Category: Article

Implementing EU Law after the Charter of Fundamental Rights

Emily Hancox

LLM Researcher, European University Institute

 

It was established in the 1980s, in the landmark case of Wachauf, that Member States when implementing EU law are bound to respect EU fundamental rights.[i] The Court of Justice of the European Union (‘the Court’) did not stop here and later held that Member States were also to respect EU fundamental rights when derogating from EU law[ii] and potentially when acting ‘within the scope of EU law.’[iii] The aim of this post is to consider what it means to ‘implement’ EU law and whether this has changed since the EU Charter of Fundamental Rights (‘the Charter’) became legally binding.[iv] The focus, in particular, will be on the case of N.S[v]. and the exercise by Member States of optional clauses in EU secondary legislation. To begin with this post will consider the meaning of implementing EU law and the problems with this concept after the Charter entered into force. It shall then discuss the case of N.S. and its implications for the meaning of implementing EU law.

Prior to the Charter, implementing EU law referred to an ‘agency situation’: the EU confers a power onto a Member State to introduce EU secondary legislation into national law. Implementing was the giving of ‘hands and feet’ to EU law in order for it to become effective.[vi] This included the application or execution of a regulation,[vii] the transposition of a directive,[viii] and the application of a directive through an executive act.[ix] The existence of Member State discretion was also not considered fatal to the ‘agency’ relationship. This is evident in Wachauf where the Member State had the option under Regulation 1371/84 whether or not to grant compensation to the individual. This notion of implementing, as an agency situation, shall be used throughout this post as a benchmark against which to measure changes in the concept.

The Charter has called into question this established meaning of implementing EU law. This is due to the complex interplay between the Charter and the Explanations relating to the Charter[x] which are to be given ‘due regard.’[xi] Article 51(1) of the Charter states that fundamental rights are binding on Member States “only when they are implementing Union law.” This would place a clear limit on the scope of EU fundamental rights, if it was not for the Explanations. These state that “it follows unambiguously from the case-law of the Court of Justice” that Member States are bound by fundamental rights “when they act within the scope of EU law.” This introduces a difficult conflict between two alternatives. The first option is to ignore the explicit wording of the Charter and follow the Explanations, attributing to implementing EU law the meaning of ‘within the scope of EU law.’[xii] This would dramatically alter the meaning of the concept. The second option is to rely on the express wording of the Charter and take this as a limit to the scope of fundamental rights.[xiii]

N.S. is one of the first cases to discuss what is meant by implementing EU law after the Charter. In N.S., the appellant was Afghan national who claimed asylum in the United Kingdom, but had been arrested in Greece whilst traveling there. The United Kingdom had successfully requested that Greece take responsibility for the applicant’s claim under the Common European Asylum System. Upon hearing of his transfer the appellant appealed and requested that the Secretary of State exercise her option to accept responsibility for his claim on the basis that transfer to Greece would violate his fundamental rights under European Union law amongst other provisions. The option concerned was contained in Article 3 of Regulation No 343/2003 which provides:

“1. Member States shall examine the application of any third-country national who applies at the border or in their territory to any one of them for asylum. The application shall be examined by a single Member State, which shall be the one which the criteria set out in Chapter III indicate is responsible.

“2. By way of derogation from paragraph 1, each Member State may examine an application for asylum lodged with it by a third-country national, even if such examination is not its responsibility under the criteria laid down in this Regulation. In such an event, that Member State shall become the Member State responsible within the meaning of this Regulation and shall assume the obligations associated with that responsibility…”

The question referred asked whether the exercise of this discretion was ‘implementing’ EU law under Article 51(1) of the Charter. The Court confirmed that it was.[xiv] Several Member States had tried to argue that the option in Article 3(2) was a ‘sovereignty clause’ and thus outside the scope of EU law. The Court rejected this reasoning, holding that the option is “an integral part of the Common European Asylum System”[xv] and that its exercise “gives rise to specific consequences provided for by that regulation.”[xvi] The provision thus “forms part of the mechanisms for determining the Member State responsible for an asylum application provided for under that regulation and, therefore merely an element of the Common European Asylum System.”[xvii] There are several implications which flow from this judgment.

The first point to note is that ‘implementing’ is not equated with ‘within the scope of EU law’ in this case. A dramatic shift in meaning cannot thus be identified yet. This development cannot be categorically ruled out in the future but a better test case, where a Member States seeks to restrict a fundamental freedom, would be necessary. There is, however, a clear attempt by the Court and the Advocate General to fit the case within an ‘agency situation’. Advocate General Trestenjak clearly aligns the meaning of ‘implementing’ with its pre-Charter meaning when stating that “in the light of the Wachauf case-law,” it is “a national implementing measure.” Similarly, the Court stressed that the decision is an element of the Common Asylum System, giving rise to the specific rights and duties of this system. Emphasising the extent of integration with the system is arguably a method of demonstrating that the Member State is applying a provision of EU law. If the meaning of ‘implementing’ EU law was much broader than before then there would be no such need to stress the relationship between this situation and the existing case law.

A second point relates to whether the exercise of all options in secondary legislation will come within implementing EU law as defined by the Court in N.S. The Court in N.S. seems to rely on several specific factors related to the option that brings it within the meaning of implementing. To demonstrate the potential effect of this a contrast may be drawn with Chakroun[xviii] which commentators have referred to as an instance of derogating from EU law.[xix] Chakroun concerned the implementation into national law of a provision in Directive 2003/86 which governed the conditions for the exercise of the right to family reunification for third-country nationals who are lawfully resident in the territory of a Member State. Under the Directive authorisation of family reunification was the general rule,[xx] however, there was also the option for the Member State to require evidence of the sponsor’s resources. The Court held that the exercise of this option must be interpreted strictly and should be interpreted in the light of fundamental rights.[xxi] The situation in Chakroun differs slightly from that of N.S. in that the option is to limit an individual right to family reunification granted by Directive 2003/86. It may be on this basis that Chakroun has been considered a derogating situation since in cases such as N.S. and Wachauf the options are to allocate responsibility and increase protection through the grant of compensation. It was never made explicit whether the situation Chakroun was considered implementing under Article 51(1) of the Charter. The facts arose before the Charter came into force and so it is possible that the Charter was not determinative in this case. If so, then it is possible that after N.S. an optional provision which does not give rise to specific consequences and is not an ‘integral part’ of the field it operates in but instead limits an EU right may not be considered ‘implementing’ under Article 51(1).

This post has tried to summarise the uncertainties surrounding the meaning of implementing EU after the Charter entered into force and whether it still refers to an agency situation. It then considered the case of N.S. which explicitly considers the meaning of implementing EU law. It may be concluded that N.S. does not suggest a radical change in the meaning of ‘implementing’ EU law. A test case where the Member State attempts to derogate from the fundamental freedoms would be necessary in order to fully assess this, but the Court clearly tries to fit the situation in the Wachauf-line of case law. It remains to be seen however whether the decision in N.S. now introduces a distinction between the exercise of optional clauses to limit individual rights and other optional clauses. The case of Chakroun was not clearly decided under the Charter and so there is the need for another similar case to arise in order to test this proposition.

