TILBURG UNIVERSITY
HOW IS THE SHIFT FROM MINIMUM TO MAXIMUM HARMONIZATION REFLECTED IN THE PROPOSAL FOR THE DIRECTIVE ON CONSUMER RIGHTS AND IS IT LEGALLY FEASIBLE AND DESIRABLE?
Master thesis
LLM International and European Public Law : European Union Law 2009-2010
Edita Brozaityte Anr. 410202
Defended on 30th of June 2010 Supervisor: Maartje de Visser
Table of Contents 1. Introduction ...... 3 2. The historical development of consumer law at the EU level ...... 5 3. The changes due to the Review of the consumer Acquis: the Proposal for a Directive on consumer rights ...... 10 3.1. The lead-up to the Commission‟s proposal ...... 10 3.2. Explanation of the main changes included in the Proposal as compared with existing consumer policy measures ...... 13 3.3. The three objectives pursued by the Commission‟s proposal and their translation in the substantive content of the proposal ...... 18 4. The critique on the refusal versus the need of maximum harmonization by the Proposal ...... 25 4.1. Legal feasibility of the Proposal ...... 25 4.1.1. Competence to act in the field of consumer protection ...... 25 4.1.1.1. General overview of the EU‟s competences ...... 25 4.1.1.2. The special provision to act in the field of consumer protection ...... 27 4.1.1.3. The legal basis used to act in the field of shared competence ...... 29 4.1.1.3.1. Article 114 TFEU as the legal basis for harmonization ...... 29 4.1.1.3.2. Article 114 TFEU from the perspective of the Tobacco Advertising case ...... 33 4.1.2. The suitability of legal basis for the Proposal on Directive on Consumer rights ...... 38 4.2. The legal desirability of the Proposal ...... 40 4.2.1. The role of the subsidiarity principle ...... 40 4.2.1.1. The subsidiarity principle in the protocol of Amsterdam Treaty: the requirements to exercise the shared competence ...... 41 4.2.1.2. The subsidiarity principle as a ground for review of EU legislative measure ...... 42 4.2.1.3. The subsidiarity principle in the Treaty of Lisbon ...... 45 4.2.1.4. The subsidiarity issue in the Proposal for a Directive on consumer rights ...... 47 4.2.2. The advantageous side of the fragmentation of laws ...... 49 4.2.2.1. The fragmentation of laws as a component of the decentralization model ...... 54 4.2.2.2. The fragmentation of laws as a tool to gain experience ...... 56 4.2.3. The type of harmonization measure ...... 59 4.2.3.1. The types of harmonization ...... 60 4.2.3.2. The choice of the type of harmonization ...... 63 5. Conclusions ...... 68 6. Bibliography ...... 74
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1. Introduction
Each of us plays a role as a consumer on a daily basis in a large market of over 490 million consumers at the EU level, 27 Member States. Consumerism, the protection and promotion of the interests of consumers, have gradually been entrenched in the diverse European societies. On the one hand, this resulted in the twenty-first century society‟s lively interest in consumer rights, granted over the time by the legal systems of the Member States according to the preferences of their local consumers. On the other hand, it also affirmed a well-known fact that consumption is a purpose for production and it showed the close relationship between the market and consumer interests, which constantly functions in parallel. Even though an active enjoyment of consumer rights conditions higher welfare in our lives, it should not be forgotten that a lack of proper awareness of these rights can restrain it. However, for a subordinated relationship of market and consumer concerns to thrive, both elements have to be given adequate legal protection, firstly, at the national, subsequently, if needed, at the European level. There has been a growing interest in the consumer protection policy at the European level ever since the perception of its significance to the functioning of the internal market. Currently, a lack of consumer confidence in cross-border trade is identified as the major obstacle to the development of the internal market, the removal of which would enhance the European-wide economic integration. Additionally, from the EU‟s political perspective, the former European Commissioner for Consumer Affairs M. Kuneva stated in the ceremony of the 10th Anniversary of the European Consumer Day that in this time of crisis this objective is identified more like a necessity than a luxury. However, the tools to address this aim should be chosen carefully in order to maintain the best possible balance between market interests and a high level of consumer protection while trying not to subjugate the concerns of one for the good of the other. Recent legislative initiatives from the European Commission show a clear tendency to abandon the general policy of minimum harmonization, pursued until then in EU legislative instruments, which allowed the possibility to adopt national rules beyond the commonly set standard and instead insists on maximum harmonization. The Commission‟s Proposal for a Directive on consumer rights, presented on 8th of October in 2008, is also in favour of complete harmonization and will be used in this thesis to analyze this turnabout at the EU policy level. This measure was hailed among business representatives because of its objective to reinforce
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EU-wide cross-border trade by increasing legal certainty by setting a more predicable legal framework. Consumer stakeholders, however, widely criticize the Proposal and claim that its adoption could lead to an unacceptable leveling-down of certain consumer rights. In light of these divergent arguments of both parties, I decided that the Proposal was in need of in depth investigation. It marks the shift from minimum to complete harmonization at the EU level and this change must be assessed from the perspective of the Commission‟s argumentation which should be questioned in light of its sufficiency. In this work the focus will be on giving an answer to the following research question. Is the Proposal for a Directive on consumer rights legally feasible and desirable according to the legal structure of the EU system, in particular those provisions dealing with the EU‟s competences? The research will be structured and the arguments will unfold in 4 steps. Chapter 2 will, firstly, focus on the historical evolution of consumer law at the EU level by analyzing the institutional and substantive developments in the field of consumer protection. Secondly, it will explain the intimate connection between the consumer and the market interdependence, emphasized throughout most of the political documents. Chapter 3 will scrutinize the Proposal for a Directive on consumer rights in the following order: firstly, an overview of the consumer protection strategy will be given, secondly, the main change proposed by this measure will be described and the Commission‟s arguments to uphold it will be analyzed. Chapter 4 will be devoted to more principled two-part discussion. Firstly, we will examine if the Proposal is legally feasible in light of the principle of conferred powers. Secondly, we will ask whether the proposal is legally desirable in light of the subsidiarity principle and the type of harmonization proposed. Chapter 5 will subsequently provide an answer to the research question in light of the investigation carried out and will provide the conclusions.
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2. The historical development of consumer law at the EU level
Firstly, to understand the European Union‟s shift from minimum level of harmonization to the maximum one, we should take a look at the historical evolution of consumer policy at the EU level. This to concretize what role the policy of homo oeconomicus passives, i.e. as „passive market participant‟1 was given in the evolving market integration process, and how it has been elaborated during the time. Also the current tendency of stronger impact of EU regulation in this area by the recent promotion of total harmonization should be analyzed. The acquis communautaire on consumer contract law has developed very slowly and in a rather piecemeal fashion.2 The Treaty of Rome can be used as a starting point to illustrate the slow development of consumer protection policy. This is because it paid very little attention to the consumer in general as it contained only several references3, which emerged in the context of other EU policies and gave no explicit bases for making European Community legislation, as is needed according to the doctrine of the conferred powers (Article 5 (1) TEU). Thereby, the constitutional bases of the Treaties remained silent for a long time, showing only the indirect recognition of consumer interests, which were presumed to be satisfied if the conditions for the promotion of quality of life, as one of the aims indicated in Article 2 of TEU treaty4, were fulfilled.5 However, the achievement of this consumer welfare goal was always subordinated to the market integration process and did not have an autonomous role to put equally next to the other policies. Consequently, most of the legislative activity conducted by the EU, which affected consumers, was pursued in the name of economic integration achieved by harmonizing national laws.6 Harmonization was achieved through directives7 „which were adopted within the
1 Micklitz and others, Understanding EU consumer law (Intersentia, Antwerpen 2009) 2 Twigg-Flesner Christian and Daniel Metcalfe, „The proposed Consumer Rights Directive- less haste, more thought?‟ (2009) Volume 5, Issue 3, European Review of Contract Law, 368. 3 EC Treaty (Treaty of Rome, as amended) art 39.1 The objectives of the common agricultural policy shall be: <…> (e) to ensure that supplies reach consumers at reasonable prices; Article 40 .The common organization shall be limited to pursuit of the objectives set out in Article 39 and shall exclude any discrimination between producers or consumers within the Community; art 85 (3) and art 92(2) (a). 4 Ibid, art 2 5 Micklitz (n 1), 9. 6 Weatherill Stephen, EU consumer law and policy (Edward Elgar, Cheltenham 2005), 1-34. 5
framework of resolutions of Council and action plans of the Commission‟.8 Even though there existed no express legal basis for consumer policy at that time, the strong political will of Member States forced the evolution of the consumer policy through adaptation of directives, firstly, on the basis of Article 352 TFEU (ex Article 308 EC) and then Article 114 TFEU (ex Article 95 EC), which emerged as the result of SEA in 1986. „The use of Article 308 was at its highest during the ten year period which begun in 1975 and ended, with its peak, in 1985‟.9 For a long time only indirect measures were taken towards the consumer protection. Thus, vivid interaction on the policy level between Council and Commission finally led to the Commission‟s assertion that „because national consumer laws may affect market integration, they must accordingly be taken into account by Community [now EU] policy-makers‟.10 To begin with, the EU‟s approach towards consumer protection started after the Paris Summit (1972), when the heads of state and government called for political action in the consumer protection area. „Shortly after, the European Commission introduced the preliminary programme of the European Economic Community for a consumer protection and information policy (in April 1975)‟.11 First of all, the first Council resolution of 1975, which subsequently became the cornerstone of the Union‟s consumer legislation, summed up five fundamental consumer rights. These were the rights: to protection of health and safety, of economic interests, of redress, to information and education, of representation. This resolution, later on, was followed by the Council‟s Second Action Programme of 1981, stressing the effective exercise of these rights and by another resolution of 1986, which emphasized the importance of a high level of consumer protection, information and education. While the promotion of consumer policy was
7 Council Directive 76/207/EEC of 9 February 1976 on the implementation of the principle of equal treatment for men and women as regards access to employment, vocational training and promotion, and working conditions (OJ 1976 L 39/40); Council Directive 78/659/EEC of 18 July 1978 on the quality of fresh waters needing protection or improvement in order to support fish life (OJ 1978 L 222/1); and Council Directive 79/581/EEC of 19 June 1979 on consumer protection in the indication of the prices of foodstuffs (OJ 1979 L 158/19). 8 Weatherill Stephen „The evolution of European Consumer law and Policy: From well informed consumer to confident consumer‟, in Micklitz (Ed.), Rechtseinheit oder Rechtsvielfalt in Europa? (Nomos, Baden-Baden, 1996), 423. 9 The European Convention, Working group V « Complementary Competencies » ,Carl Fredrik Bergström and Josefin Almer , „The Residual Competence: Basic Statistics on Legislation with a Legal Basis in Article 308 EC‟, Working document 19 (2002) < http://european-convention.eu.int/docs/wd5/2319.pdf> accessed 31 May 2010 10 Weatherill (n 6), 9. 11 Věra Knoblochová , „Developments in consumer protection in the EU‟ (2006), Ministry of industry and trade of Czech Republic < http://www.mpo.cz/dokument13715.html> accessed 31 May 2010
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coherent in the light of the political documents, it took some time for it to be reflected in the framework of primary legislation. The recognition in the Treaties of consumer protection as an autonomous policy aim belongs to Single European Act (1986). This went together with the changes concerning the way in which EU can harmonize national laws - by inserting a new Article 114 TFEU (ex Article 95 EC), which accelerated the harmonization process due to the rule of „qualified majority vote‟ (QMV), whereas the previous only available Article 115 TFEU (ex Article 94 EC) demanded unanimity in the Council. Still, no specific legal basis for the legislation in the field of consumer protection was provided. Accordingly, all the directives were adopted under Article 114 TFEU (ex Article 95 EC): Directive 85/577/EEC on doorstep sales, Directive 90/13 on package holidays, Directive 93/13 on unfair terms and etc. Nevertheless, a change occurred with the entry into force of Maastricht Treaty in 1993, which finally resulted in explicitly giving the EU the legal competence to act in the consumer protection field. Consequently, this also complemented the strong previous belief that consumers should gain benefits automatically due to the ongoing process of market integration (by removing barriers to the circulation of good, services and persons12) with the possibility to take a specific action to support consumer policy measures taken by Member States. The consumer protection aim was embodied in the brand new Chapter XIV of the Treaty and resulted in the insertion of Article 169 TFEU (ex Article 153 EC).13
12 Micklitz (n 1) 13 Treaty on European Union (Maastricht Treaty) art153 1. In order to promote the interests of consumers and to ensure a high level of consumer protection, the Community shall contribute to protecting the health, safety and economic interests of consumers, as well as to promoting their right to information, education and to organise themselves in order to safeguard their interests. 2. Consumer protection requirements shall be taken into account in defining and implementing other Community policies and activities. 3. The Community shall contribute to the attainment of the objectives referred to in paragraph 1 through: (a) measures adopted pursuant to Article 95 in the context of the completion of the internal market; (b) measures which support, supplement and monitor the policy pursued by the Member States. 4. The Council, acting in accordance with the procedure referred to in Article 251 and after consulting the Economic and Social Committee, shall adopt the measures referred to in paragraph 3(b). 5. Measures adopted pursuant to paragraph 4 shall not prevent any Member State from maintaining or introducing more stringent protective measures. Such measures must be compatible with this Treaty. The Commission shall be notified of them. 7
Moreover, institutional recognition followed suit, when in 1999 consumer policy was given (together with health policy) its own Directorate-General (DG SANCO). In addition, since January 2007 it has had its own commissioner.14 Therefore, the current position of the DG can be mirrored by the words of the latter, that the Consumer strategy was „to establish a single, simple set of rights and obligations Europe-wide‟.15 Recently, DG SANCO has experienced one of the key changes when the responsibility for consumer contract and marketing law was moved to DG Justice, Liberty and Security (JLS). Even though we see that it was rather a long process for the consumer protection policy to gain an autonomous status and for its significance to be recognized at the EU level, the current question of intensity of the harmonization remains at stake and asks for in depth analysis. The strong desire to abandon the policy of minimum harmonization in favour of a full harmonization has emerged recently, as we will see in the light of newly presented measure, which should also guarantee the coherence of regulation in the consumer field. Therefore, several aspects should be taken into account before considering the Commission‟s newly proposed measure. Firstly, it must be emphasized that minimum harmonization was a traditional starting point in the field of consumer protection. „In the field of economic consumer protection minimum directives have traditionally been enacted on a regular basis setting certain minimum standards for all EU Member States‟.16Accordingly, early EU consumer protection directives17 as well as later instruments18 included a „minimum harmonization‟ clause, meaning that Member States were permitted to introduce or maintain in force provisions offering consumers a higher level of protection than provided by the directive. „The distortions of competition resulting therefrom need to be accepted as far as they result from minimum harmonization‟.19 Thus, the clear tendency of using minimum harmonization has prevailed ever since the primary legislation in this field of consumer protection setting minimum
14 Hesselink, Martijn W., „European Contract Law: A matter of Consumer Protection, Citizenship, or Justice?‟ (2007) Vol. 15 European Review of Private Law, 323. 15 Speech, M. Kuneva, European Commissioner for Consumer Protection, „European consumer policy in the 21st century‟, Challenges and opportunities for the Transatlantic Agenda, Harvard University, Cambridge, 2 October 2007, 5. 16 Micklitz (n 1), 40. 17 Council Directive 85/577/EEC of 20 December 1985 to protect the consumer in respect of contracts negotiated away from business premises, Council Directive 90/314/EEC on package holidays 18 Council Directive 93/13 on Unfair Terms and 99/44 on Consumer Sales, Council Directive 93/13/EEC of 5 April 1993 on unfair terms in consumer contracts OJ L 95, 21.4.1993. 19 Micklitz (n 16), 40. 8
standards that do not preclude the Member States from fixing higher levels of protection if needed. This was perfectly allowed under paragraph 5 of Article 153 (now Article 169 (4) TFEU), which stated that the measures, adopted pursuant to paragraph 4, would not prevent any Member State from maintaining or introducing more stringent protective ones. However, these measures had to be compatible with the Treaty and the Commission had to be notified of them. Thus, the choice of this type of harmonization gave freedom to accommodate the divergent needs of consumers of every single Member State. However, the striking change in harmonization policy is reflected in Commission‟s promotion of „full harmonization‟ in the process of the review of the consumer acquis. Undoubtedly, this corresponds also to several recent directives20 that embody the novel idea of complete harmonization. Secondly, the fact of strong connection between consumer policy and market integration cannot be ignored, as the proper existence of one necessitates the well-functioning of the other, in such a way as to create an enclosed cycle. This can be deduced from the historical development and recent documents in this field that „confident consumers are also regarded by the European Community as means <…> for the creation of a properly functioning internal market‟.21Accordingly, the reciprocal aspect of this connection results in the internal market serving the interests of consumers. In this case, the question arises, what factors influenced this move towards maximum harmonization in the field of consumer protection and how, if at all, can this type of measure be considered feasible and legitimate. „Whilst the EU has no express powers to harmonize consumer law, its policy of maximum harmonization based on internal market rationales threatens to appropriate power from Member States in this area‟.22 To understand this better, one should, first of all, focus on the content and objectives of the Commission‟s Proposal for a Directive on consumer rights.23
20 Council Directive 2005/29/EC on unfair commercial practices, Council Directive 2008/48/EC on consumer credit 21 Weatherill (n 6) 22 Ibid 14, 361. 23 Commission Proposal for a directive on consumer rights, COM(2008) 614 final
3. The changes due to the Review of the consumer Acquis: the Proposal for a Directive on consumer rights
3.1. The lead-up to the Commission‟s proposal
To understand the aim of this Proposal and changes it will bring, we need to look at the bigger picture and the role of the soft law instruments in this specific case – as the Common Frame of Reference24 process is a part of the consumer acquis, the revision of which was given priority.25 In addition, „the place of EU consumer policy will be at the heart of the next phase of the internal market‟.26 Thus, the previous propositions show a strong commitment of the EU to bring more coherence in particular to consumer policy. To achieve this, the „First annual progress report on European contract law and the acquis review‟ mentions possible choices between a vertical and a horizontal approach that could be taken to ensure more consistency. The Commission‟s Proposal, favours the latter one and at the same time adds the shift from minimum to the full harmonization. The Consumer protection strategy 2002-2006 should be taken as a starting point where the aim for full harmonization is expressly stated. „There is a need to review and reform the existing EU consumer protection directives, to bring them up to date and progressively adapt them from minimum harmonization to „full harmonization‟ measures‟.27 Furthermore, we can notice the emphasis on the clear interdependence of the two factors, consumer policy and internal market, by stating that the evolution of consumer policy is „the essential corollary of the progressive establishment of the internal market‟28 and the repetition in the recent policy
24 The Common Frame of Reference (CFR) is a long-term project which aims at providing the European legislators (Commission, Council and European Parliament) with a "toolbox" or a handbook to be used for the revision of existing and the preparation of new legislation in the area of contract law. This toolbox could contain fundamental principles of contract law, definitions of key concepts and model provisions,
document that an effective market is the „fundamental context for the consumer policy‟29 and consumer policy can benefit to improving the internal market. Moreover, the document indicates three shortcomings of minimum harmonization: wide divergences in prices, different consumer protection rules and lack of consumer confidence in the cross-border transactions. Accordingly, three priorities are presented to address them: a) an evenly high level of consumer protection throughout the entire EU; b) effective enforcement of legal provisions for the protection of the consumer; c) an appropriate participation of consumer associations in shaping EU policy. S. Weatherill states that there is no doubt that „the most central and controversial element in the policy menu <…> is the new commitment to maximum harmonization‟.30 Likewise, the recent EU Consumer Policy strategy 2007-2013 criticizes the primary dominance of minimum harmonization and supports the total harmonization by stating that „this [minimum harmonization] approach was entirely valid at a time when consumer rights were very different between the Member States and e-commerce was non-existent <…> In order both to improve the internal market and to protect consumers, legislation should not, within its given scope, leave room for further rules at national level‟.31 The formula of minimum harmonization is de- emphasized and the lack of confidence of consumer together with the undesirable diversity of national laws in this field are identified as the main obstacles for the development of consumer policy. On 8th February 2007, the Green Paper on the Review of the Consumer Acquis was adopted, which concludes the diagnostic part of the review (then still of eight directives) and clears the way for the public consultation. Emphasis is placed on reaching a balance between a high level of consumer protection and the competitiveness of enterprises, while paying respect to principle of subsidiarity, is emphasized. We find arguments that, later on, are used by the Commission to support its position for the changes concerning the review of directives, including the level of harmonization. Firstly, the decrease for business in compliance costs encouraging
29Communication from the Commission to the Council, the European Parliament, the European economic and social Committee EU consumer policy strategy 2007- 2013: Empowering consumers, enhancing their welfare, effectively protecting them, Brussels, 13 March 2007 COM (2007) 99 final.7. 30 Weatherill (n 6) 27. 31 Communication from the Commission to the Council, the European Parliament and the European Economic and Social Committee - EU Consumer Policy strategy 2007-2013 - Empowering consumers, enhancing their welfare, effectively protecting them, COM(2007) 99 final.
