a tendency to return to unity and of belonging to a higher political organisation. The constitutional limits to this approach are relative, but clear. The enlargement of EU powers, showing a tendency toward becoming materially universal (Articles 3-6 TFEU), and, as a consequence, toward a generalization of competence sharing with Member States, even applicable to exclusive competences. This contributes to the relativisation of the distinction between exclusive and shared competences, as there are areas of exclusive EU competence in which the Administration is actively involved despite having no competences a priori [Article 2(1) TFEU]. The result is the exercise of exclusive legislative competences underpinned by shared executive competencies. In the sphere of shared competences, positive law displays a wide array of cross-competences or cooperative responsibilities22, and a growing rate of intervention on an executive level in the European Administration. In contrast to previous treaties, Article 17(1) TEU and Articles 288 to 292 TFEU include the establishment of a solid foundation for the EU’s implementation and administrative function.23 Article 291(2) advocates own, autonomous implementation powers, which highlights the notion of executive supranationality, without prejudice to the existence of special provisions within the treaty. The result of this trend towards ‘universality’ in EU competences is, therefore, the predisposition to recognise implementation functions that are mostly co-extensive to legislative functions, provided that, as clarified in Article 291(2), ‘where uniform conditions for mplementing legally binding Union acts are needed’, in which case, such powers shall be conferred on the Commission, as a general rule, or on the Council, ‘in duly justified specific cases’, as well as those provided for in Articles 24 and 26 TEU. However, it is interesting to note that the attribution of 21

Opting for this alternative is not a random choice: given the choice between centralisation and decentralisation, competence sharing and integration is the result of a strictly political compromise.

22 23

See Ruffert (2008) 98-100.

In this vein, M. Chiti (2011) 3.

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executive functions both under Article 291 and under Article 2 TFEU depends on the conditions that under European law are dependent on the criteria of EU institutions.24 In other words, it is these institutions that must assess their executive interventions, without prejudice to any controlling mechanisms that may be conferred on the Member States [Article 291(3)].25 Similarly, no determinant limits are detected deriving from the principle of separation of powers. In addition to the traditional confusion between legislative and executive functions, and despite the advances made with the Treaty of Lisbon, considerable cross-linking has become consolidated in the EU26 with significant effects on modern States.27 The abundance of regulations on competences found in the Treaties is not backed up by specifications regarding the specific powers exerted by the European Administration. Nevertheless, such functions can be deduced and, of course, are present in all secondary legislation.28 On examining secondary law it can be maintained that in the European space it is not possible to resort to a residual or negative definition of the actions of the Administration by qualifying all actions that do not fall under the category of ‘legislating’ or ‘judging’ as ‘pertaining to the Administration’. A different matter occurs when such a definition serves to circumscribe that which is still the typical activity of any Administration.29 In other words, it is a necessary, but insufficient, defining element: 1) It is not possible to speak of a strictly executive Administration, since the Administration no longer merely implements the law, but also has further scope for actions that are autonomous and independent of legislature. Despite the fact that many national legal orders reject the so-called ‘administrative reserves’, this is the result demanded by European law in favour of modern independent Administrations.30 We shall return to this later. 2) The integration deriving from competence sharing also occurs through all stages of European policies.31 The traditional separation induced by making a distinction between direct and indirect implementation has contributed to 24

This appreciation is directly related to the principle of subsidiarity. We must bear in mind the broad discretion afforded by the Courts to the European legislator: Case T-339/04 France Télécom v. Commission [2007] ECR 2007 II-521.

25

Regulation (EU) No 182/2011 of the European Parliament and of the Council of 16 February 2011 laying down the rules and general principles concerning mechanisms for control by Member States of the Commission’s exercise of implementing powers (OJ L 55, 28.2.2011, p. 13).

26 27

Ruffert (2008) 101; Bogdandy (2013) 296.

One of the most outstanding manifestations is the transformation of the function of the legislature, whose European Law implementation function is closer to a regulatory power than to the more characteristic omnipotence of the law-making of Parliaments. See Vesperini (2011) 146.

28

These functions range from decisions/interventions in concrete cases, to regulation and planning, and including as well information/research, inspection and supervision, or coordination.

29 30 31

As noted by Chiti (2002) 162.

See Baño (2011) and, close to this position, Vesperini (2011) 15 and 107.

Hormann and Türk (2006a) 573.

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focusing administrative actions on the implementation stage of European law. However, in the current state of development of European law the European Administration cannot be defined by this single dimension: one of the keys to a proper understanding of the role of the Administration in the European legal space is to overcome the frequent limitation of its study to the framework of European law implementation.32 3) The regulatory strategy adopted in European law presupposes a steering model that goes beyond the traditional compartmentalisation between regulation and enforcement, and assumes a model for dynamic interaction between drafting, enactment and implementation.33 For example, the provision of monitoring mechanisms that allow the evaluation of administrative practices and proposals for modifications to rules and plans, as well as the ensuing adaptation of administrative actions, is common in areas such as the environment. 4) European law envisages that the Administration of the European administrative space may resolve legal conflicts with a degree of independence similar to jurisdictional bodies (regulated sectors, public procurement or the Aarhus Convention) In other cases, it performs informal mediation functions, therefore avoiding the generation of potential conflicts (SOLVIT Network and Public Procurement Network).



2.2 Determinations from an organisational-procedural point of view

A decontextualised interpretation of Article 5 TEU and of Article 291 TFEU allows maintaining in force to this day the principle of preference for indirect implementation. The relationship between the principles of subsidiarity (and that of institutional and procedural autonomy) would point to a preference a priori for the ‘decentralisation’ of implementation on a nation-wide scale, in line with the permanence of the ‘excutive federalism’ model. Such a strict reading of Article 291 does not seem to tally with a systematic interpretation of the TEU and the TFEU, and of current secondary legislation. As we have stated, the TFEU provides for EU implementation functions that may enjoy co-extensive expression with legislative functions and whose limits depend on prior decisions taken at EU level. This means that national implementation powers are effectively limited by (enforcement) pre-emption, as established in Article 2(2) TFEU, with variable scope (from total substitution, which, moreover, seldom occurs, even with regard to matters that are the exclusive competence of the EU – Article 2(1) –, to participation in the decision-making process) Secondary law underlines the way in which such implementation EU interventions are quite frequent, although not necessarily of a decision-making nature. 32 33

Hormann and Türk (2007) 265; Hofmann (2008) 666-7.

Schneider (2009) 30; Barnés (2010) 338.

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The evolution of European law allows us to interpret that both Article 17(1) TEU and Articles 7(1), 197 and 298 TFEU favour flexible implementation and organisation solutions and, therefore, are open to interconnections among their different scopes of action. This affirmation allows pointing out that, in the current state of European law, the dualism direct implementation/indirect implementation has been overcome.34 The preference for the principle of indirect implementation that could be deduced earlier is no longer identified with today’s integration scenario. Furthermore, in coherence with the flexibility demonstrated from the functional perspective, we can say that European law establishes no limits to administrative interrelations.35 If any one concept encapsulates this new scenario in full, it is multi-level action. This concept reflects, on the one hand, the idea of polycentrism, leaving behind the principle of separation and invoking the need for integration and interconnection. On the other hand, it expresses the idea of pluralism and versatility in legal solutions, both at the organic and the procedural levels. In fact, it aptly describes the administrative actions enshrined in the Treaties. The sectorialisation that dominates European law contributes thereto with fragmented administrative definition, integrated functionally speaking through complex procedures, but with scarce defining criteria from an organic or subjective dimension. The consequence is two-fold: on one hand, beyond the understandable overall protagonism by the Commission, European law only incorporates definitions for the Administration with sectorial validity and, on the other hand, the Administration model that seems to appear lacks structural definition, has a priori no closed support, and responds to principally functional criteria.36 From the point of view of integration and the relations between different decision centres and administrative activity, such multi-level actions are focused legally, as we have announced, on overcoming the dualism centralisation vs. de-centralisation, driven by the same motives that led to overcoming the principle of separation between the supranational and national spheres. In today’s context it is becoming increasingly difficult to find strictly centralised areas in the European Commission, or strictly de-centralised. It is increasingly common to find cross-linked and interconnected competences. These variable ‘interconnection structures’ are based on two principles: cooperation and ‘hierarchy’.37 The first principle, without wishing to be reiterative, is because administrative actions are founded on mutual confidence and collaboration among the EU institutions and the Member States, and among 34

Chiti (2002) 102 and 151; Sticchi Damiani (2006) 54 and 73; Schneider (2007) 315; Hofmann (2008) 667; Vesperini (2011) 2. On the contrary, Schütze (2010) 1402 acknowledges an evolution toward ‘cooperative federalism’, but conceives this as exceptional.

35

Schneider (2008) 33; Britz (2008) 184; Shöndorf-Haubold (2011) 53.

