Impact of the European Union and EU Law on the UK Law and Business - Article Example

The Impact of the European Union and EU law on the UK law and business The Treaty of Rome 1957 officially created the European Union (EU), with the promotion of social and economic harmony as its primary objective. The Treaty of Rome has been revised three times and the 1992 Maastricht Treaty created a new European Union radicalising the notion of European Economic Community and the European Single Market into European Community law1. This was subsequently ratified by the Treaty of Amsterdam (the Treaty). Whilst the original purpose of the EU was “to create political unity within Europe and prevent another world war….. it is the EEC (now known as the EU) that has had the most significance, particularly for law”2. Elliot further comments that in addition to the economic objectives, “it is intended that there should be increasing political unity, though there is some disagreement – particularly, though not exclusively in Britain – as to how far this should go”3. It is submitted that economic integration and the policy making of the EU is inherently dependent on legislation and therefore a central issue of importance is the ability of the EU institutional framework to effectively implement and regulate EU economic objectives at national level4. As an initial observation, Baimbridge and Whyman posit that the organisational model of the EU with the roles of the Commission, European Parliament and the European Court of Justice is its inherent weakness in achieving EU harmonisation5. In supporting this argument, they refer to the EU regulatory model as the democratic deficit of the EU framework “in terms of direct influence afforded to European citizens over the decision making process of the principle institutions”6. As such, the institutional framework clearly lends itself to conflict with the national political framework of member states. The focus of this paper is to critically evaluate the impact of European Union and EC law on the UK and business. Whilst the sheer complexity of multifarious issues raised by the impact of EC law and EU institutional policy making on the UK is outside the remit of this paper, in evaluating the issue this paper will focus on the policy initiatives of the EU, impact of legislation and undertake a contextual evaluation of the impact of the Human Rights Act 1998 (“HRA”). The tension between European Community law (EC) and national law is arguably the most debated topic of constitutional law7. The convention of Parliamentary supremacy is rooted within the British constitution as a fundamental limb of the separation of powers doctrine8. Constitutional convention in fact dictates that the judiciary is bound by Parliament and the case of R v Jordan9 asserted that the courts had no power to challenge the validity of Parliamentary legislation. However, the incorporation of community law through the implementation of the European Communities Act 1972(the ECA), which expressly gives legal effect to EC law has led to the creation of what has been described as “a new legal order10”, directly attacking traditional constitutional convention of national sovereignty11. Conversely, the established convention that Parliament cannot bind its successors has led commentators to argue that theoretically the ECA could be repealed by Parliament and as such, does not in reality change the relationship between EC law and national supremacy12. Whilst this may be so in theory, the political machinations of Government demonstrating a bias for cohesion and collaboration with the EC renders it highly unlikely that Parliament will repeal the ECA. Indeed, Darbyshire highlights the point that: “it is simply unrealistic to consider the English legal system or English sources of law in isolation from the EU. As the ambit of Community power and now Union power is extended, so the bulk of substantive law accelerates in growth, it is no longer appropriate to consider Community law as a single subject”13. In considering the relationship between EU and domestic law, it is vital to consider the sources of law and central EU institutions. With regard to European legislation, the EC treaties are the primary legislation and give effect to secondary legislation in the form of Regulations, Directives and Decisions14. The European Parliament, European Council and European Commission are collectively responsible for law making and Article 189 of the EC Treaty sets out the legislative and administrative process for the creation and implementation of EC law as thus: ”In order to carry out their task in accordance with the provisions of this Treaty, the European Parliament, acting jointly with the Council…. And the Commission shall make regulations, take decision, make recommendations or deliver opinions15.” However inconsistencies in the operation of the doctrine of separation of powers is emphasised by the applicability of European Community Law16. The European Communities Act 1972 implements a presumption into the UK legal system that domestic law will not conflict with community law17. As discussed above, there are various sources of community law and there are differing levels of applicability at national level18. The EC Treaty, Regulations and Decisions are “directly applicable” in EC member states and as such have the force of law under UK national law without the need for national implementation, which further supports the above statement that the “European dimension” does not deserve or require a chapter of its own, since the law emanating from Brussels …. [and] Luxembourg…. Now forms (directly or indirectly) part of the United Kingdom law. For example, Regulations are binding in entirety on all members states and Decisions are only binding on states or parties to whom they are addressed19. Article 189 elucidates the applicability of EC legislation at national level and asserts: “A regulation shall have general application. It shall be binding in its entirety and directly applicable in all Member States. A directive shall be binding as to the result to be achieved, upon