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cross-border trade, simplification and improvement of directives due to the modernization to meet the requirements of „rapidly evolving markets‟32 are mentioned. Then, the obstacles previously identified are reflected in this document by stating that minimum harmonization and inconsistent regulation by the directives are the source of fragmentation which puts the breaks on market integration and have negative effect on cross-border sales. To strengthen the reasons mentioned before, the lack of consumer confidence is illustrated by the percentages supporting such issues as cross-border e-commerce purchase, returning the product and etc.33 It is important to notice that degree of harmonization is broadly analyzed repeating the same reasons: the consumers‟ lack of confidence related to the unknown level of protection in other Member State, and in the case of businesses –additional costs due to the compliances with the different laws of the Member States. „These issues reflect regulatory shortcomings and consumer protection lacunae in the acquis. In most of the cases, which have been brought to the Commission‟s attention by various consumer and business stakeholders, the issues arise from the use of the minimum clauses and regulatory options by the Member States‟.34 As we can see, the diversification of regulation on the national level is understood as the reason for the reluctance of both, consumers and businesses, to trade across borders. The Impact Assessment for the Proposal indicates the same obstacles due to the heterogeneity of laws on national level in consumer policy showing its twofold nature. The complete harmonization option prevails as it is claimed that it will help to meet the two results of the review by setting common rules and removing inconsistencies. Next to that, 5 other different policy options are presented and evaluated: status quo, non-legislative approaches, minimum legislative changes, medium legislative changes, maximum legislative changes, full harmonization with an internal market clause. Each of them is investigated concentrating on such points as their contribution to the better functioning of the internal market, minimizing the burden of EU legislation and enhancing and improving the quality of legislation. Accordingly, each of these policies, if chosen, should provide for different measures depending on different goals. Though all of them are judged to have a minor positive effect, the Commission feels that
32 European Commission Green paper on the Review of the Consumer Acquis, COM (2006) 744 final, p.6
„the negative aspects of fragmentation would not be remedied‟.35 Furthermore, the possibilities of the other options as OMC (Open Method of Coordination) are simply rejected, as it is argued that this case is in need of coordinated EU intervention. Thus, we can draw the conclusion that the idea of the full harmonization process elaborated in a consistent way throughout all these soft law documents and in such a way functioned as the basis for the emergence of the Proposal for a Directive on consumer rights. However, the argumentation, supporting this kind of alteration, from minimum to complete harmonization, in consumer policy, still has to be questioned in the light of its sufficiency. The outcome of the review process resulted in the Proposal for directive on consumer rights, which was presented on 8th of October 2008 by Commission and is of a big significance as a part of the Consumer Acquis Review because of its intention to make use the instrument of the full harmonization.
3.2. Explanation of the main changes included in the Proposal as compared with existing consumer policy measures
In this paragraph we will disclose the significance of the Commission‟s Proposal to the field of consumer protection by showing that the key change it will bring, in comparison to earlier consumer protection measures, is the shift from minimum to complete harmonization. In addition, the content of the Proposal and the Commission‟s arguments to support this change will be presented. The major aim of the Proposal as such is the review followed by the codification of four chosen directives (Directive 1999/44/EC on sale of consumer goods and guarantees, Directive 97/7/EC on distance selling, Directive 85/577/EEC on doorstep selling , Directive 93/13/EC on unfair contract terms) into one document, what would practically lead to their simplification, adaptation to the current market demands, bringing the norms to the uniformity and easier appliance on the national level. Therefore, the content of this measure will be introduced thereinafter.
35 Commission staff working Document accompanying the proposal for a directive on consumer rights, Impact Assessment Report,
The Proposal for a Directive on consumer rights consists of seven chapters followed by Explanatory Memorandum, five annexes and a legislative financial statement. The first chapter presents the subject matter, definitions and the scope of the directive. „The purpose of this Directive is to contribute to the proper functioning of the internal market and achieve a high level of consumer protection by approximating certain aspects of the laws, regulations and administrative provisions of the Member States concerning contracts between consumers and traders‟.36 Then, Article 3 defines the scope by stating that the proposed directive is applicable to „sales and service contracts concluded between the trader and the consumer‟ with certain exceptions indicated in paragraphs 2-4. The directive explicitly entrenches the aim of full harmonization in Article 4.37 Later on, the second chapter is related to general consumer information duties and requirements for it, as the biggest third chapter presents the provisions for consumer information and withdrawal right for distance and off-premises contracts. The fourth chapter indicates other consumer rights, which are specific to sales contracts, while the fifth concentrates on the consumer rights concerning contract terms. Finally, the last two chapters present the general and final provisions. The proposed measure is followed by an extensive public consultation (business and consumer stakeholders) and is expected to be adopted on the bases of the Article 114 TFEU (ex Article 95 EC)38 which would call for the necessary reasoning for the completion of the internal market. However, to bring this Proposal fully into effect also the requirement of maximum harmonization has to be addressed. Accordingly, one should take a look how this alteration of the type of harmonization is reflected in the Proposal and in its supporting documents. Firstly, the Explanatory Memorandum of the Proposal serves to reveal its grounds and aims. „The objective of the proposal is to contribute to the better functioning of the business-to- consumer internal market by enhancing consumer confidence in the internal market and reducing business reluctance to trade cross-border‟.39 As we will see later in other documents supporting the Commission‟s argumentation, the motivation for this type of measure relies on ensuring
36 Ibid 23, art 1 37 Ibid 23, art 4: Member States may not maintain or introduce, in their national law, provisions diverging from those laid down in this Directive, including more or less stringent provisions to ensure a different level of consumer protection. 38 Ibid. 23, Explanatory Memorandum 39 Ibid. 23, Explanatory Memorandum, 2. 14
effective cross-border trade which directly corresponds to the welfare of consumers due to lower prices and higher confidence to participate in the cross-border market. However, the positive aspect, necessity and the importance of specific regulation of consumer policy formed in each Member State as a result of minimum harmonization by freely chosen means, is left aside, mentioning only the negative outcome it brings – the diversity of laws. It is stated that the move towards maximum harmonization would result in „decreasing the fragmentation, tightening up the regulatory framework and providing consumers with a high common level of consumer protection and adequate information about their rights and how to exercise them‟.40 In addition, the adoption of the Proposal and the new type of harmonization would encourage the cross- border trade because of diminished compliance cost as well. „The proposal moves away from the minimum harmonization approach followed in the four existing Directives (i.e. Member States may maintain or adopt stricter national rules than those laid down in the Directive) to embrace a full harmonization approach (i.e. Member States cannot maintain or adopt provisions diverging from those laid down in the Directive)‟.41 Now, the idea that the confidence of consumers will entail their better participation in cross-border shopping seems reasonable and at the same time would contribute to the strategic goal of the Union set out in Lisbon Strategy , i.e. „ to become the most competitive and dynamic knowledge-based economy in the world‟.42 Secondly, the compliance cost for business in a cross-border trade situation are given a main role to ground the need for such legislative action, as well as the possible future results – reluctance to trade cross- border or higher prices of products. Nevertheless, the extent of „full targeted harmonization‟43, supported also by the EP44, would encompass only a limited part of consumer policy (the previously mentioned four directives), which is also criticized often by the academics as too narrow (Mak Vanessa, Howells Geraint.). The avoidance of previously in the Green Paper indicated other four directives, that had to be also under review but was decided not to form the part of the horizontal instrument, is explained as due to „the lack of contract law matters in them or being of the specific sector nature‟.45
40 Ibid. 41 Ibid. 39, 3. 42 The Lisbon Strategy (2000 – 2010), < http://ec.europa.eu/index_en.htm> accessed 31 May 2010 43 Ibid. 39, 3. 44 Ibid. 45 Weatherill (n 6) 15
Moreover, it is presumed that the Proposal, because of its limited scope, will not affect significantly the general contract law in the Member States (i.e. rules on the conclusion, validity of contract and etc.). However, an indirect influence still can be noticed because, first of all, these rules in the Proposal will have to be complemented and will play in the wider area of general contract law in practice, secondly, these rules will have to be adapted in Member States to fit their national law, what will possibly also result in additional expenses. Thirdly, major stress is put on the statement that this instrument follows bottom-up approach and accordingly in line with the Green Paper on the review46, the majority of the stakeholders „called for the adoption of a horizontal legislative instrument applicable to domestic and cross-border transactions, based on full targeted harmonization; i.e. targeted at the issues raising substantial barriers to trade for business and/or deterring consumers from buying cross- border‟.47 This argument is followed by another one, which is also in favour of complete harmonization and affirms that this change would assure the same level of protection to consumers while shopping abroad and would not deter the businesses from cross-border trade due to the divergent compliance costs. „Full harmonization would not only entail the repeal of the minimum harmonization clauses; it would also imply the elimination of the regulatory options available to Member States on specific aspects by some provisions in the directives, which could result in modifying the level of consumer protection in some Member States‟.48 Minimum harmonization combined with mutual recognition or country of origin clause are presented as alternative options. However, they are immediately rejected based on argument that it „would not simplify and rationalize the regulatory environment. Regulatory fragmentation would continue to exist and its negative effects on consumers' confidence in the internal market would not be removed‟.49 Subsequently, the reasoning to address the subsidiarity principle is one sided, stating that „the legal fragmentation problem cannot be solved by the Member States individually since it is the different implementation by the Member States of the minimum harmonization clauses contained in the existing directives that is at the root of the problem‟.50
46 Ibid. 33 47 Commission staff working paper, Report on the outcome of the public consultation on the green paper on the review of the consumer acquis, < http://ec.europa.eu/consumers/cons_int/safe_shop/acquis/acquis_working_doc.> accessed 31 May 2010 48 Ibid. 33, 11. 49 Ibid. 33, 13. 50 Ibid.39, 6. 16
However, other, non-legislative possibilities are not analyzed, the focus being only on the coordinated Union intervention which should address ultimately the needs of the internal market and consumer. Then, the Impact assessment report provides detailed information on the negative results of the legal fragmentation to support the need of total harmonization. Lastly, it is agreed that the uniformity of these rules of consumer law would bring more coherence, but compliance with the principle of proportionality raises certain doubts. It is true, that „a dual regime is avoided by regulating the key aspects of the consumer contract law as regards both, the domestic and cross-border contracts, what results also in the reduced administrative costs for business‟. 51Nevertheless, the refusal of other possible „softer‟ measures is expressly stated - „self-regulation or co-regulation would not solve this legal fragmentation problem‟52- without any further explanations. This brief overview of the Explanatory Memorandum supporting the Proposal, the Green Paper and Impact Assessment report gives a general idea about the aims of this Proposal, which testifies to the increasing tendency in favour of maximum harmonization. The aspect of complete harmonization will be analyzed more in depth in the last part. It will also add a critique in light of reactions in the literature that „a somewhat worrying picture emerges of a European consumer policy with a totalitarian aspiration‟.53 Furthermore, due to the lack of comprehensiveness in argumentation supporting the complete harmonization measure, further steps will be taken to examine how the Commission‟s arguments are reflected in the Proposal itself.
51 Ibid.39, 6. 52 Ibid.39, 8. 53 Ibid.14, 14. 17
3.3. The three objectives pursued by the Commission‟s proposal and their translation in the substantive content of the proposal
A sound argumentation is needed to support the Commission‟s ambition towards maximum harmonization. This means that after the adoption of the proposed Directive– the possibility of divergence of regulations on national level disappears. The reasoning of Commission should be carefully examined as the enacted proposal, on one hand, may lead to realization of policy plans on EU level, but on the other one, to quite invidious outcomes on national one. In this part, we will present the main three reasons that Commission relies on and to see how they are reflected in the Proposal itself and other political documents. The question to address in the remainder of this paragraph is how the proposal proposes to address or eliminate the barriers that it claims result because of minimum harmonization. The first reason given is that differences in the legislation of all Member States create certain barriers for the internal market to flourish. It is argued that „the smooth functioning of the internal market can be affected due to the existence of compliance costs and reduced consumer confidence because of the broad variations of consumer protection policies in every single Member State‟. 54 This statement was supported by „the majority of the respondents‟55, who took part in the 2008 Eurobarometer survey56, given that total harmonization would enhance the number of traders wishing to participate in cross-border sales if a uniform regulation was adopted on EU level. In this case, the question arises, whether the public is capable of answering all the formulated questions, embodied in the Green Paper, and can the conclusions be drawn based on the public opinion instead of the more convincing scientific facts, research? Hence, the direct causality between distinct regulations on national level and not so intensive growth in cross-border distance sales, compared with the domestic distance sales, can be questioned as there is not enough „empirical evidence to support this argument‟.57 However, the responses to the Green Paper can be distinguished in different ways. „For instance, the Member States can be discerned
54 Ibid.23, recital 6 55 Consumers: Commission proposes EU-wide rights for shoppers, Press release, Brussels, 8 October 2008 < http://europa.eu/rapid/pressReleasesAction.do?reference=IP/08/1474> accessed 31 May 2010 56 Eurobarometer Consumer Protection in the Internal Market, survey conducted February to March 2006, published in September 2006.
