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INTEREULAWEA§T
Journal for International and European Law,
Economics and Market Integrations
Volume I, Issue 2, December 2014
INTEREULAWEA§T
Journal for International and European Law, Economics and Market Integrations
EDITORS IN CHIEF
Hana Horak, University of Zagreb
Rajko Knez, University of Maribor
EDITORIAL BOARD
Hana Horak, University of Zagreb • Rajko Knez, University of Maribor
Pavel Biriukov, Voronezh State University • Siniša Rodin, European Court of Justice
Vyacheslav Tuliakov, National University Odessa • Nada Bodiroga Vukobrat, University of Rijeka
Pierre TiÀne, University of Lorraine • Tonþi Lazibat, University of Zagreb
Lajoš Žager, University of Zagreb • Roman Grynyuk, Donetsk National University
Peter Van Elsuwege, University of Ghent • Kosjenka DumanĀiþ, University of Zagreb
TECHNICAL EDITOR
Zvonimir Šafranko, University of Zagreb
PROOF READER
Željko Sirk, University of Zagreb
EDITORIAL OFFICE
Faculty of Economics and Business University of Zagreb
Trg J. F. Kennedyja 6, 10000 Zagreb, Croatia
phone: + 385 1 238 3380 / + 385 1 238 3140
e-mail: intereulaweast@net.efzg.hr
LAYOUT & PRINTING
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Trg maršala Tita 14, 10000 Zagreb, Croatia
ISSN 1849-3734 (Print)
ISSN 1849-4439 (Online)
DATABASES
HRÿAK – Portal of Croatian scientiÀc journals
EBSCOhost / Business Source Complete
PUBLICATION INFORMATION
InterEULawEast - Journal for International and European Law, Economics
and Market Integrations (ISSN 1849-3734) is published twice a year, in June
and December, in both printed and electronic edition, by Faculty of Economics & Business, University of Zagreb. The Journal was established in the 2014
within the Tempus project European and International Law Master Program
Development in Eastern Europe No. 544117-TEMPUS-1-2013-1-HR-TEMPUS-JPCR.
The Journal collects the papers in the Àeld of law and economics with an international focus, in particular papers issuing: legal and economic aspects of
European Union and other market integrations, market freedoms and restrictions, competition law and intellectual property, company law and corporate
governance, international trade and international private and public law.
The instructions for the authors and more detailed information on submitting,
classiÀcation and reviews of the papers are available at http://www.efzg.unizg.
hr/iele.
This project has been funded with support from the European Commission.
This publication reÁects the views only of the authors, and the Commission
cannot be held responsible for any use which may be made of the information contained therein.
Intereulaweast, Vol. I (1) 2014
CONTENTS
EDITORIAL ........................................................................................
V
1. Kristijan Poljanec
FREE PROVISION OF LOBBYING SERVICES IN THE
INTERNAL MARKET - A REGULATORY CHALLENGE
FOR EU MEMBER STATES..........................................................
1
2. Alla Akulshina, Dmitry Galushko
TRANSFORMATION OF THE EUROPEAN EDUCATION
AND RESEARCH AREA AND RUSSIA ......................................
21
3. Blaženka Kneževiþ Nikola Knego, Mia Deliþ
THE RETAIL CONCENTRATION AND CHANGES
OF THE GROCERY RETAIL STRUCTURE ................................
37
4. Dominik Vuletiþ
DIRECT HORIZONTAL EFFECT OF THE FREE MOVEMENT
OF GOODS AND RESHAPING OF THE EUROPEAN
ECONOMIC CONSTITUTION. BACK TO THE FUTURE? .......
53
5. Tina Jakupak
SHAREHOLDERS ACTIVISM......................................................
71
6. Iryna Alekseeva
CROSS BORDER ECONOMIC COOPERATION AS A FORM
OF EUROPEAN INTEGRATION OF UKRAINE ........................
85
7. Sergei Yu. Marochkin, Sergei Al. Stepanov
CHALLENGES OF HIGHER EDUCATION IN LIGHT OF
INTEGRATION AND CREATION OF A DOUBLE DIPLOMA
MASTER PROGRAMME. ANALYSIS OF SOME HIGHER
EDUCATION SYSTEMS ................................................................
95
8. Irina Mylnikova
PROBLEMS OF HARMONIZATION AND IMPLEMENTATION
WTO RULES AND NORMS TO THE NATIONAL LEGISLATION
OF THE RUSSIAN FEDERATION................................................ 109
9. Tatiana Ruban
EU HARMONIZATION WITHIN THE LAW OF THE WTO .....
123
10. Zvonimir Šafranko
THE BOOK OVERVIEW: EUROPEAN MARKET LAW
– HANDBOOK Vol. 1 .....................................................................
