Markets and Moral Regulation - Essay Example

What is the division of power within the EC The division of power within the European community may be seen as a two track system. First of all, there exists a hierarchy of member nations that is often criticized, especially when a member first joins the Union, as too vague. "It is often stressed that today, the division of powers, as organized by the Treaties, is not clear enough" (Pris, 2000, 4). Secondly, and more interesting in scope and under scrutiny for the purposes of this discussion, is the separation of powers between the Council, Commission and the Court of Justice. These three C's in many ways mirror the three branches of government within the United States: the executive, legislative and judicial branches. Therefore, one may describe the balance of power with the following phrase: "The commission proposes, the Council decides, the Court interprets." However, some differences remain, and perhaps the internal structure of the European Community may best be understood as a combination of "different conceptions of democracy" (Craig, 1997, 105). The EU is not a state, but a combination of states and therefore it derives its authority from its members. "Under the present organization of the EU, its balance of powers does not correspond to the classic principle of the separation of powers. The interplay of checks and balances does not give a necessarily weaker result, but it is different" (Pris, 2000, 4). Because of this distinct separation of powers that isn't "really" a separation of powers; it is difficult to determine who the head of the EU is or how, if the bodies were to disagree, such a disagreement would be handled if not by the Court. The Council or the Commission could emerge at the dominant body depending upon political circumstances. Each entity has its own strengths and weakness. "Secondly, EC law is not stable. It is dynamic. The boundaries of the EC's powers move with the adoption of decisions, regulations, directives and the conclusion of international agreements" (Pris, 2000, 4). The Commission members are appointed by their respective governments. Seats are not elected. Therefore, the risk is that the Commission might become too powerful and lack sufficient checks upon who may rise to enjoy such authority. The primary power of the Commission is its soft power; it has a tremendous ability to advise and lead interest groups in a manner that is consistent with the strategies and goals outlined by the European Union. Rather than create a top-down regulatory strategy, it employs consensus building and negotiations as tools of intervention in competition issues. When needed, the Commission may choose to issue a public outcry against a faulty competitive practice. However, such an instance is rare and can be explained by the strongest competitive disadvantages, such as that imposed by a monopoly or too much state intervention into economic affairs. These issues concern the Commission because its main goal is to ensure a fair trade and competitive platform for transnational industries. The main purpose of the Union is to enable economic development and such actions are contrary to free market liberalization principles. While not the 'neoliberalism' that has at times been advocated by countries like the United States and criticized by others who saw the destruction created by strict adherence to the "Washington Consensus" advocated by aid lender institutions like the IMF, the European Union's Commission does take the opportunity to stop monopolistic and anti-competitive practices. In this way, the European Union may offer a middle strategy that is neither Washington based neoliberalism or strong, state driven economic practices followed by Communist China or other Asian nations. Europe's socialist democratic mix has worked thus far to tailor the economic environment to fit economic necessity. This can be seen in the dramatic economic success stories of nations like Portugal, who has been cited as an example of EU economic success. The Commission's role in EU competition authority may be seen in its handling of monopolies in the Scandinavian region. Some concern and uncertainty revolved around public and political conceptions of the Commission's opinion on competitive matters in the region. When the negotiations for membership began in 1993, the Commission confirmed that it was "indeed opposed to the alcohol monopoly systems" and the body instructed Sweden to revise its legislation to cease the existence of all of the country's considerable industrial monopolies (alcohol, natural gas, electricity, and pharmaceuticals) (Kurzer and Fllesdal, 2004, 79). There was no fear or hesitance noted on the part of the Commission when it outlined the activities that were deemed unacceptable, nor did it stop its criticism before outlining the necessary steps needed for acceptable reform. Sweden knew exactly what would be required of it to enter and remain a member of the European Union. Without the voice of the Commission, uncertainty and fear would permeate the merger actions of new nations. In this way, the Commission has provided a valuable role of advisor, letting member nations know when they step out of line as well as letting interested parties know exactly what they need to accomplish to join. However, the Commission did not impose a top down list of required tasks for the country to rigorously impose. Instead, it instructed the nations in the region to engage in a dialogue. "Sweden agreed to enter a dialogue with the Commission and Finland Norway refused to respond to the Commission's invitation" (Kurzer and Fllesdal, 2004, 79). The acceptance of most nations involved show the respect accorded to the Commission. However, Norway's refusal shows that the authority of the Commission is indeed not absolute. Nations may at any time refuse to be governed by the body and this is a shortcoming that will persist in the years to come. This meeting was hailed by all bodies involved as a "major achievement" and the Commission "was satisfied with the outcome and claimed that it does not see any reason to proceed on its own initiative, either now or after the Swedish accession to the Union, against the maintenance of the retail monopoly on the basis of current acquis" (Kurzer and Fllesdal, 2004, 79). The best power of the Commission is its persuasive ability to lead nations to agreement. While it cannot legislate agreement, it can use its considerable authority to exert 'peer pressures' and suggest that individual nations follow suit. This is perhaps the best method of enforcement available for the institution. Member nations