from the consumer organizations, which in turn can be distinguished from the business sector‟s responses‟.58 Next, it seems that language, culture59 and differences in technical rules60 play a more important role in this case, but are not analyzed this time. As this first argument relies mostly on the outcomes of the public consultation, indicated in the form of percentages, the homogeneity of its results can be also questioned. Firstly, the vast majority of businesses support maximum harmonization and the majority of consumers support minimum harmonization. „It is striking in this respect that the Commission does not provide a percentage for this second majority, we do not know if it is quantitatively comparable to the first figure given, or a bare majority, for example‟.61 The other fact, which makes the whole picture more blurred, is refusal to indicate the four Member States which are in favour of the existent level of harmonization as it would accordingly bring more transparency to the results of the survey. Additionally, the obstacle for the development of the market argument is supported by the case of direct subordination between legal diversity and differences in prices all over the EU. Consequently, „large differences exist between average price levels of the individual Member States which consumers could take further advantage of‟.62 However, this kind of argumentation is taken as not plausible as „this type of rhetoric is not based on facts‟.63 In addition, the Green Papers notes that compliance costs for businesses include: cost for acquiring relevant legal advice, changing information and marketing material or contracts. Also that the clarification of the rules would result in an immediate increase of consumer confidence according to the percentages of the previously mentioned survey. „Consumers should be able to rely on the equivalent rights and have resort to equivalent remedies if something goes wrong‟.64
58 Rutgers Jacobien W. and Ruth Sefton-Green, „Revising the Consumer Acquis: (Half) Opening the Doors of the Trojan Horse‟, (2008) European Review of Private Law, 6. 59 Wagner Gerhard, „The economics of harmonization: the case of Contract law‟, (2002) 39 Common Market Law Review, 77. 60 Faure Michael, „Towards a Maximum harmonization of Consumer Contract Law?‟ (2008), 15 Maastricht Journal of European and Comparative Law, 433. 61 Ibid. 59,13. 62 Ibid. 56 63 Smits, J.M., „Full harmonisation of consumer law? A critique of the Draft Directive on Consumer Rights‟, TICOM Working Paper on Comparative and Transnational Law 2009/2, Tidskrift Juridiska Föreningen (2009) nr.3- 4, 573. 64 Ibid. 33,4. 19
The Explanatory Memorandum indicates that the costs for businesses are significant, that these constitute „an important barrier to cross-border trade‟65 and are likely to result in an additional burden for consumers in the form of higher prices. The Community traders who wish to expand their business cross-border „would significantly reduce their administrative costs due to full harmonization‟.66 According to Eurobarometer 2008, the additional costs of compliance with different national laws regulating consumer transactions are seen by 60% of traders as a fairly or very important obstacle to B2C cross-border trade.67 Subsequently, the general increase in compliance cost because of the legal fragmentation and low level of consumer confidence in cross-border shopping is mentioned in the Proposal‟s recital 7th, whereas in 23rd and 28th recitals the emergence of these costs is linked to „varying lengths of the withdrawal periods‟. „Fragmentation also undermines consumer confidence in the internal market. The negative effect on consumer confidence is strengthened by an uneven level of consumer protection across the Community‟.68 Thus, the reasoning of Commission for the increase in compliance costs is reflected in all the documents and relies mostly on the results of the survey and provides no additional empirical scientific evidence. An even „lighter‟ approach is taken towards the reasons provided for the increase in consumer confidence. The process of uniformity, brought about by full targeted harmonization, is seen as expedient in itself and does not need to take the other side of the coin, the position of the consumer, into account so seriously. That is, however, seen as inadvisable at the bare mentioning of the previous indication of the coherent relation between market integration process and better protection of consumer, which pleads for the balance of their interests, backed by the empirical evidence and clarity of facts. Jan M. Smits stresses another aspect that even if full harmonization of consumer law would lead to more cross-border transactions, this is, as such, not decisive. „In an economic analysis, this factor should be weighed against other factors, such as the fact that harmonization can be costly‟.69
65 Ibid. 39, 2. 66 Ibid. 39, 6. 67 Ibid. 36, 7. 68 Ibid. 23, recital 7. 69 Ibid. 64, 6. 20
The second reason, which is given by Commission for the invoking of the total harmonization, is the removal of multipartite nature of regulation in the consumer law field. The question which will be addressed is how the Commission proposal (in its various articles) seeks to achieve it. In theory this aim, as the result of codification, indeed leads to more coherence and clarity, but in practice it can also face a number of shortcomings. Firstly, it must be noted that only a small part of consumer law, which is under review, would be absorbed by the remaining larger part of the national contract law. More precisely, „consumer law is a lex specialis, which derogates from general contract law‟.70 Therefore, the fact of the limited scope of the ongoing review in practice can still condition the variations of national law due to the national contract provisions trying to interplay with this „reviewed‟ consumer law part, which, in its case, on the contrary, are no more allocated room for variation due to the chosen type of harmonization. „In this respect, maximum harmonization is a relative concept‟.71 However, several aspects could be examined in this case to see how the aim of uniformity of rules is reflected in the content of the proposal. The EC Consumer Law Compendium presents the results of a wide-ranging study prepared for the European Commission by an international research group.72 It illustrates the current situation regarding the withdrawal period and comes to several conclusions. Firstly, the possibility of the uniform cooling-off period is addressed by the fact that „only a few member states have provided for longer periods‟73 than 14 days, and that this action would facilitate the business to set up cross-border marketing. „The introduction of a harmonized standard withdrawal form to be used by the consumer should simplify the withdrawal process and bring legal certainty‟.74 These statement could also be supported by the fact that „these rules are sufficiently complete and have integrated a lot of experience from the cases that arose under
70 Ibid.2, 372. 71 Mak, Vanessa, „Review of the Consumer Acquis: Towards Maximum Harmonization?‟ (2009)Vol.1, nr. 1 European review of private law, 55. 72 Schulte-N lke, Hans; Twigg-Flesner, Christian, EC consumer law compendium: the consumer acquis and its transposition in the member states (Sellier European Law Publishers, Munich 2008), 1. 73 EU Consumer law compendium, Comparative analysis, 751.
existing rules‟75 and while being of the technical nature can easily receive the form of complete harmonization. Thus, the result of it is embodied in Chapter III, Article (12) – (19) of the proposed Directive. Another issue, in relation to which the maximum harmonization seems possible, is related to the information duties. „As the existing consumer protection directives were adopted over a period of 15 years, there is a degree of incoherence/inconsistency in the form requirements‟.76 This is evident when we look at various notions in directives: the Doorstep Selling Directive (85/577) requiring only a written notice (Art. 4), the Unfair Terms Directive (93/13) demands that if contracts are in writing, they must be in plain and intelligible language (Art.5), the Distance Selling Directive (97/7) requires the information to be provided in a clear and comprehensible manner; appropriate to medium of distance communication used (Art. 4). A divergence in the various national laws in this matter does, however, create at least the potential of creating a barrier to trade.77 Thus, the unification of content of this duty could contribute to the coherence objective as it is embodied in Chapter II, III of the Proposal. The final third argument relies on the objective to ensure high level of consumer protection and is related to the previously presented arguments. The remainder of this paragraph investigates how the Commission proposal seeks to ensure this. This „high level of consumer protection‟ approach is itself inoperable as, first of all, there are no criteria according to which we could decide what level suppose to be the „high‟ one for the whole European Union. In other words, „what might be called a high level of protection might not be high enough, according to some, and too high, according to others‟.78 Moreover, the self-evident diversities in the regulation of each Member State exist because of the national preferences that each state wants to maintain while it is the „best‟ in its particular case. „The Commission aims at setting this one European level but this level will be always too low for some Member States (such as Netherlands and Finland) while too high for others (such as some of the Central-European countries)‟.79 Finally, we come back to the previously indicated outcome. The fact that growth in
75 Storme, Matthias, „Editorial: Consumer Rights Proposal and Draft CFR‟, (2010) vol. 1, European Review of Private Law, 2. 76 Ibid. 74, 777. 77 Ibid. 74, 778. 78 Ibid. 59, 14. 79 Ibid. 64, 7. 22
lack of consumers‟ confidence is a consequence of variety of national laws should be based on well-founded evidence. „The reason for consumers‟ mistrust of carrying out cross-border transactions is no doubt much more complex and deep-rooted than this‟.80 The Explanatory Memorandum mentions the objective of assuring a high level of consumer protection and stresses the compliance of the Proposal with Article 38 of the Charter of Fundamental Rights of the European Union, which states that „union policies shall ensure a high level of consumer protection‟.81 In addition, this objective is reflected in the preamble of the Proposal for a directive on consumer rights in the recitals (3-6, 8, 56 and 63) and entrenched in its first article. Also the Green Paper notes the link between consumer confidence and a high level of consumer protection but refuses to provide a more detailed argumentation. „In other words, consumers‟ confidence in the internal market must be stimulated by ensuring a high level of protection across the EU‟.82 The Impact Assessment report focuses on the fact that minimum harmonization conditioned not only the fragmentation of laws but also the achievement of a high level of protection. „As a consequence Member States have made extensive use of the possibility to ensure a higher level of protection for consumers in their country‟.83 It affirms that the Member States were given a chance to make use of the previous minimum harmonization rules to achieve the necessary level of consumer protection. The question arises, if they have already succeeded in doing this while trying to move beyond the minimum standards and adapt the regulation to the preferences of their citizens. „The Commission apparently aims at setting one European level bud does not give any information for why this level would be the best one and without asking whether present differences could be the result of varying preferences in Member States‟.84 In this case, we may even find ourselves under the impression that the European level of protection insists to be taken for granted without any proper argumentation and to put aside the level of each Member State which has elaborated according to country‟s specificity and the preferences of the consumers. Finally, all three reasons contain in themselves certain shortcomings. As regards the first one, which relies on decrease in transaction cost for businesses and increase in consumer
80 Ibid. 59, 7. 81 Charter of Fundamental Rights of European Union, (2000/C 364/01), OJ C 364/1, 18 December, 2000, Article 38 82 Ibid. 33, 4. 83 Ibid. 36, 11. 84 Ibid. 64, 7. 23
confidence, is supported by Commission‟s argumentation that the barriers to trade are significant but lacks scientific evidence alongside the data provided by the Eurobarometer 2008 survey. Vanessa Mak states that „there is, therefore, a clear economic benefit (for individual businesses but also for intra-communal trade in general) to maximum harmonization of consumer legislation. The danger for consumers, however, lies in the fact that such economic benefits may be even greater where the level of consumer protection is set at a lower standard‟.85 Accordingly, to prove that the balance between businesses and consumer concerns is maintained, more detailed information should be provided. The second reason, which aims to provide the same set of rules for consumer protection, which apply throughout Europe, could be accepted. However, removing fragmentation of laws does not necessarily require this change in type of the harmonization. Therefore, even if we accept the previous two arguments and presume that maximum harmonization is urgent in this case, the third argument could not go along with them. This is because the concept of a „high level of consumer protection‟ lacks clarity and „is a matter of speculation‟.86 „It provides a certain safeguard, at least to ensure that consumer interests are taken into account and to emphasize that consumer policy is necessary as a counterweight to a market policy oriented only at economic interests‟.87 Since the optimal level of consumer protection has been set in each Member State while taking into account national preferences, this argument, which aims for a standard of consumer protection to be set by EU legislation, should „at some stage be subjected to serious scrutiny‟.88 Having reviewed the contents of and the objectives offered by the Commission for the Proposal for a directive on consumer rights, we shall now turn towards its legal feasibility and desirability.
85 Ibid. 72, 13. 86 Ibid. 87 Ibid. 88 Ibid. 24
4. The critique on the refusal versus the need of maximum harmonization by the Proposal
There exists a precise scheme of two levels, stipulated in the primary EU law: first, the requirement for the measure to contain sufficient input for the reinforcement of the operation of the internal market what leads to acquisition of the right to harmonize; second, the ability to sustain control of the principles of subsidiarity and proportionality, that, if undergone successfully, grants the EU the right to exercise that competence.
4.1. Legal feasibility of the Proposal
After the presentation and examination of the Proposal on a Directive for consumer rights and the argumentation given by the Commission, we will take a more critical view from the perspective of the feasibility of this maximum harmonization measure. First of all, the requirements for the competence will be analyzed, paying particular attention to the Article 114 TFEU (ex Article 95 EC) and its interpretation by the European Court of Justice. Secondly, the role of the subsidiarity principle will be presented.
4.1.1. Competence to act in the field of consumer protection
4.1.1.1. General overview of the EU‟s competences
We should start with a general overview of the EU competences. „Their extent and degree have varied in the course of time, and have seen extensions- in some cases also a restriction - of powers‟.89 In this case, the role of the ECJ cannot remain unnoticed as there has been a constant influence on the development of the EU legal order through its „expansive interpretation of Community‟s competence‟.90 However, the signs that the position of the Court is getting more critical towards this aspect can be seen in, firstly, Opinion 2/9491, which stresses the narrow interpretation of 352 TFEU (ex Article 308 EC), secondly, in the Tobacco
89 Reich Norbert ‘Understanding EU law: objectives, principles, and methods of community law’, (Intersentia , Antwerpen 2005), 41. 90 Tridimas Takis, ‘The general principles of EU law’, (Oxford University Press, Oxford 2007), 180. 91 Opinion 2/94 Accession to the ECHR [1996] ECR I-1759 25
Advertising Directive92 case, where the measure was decided to be of excessive nature and to fall beyond the scope of the Article 114 TFEU (ex Article 95 EC). Moreover, according to the doctrine of conferred powers it is axiomatic that all the measures taken by EU must fall within the EU‟s competence, the limits of which are set by the Member States, as the masters of the Treaty, and have to be exercised in compliance with the subsidiarity and proportionality principles. Thus, this is a founding framework of the Union system, which uses different types of instruments, formal and informal, to develop its policy. This is also clearly stated in Article 5 of TEU and Article 7 of TFEU and reflected also in the case law of ECJ „<…> that the powers of the Community are limited to those specifically conferred on it‟.93 Now, the change brought about by the TFEU must be noted, that different types of competence are explicitly indicated: exclusive (Articles 2, 3 of TFEU), shared (Article 4 of TFEU) and complementary (Article 6 of TFEU) competences. Thus, this division accordingly determines the different conditions and extent of Union measures that can be taken while exercising its powers in a particular field. First, the attribution of exclusive competence to EU means that „only the Union may legislate and adopt legally binding acts, the Member States being able to do so themselves only if so empowered by the Union or for implementation of Union acts‟.94 In fields of the shared competence, under Article 2 (2) TFEU, the Member States can legislate and adopt legally binding acts in that area to that extent that the Union has not exercised its competence yet or „has decided to cease exercising its competence‟.95 On the other hand, every time the Union acts in the field of shared competences, the true necessity for this has to be proven meeting the test of subsidiarity and proportionality. What is more, the Lisbon Treaty includes a special Protocol on the exercise of shared competence96 which consists of one article and emphasizes the restraints for the EU to act while exercising this type of competence. Under complementary competence the measures taken by EU can be directed only towards the support, coordination or supplement of the actions of the Member States. Therefore, it must be noted that where the competence of EU begins, that of the Member State ends. „The very fact
92 C-376/98 Germany v. Parliament and Council [2000] ECR I-8419 93 Case C-376/98 Germany v. Parliament and Council (Tobacco advertising I) [2000] ECR I-8419 94 The Treaty of Lisbon art 2(1) 95 Ibid. 94, art 2(2) 96 The Treaty of Lisbon Protocol (25) on the exercise of shared competence 26
that EU competence is shared, in different ways in different areas, makes the task of „limiting‟ or „defining‟ EU competence even more problematic‟.97 In our case, we find consumer policy mentioned among the other policies of shared competence in Article 4 (2) (f) TFEU. In addition, it should be mentioned that in the Lisbon Treaty shared competence is presented stating that it will be recognized in the areas „which does not relate to the areas referred to in Article 3 and 6‟.98This accordingly immediately brings into play the principle of subsidiarity, the importance of which will be discussed hereinafter, as the Union in this area of policy „lacks exclusive jurisdiction‟.99 Moreover, Title XV (Article 169) of TFEU embodies the former Article 153 of TEC in an identical manner, except moving para.2 to the new Article 12 TFEU. Accordingly, Article 12 TFEU states that consumer protection requirements shall be taken into account in defining and implementing other Union policies and activities.