each Member State to which it is addressed, but shall leave to the national authorities the choice of form and methods. A decision shall be binding in its entirety upon those to whom it is addressed”. Moreover, whilst MacLeod descries the Commission’s main functions being “to formulate policies, which must be consistent with the framework of the Treaty”20it is evident that the Commission’s powers are far reaching in terms of ensuring national compliance with EC law. For example, Article 226 of the Treaty sets out the procedure for enforcement of infringement against Member States in relation to their obligations under Community law21. In cases of non-compliance the Commission can further institute proceedings against Member States before the European Court of Justice (ECJ) to seek a declaratory judgment, which in turn can be used to impose sanctions on the offending member state22. Moreover, the Commission can further rely on the provisions of Article 211 EEC as “guardians of the Treaty “ and has to ensure proper application of Community law, in line with Article 211 TEC23. The Article 226 procedure enables the Commission to pursue its objective of policing the application and compliance with the Treaties and secondary Community law obligations24. Moreover, the Commission has taken several measures to adequately remedy problems encountered in the transposition, implementation and enforcement of directives25. These include regular publication of a calendar for transposition and annual reports to monitor the application of community law. Borissova further comments that “by launching enforcement action against a Member State, the Commission is not asking the ECJ to recognise a Member’s State’s intention to breach the law but to deliver a declaratory judgment no the latter’s failure to comply with its Community obligations”.26 Whilst the initial judgment of the ECJ is declaratory and carries no specific sanctions per se27, Member States are nevertheless placed under a further obligation under Article 228 to comply with the judgment by taking necessary measures28. For example, in Commission v Italy29 the Commission determined that because Italy had failed to comply with the Court’s judgment in the first instance under the Article 228 procedure (ex 171), judgement should be given in favour of breach of Article 228. It was further held that notwithstanding the fact that prior to final judgment Italy had complied with the original decision; Italy had still failed to comply with Article 228. However, the White Paper on European Governance published by the Commission in 2001 further highlights that the primary responsibility for the application of Community law lies with national administrations and courts in the Member States30. Therefore, the primary objective of enforcement of actions against Member States is to monitor compliance and respond to non-compliance. As such, the Commission aims to encourage voluntary compliance of the Member States. Moreover, the underlying sentiment of the Commission’s strategic objectives for 2005-2009 is that vigorous pursuit of infringement actions under Article 226 are “considered critical to the credibility of European Legislation and the effectiveness of policies”. Additionally, the primacy of EU objectives and the enforcement role of the Commission clearly set up the organisational model of the EU for conflict between EU agendas and national interests, which will inherently influence member state incentives to implement EU policy oriented legislation31. This problem is further highlighted by the fact that the Commission and the ECJ appear to be taking a more proactive role in using enforcement actions to implement policy objectives, thereby perpetuating the tension between EU and national agendas particularly at business level32. Furthermore, in the Commission v France33it was held that where Member States have not complied with their obligations, this does not entitle non-compliance on behalf of the defendant Member State, even where the Member State’s constitution specifically allows for it34, which further highlights the infusion of European community law into UK law. Furthermore, in addition to Article 226 procedure, any individuals affected by non-implementation of the Directive may try and bring action against the UK Government under the principles relating to state liability established in the leading case of Francovich v Italian Republic35, further developing the decision in the case of Van Gend En Loos36. Indeed, in considering the evolution of supremacy of EC law, the starting point is the 1963 ECJ decision in Van Gend en Loos,37which emphasised that European law was to be distinguished from regular public international law. Furthermore, in according direct effect to the EC Treaty, Regulations and Directives, the ECJ arguably created the first direct conflict between European and national law, creating ambiguity as to which law shall prevail38. The ECJ elucidated this point in the case of Costa v ENEL39, asserting that in the case of conflict between European and national law, European law prevails. The judicial reasoning of the ECJ justified EC supremacy on grounds of independence, uniformity and efficacy of Community law40. From this perspective, it was asserted that Community law “is an integral part of …… the legal order applicable in the territory of each of the Member States41” and that provisions of Community law are “by their entry into force render automatically inapplicable any conflicting provision of current national law42”. It has been commented that this concept of primacy in application as opposed to primacy in validity, also applies to member states’ constitutional provisions, leading to arguments of a European constitution incorporated through the back door43. Indeed the case of Internationale case stands out as a decision where the ECJ used the strongest language with respect to primacy of EC law over the national constitution of member states. In this case, the ECJ asserted that “The validity of a Community measure or its effect within a Member State cannot be affected by