In this Issue Paper, Stanley Crossick and Lorenzo Allio highlight areas of concern to business, and explain why business should not ignore the Intergovernmental Conference that opened on 4 October in Rome.
Executive summary
The final draft Constitution produced by the ‘Convention on the Future of Europe’ is currently under negotiation at the Intergovernmental Conference (IGC) that opened on 4 October 2003 in Rome. The definitive shape and content of the ‘Constitution for Europe’ will result from the decisions taken by the Heads of State and Government. The draft Constitution, however, already constitutes a fundamental yardstick to understand the functioning of the new “European Union” (EU). It contains a number of innovations that are relevant for business.
This Issue Paper analyses the draft Constitution and takes stock of the current debate in the light of the concerns raised by business. It takes into account the positions expressed by the European Round Table of Industrialists (ERT); the European Employers’ organisation (UNICE); the EU Committee of the American Chamber of Commerce; and the Association of European Chambers of Commerce and Industry (Eurochambres).
The concerns raised by business can be grouped under three main areas and summarised as follows:
Simplifying the EU and enhancing its efficiency
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The existing treaties are considerably simplified, since the EU is given a single legal personality; legal instruments are renamed and reduced in number; and procedures are simplified.
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Efficiency is enhanced through the extended use of qualified majority voting (QMV). However, unanimity is still required in a number of key policy areas. The introduction of the so-called QMV “passerelle” might avoid future blockages.
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The institutional structure is strengthened – but falls short of the optimum. The quasi-generalisation of the former co-decision procedure and the reform of the budgetary procedure further consolidate the powers of the European Parliament.
Refining the allocation of competences between the EU and the Member States
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The allocation of competences has been better defined. The draft Treaty contemplates three main categories of competences – exclusive, shared and supporting. The introduction of the latter category might undermine the creation of a homogenous, harmonised legal framework.
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The application of the principles of subsidiarity and proportionality is subject to a new monitoring system (described in a Protocol attached to the Treaty) that actively involves national parliaments.
Ensuring a growth-orientated, competitive economic framework
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The role of the social partners at EU level is formally recognised and promoted.
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The principles of participatory democracy are stated.
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The key tools enhancing ‘better regulation’ (such as pre-legislative consultation and impact assessment) are mentioned in the Protocol on subsidiarity and proportionality.
Overall, the draft Treaty constitutes material progress from a business standpoint although the disproportionate strengthening of the Union’s social objectives at the cost of the economic ones might affect future Union legislation and its judicial interpretation in the long run.
The IGC is called upon not to substantially deviate from the draft Constitution. The generalisation of QMV and the adoption of more flexible mechanisms for revising Part III (EU policies) would, however, lead to a substantial improvement in the business environment.
Although the implementation of the ‘Lisbon Strategy’ and the future of the Stability and Growth Pact are as relevant as the new Constitution, business should not ignore the work of the IGC.
10 reasons why Business should not ignore the IGC
European business leaders are less inclined than their American counterparts to involve themselves directly in political – and certainly constitutional – activity. Business contributed constructively to the Constitutional Convention but this would have been far more evident in an equivalent situation in the US.
The single market project was materially driven by the business community, but today’s European Union is essentially politically-driven and the overall business environment is therefore substantially influenced by the political environment.
Business needs an EU which is efficient, transparent, participatory and business-friendly.
The IGC that opened on 4 October has as its basis a text of 465 articles agreed by consensus in the Convention. It is as yet unclear to what extent the provisions of the Convention text will be unravelled. It is to be hoped that changes will be kept to a minimum.
Business leaders cannot be expected to follow the arcane discussions on all the detail but are well advised to watch closely and seek to influence 10 provisions, should they be discussed:
1. Strengthening of all EU institutions, and in particular the Commission;
2. Simplification of decision-making, including legal instruments and qualified majority voting;
3. Extension of qualified majority voting, particularly for trade policy;
4. Greater use of alternative regulatory methods, such as co- and self-regulation;
5. Strengthening of consultation and feedback mechanisms;
6. Strengthening of the application of proportionality;
7. Better use of impact assessments;
8. Strengthening of competitiveness;
9. Strengthening of macro-economic management; and
10. Greater compliance with and enforcement of EU law.
Introduction
In July 2003, Valéry Giscard d’Estaing, the Chairman of the “Convention on the Future of Europe”, handed over the “Draft Treaty Establishing a Constitution for Europe” to the President of the European Council. The Convention was convened by the Laeken Declaration of December 2001 following the Nice Treaty calling “for a deeper and wider debate about the future development of the European Union.”