4.1.1.2. The special provision to act in the field of consumer protection
Hence, if we take a look now at the construction of the new article 169 TFEU, we notice two possible ways, having different outcomes (in their relationship with the internal market) for the EU to act in this sphere, indicated in paragraph 2. Firstly, the possibility (a) serves for the measures adopted in context of the completion of the internal market, which is usually a directive based on 114 TFEU (ex Article 95 EC) and accommodates the interests of the internal market. Secondly, option (b) allows for the adoption of measures more of supplementary nature that would consequently lead to a consumer policy which would be more „independent of the internal market‟100 as only the possibility to „support, supplement and monitor‟101 national laws is given. Thus, we may say, that this article is of double faced nature and in the latter case the question of possible movement towards maximum harmonization does not arise. This is because the option of Article 169 (2) (b) TFEU (ex Article 153 (3) (b) EC) sets only the „minimum standards‟
97 Craig Paul and De B rca, Gráinne, EU law: text, cases, and materials,(Oxford University Press, Oxford 2007), 107. 98 Ibid. 94, 4. 99 Micklitz (n 1) 100 Micklitz (n 1) 101 Ibid. 94, art 114 TFEU 27
possibility jointly with Article 114 TFEU (ex Article 153 (5) EC). In addition, in the case of minimum standard harmonization the valuable aspect is that Member States „are entitled to raise but not to lower the level of the protection‟.102 However, in the majority of the previous cases, also for the four Directives that fall within the scope of the Commission‟s Proposal, it was decided to adopt measures regarding consumer protection using 114 TFEU (ex 95 EC) and Article 169 (2)(a) TFEU (ex 153 (3) (a) EC). „In effect, only Directive 98/8/EC on unit pricing is based on lit (b) para. (2) of Article 153 EC‟.103 In addition, para.3 of the latter article also gives an obligation for the Commission to apply a high level of protection „when making proposals inter alia on consumer protection‟.104 Therefore, among scholars there exists the idea that lit (b) could be used also for codification purposes of „at least the existing EC consumer contract law‟.105 For example, Norbert Reich indicates that „there is agreement that the already existing acquis in EU consumer law needs consolidation and even codification‟.106 Moreover, he rejects the possibility of using directives in this case stating that they have caused additional distortions of competition, and believes that a separate codification of EU consumer law should be done by creating a European Consumer Contract Regulation (ECCLR). „Thus, this could be done using Article 153 (3) (b) EC ( now 169 (2)(b) TFEU) as a legal basis aiming for such objectives as: a) to consolidate the acquis (i.e. eliminate existing contradictions, improve its legal structure and terminology and coordinate remedies), b) to develop a general part of consumer law (the concept of consumer, the principle of information and fairness), c) to concentrate only on “essential” rules regarding consumer protection in the EC and leave the details to the Member States‟.107 Furthermore, the choice of this measure is believed to have a double advantage because of its direct applicability and allowance of „minimal harmonization without excluding Member State differentiation in consumer contract law if the States so decide‟.108
102 Micklitz (n 1), 34. 103 Micklitz (n 1), 59. 104 Ibid. 105 Reich, JCP 2005, 400 with detailed proposals; similar Rosler, RabelsZ 2007, at 502. 106 Reich Norbert, „A European Contract Law, or an EU Contract Law Regulation for Consumers?‟ (2005) 28 Journal of Consumer Policy, 383. 107 Ibid. 106, 401. 108 Ibid. 106, 404. 28
4.1.1.3. The legal basis used to act in the field of shared competence
4.1.1.3.1. Article 114 TFEU as the legal basis for harmonization
It must be noted that the question of the competence was of less importance in the early days of consumer policy as the latter was based on the general competence to approximate as per Article 115TFEU (ex 94 EC). However, harmonization of laws has always been under the competence of the EU (in this case, Article 114 TFEU acting as the general basis for harmonization measures for the purpose of the internal market) and many harmonization measures adopted pursuant to it „were perfectly based on the perception that legislative diversity damaged market integration‟.109 Consequently, it was presumed that common rules were in need because of the intimate connection between harmonization and „market-making‟.110 Regarding the functioning of the Union‟s system, „there would always be a need for harmonization legislation enacted by the Community institutions to help the market to function properly while at the same time protecting vital public interests such as consumer protection and public health‟.111 A big step forward in the process of adoption of harmonization measures was taken with the SEA, which introduced Article 95 EC in addition to Article 94 EC and in such a way opened the passage for the approximation of national laws done with the requirement of QMV in the Council instead of unanimity, which had to accelerate the whole process. This article is a residual legal base. It consists of ten paragraphs, with two of them, the fourth112 and the seventh113, of significant relevance in this case as they introduce the possibility for a Member State to derogate from a harmonization measure by maintaining or introducing national
109 Weatherill Stephen, „Why harmonise?‟ in Tridimas Takis; Nebbia Paolisa, European Union Law for the twenty- first century : rethinking the new legal order (Vol. 2 International market and free movement community policies), (Oxford University Press, Oxford 2004), 11-32. 110 Ibid. 111 Barnard Catherine, The substantive law of the EU: the four freedoms,(Oxford University Press, Oxford 2007), 567. 112 Ibid. 94, art 114 (4) 4: If, after the adoption of a harmonisation measure by the European Parliament and the Council, by the Council or by the Commission, a Member State deems it necessary to maintain national provisions on grounds of major needs referred to in Article 36, or relating to the protection of the environment or the working environment, it shall notify the Commission of these provisions as well as the grounds for maintaining them. 113 Ibid. 94, art 114 (7) 7 : When, pursuant to paragraph 6, a Member State is authorised to maintain or introduce national provisions derogating from a harmonisation measure, the Commission shall immediately examine whether to propose an adaptation to that measure. 29
provisions. This is made clear in the judgment of Commission v. Council (VAT)114, which requires that the existing more specific Treaty provisions should be used to attain the internal market, that is, Article 114 TFEU is „to be used where there is no other suitable provision‟.115 Consequently, that resulted in boundary-dispute problems in the past due to the choice of the correct legal basis for Community legislation. In addition, the ECJ clarified that the choice of the legal basis for an instrument should be made by making certain that „the regard should be had to the nature, aim and the content of the act in question‟.116 In general, Article 114 TFEU (ex Article 95 EC) is of a wider scope when compared with Article 115 TFEU, as it is not limited only to directives as possible instruments, but also allows for other measures to be adopted to assure the harmonization of internal market, while nevertheless, preferring directives to regulations.117 Additionally, para.2 of Article 114 TFEU also mentions an exclusion as it is not applicable in the case of fiscal provisions, and measures relating to the free movement of persons and rights, and the interests of employed persons. The purpose of Article 114 TFEU which is to „have as their object the establishment and functioning of the internal market‟118 should not be forgotten. This is necessary to face the previous shortcomings due to the unreasoned choice of the latter article as a legal base, in practice, by some authors even called „false‟119 harmonization. This resulted in several directives that were adopted pursuant to this provision „with no serious expectation that they would advance the process of market integration‟120, recognizing a broad and ,one can say, even unlimited use of this article of wide scope. Thus, here we notice a case of „competence creep‟ when the EU acts exceeding the powers attributed to it by Member States. This expansion of competence is usually achieved „not by Treaty revision, but by over-ambition practiced by the EC‟s legislative institutions‟.121 However, this practice is entirely impermissible as it goes against and „takes dangerously lightly‟122 the principle of conferred powers, which is entrenched
114 Case C-533/03 Commission v. Council (VAT) [2006] ECR I-1025, para.45 115 S.Crosby, „The single Market and the Rule of law‟ (1991) 26 ELRev. 451. 116 Case C-300/89 Commission v. Council [1991] ECR I- 2867; Case C-426/93 Germany v. Council [1995] ECR I- 3723; Case C-271/94 European Parliament v. Council [1996] ECR I-1689. 117 Amsterdam Treaty protocol on the application of the principles of subsidiarity and proportionality, art 6 118 Ibid. 94, art 114(1) TFEU 119 Ibid. 110, 20. 120 Ibid. 121 Ibid. 6, 14. 122 Ibid. 6, 72. 30
in Article 5(1) TEU. To continue, several examples should be given to clarify why this Article together with Article 352 TFEU (ex Article 308 EC) was reconsidered in the Laeken declaration 2001, and were called the „motors of „competence creep‟.123 Firstly, this was the case of Directive 85/577 on Doorstep Selling which was based on then Article 94 EC, by reasoning this choice in the Preamble with the simple existence of disparity of national legislation which was expected to affect the functioning of the market. Secondly, Directive 76/160 in the field of environmental protection could serve as another example where the demand for harmonization was based on the provisions of the Preamble, which then provided the reasoning grounded in the existence of a direct impact of the national laws on the functioning of the market, although the „treaty at that time afforded no competence to pursue such a policy in its own right, but unanimity in Council <…> launched the EC as an active environmental regulator‟.124 Under these circumstances, we see that, even though no express competences were as yet granted to pursue such policies, this did not stop the EU from taking „a functionally expansive view of existing competences‟125, including harmonization. In other words, „this effect of „spillover‟ was for a long time neither accidental nor politically controversial in communautaire practice‟.126 For instance, S. Weatherill notes that before there was no political will to question this and the Member States were fully aware and content that the Treaty competence to harmonize resulted in invasion of national competences, leaving the principle of conferred powers „dormant‟.127 Correspondingly, the ECJ also expressed its affirmative position in the Procureur de la Republique v. Adhhu128 case, where it conformed to the regular legislative practice by stating that environmental protection was „one of the Community‟s essential objectives‟, forgetting that at that time the Treaty had no explicit provisions to support such a position. Therefore, one may state that for a certain period of time the fact of „competence creep‟129 was widely accepted as it was strongly supported on the policy level. In addition, the previous case law, rendered before the Tobacco Advertising case, reveals other fluctuations in the position of the ECJ towards 114 TFEU. For instance, the attempt to
123 Ibid. 6, 79. 124 Ibid. 110, 21. 125 Ibid.125 126 Ibid. 126 127 Ibid.127 128 Case 240/83 Procureur de la Republique v. Adhhu [1985] ECR 531 129 Ibid. 110, 22. 31
adopt the Titanium Dioxide directive was based on Article 192 TFEU (ex Article 175 EC) which was a lex specialis in relation to Article 114 TFEU (ex Article 95 EC). However, the latter was favoured by the ECJ bringing the condition of the „appreciable distortion of competition‟, what was much criticized as it allowed „procedural rules to determine the choice of legal basis rather than the substantive content of the measure‟.130 This was because „the Court‟s judgment may have disguised a policy preference for Article 95 <…> when Article 95 required the more democratic co-operation procedure, allowing for a greater involvement of the European Parliament‟131 in comparison to simple consultation in case of Article 175 EC. Then, the Waste Directive132 which was adopted under Article 192 TFEU (ex Article 175 EC) was followed by the claim of Commission to change the legal basis to Article 114 TFEU but, finally, this was rejected by the ECJ stating that this measure had „only the incidental effect of harmonizing market conditions within the Community‟.133This also proves that, not without the reason, the Laeken Declaration 2001 picked up Article 114 TFEU as one of the Treaty articles requiring explicit attention and revision, since the process of harmonization disregarded the limits of EU competence and accordingly started causing a threat to the autonomy of national regulation. To summarize, it must be noted that there exists no competence to harmonize per se. The harmonization competence found in Article 114 TFEU is related to the process of market- building and always constrained by the principles of subsidiarity and proportionality. Hence, even though, this power to adopt measures in order to approximate the national law is considered as „the most important power conferred upon the Community‟134 the usage of Article 114 TFEU usually brings simultaneously politically and legally sensitive issues while questioning, in general, to what extent a harmonized standard should replace the diverse national standards? In this case, the ECJ played an essential role by precluding the emergence of an unlimited interpretation of the competences that are vested under the Article 114 TFEU.
130 S. Crosby n.110,464. 131 Ibid. 112, 582. 132 Council Directive 2006/12/EC of 5 April 2006 on waste, Official Journal L 114 , 27/04/2006 133 Case C-300/89, Commission v. Council (Titanium dioxide case) [1991] ECR I-2867, para.19 134 Ibid.89 32
4.1.1.3.2. Article 114 TFEU from the perspective of the Tobacco Advertising case
To start with, in the 1990s it was believed that differing national rules on tobacco advertising and sponsorship were becoming a barrier to the free movement between Member States of the products and services carrying them. This is why the EU tried to resolve this problem by adopting a directive which would ban tobacco advertising in the print media, on radio and over the internet, and also prohibit tobacco sponsorship of cross-border events or activities. However, in 2001 the ECJ ruled in the famous Tobacco Advertising case135 that this directive had no valid legal basis and that the EU legislator acted ultra vires. It was done by highlighting the conflict over competences and referred by the Federal Republic of Germany against the Directive 98/43/EC which was related to the approximation of laws and which almost entirely prohibited advertising and sponsoring of tobacco products. Now, the content of the case should be briefly explained to understand the meaning of the ECJ decision. To begin with, the action was brought by Germany under Article 230 EC for the annulment of the Directive 98/43/EC which was based on Article 114 TFEU, 64 (2) and 74 TFEU (ex Articles 100a, 57(2) and 66 EC). Additionally, the applicants expressed special emphasis also on Article 168 TFEU (ex Article 152 EC). First of all, the applicants noted that Article 114 TFEU (ex Article 100a) was not a proper legal basis for the adoption of this measure of secondary EU law. Thus, they grounded their arguments in the fact that the Directive covered mostly an „activity whose effects do not extend beyond the borders of individual Member States‟136 and that the press was the only significant form of „non-static‟ advertising media in economic terms which forms a very limited intra-Community trade. These facts were strengthened by the statement that in general the competition between manufacturers of advertising products does not exist as tobacco advertising strategies are primarily nationally orientated. Additionally, they argued that the „centre of gravity‟ of the directive was focused not on promoting the internal market but on protecting public health (what could be seen from its content and purpose) what made the use of Article 114 TFEU not possible as well as the Article 168 (4) TFEU (ex Article 129(4) EC) while harmonizing measures are prohibited in the field of public health (Article 168 TFEU). However, the Commission tried to counter this argument by
135 Ibid. 93 136 Ibid. 93, para.13, 16. 33
stating that „it is clear from the wording of the third and fourth recitals in the preamble to the Directive and the place occupied by them that the protection of human health is one of its objectives, pursued in the context of the provisions of Article 114 (3) and (4) TFEU (ex Article 100a (3) and (4) EC) but that it is not the principal one‟.137 Then, the other argument of Commission dealt with the change of objectives of Directive due to harmonization -„the emphasis on public health protection in the Directive can be explained by the fact that it constituted the main, or indeed even the sole, objective of the national measures being harmonized, but, in the context of that harmonization, it became a secondary objective‟138- was also not considered convincing by the ECJ. The detailed opinion of Advocate General Fennelly, delivered on 15 June 2000, explains that the competence and legal basis are the most important issues in this case. Accordingly, he argued that if Article 114 TFEU is used, it has to be clear from the facts of the case how a comprehensive ban, as proposed in the directive under scrutiny, is likely to contribute to the internal market, which should, accordingly, in some way benefit from the Advertising Directive. Although such an aim is not expressly stated, the Advocate General found that „it is clear both from the content of the Directive and from its complementary aim of taking into account the health protection of individuals that it was intended radically to reduce trade in the services in question, or, at the very least, that such an outcome is inevitable‟.139 Subsequently, Advocate General came to conclusion that if the sole objective of this directive was to prohibit economic activity, then it cannot simultaneously be the one constituting the removal of barriers to trade affecting that activity. The decision of the Court was provided, firstly, affirming that in this case „the national measures affected are to a large extent inspired by public health policy objectives‟.140 Then, the Court explained that Article 114 TFEU can be used only if the measure genuinely have as its object the improvement of internal market and does not rely only on mere findings of disparities between „national rules and of the abstract risk of obstacles to the exercise of fundamental freedom‟.141 In addition, the directive could be designed to prevent the emergence of future
137 Ibid. 93, para.54 138 Ibid. 93, para.56 139 Ibid. 93, opinion of Advocate General, para.113 140 Ibid. 93, para.76 141 Ibid. 93, para.84 34
obstacles to trade as well. However, such future obstacles had to be likely. After an analysis of the content of the directive, the ECJ decided that the Directive contained no provision ensuring the free movement of products which conformed to its provisions. Furthermore, it moved to an explanation of distortions of competition where the Court stressed that these distortions must be appreciable because the reverse situation would render the powers of Community unlimited. Thus, analyzing the facts of the case, it found that „the effects to competition were either remote or indirect and did not constitute the appreciable distortions‟.142 As such, the outcome of the decision reflected the opinion of Advocate Fennelly who stressed that „the Community legislator was manifestly in error, or manifestly exceeded its discretion, regarding its assessment of the benefits likely to accrue in fact to undertakings active in the affected field and to the establishment and functioning of the internal market‟.143 In the end, the directive was annulled because of a lack of a proper legal basis. Firstly, Article 168 TFEU was not an option as the Union was not conferred the needed powers and could not act to adopt the harmonization measures in the health protection sphere. The competence was specifically, limited by Article 168 (4) (c) TFEU which provides that the Council can adopt „incentive measures designed to protect and improve human health, excluding any harmonization of the laws and regulations of the Member States‟.144 Secondly, the ECJ gave its interpretation on the chosen legal base –Article 114 TFEU as a residual clause, and formulated the rule that this specific article cannot be invoked just because of the existing differences in the legislation of Member States („a mere finding of disparities between national rules‟145) because this would accordingly result in the recognition of unlimited powers of EU and would be contrary to Article 5(1) TEU. What is more, it is clear that the EU may not use its internal market power „to avail itself of competences (e.g. health policy) it does not enjoy by express Treaty provision‟.146 Finally, the ECJ decided that the directive did not have as its purpose the abolition of obstacles to the free movement of goods and services and that the diversity of advertising rules in Member States did not result in appreciable distortions of competition.
142 Ibid.93, para.109 143 Ibid. 140, para.113 144 Ibid.97, 572. 145 Ibid.93 146 Ibid.89 35
The Court in its Tobacco Advertising judgment (2002) formulated the legal test for reliance on Article 114 TFEU as a legal basis by explaining that it could be used in „two alternative situations: (a) where the legislation contributes to the elimination of likely obstacles for the internal market; or (b) where the legislation contributes to the removal of appreciable distortions of competition which are likely to arise from diverse national rules‟.147 Furthermore, the first ground (a) encompasses also potential obstacles to trade when it was „probable‟ that the obstacles would arise in the future.148 The second ground (b) partially overlaps with the first one as any obstacle to trade is also likely to distort competition, but is of a broader nature. Thus, it brings the presumption that the choice of the second option will always ask for an interpretation and evaluation of the concept of „appreciable distortions of competition‟ as the fact of the diversity of the national laws is likely to remain stable. The ECJ also acknowledged the right to legislate to deal with „likely‟149 distortions, demanding them to be also „appreciable‟150 but it also stressed that it was not possible to rely on this article „with a view to eliminating the smallest distortions of competition‟151 , where the effects were of an indirect and remote nature. „The EU enjoys no carte blanche to harmonize laws under Article 114 TFEU. Article 5(1) TEU matters’.152 In this judgment the ECJ set the guidelines for the use of Article 114 TFEU. Firstly, even though this article is broadly framed, there are certain limits to it and it does not „give any general power of market regulation‟.153 In other words, the threshold for reliance on this article as an instrument for harmonization is much higher than the one which was mentioned in the older cases, where the political wish and lack of reasonable justification for compliance with the requirements of the Treaty for harmonization purposes, prevailed. Secondly, there exists a strong demand that the substance of every measure, relying on this article, has as its genuine aim the improvement of the conditions for the establishment and functioning of the internal market. Thirdly, it is believed that the possibility to invoke Article 114 TFEU in the case of mere differentiation of national laws when there is only the abstract risk of an impediment to the
147 Ibid.112, 573. 148 Ibid. 93, 97. 149 Ibid. 134 150 Ibid.93 151 Ibid.151 152 Ibid.110, 27. 153 Ibid.97 36
exercise of the fundamental freedoms, would finally render judicial review of compliance with the proper legal bases „nugatory‟.154 All these implications are interrelated and complement each other. Moreover, the creation of these specific requirements by the ECJ only emphasizes the fact that to try to rely on the smallest distortions of competition to justify the use of Article 114 TFEU could eventually result in the violation of the conferred powers doctrine. Accordingly, this brings the understanding that the limits of this legal basis as set by the ECJ are in order to preserve the constitutional balance at the European level. A subsequent case, a revised Tobacco Advertising case 2006155, withstood a legal challenge directed to the validity of its legal basis. In first case the ECJ had stated that it was possible to introduce a legitimate ban on tobacco advertising and sponsorship, provided it would be of a much more limited scope. Accordingly, certain modifications to the content of this directive were made by including a free movement/mutual recognition clause which was missing in its predecessor. „The 2003 Directive adheres strictly to the limits laid down by the Court in its 2001 judgment‟ states Commission in one of its press releases on questions and answers on tobacco advertising‟.156 One may state that the process of tailoring the directive to the requirements of the test formulated in the first decision finally secured its validity. The Court held that the conditions warranting the choice of Article 114 TFEU as the legal basis were met.157 To be precise, the ECJ motivates its decision, firstly, by the statement that the divergent measures taken by the Member States will result in different levels of protection. „On the date when Directive 2003/33 was adopted, disparities existed between the Member States‟ national laws governing the advertising of tobacco products, and those disparities were such as to impede the free movement of goods and the freedom to provide services.‟ 158 Accordingly, these differences led to an appreciable risk of distortions of competition. Further, the ECJ grounds his arguments by adding that those adopted measures have to be in line with the requirements of Article 114 (3) TFEU and „with the legal principles, mentioned in the EC Treaty or identified in
154 Ibid.93,para.84 155 Case C-380/03 Germany v. European Parliament and the Council, (Tobacco advertising II) judgment of 12 December 2006, E.C.R. I-11573. 156 Press release on tobacco advertising,
the case law, in particular the principle of proportionality‟.159 Thus, this decision once again reaffirms the tendency that as long as the conditions for the previously mentioned test are met, Article 114 TFEU can unquestionably be used as a legal basis. In brief, the „green light‟ is given to the EU to intervene by adopting the desired measures while using Article 114 TFEU and justifying such a choice by, practically speaking of the „inevitable‟ differentiation of Member States‟ laws that is likely to create different levels of protection. However, the question arises in this case again, whether there exists a constant causal link between the divergent rules of protection of the Member States and the obstacles for the fundamental freedoms. Accordingly, we see that the different laws of Member States in this case are given the status of inevitable obstacles for the functioning of the market. This leads to questioning if such an approach complies with the EU‟s promoted respect for cultural differences and national identities of the Member States and will be analyzed thereinafter.