allegations that it runs counter to either fundamental rights as formulated by the constitution of that state or the principles of national constitutional structure44”. Whereas previous ECJ opinion had asserted primacy of EC law in theory, the sentiment in 11/70 Internatjionale Handelsgesellschaft mbH v Einfuhrund Vorrasstelle fur Getriede und Futtermittel45 (Internationale Case) limited the scope for misinterpretation and possible exploitation of ambiguity by asserting that the supremacy principle went to the very core of established member state fundamental constitutional rights. These assertions left constitutional commentators reeling from the direct attack to established enshrined rights under member state constitutions46. Applied with the doctrine of direct effect as established in the Van Gend en Loos 47case, the implications of the Internationale decision attacked the very core of existing constitutional convention48. It implied a duty on the judiciary to apply EC law over national law, thereby undermining the doctrine of the separation of powers and transparent law reform49. However, the Internationale decision was nevertheless criticised for the ambiguity of its parameters in the constitutional context. It has been commented that what “is still contested…… is primacy over national constitutional law, and this is where critics of the Court’s primacy concept have been most visible50”. Furthermore, Karen Alter underlined this conflict by making an extreme structured parallel between supreme European law and the law of military occupation51 and on this basis attacked the Internationale decision’s “rigorous simplicity” regarding the concept of primacy52. Whilst the ECJ’s purpose is to implement EC law, the Internationale decision asserting EC supremacy over national constitutional law arguably ignores the reality of how member states interpret EC law. Indeed as pointed out by Mayer53, the implementation of the supremacy concept goes beyond a mere question of interpretation, which is clearly demonstrated by the national courts’ initial reluctance to accept unconditional supremacy of EC law54. Although the wording of the ECA arguably supports the assertions of the Internationale decision, the UK courts initially treated the ECA as a principle of construction as opposed to expressly acknowledging supremacy of EC law. This is evidenced by the decision in Pickstone v Freeman plc55, where the House of Lords adopted a method of interpretation which resulted in elimination of the conflict with EC law biased towards a preference of national law provisions. The decision led some critics to argue that the ECJ assertions in Internationale were merely a false dawn regarding supremacy of EC law56. However, the sentiments of the Internationale supremacy assertion were reiterated in the Transport, ex p Factortame (No.257) decision, where it was held that the principle that an injunction could not be obtained against the Crown could be set aside if it prevented the granting of interim relief in a dispute governed by EC law. This major shift saw the House of Lords expressly acknowledging primacy of EC law over national legislation and demonstrated the limitations on Parliamentary intention being implemented if legislative provisions contravened rights under EC law58. In addition to the radical shift in constitutional convention, the Factortame decision also highlighted the conflict between established constitutional rights and widening concepts of democracy imported through the primacy doctrine59. The Factortame decision was further significant due to the House of Lords’ effective entrenchment of the ECA in fettering continuing supremacy of Parliament, which contradicts the convention that Parliament cannot bind its successors60. In fact some commentators have treated the Factortame interpretation of ECA as indoctrinating the Internationale sentiment and empowering the doctrine of implied repeal.61 The Factortame case effectively incorporated the assertions of Internationale directly into UK law and the shift in approach demonstrates that the courts are willing to apply supremacy instead of circumventing the concept with strained concepts of purposive construction. Nevertheless, notwithstanding the court’s approach, the ambiguity still remains as to how the courts would react if Parliament were ever to enact legislation expressly repealing EC law62. Wade argues that “if there had been any such provision in the Act of 1988 we can be sure that the ECJ would hold that it was contrary to Community Law to which under the Act of 1972 the Act of 1988 is held to be subject63”. This not only suggests that doctrine of implied repeal has been abolished it appears to cement the independence of the judiciary under the separation of powers at the expense of Parliamentary supremacy. Conversely, Lord Denning asserted in the decision of Macarthys Ltd v Smith64 that “If the time should come when our Parliament deliberately passes an Act with the intention of repudiating the Treaty or any provision in it or intentionally of acting inconsistently with it and says so in express terms then I should have thought that it would be the duty of our courts to follow the statute of our Parliament65”. If Lord Denning’s view affirming sovereignty remains, then this would suggest that whilst the courts may interpret Internationale as importing EC supremacy, it is intrinsically limited by Parliamentary sovereignty and the doctrine of implied repeal. However, the Macarthy’s decision was prior to Factortame and it remains to be seen whether the House of Lords will repeal this in the future. The threat to Parliamentary Sovereignty and the separation of powers from EC initiatives has further been fuelled by the implementation of the Human Rights Act 1998 (HRA). The implementation of the HRA was heralded by the Lord Chancellor as having “a profound and beneficial effect on our system of law and government and will develop over the years a strong culture of human rights”.66 By implementing the ECHR into domestic law, the HRA clearly impacts and changes the constitutional landscape of the UK. The