135
IV
H. Horak, N. Bodiroga-Vukobrat, K. DumanĀiþ: Professional qualiÀcation and diploma recognition in EU law
EDITORIAL
Dear readers,
We are pleased to introduce you to the volume 1, issue 2 of the InterEULawEast - Journal for International and European Law, Economics and Market Integrations. The current issue mainly includes the papers presented at the
2nd International Conference “Legal Reform and EU Enlargement - Transfer
of Experiences, held from 13th to 14th of November 2014 in Kazan, Russian
Federation, within the Tempus project European and International Law Master
Program Development in Eastern Europe No. 544117 - TEMPUS -1-2013-1HR - TEMPUS – JPCR. The covered topics are harmonization with the EU
law, the lines between WTO, EU and Russian Federation, free movement of
goods and freedom to provide services on internal market, company law and
corporate governance, as well as the issues of learning EU law in Ukraine and
Russian Federation.
On this occasion we are delighted to inform you that the InterEULawEast Journal for International and European Law, Economics and Market Integrations has been included in EBSCO Business Source Corporate and EBSCO
Business Source Complete collections in the meanwhile. That fact encourages
us to keep up the good work and furthermore, to seek up for the better quality
and overall improvement of the Journal. Thus we would like to encourage all
interested authors to submit their papers for the publishing in InterEULawEast
Journal as the Journal is open for everyone whose Àeld of research activity
covers above mentioned areas. More information on submitting papers and
related procedures can be found on the Journals ofÀcial website: http://www.
efzg.unizg.hr/iele.
Finally, on behalf of InterEULawEast Journal staff I would like to wish you
happy holidays and successful and fruitful 2015.
Hana Horak, Editor-in-Chief
Zagreb, December 2014
V
K. Poljanec: Freedom to provide lobbying services in the internal market - a regulatory challenge for EU member states
Preliminary Communication
UDC 34:328.184(4-67EU)
FREEDOM TO PROVIDE LOBBYING SERVICES
IN THE INTERNAL MARKET – A REGULATORY
CHALLENGE FOR EU MEMBER STATES
Kristijan Poljanec *
ABSTRACT
Lobbying profession comes face to face with issue of its legal deÀning. Considering
the increasing role of lobbyists in decision-making processes at the EU level, lack or
heterogeneity of national legal solutions in the area of provision of lobbying services
seems to be quite a problem for persons engaged in those activities. Paper deals with
issues of single deÀnition of lobbying. Paper analyses sources of EU law related
to provision of lobbying services. Paper deals with problem of lack of harmonised
regulation of lobbying profession in the EU Member States. Aim of the paper is to
investigate are there any special provisions on lobbying services at the EU level. Aim
of this paper is also to investigate how does lack of regulation of lobbying inÁuence
provision of lobbying services. Reconciling different legal approaches seems as a
challenge for EU Member States. Paper concludes that lack of harmonised regulation at the EU level can be deterrent for provision of lobbying services and can
decrease the level of transparency in decision making processes.
KEYWORDS: lobbying, freedom to provide services, EU, harmonisation
*
Teaching and Research Assistant at Faculty of Economics and Business University of Zagreb; kpoljanec@efzg.hr.
1
1. INTRODUCTION
Legal regulation of lobbying is not part of European legislative tradition.1 In
Europe, system of representation of interests is rooted in medieval feudalism
– social dialogue among different social groups.2 History of professional lobbying3 started in 1830s4 in the United States of America5 and lobbying has
become part of Anglo-Saxon political culture.6 The legal basis was the First
Amendment to the USA Constitution.7 The socio-political context in the USA
was rather different than the one in Europe. Stable political environment, pluralism as political culture, common8 language, common political and legal
values are some of the most signiÀcant features of the USA society.9 In those
circumstances, two factors played key role in development of lobbying as pro1
Mihut, L., Lobbying in the United States and the European Union: New Developments in
Lobbying Regulation, Romanian Journal of European Affairs, Vol. 8 (4) 2008., p. 2, available
at <http://ssrn.com/abstract=1299580>, last accessed on 23/11/2014.
2
Makowski, G., Regulation of Lobbying in Poland, Institut pro Evropskou Politiku/Institute
for European Policy, 2010., p. 1., available at <http://www.europeum.org/doc/pdf/makowski_
PL.pdf>, last accessed on 26/11/2014.
