Florian Nitu
PhD Candidate, King’s College London
The European Union Law panel at the 8th edition of the IGLRC addressed the standards of regulation theme showing convincingly that EU norm generation remains as topical as always. It also becomes increasingly sensitive given the global recoup of the pluralist paradigm of law-making.
As Professor Alex Turk chairing the panel has stated at the outset, one way of approaching regulatory activities within the EU, from a standards’ perspective, would be to apply a balancing test to the normative process and its results, measuring comparatively the effects of regulations by reference to norm generation and enforcement. Under the proposed conceptual framework, the next logical step was to choose a number of interconnecting areas of regulation. For the event three typologies were selected.
The first one consisted of standards, which albeit properly enacted by the Member States, are rejected at the European Union level. Still, they are applied in practice given a blatant resistance to compliance. The ‘Golden Shares’ regulations were addressed as category-sample, with Jelena Ganza of King’s College London presenting ‘Resistance to Compliance: Is there a future for ‘Golden Shares’ within the EU’. The second one covered standards set in a collective regulatory process involving a number of different EU actors whose effort to harmonize conflicting interests appears to have yielded mixed results. Regulation of EU financial supervision was assumed to be the proper case study here, handled by Arien Van’t Hof of Erasmus University Rotterdam under the heading of ‘The institutional balance in EU financial supervision’. The third and final one dealt with the category of norms generated outside European Union administrative structures, in a transnational sphere, which are nonetheless embraced by the EU and its Member States. In this vein, Sabrina Wirtz of Maastricht University discussed the ‘EU risk regulation and its global standards: the case of pharmaceuticals’. All three perspectives have been explored insightfully by the speakers putting forward arguments of high interest and practical relevance.
On the resistance to compliance front and the case of ‘Golden Shares’ regulations, Jelena Ganza opened her presentation by defining the golden shares provisions as corporate control devices/special voting rights attached to named shares. They are issued for the benefit of minority shareholders, mainly former state-owned entities or public authorities, in relation to privatization projects. Although it may be argued that a first expression of the ‘Golden Shares’ concept may be found in the UK before, according to the panellist it is during the early-nineties that the idea took off in continental Europe. The ‘Golden Shares’ regulations have been fostered by the EU privatization wave involving mainly the utilities sector and other heavy industries, as well as by numerous public-to-private deals and, in general, by market liberalization programs, concluded in various South-Eastern Europe countries before and as a condition to their accession to the European Union.
According to Jelena Ganza’s research, in spite of their controversial nature and their clear conflict with the fundamental right to free movement of capital, the ‘Golden Shares’ regulations or at least their primary objectives subsist. Indeed, Member States refuse to comply with or try to circumvent the effects of no less than 15 judgments of the European Court of Justice adopted within infringement cases, starting with Commission v. Italy (C-58/99) to the recent Commission v Germany (C-95/12). It was also stressed out that enforcing the said judgments would affect not only the Member States concerned, but also their flagship corporations such as Telecom Italia, Enel, Volkswagen, Telefonica, etc.
She further discounted heavily the effects of the only judgment clearing the golden share-type regulation in Belgium [see Commission v. Belgium (C-503/99)], on the ground that the finding of the CJEU could not be further used as a concept clearance, because of the specifics of this case.
Picking up on audience questions regarding the indirect legality control of the regulations, through the domestic preliminary reference procedure, the panellist informed that to date there is no such judgment, due to lack of interest of the Member States to pursue such proceedings and the limited effects of the regulation over individuals/entities having standing to raise the EU illegality inquiry.
It was claimed that there should be more, since the change in the economic climate appears to be used by Member States as an opportunity to devise new non-compliance defences and to maintain the ’Golden Shares’ system in place or even replicate it. Theoretically, there have been attempts to pre-empt the freedom of capital movement by recourse to employment protection and social security values, Member States public policy stances and other state strategic interests.
Concluding, much remains to be seen on the Golden Shares regulation saga. In spite of the numerous infringement decisions, which Jelena thinks are fully justified as the free movement of capital right is the prevailing value in this tension of local and community interests, the Commission is unlikely, at least in the harsh economic times, to move more aggressively against non-compliant Member States.
It was Arien Van’t Hof of Erasmus University Rotterdam to address the regulation of the local-community tension, but in the systemic risk context. While looking critically at the EU banking regulation and supervision framework, his main aim was to determine which EU, national or other interests would the institutions and authorities involved ultimately serve.
Methodically, Arien used as research guiding tools the powers of EU agencies and institutions, the procedural aspects of rule-adoption and implementation, the institutional checks and balances, by comparing roles and responsibilities between the Commission, the Council and the European Central Bank.
