Federations What’s new in federalism worldwide volume 1, number 3, march 2001

In this issue

Is British devolution a step toward federalism? By Melanie A. Sully After the 1997 election, Tony Blair’s government implemented devolution plans for both Scotland and Wales. These regions have received a measure of local power—more to Scotland than to Wales—but ultimate power resides in London.

India creates three new states By Harihar Bhattacharyya What would be unusual—even legally impossible—in other federations has happened repeatedly throughout India’s history. The creation of the new states of Chhatisgarh, Jharkhand, and Uttaranchal last November was the latest example of “states reorganization” in India.

Australia’s centenary of Federation: a mystery and a muddle? By David Headon This year marks the 100 th anniversary of Australia’s federation. Yet there has been little public reflection on the federal system’s successes, failures, and opportunities. The reason for this “Great Federalism Silence” has as much to do with Australia’s political present as with its perhaps unromantic origins.

Brazil: tax reform and the “fiscal war” in the federation By Ricardo Varsano Globalization has intensified competition between Brazilian states seeking private-sector investment. But the Brazilian tax system has been ineffective in curbing the excesses of this fiscal war. The tax system must adapt if it is to put the brakes on a downward spiral which can only exacerbate regional inequality.

The German Constitutional Court takes on the principle of ‘solidarity’ By Paul Bernd Spahn There has been much criticism of the law for interstate fiscal equalization in Germany. A recent ruling of the Constitutional Court challenges many of its provisions and states that it should be phased out as of 2005. In the debates which have already begun about both the details and the philosophy behind fiscal equalization in Germany, will the principle of inter-state “solidarity” survive? The PRACTITIONER’S Page: Llibert Cuatrecasas of Catalonia Llibert Cuatrecasas, the President of the Council of Europe’s Congress of Local and Regional Authorities, is deeply involved in the developing relationship between local governments and the European Union. He recently presided over a meeting of Regional Presidents in Barcelona. Federations spoke with him about regions with legislative power and the evolution of the EU in an increasingly globalized world.

Contributors to this Issue Harihar Bhattacharyya is a Reader in the Department of Political Science, University of Burdwan, West Bengal, India. Llibert Cuatrecasas is Secretary-General for European Affairs in the Catalan government, and the President of the Council of Europe’s Congress of Local and Regional Authorities of Europe. David Headon is the Cultural Advisor to the National Capital Authority and is the Director of the Centre for Australian Cultural Studies in Canberra. Paul Bernd Spahn is Professor of Public Finance at the Johann Wolfgang Goethe University, in Frankfurt, and has been a consultant to the IMF, the World Bank and numerous governments around the world. Melanie Sully is a Lecturer at the Diplomatic Academy in Vienna and the author of The New Politics of Tony Blair and The Haider Phenomenon. Ricardo Varsano is the Tax Studies Coordinator at the Institute of Applied Economic Research (IPEA) in Rio de Janeiro. The Forum of Federations seeks to enhance democracy and improve governance by promoting dialogue on the practices, principles, and possibilities of federalism.

From the editors...

In this issue of Federations: What’s new in in addition to our usual five articles from different federalism worldwide we deal with a number regions of the globe, we will devote a page to the of different themes: particular point of view of a person who “practices” federal governance in one of its many guises. This • Fiscal federalism—in Brazil where a “fiscal war” “practitioner” will share a challenge that he or she has has resulted in a kind of beggar-thy-neighbour confronted, or a particular initiative with which he or policy, and in Germany where some of the she has been associated. This is part of the Forum’s more prosperous states have contested the focus on working to improve the practice of federal highly equalizing system of revenue sharing governance by acting as a clearing house for in that country; knowledge, experiences and best practices. • Evolving federalism—in India, where not too This issue’s practitioner is Llibert Cuatrecases of the long ago three new states were created in order Catalan Autonomous government, who talks about his to accommodate distinct cultural and ecological experience in steering the activities of the Congress of concerns; Local and Regional Authorities of Europe. • Nascent federalism—in Britain, where the policy We invite the many practitioners of federalism among of devolution to Scotland and Wales will likely be our readers to suggest accomplishments, best tested in an election this spring; practices and challenges they might wish to share. • Centennial federal malaise—in Australia, where We also invite your letters, which we post on our web at least some writers find a disappointing lack site: www.forumfed.org of enthusiasm for the hundredth birthday of Australian Federation; The Forum of Federations has been very busy the past few months working on projects in many different • And Supra-National federalism—in the “new regions of the world. Among the many events coming Europe”, where the regions with legislative powers up in the near future are a roundtable on the role of are trying to get the respect they consider to be constituent units in international relations to be held their due. this May in Winnipeg, Canada, and two major regional We deal with the last theme in our new feature, conferences on federalism to be held later this year, “the Practitioner’s Page”. In each issue from now on, the first in Nigeria and the second in Mexico.

A publication of the Forum of Federations 700-325 Dalhousie, Ottawa, Ontario K1N 7G2 Canada Tel.: (613) 244-3360 Fax: (613) 244-3372 [email protected] www.forumfed.org

Editor: Karl Nerenberg Associate Editor: John Ihnat Editorial / Administrative Assistant: Rita Champagne

Federations is published five times per year by the Forum of Federations. Subscription rates are $20 CDA per year in Canada, $20 USD per year anywhere else in the world. Contributions of articles are welcome. Contact the Editors at the above coordinates. The Forum of Federations cannot guarantee the return of unsolicited manuscripts. Is British devolution a step toward federalism? BY MELANIE A. SULLY