3
The term „lobbyist“ originates from expression „damn lobbyists“ which American President Ulysses Grant used to say when he was entering the hotel near White House, escaping
from pressures of his post. In the hotel lobby people who took special interest on certain issue
were waiting to approach him directly. Anastasiadis, S., Understanding Corporate lobbying on
its own terms, International Centre for Corporate Social Responsibility Research Paper Series,
no. 40-2006, 2006., p. 5-6. According to Charrad, „lobby“ comes from Latin word „labium“
meaning entrance hall, lounge. Charrad, K., Lobbying the European Union, Westfälische Wilhelms-Universität Münster, Nachwuchsgruppe Europäische Zivilgesellschaft und Multilevel
Governance, 2005., p. 2.
4
Mihut, op. cit., n 1, p. 6.
5
Hereinafter referred to as the USA.
6
In the 17th century, lobbyists were representatives of various interests groups, who met
Members of House of Commons in the lobby, seeking to persuade or dissuade them to act in
certain direction. VidaĀak, I., Lobiranje: interesne skupine i kanali utjecaja u Europskoj uniji,
Zagreb, 2007., p. 11.
7
See First Amendment to the USA Bill of Rights, in which it is stated that „Congress shall
make no law respecting an establishment of religion, or prohibiting the free exercise thereof;
or abridging the freedom of speech, or of the press; or the right of the people peaceably to
assemble, and to petition the Government for a redress of grievances (emphasis added).“ See
Briffault, R., The Anxiety of InÁuence:The Evolving Regulation of Lobbying, Public Law &
Legal Theory Working Paper Group, Columbia Law School, Paper Number 14-367, 2014., p.
13. The same Hitoshi Mayer, L., What is this „lobbying“ that we are so worried about?, Yale
Law and Policy Review, Vol. 26, Legal Studies Research Paper No. 07-42, 2008., p. 486.
8
9
Mihut, op. cit., n 1., pp. 3-4.
2
fession – signiÀcant role of corporations and civil society in election processes.10 Corporations were then and are even today providers of direct funding
of political campaigns.11 That relationship has led to the situation in which
there seems to be less obstacles to reach political structures. The relationship
beetween interest groups and governments was born. Since only one or few of
them can count on certain beneÀt arising out of enganging into political battle,
system of competition12 among interests groups has been developed. In different context and legal traditions two models of lobbying regulation have been
introduced. In the USA there is less social dialogue and less ofÀcial channels.13
Substantial resources are being spent on engaging professional lobbyists who
should inÁuence government decisions.14 More liberal approach towards freedom to provide lobbying services has led to necessity of introducing stronger
regulation.15 The regulation of lobbying in the USA has been developed as barrier against unrestricted political action by, or on behalf of, private interests.16
On the other part, traditional European skepticism towards lobbying has led
to establishment of social dialogue17 and more ofÀcial channels of inÁuence.
Such conservative approach has resulted in softer regulation or even lack of
any regulation. The growth of interests groups in the EU is considered to be a
response to an increasing demand for specialised type of information.18 Due
to decentralisation processes in the EU, the number of regional interest group
has increased.19 The phenomenon of emergence of national interest groups and
national business organisations, opening branches in Brussels,20 arises as new
method of representation.21 The EU is offering numerous access points22 and
10
Ibid., p. 4.
11
Ibid.
12
Ibid., p. 5.
13
Ibid., p 11.
14
Ibid.
15
Ibid.
16
Lane, E., Lobbying and the Law, Berkeley and Los Angeles, 1964., p. 3.
17
Mihut, op. cit., n 1., p. 11.
18
VidaĀak, I., Interest groups and lobbying in the European Union, Croatian International
Relations Review, vol. 9 (33) 2003., p. 178.
19
Ibid.
20
Interests groups from Central and Eastern European Countries, due to lack of experience
and knowledge about the EU institutions, as well due to lack of Ànances to operate in Brussels
on their own, relate on large European associations. Charrad, op. cit, n 3, p. 17.
21
VidaĀak, op. cit., n 18, p. 179.
22
Cirone, A., Patterns of Interest Group Lobbying at the EU: Examining How Group Characteristics Affect Venue Choice, 2011., p. 2, available at <https://www.princeton.edu/europe/.../
Cirone_Princet...>, last accessed on 24/11/2014.
3
channels to interests groups23 due to its complex institutional structure and
fragmented process of policy making.24 Lack of internal resources and experts
in certain Àelds forces EU to seek inputs from interests groups in form of external expertise and information.25 Information is basic „access good“ which
private actors give in return for access to the EU agenda-setting and policy
making.26 Key addressees of “lobbying pressure” have become the European
Commission27 and the European Parliament.28 In the mid 1980s the role of
lobbyists increased due to development of single market29 and afterwards started process of formalisation of relations with interests groups. Organisations
and individuals, most of them “in-house lobbyists” started to lobby the EU.
