The Intergovernmental Conference and Business

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

• 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.
• 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.
• 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

• 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.
• 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

• The role of the social partners at EU level is formally recognised and promoted.
• The principles of participatory democracy are stated.
• 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 abolition of unanimity is still needed, particularly in a Union of 25.

The changes in the institutional structure proposed by the Convention are substantial.

European Parliament

Under the “ordinary legislative procedure”, the power of Parliament (whose size has been increased from 732 to 736 members) has been extended. Most notably, parliamentary competence is extended to judicial cooperation, some aspects of police cooperation, agricultural policy and some aspects of social policy. Parliament, however, is only “regularly informed” in the area of common foreign and security policy (CFSP).

European Council and its Chair

The European Council becomes a fully-fledged EU institution (Article I-20), mandated to provide the Union with the necessary impetus, general political directions and priorities for its development. It does not exercise legislative functions but it preserves its predominant position in CFSP policy-making.

The six-month Presidency rotation is abolished and replaced by a long-term President of the European Council, whose task is to improve its functioning and to provide the Union with a recognisable face for the public and for international partners.

Article I-21 provides that the European Council elect its “President” by qualified majority for a term of two and a half years, renewable once. The President chairs the European Council and drives forward its work. S/he ensures, at his or her level, the external representation of the Union on issues concerning CFSP, without prejudice to the responsibilities of the Foreign Minister.

Council of Ministers

The separation of the legislative and non-legislative activities of the Council constitutes the biggest institutional innovation within the Council. The Convention, has not created a separate Legislative Council and, surprisingly, the same Council formation – the “Legislative and General Affairs Council” – will work in two different ‘modes’ (Article I-23). When it acts in its legislative function, the Council will meet in public. When it acts in its General Affairs function, in liaison with the Commission, it prepares and ensures follow up to European Council meetings. However, first discussions at the IGC sought to remove the single Legislative Council and retain the legislative character of all current specialised formations.

The draft Constitution proposes that the Foreign Affairs Council will be chaired by the Foreign Minister. The other formations will be chaired by Member States on the basis of equal rotation for periods of at least one year. The number of the Council formations and the rules of such rotation will be decided by the European Council.

The elimination of the present confusing system of a six-month rotating Presidency is to be welcomed (better: should be applauded). A number of countries, however, object strongly to this provision.

Commission and its President

The description of the role of the Commission (Article I-25) now emphasises the key function of political initiative of this institution. The Commission:

· promotes the general interest and takes appropriate initiatives to that end;

· ensures the application of the Constitution and of EU law, under the control of the European Court of Justice (ECJ);

· executes the budget and manages programmes;

· exercises coordinating, executive and management functions;

· ensures the EU external representation with the exception of CFSP;

· has the monopoly of legislative initiative, with limited exceptions; and

· initiates the Union’s annual and pluri-annual programming.

The next Commission, to be appointed in 2004, will consist of 25 members, including the President. As of 1 November 2009, however, the College of Commissioners will comprise the President, the Foreign Minister/Vice-President and 13 European Commissioners selected on the basis of a system of equal rotation between the Member States. These will be flanked by non-voting Commissioners from all other Member States, who will not be part of the College.

The procedure to appoint the President of the Commission (Article I-26) has not materially changed.

The strengthening of the role of the Commission is a welcome step, as is the application of qualifying criteria for the Commissioners. A streamlining of the Commission is essential. A smaller Commission would be preferable to the proposed formula. Nevertheless, a number of small countries peremptorily invoke the principle of equality among Member States and demand one voting Commissioner per Member State.

Foreign Minister

The new position of the “Union Minister of Foreign Affairs” has been established in order to boost the performance of the Union in CFSP. It merges the current functions of the External Relations Commissioner and the High Representative for CFSP. The Minister will have at his/her disposal the instruments and budgetary resources of the Commission, and will receive policy guidelines from the European Council and the Foreign Affairs Council, which s/he will chair. Within the Commission, the Foreign Minister will be responsible not only for handling external relations, but also for coordinating other aspects of the Union’s external action, including trade, development policy and, probably, enlargement.