In 1997 Tony Blair won a landslide In 1707 to guarantee prosperity the Act of Three-quarters voted in favour of a Scottish victory at the polls for New Labour on Union established a new kingdom of Great parliament and almost two-thirds endorsed a programme that included proposals Britain merging the English and Scottish the proposal for tax-varying powers. for radical constitutional reform—with parliaments with joint representation in particular emphasis on the devolution Westminster. At the same time the Union A new parliament quite different of power to Scotland and Wales. guaranteed the independence of Scotland’s Presbyterian church, its from Westminster Britain had one of the most centralized universities and its legal system. Other In 1999 the 129-member parliament was systems in Europe and the pressure for clauses in the Union saw that the two elected for a fixed term of four years. The greater independence from London had countries should be taxed in the same parliament differs from Westminster in been mounting and threatened potentially way, have the same currency and enjoy some important ways. Its physical layout to wreck the unity of the United Kingdom. equal rights in trade giving Scottish traders is horse-shoe shaped, encouraging a “Devolution”, in this context, means a access to rich colonial markets. consensual style rather than the traditional process by which powers are transferred, government versus opposition style. And it At the end of the nineteenth century a without parliament relinquishing its has a First Minister (a Scottish prime Scottish office was created and a Scottish supremacy. And soon after it took office, minister) who is elected by all the secretary has usually been a member of the Blair government drew up a devolution members of parliament, using a modern the cabinet. Further, Scotland’s voice could package including a Scottish parliament electronic voting system. be heard in parliamentary committees that with tax-raising powers, and an assembly dealt with Scottish legislation. The royal prerogative is preserved in that (with much less power) for Wales. the First Minister elected by the members In 1979 Mrs Thatcher, a figure unloved The Conservative Party saw these must then be formally recommended by in Scotland, came to power as prime proposals as the beginnings of the the presiding officer (Speaker) for minister, representing an ideology “Balkanisation” of Britain that would lead ratification by the Monarch. The sovereign anathema to the Scottish political to increased fragmentation and conflict. also receives the resignation of the First culture. For almost 20 years the political Conservatives expressed the fear that such Minister and formally dissolves parliament. colour of the government in Westminster decentralization could lead to a reactionary All Scottish bills are to receive royal assent was at loggerheads with political feeling backlash in England and fuel passions of and Scotland remains an integral part of in Scotland. nationalism and hate. the UK and the Queen remains the head During the Thatcher period, legal experts, of state. The debate on devolution is by no means representatives from the churches, political over and has stirred feelings of the English The method of electing members also parties, business groups and labour as a separate nation with a distinct history differs from the Westminster system. organisations in Scotland worked out a and identity. This is compounded by Each Scottish voter has two votes in Claim of Right for the “sovereign right of increasing resentment against rule “from selecting the composition of the Scottish the Scottish people to determine the form Brussels” which could in the future lead parliament, one for a constituency member of government best suited to their needs”. to a split from Europe. Some see closer and one for a party list: 73 members are This Scottish Constitutional Convention relations with North America as a logical directly elected and the remaining 56 on published a report recommending a substitute both emotionally and historically the additional member system of separate Scottish parliament, an idea that for the European Union. proportional representation (based influenced New Labour in government. on the German model). A White Paper was drawn up in 1997 The Scottish case: a long history The powers that have been devolved by Blair’s new government for devolution to the Scottish parliament are significant. Relations between Scotland and England for Scotland including a parliament in They include: have historically been uneasy and disputes Edinburgh. These plans were put to the were common on trade and colonial people in a referendum in Scotland and • health, education and training; protectionism. were given a large measure of support. • law, police and the prisons;

Federations volume 1, number 3, march 2001 • economic development, fisheries Wales: language is the main issue members system of proportional and forestry; representation on the basis of party lists. Part of Tony Blair’s devolution package also • food standards and liquor licensing; involved a special Welsh Assembly, albeit The devolution experience in both Wales without tax-raising powers. and Scotland has, even at this early stage, • animal protection and agriculture; changed British political culture In a referendum held in Wales only just • the environment; significantly. It has brought about not over half voted for this plan with a turn- only a greater federal element for the • housing and transport; out of 50 per cent. This means only 25.2 % British political system but has also of the actual electorate of Wales supported • sports, the arts, and tourism; encouraged a greater use of referenda the proposition. The lukewarm support is and reforms in the electoral procedures • and local government. perhaps understandable given that the (such as proportional representation). assembly is a consultative, advisory “Reserved powers” remaining with London organ only. But devolution is not exactly spreading like include foreign affairs, defence, security, wildfire to other parts of the British Isles. border controls, economic and social Laws for Wales are still made in London Indeed, after the narrow referendum result policies, transport safety, employment although the new assembly has taken in Wales, plans for regional assemblies in legislation, common markets for UK over decision-making functions on England itself were postponed. goods and services, ethical matters economic development, agriculture, such as abortion and human fertility— fisheries and food, industry and training, and the constitution. education, local government, environment, Half-way federalism? planning, transport, arts and culture, the The latter is especially important should At present devolution seems to be an Welsh language, historic buildings, the Scots seek full independence. experiment running its course through sport and recreation. uncharted waters. Some argue it creates The Scottish parliament could debate It also has some scope in implementing more problems than it solves. this issue but could not legally proceed legislation passed in London which has unilaterally to full independence. One of the problems still unsolved is reserved powers in the fields of foreign what people in Britain refer to as the affairs, defence, taxation, overall economic “West Lothian Question”, whereby Scottish A complex relationship policy, social security and broadcasting. members of parliament in Westminster A secretary of state for Scotland remains The implementing process works in the continue to have a say in English affairs in the UK cabinet and is responsible for following way: while English MPs have no influence in promoting communication between the Scotland. William Hague, leader of the Acts of the British Parliament are broad two countries and representing Scotland Conservative party, has tried to exploit framework laws (primary legislation). An in areas not devolved. In cases of disputes this paradox with talk of “English votes Act is divided into sections containing all between the two parliaments reference is for English laws”. the detail, and here the Welsh Assembly, to be made to the Judicial Committee and after a debate, can issue its own Much of the impetus behind devolution the case heard by the law lords. regulations. For example the Assembly was ad hoc and little thought went into To facilitate co-ordination a consultative has power to revoke the ban on beef constitutional reform as a whole. What has joint ministerial committee, consisting on the bone. emerged is a patchwork quilt of lopsided of members from the devolved devolved power with little coherence in Wales, however, would like to have administrations and the UK government, centre-periphery relations. powers on primary legislation, as is is to look at issues where there could be the case in Scotland. Radical reform is perhaps alien to the potential overlap between devolved and British who, as constitutional experts reserved responsibilities. The English and Welsh languages have have noted, “like to live in a series of equal status in the assembly. According Relations with Europe remain the half-way houses”. to the 1991 census, 19 per cent of the responsibility of Westminster, although population said that they spoke Welsh. Britain was never a unitary state in the Scotland has its own representative office There are bilingual signposts and in sense of uniformity, but rather a union in Brussels—as do German Länder and schools Welsh is taught to most pupils state in which traditionally Scottish and other regions with legislative power in between the ages of five and sixteen. Welsh identities were accommodated in countries such as Spain and Austria. the framework of a multi-national state. Language is, in fact, the most important Scottish ministers and officials can also component of Welsh nationalism—unlike For the time being it seems that this participate as part of the UK delegation in Scotland where nationalism is expressed in haphazard British approach has staved meetings of the EU’s Council of Ministers. an institutional form. And unlike Scotland off more radical calls for outright Implementation of EU directives is a there is no separate legal system in Wales. federalism. In the long run, though, shared power between the Scottish it could whet the appetite for more minister and the UK minister responsible. Elections to the assembly are held every fundamental reform. And that could four years, with 40 members elected by In terms of international relations, cause more headaches in London, already majority vote representing constituencies treaties concluded by the UK are to distressed at surrendering power upwards and another 20 elected by the additional be implemented in Scotland. to Brussels and down to the regions.