36

In this vein, Sticchi Damiani (2006) 69. This conclusion highlights the importance of the instrumentalisation and functionalisation of institutional and procedural autonomy, as pointed out by Galetta (2009) and Bogdandy and Dann (2008) 2016.

37

Ruffert (2008) 98; Bogdandy and Dann (2008) 2013; Schmidt-Assmann (2011) 7.

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the Member States themselves.38 Regarding the second principle, it is because integrated and cooperative implementation is not foreign to the functions of the European Commission (and its agencies) and it is not infrequent for a subordinate position to be conferred to national authorities (supervision, coordination, Commission resolutions) The conceptual difficulties involved in applying the hierarchy concept to a joint (neither unitary nor organically hierarchised) Administration39, do not prevent the existence of such subordinate relations from being recognised. 40 In any case, the strength of each of these principles depends on each Community policy, although within the European administrative space such ‘hierarchy’ is always buffered by cooperative mechanisms. 41 In the wider European legal-administrative scenario, a key legal feature defines administrative activity from the viewpoint of its effectiveness and implementation: supranationality. The notion of supranationality was the alternative chosen to define the exercise of public powers pro communitate/pro unione, therefore distinct from the exercise of sovereign powers in the territory of each State and those enframed within the relations subject to International law. 42 Supranationality has traditionally been identified with the exercise of powers by the Commission (especially, in its origins, the powers for legislative initiative), unconnected to the intergovernmental decision-making processes that govern the Council and, therefore, closer to the type of relations subject to International law. In the modern European state of integration this supranationality is transferred, similarly, to the actions performed by ‘the institutions, bodies, offices and agencies’ of the Union referred to in the TFEU. From this perspective, supranationality can be identified with the administrative actions issuing from the European administrative organisation in a strict sense. Supranationality is also legally relevant within the framework of the former indirect implementation in European law. This transcendence is embodied in the vertical relations in national legal systems and the implementation of EU law pro communitate deriving from the principles of primacy and consistent interpretation, and the subsequent EU legal relevance that such administrative actions acquire. With greater intensity, similar effects are detected in the 38

This cooperation takes place without the direction of the assisted administration, that is, the assisting Administration acts on its own behalf: Wettner (2011) 311.

39

See Galera (1998) 74-83, who speaks of a ‘jerarquía imperfecta’ – imperfect hierarchy.

40

In general terms, the organisation of European administrative structures is not based on the principle of hierarchy (Hofmann and Türk (2006a) 584). Functional and structural interdependence requires that a leading role be given to the principle of cooperation (Franchini (2010) 14). Concerning this premise, Schütze (2010) 1405 expresses his opposition to applying the principle of hierarchy, stating that, in the absence of hierarchically integrated administrations, there can be no subordination of national Administrations to the European Administration. However, in many sectors certain interventions attributed to the Commission can only be explained from a position of subordination of national Administrations. See Schöndorf-Haubold (2011) 44; Sommer (2011) 68; Wettner (2011) 313.

41

As stated by Schmidt-Assmann (2011) 13.

42

See Schütze (2009) and Hofmann (2008).

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horizontal relations (horizontal ‘opening’ of national legal orders), in which state administrative actions take on a clear pro unione dimension. From this point of view, supranationality in administrative actions covers a wide concept of European Administration that reaches beyond direct Administration. Here, supranationality defines the actions of national Administrations which act ‘in funzione comunitaria’, 43 that is to say, which perform their tasks fully integrated in the framework of a functional unit, subject to the control of the Commission, subject to European law and to the principles that govern administrative actions in the European legal-administrative space, and aimed at satisfying the common interests envisaged in European law.



3 Criteria for building a typology for the administration of the internal market within the European administrative space

The heterogeneity of European law hinders attempts to build a normative typology with prescriptive legal consequences on the forms of cooperative administrative action in the European administrative space. This is understood to be such a typology as to allow, having fixed the specific features for each type, the identification of administrative actions that share characteristics of a general nature. Despite this, the attempt can be made, on a provisional basis, if necessary, founded on a sectorial and inductive analysis that will allow legal criteria to be defined for the types of administrative action to be determined. The proposed typology takes its defining elements from two criteria: 1) The aspect of supranationality in which the administrative action fits; and 2) The relevant legal mechanism that allows administrative cooperation to be articulated.



3.1 Supranationality of administrative actions

All administrative actions within the European administrative space have supranational effects independently of whether the administrative action is taken by the Commission or its agencies, or by a Member State. The broad notion of supranationality dealt with herein encompasses all the dimensions of administrative action characterised by being exercised in a cooperative manner and with (variable) supraterritorial legal relevance. This notion comprises three distinct aspects, in function of the degree of administrative responsibility in decision-making, and of the complexity of the cooperative mechanisms: 1) Vertical supranationality linked to the vertical relations between the European Administration and national Administrations:44 43

Chiti (2011) 1.

44

The fact that we should refer to vertical relations does not preclude the participation of other Member States, as the integration of horizontal elements (for example, consultation with other Member States) is

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a) Full supranationality: decisions are taken at ‘the highest level’. This case has traditionally been identified with direct administrative action in a strict sense, that is, with binding decisions taken by the European Commission. In the current state of European integration it is usual that in the decision-making process national administrations take part with variable powers and, therefore, variable capabilities to influence the final decision (bottom-up vertical relations, in which following a national phase, a European phase ensues) In such cases, the decision taken by the European institution or agency assumes fully the supranational nature underlying the decision-making process at the ‘highest level’ and, hence, with greater territorial jurisdiction: the decision carries European effectivness and, depending upon its addresses, throughout the EU. In addition, as these decisions are taken with the participation of the Member States, that is, with bodies or organisations at the ‘lowest level’, such decisions are the richer for their greater legitimacy: this process allows the generation of a re-legitimating reflux that benefits decisions taken at top level. b) Limited supranationality: decisions are taken at the ‘lowest level’, that is, by the Member States; however, European law recognises their effectiveness for the purpose of complying with the EU requirements. Traditionally, these cases coincided with the more common instances of indirect implementation. Currently, this type of decision is integrated in vertical joint top-down procedures (topdown relations) in which, following a European phase, the decision-making process ends in a national phase, and therefore, the final decision is taken by the Member States. The supranationality of a decision may be more or less diffuse, but, by and large, is backed by the legal relevance granted by European law, although it may not be effective as a legal action beyond the State of origin borders (as in the case of transnational administrative actions) Here, therefore, the decision has territorially limited jurisdiction, but this does not eliminate its supranational nature: it is effective in the country of origin as well as on a European level, to the extent that the European law is implemented. The vertical supranationality of administrative action reflects how, in the EU, the traditional opposition between supranational and national spheres is gradually fading, in function of the legal relevance conferred by European law on the actions of national Administrations. This statement is verified by viewing the manner in which decisions are taken, based likewise on cooperative criteria and with the participation of those Administrations lacking the capacity to take the final decision. 2) Horizontal supranationality or transnationality. This notion of supranationality grants complementary legal efficacy to administrative actions performed within the framework of horizontal relations between Member States. 45 This complementary legal effect is the transnationalisation or transterritoriality of administrative actions directly linked to the principle of mutual frequent. 45

This does not mean, once again, that vertical elements are precluded from horizontal relations, insofar as the participation of the Commission, a European Committee or a European agency is provided for.

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recognition. 46 Transnationality in administrative actions, which always takes place in the framework of horizontal relations at the same administrative level, is always of a cooperative nature (although an intervention by the Commission may add elements of a ‘hierarchical’ nature) and characteristically, their legal consequences are the horizontal orientation of national legal orders. 47 Transnationality is the most notable effect of overcoming the statist administration model jurisdictionally limited to the territory of the State: a decision by a Member State may have the same supranational efficacy characterising a decision taken by the Commission, that is, it may have full effectiveness throughout the jurisdiction of the ‘highest administrative level’. To sum up, transnationality implies the emergence, extinction or modification of an obligation or a right in another EU legal order, such that, by virtue of the efficacy granted by European law on administrative actions in the country of origin, the latter substitute the actions of the competent body in the host or destination country. 3) Aggregated supranationality. A final level of supranationality in administrative actions is that in which the above-mentioned aspects are variously combined. In such cases, actions are supranational because they are articulated through more or less formalised EU organisational structures; furthermore, as in such organisational structures national representatives/authorities are commonly integrated, decision-making is articulated through joint procedures in the framework of the mentioned organisational structures. Nonetheless, in such cases, decision-making may correspond to the European Administration itself (the Commission or any one of its agencies), in which case it would have full supranational effects, or it may be a competence of the national authorities, and may also have transnational effects. Therefore, the idea of aggregation characterising this type of supranationality can be defined as follows: 1) The special intensity of cooperative mechanisms and the variability of such relations (in fact, rather than a combination of vertical and horizontal relations, we are dealing with the variable integration of all these); 2) The existence of organisational structures for articulating such relations; and 3) The modulation of the supranational effect in administrative decisions (full supranationality/transnationality) All in all, the idea of aggregation aims to reveal the deepen of integration and co-dependence of the administrative levels and the indifference of the decision-making ‘centre’, to the extent that the legal effects of the administrative decision will be similar regardless who making the decision at the end of the process.