European Court of Justice

The Court is one institution made up of three tiers: the European Court; the Court of First Instance (renamed the “High Court” to reflect the fact that it hears the bulk of day-to-day cases); and the specialised courts (judicial panels) set up under the Nice Treaty and expected to hear staff and intellectual property cases.

The jurisdiction of the Court has been extended and the Court can now also “review the legality of acts of bodies or agencies of the Union intended to produce legal effects vis-à-vis third parties” (Article III-270). An appointment panel for Judges and Advocates-General is to be created (Article III-262).

Article III-270.4 widens the access for individuals and companies to bring ‘direct actions’ before the Court. Union measures can be challenged if they are “of direct and individual concern” to them, including regulatory acts that do not entail implementing measures.

There are a number of new provisions which allow the Court to rule on sensitive issues. These include derogations from the functioning of the internal market in the event of, for example, serious internal disturbance, war or the threat of war or the protection of security interests (Articles III-3 and III-342); “monitoring” compliance with the implementation of CFSP (Article III-209); jurisdiction to hear actions for infringement of the principle of subsidiarity (Protocol on Subsidiarity, Paragraph 7); and dismissal of a Commissioner or the Ombudsman (Article III-237.2 and III-251).

The Court has proved to be the Union’s most successful institution and an extension of its powers is sensible. Unfortunately, the procedure for amending its Rules of Procedure remains cumbersome and not under its direct control.

The allocation of competences

The question of ‘who does what?’ was one of the main points raised by the business community, concerned about making the system more transparent and decision-makers more accountable. The debate in the Convention reflected the growing unease with the perceived intrusion of the Union in the regulation of policy areas sensitive to national identity, on policy-issues ranging from education to health. The debate was also linked to policy reform and the re-nationalisation of certain policy areas (such as competition policy, state aid and agriculture).

Hence, the Convention focused on limiting EU powers through a more precise delimitation of competences, rather than introducing new competences that the Union should take over to confront new challenges.

The principles governing the distribution of competences are defined in Article I-9. According to the principle of conferral, the Union exercises only the competences that are conferred upon it by the Member States. Within these limits, the principles of subsidiarity and proportionality apply. Under the former, the Union may act only if the objectives of the intended action cannot be sufficiently achieved by Member States. Proportionality determines the extent to which the Union should act and in what form, and regulates that such action should not exceed what is necessary to achieve the objectives of the Treaty. The principle of subsidiarity does not apply to areas of exclusive competences where only the Union may legislate. The principle of proportionality, on the other hand, applies across the board.

The Treaty contemplates three main categories of competences – exclusive, shared and supporting.

· “Exclusive competences”, where only the Union may legislate and adopt legally binding acts, comprise competition rules necessary for the functioning of the internal market; monetary policy (for ‘Eurozone’ members); common commercial policy; customs union; and the conservation of marine biological resources under the common fisheries policy (Article I-12).

The Union is also to have exclusive competence for the conclusion of an international agreement when its conclusion is provided for in a legislative act of the Union; it is necessary to enable the Union to exercise its competence internally; or it affects an internal Union act. This simply restates the consolidated case law of the ECJ.

· “Shared competences” apply where both the Union and Member States have the power to legislate and adopt legally binding acts. According to Article I-11, however, Member States can only exercise their competences to the extent that the Union has not exercised, or has ceased to exercise, its own.

Shared competences are defined by exclusion, namely the areas that are not listed under Articles I-12 and I-16. They notably include economic, employment and social policy, and CFSP. Article I-13, however, contains a detailed list of residual policy areas which are specifically subject to “shared competences”. These include the internal market; the area of freedom, security and justice; agriculture and fisheries (excluding what is reserved to exclusive competences); transport and trans-European networks; energy; social policy (but only for the aspects defined in Part III); economic, social and territorial cohesion; environment; consumer protection; and common safety concerns in public health matters.

Research, technological development and space, together with development cooperation and humanitarian aid are policies for which the exercise of Union’s competences does not prevent Member States from exercising theirs. With respect to  economic, employment and social policies (Article I-14), EU intervention is clearly limited to coordination (excluding, for example, harmonisation). This is one of the many implicit exceptions to the full application of the principle of subsidiarity.