HRA incorporated the European Convention on Human Rights (ECHR) into UK law and the preamble to the HRA states that its purpose is to “give further effect to rights and freedoms guaranteed under the European Convention on Human Rights”. For the first time, the UK implemented a piece of legislation akin to a constitutional Bill of Rights, protecting essential human rights and freedoms67. Prior to 1998 there had been no British constitutional statement regarding basic human rights similar to those found in the constitutional provisions of other democracies68. This new human rights “Charter” now has direct legal effect and protection in the UK. The HRA has been labelled as one of the most important domestic legal developments for a generation69. Furthermore, section 2(1) of the HRA asserts that “A court or tribunal, determining a question which has arisen in connection with a Convention right must take into account Convention rights” and any determinations by the European Court of Human Rights70. Moreover, whilst the HRA does not in fact implement any Bill of Rights as such, section 3(1) does impose a positive obligation on judicial authorities to interpret all legislation “in away which is compatible with the Convention rights”. Accordingly, the HRA “has had the effect of incorporating the European Convention on Human rights into our law giving individuals rights which can be directly enforced in the UK courts71”. However uncertainty still remains as to the extent of the EC law as a fetter on Parliamentary sovereignty. Whilst the UK courts are likely to take a position “somewhere in between,” in order to preserve Parliamentary intention, the current position clearly highlights the fundamental role of the Internationale case in the evolution of national law towards EC supremacy, which has now become a reality as opposed to mere rhetoric. As such, whilst theoretically the issue as to whether Parliament is fettered by EC law supremacy remains unresolved, the political climate suggests that in reality the “European Dimension” has become part of UK law. This is further evidenced if we contrast the legal position in the UK with regard to the HRA. In contrast to falling within the legislative measures implemented by the EU institutions, the HRA signals the UK’s commitment to promoting the spirit of the ECHR and doesn’t bear the same sanctions as non compliance with Community law. Therefore, whilst the theoretical implications of the HRA as the most important piece of legislation in the UK cannot be underestimated, the fact that the judiciary can merely determine whether rights have been breached arguably undermines the importance of the HRA as constitutional revolution for individual rights. On the other hand, the “European Dimension” has clearly created conflict with national interests in the UK particularly for business. For example, as highlighted above, Artis and Nixson suggest that the cracks in the relationship between the EU organisational model and its members points towards an EU heading for crisis particularly with regard to the furtherance of the monetary union particularly in relation to business objectives72. They refer to failure of the Stability and Growth pact as a prime example to underline the argument that the stability of the EU inherently relies on co-ordination and mutual co-operation between member states73. Artis and Nixson further comment that notwithstanding the role of organisational model in regulating member state compliance with policy motivated EU legislation; ultimately the EU framework is influenced by the political clout of certain members74. As such, the practical impact of EU economic objectives through legislative initiatives is not so straightforward. For example, Artis & Nixson highlight the fact that many member states opted out or suspended certain obligations to address national political agendas. As such, Artis and Nixon argue that the root of the Union and mutual objectives are becoming secondary to national political interests, which in turn risks negating the Union’s objectives of a monetary union75. Additionally, arguably the crux of the problem is that EU agendas are dependent no mutual co-operation. However the EU economic objectives are single minded in addressing policies geared towards “the europeanization of states” and can ignore the national interest and in certain sectors the impact of globalisation in business as evidenced by the rigidity of the EU competition policy.76 Alternatively, Artis and Nixson suggest that it is completely dogmatic to suggest that the EU economic objectives have not been at all useful in economic EU progress and suggest that “there are powerful basic reasons why the Member States should want to co-operate and why they should want to improve their cooperation and individually obtain better results”77. Nevertheless, the future of the EU particularly in relation to economic policy suggests a deeper fragmentation of the EU, with the Turkey question looming and Artis and Nixson suggest that “if the next years are tilted towards deepening for this reason, once possible result would be the increased use of variable geometry arrangements to accommodate the more divisive disagreements that would be revealed”78. With regard to the UK position, they further suggest that UK’s position within the EU agenda may become uncertain particularly in light of the apathy towards the Euro issue79. In supporting their proposition that achievement of the EU economic policy has become increasingly tenuous, Artis and Nixson highlight the central areas of the dichotomy between EU economic objectives on the one hand and political objectives of the UK and business interest as follows: 1) Economic integration and policy making; 2) Emerging markets and competition policy; and 3) EMU80. As highlighted above, effective integration is intrinsically intertwined with effective legislative implementation and regulation of compliance. Additionally, Artis and Nixson suggest that the EU economic integration is inherently influenced by political agendas, which again pits the more powerful member states