4.1.2. The suitability of legal basis for the Proposal on Directive on Consumer rights
To continue, the competence of EU to develop an independent consumer policy is vested in Article 169 TFEU. It has to be read simultaneously with Article 4(2) (f) TFEU, which strengthens consumer protection by expressly including this field among other policies of shared competence. In the case of the proposed Directive on Consumer rights we see that the Commission has assumed the competence to impose a Directive with full targeted harmonization which leaves no room for the Member State to adjust their laws to the individual needs of their consumers. Firstly, there is no broad explanation given in the Explanatory Memorandum for the use of Article 114 TFEU as the statement of the legal basis is followed immediately by the assessment of the subsidiarity and proportionality principles. Secondly, the Impact Assessment report confines itself to presenting the bases for shared competence to attain the objectives outlined earlier. Article 169(1) and (2) (a) TFEU provide that the EU is to contribute to the attainment of a high level of consumer protection by the measures it adopts pursuant to Article 114 TFEU of the internal market.160 Consequently, „legal and other compliance costs are indicated as the result of different regulations at the national level, which form the regulatory
159 Ibid.159 160 Ibid.36, 14. 38
barrier to the completion of the internal market‟161 and coordinated action at the EU level is presented as the most appropriate solution. Moreover, the Preamble of the Proposal rewords162 the position of the Impact Assessment and supplements it by making a reference to Article 26 (2) TFEU noting that „the harmonization of certain aspects of consumer contract law is necessary for the promotion of a real consumer internal market striking the right balance between a high level of consumer protection and the competitiveness of enterprises, while ensuring the respect of the principle of subsidiarity‟.163 After all, the proximity of the internal market and consumers is reflected in the definition „a real consumer internal market‟, which testifies their interdependence. One could question, if the proposal, if it becomes law, would survive the test developed by the ECJ for the use of Article 114 TFEU. According to the decisions in the first Tobacco Advertising case the conclusion should follow that the measure should actually contribute with a considerable added value to the removal of existing trading barriers or would remove the appreciable distortions of competition to enhance the functioning of the internal market. The gravity of the arguments provided in the Commission‟s documents lies, firstly, in the aim to strengthen the internal market, which can be done if the test, formed by ECJ, is met. However, the Commission‟s argumentation cannot be considered convincing as it still lacks strong and sufficient evidence to fulfill the requirements of the previously indicated test. Accordingly, the consumer interests would be addressed in a subordinated manner as envisaged under Article 114 (3) TFEU. However, one should take notice of the assessment of Commission‟s arguments provided for the Proposal, where the lack of sufficient reasoning continues to exist, while trying to prove that the fragmentation of laws has only negative aspects and forms a significant obstacle to cross-border trade.
161 Ibid.161 162 Ibid.23, recital 3 163 Ibid.23, recital 4 39
4.2. The legal desirability of the Proposal
4.2.1. The role of the subsidiarity principle
If we stick to the precise scheme indicated before, one must not forget that the acknowledgment of a competence to harmonize does imply the right to act in this field but with certain conditions. „The fact that the Community has competence to pursue harmonization under the terms of Article 95 does not necessarily mean that Directive in issue satisfies the test of subsidiarity‟.164 This is particularly important because we are dealing with a field of shared competence and the question which remains inevitable is: why should this objective be pursued at the EU rather than at the national level? Next to that, „there may be more intense questioning of the assumption that it should be pursued – economic arguments may be at stake, but so too cultural objections to harmonization‟.165 Meanwhile, Craig and de Burca propose to see the subsidiarity principle from the perspective of three separate ideas: first, that the action cannot be sufficiently achieved by the Member States, second, that this action can be better achieved at the EU level, third, that if the EU decides to take the action it should not go beyond what is necessary to achieve the Treaty objectives. The first two ideas were recognized as a test of comparative efficiency166 and the last part of the formulation defines the proportionality test. Thus, to illustrate the second level of the scheme, which the measure intended to harmonize must pass in order to show at which level, EU or national, measures should be taken, the significance of the subsidiarity will be presented. The Maastricht Treaty officially brought the subsidiarity principle into EU law, with the objective of limiting the „competence creep‟ on the Member State powers. The content of this principle, which is usually recognized as one of a procedural or political nature, is stated in Article 5 (3) TEU (ex Article 5(2) EC), accompanied by the Protocols annexed to the Amsterdam and Lisbon Treaties, but still its meaning of it is „far from clear‟.167 Hereinafter, the Protocols on the subsidiarity principle will serve to describe the content of this principle.
164 Ibid.90, 175-192. 165 Ibid.110, 31. 166 Commission Communication to the Council and the European Parliament, Bull.EC 10-1992,116 167 Ibid.97, 100. 40
4.2.1.1. The subsidiarity principle in the protocol of Amsterdam Treaty: the requirements to exercise the shared competence
Attention should be paid to the content of the previous and new Protocols on subsidiarity. To start with, the Amsterdam Treaty brought the Protocol on the application of the principles of subsidiarity and proportionality which gave a detailed application of the principle of the subsidiarity for the EU institutions. It was illustrated by the suggestions that directives are to be preferred to regulations and Union measures should leave as much scope for national decisions as possible. It strengthens the notion that it is, in general, preferable for the EU to set the general outline and leave the Member States to choose differing ways of implementing the measure. This, however, also asks for a remark on the requirements imposed by the principles of subsidiarity and proportionality which accompany the exercise of shared competences as is clearly explained in the Protocol on the application of subsidiarity and proportionality principles of the Amsterdam Treaty. To begin with, the principle of subsidiarity is presented as a guide as how those powers, which are not of an exclusive nature, should be exercised at the EU level. It consists of the procedural and substantive parts that must be assessed. The procedural element of this principle is usually reflected in the recitals of the measure while the substantive element relies on the reasoning given to support the use of it, while taking into account the quantitative and qualitative indicators. Even if the EU is granted the competence to exercise its powers in the field of consumer protection, firstly, it has to undergo the test where it has to be proven that „the objectives of the proposed action cannot be sufficiently achieved by Member States' action in the framework of their national constitutional system‟168, and secondly, that the aims of the measure „can therefore be better achieved by action on the part of the Community [EU]‟.169 Moreover, these guidelines bring more transparency as compared to the previously mentioned statements, by indicating that, in this case, it must be proven that the specific issue, which must be of a transnational nature, could not be addressed in satisfying way on the national level or that such an attempt would bring damage to Member States‟ interests. Furthermore, this detailed explanation is followed by the requirement that EU must be as simple as possible and for legislation- „only to the extent necessary‟. Therefore, action in the field of shared competences
168 Ibid.118, art 5 169 Ibid.169 41
should be taken while simultaneously paying attention to the national sovereign powers in this area and, accordingly, leaving „as much scope for national decisions as possible, consistent with securing the aim of the measure and observing the requirements of the Treaty‟.170 This brief insight was given to present the requirements the EU has to comply with for its actions in the consumer protection field to be considered valid. Later on, a more in-depth investigation of the significance of the subsidiarity principle for the Proposal for a directive on consumer rights will be carried out, as for now, one should take a look at the use of this principle by ECJ.
4.2.1.2. The subsidiarity principle as a ground for review of EU legislative measure
The competence issue and subsidiarity principle are conceptually close and have a determinant say on what will be left in the hands of Member States as regulators. „As the volume and scope of Community [EU] law increase, so will States‟ power diminish‟.171 In other words, they both play an essential part in the light of growing tension „between centralization and respect for local autonomy‟172, what leads towards the debate on the function of the EU itself. Therefore, harmonization measures are constant subject to the review for compliance with these principles. However, the practice of ECJ proves that after passing the first step, finding a proper legal basis, the second step, a thorough investigation for compliance with the subsidiarity principle is rarely taken. „The Court effectively equates the test of subsidiarity with the test of competence thus removing all independent legal value from the former‟.173 „In the past, the Court has viewed subsidiarity more as a political than as a legal principle and has been reluctant to review the merits of complaints alleging a breach of subsidiarity‟.174 Likewise, the Court usually focuses on the procedural aspect of the subsidiarity principle, which checks if the implication of it was in general taken into account by the institutions. Since its introduction, the principle of subsidiarity has had „virtually no impact as a ground for review or as a rule of interpretation in
170 Ibid.118 171 Steiner J., Subsidiarity under the Maastricht Treaty, O‟Keeffe and Twomey (eds.),n.106 above,57-58. 172 Ibid.110, 31. 173 Ibid.90, 187. 174 Ibid.112, 584. 42
the case law of the ECJ or the CFI‟.175 Now, to make the picture more clear, several examples from ECJ‟s case law should be given to affirm this dominant tendency. For instance, the rudimentary reasoning on the subsidiarity principle can be seen, firstly, in the Working Time176 case, where the Court presumed that the need for action on the EU level was indeed needed just because of the fact that the competence to harmonize already existed in that area. Later on, Biotechnological Inventions177case would also serve as an example where the ECJ assumed the need for action on the EU level relying on the fact that the proposed measure would address the objective in question better due to its scale and effects. Then, in the Tobacco Advertising case review of compliance with subsidiarity principle was avoided because the Directive was annulled for being ultra vires. However, in case of BAT178 the ECJ reasoned its decision already by stating that certain achievements, which the measure contains, could not be sufficiently achieved by the Member States individually which, consequently, called for action at the EU level. To put it in other words, the Court finally started to expand the reasoning whether the objective of the proposed action „could be better achieved at Community level‟.179 Thus, it marks a turning point in the argumentation of the ECJ due to the more precise reasoning in the light of this principle. Nevertheless, this judgment did not result in a big change, as ECJ admitted that EU measures needed no express reference to the subsidiarity principle and it „was sufficient that the recitals to the measure made it clear‟180 why the EU decided that the exercise of its power was due. The main point for checking adventurous use of the competence to harmonize is at the stage of identifying whether competence to act even exists, not whether a competence should be exercised in the particular case. This affirms that the ECJ, when asked to rule on the EU measure in light of the subsidiarity principle „usually takes a “light” judicial approach‟.181 Thus, the theoretical standard of control over „competence creep‟, which relies on the rules of the Treaty and their actual exercise by the ECJ, differs and, in general, might bring a certain level of
175 Ibid.90, 183. 176 Case C-84/94 UK v. Council [1996] ECR I-5755 177 Case C-377/98 Netherlands v. Parliament and Council [2001] ECR I-7079 178 Case C-491/01, Queen v. Sec'y of State for Health, ex parte British Am. Tobacco (Inv.) Ltd. & Imperial Tobacco Ltd., 2002 E.C.R. I-11453 179 Ibid. 180 Case C-233/94 Germany v Parliament and Council [1997] ECR I-2405, para.46-47,55 181 Ibid.97, 137. 43
uncertainty. This is because, firstly, from the case-law it can be seen that the chances to overturn the EU action on the ground of not complying with the subsidiarity principle are rather low. Subsequently, sound reasoning does not seem required to permit the EU to pursue the objective at the EU level either. Accordingly, on the one hand, we are faced with theoretical control of compliance with the subsidiarity principle at a certain level, which is embodied in the provisions of the Protocols mentioned as the obligation for the Commission to provide an explanatory memorandum with the necessary justification and to present an annual report on the application of Article 5.182 Though, on the other hand, in practice we are presented with the indifferent approach of the ECJ towards the significance of this principle. Therefore, this brings into question the effectiveness in exercising the subsidiarity principle test. Overall, several essential aspects of the subsidiarity principle can be stated. Firstly, it is a primarily political principle which has greater potential as a procedural ground than as a ground of substance, which is usually used as a supporting argument to strengthen the Court‟s reasoning. Secondly, it is believed that because this principle is political in nature, what accordingly calls for subjective judgment, „the Court cannot employ a high level of scrutiny‟.183 This, however, calls into question the requirements stipulated by the Amsterdam Protocol, which demands that the grounds which establish the need of the act on the EU level, have to be „substantiated by qualitative or, whether possible, quantitative indicators‟.184 Thirdly, even though compliance with the principle of proportionality was indicated as the third separate step in the testing of the proposed measure, one can clearly see that usually the principle of subsidiarity „tends to be subsumed under the more general enquires of legal basis and competence and the assessment of proportionality‟.185 In other words, there exists a tendency on the part of ECJ to assimilate subsidiarity to proportionality by making a link between the reasoning given for the latter and attributing it to the former. Now, a short overview will be given of what role this principle plays according to the newly introduced provisions after the entery into force of the Lisbon Treaty.
182 Ibid.118, para.4,5,9 183 Ibid.90 184 Ibid.186 185 Ibid.90, 188. 44
4.2.1.3. The subsidiarity principle in the Treaty of Lisbon
The Lisbon Treaty introduced Protocol (No 2), which supports and elaborated the first protocol on subsidiarity and proportionality. In addition, the Protocol on the role of national parliaments in the European Union (No 1) is also relevant in this situation because it interacts with the latter one, confirms the aim of Article 12 TFEU186 and provides general rules on how the subsidiarity test should be undertaken involving now also the national parliaments. One can say that the structuring of this mechanism has as its objective redressing the democratic deficit of the EU and bringing EU system closer to the citizens of the Member States by involving national parliaments in the check of subsidiarity. First, Article 2 of Protocol (No1) entrenches an obligation for the Commission to send the draft legislative act to national parliaments when they are sent to European Parliament and Council. Secondly, national parliaments can use their discretion to provide a reasoned opinion on „whether a draft legislative act complies with the principle of subsidiarity‟187 what should be done according to the procedure laid down in Protocol (No 2) in an eight-week period of time. Then, Protocol (No 2) introduces a detailed procedure for the subsidiarity early warning mechanism, which is also called the „orange card‟, under Articles 6-8. „The mechanism of the “reasoned opinion” involves a two-stage procedure: if one-third of national parliaments consider that the proposal is not in line with subsidiarity, the Commission will have to re-examine it and decide whether to maintain, adjust or withdraw it. If a majority of national parliaments agrees with the objection, but the Commission decides to maintain its proposal anyway, the Commission will have to explain its reasons‟.188 However, in the case of an infringement of the subsidiarity principle, Article 8189 asks for the governments of the Member States to bring legal action „on behalf of their national Parliaments or a chamber thereof‟. In addition, the Commission‟s obligation to consult widely remains (Article 2190) as
186 Ibid.94, art 12 National Parliaments contribute actively to the good functioning of the Union: <…> b) by seeing to it that the principle of subsidiarity is respected in accordance with the procedures provided for in the Protocol on the application of the principles of subsidiarity and prorportionality. 187 The Lisbon Treaty protocol (No 1) on the role of national parliaments in the European Union, art 3 188 Assembly of European Regions,
well as the obligation to provide the draft legislative act with a detailed statement referring to compliance with the principles of subsidiarity and proportionality (Article 5191). The precondition for this system dates back to1997 and is related to COSAC (the Conference of Community and European Affairs Committees of the Parliaments of the European Union)192, which gained formal recognition in a Protocol to the Amsterdam Treaty193 and rests in Lisbon Treaty under the Title II of Protocol (No1) of Interparliamentary cooperation.194 COSAC‟s fields of interest have always been related to reinforcing the involvement of national parliaments in EU affairs, creating a uniform definition of the subsidiarity principle as well as regularly testing the feasibility of the subsidiarity early warning system. The outcomes from the bi-annual reports (9th and 10th)195 confirm the shortcomings of this system: first, there is no uniform understanding of either the subsidiarity or the proportionality principle among the Member States, and second, a limited scope of scrutiny prevails and there are the doubts about the very high threshold which the national parliaments have to reach („at least a simple majority of the votes allocated to the national Parlaments‟196). However, if the Proposal for a Directive on consumer rights was provided by the Commission after the Lisbon Treaty entered in force, it would have been subject to the primary check of subsidiarity at the national level and, accordingly, would present the reactions of national parliaments towards compliance with the subsidiarity principle in a form of reasoned opinions. The enactment of this novel procedure of Lisbon Treaty in our case would have been highly welcome as the Proposal itself lacks a detailed and convincing explanation, as to why Commission believes that the objectives it has identified should be pursued at the EU level. However, as was indicated above, the effectiveness of the mechanism of the early warning system is questionable. Firstly, a sufficiently broad alliance of Parliaments is required to demand review of the draft legislative act and the lack of common definition of the subsidiarity principle is to compound the whole situation. In addition, the national parliaments are not attributed an
191 Ibid.191 192 Conference of the committees of the national parliaments of the European Union Member States dealing with European affairs as well as representatives of the European Parliament,
ultimate veto power (a direct power to block the Commission‟s proposals– a so-called „red card‟) to block the draft legislative act provided by the EU legislator, it gave the chance for the voice of citizens of Member States to be heard through their national parliaments, at the same time bringing more transparency and confidence in the functioning of EU.