The introduction of areas of “supporting, coordinating or complementary action” is one of the main innovations introduced by the Convention. Policy areas concerned include industry; protection and improvement of human health; education, vocational training, youth and sport; culture; and civil protection. In these areas, “‘legally binding acts’ adopted by the Union cannot entail ‘harmonisation’ of Member States’ laws or regulations.” (Article I-16)

While the achievement of a clearer distribution of powers is welcome, a homogenous, harmonised legal framework would be preferable for business. Thus the notion - in relation to the introduction of supporting, coordinating or complementary actions - that the Union may cease to exercise its competences, thereby determining the repatriation of a policy area, remains unclear and untested. The cases of formal repeal of a piece of legislation, or of a ‘sunset clause’ attached to it, seem rather theoretical.

The application of the principles of subsidiarity and proportionality is subject to a new monitoring system described in a Protocol attached to the Treaty. The process requires: 

• the Commission to first send its proposal to national parliaments at the same time as to the European Parliament. The EP and the Council must also send their legislative resolutions and common positions to national parliaments.

• Any national parliament or chamber may submit a reasoned opinion stating why it considers that the proposal does not comply with the principle of subsidiarity. The EU institutions must take account of this opinion.

• If not satisfied with the final legislative act, national parliaments (through their national governments), individual chambers or the Committee of the Regions may bring an action before the European Court of Justice on grounds of infringement of the principle of subsidiarity.

It is doubtful, however, whether the Court will determine based on the particular facts, whether a legislative proposal conforms to the principle of subsidiarity. It is more likely to limit itself to deciding whether the proper procedure has been followed for the exercise of what is essentially political discretion.

New provisions permit a group of at least one-third of the Member States to cooperate in a policy area of non-exclusive Union competence (Article I-43 on enhanced cooperation). This instrument has been available, in a more complex form, since the Treaty of Amsterdam and has not been used so far. While ‘variable geometry’ may be increasingly needed in a diverse EU of 25, it is still not likely to be used in the foreseeable future. One possible field of enhanced cooperation is in tax harmonisation, most likely within the ‘Eurogroup’.

Ensuring a growth-orientated, competitive economic framework

The Treaty, for the first time, formally recognises and promotes the role of the social partners at Union level, taking into account the diversity of national systems. The EU must facilitate dialogue between the social partners, respecting their autonomy (Article I-47).

By including an article dealing with the principles of participatory democracy (Article I-46), the text imposes an obligation on the EU institutions to give citizens and representative associations the opportunity to make known and publicly exchange their views in all areas of Union action. The institutions must maintain an open, transparent and regular dialogue with representative associations and civil society. Article I-49 specifically addresses transparency and openness by institutions. This undoubtedly promotes good governance and ensures the participation of civil society.

The Commission must carry out broad prior consultations with the parties concerned. According to the Protocol on Subsidiarity and Proportionality, the Commission must consult widely before proposing legislative acts and, where appropriate, take into account the regional and local dimensions of the action envisaged. The Commission must, moreover, justify its proposal with regard to the principles of subsidiarity and proportionality, and include “some assessment of the proposal’s financial impact”. It “shall take account of the need for any burden, whether financial or administrative, falling upon economic operators and citizens to be minimised and commensurate with the objective to be achieved”.

Although already implied in the Protocol annexed to the Amsterdam Treaty, the key tools enhancing ‘better regulation’ (pre-legislative consultation and impact assessment) are now explicitly mentioned in the new Protocol on Subsidiarity and Proportionality (Paragraph 4). The text could have been made more explicit but it does strengthen the Commission’s commitment. The Commission guidelines and, above all, the inter-institutional agreement on ‘Better Law-making’ of June 2003 nevertheless remain the key instruments to applying the principles underlying better regulation.