[i] 5/88 Wachauf [1989] ECR 2609 at para 19

[ii] C-368/95 Vereinigte Familiapress Zeitungsverlags-und Vertriebs GmbH v Heinrich Bauer Verlag [1997] ECR I-3689 C-260/89 Elliniki Radiophonia Tileorassi [1993] ECR I-2925

[iii] C-309/96 Annibaldi [1997] ECR I-7493

[iv] Article 6(1) TEU 1992

[v] Joined cases C-411/10 and C-493/10 NS and others Judgment of the Court (Grand Chamber) of 21 December 2011 nyr

[vi] L.F.M. Besselink, ‘The member States, the national Constitutions and the scope of the Charter’ 1 8 Maastricht Journal 68

[vii] Joined Cases 201/85 and 202/85 Klensch and Others [1986] ECR 3477 C-384/05 Piek [2007] ECR I-289 Wachauf

[viii] Joined Cases C-20/00 and C-46/00 Booker Aquaculture [2003] ECR I-7411

[ix] Case C-28/05 Dokter [2006] ECR I-5431

[x] C 303/17 Explanations Relating to the Charter of Fundamental Rights OJ (2007/C 303/02)

[xi] Article 52(7) Charter of Fundamental Rights

[xii]See the Opinion of Advocate General Bot in Case C-108/10 Ivana Scattolon v Ministero dell’Istruzione, dell’Università e della Ricerca [2011] ECR I-00000

[xiii] See Francis G. Jacobs, ‘Human rights in the European Union: the role of the Court of Justice’ [2001] European Law Review 331

[xiv] Ibid para 69

[xv] Ibid at para 65

[xvi] Ibid at para 67

[xvii] Ibid at para 68

[xviii] C-578/08 Rhimou Chakroun v Minister van Buitenlandse Zaken [2010] ECR I-01839

[xix] Filippo Fontanelli, ‘The European Union s Charter of Fundamental Rights Two Years Later’ (2012) Perspectives on Federalism, Vol 3, No 3, 2011 Catherine Barnard, ‘The EU Charter of Fundamental Rights: Happy 10th Birthday?’ 24 EUSA Review 5

[xx] Ibid para 43

[xxi] Ibid paras 43-44

 

 

Developments in the case law of the CJEU (2010-2011): Human Rights and the Scope of EU Law

Eleni Frantziou, LLM 

LLM, College of Europe; LLB, King’s College London

Stagiaire, Chambers of Judge Schiemann, Court of Justice of the European Union

 

Introduction

The solemn proclamation of the Charter of Fundamental Rights a decade ago sparked an interesting debate on whether the European Union was or could be an organisation that respected and protected fundamental rights in its own right[i]. In that regard, von Bogdandy had influentially argued that

“the human rights jurisprudence is the least “autonomous” part of the supranational legal order. […] Major changes in Union law must occur if it is to change into a legal order that places human rights or the citizen at its center.”[ii].

The two years following the entry into force of the Lisbon Treaty witnessed a number of judicial developments in EU law. It will be argued that the seeds have now been sown for the Union to move away from its ‘market values’ construction towards a more complete constitutional system, where fundamental rights play an active role.

By drawing on three main themes, starting from equality in section II and moving to citizenship and the right to family life (section III) and immigration (section IV), this paper seeks to demonstrate how the Court’s case law in 2010-2011 has extended the scope of EU law to encompass the autonomous protection of fundamental rights. In other words, it will attempt to evaluate to what extent fundamental rights have become part of the Union’s own “constitutional charter”[iii] in the post-Lisbon era.

Equality

The principle of equality – the ‘holy grail’ of EU fundamental rights case law – was given an interesting twist in one of the first eye-catching cases of 2010, Kücükdeveci v Swedex[iv].  The case concerned discrimination on grounds of age. Ms. Kücükdeveci had been dismissed by Swedex, a private company, on a month’s notice after ten years of service. Although the German Civil Code (GCC) would normally have provided for four months’ notice before dismissal, periods of employment before the age of 25 were excluded from this calculation (622(2)GCC). Ms. Kücükdeveci claimed discrimination on grounds of age, contrary to Article 1 of the Framework Equality Directive[v].  It is elementary EU law that directives do not enjoy horizontal direct effect[vi]. Nevertheless, in sweeping constitutional terms, the CJEU proclaimed:

“it is the general principle of European Union law prohibiting all discrimination on grounds of age, as given expression in Directive 2000/78, which must be the basis of the examination of whether European Union law precludes national legislation such as that at issue in the main proceedings.”[vii]

As  Advocate General Bot remarked, the Court was faced with the question of “whether the designation of rights guaranteed by directives as fundamental rights does or does not strengthen the right to rely on them in proceedings between private parties.”[viii] The case suggests that the Court is eager to assume a wider jurisdiction where the Union’s constitutional commitments as regards the protection of fundamental rights are concerned, even in situations which would have otherwise fallen outside the scope of EU law[ix]. Thus, Kücükdeveci extends the scope of application of EU law at least to secondary legislation which is rooted in the general principles jurisprudence and reaffirms the primacy of the ‘Union standard’ in the field of fundamental rights[x]. The implications are striking.  As Peers persuasively puts it:

“it would be absurd to privilege one particular aspect of the right to non-discrimination over other aspects of that right, other social rights, or other human rights, and so the principle should logically apply whenever any general principle of EU law, as regards human rights protection, is sufficiently connected to the application of an EU Directive. The rationale for privileging human rights as a whole over other rules and principles as regards their legal effect is simply that […] human rights have primacy in the hierarchy of the primary law of the European Union.”[xi]

Indeed, the ‘Kücükdeveci effect’, as one commentator called it[xii], has not (yet) come to an end. The Court has reaffirmed its validity in a recent case decided by the Grand Chamber[xiii]. Finally, its Advocates General have made a strong case for the constitutionalisation of the ruling insofar as it calls for the effective use of new Treaty provisions and the Charter[xiv].

Citizenship and the right to family life

In March 2011, the Court rendered one of the most controversial judgments in its recent history, Zambrano[xv]. The Court was faced with the situation of a Colombian asylum seeker who had been refused refugee status as well as a permanent work permit in Belgium. Two of his children were Belgian nationals, therefore enjoying Union citizenship. Mr Zambrano argued that the refusal of his work permit would force him to emigrate, which, in turn, would deprive his children of effective use of their EU citizenship and violate their fundamental rights, contrary to Articles 18, 20 and 21 TFEU[xvi] and Articles 7, 21 and 24 of the Charter[xvii].  The Court agreed:

“article 20 TFEU precludes national measures which have the effect of depriving citizens of the Union of the genuine enjoyment of the substance of the rights conferred by virtue of their status as citizens of the Union (see, to that effect, Rottmann, paragraph 42[xviii]). A refusal to grant a right of residence to a third country national with dependent minor children in the Member State where those children are nationals and reside, and also a refusal to grant such a person a work permit, has such an effect”[xix].

Thus, the Court reaffirmed that “citizenship of the Union is intended to be the fundamental status of nationals of the Member States”[xx]. In addition, the citizenship rights of Mr. Zambrano’s children were found to be potent enough to keep their parents in the Union even though the citizens themselves had never exercised their free movement rights. Thus, the Court essentially decided that citizenship of the Union is capable, in and of itself, under certain circumstances, of founding (and winning) a claim before the Court.

Zambrano can be seen as representing ‘a permanent move beyond the confines of “market citizenship”’[xxi] and towards the concept of ‘EU citizenship as such’ as a trigger for the application of EU law[xxii]. As AG Sharpston put it:

“from the moment that the Member States decided to add, to existing concepts of nationality, a new and complementary status of ‘citizen of the Union’, it became impossible to regard such individuals as mere economic factors of production. Citizens are not ‘resources’ employed to produce goods and services, but individuals bound to a political community and protected by fundamental rights” [xxiii].