are therefore required to be active participants in the enforcement of any soft law. This creates a system where one dominant view is not able to drown out the competing claims or desires of another without some discussion or vote taking place. Germany, for example, or France, cannot swing its considerable economic muscle to force other nations to agree to trade agreements that might privilege its corporations. In fact, a later example demonstrates exactly what happens when a powerful nation like Germany steps out of line. Competition has been proven to be maintained without rigorous standards. Each issue may be taken on a case by case basis with the prevailing notions decidedly anti-monopoly and pro-competition to foster a sound economic environment that can be enjoyed by all the member nations. The potential threat of ostracism is reason enough for any country to think twice about ignoring Commission suggestions. In the above Scandinavian example, Norway rejected the proposal, but Norway was not an offender. The country had only been invited to act as a political advisor and give its say on the issue. Norway's refusal of involvement could therefore be interpreted by a lack of interest, or faith in the Commission's ability to determine an acceptable course without the country's intervention. The Council may appear to have more legitimacy to lead the European Union than the Commission, which has experienced a rollercoaster like ride determination of its existence. In fact, the Council does possess both legislative and executive powers. While it is checked, to some degree, by the Court of Justice who may interpret its actions, the stronger check is the reaction of the member states. The body must careful gauge and understand the political environment of nations involved in the decision. With the powers of both the legislative and executive branches typically separated, the Council may bypass some bureaucracy and effect reform and regulatory change in a timely fashion. However, the Council does face limitations of scheduling for the meeting of so many representatives and so time constraints exist, but in a different format. Such scheduling difficulty could pose problems. Pris (2000) commented upon the weaknesses and strengths of the Council: The Council has more political legitimacy than the Commission. Its members are members of their national Governments and they are subject to direct public scrutiny and political accountability. However, the Council lacks continuity, consistency and permanence, due to the fact that it has more than twenty different formations, each of them having a different composition, that its members deal directly with EU affairs only one day each month for some of them or even one day each semester for some others, that it has a six-month rotating Presidency and that it has a very small administration (4). Most recent law making changes within the European Union have been initiated and created by the Council. A recent series of press releases distributed by the European Council show the body hard at work in establishing competitive practices and discussing the repercussions of its actions with member nations. These changes all occurred in the first half of 2006 and show a governing body that is actively interested in security competition and economic access for its member nations within the Union as well as strengthening all of its members on the international arena. One might argue that the EU is made stronger for every economic gain made by its individual members and this philosophy is reflected in the Council's maintenance of preventing any favoritism within the community. For example, one recent press release announced the Council's decision to impose new rules on the auditing practices of companies. The press release (2006) announced the Councils goals: "The new measures are intended to help improve quality audits within the EU and hence underpin confidence in the functioning of EU capital markets. They will also provide a basis for cooperation with oversight bodies of third countries to take account of globally interconnected capital markets (1). In this way, the Council outlines that not only does it place importance on the market within the European climate, but also the global market. Europe cannot function in a vacuum and to remove itself from globalization discussions and considerations would be a massive mistake. In this way, the Council can be seen as leading its member nations on a more productive globalization route. Unlike other nations like the United States or Japan that may seem to act more independently, European nations may be measured by progress of the entire body of nations. There is an effort made to leave none behind. However, the privilege within Europe continues for member states, with provisions that would put third parties not in the EU like the U.S. or Japan at a market disadvantage. The hope is that moves like this one, which strengthen the European capital markets, would increase confidence enough to remove any lingering doubts about engaging with Europeans at the disadvantage. In fact, the EC works hard to prevent too great an unfair advantage from being enjoyed by any nations, including its strongest members like Germany. A similar press release announces another recent measure also designed to strengthen markets and competition by instructing Germany to take sufficient steps to reduce its current trade surplus. The language of the Council was strict and does not leave any doubt of its expectations for German compliance. The Council's decision requires Germany to report to the Commission by 14 July and on four subsequent occasions on measures taken to correct its deficit. It requires Germany to ensure a cumulative improvement in its structural balance of at least 1% of GDP in 2006 and 2007, and an annual reduction in its structural deficit of at least 0.5% after the excessive deficit has been corrected. (Press Release, 2006, 1) Germany is an economic powerhouse and one of the most powerful countries in Europe. It is important to see that the Council does not stop itself from taking difficult political measures to ensure compliance and equity from even its strongest nations. This creates an atmosphere where smaller countries do not have to feel like they are being bullied. The move to decrease the German trade surplus creates a situation where the German populace would need to buy more foreign made goods, generating income for the more impoverished countries. In this way, Germany does not only enjoy the trade privileges of its EU membership but it is forced to act as a responsible party by supporting the