The ‘open method of coordination’ (OMC) as such is not mentioned in the text, but recourse to some of the OMC tools (e.g. guidelines, indicators, exchange of best practices, and periodic monitoring and evaluation) is foreseen in individual cases. Use of the OMC is restricted to the following articles: social policy (Article III-107); research and technological development (Article III-148); public health (Article III-179); and industry (Article III-180). The OMC is a mechanism that supplements but does not replace legislative action. This allows the EU to shape policy in areas where it has no legislative powers. Although (and sometimes because) the targets are not legally binding, de facto initiatives undertaken under the OMC might be politically effective. The OMC also increases the likelihood that the EU will apply the principle of subsidiarity and might be a useful and efficient policy tool.

There are business arguments for and against an express reference in the Treaty. The inclusion of OMC in a legal framework could reduce its flexibility, its benefits perhaps best achieved if the method remains informal. However, the failure to incorporate the OMC in the text undermines the transparency of the method. A Treaty provision should have clarified the procedures and respective roles of those involved.

Other innovations relevant for Business

General remarks

The principle of the primacy of EU law over national law is, for the first time, enshrined in the Treaty (Article I-10). This merely confirms existing jurisprudence.

A simplified procedure to ensure compliance with EU rules will make the business environment more secure and bring the EU closer to a well-functioning Single Market. The sanctions procedure is made faster and more effective. The machinery provided for in the former Article 228 TEC has been strengthened by abolishing the Commission’s reasoned opinion which preceded the referral to the Court for the implementation of sanctions. Moreover, both proceedings for failure to fulfil an obligation pursuant to former Article 226 TEC and an application to impose a sanction can now be coupled in the same procedure before the ECJ (Article III-267.3).

Economic governance

Business organisations devoted their efforts to ensure that a high level of competitiveness was included as one of the objectives pursued by the Union. Article I-3.3 states that “The Union shall work for a Europe of sustainable development based on balanced economic growth, a social market economy, highly competitive and aiming at full employment and social progress, and with a high level of protection and improvement of the quality of the environment. It shall promote scientific and technological advance.” This is a balanced text recognising both the social market economy and the need for competitiveness. Article I-3.4 commits the Union externally to uphold and promote its values and interests, including “free and fair trade”. All responsible companies are already committed to this.

Member States are required to coordinate their economic policies, and the Union is required to adopt measures to ensure coordination of such employment policies; and the Union may adopt initiatives to ensure coordination of Member States’ social policies (Article I-14). This article is rather weak: it does not give the EU the right to adopt legislative acts and does little more than consolidate the existing Union powers.

The Convention has reached modest results in defining economic aspects of the Economic and Monetary Union (EMU). This is not surprising given the degree of political sensitivity and division on these issues. Although some still believe that the proposed constitutional provisions are not nearly up to the challenges facing the European economy, however, the Union – and notably members of the euro area – will be better equipped to ensure the efficient coordination of Member States’ economic policies.

In particular, the Convention eventually accepted to recognise the specificity of the euro area (Article III-88), though not of a specific Council that would be able to take decisions autonomously from the Union’s Council of Economic and Finance Ministers. Meetings of Finance Ministers of the euro area, which will remain informal, are regulated in a Protocol. The Protocol sets the conditions for promoting enhanced dialogue within the euro area, with the aim of developing an “ever-closer coordination of economic policies”. The President of the ‘Euro-Group’ will be elected for two and a half years.

Overall, the provisions on the ECB and the ESCB do not entail any substantial changes to their respective tasks, status, the mandate and legal regime. In particular, the ECB must continue to follow the guiding principle of price stability (Articles I-29.2 and III-69).

Article III-90 covers the crucial issue of the place of the euro in the international monetary system, specifying that members of the euro area shall “coordinate their action among themselves and with the Commission with a view to adopting common positions within the competent international institutions and conferences”. While the wording is still too weak and external representation of the euro not specified, these provisions nonetheless indicate a modest step forward.

Single Market and Labour Market

Article I-7.1 legally incorporates the Charter of Fundamental Rights (contained in Part II) into the Treaty and requires the Union to seek accession to the European Convention on Human Rights. This will guarantee that EU legislation respects the rights and freedoms listed in the Charter. However, the provisions are addressed to the EU institutions and other bodies and agencies only when they are implementing Union law and do not extend the application of EU law (Article II-51).