Nonetheless, the Court, perhaps alarmed by the degree of disapproval following its ruling, was sceptical about applying it in the follow-up cases of McCarthy[xxiv] and Dereci[xxv], holding that the mere fact that a citizen may prefer that his family members should stay in the Union cannot constitute sufficient proof, if their stay is refused, of an effective deprivation of citizenship or of a violation of fundamental rights[xxvi]. It therefore seems that, for the time being, Zambrano has been restricted from a factual perspective. However, the decision that lack of an inter-state element can no longer ipso facto disqualify citizenship cases from falling within the scope of the Treaty, remains good law.

Asylum and immigration – N.S.: the Court’s swan song for 2011

In December 2011, the Court of Justice rendered its ruling in the long-awaited case of N.S.[xxvii] The case concerned a number of illegal immigrants who had applied for asylum in the UK. When the authorities attempted to send them back to the country of first entry, Greece, in order for their applications to be processed in accordance with the Dublin II Regulation[xxviii], the applicants claimed that, if returned, they would likely be subjected to inhuman and degrading treatment as well as a series of other human rights violations. The CJEU was asked, inter alia, to determine whether the general principles of European law and the rights enshrined in Articles 1, 4, 18 and 47 of the Charter of Fundamental Rights[xxix] offer a protection wider than that afforded by Article 3 ECHR[xxx]. The case differs from Kücükdeveci and Zambrano in that the applicability of EU law was not challenged. However, it is important as regards the lens through which the Court looks at human rights claims and their place in the Union’s constitutional hierarchy.

The Court decided that the interpretation of the rights in question under the Charter would not be different than that of the ECHR in the case at issue[xxxi]. However, and quite strikingly, it employed its own standard of protection[xxxii]. The Advocate General, who was followed by the Court, argued in clear terms that the Court is free, under the Charter, to provide more extensive protection than the ECHR[xxxiii]. Although she stressed the importance of the Convention in the interpretation of Union rights under the Charter, she went on to argue that this cannot undermine the intellectual autonomy of the CJEU regarding the reach of Union rights, particularly in view of the fact that ECtHR judgments:

“essentially constitute case-specific judicial decisions and not the rules of the ECHR themselves, and it would therefore be wrong to regard the case-law of the European Court of Human Rights as a source of interpretation with full validity in connection with the Charter[xxxiv].”

As to the substance, the Court held that an individual assessment of potential human rights violations is required by primary Union law, even if that would essentially contravene the mutual recognition rules agreed by the Member States under Dublin II[xxxv]. Thus, the N.S. case is a clear indication to the effect that a) the standard of protection of fundamental rights under the Union’s Charter is changing into a non-negotiable obligation for the Member States, even in the most sensitive areas of EU law, and b) the CJEU will only accept unchanged the standards set by the ECtHR as long as it considers them acceptable for the Union legal order, rather than the other way around. Although the judgment still awaits further development through the case law, it is in harmony with the trend of placing increasing protection on fundamental rights and is heavily reminiscent of the Kadi saga[xxxvi], where the Court emphasised that:

“the Community judicature must […] ensure the review, in principle the full review, of the lawfulness of all Community acts in the light of the fundamental rights forming an integral part of the general principles of Community law”[xxxvii].

It remains to be seen whether the Court will eventually proclaim the independence of the Union’s fundamental rights system, thus answering the “federal question” in the affirmative[xxxviii]. To that end, it is worth noting that the CJEU recently ruled against the direct application of ECHR provisions in the EU[xxxix], suggesting that the only human rights list enjoying Treaty status and, consequently, direct effect in the Member States is the Charter of Fundamental Rights[xl].

Concluding remarks: Two years of reform?

The three cases cited in this paper have illustrated the willingness with which the CJEU has assumed a wider scope for adjudicating in the vast spectrum of human rights claims. Fundamental rights have gradually become part and parcel of European Union law, initially respected, then protected and nowadays even asserted, qua general principles and through the Charter, against market values. As some commentators have argued, in a time of crisis for the Union’s ‘old ideals’, strong liberal democratic principles and an express commitment to the protection of human rights now form an integral part of the EU’s normative foundations[xli].

The care that the Court has taken in the last two years to ensure the uniform and autonomous application of fundamental rights throughout the Union, irrespective of the existence of a traditional EU law setting, signals a ‘constitutionalisation’ of rights which is single-handedly carrying through the polity-building process initiated by the Lisbon Treaty[xlii]. The Union has come a long way from the debate this paper started with. Time will show whether the edifice will ever be completed.

 

[i] See for example J. Enninger, “Menschenrechte und Staatsaufgaben – ein europäisches Thema” (1996) JZ, 585; I. Pernice, “Eine Grundrechts-Charta für die Europäische Union” (2000) DVBl. 847; P. Eeckhout, “The EU Charter of Fundamental Rights and the Federal Question” (2002) 39 CMLRev.,945.

[ii]A. von Bogdandy, “The European Union as a human rights organization? Human rights and the core of the European Union” (2000) 37 CML Rev., 1307, 1333.

[iii] Case 294/83 Les Verts v Parliament  [1986] ECR 1339, paragraph 23

[iv] Case C-555/07 Kücükdeveci v Swedex GmbH [2010] ECR I-00365.

[v] Council Directive 2000/78/EC of 27 November 2000 establishing a general framework for equal treatment in employment and occupation [2000] OJ L 303/16.

[vi] Case C-91/92 Faccini Dori [1994] ECR I-3325, paragraph 20.

[vii] Kücükdeveci, supra n. 4, paragraph 27 (emphasis added).

[viii] Opinion of Advocate General Bot, delivered on 7 July 2009, in Kücükdeveci, supra n. 4paragraph 90.

[ix] Editorial Comment,  “The Scope of Application of EU law. An Even Expanding Union?” (2010) 47 CMLRev.,1589, 1593.

[x] M. Dougan, “When Worlds Collide! Competing visions of the Relationship between direct effect and supremacy” (2007) 44 CMLRev 931.

[xi] S. Peers “Supremacy, Equality and Human Rights: Comment on Kücükdeveci (C-555/07)” (2010) E.L.Rev., 849, pp.855-6 (emphasis added).

[xii] E.Muir, “Of Ages In – And Edges Of- EU law” (2011) 48 CMLRev 39, 60.

[xiii] Case C-447/09 Prigge and Others v Deutsche Lufthansa, judgment of 13 September 2011, nyr, paragraph 38; Joined cases C-297/10 and C-298/10 Hennigs v Eisenbahn-Bundesamt, Land Berlin v Mai, judgment of 8 September 2011, nyr, paragraph 47.

[xiv] Opinion of AG Cruz Villalòn in Prigge, ibid., delivered on 19 May 2011, paragraph 26; See also: Opinion of Advocate General Cruz Villalòn, delivered on 5 may 2010 in Case C-515/08 Santos Palhota, judgment of 10 October 2010, nyr, paragraph 53; Opinion of Advocate General Kokott, delivered on 30 September 2010, in Case 236/09 Association Belge des Consommateurs Test-Achats and Others, paragraphs 26-28.

[xv] Case C-34/09 Zambrano v Office national de l’emploi, judgment of 8 March 2011, nyr.

[xvi] No discrimination on grounds of nationality, Union citizenship and citizens’ right to move and reside freely in the Union, respectively.

[xvii] Respect for private and family life, non-discrimination and the protection of children, respectively.

[xviii] Case C-135/08 Janko Rottmann v. Freistaat Bayern, judgment of 2 March 2010, nyr.

[xix] Zambrano, supra n. 15, paragraphs 42-43 (emphasis added).