46 47

Hormann and Türk (2007) 259.

Both European Law and the case law of the European Court of Justice have established certain ‘passerelles’ between national legal systems. This is the expression used by Cassese, cited by De Lucia (2009) 4. The intensity of these ‘passerelles’ can vary.

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3.2 Legal mechanisms that articulate administrative cooperation

The second criterion used to draw up our typology takes into account the legal instruments that allow administrative actions to be articulated in a cooperative fashion. It must be clarified, therefore, that our typology will not consider direct Administration or indirect Administration in a strict sense, without prejudice to their possible consideration for expository purposes. From this point of view, two distinct perspectives must be examined: the dynamic or procedural, and the structural or organisational. 48 Nevertheless, it must be stressed that both these legal aspects allowing interadministrative cooperation are subject to combination. As a matter of fact, the structural dimension cannot exist without the dynamic dimension 49, although it is possible, despite increasing difficulties, to find combined procedures with no structural elements:50 1) The dynamic dimension refers to integrated and cooperative implementation issuing from composite procedures, which comprise different degrees of cooperative and decisional intensity; these are joint actions performed within a framework of dynamic relations that is characteristic of administrative procedures. Its defining elements are: a) Articulation by means of top-down vertical procedural relations and, thus, with the final intervention of the supranational Administration; b) Management through bottom-up vertical procedural relations with the final intervention of national Administrations; c) The provision of horizontal relations with the participation of different national Administrations; d) The incorporation of mixed elements (horizontal or vertical) that may coincide with any of the preceding variations; e) The variable intensity of any intervention by each of these Administrations; and f) The existence of composite procedures in any stage of administrative action. 48

This choice is grounded on two of the pillars sustaining the Europeanisation of Administrative Law, which Sommermann (2012) 7 has called the functional adaptation of the Administration and of Administrative Law, bound under the principle of cooperation.

49 50

See Parejo (2012) 178.

Schmidt-Assmann (2003) 391 and (2011) 5 incorporates a typology for instances of ‘composite administration’ that incorporates a basic level of cooperation: the ‘informational’ or ‘simple’ cooperation. This level of cooperation is not assumed herein, not because it is not recognised, but because it constitutes a basic manifestation of the principle of loyal cooperation (Article 4(3) TEU) present in all administrative actions. See Council Resolution of 20 June 1994 on coordination with regard to information exchange between administrations (OJ C 181, 2.7.1994, p. 1). See also Galetta and others (2014) 66; Sommer (2011) 56; Wettner (2011) 310; and Schneider (2014). The idea that is being put across is that its articulation by means of legal mechanisms similar to any other administrative action in the European administrative space: by means of procedures and organisational structures. From this point of view it is not a specific type of common administrative action. Sommer (2011) and Schneider (2014) confirm this with a classification of procedures whose aim is to comply with the duty to provide or compile information, and a presentation of the structures in place for compiling information.

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In the above instances, supranational effects depend on the type of multilevel relation established. Such supranationality will be full, limited or transnational. Nevertheless, we stress the fact that it is increasingly difficult to find administrative actions that do not incorporate aggregate elements, even if only because implementation actions by the Commission are subjected to comitology control. 2) The structural dimension takes into account whether the administrative action is articulated through organisational-structural or institutional mechanisms. Manifestations in this regard, which are growing in intensity, are: a) Administrative action is articulated through informal structures at supranational level; b) Administrations’ actions are articulated through the foundation of administrative bodies created at EU headquarters; c) Actions are performed through autonomous organisational structures at EU level; d) Actions are performed through independent organisational structures at EU level. In all of these cases, these structures are usually interrelated functionally and/or organisationally with national Administrations, either through the participation of their representatives at EU bodies or by designating the competent authority, or by creating autonomous and/or independent organisations or bodies. In such cases, it is essential to consider jointly the organic-structural perspective within the dynamic pertaining to procedural law. This is determinant, for example, when European law requires the creation of organisational structures of Member States joining the European organisational networks set up through composite procedures. In cases such as those described, it is clear that administrative action will benefit from supranational effects of an aggregate nature. Moreover, it is common for different levels of institutional cooperation to overlap. For example, European agencies are often inserted into more or less formalised networks and with the participation of Committees. From the angle of legislative policy, it can be asserted that the European legislature maintains no apparent preference for any of the mentioned dimensions. Opting for either one of these management models depends on the needs in each sector and on the requirement to safeguard the balance of competences – EU versus national authorities. However, on a theoretical level, this approach can be amended to accept that, owing to the lower demand in formal terms and greater consideration for the principles of subsidiarity and proportionality, merely procedural solutions should be considered preferentially over structural ones. The drawback to accepting this conclusion is the evident preclusion of the principle of procedural autonomy that is justified by the abstract fulfilment of the principle of subsidiarity. We must emphasise, moreover, that it does not seem relevant to consider which Administration makes the decision in the final instance. From the dynamic perspective this information is considered for purely descriptive purposes, in order to identify administrative procedures’ double orientation. This piece of data, however, is not definitive as a relevant legal criterion for identifying types, since some decisions are integrated – that is, they are the result of

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the interaction of several Administrations that, although they can be attributed, in the last instance, to a single Administration (supranational or State Administration), they are not on a par with other decisions that may be adopted by the same Administration, but lack such an intense cooperative dimension. Nor can it be definitive if the administrative action operates in the upward or decision-making phase, downward or implementation phase of European law. Though the interest is focused, mainly, on the downward phase, we have stressed the fact that there are administrative integration mechanisms in the upward phase, too.51 Likewise, it is of little use to focus on the powers exercised by the Administrations involved. Firstly, because as already mentioned, the Administrations in the European administrative space exercise practically all those ordinarily exercised by national Administrations, and secondly, because any of these may be exercised in different cooperative scenarios (for informative, decision, inspection or planning purposes, among others). Finally, the degree of formality in the administrative action does not seem to be determinant, either. In this area, the informality governing the administrative action is not a determinant element that allows us to identify a specific action type, due to the fact that informality has insufficient entity for it to be characterised as such. Informality can also occur with variable intensity in formalised situations,52 in such a manner that certain informal actions and fora take place with normality and following similar action patterns within formalised and proceduralised actions,53 just as in informal actions, not only are no differentiated parameters observed, but some degree of formality and proceduralisation can always be detected,54 transforming this issue into a question of the degree of informality rather that a question of specific types with own autonomy.

51

See Wettner (2011) 310.

52 53

Craig (2012) 199.

Sommer (2011) 68.

54

The Open Method of Coordination (OMC) is an excellent example. This system has been analysed as a form of network cooperation at the supranational level (Hofmann (2008) 668) with a minimum degree of institutionalisation, and a basic level of proceduralisation. Thus, it is necessary to be cautious when describing the OMC as a method for action based solely on ‘soft law’. Craig (2012) 199 clarifies that the legal instruments governing the OMC can also be ‘hard law’. The SOLVIT Network is a yet another example. This is an informal network that allows, by means of establishing a conciliation system, compliance with European Law and the safeguarding of EU freedoms. The network is founded on mild institutionalisation (designation of contact points) and minimum management of action processes by the Commission Recommendation of 7 December 2001 on principles for using “SOLVIT” –- the Internal Market Problem Solving Network (OJ L 331, 15.12.2001, p. 79).

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Graphic. Cooperative cross powers in the European administrative space.



4 Types of cooperative administrative action

In view of the two legal criteria analysed, a typology is proposed in which five types of cooperative administrative action are identified, that dominate the European administrative space. The proposed typology is set forth, for expositional purposes, according to the following considerations: 1) A scalar order is assumed, in diminishing order of intensity, regarding both the recourse to the mechanisms that articulate administrative actions (understanding that purely dynamic relations are less intense than those incorporating organisational structures which, logically, are accompanied by procedures that permit the articulation of administrative actions), and the degree of supranationality characterising administrative actions; 2) We reiterate that this layout is integrative, so that as the intensity of interadministration cooperation increases on the scale, the levels of intensity may overlap (not all, necessarily), in coherence with the aggregation defining the underlying supranationality; and 3) We maintain that this layout is not exclusive, as it is not unusual for levels of lower intensity to incorporate some incidental defining element from a higher level; nevertheless, these elements are not characteristic, but instrumental and accessory.