The Charter should not, therefore, give rise to direct social and employment rights of concern to business, despite the inclusion of trade union recognition, collective bargaining and the right to strike. The social rights included in the Charter are distinct from the Union’s competences in social policy. The function of the Charter is to ensure that the social policies of the Union are not in conflict with fundamental rights. The rights to protection of personal data, freedom of expression, access to documents, to refer to the Ombudsman cases of maladministration and to petition Parliament, already exist.

A series of amendments to the “general provisions” of the Charter (also known as ‘horizontal clauses’) have been included in the Charter in order to clarify its scope. The distinction between “rights” and “principles” remain the subject of ongoing debate. While the former are commonly considered directly enforceable, the latter are not, since their enforcement is subject to the prior adoption of implementing legislation. Economic and social provisions tend to be regarded as relating to principles.

The Union’s recognition and respect of access to services of general economic interest (Article II-36) is fleshed out in Article III-6. Their special role “in promoting social and territorial cohesion” must be reflected in the formulation of EU policies. Framework laws may be adopted. There are business concerns that this could lead to a weakening of the application of competition and state aid policies and unreasonable government interference. On the other hand, a balance needs to be struck between the economic and social considerations.

A new, specific legal basis for energy policy is introduced in Article III-157, so as to ensure the functioning of the energy market and security of supply, as well as promoting energy efficiency and renewable energy. However, the Euratom Treaty, and with it nuclear energy, is not incorporated into the Treaty. Concerted action in the energy field is likely to increase in importance.

Many interventions during the Convention debates have advocated tax harmonisation and applying QMV instead of unanimity in this domain. The competitive pressure on Member States’ tax revenues has increased since the creation of an internal market with a single currency, to the extent that it may threaten the provision of public goods, including social security and infrastructures. Moreover, the harmonisation of the basic elements of corporate taxes could be a win-win solution, with a massive simplification for companies and Member States, less tax evasion and a better-functioning internal market. However, no progress on tax harmonisation could be made and the Convention failed to suggest any progress on ‘internal-market related taxes’, an area where intervention at EU level would be fully justified. Continued application of unanimity in an enlarged Union is sure to exacerbate the EU’s lack of progress in this policy area, with all that this implies for the functioning of the internal market.

The draft Constitution recognises the importance of combating tax fraud and tax evasion (Articles III-62 and III-63).

Competition, Innovation and R&D

The provisions on competition policy are now spelled out in more detail more than before. They have been brought into line with the development of EU competition case law. Rules about fines and supervision are mentioned in Article III-52.

European regulations should be adopted to define the scope of competition provisions in different branches of the economy and the relationship between European and national regulations on competition.

It is the Commission’s duty to investigate suspected infringements (with assistance from Member States) and to propose appropriate measures to stop infringements (Article III-54).

Article II-55.2 states that the competition rules in principle apply to undertakings dealing with services of general economic. Provisions on state aid are more detailed and the duty for Member States to notify state aid in due time is underlined.

A further innovative aspect concerning competition refers to the protection of personal data. A European law shall lay down the rules protecting personal data, compliance with which shall be subject to the control of an independent authority (Article I-50.2). This could give rise to further problems for international companies in an already contentious area, as there is insufficient coordination, particularly between the US and the EU.

The Union’s competence in providing uniform protection of intellectual property rights has been increased through the new Article III-68. Protection is particularly important for research and development.

The provisions on research and development policy have not been changed in substance. The consultation of the Economic and Social Committee (ESC) has been made mandatory as far as MFF is concerned (Articles III-149 et seq).

The new provision on the implementation of an EU space policy will further enhance the scientific and technical progress and the industrial competitiveness of the Union. Divergences exist on whether the European Space Agency should be mentioned in Article III-155.

Similarly, the new “European Armaments, Research and Military Capabilities Agency” seeks, among other, to “support defence technology research, and coordinate and plan joint research activities and the study of technical solutions meeting future operational needs” (Article III-212).