Federations volume 1, number 3, march 2001 India creates three new states

BY HARIHAR BHATTACHARYYA

The Indian federation took a very of the linguistic characteristics of the States Reorganization Commission significant turn in November 2000 country. This pledge led to an awakening in 1953, and on the basis of its with the creation of three new states. of interest in self-rule among various recommendations, to pass the nationalities and ethnic groups prior to States Reorganization Act in 1956. Although infrequent, the creation of new independence. Many of the post- states is not unusual here. India has a As a result of this Act in 1956, India independence movements for statehood long history of what is called “states undertook the first major reorganization had their origins in this reorganization”. of states, and the reasons were strongly pre-independence phase. linguistic: the new federal units were created so that the states’ boundaries Language: the original basis A dynamic period of change would better correspond with linguistic for statehood boundaries. When the Indian republic was The formation of states on the established in 1950, there were 27 Since 1956, there has been a more- basis of language was a pledge states of different status and powers. or-less continuous process of states and a demand of the anti-colonial reorganization. For most of this period, nationalist movements in India. During the first major territorial the creation of new states was based The federal idea in India began reorganization in 1956, the number on both ethno-regional and linguistic to take shape on this vision. of states was reduced to 14, largely characteristics. In the 1950s and the on linguistic lines, each having equal The Indian National Congress (INC), as 1960s, language played the most powers and function. the main party of India’s independence, determining role with the sole exception began to encourage the idea of linguistic But from then on, new states were of the case of the creation of Punjab states from the beginning of the 1900s. created to accommodate India’s (1966) in which the linguistic factor It officially endorsed the demand as manifold diversity. combined with religion. early as 1920 when it reorganized its The first state created for linguistic In the 1970s, India’s northeast (now own party units on the basis of regional reasons in the post-independence comprising seven federal units) became linguistic boundaries. period was Andhra Pradesh, in 1953, an area of major states reorganization. The nationalists pledged to reorganize after its legendary leader Sri Ramalu’s Three new states were created as a India after independence on the basis fast unto death. This prompted the political recognition of tribal identity. Government of India to form the

New States and the Indian Constitution • alter the boundaries of any state; The Indian constitution is quite flexible in its provisions for • and alter the name of any state. the creation of new states. The legislative requirement on the part of Parliament to The Indian federation, constitutionally speaking, is an do so is by a simple majority, and by means of the ordinary indestructible union of destructible states. The Indian legislative process. However, a Presidential recommendation Constitution (Articles 3-4) empowers the Union Parliament— for introducing such a bill is required, and the President is the Lok Sabha (popularly elected Lower House) and the required, before the recommendation, to refer the bill to the Rajya Sabha, (the Council of States)—to reorganize the legislature of the state to be affected by the proposed states for territorial adjustment. changes. The President is not bound to accept the view of the state legislature. It is provided that Parliament may by law: So far more than 20 Acts have been passed by the parliament • form a new state by separation of territory from any state, to give effect to states reorganization. In the cases of the three or by uniting two or more states, or parts of states, or by new states, the constitutional procedures have been followed, uniting any territory to a part of any state; and the legislative assemblies of the three affected states • increase the area of any state; have debated the proposed changes for years before agreeing to them. • diminish the area of any state;

Federations volume 1, number 1, march 2001 In the 1980s, another three states were The most significant political aspect language factors played no role created (two in the northeast, and one of the creation of Chhatisgarh was in carving out the state. in the southwest). that, since 1993, the issue has been an electoral pledge of the two leading One means by which a state is created Can statehood provide more political parties, namely Congress and is upgrading the status of a “Union democracy? the Bharatiya Janata party (BJP, the Territory”. Today there are seven leading partner of the National India’s social and cultural landscape Union Territories of different sizes Democratic Alliance government is dotted with various movements and significance within the federation. in India). The immediate political for statehood, rooted in communities’ Union Territories are directly ruled beneficiary of the new state has, concern for their identities. There are by the Central Government. however, been the Congress, the such movements as: Historically, these Union Territories have party in power in the parent state, • Harit Pradesh in western Uttar often been the precursors of new states which played a very active role in Pradesh, in India. Arguing that a Union Territory the creation of the new state. should be upgraded to a state has • Vindhyachal in Madhya Pradesh, The new state of Uttaranchal was remained one means for ethnically carved out of the northern mountainous • Telengana in Andhra Pradesh, significant people living within a given regions of Uttar Pradesh, India’s most territory to pursue statehood. Statehood • Vidarbha in Maharashtra, populous state (some 140 million in means more autonomous powers, 1991). For the first time ever, ecology • Kodagu in Karnataka, and more freedom of action within as the defining factor of ethnic identity the federation. • Gorkhaland and Kamtapuri in played the most active role in the West Bengal, At the heart of demands for statehood creation of a new state. has remained the urge for decentral- • and Bodoland in Assam. The creation of the state of Uttaranchal ization and autonomy for the protection is the culmination of a ten-year long The federal structure of India since her of identity and for development. movement by the hill people for decolonization has shown flexibility in statehood. They sought autonomy politically accommodating the needs of New bases for state-creation to address the problems of economic diversity. Short of full statehood, various development, and to protect their institutional measures such as the The creation of three new states— cultural distinctiveness born of the District or Regional Councils, Union Chhatisgarh (carved out of Madhya ecological distinctiveness of the region. Territories, and Associate State or Sub- Pradesh), Jharkhand (carved out of Essentially, the lack of development in State units have been the states’ Bihar), and Uttaranchal (carved out the hills defined the tenor of the responses to ethnic grievances. In many of Uttar Pradesh)—has followed the statehood movement. cases, the statehood movements have conventional method of states grown out of dissatisfaction with those reorganization in India. The rise of Uttaranchal has provided institutional measures. the minority hill people of Uttar In the formation of these states, Pradesh with the political institutions to This vast country contains complex however, language, as a symbol of transform themselves into a majority in diversity coupled with regional identity, has played very little role. a state of their own, in which they will imbalances, social and economic The process of creation of Chhatisgarh play the major role in governance. inequalities, and mass poverty. out of the state of Madhya Pradesh has The state of Jharkhand, by contrast, is Statehood provides an institutional been peaceful, unlike that of Uttaranchal the culmination of more than a century framework for autonomy and and Jharkhand. A movement for a state of struggle by some tribal peoples in decentralization to respond to the need such as Chhatisgarh has existed from Bihar for the protection of their identity, for development and the protection of about the 1960s. for power over development in their identity. The three new states offer a When the parent state of Madhya region, and for a state of their own. tier between grassroots governance Pradesh itself was created in 1956, from below—an issue that has acquired The ethnic bases of the new state are there was very little demand for a considerable momentum in India since complex. Although they began to assert state of Chhatisgarh although the the 1980s—and the federal government tribal identity some decades back, cultural distinctiveness of the people at the top. the tribal groups are no longer in the of the region was well-known. majority in this state of their “own”. But Still, the real effectiveness of statehood The community which has spearheaded they do constitute a significant element. for underprivileged sectors must depend the movement for Chhatisgarh are the on the extent to which the powers and In the creation of Jharkhand state, ex-Malgujas—the rich peasants who opportunities now made available are however, regional underdevelopment collected land revenues on behalf of democratically devolved further down and a sense of deprivation have the Maratha (indigenous rulers) and the the strata of society. combined with these tribal affiliations. British rulers—and who seek to become And as in the other two cases, numerically powerful in a new state.