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4.1 Joint Administration. Complex administrative procedures

The notion of joint Administration represents the structuring of composite cooperative procedures (dynamic dimension). This procedure category is characterised by the integration of European and national Administrations’ intervention in a single procedural sequence. Such complex procedural solutions possess a vertical dimension (bottom-up and top-down), in the sense that they incorporate a sharing of interventions in phases (European/national) subject to European law and/or national law by virtue of the phase of action55 with variable functions.56 The decisions that end these procedures enjoy limited or full vertical supranational effects depending on the Administration with the competence to resolve. The widespread heterogeneity of procedures liable to be classed under this general type highlights the limitations of certain doctrinal empirical classifications. Attempts to identify the common features shared by this kind of procedures are shown to be more useful. In this vein, the following common features can by identified:57 1) These procedures are foreseen and regulated to a greater or lesser degree by EU rules, that determine the functions of all the Administrations involved. In many cases, Member States must conclude the detailed drafting of these procedures, which is why, as mentioned above, we can say that procedure may be subject to a varying degree of intensity to national law; 2) These procedures aim to achieve objectives that are established in European law and that respond to interests shared by the different levels involved (EU/ national); 3) These procedures are regulated by sectorial rules and therefore, are as heterogeneous as required by the nature of each matter and the targeted objectives in each case, without prejudice to their submission in all cases to the principles determined by European Union Court of Justice case-law, and later positivised in Article 41 of the CFREU; 4) As we have said, diverse Administrations may participate in these procedures (EU and national), hence the relevance of sequential organisation of the procedure in accordance with the principle of loyal cooperation; 5) The distribution in multi-level phases does not prevent procedures from maintaining a unitary structure, such that they are oriented to producing equal effects throughout all phases; 6) In these procedures, roles may be mixed; in particular, the national Administration may figure as a concerned party in the procedure and, therefore, representing national interests, but at the same time acting as decision maker Administration58; and 7) As a general rule, 55

Chiti (2005) 7.

56

Chiti (2005) 7 states that, depending on the sector, the intensity of the regulation varies considerably. In this sense, Craig (2012) 31 points out that the discretionality attributed to national authorities varies depending on the subject matter and that the fact that a procedure is bottom-up does not mean that state competences take preference.

57

Cassese (2004a) 36 and Della Cananea (2004) 207.

58

We cannot include those procedures in which the State is the addresse of a supranational decision, as in such cases the States do not conduct any of the procedural stages: Della Cananea (2004) 210.

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the Commission takes responsibility for the procedure, as it is under the obligation to ensure that the procedure is resolved. As we have stated, doctrinal classifications for composite procedures are variable. In some cases such classifications only make distinctions on the basis of the direction taken by the procedure (bottom-up and top-down) Other classifications look at the functions exercised by each administrative level. In any case, these classifications incorporate horizontal composite procedures which are treated herein as a different type.59 The classifying criteria can be reduced to the following: 1) The type of powers in question, that is, whether they are exclusive EU powers or shared competences; 2) The Administrations taking part (EU and/or national), incorporating, perhaps, one or more horizontal elements (consultations with other Member States, for example); 3) The ‘direction’ of the procedure (bottom-up and top-down); 4) The functions attributed to each Administration (decisionmaking, consultative, etc.) and the incorporation of national Administrations’ elements of subordination.60 In view of these four criteria, we can find: a) Procedures on matters of EU exclusive competences in which the European Administration requires the participation (including decision-making) of national Administrations (supranational level acts in first place and, eventually, national in second place); b) Procedures on shared matters in which the European Administration and the Member States exercise their competences depending on the procedure phase (national, in first place, and supranational in second place), without prejudice to the fact that in the European phase, national Administrations may play a larger or smaller role; c) Procedures on shared matters in which the procedure starts with a European phase and concludes at state level, without prejudice to the fact that in the national phase the European Administration, generally the Commission, may have variable functions.61



4.2 Administration of mutual recognition. The transnational administration

The full importance of transnationality in administrative actions becomes evident in scenarios governed by the principle of mutual recognition. The European Court of Justice’s Judgment of 20 February 1979 (as. Cassis de Dijon)62 generalised its applicability to the free movement of goods. This principle imposes that all products from a Member State (State of origin) may be marketed freely in the territory of any other Member State (destination 59

This happens under the classification of Cassese (2004a) and (2004b), Chiti (2005) 8-9 and Della Cananea (2004) 199.

60 61

Schneider (2008) 38-9.

See Galera (1998) 31.

62

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

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State), provided that their manufacture complies with the regulations of the State of origin. As these are not harmonised areas, control remains in the hands of national authorities, which further implies that Member States may request the safeguard of certain legal assets of general interest (mandatory requirements), and thereby impose controls on products,63 for which they have a certain margin of appreciation,64 albeit subject, in any case, to the principle of proportionality.65 The extended applicability of the principle of mutual recognition has become consolidated, subsequently, in several ways: 1) The extension of the principle of mutual recognition to other basic freedoms, without prejudice to the intensity of such applicability depending on the freedom in question; in the case of the free movement of goods an intensive application is justified because, as in the case of the free movement of services, it refers to relations of a temporary nature. In contradistinction to this, the free movement of workers and the freedom of establishment represent a lasting or permanent relationship with the host State, which has led to moderation in applying this principle; 2) In the 1980s the Commission adopted a new regulatory strategy known as the ‘New Approach’.66 This new approach entailed placing harmonisation at the service of mutual recognition, by means of harmonising the minimum conditions or essential requirements regarding health and safety protection for consumers and workers, although on other occasions these also involved the protection of the environment. The Directives obliged manufacturers to adopt protection standards for all products manufactured in each of the Member States, but allowing flexibility in the choice of methods to meet those demands. However, as a consequence of meeting those demands, products were declared compliant and authorised to display the EC trade mark.67 In any case, it is remarkable that the recourse to harmonisation as an instrument to enhance the function of mutual recognition only has had a truly innovative character in the free movement of goods, because as far free movement of services is concerned the old Article 57 of the Treaty of Rome already set forth this solution. 63

See the Case C-484/10 Asidac [2012] n.y.r. and Case C-432/03 Commission v Portugal [2005] ECR 2005 I-9665.

64

See the Case C-108/09 Ker-Optika [2010] ECR I-12213; Joined cases C-570 and 571/07 Blanco Pérez y Chao Gómez [2010] ECR I-4629 and Case 211/03 HLH Warenvertriebs v Germany [2005] I-5141.

65

See the Case 211/03 HLH Warenvertriebs v. Germany [2005] ECR I-5141; Case C-157/96 National Farmers’ Union and others [1998] ECR I-2211 and Case C-236/01 Monsanto Agricoltura Italia [2003] ECR I-8105.

66

Communication from the Commission concerning the consequences of the judgment given by the Court of Justice on 20 February 1979 in case 120/78 (‘Cassis de Dijon’) (OJ C 256, 3.10.1980, p. 1) and, especially, the White Paper from the Commission to the European Council ‘Completing the Internal Market’ (COM (85) 310 final).

67

The New Approach also implied the refinement of compliance evaluation mechanisms (Global Approach) according to the Decision No 768/2008/EC of the European Parliament and of the Council of 9 July 2008 on a common framework for the marketing of products, and repealing Council Decision 93/465/EEC (OJ L 218, 13.8.2008, p. 82).

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The application of the principle of mutual recognition is basically similar in non-harmonised (sometimes so-called active recognition) and harmonised areas. However, there are some differences. Regarding the operational premise of mutual recognition, interordinamental equivalence (which precludes applying a priori mandatory requirements that make mutual recognition impossible in the non-harmonised fields), it is clear that such equivalence occurs thanks to the implementation process of EU law in the harmonised areas. Secondly, in the case of active mutual recognition, the reception of the administrative action at origin implies a full return to the State of origin’s legal order, that is, a sort of ‘domestication’ of the foreign regulation by transferral to equivalent national rules. In harmonised sectors, the principle of mutual recognition implies legal action of lesser intensity founded on the interordinamental equivalence inherent to the harmonisation process and on the efficacy that European law bestows on actions dictated in the State of origin. In this latter case, therefore, recognition has greater automaticity. In any case, as we will show later, this conclusion must be understood in generic terms, because harmonization is not a determining factor of the automaticity of recognition. By and large, aside the shown differences, the functionality of the principle is common: coherently with its origin in the field of international relationships, the principle of mutual recognition includes a conflictual rule with variable extent. In non-harmonised areas, the principle of mutual recognition acts as a conflict rule that determines the legal provisions of the country of origin as norms that must be applied, without prejudice to the powers for verification that may result in the non-application of mutual recognition.68 In other words, this means that, by virtue of the principle of mutual recognition, the country of origin’s legal order has an extra-territorial projection, so that the host State or the State of destination must apply a foreign Public law. Secondly, applicable to instances of harmonisation in which the powers of the host or destination country’s Administration are reduced to recognising a procedure and an administrative act made according to the Member State of origin’s legal order. In these cases, the application of a foreign legal order is softening by the previous approximation of national laws by virtue of the harmonisation process. Notwithstanding such conflictual nature, whithin the European administrative space the principle of mutual recognition reaches a ‘naturalness’ which leaves in the background that aspect. Indeed, the conflictual aspect is accom68

Concerning this issue, in the framework of the free movement of goods, Regulation (EC) No 764/2008 of the European Parliament and of the Council of 9 July 2008 laying down procedures relating to the application of certain national technical rules to products lawfully marketed in another Member State and repealing Decision No 3052/95/EC (OJ L 218, 13.8.2008, p. 21) also determines the procedures that Member States must follow, should they refrain from applying the principle of mutual recognition by virtue of a national technical rule. Article 5 of the Regulation establishes that national authorities may not impede the recognition of products that have been endorsed by a compliance evaluation body, as per Regulation (EC) No 765/2008 of the European Parliament and of the Council of 9 July 2008 setting out the requirements for accreditation and market surveillance relating to the marketing of products and repealing Regulation (EEC) No 339/9 (OJ L 218, 13.8.2008, p. 30), to which we shall refer later.