[xx] Zambrano, supra n. 15, paragraph 41; Case C-184/99 Grzelczyk [2001] ECR I‑6193, paragraph 31; Case C-413/99 Baumbast and R [2002] ECR I-7091, paragraph 82; Garcia Avello, ibid., paragraph 22; Cf. Case C-200/02 Zhu and Chen [2004] ECR I‑9925.

[xxi] K. Hailbronner and D. Thym, “Annotation of Case C-34/09” (2011) 48 CMLRev 1253., 1269

[xxii] Ibid., at 1263

[xxiii] Opinion of AG Sharpston, delivered on 30 September 2010, in Zambrano, supra n. 18, paragraph 128.

[xxiv] Case C-434/09 McCarthy v Secretary of State for the Home Department, judgment of 5 May 2011, nyr.

[xxv] Case C-256/11 Dereci and others v Bundesministerium für Inneres, judgment of 15 November 2011, nyr.

[xxvi] Ibid., paragraphs 66-68.

[xxvii] Joined Cases C-411/10 and C-493/10 N.S. and others, judgment of 21 December 2011, nyr. (The case is  also commonly referred to as “Saeedi” in the UK).

[xxviii] Council Regulation (EC) No 343/2003 of 18 February 2003 establishing the criteria and mechanisms for determining the Member State responsible for examining an asylum application lodged in one of the Member States by a third-country national.

[xxix] Right to dignity, right not to be subjected to torture and inhuman or degrading treatment or punishment, right to asylum and right to a fair hearing, respectively.

[xxx] Right not to be subjected to torture and inhuman or degrading treatment or punishment.

[xxxi] N.S., supra n. 29, paragraph 115.

[xxxii] Ibid., paragraphs 111- 113. The ECtHR had reached a very similar decision earlier in 2011 in M.S.S v Belgium and Greece (Application no. 30696/09), where, under similar circumstances, Belgium had returned an asylum seeker to Greece. Contrary to previous rulings in that regard, the ECtHR held that Article 3 ECHR had been violated.

[xxxiii] Opinion of AG Trstenjak, delivered on 22 September 2011, in N.S., supra n. 29, paragraphs 142-148.

[xxxiv] Ibid., paragraph 146. See also: Opinion of Advocate General Maduro, delivered on 9 September 2008 in Case C-465/07 Elgafaji [2009] ECR I-921, paragraph 23.

[xxxv] N.S., supra n. 29, paragraph 94. It is worth noting that the Court also emphasised the constitutional nature of human rights in the EU and affirmed that the Charter is applicable in the UK.

[xxxvi] Joined Cases C-402/05 P & C-415/05 P Kadi and  Al
Barakaat International Foundation v Council and Commission [2008] ECR I-6351.

[xxxvii] Ibid., paragraph 326.

[xxxviii] Eeckhout, supra n. 1.

[xxxix] Case C-571/10 Kamberaj, judgment of 24 April 2012, nyr, paragraph 63.

[xl]  L. Ankersmit, “Case C-571/10 Kamberaj: the Charter and not the ECHR has effect in Member States’ legal orders”, European Law Blog, 26 Aprill 2012, available at: http://europeanlawblog.eu/?tag=c-57110-kamberaj (accessed on 26 April 2012). Of course, the Convention will be applied to the extent that the Charter adopts and extends the rights enshrined therein (Article 52(3) Charter).

[xli] T. Chopin and C. Lequesne, « 20 ans après la chute du mur de Berlin, la liberté, nouveau récit commun de l’Europe?», in M. Foucher and T. Chopin (eds), Rapport Schuman sur l’Europe: L’Etat de l’Union européenne 2010, Paris: Lignes de Repères, 2010, 43, pp.47-50; Opinion of Advocate General Sharpston delivered on 30 September 2010 in Zambrano, supra n. 15, paragraph 165.

[xlii] P.Maduro, ‘The Double Constitutional Life of the Charter of Fundamental Rights of the European Union’, in T.K. Hervey and J. Kenner (eds.), Economic and Social Rights under the EU Charter of Fundamental Rights, Hart Publishing: Oxford, 2003, 269.

 

A Prosecutorial Model could lead to a more Efficient Enforcement of Article 101 TFEU in Cartel Cases

Andrea Usai

PhD Candidate in EU Law, University of Bologna-Université de Strasbourg; LLM in EU Competition Law, King’s College London

 

Introduction

This article seeks to contribute to the ongoing debate on whether a separation of powers between the prosecutorial and the adjudicative functions, which are now both held by the European Commission (“EC”), could entail a more efficient enforcement of Article 101 of the Treaty on the Functioning of the European Union (“TFEU”) in cartel cases. In the first part it will be explained how the procedure works and then why the current concerns regarding fairness could jeopardize efficiency. Indeed, although the scope of this paper is not of going deeply into the alleged lack of fairness in the Enforcement System, it is important to understand that the debate on fairness could affect efficiency.

However, should it be discovered that there could be fairness concerns, would it be acceptable to have a fair system which is not efficient? In other words, are we sure that a prosecutorial model can foster efficiency? Is there any risk that a reform will make the system worse off? The literature is mostly concerned about fairness. In this paper it is argued that a prosecutorial model can be more efficient than an administrative one. Indeed, efficiency means fewer costs and more benefits. Deterrence can be fostered together with the credibility of the whole system. The possibility of having wrong decisions can be drastically reduced and the risks of bias in the decision-making process completely avoided.

Therefore it analyses, in the light of what the game-theory calls the cut-off strategy, whether the current structure of the system can be considered as efficient enough. After taking into account the risks of too long proceedings and bias in the decision-making process that seem to be typical of the administrative model, it will be shown how the judicial review can be fostered if the EC acts as a prosecutor before a specialized Competition chamber within the General Court (“GC”).

1. How the procedure works

According to the procedure laid down in Reg. 1/2003, the EC’s procedure usually starts with the Statement of Objections (“SO”), which contains all the elements of facts and law against the alleged anticompetitive agreement. Indeed, the SO is drafted by the members of Directorate General Competition (“DGCOMP”) and it is reviewed by the Legal Service, by an economist, the Director and the Director General and the Cabinet of the Commissioner for Competition. Afterwards, the undertakings, which are addressees of the SO, can make written replies and have a right to ask for an oral hearing.[i] Usually, the officials who drafted the SO take part in the hearing together with some of the other officials already involved.[ii] After the hearing takes place, the same officials who wrote the SO will write the decision.[iii] At this stage of the proceedings, as regards cartel cases, there is normally no peer review examining the case. The decision is commented on by the Advisory Committee, which brings together competition experts from the Member States. In the end, the Competition Commissioner proposes it to the other Commissioners. In fact, formally speaking, the final decision is taken by the Commissioners and takes the form of a Commission’s decision. To put it differently, it seems clear that the same officials both write the SO and draft the final decision.

As it has already been stressed, the scope of this paper is not to go deeply into the concerns regarding fairness, which have been raised by scholars and practitioners. There is still a big debate between those who argue that the system is fair and those who firmly believe that it is not fair at all. Indeed, it is claimed that although fairness is very important, the enforcement of competition law, especially in cartel cases, should focus primarily on efficiency[iv] in order to protect consumers and to guarantee the proper functioning of the Internal Market.