Federations volume 1, number 1, march 2001 Australia’s centenary of Federation: a mystery and a muddle?

BY DAVID HEADON

Students of Australian Federation necessary, though belated forum on the In the decades after these provocative were hopeful that, with the onset of the state of Australian federalism. but accurate comments were made, centenary, the country would engage in little really changed. Indeed, their Such optimism was naively conceived. a long overdue debate on its system of essential validity remains. Those of federalism. This has not happened. With Throughout the whole of the last century, us who have observed, with increasing some exceptions, the malaise of previous the Australian Federation narrative had so frustration, the indifference of most generations persists— despite the few storytellers that there is, now, a fellow Australians when faced with the opportunity provided by 1 January dearth of received wisdom. Little wonder, significance of this unique cultural and 2001 and the ensuing twelve months. then, that those commentators who political milestone, can scarcely be emerged between November 2000 and consoled by recalling that our forebears * * * January 2001—from politicians like New exhibited the same behaviour. As if to reinforce some of the stark facts South Wales Premier Bob Carr, to of Australian political, social and cultural historians and even noted authors—could However, with the fanfare of the history since Federation in 1901, only dance around the edges of a debate centenary now well and truly upon this Australians in the year 2000 tried their Australia has yet to have. generation, how does one explain the best to forget the Commonwealth’s continuing struggle to secure the Australian public’s meaningful imminent centenary birthday. Federalists “shrouded participation? What has prevented in obscurity” Yes, there was an excuse. The nation, after a long overdue debate on federalism all, was gearing up for its biggest inter- The Great Federation Silence has its and Federation? national showcasing opportunity since own melancholy story. It was not until There appear to be at least four reasons. globalisation and the world of IT had well after the conclusion of the Second become a reality: the Sydney Olympics. World War that one or two Australian First, for many Australians, like maverick But the Federation centenary and the historians began to comment on the historian Jonathan King, the process of hosting of the Games did not have to curious Federation history void. federating in the 1890s was no struggle- against-the-odds yarn deserving an be mutually exclusive propositions. The first of these, the late L. F. Crisp, honourable place in our collective Australians just accepted that they still arguably our most astute Federation memory. Rather, according to King, it would be. voice, put the problem with characteristic was “the most long drawn-out, no-action clarity when he wrote, in 1952: Cathy Freeman, Michael Klim and the talkfest in history. It was riddled with rest of the marketable black and bronzed “. . . unlike the Americans . . . Australians inter-colonial conferences, boring Aussie athletes completely overwhelmed hold their founding fathers, for all their speeches, non-committal committees any possibility of thoughtful empathy with success, in no special reverence or regard. of inquiry, expensive banquets and the bearded white men who, one Many of them are already forgotten. Few long, soporific train journeys back hundred years ago, created a nation. are quoted, and then infrequently. . . . home sleeping off the tax-paid port”. Yet there are times when Australians Students of Australia’s Federation story Hardly a scholarly view, this, not one could do with a little more consciousness were not surprised, though they were founded on facts, yet one which has of their political roots, only to find, when hopeful in the weeks and months certainly found currency in a country they reach back, that they have cut between the end of the Olympics and where, at the moment, politicians are themselves off by neglect from the 1 January 2001—the exact centenary held in even lower regard than bankers, facts and spirit of those times”. birthday—that some informed journalists and used-car salesmen. The commentary would finally emerge. Sixteen years later, historian Geoffrey recent republic referendum was a The more idealistic amongst the small McDonald reiterated Crisp’s argument, casualty of this irrational mindset. noting simply that “in contrast to the band of Australian Federation aficionados Second, despite the very recent, and United States, Australians do not even imagined a genuine if truncated mightily welcome, publication of a few remember their federalists: they debate on the evolution of their country’s excellent books on the Federation saga are shrouded in the obscurity of original Federation experiment—a (works by Helen Irving, John Hirst and a forgotten past”.