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modated in the cooperative context determining its applicability to horizontal relations. In other words, the conflictual solution inherent to the principle of mutual recognition is conditioned by the fact that the principle of the country of origin, the fundamental consequence, is installed in a scenario of cooperation, specifically in the establishment of interadministrative links which give rise to the transterritorial division of administrative tasks.69 This conclusion bring us before the real legal dimension of the principle: it is the principal expresion of the cooperative articulation in horizontal relations of the Administration in the European space, integrating a presumption of equivalence between national legal orders, basis for the sincere confidence among Member States,70 materialised in the principle of loyal cooperation [Article 4(3) TEU]. In other words, equivalence, mutual confidence, cooperation and the attribution of legal value to the country of origin’s decisions are the premises that, at all events, determine the application of this principle. Within such a cooperative framework, the doctrine has singled out a number of instances in which we can identify actions with transnational effects. The best-known proposal for classification was posited by G. Sydow.71 In Sydow’s classifying model only two of the four license types identified in the ambit of free movement of goods can, in purity, be classified as transnational acts.72 In the first State transnational licensing model (Transnationalitätsmodell), the distribution of a product only required a license from a single Member State for it to be marketed throughout the EU without the need for any additional controlling action by those products’ target States. This is a case of strict application of the principle of mutual recognition. The second model, also generator of transnational acts, is the reference State licensing model (Referenzentscheidungsmodell) by virtue of which a manufacturer may select a Member State for their first license, which will be transnational and will not be replaced by subsequent licenses issued at national level; nevertheless, the destination State authorities may verify the license and, possibly, dissent with its terms of issue. The models identified by Sydow are of use in analysing the application of the principle of mutual recognition to other freedoms, where the homogenisation of types is observed independently of prior harmonisation. Thus, two basic types of transnational acts are distinguished.73 In first place, those with automatic 69 70 71

Albeit with some nuances, this is the conclusion reached by Nicolin (2005) 215 and De Lucia (2009) 45.

See the Case C-25/88 Bouchara [1989] ECR 67, para. 101. In this vein, see Nicolin (2005) 206-7.

Followed by Schneider (2007) 315; Ruffert (2008) 90; and Keesen (2009) 27.

72

Sydow distinguishes, firstly, a product-licensing model that is decentralised among Member States, whose actions are only effective within the territory of each State (Einzelvollzugsmodell). In this model, each State autonomously executes the EU rule. We cannot speak here of transnational acts. At the opposite extreme, Sydow distinguishes a licensing model at the EU level (Direktvolllzugsmodell). This is a good example of decisions that are centralised in the EU. We cannot speak here either of transnational acts.

73

See De Lucia (2009) 50. Two types of transnational administrative acts which coincide with the types of mutual recognition that are identified by Gnes (2004) 337-8, Bassi (2008) 7-39, and Vesperini (2011)

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transnational effectiveness, with regard to which mutual recognition is perfectly achieved, as far as the decision by the country of origin produces ipso iure effects in other Member States.74 Recognition does not only operate at a formal level but also at a substantive level, as it implicitly recognises the addresses’ empower to exercise a fundamental freedom throughout the EU. The second type of transnational act is that in which the foreign administrative decision produces extra-territorial effects following compliance verification or assessment by the Administration in the target State. From this point of view, mutual recognition may, therefore, be conditioned.75 It may be conditioned because, based on the principle of proportionality, and in order to prevent unnecessary administrative duplication, the host or destination Administration must confer full legal value to the administrative action at origin (approvals, certificates…) However, in these cases, the European legislature includes the possibility that the host or destination country may deny such effectiveness. Should this occur, in certain cases even a EU procedure is prepared for reaching a decision on this point, with the participation of national and European bodies. It is under discussion whether a variation of this instance is, following Sydow’s thesis, what can be termed ‘common decisions’. This refers to decisions taken on matters that are the competence of one State, but in which outstanding public interests require preventive participation by other Member States (involved in the exercise of fundamental freedoms).76 The decision, in the end, is the result of a procedure in which the interested States (and sometimes the Commission) take part, with powers to raise objections to the decision proposed by the Administration of the source State. In such cases, the States act in a ‘choral’ manner 77 and in the event of dissent, the Commission decides in compliance with the comitology procedure. The final administrative decision is issued by the national Administration of the country for which the decision taken at European level is addressed. The uncertainty in these cases lies in whether we are looking at real transnational acts, or whether the European phase would allow us to affirm that it is unacceptable for the final decision to be an authentic national decision, owing 29-52: automatic and conditioned; the former belonging to harmonised areas, while the latter exists both in harmonised and non-harmonised fields. 74

Nevertheless, theses cases incorporate relevant sectorial peculiarities and this is the reason why the above-mentioned automaticity varies depending on the case.

75

For instance, Directive 2005/36/EC of the European Parliament and of the Council of 7 September 2005 on the recognition of professional qualifications (OJ L 255, 30.9.2005, p. 22) provides for these two types of mutual recognition.

76

These ‘common decisions’ are foreseen, for instance, in Regulation (EC) No 258/97 of the European Parliament and of the Council of 27 January 1997 concerning novel foods and novel food ingredients (OJ L 43, 14.2.1997, p. 1) and in Directive 2001/18/EC of the European Parliament and of the Council of 12 March 2001 on the deliberate release into the environment of genetically modified organisms and repealing Council Directive 90/220/EEC - Commission Declaration (OJ L 106, 17.4.2001, p. 1).

77

Cassese (2004b) 28.

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to the greater incidence of European action in the decision-making process. De Lucia78 considers that we cannot speak of similarity between this type of decision and others that can be integrated in instances of automatic recognition. However, this author maintains that this difference does not allow us to stop considering them as transnational acts: regardless of the actions taken by the Commission, the action is finally attributed to the national Administration, with transnational effects. In fact, these instances cover a decision that is the compound result of different Administrations through composite procedures. To finish, it is necessary to make a final observation on the mechanisms that govern this type of cooperation. The generation of transnational acts is based on cooperative structures articulated through horizontal composite procedures to which are added, in some instances, certain organisational elements. For example, in the case of transnational acts within the framework of the free movement of goods in non-harmonised areas, Regulation (EC) No. 764/200879 provides for the designation of contact points (Articles 9-11).80 These contact points are simple administrative units which constitute the basic organizative structure in the internal market, having relevant powers of cooperation, coordination and information both to the Commission and to other national contact point, as well as any interested citizen. Each Member State must designate one or more contact points in their territories and communicate these data to the Commission and to the other Member States. The contact points must provide, free of charge, to the economic agents and authorities of other Member States, information regarding the applicable technical regulations in the territory in which they are established, the contact data for the competent authorities and the available redress. In harmonised areas, including the free movement of goods, Regulation (EC) No. 765/200881 establishes an accreditation system that guarantees mutual acceptance of the degree of competence of the compliance evaluation bodies, complementing Decision No. 768/2008/EC.82 The compliance evaluation bodies are private entities accredited by the Member States on the basis of said Regulation. The function of these entities is to decide on product compliance with effect throughout the EU. Both the national accreditation authority’s actions, and the unilateral decisions taken by the compliance evaluation bodies are examples of transnational acts. In fact, the system comprises a mild institutionalisation through the attribution of public functions to private entities.83 78

De Lucia (2009) 52.

79

Regulation (EC) No 764/2008.

80

This is a common requisite in different areas. For instance, Article 57 of Directive 2006/48/EC of the European Parliament and of the Council of 14 June 2006 relating to the taking up and pursuit of the business of credit institutions (OJ L 177, 30.6.2006, p. 1) provides for a similar requirement.

81

Regulation (EC) No 765/2008, above.

82 83

Decision No. 768/2008/CE, above.

Röhl (2011) 211.

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In conclusion, the mutual recognition Administration is characterised by the implementation of cooperative structures by means of horizontal composite procedures (dynamic dimension), which do not preclude a certain organisational dimension and that, in any case, gives rise to decisions carrying transnational effects.