Still to be clarified are the implications on research of the exclusion of the Euratom Treaty from the draft Constitution, given that a considerable voice in the Framework Programme is devoted to the nuclear sector.

Trade policy

Innovations in common commercial policy refer mainly to the generalisation of QMV (Article III-217) with the exception of “trade in cultural and audiovisual services” in those cases where “these risk prejudicing the Union's cultural and linguistic diversity”. The use of QMV as the general rule is an important step in enabling the EU to act as decisively in the WTO over trade in services and intellectual property as it does with respect to trade in goods. It is to be hoped that the exception will be applied narrowly.

Regional policy

With enlargement, the economic and social differences between European regions will increase. Economic actors (small and medium-size enterprises and chambers of commerce, in particular) will be affected by these disparities. The draft Treaty does not substantially amend the provisions on regional and cohesion policy contained in Part III. It is highly probable that this policy will be re-shaped when the new financial provisions are negotiated as of 2004. Further initiatives may be envisaged in the framework of the ‘Lisbon Strategy’.

Public Health

Despite expectations and considerable support, a high level of public health is not recognised as a fundamental human right or a EU objective. The text lists “common safety concerns in public health matters” as a shared competence (Article I-13.2), but the “protection and improvement of human health” as an area where the EU may take supporting coordinating or complementary action (Article I-16.2). While the first provision presumably responds to health threats such as communicable diseases and bio-terrorism, it is unclear what differentiates this provision from actions aimed at protecting or improving human health. This may give rise to arbitrary interpretations and fails to allocate clear responsibilities. Article III-179 supports initiatives that coordinate national policies and harmonise national health systems.

Business reactions

Business reactions to the achievements reached at the Convention have been favourable.

UNICE supports the final draft Treaty which “represents a satisfactory balance between economic and social aspects.” It particularly welcomes the inclusion in its objectives of a “highly competitive Union” and the recognition of the nature and role of the social partners. It calls upon the IGC to work on the “good basis” of that draft.

Eurochambres greeted the Convention consensus as “a clear signal for European business that there is a political will of the Member States to go towards a more integrated and modernized Europe.” Especially welcome were the extension of majority voting in the Council of Ministers; the enhanced principle of subsidiarity; and the role of participatory democracy. The draft Treaty “should not be disassembled”. A failure at the IGC would cause the business climate to deteriorate. The IGC is called upon

· “to provide the Union with concrete measures and policies particularly in the economic and monetary field”; and

· “to put in place a targeted, structured and representative system of consultation”. Associations of enterprises should be explicitly mentioned in the definition of the principle of participatory democracy (Article I-46) “next to representative organisations and the civil society”). Moreover, a new paragraph should be added to Article 46 “which mentions explicitly the specific role of enterprises for the economic, cultural and social development of citizens.”

A further element of concern expressed by business organisations refers to the revision of the draft Constitution or parts of it (including the protocols). Article IV-7 requires unanimous agreement from the governments of the Member States and subsequent ratification by all the Member States according to their respective constitutional rules. Here, a more flexible mechanism is needed so as to avoid all amendments having to be approved by an IGC and subsequent Member State ratification,  especially with respect to Part III.

The Convention has not substantially altered the provisions on EU policies currently featured in the EC Treaty.[3] The result is that Part III of the draft Constitution is still long, uneven and complicated. Additionally, it is not drafted in a consistent style and above all, it does not fully reflect the current policies as they have evolved in the last decades.

Hence, business organisations insist on the provisions being revised and brought into line with the objectives set in Part I. However, the revision of these provisions would require a longer IGC. In the European Commission’s view, this situation constitutes “one more important reason for enabling the Constitution to be revised more flexibly”.[4]

In its Opinion to the 2003 IGC[5], the ESC also welcomed the draft Constitution as “the fruit of a democratic, transparent and open process which will leave its mark on history.” The IGC should not “upset the balance and the broad principles achieved”. Among others, the ESC nevertheless recommends:

• “introducing stronger provisions for implementing the Union's economic and social policies and improving governance in the Eurozone;
• bringing priorities up to date and simplifying the instruments for economic, social and territorial cohesion;
• defining more precisely the scope and arrangements for putting into practice the principle of participatory democracy, so as to give tangible expression to civil dialogue and the tasks of the European Economic and Social Committee in this context; and
• acknowledging the role of civil society organisations in implementing the principles of subsidiarity and proportionality, granting the EESC the right of appeal to the Court of Justice.”