2. Efficiency

It can be certainly argued that an eventual structural reform, in order to be deemed to foster efficiency, should first of all not entail any loss of effectiveness when enforcing Art. 101 TFEU. Even more, an eventual reform should entail further benefits and diminish the current costs that can be eliminated. In other words, the big radical structural reform that this paper suggests should guarantee effectiveness and foster efficiency. Indeed, if it could be proved that an adversarial model could be more efficient in cartel enforcement proceedings, the debate regarding fairness could be read from a different point of view. As long as the separation of the three functions[v] now held by the EC can provide for an efficient system saving time and money and providing for better outcomes, there would be no reason to speak about fairness and due process in Competition Law proceedings.

To begin with, it should be pointed out what efficiency means. Efficiency is usually maximised when it is possible to have fewer costs. What does ‘fewer costs’ mean? It means to save time and money and to provide for tools that reduce the risks of bias, the risks of inaccurate decisions and the risk of having too many cartels which are not detected or not punished properly. Moreover, ‘fewer costs’ also means diminishing the risk of having a non-credible system. Then, efficiency must necessarily mean more benefits. To be more explicit, it means faster proceedings, less costly procedures, more objectively taken decisions, more accurate decisions and maximisation of the number of cartels which are detected and punished. Efficiency means also fostering deterrence and the credibility of the system. Moreover, the understandable concerns about efficiency should also take into account the most efficient way to get a more efficient system. In other words, the structural reform that could be done in the fastest and easiest way should be preferred. In the EU, this would be reformation without going through the Treaty amendment procedures. In this case, it is argued that it would be possible to use Art. 103 (1) TFEU.[vi]

Furthermore, one way to foster efficiency is to act strategically.[vii] Sometimes it could be in a player’s interest to reduce his own freedom of future action and to create a non-return situation, an emergency situation. For instance, this strategy was taken by Cortés who burned his own ships after his arrival in Mexico. He deliberately eliminated the option of going back to Spain. Without ships to sail back home, Cortés made it clear to his crew that they could either fight and destroy their enemies or perish. No matter that his soldiers were enormously outnumbered. This strategy, which at the beginning scared his army and risked mutiny, was the best solution. In fact, Cortés put himself and his crew in an urgent and one-way situation. They could not fail. Failure would have certainly meant death. Indeed, they did not fail. They fought and they won. This is to demonstrate that, in order to work out what is best, it is often a good strategy to cut off all the different options that you have but one.

Game Theory can be very helpful in our analysis. In order to foster efficiency in antitrust proceedings regarding cartels cases enforcement, there are good arguments in favour of a separation of the investigative, prosecutorial and adjudicative functions, at the present held by the EC. It seems to be arguable that if the EC cuts off its adjudicative option, leaving it to the Courts, the whole system can be made better off. This is the background of our legal and economic analysis. However, as it does not seem to be the case of giving things for granted, this paper will look at the length of the proceedings and at how the judicial review works from an efficiency point of view.

2.1. Length of the proceedings[viii]

The first cluster of criticisms deals with the length of the proceedings. In fact, as it has already been pointed out, one of the alleged advantages of the current system is that an administrative model can lead to efficiency because it provides for faster proceedings. Moreover, according to the statistics and to the problems that are usually dealt with in the national legal systems, one of the main issues regarding the administration of justice is the delays that cases encounter when they get stuck in the Courts. As it seems to be clear from the statistics regarding the Courts, the delays of the cases are mainly at the level of the GC. In fact, the average[ix] of the length of the proceedings was 40 months at the level of the GC and 35 months at the level of the European Court of Justice (“ECJ”) between 2000 and 2005. Then, between 2006 and 2010 the average goes up significantly to 54 months at the level of the GC and down to 25.5 at the level of the ECJ.

These data show two main issues: the first one is, as it has already been pointed out, that the delays concentrate at the GC level. Therefore, an eventual reform should take into consideration a solution which would be able to reduce these delays. Secondly, they show that a huge percentage of cases go on appeal before the Courts. The ease with which appeals can be brought and the fact that neither the GC nor the ECJ can substitute the EC’s decision with their own decision, as it is possible in the UK, can jeopardise efficiency.

This paper argues that also the length of the proceedings before the Commission is relevant. The average of the length of the proceedings is between one and two years from the issuing of the SO and the adoption of the final decision. In this case too, a prosecutorial model could make the system better off as there would be no issuing of the SO, no oral hearing before the Hearing Officer, no internal debate with checks and balances and no draft and final decision. There would be no supplementary SOs and remittals from the Court to the Commission. In a prosecutorial model there would be the EC acting as a prosecutor concerned about preparing its strong case to be brought before the Court. Indeed, it would be possible to save time and it would be likely that the number of cases going on appeal will be reduced, either because the cases that the EC will bring will be much stronger or because there will be more settlements as it happens now in the US.

2.2. Judicial review

One of the key issues of the current system is what happens if the reviewing court finds fault with the decision. At the present, the EU system provides for Courts that can only annul the decision but they cannot themselves take a new one substituting their decision for the EC’s. Indeed, the EU model works very differently if compared to the UK model, where the Competition Appeal Tribunal can substitute its decision for the Office of Fair Trading one. In fact, this paper argues that the GC does not exercise extensive review and that therefore it does not have full jurisdiction. The EU courts are allowed only to review the manifest errors.[x] Indeed, the GC exercises self-restraint when it comes to “complex and factual economic assessments”. Moreover, It does not use properly its unlimited jurisdiction on fines[xi]. This paper argues that the GC and the ECJ do have unlimited jurisdiction as regards fines and penalties but they lack it when it comes to facts. This problem is brilliantly emphasised in a recent case[xii] where even though the Commission had found a single and continuous agreement in the Belgian removals sector, the GC found that the applicant had participated in only part of the practices. Therefore, the GC, not being able to substitute its decision for the EC’s, had to annul the decision entirely. The likely result will be that the EC will have to readopt a new SO and a new decision and a second round of judicial review.

Another key issue is whether the Courts defer to the EC’s decisions. It is important to go deeply into this point, because it seems to be that not only do the Courts have no full judicial review which contributes to render the system inefficient, but they defer to the EC’s decisions. This paper suggests that the alleged deference of the Courts should be resolved by reforming the structure of the enforcement system. It seems to be arguable that a prosecutorial model would be much more efficient from the Courts’ perspective, as they would be given the possibility of taking the final decision. To put it differently, this paper suggests that even though it might be argued that the Courts could do their job better, the answer to this criticism stays in the reform itself. A better job could be done only if a chamber with full review is established within the GC and the EC acts as a prosecutor before it.

Moreover, it might be argued, as many practitioners do, that the risk of having a prosecutorial model is that judges are not well trained in Competition Law (such as in Ireland), instead of a strong tradition of judges deciding antitrust cases, as in the US. In other words, the risk would be that judges are not as prepared as the EC’s officials are. However, this would not be the case. First of all, because there are already EU judges who are experts in Competition Law. Secondly, it would always be possible to use Article 255 TFEU in order to make sure that there will be judges well trained in Competition Law.

The idea of establishing a specialised chamber of Competition Law cases within the GC and using Art. 255 TFEU can function well in the current system too. Indeed, Art. 255 TFEU is already being used. However, it is argued that an administrative system with a specialised chamber and with Art. 255 TFEU fully applied would not be optimal, from an efficiency perspective, for the abovementioned reasons. A prosecutorial model could entail more efficiency. It could reduce the length of the proceedings, both at the Courts’ and at the EC’s level, apply the “cut-off” strategy, and reduce the risks of bias in the decision making process. Moreover, once a prosecutorial model is established, a specialised chamber within the GC would avoid the risk of having bad outcomes.