4.3 European Committees. The ‘collegiate’ administration

European Committees make up a broad and complex group of bodies operating as integration mechanisms between the EU and the state level. This consideration explains the widespread opinion that Committees are not part of the direct Administration of the EU in a strict sense. M. Chiti goes further, however, and admits that we behold the ‘composite bodies of the complex European Administration’ and, therefore, of the extended EU Administration in a wide sense (including a complex of organs and bodies of a joint nature).84 Among the vast bibliography available, M. Savino has systematised the distinction of two types of committee, according to their internal composition and the interests defended by their members:85 1) Trans-Governmental Committees: a) Comitology Committees: Acording to the Regulation (EU) No. 182/2011,86 which replaces Decision No. 1999/468/EC,87 the Committee is composed of representatives of the Member States is chaired by a representative of the Commission. The Regulation provides two different procedures. The examination procedure (Article 5) is applied, in particular, to general measures and specific measures with a high impact potential, for example, in agriculture, fisheries, the environment, health, trade and taxes. Their aim is to ensure that the Commission’s implementation acts are supported by a qualified majority in the Committee. Should the Committee refuse the proposed measures by qualified majority, the Commission should not adopt the decision. If the implementation act is deemed necessary, the Commission may either submit a modified version of the draft implementation act to the same Commission, within a period of two months, or submit the draft within one month to an appeals committee for further deliberation. In the event the Committee delivers no opinion, the Commission may conditionally adopt the draft. The consultation procedure (Article 4), moreover, is applied to procedures for the adoption of implementation acts in other fields (for example, individual measures in the field of culture) 84 85

Chiti (2004) 187.

Savino (2006).

86

Regulation (EU) No 182/2011 of the European Parliament and of the Council of 16 February 2011 laying down the rules and general principles concerning mechanisms for control by Member States of the Commission’s exercise of implementing powers (OJ L 55, 28.2.2011, p. 13).

87

Council Decision of 28 June 1999 laying down the procedures for the exercise of implementing powers conferred on the Commission (OJ L 184, 17.7.1999, p. 23).

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In such cases, the Commission shall take the utmost account of the conclusions drawn within the committee, adopted by simple majority.88 b) Council Committees: these committees are known as preparatoy committes o ‘groupes de travail’ of the Council and intervene in the legislative phase. They number some 150 and are coordinated by COREPER (Permanent Representatives Committee) Members are national representation officials, and they are chaired by an official of the Member State holding the presidency of the Council. A Commission delegation participates in such Committees. Though their powers are merely preparatory, they exercise de facto decisional powers.89 c) Expert Governmental Committees: the most heterogeneous group (more than 1000) with no regulatory basis. Its functions are fundamentally consultative, with relation to the Commission and the Council. Similarly, though most are consulted in the phase in which the Commission has the initiative, others act in the execution phase drafting guides for monitoring European rules, while others are competent in political management (high-level committees) Without prejudice to the nature of their functions, these committees safeguard the represented national authorities’ substantial powers of co-decision, since all the Commission’s legislative and secondary normative initiatives are the result of precision analyses within these committees. It is also common practice for the Commission to entrust these committees with the task of drafting normative projects. 2) Transnational Committees: a) Scientific Committees: composed of subject matter experts, selected on the criteria of excellence and independence, without representation functions and who intervene, therefore, in a personal capacity in order to safeguard common interests. Many of these committees are integrated in independent authorities and European Agencies, while others perform a consultative function for legislative institutions and the Commission,90 and intervene in the drafting stage of legislative and executive normative proposals. In general terms, it can be said that their functions are of two kinds: i) Technical assessment for the identification of actual or potential risks involved in a product or process; and ii) coordina88

In both procedures, the European Parliament and the Council hold the ‘right of control’ (Article 11) that enables them at any time to indicate to the Commission, provided that the basic act is adopted in accordance with the ordinary legislative procedure, that the draft implementation act exceeds the competences granted in the basic act. In these cases, the Commission must review the draft taking into account the expressed positions, and must report whether it maintains, modifies or withdraws it.

89

An agreement amounts to substantial approval, as the case is described as ‘item A’ on the Council agenda, and is approved without discussion.

90

Fifteen committees operate within the sectors of health and safety regulations: nine operate in the framework of the European Food Safety Authority, three in the European Medicine Agency and a further three in the field of the directorate general for health and consumer protection. Twelve additional committees are active in issues regarding the environment and human, animal and plant health.

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tion with national and international authorities for risk assessment in a given sector, favouring the exchange of relevant scientific information. b) Interest Representatives Committees: within the framework of EU decisionmaking, members represent organised interest groups at European and national level. These are of two kinds: i) Committes made up exclusively of non-governmental members, representing socio-economic interests at European level; and ii) Tripartite Committees in which one third of the members are state officials, and the remaining two thirds are national-level interest representatives. As a general rule, the first are created by the Commission, while the second are set up by the Committee. Their consultation is not mandatory. Tripartite committees are usually set up, both during preparation and the implementation of legal acts, with variable functions (assessment, proposal, coordination and consultation), while collegial committees, with dialogue and policy-making functions, are consulted regarding normative proposals. The above analysis is complemented by M. Savino following his criterion of ‘real collegiality’.91 From this point of view, he distinguishes between committees acting as colleges (or ‘weighting committees’, since they intervene to guarantee the technical consistency of decisions) and those operating as ‘virtual colleges’ (or composite, as they act to de-conflict national interests): 1) Real Collegial Committees: the only committees acting as true colleges are the Scientific Committees, in which the priority is to safeguard EU regulations and to facilitate subsequent joint activity. In these cases, the priority is to make better decisions, as there are no national interests at stake and the discussion is not centred on counterposed interests. The exchange of opinions and technical knowledge is key to assessing the technical consistency of the tabled proposals. The weighting function deriving from real collegiality is also present in Expert Governmental Committees. In these, committee members do indeed represent the States but their activity is also predominantly aimed at weighting, on the basis of members’ expertise and their nations’ administrative practices, the technical and normative solutions to be assumed as common standards. During the initiative analysis phase, these colleges’ activities are focused on exchanging points of view and providing information to the Commission, rather than establishing a composition of national and conflicting interests. However, there is no doubt that a precise and appropriate assessment of the technical consistency of the proposal also contributes to accommodating state interests. In other words, weighting has a function in facilitating the subsequent composition of interests. 2) Virtual Collegial Committees: the Council Committees and Comitology Committees are characterised by enhancing decision-making by consensus, and the implication of national Administrations in European institutions’ acts. The dominant factor in the work done by these committees is the heterogeneity of the interests at stake, a source of potential conflicts. These colleges act on the principle of majority (Council committees) or qualified majority (examination procedure in the case of Comitology Committees), guided by a common 91

Savino (2006) 45.

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rationale: reaching agreements to avoid issues becoming politicised, and being decided in the last instance, at the Council, more obviously in the case of Comitology Committees as in these decisions are purely executive and it would be contradictory for a political body to make the final decision. Deconfliction, therefore, causes the cooperative principle and the adoption of agreements by consensus to prevail. The above complementary classification does not preclude the idea of supranationality, a defining feature of all the committees. Relationships among real and virtual collegial committees respond to a distribution of functions aimed at contributing to the efficiency of the decision-making process and the effectiveness of European law: the former are called upon to assess the rationale of normative proposals and to facilitate the subsequent composition of interests; the latter, for their part, fulfil the function of deconflicting interests by seeking consensus, ensuring the Administrations’ implication in the adoption and enactment of EU rules. Differing from those who claim that the supranationality attributed to European institutions would be countered by intergovernmental decisionmaking at headquarters by ‘virtual colleges’,92 it should be pointed out that the transgovernmental dimension also gains, in such committees, a fundamental dimension.93 Generally speaking, the committee members assume the condition of belonging to a body that deals with transnational problems.94 Here, the administrativisation of the decision-making process through the administrative procedure not only serves to articulate the decision-making process, but also to articulate national interests with supranational interests: between supranational rules and intergovernmental decisions at the various committees’ headquarters, administrative supranationality emerges enhancing connectivity and the stability of the system. At all events, the actions of the committees as a whole reach beyond merely stating the transference of the weighting process for diverse interests to the relevant collegial administration. We are looking at the institutionalisation of a decision-making system that is the first manifestation of an incipient unitary European Administration, built on the basis of a balance of interests that takes place at the headquarters of the supranational administrative procedures.95 To sum up, we can conclude by stating that European committees act on the grounding of cooperative structures articulated within bodies that operate through composite procedures (structural and dynamic dimension with variable harmonisation) and whose decisions have supranational effects of an aggregate 92

The so-called ‘joint-decision trap’ which leads to agreements on the basis of the minimum common denominator which hinder the development of European Law.

93

Hormann and Türk (2006b) 81-2.

94

The notion of ‘deliberative supranationalism’ used by Joerges and Neyer (1997) 273, relating to comitology, is really clarifying.

95

Savino (2006) 64-5.

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nature, without prejudice that in most cases the decisions taken in this fora are not decisional character.