and their agendas against the less powerful member states81. These political divisions have become more of an issue as a result of a continued EU enlargement programme, with member states all trying to further their own objectives. In highlighting this fundamental point, Artis & Nixson observe that: “The EU has become a much larger organisation than it was when founded by six states in the early 1950s. its policy remit has extended from coal and steel to most areas of domestic and foreign policy as well as home affairs. The EU is no longer a one size fits all” organisation. Some states are absent from EMU others from defence co-operation. However the core remains around the single market, of which all states are full members. The Franco-German relationship is no longer the bedrock of the integration process. The relatively weak economic performance of these two states in the Eurozone has reduced their influence on economic policy within the EU in recent years. ….The politics and institutions of the EU have evolved considerable over the years and their importance in understanding the economics of the EU remains as important as ever”82. If we consider the UK’s position within this complex framework, Baimbridge and Whyman83 argue that the EU’s relationship with Britain has been difficult particularly in light of the EU as a distinct entity in comparison to the Britain’s alignment with other international organisations such as the IMF, NATO and the UN (p.8). Additionally, Baimbridge and Whyman assert that from the beginning the overall objectives of the EU were rooted in furtherance of economic objectives, however the differences in political frameworks of certain states have fuelled problems in achieving stability and unanimity on important issues such as tax harmonisation, border controls and foreign policy84. Additionally, Baimbridge and Whyman comment that essentially from a British perspective, the EU “project” is rooted in a continental cultural heritage which is contrary to Britain’s historical links to the US and its empire, and the individualistic nature of British culture85. This in turn has created problems for a UK that has distinct economic structures to its mainland European counterparts. For example, Baimbridge and Whyman highlight the point that the British economy is rooted in the financial sector and smaller and capital intensive agricultural sector and trades with many non-EU countries and that “its liberal competitive instincts align it much more closely with the United States than with the corporatist traditions of Western Europe.86” Additionally, Britain’s financial system is clearly at odds with the regulated labour markets and corporal management structures of mainland Europe as evidenced by the distinction between the civil law systems of the Franco-German tradition member states in contrast to the common law system of the UK. It is submitted that this inherently impacts the financial environment within which businesses operate and clearly fuels tension between EU economic objectives and the national agenda. Indeed, Vermeulen highlights that in terms of the legal framework within which businesses operate, the judiciary would appear to have a more proactive role in formulating the law in contrast to the limitations of civil law codes87. On this basis, it would appear that the flexibility of the common law system enables the legal system to continuously develop to address commercial realities facing businesses. Furthermore, in considering the distinction between the common law and civil law tradition with regard to the legal framework for businesses, Graff refers to the “law and finance theory” which suggests that a country’s legal system is instrumental in either facilitating or hampering financial development and that “the major conclusion from the literature is that the common law system generally provided the more favourable basis for financial development and economic growth, and on the other hand the French branch of the civil law tradition is the least favourable”88. In terms of the differences these systems have posed for the environmental framework for business development, it is submitted that the central differentiating factors are the increased recognition of individual rights and jurisprudential flexibility under the common law system. To this end, Vermeulen posits that the common law systems of the United States and UK have fuelled massive equity markets in comparison to the civil law traditions of Germany and France; where “in response to poor investor protection, insider coalitions of shareholders or wealthy families control the firm”89. Additionally, in the civil law jurisdiction, there is less flexibility, which lends itself to an entrenched legal code that fails to address continuously evolving business realities, highlighting the inherent contradiction between EU initiatives and applicability at national level in the UK90. This highlights the inherent problem of attempting to implement EU economic harmonisation in member states with national political and economic agendas. This intrinsic flaw in the dependence of mutual member state co-operation clearly undermines the stability of achieving EU economic objectives, which is further compounded by the debate as to whether such competition regulation facilitates EU economic integration. BIBLIOGRAPHY Karen Alter (2001). Establishing the supremacy of European law. The making of an international rule of law in Europe. Artis M and Nixson F, (2007). The Economics of the European Union. Fourth Edition, Oxford University Press Baimbridge M, Harrop J, Philippidis G, (2004). Current Economic Issues in EU Integration. Palgrave Macmillan Baimbridge, M., & Whyman, P (2008) Economic and monetary union in Europe: theory, evidence and practice. Edward Elgar Publishing H. Barnett., (2004). 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EU enlargement, region building and shifting borders of inclusion and exclusion. Ashgate Publishing Limited Legislation European Communities Act 1972 All Treaties available at www.eur-lex.europa.eu and www.eurotreaties.com Read More