Conclusions

It seems to be clear that, for the abovementioned reasons, a prosecutorial model would entail a much more efficient enforcement in cartel cases. Firstly, because of the fact that the length of the proceedings could be drastically reduced at the Courts’ level and at the Commission’s level. Secondly, the system could be made better off with providing for a specialised chamber within the GC and giving this chamber the possibility of having unlimited jurisdiction on facts too. In this way, the new Competition Chamber would be able of taking the final decision. Moreover, it should be pointed out that a prosecutorial model should not diminish the deterrent effect of the fines and of the new settlements procedures.[xiii]

[i] The Hearing allows the addressees of the SO to present their defense arguments not just on procedure but also on substance. However, the final report of the Hearing Officer is on procedure only.

[ii] See J. Temple Lang, “Three possibilities for reform of the procedure of the European Commission in Competition cases under Reg. 1/2003, in Carl Baudenbacher (Ed.) “Current Developments in European and International Competition Law” (ICLF 2010) presented at the 17th St. Gallen International Competition forum Helbing Lichtenhahn, Basel 2011, Vol. 12

[iii] Ibid.

[iv] In this case, as it is possible to understand from the debate about fairness and due process, those who argue that the system is not fair, argue in favour of a prosecutorial model in order to comply with the European Convention of Human Rights criteria. This paper points out that, regardless of fairness and due process, a prosecutorial model can be much more efficient from different perspectives.

[v] As it has already been pointed out, the scope of this article is not to go deep into the issue of fairness, it could be argued that the fact in itself that the debate continues is jeopardising efficiency as it increases the already high likelihood of going on appeal and it contributes to diminish deterrence and the credibility of the system. See Alec Burnside, “Mario Monti should not be judge and jury”, Financial Times, 21 October 2002, p 17; and “Enforcement of Competition Law in Europe is unjust and must change”, The Economist, 18 February 2010.

[vi] Article 103 (1) reads as follows: “The appropriate regulations or directives to give effect to the principles set out in Articles 101and 102 shall be laid down by the Council, on a proposal from the Commission and after consulting the European Parliament”.

[vii] See A. Dixit and B. Nalebuff. “Thinking strategically. The Competitive Edge in Business, Politics and Everyday Life”. (New York: W.W. Norton & Company, 1991)

[viii] According to the recent developments of the European Courts’ case law, it could be argued that the length of the proceedings both before the Courts and the Commission is problematic also as regards fairness.

[ix] See D. Gerard, “Judicial Review of Cartel Decisions”, in Mario Siragusa and Cesare Rizza, eds., EU Competition Law, Vol III. Cartel Law: Restrictive Agreements and Parctices between competitors, Claeyes and Casteels, 2007, Chapter 5

[xi] Ibid.

[xii] Case T 210/2008, Coppens v Commission, par 36

[xiii] For a detailed analysis of the issues, see W. Wils, “The Use of Settlements in Public Antitrust Enforcement: Objectives and Principles” (2008) 31 (3) World Competition; See also W. Wils, “Optimal Antitrust Fines: Theory and Practice” (2006) 29(2) World Competition; See also  W. Wils, “Leniency in Antitrust Enforcement: Theory and Practice” (2007) 30 (1) World Competition

Recent developments on the EU Commission’s proposal for a ‘[T]obin Hood’ Tax

Jose Manuel Panero Rivas, LL.M

MA in Economics for Competition Law candidate, King’s College London

 

The discussions held on the possibility of introducing an EU-wide Financial Transactions Tax (‘FTT’) [i] is one of the most interesting political battles taking place in Brussels in recent times (and there have been some). While certain Member States defend the introduction of such a tax at EU level – and some of them have even gone as far as announcing the unilateral introduction of similar taxes – other Member States fiercely oppose it.[ii]. In their turn, the European Commission and the European Parliament seem to strongly support the novel instrument.

It should be recalled that on 28 September 2011, the European Commission submitted to the Council a proposal of Directive for introducing an EU-wide tax on financial transactions (‘the Proposal’). [iii]

Some highlights of the Proposal include the following:

  • The new tax would be applied to financial transactions where at least one party is established in a Member State and a financial institution established in a Member State is party to the transaction, acting for its own account, the account of another person or in the name of a party to the transaction.[iv]
  • Financial transactions for these purposes include: (i) the purchase and sale of a wide range of financial instruments (ii) the conclusion/modification and trading of derivatives and (iii) transfers of financial instruments between group entities, which are no a purchase and sale.[v]
  • The tax rates suggested in the proposal (above which there would be room for manoeuvre for Member States) are as follows: (i) 0.01% in respect of transactions related to derivatives and (ii) 0.1% for other transactions.[vi]
  • The new tax would replace any previous national tax on financial transactions (other than VAT).[vii]
  • An overview of the taxation of transactions is the following:

 

[source: European Commission´s presentation of the Commission proposal for a Council Directive on a common system of FTT][viii]

The Commission submitted that the aim of the Proposal[ix]  is to ensure that the financial sector makes a fair contribution to the fiscal consolidation in the Member States, to set up a harmonised framework that will help reducing competitive distortions, to discourage potentially risky activities, to complement regulatory measures aimed at avoiding future crisis and, (v) to promote common rules for the introduction of FTT at global level.

The proposed Council Directive would be enacted under Article 113 TFEU. This Article, which provides a legal basis for the harmonisation of tax systems of Member States, reads:

‘The Council, acting unanimously in accordance with a special legislative procedure and after consulting the European Parliament and the Economic and Social Committee, to adopt provisions for the harmonisation of legislation concerning turnover taxes, excise duties and other forms of indirect taxation to the extent that such harmonisation is necessary to ensure the establishment and the functioning of the internal market and to avoid distortion of competition.

Accordingly, under the special legislative procedure established in Article 113 TFEU, it is the Council which should unanimously agree on the establishment of the FTT, and the European Parliament and the Economic and Social Committee should only be consulted.

Since the Proposal was submitted to the Council, it has been debated twice as an ‘item B’ on the Council´s agenda (on 8 November 2011[x] and on 11 March 2012[xi]). It seems that no agreement has been achieved in these formal meetings of the Council. However, following the meeting of the Council of 11 March and the lack of consensus within it, the Commission and the Parliament have issued statements in support of the Proposal.

On the one hand, the Commission has tried to push ahead by highlighting the savings that EU Member States would make from the establishment of the FTT. On the basis of its Proposal, the Commission estimated total savings for EU Member States of around €81 billion.[xii]

Interestingly, the Commission is proposing that 1/3 of the money would go to national administrations and 2/3 of it to the EU budget, creating a new own resource for the Union. The latest part would amount to €57 billion, therefore reducing Member States contribution to the budget in the said amount. This would probably make the proposal particularly appealing for Member States facing severe austerity measures.

In turn, the European Parliament seems to be very favourable to the establishment of the FTT. This is perceived by the EU Chamber as a measure having broad popular support. Bearing this in mind, European Parliament President Martin Schulz suggested, on 28 March 2012, the possibility of making the first use of the European Citizens’ Initiative in the field.[xiii] Remarkably, it is said that even 2/3 of the UK citizens would support the introduction of the tax.[xiv]

Should the European Citizens’ Initiative go ahead, the position of the Commission would probably be strongly reinforced from a political point of view.  If the Proposal of the Commission is based not on its own motion but on a proposal of EU citizens, the position in the Council of those Member States opposing the FTT would be very much compromised. [xv]

The Committee of the Regions[xvi] and the EESC have also provided different degrees of support to the Proposal.[xvii]

However, the latest news coming from the informal meeting of the Council held on 31 March 2012 seems to point to a different solution than the one contained in the Proposal, which would be a far less ambitious establishment of an activity tax, or a floor of stamp duty tax similar to those already existing in some Member States, across the EU.[xviii]

Whichever the solution to the conflict will be, this is likely to provide interesting news from different aspects of EU Law. On the one hand it would be interesting to see the use of Article 113 TFEU and its possible challenge before EU Courts.[xix] The possibility of starting an enhanced co-operation procedure on the issue – perhaps between Eurozone members – has been always flying around. However, this would be probably detrimental for those countries establishing the tax in comparison to those that would not introduce it and have a leading financial industry, namely the UK.