Federations volume 1, number 1, march 2001 Geoffrey Bolton among them), the telling drawing on her To Constitute a Nation: A No commentator that I have come of the essential narrative has for far too Cultural History of Australia’s Constitution across has yet accepted the challenge long been extracted from a small number (Cambridge University Press, 1999) and of responding to Blainey’s speculative of flawed accounts by long-dead John Hirst, excerpting from his The suggestion, but a few at least advanced Federation “fathers” such as Alfred Sentimental National: The Making of opinions on the federalism debate in Deakin and Bernhard Wise. the Australian Commonwealth (Oxford this country. University Press, 2000)—the most Third, as former Australian ambassador engaging contribution in this category for Richard Broinowski wrote in a recent The “beginning of an argument” me came from Paul Kelly, the Australian letter to the Canberra Times newspaper, newspaper’s International Editor. Australian leader writer Mike Steketee when we recall key Federation put the case that while Australia’s personalities like the then Attorney- Consistently the most incisive journalist democracy is “one of the most enduring General (and later Prime Minister) Billy in the country during the republican in the world”, this “does not make it an Hughes, Governor-General Lord Denman referendum campaign, Kelly in his article efficient system of government, with the and Minister for Territories, King O’Malley, entitled “Practical, visionary, enduring”— Constitution bequeathing a bugger’s we realise that their well-documented, which ran in the Australian on 30–31 muddle of overlapping and divided jaundiced social views helped to shape December 2000—wrote in some detail federal and state responsibilities. national aspirations in 1901. They about the importance of the 1901–14 Anachronisms and contradictions . . . vigorously espoused racism and an period to the consolidation of Australian remain to be resolved”. What a pity aggressive imperialism. The tide is federalism. Steketee did not expand on the well and truly out on the more It was, Kelly wrote, “a vigorous phase “bugger’s muddle” that everyone virulent Victorian cultural imperatives of national-building”. More importantly, knows to exist in Australia. that motivated a number of our he took Australia’s best known historian Federation founders. Even more’s the pity that the Federation Manning Clark to task for his dismissive experts called on to comment at the Fourth and finally, as stated recently by attitude towards Federation. Clark centenary abrogated their responsibilities, the present Clerk of the Australian Senate, regarded Federation as a disappointment and generally chose to ‘dumb down’ their Harry Evans, the commonly held view that because “the bourgeoisie had triumphed”. message. Australia has a Westminster system of Kelly in turn takes issue with Clark, government is as damaging as it is maintaining that “the centenary . . . Federalism is the debate that Australia absurd. Evans regards this “Westminster has bequeathed a wiser assessment”. has yet to have. mantra” cliché as one which many Certainly the scope of Kelly’s contribution Perhaps the wisest words on the Australian politicians have promulgated sharply contrasts those contemporaneous Federation instinct came from one because it subtly supports “prime- articles which pursued issues more of Australia’s wisest citizens: our finest ministerial absolutism”. pertinent to the immediate present rather living novelist David Malouf. In a typically For Evans, Australia will only have a than try and relate the complexities of the thoughtful piece, published in the worthy debate on the state of its political past to a vision of the future. Australian on New Year’s Day, Malouf system when it rejects, once and for all, began by stating that “Federation was The limited intellectual and imaginative what Lord Hailsham called the “elective the beginning of an argument about range of the majority of centenary dictatorship” and the “imperial prime- what sort of nation we were to be. . . .“ retrospects only served to highlight ministership”, and it restores the primacy It was a theme worked up by a few those accounts which went an extra of the system of checks and balances commentators. Unlike all the rest, yard or two. demanded by, and initially achieved by, however, Malouf could deftly embrace the Federation founders. One of these was controversial historian the Olympic experience within his grasp Geoffrey Blainey. While it must be said of Federation and its history: that Blainey largely took the safe option, A great silence saying that Australia remains “a place of . . . the Sydney Olympics really was A bare handful of writers has advanced enormous hope and opportunity” and the apotheosis of Australia’s an opinion on the state of federalism that it has much to celebrate, he did national achievement and the revelation, to ourselves as much as in Australia ca. 2000. We might now advance his opinion on the federalism to others, of an achieved national legitimately talk of the Great Federalism question: for a democratic country style. That was, in many ways, our Silence down under. We seem to have occupying a huge area, “the federal real celebration of Federation. lost contact with its roots and realities. system is the best-known solution”. Blainey’s most contentious point he While the best of the “ABCs of Federation” As Australia debates its distinctive system saved for last: “There is a case for each summaries were produced, predictably, of federalism, in the twenty-first century, major region possessing its own state by two of Federation’s most it is to be hoped that the participating government. The sad fact is that the knowledgeable contemporary historians, politicians can bring a similarly newest state in Australia is Queensland, based on their books—Helen Irving, imaginative grasp to the table. created more than 140 years ago”.

Federations volume 1, number 1, march 2001 Brazil: tax reform and the “fiscal war” in the federation

BY RICARDO VARSANO

The stabilization and opening of pursue decentralized industrial policies. attempt to get additional incentives. They the Brazilian economy in the nineties, They have the legitimate goal of may even choose a location and simulate together with changes in international expanding their own production, the auction just to get a better deal from relations that we’ve come to call employment levels, and income. the chosen state. globalization, radically modified the And, of course, from the standpoint And, as it becomes more difficult to economic setting where Brazilian of any particular state, granting fiscal attract new investors, state incentive firms operate. incentives to attract and keep investment policies become more aggressive. This The current challenge is to reform the tax seems worthwhile. includes sending government officials system, which is inadequate to the new to other states in order to entice firms If we assume that companies benefiting circumstances faced by the country. into relocation. from such incentives would not otherwise The Brazilian tax system suffers from four choose to locate their businesses in the Conflict in the federation is exacerbated. major plagues: state offering the tax breaks—then the As the practice spreads out, its efficacy incentives don’t really cause losses in • cumulative taxation (which causes fades. Revenue goes down in all states. tax revenue. economic inefficiency and loss of And, since taxes have been equally competitiveness); Plus, aside from their direct impact on reduced everywhere, states ultimately production and employment, newly lose the power to induce relocation of • too much evasion (the results of attracted firms bring additional economic production. When the process reaches which are often fiscal inequity and activity, creating still more jobs and this stage, firms tend to choose their unfair competition); income, and, of course, tax revenue. locations considering only market and • excessive complexity (bringing in production conditions. If this were the whole story, state tax its wake awkward administration incentives would be a valuable Pressed by larger spending and reduced and high compliance cost); development tool. tax revenue, the financially weaker states, • and “fiscal war” (which causes which are the less developed, become But, when the successful experience a misallocation of resources and unable to provide services and public in one state is imitated by others, unrest in the federation). works necessary to attract new destructive fiscal war starts. investments from the private sector. Virtually all recent works on tax competition in federations conclude that At the final stages of the fiscal war, the The dynamics of fiscal war the last-named practice is pernicious. And more developed states win all the battles. there is ample evidence that the Brazilian One of the features of fiscal war is that, Disparities—already very large in the case fiscal war is wreaking havoc on state in effect, it tends to engulf all the players. of Brazil—naturally tend to increase. financing, and disturbing harmony and Firms benefiting from fiscal incentives are cooperation in the federation. conferred an advantage in relation to Preventing fiscal war competitors located in other states. These competitors often threaten to move into The practice of states reducing the value- An unequal federation the state granting the incentive unless a added tax to attract new investments Income disparities among Brazilian states similar benefit is offered in the state has been unlawful since 1975 (except are quite large. Per capita GDP of the where they are located. in cases where the intended reduction Southeast region is more than threefold is approved by all states). Yet the law Soon, to avoid the risk, all states engage that of the Northeast, and per capita GDP has been disregarded and the fiscal war in the war. of the richest state, São Paulo, is has intensified in recent years. sevenfold that of the poorest, Tocantins. When fiscal war is pervasive, large firms A change in interstate trade taxation rules are able to promote a kind of auction to When you take that into account, it’s may provide the result that the law was select locations for their plants, in an reasonable that state governments should not able to bring about.