Conclusions

The ‘Draft Treaty establishing a Constitution for Europe’ contains elements with which to advance European unification. The IGC which opened in October 2003 needs to create a Union equipped to face the challenges of the twenty-first century, as a democratic, more transparent and simpler polity. The IGC must keep the well-balanced package and even improve it so that the important objectives of growth, social cohesion and sustainable development are met.

Business organisations have steadily advocated the inclusion of a high level of competitiveness as an EU objective. This point, together with additional coordination of national economic policies, compensates – at least partially – for the overall strengthening of the social objectives. References to the “social market economy”, “full employment” and the promotion of “social justice” (Article I-3) could, over time, affect future Union legislation and its judicial interpretation.

The draft Treaty simplifies the decision-making process and makes it more efficient. Instruments and procedures have been clarified, streamlined, and reduced in number. However, the text falls short of maximum efficiency as too many provisions subject to unanimity remain.

The institutional structure is strengthened. As with previous revisions of the Treaties, the European Parliament is the institutional winner. It is therefore vital for business to improve its relations with this institution. The balance between the Commission and the Council has been preserved in theory, but the personal relationships between the first European Council President, the EU Foreign Minister and the then Commission President could constitute a destabilising factor.

The principles of participatory democracy and the role of the social partners are now enshrined in the Treaty. Business is given the proper means to contribute to shaping decisions. The consultation procedures have been made open and dynamic. Legislation has to be justified as being proportionate and supported by an impact assessment. Implementation and enforcement of Union laws has been strengthened.  But these theoretical improvements must be made to work in practice. 

Of course, economic recovery and long-term competitiveness and prosperity in Europe do not depend exclusively on the results of the IGC. Other factors contribute to these goals and have an effect on the business environment.

First, the consistent implementation of the ‘Lisbon Strategy’ will be as important for business as the IGC. The political commitment of the Member States is crucial for progress but goes beyond the constitutional framework. The ‘Lisbon Strategy’ becomes increasingly relevant as the draft Constitution does not include express recourse to alternative regulatory methods (so-called ‘soft law’). Co-regulation and self-regulation approaches, whose flexibility is praised by business, will remain largely regulated by inter-institutional agreements.

Second, business will be deeply affected by the evolution of the Stability and Growth Pact. Neither the Pact itself nor the role played by the Commission in matters of economic governance have been revised. It is still arguable how the Commission will be able to ensure compliance by the Member States with the rules; whether sanctions should be envisaged for non-compliance; and whether the Pact should be reformed.

The Convention on the Future of Europe constituted a unique opportunity for business to advocate its concerns. If the IGC confirms the consensus reached on the draft Constitution, business can largely profit from the material progress made. Nevertheless, other challenges require business to further commit for a competitive Union.

Stanley Crossick is Director & Founding Chairman of the European Policy Centre. Lorenzo Allio is Policy Analyst with the European Policy Centre.

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[1] The English wording of Article I-36.3 may cause misunderstanding: the use of the plural “The European laws” may give the impression that each and single basic act shall lay down the principles underlying the creation of control mechanisms. By contrast, other versions of the draft Treaty keep the singular form.

[2] For example a limited range of acts will have legislative nature although they will be adopted through “special” procedures (e.g. by the Council with the participation of the Parliament, or vice-versa) in the specific cases listed in Article I-33.2 (own resources; multi-annual financial framework; capital movement to or from third countries; combating tax fraud; right of inquiry; annual budget).

[3] Apart from those on the Union’s external action and the area of freedom, security and justice.

[4] COM(2003) 548 final, p.13.

[5]http://www.esc.eu.int/convention_cig/docs/opinions/ces1171-2003_ac_en.doc