No-one predicted in December 2001 that the Laeken Declaration would lead to the Convention agreeing a ‘constitution’ or a single, comprehensive new Treaty. The extent of the success of the Convention can only be judged after a new Treaty is agreed at the current Intergovernmental Conference (IGC), but the Convention’s achievements are nonetheless praiseworthy. For the first time in the history of the European Union (EU), a democratic preparatory process preceded the diplomatic negotiations on the revision and reform of the Treaties.
The IGC that opened in Rome on 4 October is the fifth in less than 20 years. Within the coming weeks, the IGC is charged with adopting a new Constitutional Treaty for the European Union. It is likely to be a difficult task. The inaugural session highlighted once again the strong opposition to the text presented by the Convention by a number of Member States. The size of the European Commission; the formula of qualified majority voting in the Council; and its extension to sensitive political areas are only some of the most controversial issues. The wish of the Italian Presidency to conclude the works by December 2003 no longer seems to be realistic. Nevertheless, the twenty-five Heads of State and Government reiterated their hope that “negotiations on the Constitution will be concluded before the European Parliament elections in June 2004 in order to permit citizens to vote in full knowledge of the future architecture of the Union.”
Since Maastricht in 1992, successive IGC revisions of the treaties have essentially been politically driven. Their implications for business were nevertheless very important. The sectoral environments within which companies operate are influenced by the overall business environment, which is in turn influenced by the political environment. The current IGC will also deeply affect the environment in which European business operates.
This Issue Paper highlights areas of concerns to business, assesses the Draft Treaty, and takes stock of the current debate.
Business standpoint
The Convention ran from 28 February 2002 to 10 July 2003. Its 105 members and same number of alternates – representing Member State governments and parliaments together with the European Parliament and Commission – met in 26 public plenary sessions, making 1 800 interventions. Additionally, there were frequent meetings of the 12 person Praesidium, the 11 working groups, as well as numerous informal meetings. The European Employers’ organisation, UNICE, sat in as an observer, together with their trade union counterparts.
The Convention members have not dared to integrate further on certain delicate issues. Still, most believe that the consensus reached constitutes the optimum that could realistically have been achieved politically. The four leading multi-sectoral business organisations in Europe made their views known, before and during the Convention, on both the institutional and policy issues. The leading business organisations strongly supported the creation of the Convention as a means to further enhance European integration. They actively contributed to the 16-month long debate and, overall, they welcomed the final text.
The position of business can be summarised as follows:
European Round Table of Industrialists (ERT)
The ERT’s document from December 2002 summarised its views on those issues of direct relevance to business. The ERT was concerned that the new Treaty should strengthen the basis for Europe’s competitiveness. This required, in particular, the completion of the single market and the achievement of the ‘Lisbon’ goal, making Europe into a highly competitive, knowledge-based economy by 2010. The political conditions for enhancing competitiveness must first be created through fast and effective decision-making, the document highlighted.
The ERT asked the Convention to ensure that there be a strong Commission, a more effective Council, distinct roles for the European and national parliaments, appropriate distribution of powers between the EU and the Member States, and the strengthening of EU economic management.
European Employers’ Organisation (UNICE)
UNICE, in its submission dating back to June 2002, asked that the EU deliver a business-friendly environment in which companies can operate and compete on a level playing field and adapt to the increasing challenges that globalisation brings. This would lead to wealth creation and therefore employment opportunities.
UNICE identified four needs: a clear division of competences and related decision-making procedures; preservation of the Community method and an improvement in institutional efficiency; a lighter regulatory framework coupled with increased co- and self-regulation; and re-thinking of the method of consulting the relevant stakeholders.
European Committee of the American Chamber of Commerce (AmCham EU Committee)
The AmCham EU Committee in March 2003 called for a clear identification of competences; continuous consultation of all relevant stakeholders; an increased role for the Commission to ensure compliance by Member States with their Treaty obligations and the enforcement of Community law; alternative forms of regulation to be used; and a non-discriminatory and general right of participation for all relevant stakeholders.
Association of European Chambers of Commerce and Industry (Eurochambres)
The main concern of Eurochambres, in its June 2002 contribution, was that the Union put in place a targeted, structured and representative system of consultation that takes account of the new socio-economic components of Europe; introduces systematic consultations of socio-economic actors having indisputable expertise; and includes the consultation process in the proposals for the Treaties.
Hence, the main concerns raised by business can be conveniently grouped under three headings:
· simplifying the EU and enhancing its efficiency;
· refining the allocation of competences between the EU and the Member States; and
· ensuring a growth-orientated, competitive economic framework.