Federations volume 1, number 1, march 2001 Almost all firms attracted to a state by tax may be levied by each level of tax”) and the federal tax on incentives have the bulk of their markets government. And, since 1965, industrialized goods (a partial elsewhere. Were these firms located in constitutional provisions have also VAT) with a “dual VAT”; one European Union country and their defined the general characteristics, • replacing the federal cascading taxes markets in another, governments would or even the details, of many taxes. with a non-cumulative tax; not be able to grant value-added tax So, in order to change the structure of incentives—because the tax rate on • and implementing a version of the the tax system and even the features exports from one member country to “destination principle” for interstate of certain taxes (the ICMS among them), another is zero. trade mentioned above. a constitutional amendment is required. But in Brazil, interstate sales are taxed Approval of an amendment proposal at a positive rate under the state value- Reform on hold demands hard political negotiation added tax, known as the ICMS. Interstate within the course of a long and The proposal, discussed throughout 1999, taxation provides the base for the complex legislative procedure. received 35 favorable votes out of a total incentive, which consists of a disguised of 36 in the special committee constituted refund of ICMS dues, generally in the A proposal to amend the constitution, to study it. Nonetheless it has been form of a zero or low interest long- presented to one of the Houses of strongly opposed by the Ministry of term loan. Congress, must first be submitted to Finance and by some state governments, its Constitution and Justice Committee in One way of undercutting this practice especially by those intensely engaged in order to have its constitutionality certified. would be to assign revenue arising from fiscal war. interstate trade to the state of destination (Yes, in Brazil, a constitutional Such opposition, which means the of goods rather than the state where amendment may be unconstitutional! ) proposal would hardly have any chance goods are made. This would limit the Next, a special committee, specifically of approval in the plenary of the House value of tax incentives to attract appointed to perform this task, analyzes of Representatives (and even less chance investments. They would only work to its merits. The committee may accept, yet in the Senate!), stopped it in its the extent that the goods produced in a reject or modify the proposal. If course and reopened the discussion. given state were sold in that same state. approved, the original or modified A tripartite commission—with Adoption of this destination principle version advances to the plenary, representatives of Congress, federal would also improve revenue prospects where it may be further altered. and state governments—was formed of less developed states, where Approval by the House requires in an attempt to reach an agreement consumption tends to be larger than favorable votes of at least 3/5 of its about the content of the tax reform. production. And it would solve some members in each of two ballots. The other problems that stem from current But, by March 2000, a deadlock was approved terms of the proposal, which interstate tax procedures. finally declared, the proposal was sent to may be utterly different from the original, the plenary, and the legislative procedure On the other hand, implementing are then presented to the other House suspended. The 1999 tax reform proposal the destination principle by zero-rating where a similar procedure takes place. is now lying, maybe forever, inside some the tax on interstate sales, as in the If modified, the proposal is sent back drawer at National Congress. European Union, would exacerbate to the former House for a final round some of the other major shortcomings of political negotiation. * * * of the value-added tax system in Brazil, such as excessive evasion and costly This does not mean that Brazilian tax An attempt at reform unfair competition. reform has reached the end of its journey. A constitutional tax reform process Those familiar with the stops and starts A better solution would be one in which was put in motion in 1995, soon after of past reform processes would bet this the destination principle is implemented discontinued, then reinstated in 1999. is just another delay. They believe that with the use of similar rates for taxation the process will be resumed, maybe of both out of state and intrastate sales. The main targets of the tax reform as soon as the first half of 2001. proposal were federal cascading taxes, (excellent sources of both revenue and The sooner the better, because if tax Tax reform as a distortions of all kind) and the ICMS, so reform is stalled it means not only constitutional matter intricate a tax that few realize it is—or was that fiscal war will continue upsetting Changing the Brazilian tax system is originally—a value-added tax (VAT). federative relations, but also that an extremely difficult task. investment will remain below its The reform proposal recommends: potential level and economic growth Since the republic was proclaimed and • substituting the ICMS, the existent will be sluggish. federalism adopted, in 1889, all Brazilian municipal tax on services (a “turnover constitutions have indicated which taxes

Federations volume 1, number 1, march 2001 The German Constitutional Court takes on the principle of ‘solidarity’

BY PAUL BERND SPAHN

A little more than two years ago three This conflict on equalization is effectively federal government (vertical fiscal Southern states (Baden-Württemberg, a dispute over how far Germany should balance) is mainly achieved by varying Bavaria, and Hessen) launched a go to practice what Europeans call the states’ share of the value-added tax. constitutional challenge to the system “interregional solidarity”. This is based on federal legislation, with of intergovernmental fiscal arrangements the cooperation of states through the Can this “solidarity” be promoted without in Germany. Bundesrat (the second chamber of generating negative incentive effects? the German parliament, consisting of Their quarrel with the system of interstate The Court did not answer this appointed representatives of the state equalization was that it redistributes question but took a formal approach governments). wealth to an excessive degree and to the technical aspects of the creates negative incentives. On the basis of an assumed fiscal balance intergovernmental fiscal machinery. among tiers of government, horizontal In its ruling of November 11, 1999 the fiscal balance among states is then German Constitutional Court declared Mechanisms for sharing the realized in three steps: the equalization law to be “transitory”, wealth in the German federation and ruled that it should be phased out • the regional apportionment of the as of the 1st of January 2005. In order to assess the Court’s ruling, it is value-added tax; essential to have a basic understanding The Court’s verdict has given some • an interregional redistribution scheme; of intergovernmental fiscal relations in support to an in-depth revision of Germany (see box below). • asymmetrical federal grants. the general philosophy of the German Constitution, and spurred farther- Considering that income taxes are The Constitutional Court found that there reaching discussions of intergovernmental shared among tiers in fixed proportions, is a lack of clear criteria for defining how fiscal relations. a balance between the states and the wealth should be redistributed between