In terms of regulation and supervision, the assessment process was filtered through the lenses of the micro prudential stability and the macro-prudential stability. To do so, it started with a critical presentation of the European System of Financial Supervisors, consisting of European Systemic Risk Board (ESRB), European Supervisory Authorities, including the European Banking Authority (EBA), the National supervisory authorities (NSAs) and the Single Supervisory Mechanism (SSM), as well as of the key instruments of system functioning that include the Capital Requirements Regulation (CRR) and Capital Requirements Directive (CDR) IV.
Further evaluating the microprudential banking supervision system, from EBA and SSM perspectives, the panellist found that, in what regards EBA, one could sense a rigid regulatory approach (when exercising binding powers) and certain discretion (when dispensing non-binding powers), while in relation to the NSAs as SSM agents, it argued that, all in all, their supervisory discretion is diminishing.
Turning to the macro prudential oversight, which was presented as crucial for identifying and prioritising systemic risks, Arien Van’t Hof has emphasized the hybrid nature of the European Systemic Risk Board. ESRB is composed of national central bank governors and 10 representatives of EU bodies or advisory committees. The presenter highlighted its likely inefficient decision-making process, but also the fact that the Council preserves the rights to reject some intended macro prudential measures of NSAs.
In this framework, the key arising question was how to harmonize the potentially different views at the level of various EU institutions and between national and EU bodies. As Professor Alex Turk mentioned in his comment, this further raises policy choices and issues of defining national interests against the systemic financial risk. The case of compatibility of bankers’ bonus regulation (limitation) at the EU level with bonus practices in certain Member States financial markets may well illustrate the national bias and policy choice point.
Concluding, the banking regulation and supervision framework attempts to resolve the local-community tension by diminishing supervisory discretion of the national authorities, despite further balancing this limitation by giving a say to such national authorities in many EU decision-making bodies. Result is that fragmentation of the internal market is reduced, while attention for financial stability is likely to increase.
Sabrina Wirtz of Maastricht University has brought the debate into the transnational sphere, by exploring the EU risk regulation and its global standards with a case study on the pharmaceutical industry and the operation of the International Conference on Harmonization (ICH).
As it was eloquently argued, the rule-making settings vary depending on the globalization context and on the regulative instruments. We are witnessing a shift in the regulatory landscape from ‘government’ of local or national/federal nature to the ‘governance’ of global cooperative networks, using numerous soft law mechanisms and defining standards in an osmotic manner. In this framework, a ‘standard’ was defined as a ‘voluntary and expertise based rule, constituting measurable criteria by which a product or a production process or service can be evaluated on the basis of technical or physical conditions’.
To substantiate the argument, Sabrina went on to discuss the structure of ICH (a truly transnational partnership between regulatory authorities from around the globe and industry associations, with the EU being represented through the European Medicines Agency), its mandate (harmonization of technical requirements on product and processes quality, safety and efficacy), as well as, its modus operandi (illustrating a bottom-up approach in setting standards and guidelines with no formal binding effect, but massively adopted as positive law).
A special attention was given to the process of formal adoption by the EU of the ICH standards, with the EU seen as participant and potential beneficiary of the rule making. In fact, it was pointed out, there are over 60 EMA Guidelines based on ICH similar technical documents, and although they are not legally binding, most of them do enjoy the same status as all other EMA Guidelines. In addition, there is certain evidence that such guidelines do influence further adoption of binding EU legislation. A number of factors may contribute to this result, including the EU Commission relying regularly on the EMA Guidelines and in its turn, the EMA being a member of ICH and applying consistently in its scientific assessment the ICH Guidelines.
While global governance under the promotion of the industry representatives could be an adequate frame for standard setting, issues of accountability and poor legitimacy of decision-makers, insufficient or lack of transparency and incidents of limited or mimicked public consultations in the rule-making process, often arise. The EU stands here in a delicate position, since so far, certain global standards so adopted had a large impact on European regulations.
But finally, according to Sabrina Wirtz the problem and the solution lie in the same place, as the expertise is with the industry and the regulatory powers with the authorities and hence, by putting them together, responsibly and transparently, satisfactory standard setting may be achieved.
The three case studies presented in the EU Law Panel at the IGLRC 2014 have showed that standard setting within the EU regulative process may be convincingly tested by reference to norm generation (using both top-down and bottom-up approaches) and norm compliance (illustrating formal non-compliance of binding law but also voluntary compliance of soft law).
Whether the EU law-making continues its somewhat anti-cyclic constitutionalisation process or, on the contrary, it allows more space for transnational self-creating, self-validating rules of law, it definitely remains a long(er) term debate.