Simplifying the EU and enhancing its efficiency
The existing Treaties are long, complicated and obscure. Given the division into three pillars and the different legal status of the European Communities, business is often confronted with legal obligations that do not stem from a consistent and uniform legal environment. Moreover, the complexity of the legislative and budgetary procedures, the obscurity of the so-called ‘comitology’ procedures as well as the excessive number of legal instruments, constitute an obstacle to economic activities.
The fifth enlargement increases the number of EU Member States to 25. Bulgaria and Romania are expected to follow soon, Turkey and Croatia have officially applied for membership, and further applications are expected. The existing voting procedures in the Council, with the continued existence of unanimity in key policy areas, are no longer feasible. In the enlarged EU, maintaining unanimity means that any one of 25 countries will be able to veto a decision. The streamlining of the decision-making and a redefinition of qualified majority voting (QMV) are essential requirements for enhancing the efficiency of the system. Business also expressed the need to have a strong executive at EU level and a consistent Presidency capable of pursuing medium-term objectives.
Business requirements can therefore be described as follows:
· consolidating all existing treaties in a single text;
· enhancing the role of the Commission and its President as the leading executive EU institution and the ‘guardian of the Treaty’;
· preserving the Commission’s exclusive right of legislative initiative;
· ensuring that the Presidency of the EU is consistent over time;
· increasing direct access to the European Courts;
· moving towards a fast and effective decision-making by extending QMV to all areas relevant to cross-border business in Europe;
· strengthening the EU’s economic management;
· avoiding over-regulation and bureaucracy; and
· applying ‘enhanced cooperation’ without distorting the internal market.
Refining the allocation of competences between the EU and the Member States
After 50 years of European integration, the focus of EU decision-making has shifted from harmonising national legislation in the development of the internal market to regulating new policy areas. The Laeken Declaration stated that there is a“need to ensure that a re-defined division of competences does not lead to a creeping expansion of the competence of the Union or to encroachment upon the exclusive areas of competence of the Member States”. A clear allocation of competences between the EU and the Member States in line with the principles of subsidiarity and proportionality is a core business concern. The principle of conferral – according to which the Union acts within the limits of the competences conferred to it by the Member States – is essential.
Here business needs:
· a flexible distribution of powers between the EU and the Member States;
· a clear division of competences;
· distinct roles for the European Parliament and national parliaments; and
· a clearer justification for action on the basis of the principle of subsidiarity and proportionality.
Ensuring a growth-orientated, competitive economic framework
The target set by the European Council in Lisbon in March 2000 was to make Europe “the most dynamic and competitive knowledge-based economy in the world (...) by 2010”. It is important for business that the future Constitutional Treaty consistently underpins European competitiveness in the globalising economy.
Business priorities can, therefore, be outlined as:
· organising a lighter regulatory framework coupled with a greater use of alternative regulatory methods such as self- and co-regulation;
· re-thinking the method for consultation of relevant stakeholders;
· implementing an enhanced assessment of the economic impact of any new legislation introduced at EU level (coupled possibly, as UNICE has suggested, with the creation of an independent body responsible for business impact assessment);
· improving the monitoring of implementation of EU legislation by Member States and strengthening enforcement mechanisms; and
· in the case of UNICE, recognising the special role of the social partners and the autonomy of the social dialogue.
The draft Constitutional Treaty
This chapter explains the main provisions of the draft Treaty. These are grouped under the same broad headings used previously – namely simplification and efficiency; the allocation of competences; and a growth-orientated, competitive economic framework.
Simplification and efficiency
The draft Treaty constitutes per se a fundamental simplification, as a single text repeals all previous treaties. The structure of the draft Treaty also makes it much easier to read.
The draft Treaty is divided into four parts and includes a preamble covering the aims and ambitions of the Union. Part I covers constitutional and institutional issues and is much more understandable than the texts it replaces. Part II comprises the Charter of Fundamental Rights which is of special relevance to citizens. Part III contains the policies and Part IV the general and final provisions.
The draft Treaty merges the existing three ‘pillars’. It abolishes the European Community and the Union, re-creating a new “European Union” with a single legal personality and a unified set of legal instruments.
The number of instruments has been considerably reduced (from 15 to six), and a clear hierarchy of legal actsis enshrined in the text. There is no longer confusion about their names and the respective definitions are simple and unequivocal. The instruments are:
· Legislative acts: these include “European laws” (replacing current regulations) and “European framework laws” (replacing current directives). The former have general application, are binding in their entirety and directly applicable in all Member States. The latter are binding, as to the result to be achieved and on the Member State(s) to which they are addressed, but leave national authorities free to decide the forms and means to achieve that result.