Besides that, if the suggestion of the EP President gains traction, this could well be the first successful use of the European Citizens’ Initiative, a major event in the EU construction.

The issue will be in the Council agenda later in May or June, keep your eyes open.

 

[i]  The idea of a “Tobin Tax”, suggested by the Nobel-awarded economist James Tobin was originally defined as a tax on all spot conversions of one currency into another. The tax is intended to penalise short-term transactions involving foreign currencies and its objective, which is to cushion exchange rate fluctuations, is different to the one of the FTT proposed by the Commission. In turn, the introduction of a so-called ‘Robin Hood Tax’ was  promoted by a campaign launched in the UK in 2010. This tax would be imposed on the trading of a wide range of  financial products, affecting individual investors, banks, hedge funds and other financial institutions. The campaign is sponsored by various prominent charities, aiming to raise money for international development, to tackle climate change and to protect public services. The Commission’s proposal can be seen, to a certain extent, as an original mix of both taxes.

[ii] It is said that the main Member States opposing the introduction of the tax are the UK, the Netherlands and Sweden <http://euobserver.com/19/115671>

[iii] Proposal for a Council Directive on a common system of financial transaction tax and amending Directive 2008/7/EC [COM(2011) 594 final] available at  <http://ec.europa.eu/taxation_customs/resources/documents/taxation/other_taxes/financial_sector/com(2011)594_en.pdf>

[iv] The concept of financial institution for these purposes will be broadly defined (see Article 2.1(7) of the Proposal of the Commission

[v] See Article 2.1 (1) of the Proposal of the Commission

[vi] See Article 8.2 of the Proposal of the Commission

[vii] Article 12 of the Proposal of the Commission

[viii] Page 14 of European Commission presentation of the Commission proposal for a Council Directive on a common system of FTT, available at <http://ec.europa.eu/taxation_customs/resources/documents/taxation/other_taxes/financial_sector/ftt_proposal_en.pdf >

[ix] Supra note vi, page 2

[x] See press release of the Council of 8th November 2011 (Economic and Financial Affaires), available at  <http://europa.eu/rapid/pressReleasesAction.do?reference=PRES/11/410&format=HTML&aged=1&language=FR&guiLanguage=en>

[xi] See press release of the Council of 13 March 2012 (Economic and Financial Affaires), available at

<http://europa.eu/rapid/pressReleasesAction.do?reference=PRES/12/102&format=HTML&aged=0&lg=en&guiLanguage=en>

[xii] “Commission: ‘Robin Hood’ tax would save EU countries billions”, available at<http://euobserver.com/19/115671>

[xiii] “Schulz: 1 million EU signatures could spur finance tax” available at <http://euobserver.com/843/115734>

[xiv] See “Commission’s financial transaction tax – a winner?” available at <http://www.publicserviceeurope.com/article/575/commissions-financial-transaction-tax-a-winner>

[xv] On the European Citizens’ Initiative see the previous post “Lets have our EU laws? European Citizens’ Initiative is ready to be used” in this blog at <http://kslr.org.uk/blogs/europeanlaw/2012/04/07/lets-have-our-eu-laws-european-citizens-initiative-is-ready-to-be-used/>

[xvi] See Opinion 
of the 
Committee of the Regions 
 
a Common System of Financial Transaction Tax, 15-16 February 2012, available at <http://coropinions.cor.europa.eu/coropiniondocument.aspx?language=en&docnr=332&year=2011>

[xvii] See Opinion of the European Economic and Social Committee on the Proposal for a Council Directive on a common system of financial transaction tax  and amending Directive 2008/7/EC COM(2011) 594final, available at <http://eescopinions.eesc.europa.eu/eescopiniondocument.aspx?language=en&docnr=818&year=2012>

[xviii] “EU countries explore alternatives to financial tax”, available at <http://euobserver.com/19/115768>

[xix] Such challenge could come from a direct action for annulment under Article 263 TFEU before the CJEU or indirectly from an objection of illegality under Article 277 TFEU before the CJEU or a preliminary ruling posed by a national court to the CJEU under Article 267 TFEU.

Inuit and Microban: ECJ explains notion of ‘regulatory act’

dr. Agne Limante 

Post-Graduate Diploma candidate in EU Law, King’s College London; PhD in EU law, Vilnius University

 

After the Lisbon Treaty came into force, actions for the annulment of EU legal acts are regulated by Article 263 TFEU[i], which has revised and replaced Article ex 230 EC[ii]. Among other changes related to annulment actions, the Lisbon Treaty also revised locus standi requirements for private applicants. The present wording of Article 263(4) TFEU allows “any natural or legal person <…> [to] institute proceedings against an act addressed to that person or which is of direct and individual concern to them, and against a regulatory act which is of direct concern to them and does not entail implementing measures” (emphasis added). The novelty and relaxation of standing lies in this last scenario – the abolishment of the obligation to prove ‘individual concern’ when seeking annulment of a regulatory act not entailing implementing measures.

Ever since the drafting of the Treaty Establishing a Constitution for Europe, the exact meaning of the ‘regulatory act’ has been one of the most debated topics among scholars concerned with the locus standi requirements in annulment actions[iii]. This was mainly caused by the fact that neither the Constitution for Europe, nor the Lisbon Treaty, contains a definition of a regulatory act or uses this wording in other articles. For long time the legal writings were based solely on the travaux preparatoire of the Treaties and opinions of scholars, waiting for the EU Court of Justice to have the final word.

The mystery has been revealed in autumn 2011 when Court of Justice of European Union (CJEU) delivered its first judgements addressing the notion of the ‘regulatory act’ – in Inuit Tapiriit Kanatami[iv] and Microban[v] cases. Due to the fact that they are likely to become the seminal cases on this topic, they are worth taking a closer look at.

Inuit Tapiriit Kanatami case

On 6 September 2011, the General Court issued an Order in the case Inuit Tapiriit Kanatami and Others[vi], wherein it applied Article 263 TFEU and, for the first time, interpreted the notion of ‘regulatory act’. The case concerned the European Parliament and Council Regulation No. 1007/2009 on trade in seal products[vii]. The applicants (a group of companies, associations and natural persons) based their claim on Article 263 TFEU and sought the annulment of the contested regulation, stating that it is a regulatory act and therefore relaxed standing rules should be applied. The respondents (the European Parliament and the Council), supported by the Netherlands and the Commission, raised three pleas of inadmissibility, alleging, respectively, that the contested regulation is not a regulatory act, that it does not entail implementing measures and that it does not individually concern the applicants. As a result, the examination of admissibility of the action revolved around the interpretation of a regulatory act.

Taking a literal point of view, the Court noted that it is apparent from the ordinary meaning of the word ‘regulatory’ that these are the acts of general application. The Court also pointed out that regulatory acts do not include legislative acts. Such an interpretation of the word ‘regulatory’, and of the equivalent word in the different language versions of the TFEU, as opposed to the word ‘legislative’, according to the Court, is also apparent from a number of other provisions of the TFEU, in particular Article 114 TFEU, concerning the approximation of the ‘provisions laid down by law, regulation or administrative action in Member States’.