4.4 ‘Decentralised Integration’: Agencies and Agencies’ networks

European agencies’ organisational and functional diversity impedes the identification of a uniform model. Nevertheless, certain coincidences have been shown:96 1) Agencies have their own legal personality to exercise, with variable autonomy, their competences in the specific ambit for which they were created;97 2) All agencies were created by a secondary European legislative act98 and are used by the Commission to decentralize public functions granted at EU level;99 3) The rationale applied by the Commission in creating agencies is to improve both the efficiency of specialised sectors and administrative integration, leaving the Commission to focus its efforts on policy-making;100 4) Agencies’ functions are normally limited to technical and scientific tasks and, in general, they do not have competences to pass binding decisions; in any case, they must be considered as executive functions;101 5) From an organisational viewpoint, they are led by a chief executive officer and a management committee, in which the majority of members are national representatives backed, in many cases, by scientific committees. 96

See Geradin (2005) 17; Hofmann and Türk (2006b) 85; Fuentetaja (2007) 310; and Weiss (2009) 48 and 56.

97

The balance between this autonomy and the control this activity is subject to is one of the keys to the agencies’ legal regime. Fuentetaja (2007) 328 demonstrates the variability of these controls depending on the agency, highlighting that their autonomy is ‘compensated’ by some kind of control by the Commission or other institutions. This dependence is the legal element that distinguishes regulatory agencies from independent authorities.

98

The agencies were created by a Regulation of the Council or of the Council and the European Parliament and, in practically every case, on the legal basis of Article 352 TFEU, currently in force. Since the Communication of the Commission ‘The Operating Framework for the Regulatory Agencies’ (COM (2002) 718 final), the Commission has considered that, being an instrument for the implementation of a concrete Community policy, the legal basis should be that of said policy, without prejudice to alternative recourse to Article 352.

99

Reference to ‘decentralisation’ must be understood in a functional and instrumental sense: Fuentetaja (2007) 299.

100

T he already mentioned Communication of the Commission (COM (2002) 718 final) highlights that recourse to these agencies is seen in a positive light when the subject matter entails a strong technical component, a high level of expertise, and where continuity and credibility are required of the public action. However, behind these reasons are also others of a strictly political nature: the opposition to allowing the Commission to centralise these powers.

101

T he agencies are characterised by the exercise of specific competences of a non-discretional, technical nature: the Case 10/56 Meroni v High Authority of the ECSC [1958] ECR 157.

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The European Commission distinguishes two types of agency: executive102 and regulatory.103 In this study we shall focus on the second type. Anyway, here we use the reference to regulatory agencies only in a broad sense,104 to the extent these agencies contribute to the creation, training and balance of actors in the market, even when in pursuit of objectives of a social nature. These agencies are one of their most outstanding features is their transnational character. Their particular composition (incorporating EU representatives and national officials)105 allows it to be stressed that these agencies are not a standard example of decentralisation, owing to the concurrence of an important integrating component:106 decentralisation toward Member States is combined with the integration of the many national authorities/representatives, creating a European-level entity. Despite their lack of homogeneity, on examining the regimes applicable to each agency, common regulatory structures can be induced.107 Firstly, decentralised integration is characterised by the creation of a EU organization with legal personality and autonomy in its relations with the Commission, though the latter may remain in a position of superiority. This structural dimension combined with sharing competences with the national authorities, whose desig-

102

E xecutive agencies are, as Craig (2012) 28 states, the new paradigm of centralised enforcement. These agencies are created through Commission Decisions in accordance with Council Regulation (EC) No 58/2003 of 19 December 2002 laying down the statute for executive agencies to be entrusted with certain tasks in the management of Community programmes (OJ L 11, 16.1.2003, p. 1). These programmes were approved in matters over which the EU holds complementary competences. However, the implementation of the programme is carried out entirely by the agency under the control of the Commission.

103

A s stated by Geradin (2005) 23 and Weiss (2009) 49, this differentiation is of little utility if we consider that the Commission itself, among regulatory agencies, distinguishes agencies with decision-making powers and executive agencies without such powers. We maintain this distinction herein, insofar as only those created on the basis of Regulation No. 58/2003 are considered executive agencies. The relative utility of this distinction has led the Commission to assume a purely functional classification system: see the Draft Interinstitutional Agreement on the Operating Framework for the European Regulatory Agencies, (COM (2005) 59 final).

104

Part of the legal scholarship understands that none of the regulatory agencies are authentic agencies of this type. This denial is based on two considerations. Firstly, the comparative model used is that of US agencies. Secondly, the impossibility to agencies of exercising discretional powers, under the terms settled by the Meroni doctrine. See Craig (2012) 149; Geradin (2005) 26; and Fuentaja (2007) 318.

105

T he collegiate nature of the agencies shows that agencies are fora for composite interests, albeit circumscribed to their eminently scientific-technical remit; in other words, the agencies are not fora for the defence of national interests. This conclusion allows us to consider the important cooperative factor within agencies, which contributes to institutional stability.

106 107

C hiti (2004) was who created the denomination as ‘decentralised integration’ or ‘integrazione decentrata’.

Chiti (2004).

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nation may be conditioned by European law with the imposition of organisational solutions.108 The articulation of European and national bodies is achieved through their integration in unitary administrative structures. From this point of view, we can differentiate two forms of integration which are not, by any means, exclusionary. The first is based on the management of composite procedures, regulated exclusively by European law and with multi-level participation, with the aim of guaranteeing the complementariness and functional integration of the various competent bodies. The second, however, arises from the creation of a complex organisation, as an alternative to the creation of a single integrating body characterised by establishing a ‘network’ of competent authorities.109 The unitary nature of this complex structure is achieved thanks to the coordination and planning functions granted by the European agency and which are exercised through non-binding legal instruments. All the above gives rise to a complex structure of operational relations that, in practice, generate active functional complementarity and interdependence. To round up, we can state that the ‘agencification’ phenomenon is founded on complex organisational structures articulated on complex procedural mechanisms (structural and dynamic dimension), whose actions entail aggregate supranational effects.



4.5 Independent Authorities and independent authorities’ networks

The Commission classifies regulatory agencies as decentralised and independent bodies. This is not consistent with reality. It cannot be ignored that this question is doctrinally far from peaceful. E. Chiti finds that a major error in the inadequate conceptualisation in this regard is to identify European agencies with independent authorities.110 In fact, from an institutional point of view, regulatory agencies are distinct from independent Administrations in the position taken by the Commission with regard to the former. Regulatory agencies’ independence is not guaranteed with regard to the Commission, as the latter maintains its hierarchical place without prejudice to the degree of autonomy held by the agencies. Independent authorities, conversely, are characterised by being precisely as their name implies, fully independent, and by exercising their functions free 108

T here is no novelty in affirming that the legal basis of Article 114 TFEU may give rise to measures of harmonisation containing the obligation to establish a given organisational model: Case C-359/92 Germany v Council [1994] ECR I-3681.

109

It is not uncommon for legal scholarship to distinguish among agencies and European networks. However, such differences have gradually lost importance, insofar as the constitution of networks has become institutionalised within the framework of regulatory agencies and independent authorities. In this vein, see Weiss (2009) 47 and Hofmann and Türk (2006b) 91.

110

C hiti (2004) 403.

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from third party influences or any other political interference.111 This is how they are described in several judgments of the Court of Justice.112 Moreover, despite the fact that the existence and operating conditions of these authorities is necessarily guaranteed by the state legislature, said power is constrained by the attraction toward the supranational ambit exerted on independent authorities’ legal orders. Functional independence has an ambivalent effect. On one hand, the system underscores its independence regarding the authority of the State it belongs to. On the other hand, the development of the European system weakens national authorities at supranational level, where decisions are taken collectively. Hence, national authorities are transformed into elements making up that common structure and operational terminals for the decisions taken at that level. In other words, they operate as executors of the decisions to whose legitimisation they contributed. This signifies three things: 1) That independence at European headquarters is reduced; 2) That this is due to the fact that these disciplines are fully Europeanised; and 3) That such Europeanisation encourages the development of a ‘network’ of horizontal and vertical functional relationships and demands a high degree of coordination to achieve uniformity. One of the defining characteristics of independent authorities’ administrative structure is their heterogeneity. This variability can be detected both in the actual organisational regulation of national authorities, and in the European framework itself. In the first of these extremes, we can highlight that national authorities’ legal orders are relatively weak from an organisational point of view. In other words, the need to create an organisational structure with independent functions is incomplete, and remains in the hands of the State. However, depending on each case, European rules may dictate principle-based prescriptions regarding the effectiveness of exercising the attributed functions.113 With respect to the integration of national authorities into a common European system, it cannot be claimed that a clear system is in place, either, but rather a plural and casuistic approach. In fact, this integration at European level 111

The source of the very existence of independent authorities varies: 1) In some cases, at the European level, this is envisaged in the Treaty (Articles 16(2) and 130 TFEU); 2) In other cases, we can deduce this obligation from secondary legislation (see, e.g., Article 35 of the Council Regulation (EC) No 1/2003 of 16 December 2002 on the implementation of the rules on competition laid down in Articles 81 and 82 of the Treaty (OJ L 1, 4.1.2003, p. 1) and Article 11 of the Directive 2005/29/EC of the European Parliament and of the Council of 11 May 2005 concerning unfair business-to-consumer commercial practices in the internal market and amending Council Directive 84/450/EEC, Directives 97/7/EC, 98/27/EC and 2002/65/EC of the European Parliament and of the Council and Regulation (EC) No 2006/2004 of the European Parliament and of the Council (‘Unfair Commercial Practices Directive’) (OJ L 149, 11.6.2005, p. 22); 3) In other cases, the independence of the national authority can be inferred from the relationships that economic operators are obliged to maintain (Case C-69/91 Decoster [1993] ECR I-5335).