· Non-legislative acts: these are “European regulations” and “European decisions”. Regulations can be binding in their entirety or binding as regards the results to be achieved. Decisions are binding in their entirety and, if they specify those to whom they are addressed, binding only on them.
· Non-binding acts: “recommendations” and “opinions” are legal acts of the Union, but they have no binding force.
Article I-35 introduces the new category of “delegated regulations”, which permits the Commission to supplement or amend certain non-essential elements of a law or framework law – when a legislative act so establishes. The delegation cannot cover the essential elements of a policy decision, and Parliament and the Council of Ministers retain tight powers of control, since they can decide to revoke the delegation or to object to the entry into force of the delegated regulation.
Implementing powers can be conferred on the Commission or, in “specific cases duly justified”, the Council. Article I-36 contains a reference to mechanisms for control over implementing acts of the Union by Member States – in other words, the so-called ‘comitology’ framework. In particular, former Article 202 Treaty establishing the European Community (TEC) has been restated in Article I-36.2 and 3. The intention is that a European law[1] (amending or replacing the current ‘Comitology Decision’) will lay down the general principles regulating the control of the executive by the Member States. It could well also replace the existing ‘regulatory’ procedure.
The introduction of this new category of “delegated acts” is welcome since it makes EU legislation simpler and more flexible. Delegated acts aim at avoiding too much detail and rigidity in legislative acts, which will focus on core objectives and principles, and include a definition of the content, scope and duration of the delegation.
The Convention has also succeeded in substantially simplifying the procedures:
· The Commission retains its monopoly of legislative initiative (with the sole exception of Article III-160, relating to “freedom, security and justice”).
· The old co-decision procedure is generalised (Article I-33.1), renamed the “ordinary legislative procedure” (Article III-302), and becomes the rule. The power of the European Parliament is thereby boosted, as it will be able to approve or reject legislation, together with the Council, in over 30new policy domains. The rule, however, allows for exceptions.[2]
· The cooperation procedure disappears.
· The current budgetary procedure will be replaced by a new system. The complex rules governing the annual “maximum rates of increase in relation to the expenditure of the same type” (Article 272.1 TEC) are abolished and the adoption of the budget as a whole is made less confrontational between Parliament and Council. If, after the first reading, Parliament is in disagreement with the Council, a Conciliation Committee is convened, which brings the budgetary procedure closer to the standard legislative procedure. In the absence of agreement between Parliament and Council, Parliament may confirm its amendments, which are thus adopted. Alternatively, it may reject the whole text and ask for a new text. These two possibilities ensure that Parliament has the last word.
Within the tight budgetary guidelines of the “multi-annual financial framework”, Parliament’s prerogatives include the confirmation of its amendments against the position of the Council and the power to reject the budget as a whole. However, Parliament’s decisions require a majority of its members and three-fifths of the votes cast. Given the composition of Parliament and the difficulty of creating large alliances on sensitive subjects, this may prove a strong constraint.
The abolition of the distinction between compulsory and non-compulsory expenditures is one of the major achievements of the Convention in this area, although how it will work in practice is not yet clear.
Efficiency is substantially increased in decision-making by the revision of the voting in the Council. Qualified majority voting (QMV) has been redefined and extended. As of 1 November 2009, QMV will comprise a majority of Member States representing at least three-fifths of the Union’s population (Article I-24.1). Under the complex Nice Treaty formula, a triple majority of74.1% of the weighted votes, the votes of the majority of Member States and votes representing 62% of the Union’s population are required for a Council decision. The new QMV formula materially reduces the possibility of proposals being blocked in Council. Recent research shows that the EU’s “passage probability” shifts from 2 % under the Treaty of Nice formula to 22 % in future.
The new Treaty substantially extends the application of QMV quantitatively, including for protection of employees when contracts are broken, social security measures for migrant workers and unfair protection of intellectual rights in the single market. Some important provisions will still require unanimity, including foreign policy; taxation, although QMV may apply to combating tax fraud and evasion (Article III-63); social security; revision of the Stability and Growth Pact; trade in cultural and audiovisual services; and international association agreements. However, under Article I-24.4 (the so-called “passerelle clause”), Member States can decide by unanimity to move to QMV from unanimity in a designated policy area.
In this regard, the inclusion of a ‘super-qualified majority’ (Article I-24.2) should be welcomed as it may help with the transition from unanimity voting in areas of particular political sensitivity. However, further a