4.2.1.4. The subsidiarity issue in the Proposal for a Directive on consumer rights
Now, having in mind the presumed legal bases in the field of shared competence, we have to investigate the Commission‟s reasoning provided as regards the subsidiarity principle. A sound motivation for the necessity to exercise its powers should be provided according to Article 296 TFEU, which states that „legal acts shall state the reasons on which they are based‟.197 In addition, the draft of the proposal has to be ready to undergo the justification with regard to the principles of subsidiarity and proportionality (Article 5 TEU), including the need for an attached „detailed statement‟198 which has to prove the suitability of the proposal to be given the chance to be exercised on the EU level. In this case, the test of comparative efficiency, previously mentioned, could serve to structure the investigation of the use of the subsidiarity principle. Accordingly, after an assessment of the Commission‟s reasoning, given in the form of the Proposal, the Impact assessment report and the Explanatory Memorandum, it will be clear that the action cannot be sufficiently achieved by the Member States and that this can be better done at the EU level. To begin with, we should focus on the arguments to support the first component of subsidiarity principle as indicated by Craig and de Burca: why this aim cannot be achieved in a sufficient way on the national level. The Proposal in one of the last recitals briefly summarizes that the regulation at the national levels of Member States is incapable to achieve the proposed objective. „Since the objectives of this Directive cannot be sufficiently achieved by the Member States and can therefore be better achieved at Community level, the Community may adopt measures, in accordance with the principle of subsidiarity as set out in Article 5 of the Treaty‟.199 In addition, it notes that the proposal is in conformity with the proportionality principle and has
197 Ibid.94, art 296 198 Ibid.190, art 5 199 Ibid.23, recital 65. 47
as a double objective „to eliminate the internal market barriers and achieve a high common level of consumer protection.‟200 Then, the Impact Assessment report in a separate section „Does the Union have the right to act?‟ shortly states that the EU is „to contribute to the attainment of a high level of consumer protection by using the lex specialis Article 153 EC together with Article 95 EC, which aims at the establishment of the internal market. However, the fragmentation of national consumer laws, because of legal and other compliance costs, is presented as „a regulatory barrier to the completion of the internal market‟201 and is deemed to have emerged because of the use of minimum harmonization. The Explanatory Memorandum relies on the previously indicated conclusions simultaneously naming the consequences of minimum harmonization which: a) would not use the potential of the business-to consumer internal market; b) deprive consumers from reaping up the benefits of the internal market with more choice and better prices from cross-border offers; c) restrict the development of competitive enterprises willing to expand their business across the Union. Therefore, one can say that the differentiation of national laws is indicated as the main obstacle for the internal market to flourish and its significant impact on the functioning of the internal market relies on the data of the 2008 Eurobarometer survey, for which the sound scientific arguments could be provided to support the point of view of the respondents, who are business and consumer stakeholders. However, it should be proven that this element, the existence of barriers to the completion of the internal market, is determinant and essential to the functioning of the market and that this situation cannot be addressed in less „painful‟ way from the perspective of the Member States. Hence, one should also question if this source of information is reliable enough and is capable to reflect the opinions of the wide scope of the respondents and if it provides enough evidence which would serve to back up the Commission‟s argumentation. In the light of the Commission‟s documents, firstly, legal fragmentation is presented as the major obstacle to the functioning of the internal market which should be eliminated, secondly, the Member States are considered to be incapable of achieving this on their own as this would require a coordinated action at the EU level. Later on, the answer to the second question, why the objective of the Proposal can be better regulated at the EU level, is provided with the arguments such as: a) that it would generate savings in terms of the administrative burden on business as it would reduce traders‟ compliance
200 Ibid.200 201 Ibid.36, 14. 48
cost; b) that it would grant of a high level of protection for consumers.202 Therefore, coordinated action at the EU level is seen as the best solution, giving such benefits for consumers as better prices for cross-border offers. It is believed that a common regulation should automatically lead to an increase in the protection for consumers. However, this line of argumentation emphasizes only the negative side of the fragmentation of laws setting aside the positive one, which can play a significant role from the perspective of consumer protection and will be discussed later. Accordingly, it is questionable if the diversity of laws, being such a broad reasoning, could be the appropriate motivation in this case. It is believed that diversity immediately falls under the target of harmonization as the factor which creates distortions of competition that are not welcomed at the EU level. On the one hand, the fact, that harmonization will therefore only be partial and sometimes will result in creating new disharmonies, is accepted. On the other hand, it can be questioned if this justifies the idea of total harmonization, which would block any action by the Member States in the field covered by the Directive, aiming for a higher standard of protection if it favours the consumer. Therefore, one could take a look at this situation from two different perspectives. The first one would be in favour of market integration and would finally lead to extensive harmonization of the private laws of the Member States. The second one would be more critical, setting aside the previous simple way of unification just because the laws do differ while not appreciating the cultural characteristics.
4.2.2. The advantageous side of the fragmentation of laws
Some authors argue that the establishment of common rules is not only increasingly difficult to achieve, it is also increasingly undesirable as a suppression of competitive and cultural diversity. The common market has developed throughout the years itself and it had an effect on the emergence of consumer policy as now „consumer welfare, social policy, environmental policy and the like are all regarded as important facets of the internal market strategy‟.203 It is also believed that „consumer policy does not run parallel to the internal market,
202 Ibid.39, 6. 203 Craig Paul,„The Evolution of the Single Market‟ in C. Bernard, J Scott, (eds) The law of the Single European Market. Unpaking the premises, 37. 49
but runs within the internal market‟204 what makes this policy even more susceptible to the changes pursued in favour of market integration. To support what was previously stated, one can agree that European Union consumer protection is „often regarded as a policy which is instrumental to the construction of the internal market‟.205 In addition, the existing differences in law can be interpreted simply as a reflection of different national preferences: „democratically legitimate choices about the desired level of consumer protection would be set aside in the case of full harmonization‟.206 It accordingly poses the question, what type of internal market the EU is aiming to provide. There is a wave of scepticism rising about the value of securing uniformity in the wider scope of EU activity and we see a developing „flexibility debate‟ within which diversity is of no less value than integration‟.207 This brings to the light a fact which should not be forgotten, namely that „the Europeans have always planned their strategies according to their national markets‟208 and that such a sudden change, when making light of the inherent diversity of each of the national markets, would lead to adverse effects. Thus, the influence of the different regulations should be shortly examined. The cultural diversity which influences the diversification of laws should not be seen as a suppressive element for a harmonization measure but more as one, which can address the optimal level of consumers‟ protection while paying attention to their individual preferences. This confirms the fact which is widely accepted that consumers, in general, differ from country to country (they have different preferences, a different attitude towards risk and etc.), and thus, so do the consumer policies. However, in the EU legislative measures „the consumers are usually defined in a uniform way (i.e. without local exceptions) and their protection is usually expressed in universal terms of the „level of protection‟ on the same universal scale‟.209 In this sense, one could argue that by setting any uniform standard, even, for instance, as regards the general concept of consumer (such as „the average consumer‟), the aspect of cultural diversity is usually avoided, not treated as essential while discussing the consumer protection issue. „The „culture‟
204 Nebbia Paolisa „Internal market and the harmonization of European Contract law‟ in „Tridimas Takis; Nebbia Paolisa, European Union Law for the twenty-first century : rethinking the new legal order (Vol. 2 International market and free movement community policies), (Oxford University Press, Oxford 2004), 100. 205 Ibid. 14, 41. 206 Ibid.206 207 Ibid.110, 18. 208 Ibid. 205, 101. 209 Ibid.14, 6. 50
that is discussed here is not merely a culture inherent in private law, but is rather a European culture of respect for difference‟.210 Culture itself can be defined as „the ideas, customs, and social behaviour of a particular people or society‟.211 Accordingly, the Lisbon Treaty also grants a certain respect for the culture of the Member States. For instance, Article 2 TEU affirms the respect for common values (human dignity, freedom, democracy, equality and etc.) to the Member States whereas Article 4 TEU states that Union shall respect „national identities, inherent in their [the Member States‟] fundamental structures, political and constitutional, inclusive of regional and local self-government‟. Moreover, paragraph 3 of Article 4 TFEU stresses the principle of sincere cooperation between the Union and the Member States. In light of what was mentioned, we can draw a conclusion that the cooperation between EU and the Member States has to be pursued with the respect for the cultural differences and characteristics. It may also happen that general contract law at the national level addresses the needs of consumers better than the proposed EU legislation, what accordingly can lead to a controversial situation. To put it in other words, some of the Member States now will have to lower down the standards they once introduced as more protective rules. Thus, on the one hand, the idea of complete harmonization would become the best maximum standard in theory because of the stipulated high protection for consumers. Whereas, on the other hand, in practice, it can turn to be a rather low mandatory standard as there is no possibility of making any corrections in case of the special needs of each different Member State. To illustrate the picture, the data of the EC Consumer Law Compendium212 shows that France had „already integrated a profound consumer protection in its national legislation‟213 before transposing the directives in the field of consumer law. In addition, little use of minimum harmonization is seen as most of the regulations „almost literally adopt the Directive texts‟.214 In other words, the Member State did not use the possibility to provide greater protection to national consumers, instead maintaining the level of protection provided by the Directive. Such situation exists in Lithuania, where the Law of Consumer Protection contains regulations
210 Weatherhill Stephen, „Why object to the Harmonization of Private Law by EC? (2004) 12/5 European Review of Private Law .633. 211 Oxford Dictionaries
regarding each of the Directives, which are under review now. No use of minimum harmonization is seen and consumers are given the same level of protection which is envisaged in the directives. However, these and couple of other countries form only one fifth of all the Member States that adjusted their national law to the minimum standard following EU secondary legislation and most did not find the need to extend the scope of protection. However, some countries were more likely to use the minimum clauses „in order to maintain the high level of consumer protection which goes often beyond the directives‟.215 For instance, the extension of a period for right of withdrawal to 10 days compared with 7 days of the directive 85/577 and 97/7 in Poland, to 14 days in Finland, Sweden and Germany, and to 15 days in Slovenia. In the case of directive 93/13, which contained a list of terms that may be regarded as unfair, the Netherlands transformed it to national requirement: „a list that must be regarded as unfair‟.216 Moreover, Finland introduced a special derogation regarding the directive 99/44 –it imposes obligations and liabilities on consumer in the case of breach of contract, that the EU secondary act did not foresee. „Moreover, the German rules on Doorstep selling protect the customer even if only the negotiations, but not the conclusions of the contract, take place in a doorstep situation. The national rules apply also to cases where the customer is approached in public or on public transport‟. 217 Thus, one can notice that each of the Member States adapts its national law according to their individual model of regulation. In this case, the differentiation in laws cannot be seen as a negative aspect as it reflects the special needs of national consumers and the search for the level of protection which each state finds optimal. However, one must remember that such a process of adjustment is possible because of the measure of minimum harmonization whereas in the case of the total one no variation is possible above and beyond mandatory rules of the directive. Moreover, a measure of complete harmonization, having a centralization purpose and striving for uniform mandatory rules, which will intervene into the unique schemes of consumer protection, is very likely to bring also the certain disadvantages instead of making the consumers the winning party. This is because maximum harmonization will leave no space for the Member State to adapt them to their specific preferences, as it will set „the floor and the ceiling‟ at the
215 Ibid.72, 27. 216 Ibid.72, 56. 217 Ibid.72, 33. 52
same time. The Product Liability Directive could serve here as an example, which is also of a full harmonization nature, when the pre-existing legislation in this specific field surpassed the level of protection offered by the Directive. „There is a real likelihood that the level of consumer protection in French law will be adjusted to a lower standard‟.218 It is stated that „if the level of protection was very high, then the effect of the full harmonization might just be about palatable, but if it remains at the present „medium level‟, then the impact on domestic transactions is not particularly welcome‟.219 Accordingly, some of the Member States can find this level of protection too low compared to their recent national legislation. Now, one could argue that such step can be taken with the aim of reducing differentiations of national laws that would likely have a positive impact on consumers entering into cross-border transactions more often. „Nevertheless, to regard maximum harmonization as the cure for such problems may, at least for the moment, be a rather too optimistic view‟.220 This is because if maximum harmonization is achieved „in targeted areas only, problems remain that are similar to the current situation with legislation based on minimum harmonization‟, that leads to the presumption that different levels of consumer protection are still likely to remain. In addition, the existence of one set of rules would most likely benefit the functioning of the market, but whether it will have the same positive effect on the consumer protection is highly disputable, especially when the common high and optimal level of the consumer protection is hard to define. There is no easy way to determine the standard of consumer protection to be set at the EU level because each of the Member States constructs the optimal system of consumer protection according to the individual preferences of its own citizens. Jan M. Smits notes that the following well-known caveat from Frank Easterbrook is not taken seriously: „producing a level playing field by chopping down the heights, forcing all of us to live in the valleys has nothing to recommend it‟.
218 Ibid.71, p.3-19 219 Ibid. 2, p.375 220 Ibid.219 53
4.2.2.1. The fragmentation of laws as a component of the decentralization model
Moreover, another view in support of the differentiation of laws could be presented from the perspective of interjurisdictional competition, which forms an integral part of the process of European integration. It appears that the contest between the attempts of centralization and decentralization emerges here and neither the principle of conferral powers nor subsidiarity should be forgotten. „If we want simultaneous mobility and decentralization, then we must accept interjurisdictional competition and we must think of ways to make competition processes workable.‟221 Hence, I agree with the statement of Charles Tiebout who supports decentralization as the better regulatory strategy as it allows for regulatory competition. „The idea is that well- informed citizens will move to the community that provides the local services that are best adapted to their personal preferences‟.222 The citizen can affect legal provisions by „influencing the decision-making (vote) or by moving (exit)‟.223 He states that, firstly, each jurisdiction is governed by the preferences of its citizens and that one of the conditions for regulatory competition to function properly is „adequate information on the contents of the legal rules provided by the various legislators, in order to be able to make an informed choice‟.224 „Well- informed citizens, who may be dissatisfied with the legislation provided, could move (voting with the feet) to the community that provides legislation that corresponds best to their preferences. This idea, assuming that those different legal systems offer different legal rules thus explains the variety and differences between the legal systems (Van den Bergh 1998)‟.225 Thus we can draw two conclusions: a) the differences between the legal rules of different Member States should not necessarily be judged as negative, as it is often the case in Europe; b) the successful functioning of regulatory competition requires the possession of the necessary amount of information, related to consumer rights. „One condition is that citizens have adequate information on the contents of the legal rules provided by the various legislators, in order to be
221 Kerber W., „Interjurisdictional competition within the European Union‟, (2000) 23 Fordham International Law Journal, 217. 222 Faure Michael G., „Product Liability and Product Safety in Europe: Harmonization or Differentiation?‟ (2000) Vol. 53 -Fasc. 4, KYKLOS, 467. 223 Ibid.223, 474. 224 Ibid.223, 475. 225 Ibid.223, 474. 54
able to make an informed choice‟.226 The solution of complete harmonization could possibly be replaced with additional efforts to inform consumers of their rights in cross-border transactions in order to reduce the distrust of the legal systems of other Member States and, accordingly, encourage their purchase in other markets. In addition, in the economic literature, the competition between legislators is perceived to lead to allocative efficiency, to an optimal provision of legal rules. This is because the local level has the best information on local problems and preferences of the citizens and the shift to the centralized model should be done only when inevitable distortions of competition result because of the fragmentation of laws. The Commission relies on the argument that such distortions are possible, firstly, because of compliance cost for traders. „If legislation is different these costs would differ as well and conditions of competition within the common market would not be equal‟.227 This argument implies that equality of the conditions of competition is necessary for the proper functioning of the internal market and that the different national rules of Member States would hamper competition. This argument, also recognized as „leveling the playing field‟, is needed to create the internal market and is more of a political nature by at the same time going against economic argumentations. „In the ideal case of totally equal marketing conditions, there would also be no trade‟.228 This is because conditions of competition are obviously never equal. „In addition one should realise that even if, for instance, product liability law was totally harmonised in Europe, this would still not create a level playing field, since differences in, e. g., energy sources, access to raw materials and atmospheric conditions will still lead to diverting marketing conditions‟.229 Thus, the use of total harmonization would not be able to preclude all the differences as there always exist other factors which lead to diverting marketing conditions. Also, this argument should be based on concrete scientific evidence as it seems „far too general to fit into the economic criteria for centralisation‟.230 M. G. Faure considers that the objective of harmonizing conditions of competition „to create a level playing field‟ is weak and shoud be also criticised on economic grounds „since it does not necessarily correspond with economic efficiency‟.231 In
226 Ibid.223, 474. 227 Ibid.223, 480. 228 Ibid.223. 481. 229 Ibid.229 230 Ibid.223, 502. 231 Ibid.231 55
addition, he gives the Swiss federal model as an example to prove that economic market integration is possible and „goes hand in hand with differentiated legal systems‟.232 The preference for central regulation would result in the diminution of local choice whereas the fact that regulatory autonomy is antagonistic to mobility should be admitted as inherent diversity is likely to slow down the development of the market. To conclude, scientific evidence is missing and should be provided by the Commission to support the shift from regulatory competition and decentralization to centralization. This is because the previous regulation model is capable of providing the optimal level of consumer protection in each Member State when the consumers are adequately informed.