112

Case C-424/07 Commission v Germany [2009] ECR I-11431 and Case C-518/07 Commission v Germany [2010] ECR I-1885.

113

Vesperini (2011) 103-7.

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is not a key element in all the market sectors, so that the independent authorities have a heterogeneous presence in the internal market. From this point of view, there are sectors where national authorities are independent ones, but it is not created any sort of European independent authority. In others, however, there are independent authorities at both administrative levels: a) In certain sectors the national independent authorities coexist with the European Commission. The best example is competition law. In other cases, the European law imposes the creation of independt authorities at national stage, but not at European level. This is the case of the Directive 97/67/EC on common rules for the development of the internal market of of Community postal services.114  b) In other areas the independent authorities are combined at both levels (national and European). In these cases, strictly speaking, we should refer to a trend toward a common European system of independent public powers, although at the moment we can only observe several types.115 Nevertheless, from a functional point of view, we can say that all the organisational types that will be described share a common functional foundation. A classification of these organisational-procedural structures has been drawn up by E. Chiti (2006) based on two elements. Herein we assume, with some nuances: 1) The nature of the European bodies involved in the creation of some type of organisational structure, with special reference to the role given to the Commission: from this point of view, issues arise such as the idoneity of independence attributed at EU level, or, to the contrary, the limits of that independence on two sides, first, between European institutions and bodies, and second, with national independent bodies; and 2) The characteristics of the actions that correspond to the national authorities and their degree of functional independence; the idea of balance of powers is expressed here with full intensity, since organisational solutions strive for the harmonisation of solution to prevent the competence from being drawn toward a single centralised independent body while at the same time avoiding the hazards that the decentralised attribution of competences may pose to building an internal market.116 Using both criteria, E. Chiti identifies three types of independent authority:117 114

Directive 97/67/EC of the European Parliament and of the Council of 15 December 1997 on common rules for the development of the internal market of Community postal services and the improvement of quality of service (OJ L 15, 21.1.1998, p. 14).

115

Chiti (2006) 21-3.

116

Weighted implementation by European legislators, therefore, offers several legal ‘solutions’. The first of these is the combination of joint and variable organisations at EU level, with national-level organisational and functional structures. The second is having recourse to multiple (procedural) mechanisms that ensure the distribution of competences and participation by all the administrations. These two effects do not erase problematic aspects such as the multiplication of competent bodies, bureaucracy, disparate legal regimes, etc.

117

T he last type identified by Chiti refers to competition law. Here, the EU legislature has neither created an independent authority, nor a ‘network’ of national authorities organised in a collegial manner with

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1) The type characterised by the creation of a European institution endowed with independence (European system of central banks, food safety) and articulated internally with the incorporation of national authorities which are granted specific competences. Their organisational and procedural relationships form a unitary administration, guaranteed by the pre-eminent position given to the European body. The independence granted both to the European body itself and to the national authorities is noteworthy, and explains the discreet role played by the Commission (management functions in the case of food safety, or practically non-existent in the case of the Central Bank). 2) The so called ‘concertation of European regulators’ (telecommunications, energy) does not really constitute an independent body, but a ‘college’ made up of directors of national authorities (European Regulators Group), assisted by one or more committees, and with partial independence. As can be deduced, this is a simple, flexible organisational structure (without legal personality), but at the same time entails complexity on account of its links both to the Commission and to national authorities; it is an embryonic independent authority. Protagonism within the Group is gained through the coordination of national authorities to form a sort of ‘unitary administration’, as the result of national Administrations building horizontal relations and configuring a ‘network’ of regulators. The Group assumes consultation and assistance as well as coordination functions that place it in a position of some pre-eminence in relation to the rest of actors. Nevertheless, this body’s independence is limited. In fact, the greatest degree of independence is held by the national authorities, and, to a lesser degree, by the Commission. The Group’s inferior degree of independence actually promotes the position of functional pre-eminence held by the Commission. To sum up, independent administrations are characterised by the creation of complex organisational structures holding functional independence (sometimes also with a degree of informality) articulated through composite procedures that sort of power, but functions are singularised in the Commission, assisted by the respective sectorial committee. Although the competence correspond to the Commission, in a decentralised way competences are organised in an European network – the European Competition Network – conferring on national authorities certain powers according to the ‘centre of gravity’ principle (Articles 101 and 102 TFEU). Here, however, this scenario is not considered for several reasons: 1) The Commission exercises its competences with independence, as it would in any other matter over which it had exclusive competences, and so the Commission acts directly, without any complementary organisational solution; 2) The designation of national independent authorities is not linked with structural elements at the European stage characterised for the exercise of certain powers with independence; the European Competition Network is the result of the organisation of national authorities’ participation through composite procedures, according to the Commission Notice on cooperation within the Network of Competition Authorities (2004/C 101/03). These are, therefore, vertical and horizontal dynamic relationships with transnational effects, when applicable. In other words, it is a good example of cooperative networks (Ruffert (2008) 93), but it is not an example of the creation of specific independent authorities at European level.

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(structural and dynamic dimension), whose decisions carry aggregated supranational effectiveness.



5 Conclusion

The EU is the scenario for the emergence of a new paradigm for a cooperative, polycentric, multi-level, pluralistic, destatalised and de-territorialised Administration. We are looking at the configuration of a complex Administration integrated within the European administrative space that is organised unitarily through intense functional cooperation and through composite, co-dependent legal entities (cooperation of an intensely procedural nature that is however becoming increasingly organisational). This new paradigm is the consequence of a regulatory strategy focused on the regulation of procedural and organisational content. The legal predominance of these issues has conditioned our analysis from the viewpoint of the principle of responsibility and coherence, underpinned by the Treaty of Lisbon, insofar as these principles dictate the distribution of competences and the attribution of responsibilities according to the functions assigned, just as they determine the regime of interadministrative relations within the framework of a complex and multi-level system. Viewed in this light, we have confirmed that the Treaties do not impose a single model of Administration, although they do articulate certain principles that condition the solution adopted by European legislators: 1) The widespread recourse to competence sharing predetermines an integrative model for multilevel relations that are fundamentally cooperative; this, however, does not proscribe subordinated relationships placing the Commission and its bodies in a pre-eminent position for supervision, conflict solving, etc., but qualifies these as ancillary; 2) Through making potential implementation and organisation solutions more flexible, while necessarily remaining open to interconnections with the various administrative levels; this conclusion has allowed us to affirm that the dichotomy direct implementation-indirect implementation has been overcome. Another of the legal characteristics inherent to the Administration of the European administrative space is the supranationality of administrative action. The notion of supranationality defines the exercise of public powers pro unione. The effects afforded by supranationality that can be attributed to the administrative actions within the European administrative space vary from full supranationality (identifiable with the actions of European institutions and bodies) to limited supranationality (as in the traditional indirect implementation of European law), including the transnational dimension that European law infuses into the actions of national Administrations (principle of mutual recognition Administrations) and what we have termed aggregate supranationality (charac-

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terised by the procedural and structural integration and co-dependence of the diverse administrative ambits). The sectorialisation and non-systematisation characteristic of European law has led our analysis, from the methodologic perspective, toward an inductive construction which, on examining the forms of administrative action in the different sectors, has allowed us to identify two legal criteria for common actions. These parameters have made it possible to propose a typology for the cooperative structures for administrative action within the European administrative space. In particular, the following criteria were applied: 1) The aspect of supranationality that fits each administrative action; and 2) The relevant legal mechanism on which administrative cooperation is articulated, that is to say, whether the administrative action is articulated mainly through integrated and cooperative action in the course of composite procedures (dynamic dimension), or either through organisational-structural or institutional mechanisms (structural dimension) Lastly, in light of these criteria, we have distinguished five levels of cooperation placed in order of scale (from lowest to highest intensity), in a manner that is integrated (the most intense levels may partially incorporate levels of lower intensity) and non-exclusive (levels of lower intensity may partially incorporate values pertaining to levels of higher intensity).

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