How the German fiscal constitution works (taking effect in 1996). As a consequence, the states’ shares of the VAT have considerably increased reflecting the need to reach he almost complete lack of policy discretion of lower-level consensus with the Western states. At present the federal share T governments, and the inability of states to use their own tax of the VAT is 50.5 percent. instruments has promoted revenue sharing and intergovern- mental transfers for fostering national homogeneity in Germany. The horizontal equalization mechanism consists of three stages: Taxes are basically uniform and their proceeds are often jointly At a first level, the horizontal allotment of the VAT has a strong appropriated among layers of government. This is true for equalization element. Three quarters of the states’ share are about 75 percent of total revenue. Revenues from exclusive apportioned on population. Another quarter is reserved for states (but uniform) state taxes are only 4.4 percent of total tax. The considered to be “financially frail”. They receive supplementary sharing formulae are designed to balance fiscal resources transfers from the VAT to bring their fiscal potential per capita between layers of government (vertical equalization), and to level up to at least 92 percent of the average. out differences of regional tax potentials (horizontal equalization). At a second level, there is a specific horizontal equalization The constitution presumes that it is possible to define “necessary scheme (Finanzausgleich). Regional equalization is arranged expenditures” at both levels and to achieve a “fair compensation” among states in a “brotherly” fashion. The “rich” states between them. compensate the “poor” through financial transfers. The focus is on taxable capacity (as in Canada), with little or no concern for As regards the assignment of income taxes, the constitution is specific burdens. extremely rigid: half of the revenue falls to the federation, the other half to the states (with some participation of municipalities). At a third level, there are asymmetrical vertical grants: so-called The horizontal allocation follows the residence principle (with supplementary federal grants. Such transfers have been widely formula apportionment for the corporate income tax). “Fair used after unification—previously they were insignificant. In compensation” between layers of government is primarily particular, “gap-filling grants” have been introduced that achieved through the vertical splitting of the turnover tax (VAT). guarantee at least 99.5 percent of the average fiscal capacity Its allocation is governed by a federal law requiring the consent for all states. Moreover, nine states out of sixteen receive federal of the Bundesrat. grants to relieve the costs of “political management”, and the new Eastern states (as well as some Western counterparts) Vertical equalization was last revised in 1992 when the Eastern receive federal grants in compensation for “special burdens”. states were included in intergovernmental fiscal arrangements

Federations volume 1, number 1, march 2001 jurisdictions. And it requested greater The Constitution defines a yardstick for The federal government seems to accept transparency for fiscal equalization, both equalization between the states by the the Court’s request to calculate the financial among the states and between the states number of inhabitants. ability of states in a comprehensive sense. and the federal government. The Court, in its decision, criticized the But the reaction of the paying states remains existing practice of weighting of population to be seen. Some—in particular the richer Vertical equalization as a method to express specific burdens in “challengers”—would likely lose resources certain cases—such as in the case of city if this were done. Regarding the sharing of resources states. The Court requested a scientific between the federal level and the states, procedure of balancing, based on accurate the constitution demands a definition of Federal intervention data. But neither the federal government “necessary expenditures” at each level of nor the states have seen the need to act. The Court was particularly critical of federal government, and a “fair compensation” equalizing grants. among jurisdictions. The Court deems Moreover, the Court questioned elements this to be possible on the basis of objective of “specific burdens” (for instance of It stated clearly that federal grants must statistical data and medium-term planning. harbours) that have crept into the state-to- remain exceptional and transitory measures state equalization system. The Court said to mitigate the financial stress of particular Unfortunately, this is likely to be an illusion. they should either be abolished, or applied states. It is impossible to compare the necessity more generally on the basis of solid At present, federal grants have a strong of national defense at the federal level with statistical criteria. equalization effect on fiscal capacity per education at the state level without relying The Court points to a clear constitutional capita (99.5 percent of the state average for on value judgments. Objective “needs dilemma here. all states). They even have perverse effects— criteria” are more easily established among in that poorer states may end up at higher entities with comparable responsibilities at On the one hand, the Constitution requests capacity levels than the richest ones. subnational levels. It is perfectly feasible, an objective quantitative approach for for instance, to identify norms to allocate resource sharing between the federation The Court seems to have limited the resources among states for primary and the states. (And it should be noted degree of per-capita equalization to a education (e.g., the number of children many experts argue such an “objective” level of 95 percent of the average. The of school age, and student-teacher ratios). approach may be, in fact, unattainable). federal government will therefore have to reduce the number of its grants as well as In a first reaction (of September 2000) On the other hand, it says that population their magnitude. to the ruling of the Court, the federal is the sole criterion for distributing government has proposed to base the resources among the states (whereas an In a first reaction, the Federal Finance sharing of the value-added tax on the approach based on needs could, in principle, Ministry has indeed announced that federal actual budget and financial planning be possible). grants for relieving the costs of political exercise, in which the states are involved management would no longer be made. Given the German tradition, however, it is regularly. Moreover, the Finance Ministry unlikely that more specific criteria for needs States in a situation of budgetary distress regards a “law on general standards” (as in Australia) will be used in the future. would still receive grants in the future, but redundant for that purpose. The existing only for a limited time—and on a regressive machinery of value-added tax sharing The federal government is indeed prepared scale. States that are to receive such grants would generate similar coverage ratios to abolish “needs related” elements in its will have to present binding plans for between “current income” and “necessary equalization formula—such as the provision financial reorganization. The federal govern- expenditure” at each level. It would also for harbours. However, it wants to retain the ment and the states will share the burden of ensure fair compensation. weighting in favour of city-states, arguing such grants in relation to their spending. that there are peculiarities to be considered However, the Ministry considers an in the formula. Such peculiarities would be Overall, the ruling of the German automatic rebalancing mechanism for the based on more reliable and objective criteria Constitutional Court will require a value-added tax share to be useful. But it in the future. fundamental review of the existing German is unclear how criteria for managing such equalization law. But German lawmakers are a mechanism would be determined. Moreover, the Court wants “financial unlikely to allow the existing model to capacity”—the sole distribution criterion disappear completely. Rather they will likely for equalization among the states—to be Horizontal equalization among try to limit the changes, as much as possible, understood in a comprehensive way. Not the states to minor revisions. only tax revenue, but also other non-market The mainstay of the Court’s verdict is on income of jurisdictions (such as royalties In the Germany of the new millennium equalization among the states. The German and concession levies) would have to be interregional solidarity—the notion that there Constitution obliges lawmakers to take taken into account. Also municipal financial must be as great a measure of economic measures to equalize the differences in resources (now counted as elements of the equality in the federation as possible— the financial capacity of states. This refers states’ financial capacity by only 50 percent) continues to exert a strong hold on the to actual financial resources, not to a would have to be included in full. political culture, notwithstanding the stresses relationship between revenue and specific of unification. expenditure needs.