4.2.2.2. The fragmentation of laws as a tool to gain experience
Cross-border trade will encourage competition between jurisdictions while searching for the most attractive one. That will lead to the natural outcome, which sees national governments of their own accord working towards making their jurisdiction as attractive as possible. The diversity of national laws can be considered as „a specific framework in which the experience of mixed systems is useful for the European harmonization process‟.233 This entails the inquiry if and how we can benefit from the different regulations present in the internal market. „The fact that these differing preferences lead to differing legal solutions should in principle, as be discussed above, be considered as a benefit instead of a problem‟.234 Professor Jan. M. Smits indicates two methods. First, the observation of other Member States‟ practices for learning purposes would lead to finding a proper solution matching the particular case of each Member State and enforce the probability of innovations. In this respect States can be seen as „experimenting laboratories‟.235 Second, the wider scope of divergent preferences is likely to be addressed by the jurisdictional competition. This is because the approach of minimum harmonization allows the national legislators to compete while trying to implement the EU legislation into national law simultaneously paying respect to the peculiarities of the national
232 Ibid.223, 481. 233 Smits, Jan M.,„Mixed Jurisdictions : Lesson for European Harmonisation?‟ , (2008) vol. 12.1, Electronic Journal of Comparative Law, 1. 234 Ibid.223, 476. 235 Ibid.234, 3. 56
regulation and the preferences of the national consumers. One can observe that the diversity of national regulations contains also an advantageous side: the EU can benefit from the broad experience of the individual Member States as to how to make and apply the law in the most proper and efficient way by exchanging ideas. This learning process could be effectively realized through the Open Method of Coordination (OMC) introduced in the Lisbon agenda. In 2000, the European Council at its Lisbon summit „introduced a new ten-year set of policy priorities and goals for the EU which have continued to dominate the policy agenda ever since‟.236 It included goals which were along two axes, economic and social, and the new policy instrument of the OMC. This measure was described as „the means of spreading best practice and achieving greater convergence towards the main EU goals‟237 including such tasks as : fixing guidelines and translating them into national and regional policies, evaluation and peer review organized as a mutual learning process. A fully decentralized approach is thus carried in line with the subsidiarity principle to improve transparency and democratic participation. M. Joao Rodrigues, the architect of this method, indicated that it was created to stimulate the exchange of best practices among the Member States while combining „coherence with respect for diversity and efficiency with democratic legitimacy‟.238 The OMC organizes a learning process at the European level in order to help Member States to improve their own national policies and combining it with other available methods (ranging from integration and harmonization to co- operation) depending on the problem to be addressed. OMC is also called „a „cookbook‟ of recipes, with variants on a theme, rather than a single recipe‟.239 The introduction of this measure, which was meant to accommodate diversity between the States, reflects the move from hierarchical governance towards new forms of governance in EU policy: a) it reflects a fully decentralized approach in line with the principle of subsidiarity; b) it sets the guidelines and the goals while striving to promote flexibility and openness; d) it moves away from binding instruments and compulsory legal enforcement. This new form of governance is by some scholars called „experimentalism‟ as it is novel and has no express basis in the Treaty. Guidelines
236 COM (2005)24,Working together for the growth and Jobs: A new Start for the Lisbon Strategy, < http://ec.europa.eu/index_en.htm> accessed 31 May 2010 237 Lisbon European Council, Presidency Conclusions, 23-24 March, 2000, < http://www.europarl.europa.eu/summits/lis1_en.htm> accessed 31 May 2010 238 M. Telo, L‟evoluzione della governance europea‟, Special Issue of „ Europa/Euorope‟,Rome,No.2-3,2001,96. 239 J. Zeitlin and P.Pochet with L.Magnusson , „The open method of Coordination in action: the European employement and social inclusion strategies‟, (P.I.E.-Peter Lang, 2005) 57
were provided to the EU institutions in 2003 in the form of an Interinstitutional Agreement on better law-making, by concentrating on co-regulation240 and self-regulation241, the latter of which clearly moves away from the adoption of prescriptive, binding rules. Finally, „there has been a concentrated emphasis in the EU over the past two decades in particular on the need to reform governance in ways which depart from traditional, hierarchical forms of law-making and policy- making‟.242 Accordingly, the OMC is one of the methods, which is expected to bring more flexibility to the new governance of EU and is seen to be „adopted to deal with areas where legal authority for EU level action is limited or non-existent‟.243 In the case of the Commission‟s Proposal it could be seen as alternative choice to maximum harmonization. As mentioned previously, it can also be used as a complementary measure together with minimum harmonization. In conclusion, the use of maximum harmonization should be reconsidered in the case of the Proposal for directive on consumer rights as the exchange of the practices between the Member States in this field would benefit to find the best solution for each of the states to improve their legislation. In addition, this measure of new governance could be given a chance to supplement regulation by minimum harmonization before one should consider moving to total harmonization. Accordingly, in light of what was previously mentioned, the second argument of the Commission, which is based on distortions of competition due to the existence of the diverse Member State regulations, becomes questionable. What consequences will this uniform measure bring for the actors of the highly divergent societies? Finally, the weight of this argument is also questionable. Firstly, the fact that consumer protection belongs to the shared competence where the Member States attributed the possibility to exercise these powers only in the light of subsidiarity and proportionality principles, the demand of preservation of diversity of the local rules seems reasonable. That is because this principle, according to the EU Treaty, urges that decisions should be taken „as closely as possible to the citizens‟ and acts as a restraint on the centralized lawmaking what, accordingly, suggests that „the differences in the policy outcomes
240 Interinstitutional agreement on better law-making (2003/C 321/01), OJ C 321, 31.12.2003 241 Ibid.241 242 Ibid.97, 165. 243 Scott J. and D.Trubek, Mind the Gap: Law and New Governance in the EU, 7 < http://eucenter.wisc.edu/OMC/Papers/EUC/scotttrubek.pdf> accessed 31 May 2010 58
across the EU which might result are not necessarily a negative phenomenon‟.244 Support for this idea can also be found also under Article 7 of Protocol on the application of the principles of subsidiarity and proportionality of Amsterdam Treaty, which stipulates the „accommodation of differentiation‟. The significance of decentralization in this field should be assessed and the use of the OMC reconsidered if the Commission would not be able to provide sufficient evidence testifying that the fragmentation of laws in this field creates distortions of competition. However, given that, firstly, the EU has competence to act and, secondly, that this power should be used as it is in compliance with subsidiarity principle, a last question remains: how should power be exercised? In other words, in the last paragraph we will analyze what type of the measure would be the most appropriate one.
4.2.3. The type of harmonization measure
The last part of this work will focus on the types of measure which should be seen as the most proper in the process of harmonization. If we presume that the Proposal is in compliance with the principle of conferred powers and that there exist sufficient reasons for these powers to be exercised, finally, the proportionality principle should come into play. It emerges after the test of comparative efficiency as the final step, which, if undergone successfully, would determine the content of the measure taken at the EU level. „As a general principle of law, proportionality has been developed by the Court primarily with a view to protecting the individual from action by the EU institutions and by the Member States‟.245 Thus, the proportionality test is formulated on case-by-case bases, always follows the subsidiarity principle and is embodied in Article 5 (4) TEU (Article 5(3) EC). Accordingly, the institutions of the Union are given guidelines on its application in the Protocol on the application of the principles of subsidiarity and proportionality. Each measure has to be assessed in light of this principle while following its three-piece structure: adequacy, necessity and proportionality in the strict sense. A more detailed investigation of the applicability of the proportionality principle will be done hereinafter while analyzing the type of harmonization. In addition, this principle can
244 De Burca Grainne, „Legal principles as an instrument of differentiation? The principles of proportionality and subsidiarity‟ in Bruno de Witte, Dominik Hanf, Ellen Vos ,The many faces of differentiation in EU law, (Intersentia, Antwerpen-Oxford-New York 2001) 134. 245 Ibid.90, 176. 59
also be used while assessing the usage of the national measures. „Proportionality is a well- established instrument of judicial review and owes its origins to the protection of human rights‟.246 For instance, Takis Tridimas identifies a difference between the principles of subsidiarity and proportionality – „subsidiarity applies only in the cases where the competence of Community [EU] is not exclusive whereas, under Article 5 (3), proportionality applies also where the Community [EU] enjoys exclusive competence‟.247 Therefore, this principle refers both to the extent and the intensity of EU action, which must not exceed what is necessary to achieve the objectives of the Treaty. „It allows a relatively precise test to challenge and evaluate the legality of, for instance, Community [EU] directives‟.248 Compliance with the proportionality principle will be assessed in light of harmonization, which is recently seen as an increasingly contested process, even though previously it managed to avoid this characterization. This is exactly because „for a long time the process of harmonization of laws in the EU was largely accepted as an obviously virtuous process which would speed forward the objective of the market integration‟.249 Harmonization measures, to generate common rules for common market, are taken according to the conferred legislative powers and they define the relationship between EU and Member State law. The extent to which the Member State can still act in the areas that are subject to harmonization depends on the type of harmonization chosen and will be explained thereinafter.
4.2.3.1. The types of harmonization
I will use the classification given by C. Bernard to present three different techniques of harmonization: exhaustive, optimal and minimum. To understand the essence of each, I will give a short overview and present their main qualities. Firstly, full harmonization (complete or maximum harmonization), which is the core issue in this case, concerns situations where divergent national laws are replaced by a single EU
246 Ibid. 90, 183. 247 Ibid.90, 176. 248 Ibid.89 249 Ibid.211 60
rule, leaving no space for Member State action.250 Consequently, once the EU acted in a shared competence field, using exhaustive harmonization, the Member States lose the right to legislate unilaterally by imposing additional standards, which might be needed to address the specific individual situation of each State. In the case of maximum harmonization, with EU setting both the floor and the ceiling of regulation, their action is already pre-empted. This is why full harmonization measures are subject to long negotiations due to the need to protect the national interests of each Member State. The advantage of this instrument is the clear set of rules created for the people and businesses active in this field. Yet, by its very nature, „it eliminates the chance for diversity and experimentation on the national level‟251 but can help to accommodate these national differences „through derogations, opt-outs, and phased implementation‟.252 Over time, regardless of the various techniques used to ensure flexibility, maximum harmonization is seen as a highly problematic approach. This is also evident in the reactions to the current attempt to abandon minimum harmonization in favour for complete harmonization in the field of consumer protection. Secondly, optional harmonization is concerned with the scenario „when directives provide a harmonized standard which manufacturers can choose whether to follow‟.253 These directives have a free movement clause, but not an exclusivity clause which works accordingly: if you operate on a local market only, you are given the choice to decide which rules you want to apply, whereas if you operate across frontiers, the harmonized standard prevails. Lastly, minimum harmonization is the most popular type of harmonization and also typical in consumer law, when the EU sets minimum standards but the Member States are free to impose stricter rules to protect the proper functioning of their market. In such a way, the minimum standards are supplemented by the space given to accommodate national diversity. „This is particularly important in more welfare-orientated areas such as social and consumer policy that merely interface with, rather than serve, the economic demands of the single market‟.254
250 Council directive of 25July 1985 on the approximation of the laws, regulations and administrative provisions of the Member States concerning liability for defective products (85/374/EEC) (OJ L 210, 7.8.1985, p. 29) 251 Stuyck, Terryn and Van Dyck „Confidence through fairness? The New Directive on Unfair Business-to- Consumer Commercial Practices in the Internal Market‟ (2006) 43 CML Rev. 107. 252 Ibid.112, 596. 253 Ibid.112, 599. 254 Ibid.112, 600. 61
Although minimum harmonization directives „have been around since the early days of the EU‟255, their use was constitutionalized by the Single European Act (1986) as directives with minimum harmonization were adopted under Articles 115 TFEU and 114 TFEU, even though, they did not have express minimum standards clause. Therefore, the EU provides the floor, which can be set at the rather high level, below which national legislation cannot fall. Nevertheless, over and above the floor „Member States are free to choose whether to adopt more stringent measures than those resulting from EU law‟256 but this step has to be always done in compliance with the general provisions of the Treaty. According to C. Barnard, in the case of consumer protection laws, when the Member States set higher standards than the directive‟s minimum requirements, its businesses do not suffer a competitive disadvantage and consumers benefit because the laws protecting consumers are territorial in nature and will be applied whenever trading in that country. The Member State complies with the directive‟s minimum rules, that might become, in practice, the maximum rules ( due to the „race to the bottom‟257) and this, eventually, proves the significance of the setting minimum standards that have to be high enough to give proper protection for consumers. This type of harmonization tries to find a balance between market integration and sufficient flexibility for the Member States, while simultaneously encompassing diversity and regulatory autonomy, leaving Member States the freedom for experimentation. The core element to which the attention should be paid is that regardless of which type of harmonization the EU chooses, consumer interests have to be sufficiently protected in the process of the development of the single market. „We should remember that many national rules that impede intra-Community trade are designed to protect consumers‟.258 In the case of full harmonization, strongly favoured by DG SANCO, the same question arises, whether this method properly balances the interests of consumers and traders. Among scholars it is believed that harmonization „increasingly co-exists with other „softer‟ forms of governance and a general willingness to tolerate, even extol, a higher degree of flexibility and diversity in coverage under the EU umbrella than would previously have been imagined to be feasible‟.259 Therefore, we are
255 Ibid. 255 256 Ibid.255 257 When the Member States set the standards that are at the lowest level which can be agreed on. 258 Ibid.97, 627. 259 Ibid.110, 16. 62
eventually faced with a controversial situation in which the move towards softer law mechanisms is promoted on the policy level but at the same time the harsh approach of targeted full harmonization is proposed for the sensitive field of consumer protection, urging the prohibition of the diversity. „Harmonization itself should not be understood only as a technical process, but attention should also be paid to the substance, as it also has to assess the desired quality of the transnational regulatory environment‟.260 Additionally, the role of Open Method of Coordination 261 should be reconsidered in this process. Now, we will deal with the argumentation given by the Commission to assess the desirability of the proposal from the perspective of the full targeted harmonization.
4.2.3.2. The choice of the type of harmonization
The choice of this particular type of harmonization is questioned here because the effect which it will have differs a lot when compared to the previous directives that embodied the minimum standards. One could say that this attempt leaves no room for the Member States to act and adapt them to the national preferences, except taking the decision where the directive will be implemented. In addition, the question remains, if there is sufficient argumentation provided by the Commission to prove that this specific part of consumer law of limited application scope requires for the highest level of harmonization and the goals cannot be addressed by any other means. This is in line with the recent tendency, which declares the willingness to make maximum harmonization an up-to-date standard and is already reflected in several other instruments (Consumer Credit, Unfair Commercial Practices, Product Liability directives), that in such a way replace step-by-step the previous minimum standard mechanism. Now, the assessment of principle of proportionality regarding the Commission proposal should be done following each of its constitutive elements. „The principle of proportionality is
260 Ibid. 110, 17. 261 The open method of coordination (OMC), created as part of employment policy and the Luxembourg process, has been defined as an instrument of the Lisbon strategy (2000).The OMC provides a new framework for cooperation between the Member States, whose national policies can thus be directed towards certain common objectives. Under this intergovernmental method, the Member States are evaluated by one another (peer pressure), with the Commission's role being limited to surveillance. The European Parliament and the Court of Justice play virtually no part in the OMC process. The open method of coordination takes place in areas which fall within the competence of the Member States, such as employment, social protection, social inclusion, education, youth and training. ,
applied in the light of three sub-principles: adequacy (a measure is adequate for the attainment of the objective if the desired result can be achieved by recourse to that measure), necessity (a measure is lawful on condition that a less restrictive measure does not exist in order to pursue the legitimate objective) and proportionality in the strict sense of the term (the gravity of the intervention and the gravity of the reasons justifying it must be proportionate to one another)‟.262 Firstly, to answer the adequacy requirement, the Commission in the impact assessment provides an evaluation of six possible policy options. However, the „soft‟ measures, awareness raising and self-regulation, are seen as „add-on‟ to other legislative options and „could theoretically overcome a number of internal market problems if some difficult conditions were met (e.g. the codes would have to be based on the highest common standards, and cover the whole of the EU)‟.263 Finally, the soft law approach is considered only to enhance consumer confidence. The option of minimum legislative changes will „focus on a limited number of inconsistencies and gaps in EU legislation related to the basic definitions‟.264 Thus, the assessment of all six policy options is generalized in the Explanatory Memorandum. It puts aside the „soft-law‟ approach by simply stating that it would not be capable of solving the legal fragmentation problem, without any detailed argumentation. „Likewise, addressing new market developments, regulatory gaps and inconsistencies in EU consumer laws in an uncoordinated manner generate more fragmentation and exacerbate the problem‟.265 However, throughout the whole examination of these policies, the criterion of a high level of consumer protection does not come into play and is not analyzed in-depth. In addition, the Green Paper clarifies, that independently of which option is chosen to revise the acquis, the degree of harmonization would also need to be decided, and presents the following arguments for complete harmonization. Firstly, it describes the recent situation in light of the minimum harmonization and introduces two problems: that the consumers cannot be sure about the level of protection if they shop cross- border and that business face difficulties and are even deterred from trading in other Member State because of the existing fragmentation. Total harmonization is presented as the best solution while the other possibilities (the combination of minimum harmonization with mutual
262 Emiliou N., The principle of proportionality in European Law: A comparative study,(Kluwer law International, London 1996) 263 Ibid.36, 26. 264 Ibid.36, 27. 265 Ibid.266 64
recognition clause or country of origin approach) would not be capable to remove regulatory fragmentation, as a result of „negative effects on consumers‟ confidence in the internal market‟ and would not ensure „the high common level of consumer protection‟. 266 However, firstly, the definition of high level of consumer protection lacks clarity, secondly, there is a demand for more scientific evidence regarding the change in transaction costs and its influence on the traders. The Explanatory Memorandum states that the test of proportionality is met because of the following reasons: it regulates only key aspects of consumer contract law; its scope encompasses both domestic and cross-border contracts, it reduces the administrative burden on public authorities as well as the administrative costs for the traders. „If the proposal fosters consumer protection and increases competition in the retail market through more cross-border offers, then consumers will win through having more choice, better quality and lower prices‟.267 Thus, we can presume that the requirement for the adequacy of the type of harmonization could be met. Next, the principle of necessity emerges, which questions the possibility of a less restrictive measure to achieve the desired result. As the Commission presents the differentiation of laws as the main obstacle for the functioning of the market, one should asses the positive and negative effect of divergent rules in light of consumer interests. The question arises if these differences could not be reduced with the help of codification and consolidation measures. The latter would accordingly help to achieve a uniform standard rules for all Member States after examining the experience of each of them. On the one hand, this would assure higher level of consumer protection, but would not force other Member States to lower down their standards. On the other hand, the centralization aspect would be avoided and decentralization would prevail, letting regulatory competition accommodate the needs of the consumers and traders. Therefore, if we take a look, we can see that rules that are more of technical nature are more likely to bow to complete harmonization. Nevertheless, even then the uniformity, which results from the consolidation of the directives, does not itself require this type of harmonization. Clarity can be brought by a new directive which has common definitions of core notions but avoids full targeted harmonization, as these two aspects do not condition each other.