Carrying out historical interpretation, the Court referred to the process that led to the adoption of Article 263 TFEU, which was the drafting of its predecessor Article III-365 of the draft Treaty establishing a Constitution for Europe. The Court stated that it is apparent from the cover note of the Praesidium of the Convention[viii] that, in spite of the proposal for an amendment to the Article 230(4) EC mentioning ‘an act of general application’, the Praesidium adopted another option, that of mentioning ‘a regulatory act’. Such a wording enabled a distinction to be made between legislative acts and regulatory acts, maintaining a restrictive approach in relation to actions by individuals against legislative acts[ix].

Finally, using a teleological method of interpretation, the Court observed that the purpose of that provision is to allow a natural or legal person to institute proceedings against an act of general application which is not a legislative act, which is of direct concern to them and does not entail implementing measures, thereby avoiding the situation in which such a person would have to infringe the law to have access to the court. On the other hand, the conditions of admissibility of an action for annulment of a legislative act still remain more restrictive than in the case of proceedings instituted against a regulatory act – a legislative act may form the subject-matter of an action for annulment brought by a natural or legal person only if it is of direct and individual concern to them.

Having carried out such analysis, the Court concluded that ‘regulatory act’ for the purposes of the fourth paragraph of Article 263 TFEU must be understood as covering all acts of general application apart from legislative acts. As further analysis of the Court revealed, legislative acts for this purpose are differentiated by the procedure, which led to their adoption.

Microban case

After the General Court has explained the meaning of ‘regulatory act’ in the Inuit Tapiriit Kanatami case, it still had yet to define the meaning of ‘direct concern’ and the lack of ‘implementing measures’ in this context. This was done in Microban case[x].

The measure challenged by the applicants in Microban case was a Commission decision on non-inclusion of triclosan in the ‘positive list’ of authorised substances. The decision was adopted using Commissions implementing powers. Therefore, according to the classification of legal acts provided for in the Treaty, it was a decision falling within the ambit of implementing acts. As, due to its scope, it was also an act of general application, the Court concluded, referring to the Inuit Tapiriit Kanatami case, that the contested decision should be considered to be a regulatory act.

As regards the concept of ‘direct concern’ as re-introduced in the Article 263(4) TFEU, the Court decided to continue to interpret it in the same way as it appeared in Article 230(4) EC. Elaborating on the concept of lack of implementing measures, the Court noted that the Commission decision on non-inclusion of triclosan in the ‘positive list’ had the immediate consequence of the removal from the provisional list and a prohibition on the marketing of triclosan. Though an established transitional period allowing Member States to extend marketing triclosan until 1 November 2011 might have given rise to implementing measures by the Member States, these measures, according to the Court, were optional and ancillary to the main purpose of the contested decision, namely the prohibition of the marketing of triclosan. For this main purpose Member States did not need to adopt any implementing measures, therefore, the Court held that the contested decision did not entail implementing measures and ruled the application admissible.

Concluding remarks

Having in mind the case-law discussed above, ‘regulatory acts’ seem to include delegated (Article 290 TFEU) and implementing acts (Article 291 TFEU) as long as they are acts of general application[xi]. Therefore, the relaxation of private applicants’ standing would most probably have an impact on possibilities to challenge Commission regulations, as large part of them should fall under the concept of a ‘regulatory act’. The new rules will potentially have far-reaching effects in such areas as, environmental law, as in those areas the main principles are usually laid down in a legislative act (directive or regulation), while the details are left to the Commission to implement. On the other hand, regulations adopted by the Parliament and the Council acting together through legislative procedure should be classified as legislative acts and relaxation provided for in the Treaty of Lisbon would not apply, requiring private applicants to prove that they are directly and individually concerned.

It is worth noting that at least to some extent, differentiating regulatory and legislative acts by the procedure according to which they were adopted is not fully in line with the previous case law of the Court. In numerous cases the Court made it clear that in order to ascertain whether a legal act whose annulment is sought is open to challenge, it is necessary to look to its substance as the form in which it is cast is, in principle, irrelevant[xii]. However, at this point it seems that when deciding whether the act at issue is regulatory or legislative, the Court will simply base its analysis on the legal basis of the act and the procedure chosen. In Inuit Tapiriit Kanatami and Others[xiii] the Court clearly stated that it is apparent from Article 289(1) and (3) TFEU that legal acts adopted according to the procedure defined in Article 294 TFEU, referred to as ‘the ordinary legislative procedure’, constitute legislative acts and categorised the contested regulation as a legislative act.

[i] Treaty on the Functioning of the European Union 2009

[ii] European Communities Treaty 2002

[iii] See, for example; Barents, Rene ‘The Court of Justice after the Treaty of Lisbon’ 47 CMLRev (2010) p709-728; Damian Chalmers, Gareth Davies, Giorgio Monti, European Union Law. Text and Materials (2nd edition, Cambridge University Press, 2010) p 414; Albors-Llorens, Albertina, ‘Edging Towards Closer Scrutiny? The Court of Justice and Its Review of the Compatibility of General Measures With the Protection of Economic Rights and Freedoms’ in Anthony Arnull, Catherine Barnard, Michael Dougan & Eleanor Spaventa (eds.) Constitutional Order of States: Essays in EU Law in Honour of Alan Dashwood (Hart Publishing, 2011) p 245-267.

[iv] Order of the General Court of 6 September 2011 in Case T-18/10 Inuit Tapiriit Kanatami and Others v Parliament and Council [2011] ECR II-0000.

[v] Case T-262/10 Microban International and Microban (Europe) v Commission [2011] ECR II-0000.

[vi] Case T-18/10 Inuit Tapiriit Kanatami and Others v Parliament and Council [2011] ECR II-0000.

[vii] The contested regulation was adopted on the basis of the EC Treaty, whereas the action for annulment came after the TFEU entered into force. Considering which article, 230 EC or 263 TFEU, should be applied, the Court stated that in accordance with the maxim tempus regit actum the question of the admissibility of an application must be resolved on the basis of the rules in force at the date on which it was submitted and, second, that the conditions of admissibility of an action are judged at the time of bringing the action, that is, the lodging of the application (see also Case T-532/08 Norilsk Nickel Harjavalta and Umicore [2010] ECR I‑0000, and Case T-539/08 Etimine and Etiproducts [2010] ECR I‑0000, para 76 and the case-law cited).

[viii] Secretariat of the European Convention, CONV 734/03

[ix] See also Oral presentation by M. Gil Carlos Rodríguez Iglesias, President of the Court of Justice of the European Communities, to the “discussion circle” on the Court of Justice on 17 February 2003, CONV 572/03; and Oral presentation by M. Bo Vesterdorf, President of the Court of First Instance of the European Communities, to the “discussion circle” on the Court of Justice on 24 February 2003, CONV 575/03.

[x] Case T-262/10 Microban International and Microban (Europe) v Commission [2011] ECR II-0000.

[xi] According to the case law, a decision is of general application when it applies to objectively determined situations and it produces legal effects with respect to categories of persons envisaged in general and in the abstract.

[xii] Case 60/81 IBM v Commission [1981] ECR 2639, Case C‑147/96 Netherlands v Commission [2000] ECR I‑4723, and, more recently, Case C-322/09 P NDSHT v Commission [2010] ECR I-0000.

[xiii] Case T-18/10 Inuit Tapiriit Kanatami and Others v Parliament and Council [2011] ECR II-0000