Federations volume 1, number 1, march 2001 the Practitioner’s page

Llibert Cuatrecasas of Catalonia, an advocate for the regions in the new Europe

Llibert Cuatrecasas is Secretary- without legislative authority. The national Is the Council of Europe becoming General for European Affairs in the government makes the laws and then the irrelevant? Catalan government, and is based in regions enforce them according to their Barcelona. In this capacity, he is the No. It was often said that once the local powers. President of the Council of Europe’s European Union was created, the Council Congress of Local and Regional The case of regions with legislative of Europe’s work could be phased out. Authorities of Europe. He is also authority is different, especially if these the Vice-President of the Congress’ But since the end of a divided Europe Chamber of Regions. regions have exclusive jurisdiction. In and the fall of the Berlin Wall, things such cases the region, rather than the have changed substantially. Mr. Cuatrecasas presided over the recent national government, makes the law Today there are 15 countries in the Conference of Presidents of Regions with to apply an EU decision. Legislative Power, held in Barcelona in European Union. The Council of Europe November 2000. Federations spoke This leads to de facto federalism. That has 41 member states and in a few with him about the role of regions with is, this hierarchy of regulations affects weeks will have 43, with the admission legislative power in the new Europe: the three levels: the EU, the nations, of Armenia and Azerbaijan. and the regions. Obviously, these member states of the Federations: What is the Working Once the working group was created, Council of Europe must adopt all the Group of Regions with Legislative one of its first tasks was to find out, in provisions concerning human rights. But Power? the most institutional way possible, the there are other important ones, like cross- Cuatrecasas: It is a working group that perspective of the regions as a group. border cooperation, the European Charter was created by the Chamber of Regions This was the reason for this conference. on Local Autonomy, the draft European Charter on Regional Autonomy approved of the Congress of Local and Regional Do you have some specific objectives by the Congress, which we hope will also Authorities of the Council of Europe. As for the future? the European region evolved, it became be ratified. The Final Declaration of this conference increasingly clear that the situation of I would say that the Council of Europe identifies the objectives. regions with legislative authority was has prepared all these states to effectively different, legally and politically. This It asks the national governments of implement the principle of subsidiarity, distinct legal situation is seen most Europe to pay more attention to their which is much clearer in the rules of the clearly perhaps in the case of the regions that have legislative authority. Council of Europe than in those of the European Union. It asks the national governments to European Union itself. let them participate fully in the life of How do the legal situations of the Right after the fall of the Berlin Wall, all the countries. regions differ? the states of Central and Eastern Europe For regions without legislative authority, It also recognizes the diversity of wanted to join the Council of Europe. But the European Union’s decisions and situations. The situation in Germany, to do so, they had to adapt their own directives are immediately binding on Austria or Belgium is not the same structures. Most of them saw fit to member states. The parliaments of as in Italy or Spain. regionalize to some degree—like Poland, the Czech Republic and Slovakia, and we these states have no authority to reject The next meeting, in the second half could mention several other countries in these directives because under the treaty of next year, will be held in the French- central and eastern Europe. of the European Union, its directives speaking part of Belgium, and in the apply immediately. meantime the working group can Basically, all this is applying the principles These EU-level decisions apply continue to talk about the issues. of the Council of Europe. All this immediately as well to those regions intergovernmental cooperation, harmonizing legislation and structures,

Federations volume 1, number 3, march 2001 is an essential precondition so that European change of mentality compared to what Union can be achieved. existed before between Latin American countries. It has the potential to be a really Why were the other states chosen to join large market and to organize itself as such, this working group? and I believe that they can do it. The other states with significant Of course, the present situation in Europe regionalization, like Italy and Spain, are of is different from other parts of the world, but course aware that they must change some in the long run it may not be so different if of their own structures to come closer to the rest of the world can consolidate more. a clearly federal model. Could this type of meeting be replicated This kind of federalism must recognize all elsewhere? the diversity that exists in Europe and that no European would want to give up. Yes, why not? Because sharing experiences is important. If we Europeans can offer ours Obviously, the system in Germany or Austria, as a guide, for example, so could Canada— which have highly developed federalism and which is a well-known case—the United allow for a variety of situations, is considered Because they have real power and exclusive States and Latin America. by other highly regionalized states as authority to develop policies and their own structures from which they can learn legislation, and since the system for debating The President of the EU suggested that about their own unresolved issues. legislation in the German federation is a regional system is the wave of the already highly structured, they do not want future. Does this imply the dissolution How do you think globalization and the the European Community to take this away of national governments? search for European unity affect how the from them. administrative regions are perceived? No, I don’t think so. If there is a clear The Germans were very concerned about distribution of powers, all three levels are It is hard to answer this question now— this for the past year or two, since they necessary. The national government plays this is a decisive moment for the already have such a policy development an essential role, namely to ensure public European Community. mechanism in which they participate so fully safety and the equality of rights and Much will depend on how this united that they are practically assured of obligations. So it would be hard to eliminate Europe is actually built. The German foreign supporting what the German federation it. In the long run, the European Union may minister always talks about a constitution for eventually does. provide these guarantees, but for now this is Europe. Sooner or later, we will have to face not how it works. For the rest, it remains to be seen. this issue. Do you think that the challenges facing It is interesting that those who are most European nations are different from those From the Final Declaration of the reluctant about the idea of a European of other nations? Conference of Presidents of Regions constitution are sometimes Germans. Why? with Legislative Power: It may be somewhat different because in Europe there has been a longstanding basic “[W]e call on the Committee of movement towards European unity. Ministers of the Council of Europe to From the Final Declaration of the adopt as rapidly as possible the draft Conference of Presidents of Regions Nationalism in Europe co-exists with European Charter of Regional Self- with Legislative Power: a feeling of European unity. Government, initiated by its Congress

th of Local and Regional Authorities of “We undertake to defend our The nation-state, which arose in the 16 or Europe . . . and thereby to recognise th regional cultural policy and the 17 century, may have fulfilled a worthwhile the specific status deserved by regions specific characteristics of some of simplifying function at one time. But now, with legislative power . . .” our regional sectors, in fields such this system will lead to impoverishment. as agriculture, health and education, “We also call . . . for the incorporation against the machinery of a global I think that the world today is moving into the EU Treaty of the extension of investment policy, in particular, and towards large markets and anyone who application of the subsidiarity principle against any attempts to bring about does not participate in a market of at to regions with legislative power . . .” harmonisation, standardisation, or least 300 million people will have even uniformity. In global “We also support the claims made negotiations, Europe must defend trouble defending himself. by the Committee of the Regions . . . especially the elevation of the its own model, based on regional Even the United States is a rather small cultural diversity. However, being Committee of the Regions to be aware of the danger of withdrawal market. In America, they felt the need a fully fledged institution of the into our own identity, and the to create NAFTA, which has been more European Union, the obligation for its xenophobia this may entail, we successful than expected. It’s better members to hold an elected office and undertake, on the contrary, to for Canada, and better for Mexico. the introduction of a right of appeal develop our specific regional for the Committee of Regions to the characteristics as the necessary In Latin America, Mercosur has been Court of Justice of the European basis for productive exchanges another attempt that has had some Communities in the event of a failure to respect its prerogatives.” with the rest of the world . . .” difficulties but has involved a complete

Federations volume 1, number 3, march 2001