266 Ibid.23, 11. 267 Ibid.39, 8. 65
Additionally, the Commission‟s argumentation, which mostly concentrates on the scope of the regulation and the transaction costs, should be analysed from a critical point of view. It is too simple to state that a legal system, which is harmonized, is obviously more efficient than the one which consist of divergent Member State rules just because of transaction costs as it is also in need of sufficient argumentation. This argument of the Commission neglects the fact that there can be certain benefits from this fragmentation as it also conditions legislation to be adapted to the preferences of consumers. The costs resulting from this type of measure should be considered as well. „Moreover, given the differences between the legal systems (and legal cultures) in Europe the costs of harmonisation may be huge – if not prohibitive – as well‟.268 Thus, one should ask „whether the possible transaction costs savings of harmonization outweigh the benefits of differentiated legal rules.‟269 Still, there exists little empirical evidence which could support the statement that transaction costs savings could justify the choice of full harmonization. Moreover, „full harmonization‟ mode could cause undesirable consequences to some of the Member State which were precocious to introduce more protective rules for consumers and now will be forced to reduce the level of protection because of this commonly accepted new standard. Finally, the third element of the proportionality test cannot undergo a proper evaluation as the previous two lack sufficient argumentation. However, the choice of a directive with total harmonization is motivated by „a smoother implementation of Community law into the existing national contract laws or consumer codes‟.270 Though if we have a directive of maximum harmonization, the question arises at once, what is meant by the definition of the „smoother implementation‟? In this case, the provisions of this measure, which are compulsory and not possible to modify, are presumed to make the whole content of this secondary legislative measure clear to all Member States. However, one could say that this theoretical clarity of the rules will have, nevertheless, to face the different needs and preferences of divergent societies through the process of implementation. In addition, this type of harmonization will immediately chain the hands of the Member States without letting them have any say in the scope of the consumer protection regulation on national level as the rules adapted in the maximum
268 Ibid.223, 38. 269 Ibid.270 270 Ibid.39, 8. 66
harmonization way leaves no freedom for setting higher standards in favour of the national consumer. It is important to mention, that the assessment of this third element of the principle of proportionality often highly depends on the political will and arguments at the EU level. However, firstly, one should determine what kind of internal market we want: the one which subordinates the consumer‟s interests in order to achieve the favourable results for market or the one which aims to balance the concerns of the both parties. As regards the autonomy of the Member States, the fragmentation of the laws could be tackled in a more favourable way, which leaves a certain margin of variation at the national level. I believe in the good of the Proposal and that a coherent coordination of the interests of the both parties, consumers and businesses, should be pursued to achieve the proper balance between the uniformity and inevitable diversity of national laws. To conclude, even if the Commission‟s Proposal for Directive on consumer rights meets the test of legal feasibility in terms of a proper legal basis and compliance with the principle of subsidiarity, the question of legal desirability will be the next hurdle. The choice of total harmonization must be evaluated in light of the principle of proportionality. The success of the Proposal remains questionable, firstly, because the Commission‟s reasoning contains certain shortcomings, and secondly, because the foreseen „high‟ level of consumer protection at the EU level lacks certainty and would seem to require instead for additional „soft law‟ mechanisms to enhance minimum harmonization.
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5. Conclusions
The central research question of this work focused on questioning the legal feasibility and desirability of the newly presented Proposal for a Directive on Consumer rights by the Commission on 8th of October 2008, which proposes to abandon the traditional minimum type of harmonization in this field in favour of full harmonization. This measure attracted a certain amount of critique as a number of scholars expressed their concern about the lack of sound argumentation, provided by the Commission, for this shift from minimum to complete harmonization. Subsequently, the question was raised if this turnabout in the consumer protection field at the EU level is really indispensable and a good idea, which can be justified by reasonable argumentation and simultaneously uphold the balance between the interests of both consumers and businesses. The first chapter examined the legal environment at the EU level at the moment when the Proposal was presented and showed that the interest to pursue a policy in the consumer protection field at the EU level developed rather slowly. It was only with the adoption of the SEA (1986) that consumer protection was recognized as an autonomous policy field and the entry into force of the Maastricht Treaty finally explicitly granted the EU the legal competence to act in this field. The perception of a reciprocal relationship based on the interdependence between the consumer and the internal market encouraged the harmonization process, which was traditionally done by setting the minimum standards for the Member States and giving them a margin of discretion to act beyond these standards, if needed, in favour of national consumers. The foundations for the emergence of the Proposal for a directive on consumer rights and the choice for maximum harmonization are to be found in political documents (Consumer protection strategy 2002-2006, Consumer protection strategy 2007-2013) as well as supporting documents (Impact Assessment report, Green paper and etc.), stressing on the need for total harmonization as the means to repeal legal fragmentation, which would lead to increased consumer confidence and would, consequently, enhance the cross-border trade. The complete harmonization approach is reflected and formulated in a similar manner in all the documents, on which also relies the subsequent Commission‟s argumentations, and concentrates on the clear economic benefit. However, the other side of the coin, the impact on the interests of consumers is presented only in
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the form of vague statements, that it should increase consumers‟ confidence and condition the EU-wide high level of protection. The Commission has provided three reasons to prove that total harmonization is necessary, which hardly find support in the substantive rules of the Proposal. The first one, which claims that maximum harmonization will contribute to the reduction of compliance cost and strengthen the consumer confidence, is not reflected in the Proposal itself and backed up only by the results of the 2008 Eurobarometer survey, thus lacking concrete empirical evidence. The second one, explicitly translated in the text of the Proposal, shows how the removal of the multipartite nature of regulation in certain consumer law fields is possible, in case of the unification of withdrawal periods or information duties and renders the complete harmonization possible in certain specific areas. The third reason, which is not reflected lacks ground in the Proposal itself, claims that this type of harmonization will result in a high level of consumer protection EU-wide, but, nevertheless, does not elaborate further on how this is possible, since the definition of a „high‟ level for all consumers in all the Member States remains ambiguous and hard to determine. Also, certain shortcomings of the Proposal emerge: the consequences of harmonization because of the limited scope of this measure are not discussed, the use of alternative „soft‟ regulation mechanisms in this case are deemed to be not sufficient to achieve the objective without detailed argumentation, the use of which would lead to less stringent regulation on the national level. Accordingly, the fragmentation of laws is seen only from a negative perspective not mentioning the advantageous side of it. Chapter 3 concentrated on the legal feasibility of the Proposal. A two-level scheme was used: first, the requirement for the measure to contain sufficient input for the reinforcement of the operation of the internal market which leads to acquisition of the right to harmonize; second, the ability for the Proposal to meet the principles of subsidiarity and proportionality that grants the right to exercise that competence. The Lisbon Treaty explicitly mentions consumer policy among other policies of shared competence (Article 4 (2) (f) TFEU), the exercise of which has to be in line with the subsidiarity and proportionality principles, and states that the consumer protection requirements shall be taken into account in defining and implementing other Union policies and activities (Article 12 TFEU). As there exists no competence to harmonize per se, the special provision to act in the consumer protection field, article 169 TFEU, is of a doubled faced nature, providing for two
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different options in para.2: a) measures adopted pursuant to Article 114 TFEU in order to complete the internal market; and b) measures to support, supplement and monitor the policy pursued at the national level. The strong tendency for the EU to rely on the option (a) prevails, what makes one question: what would happen if option (b) was used instead, as it can result in more acceptable solutions for the Member States while achieving the same objective, for instance, through the creation of the European Consumer Contract Regulation proposed by Norbert Reich. In this case the Commission chose option (a), the legal test, constructed by the ECJ in the Tobacco Advertising case, has to be applied in case of the use of the Article 114 TFEU: a) to contribute to the elimination of likely obstacles for the internal market, b) to contribute to removal of appreciable distortions of competition because of the diverse national rules. Thus, the arguments provided in the Commission‟s documents explain that the Proposal will strengthen the internal market but lack of sufficient reasoning persists as regards the argument that the fragmentation of laws has only negative aspects and forms a significant obstacle to cross-border trade. Accordingly, consumer interests would be addressed in a subordinated manner as envisaged under Article 114 (3) TFEU. This raises certain doubts if the Proposal will be capable to strike the right balance between the interests of consumers and the internal market. However, if the Commission‟s argumentation will meet the indicated test, the competence to harmonize will be attributed to the EU. The next question was why this objective should be pursued at the EU level rather than at the national one. This led to the examination of the legal desirability of the Proposal in the light of the subsidiarity and proportionality principles. Although the Lisbon Treaty introduced additional instruments (Protocol (No1 and No2)) to strengthen the subsidiarity principle, the general effectiveness in exercising this principle is questioned as the chances to overturn EU action on the ground of not complying with it by the ECJ are rather low. The Proposal‟s analysis regarding compliance with the subsidiarity principle in light of the test of comparative efficiency provided results in form of the brief statements in the supporting documents, relying on the sole argument that legal fragmentation is a major obstacle, which the Member States themselves cannot remove and that regulation at the EU level would be better because it will result in a reduction of traders‟ compliance cost and increase consumer‟s confidence.
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Next, the positive side of legal fragmentation was examined. Minimum harmonization reflects an appreciation for cultural characteristics. It was found that the differentiation of laws is advantageous to the national legal systems. Firstly, because it is a reflection of different national preferences: approximately 22 of 27 Member States made possibility to introduce more protective measures while implementing previous directives related to consumer protection. That shows that most of the countries are likely to adapt the secondary legislative act to their national needs to provide the optimal level of protection for their citizens. Maximum harmonization, on contrary, could result in leveling-down and adjusting the level of consumer protection to a lower standard than the one currently ensured in the Member State. Secondly, it was found that from an economic perspective the minimum harmonization approach is more efficient than centralization measures. It allows for competition between legislators which is perceived to lead to allocative efficiency – the optimal provision of legal rules but requires the necessary amount of the information, related to consumer rights, in order to reduce the distrust of the legal systems of the Member States. The Commission‟s argument for „leveling the playing field‟ is of the political nature and does not seem to correspond with economic efficiency. Economical integration in case of differentiated legal systems is proved to be possible. Thus, scientific evidence is missing to support the Commission‟s argumentation to make a shift from regulatory competition and decentralization to centralization. Fragmentation of laws can also be seen as the measure to gain experience, when the observation of the other Member States‟ practices could lead to optimal solution and address a wider scope of divergent preferences. The Lisbon agenda introduced Open Method of Coordination, which allows the Member States to function as „experimenting laboratories‟ and provide supplementary soft law measures. The denial of the advantageous side of the legal fragmentation at the EU level remains questionable and also essential while taking the final decision of the Proposal‟s compliance with the principle of subsidiarity. Lastly, the investigation concentrated on what type of the harmonization would be proportional to achieve the objective mentioned in the Proposal. Compliance with the adequacy principle was found to be possibly met as the compliance with the necessity principle was found questionable and in need of stronger argumentation and empirical evidence. This consequently
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did not lead to the examination of the third element as the Commission emphasizes only negative effect of divergent rules in light of consumer interests. To conclude, the investigation of the adoption of the Proposal for a Directive on consumer rights seems to indicate that if this measure was challenged on the grounds of legal feasibility and desirability it could very well not survive the legal challenge. Firstly, it is questionable, if the requirements to gain the competence to harmonize will be fulfilled. This is because the Commission‟s reason for the need of the total harmonization as the means to repeal the legal fragmentation is not backed with the sufficient empirical facts and instead goes against the economic arguments that decentralization is the best regulatory strategy and minimum harmonization is capable to assure the optimal consumer protection in each Member State when the consumers are adequately informed. The economic and political argumentations contradict each other. Secondly, even if compliance with the subsidiarity principle was affirmed, the Proposal seems to face a challenge in the light of the proportionality principle. Firstly, as the total harmonization would be done in the targeted areas only, it subsequently would result in differentiation of laws as the consumer law forms only a small part of the contract law, consequently, the adequacy requirement would not be fulfilled. Also, legal fragmentation should be scrutinized first to examine its advantageous side which could contribute to the achievement of the Proposal‟s objective by offering alternative solutions which would not lower the level of consumer protection in the Member States and would strengthen the aim to maintain respect for diversity at the EU level. As it is very doubtful if the positive answer to the desirability of this total harmonization measure will be attained, the wider scope of options, combining minimum harmonization and soft law instruments, should be investigated, which could address the same objective in less „painful‟ way from the perspective of the Member States. Recently, there has been going a debate in both the European Parliament and the Council about the adoption of the Proposal for a directive on consumer rights. On June 3rd 2010 the European Parliament‟s internal market and consumer protection committee scrutinized the Proposal and according to German MEP Andreas Schwab - „maximum harmonisation of consumer rights in all areas and for all types of contract is simply not possible at this point in
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time‟.271 The suggestion was given to change structure and concept of the draft directive and to apply maximum harmonization only to the targeted areas, where it would be useful and possible, and to leave other areas to minimum harmonization. However, the business organizations remain reluctant to accept the regime which would „provide a mix between full and minimum harmonisation of rights‟272 because they believe it would not fulfill the objectives of the revision: to improve legal certainty and to end legal fragmentation. Guillaume Delvallée, a French representative on the Council working group on consumer rights, said „the group had already held 41 meetings on the dossier and described the situation as „extremely painful‟, arguing that it would not be easy to continue work based on the current text‟.273 In addition, both the Commission and stakeholders have also presented an optional alternative of a '28th regime for contracts', which they suggested could exist in parallel with national contract law as it does not replace national laws and offers standard terms and conditions. However, it faced objection at the policy level as it would represent „a shift in political understanding of Europe‟ and would pose a problem by suggesting that „there is no trust anymore between member states‟.274 Thus, one can see that the process of adoption of the Proposal for the Directive on consumer rights faces challenges and is likely to produce more discussions in the future as well. According to the Commissioner for Justice, fundamental rights and citizenship V. Reding, if there was no agreement on the dossier at first reading, the structuring of a new text would be considered. Still, it is believed at the EU policy level that the consensus text will be presented soon and will be adopted during the Belgian Presidency in the second half of 2010.
271 Parliament starts debate on Consumer Rights Directive , < http://www.euractiv.com/en/food/parliament-starts- debate-consumer-rights-directive-news-494899> accessed June 4 2010 272 Ibid. 273 Ibid. 274 Ibid. 73
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Charter of Fundamental Rights of European Union, (2000/C 364/01), OJ C 364/1, 18 December, 2000, Article 38 Council Directive 76/207/EEC of 9 February 1976 on the implementation of the principle of equal treatment for men and women as regards access to employment, vocational training and promotion, and working conditions (OJ 1976 L 39/40); Council Directive 78/659/EEC of 18 July 1978 on the quality of fresh waters needing protection or improvement in order to support fish life (OJ 1978 L 222/1) Council Directive 79/581/EEC of 19 June 1979 on consumer protection in the indication of the prices of foodstuffs (OJ 1979 L 158/19)
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Council Directive 85/374/EEC of 25July 1985 on the approximation of the laws, regulations and administrative provisions of the Member States concerning liability for defective products (OJ L 210, 7.8.1985, p. 29) Council Directive 85/577/EEC of 20 December 1985 to protect the consumer in respect of contracts negotiated away from business premises Council Directive 90/314/EEC on package holidays Council Directive 93/13/EEC of 5 April 1993 on unfair terms in consumer contracts OJ L 95, 21.4.1993, p. 29–34 Council Directive 99/44 of 25 May 1999 on certain aspects of the sale of consumer goods and associated guarantees Council Directive 2005/29/EC of 11 May 2005 on unfair commercial practices Council Directive 2006/12/EC of 5 April 2006 on waste Council Directive 2008/48/EC of 23 April 2008 on consumer credit Commission Proposal for a directive on consumer rights, COM (2008) 614 final
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Communication from the Commission to the Council, the European Parliament, the European economic and social Committee EU consumer policy strategy 2007- 2013: Empowering consumers, enhancing their welfare, effectively protecting them, Brussels, 13 March 2007 COM (2007) 99 final.7 European Commission Green paper on the Review of the Consumer Acquis, COM (2006) 744 final Commission staff working paper, Report on the outcome of the public consultation on the green paper on the review of the consumer acquis,
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Cases
Case C- 240/83 Procureur de la Republique v. Adhhu [1985] ECR 531 Case C-300/89 Commission v. Council (Titanium dioxide case) [1991] ECR I-2867 Case C-426/93 Germany v. Council [1995] ECR I-3723 Case C-84/94 UK v. Council [1996] ECR I-5755 Case C-233/94 Germany v Parliament and Council [1997] ECR I-2405 Case C-271/94 European Parliament v. Council [1996] ECR I-1689 Case C-376/98 Germany v. Parliament and Council (Tobacco Advertising) [2000] ECR I- 8419 Case C-377/98 Netherlands v. Parliament and Council [2001] ECR I-7079 Case C-491/01 Queen v. Sec'y of State for Health, ex parte British Am. Tobacco (Inv.) Ltd. & Imperial Tobacco Ltd., 2002 E.C.R. I-11453 Case C-380/03 Germany v. European Parliament and the Council (Tobacco advertising II), judgment of 12 December 2006, E.C.R. I-11573 Case C-533/03 Commission v. Council (VAT) [2006] ECR I-1025, para.45
Webpages
Assembly of European Regions,
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EU Consumer law compendium, Comparative analysis,
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