economic activity of other nations. This demonstrates recognition of the regime of the need to create harmony through a homogenous union. As Moloney (2004) notes: This level of harmonization also places a limit on prejudicial regulatory competition. Regulatory competition is thus built into the harmonization regime which acknowledges, through the mutual recognition system, that national regimes can differ, but minimum standards and home country control place a brake on competition, while harmonization and mutual recognition prise open the single market (15). The Council and the Commission both actively work to secure this level of harmony throughout the EU. The Court of Justice is the weakest of the three EU political bodies. "Apart from a few exceptions, the Court does not take part in the Community decision-making process" (Zwan, 1995, 30). In fact, many entities within the EU only maintain contact with the Court of Justice on "an informal and personal basis" (Zwan, 1995, 30). Community decision-making is in nearly all cases presides under the authority of the European Council and "the jurisdiction of the Court of Justice is virtually excluded" (Zwan, 1995, 56). However, the Court of Justice does fulfill one important role which is the historical interpretative role of the other bodies' regulatory actions. The Court of Justice's reaction, therefore, is a very important way for member nations to judge regulatory change. EC merger regulation is partly controlled by soft law. To what extent does new competition legislation reflect the current division of power The new Merger Regulation 139/2004/EC was established and enforced beginning in May 2004. The purpose of this regulation was to build upon the 1989 merger regulation 4064/89/EEC and the Commission's subsequent empowerment the following year. While the EC continues to push transborder mergers and acquisitions, continental European businesses have been skeptical and cautious. The increased transparency requirements of the new Merger Regulation 139/2004/EC continues to evolve and be interpreted in new and, in some cases, unforeseen circumstances. This has lead to criticism and concern. What constraints limit the Council, Commission and Court in terms of international regulation of competition First of all, international agreements concerning trade and competition present the same stumbling blocks of any treaty between two or more nations. Issues of sovereignty and domestic politics prevent a one step approach to policy formulation. Those diplomats working to forge agreement must, in the end, answer to the concerns and criticisms of their own constituents. Therefore, any international agreement involves two levels of negotiation. As Sebastiaan Princen (2002) noted: The central insight of the two-level game framework is that international negotiations take place at two levels: at one level negotiators of different countries negotiate over the terms of an international agreement, at the other level each negotiator has to negotiate with his or her domestic constituents concerning the ratification of the international agreement (Princen, 2002, 35) In the two level game approaches, 'ratification' refers not only to formal ratification processes, such as the formal procedures countries have for the adoption of international treaties. Rather, the term ratification is used generically to refer to any decision-process that is required to endorse or implement an international agreement, whether formally or informally. This process may also involve bureaucratic agencies, interest groups, social classes, or even "public opinion". (Putnam, 1988, 436) Consistent with this two track process is two models which inspire the creation of Member State laws. The territorial model is an inward looking methodology, while the universal model perceives the given situations holistically. "Each of these models provides a very different response to the problems of any given State" (Virgos and Garcimartin, 2004, 11). These two normative models are the result of the increasing globalization and cross-border interaction of member states. One example of such a ratification process would involve the sponsoring of a stronger European Union Constitution. Some political analysts have called for such a change, even while acknowledging the difficulty of such a venture. "Therefore it would be difficult for a "Constitution" which had not been directly adopted by the people concerned to be perceived as a "Constitution" by public opinion in most of the EU Member States" (Pris, 2002, 4). The process of negotiation within member states could halt any efforts to restructure the internal European Union government. Despite the considerable authority of the European regulatory bodies, they must still adhere to this process and cannot overrule the domestic portion of decision making. "An international agreement can only be reached if there is an agreement that can be ratified in all countries involved, or, I other words, if the win-sets of the countries involved overlap" (Princen, 2002, 36) The study of the success of the European Union is an intriguing one. Some critics argue that the next step in evolution for this group of nations is to step up its regulatory regime by creating a Constitution. This would move the EU away from being just an economic organization and letting it lead further in other areas of interest. How the EU would therefore interact with security regimes like NATO, or humanitarian efforts like the United Nations, would be an intriguing process. Would the EU create sufficient redundancy within these organizations to render one or more obsolete Would other economic organizations like NAFTA and the ASEAN forums follow suit Europe has the ability to lead in a way it has not enjoyed for centuries. The Washington economic model has proven to be devastating to third world nations who try to adopt it. State involvement in economic matters are needed to cushion against huge problems like investor confidence and capital flight which can destroy a market. This was seen in Latin America in the 1990's and also in the Asian currency disaster that began in Thailand. The European Union's distinct separation of powers may seem haphazard in some areas, but thus far it has proven a successful economic venture for all involved. References: Bergsten, C. Fred, ed. (2006) , "China: The Balance Sheet" Center for Strategic and International Studies, 2006 Clift, Jeremy. (2003). 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(1995) The Permanent Representatives Committee, Institute for Private and Public International Law, The Hague: The Netherlands. Read More