In 1985 there were 654 lobbyists in Brussels and in 1992 there were 3,000,00
lobbyists in Brussels.30 In the beginning of the new millenium, in particular
after 2004 enlargement, estimated turnover of corporate “lobbying the EU”
was between 750 milion and 1 bilion euros.31 Now there are approximately
30.000,00 lobbyists who inÁuence 75% of EU legislation.32 Vast majority of
them work for corporate interests.33 Considering the increasing role34 of lobbyists in decision-making processes at the EU level, lack or heterogeneity of
23
24
Ibid., p. 186.
25
Charrad, op. cit., n 3, p. 15.
26
Bouwen, P., Corporate Lobbying in the European Union: the logic of access, Journal of
European Public Policy, vol. 9 (3) 2002., p. 368.
27
Hereinafter referred to as the EC. The role of the EC in legislative procedure as a starting
point for launching new legislative proposals makes it primary institution where the lobbying
starts. VidaĀak, op. cit., n 18, p 182. See Charrad, op. cit., n 3, p. 15. See Bursting the Brussels Bubble: the battle to expose corporate lobbying at the heart of the EU, Alter – EU, p. 23
(hereinafter as Burstling the Brussels Bubble), available at < http://www.alter-eu.org/book/
bursting-the-brussels-bubble, last accessed 24/11/2014.
28
Hereinafter referred to as EP. The role of the EP in terms of lobbying inÁuence increased
after Single European Act entered into force and reinforced EP’s authority in the decision making process at the EU level. VidaĀak, op. cit., n 18, p. 182. After Lisbon Treaty entered into force,
EP’s inÁuence has been extended by increasing the role of co-decision and EP’s budgetary role.
That is the reason why the EP becomes more and more attractive lobbying venue, in particular,
its standing committees. See Cirone, op. cit., n 22, p. 5-6; Charrad, op. cit., n 3, p. 15.
29
30
Burstling the Brussels Bubble, p. 23.
31
Ibid., p. 25.
32
Available at <http://www.theguardian.com/world/2014/may/08/lobbyists-european-parliament-brussels-corporate>, last accessed on 26/11/2014.
33
34
Ibid., p. 177.
4
national legal solutions in the area of provision of lobbying services seems to
be quite a problem for persons engaged in those activities. Thus there is a need
to regulate professional lobbying at supranational level.35
Current soft approach harms provision of lobbying services, in particular in
cross border situations. In order to make substantial changes in EU legislation,
there is a need to give a single deÀnition of lobbying, to acknowledge lobbying
as legitimate profession and to put it under mechanism of internal market for
services. In second part of this paper, author reviews steps which have been
undertaken so far in order to regulate lobbying at the EU level. In third part
paper deals with strategic litigation as way of lobbying the Court of Justice
of the EU.36 In fourth part paper analyses relevant provisions of Treaty on the
Functioning of the EU,37 points out possible obstacles which have arisen in
course of launching proposal for introducing mandatory register and seeks
for plausible solution to this problem. In Àfth part paper deals with issues of
single deÀnition of lobbying. After analysis of relevant provisions of Services
Directive, thesis of lobbying as entrepeneurial activity which should be considered as service is presented. In sixth part problem of reconciling different
legislative approaches is emphasized. In this paper available literature on legal
aspects of lobbying and one CJEU case are analysed. Aim of the paper is to
investigate are there any special provisions on lobbying services at the EU
level. Aim of this paper is also to investigate how does lack of regulation of
lobbying inÁuence provision of lobbying services. Paper ends with conclusion.
2. INITIAL STEPS TOWARDS LOBBYING REGULATION
Over the past century, integration process and strenghtening of the EU institutions have led to expansion of interests groups.38 The establishing of legal
framwork of lobbying started with EP’s Àrst proposal for regulating lobbying
in 1989.39 In period from 1996 to 1997 set of lobbying rules were annexed to
Rules of Procedures.40 There were two set of rules: Code of Conduct for the
35
36
Hereinafter referred to as CJEU.
37
Treaty on the Functioning of the European Union (consolidated version, OJ C 326, 26. 10.
2012., p. 47), hereinafter referred to as TFEU.
38
Cirone, op. cit., n 22, p. 4.
39
40
See document titled „Key events“, p. 3, available at <http://ec.europa.eu/transparencyregister/info/about-register/keyEvents.do?locale=en>, last accessed on 28/11/2014. Hereinafter
referred to as Key events.
5
Members of Parliament and for lobbying in the EP.41 The accreditation system
was adopted.42 Institutionalization of lobbying resulted in establishment of
Register of Interest Representatives in June 200843 with names of pass holders and organisations they represent but with no information on interest they
represent. Further steps in lobbying regulation were undertaken by EP. In May
EP adopted Resolution on development of the framework for the activities of
lobbyists in the EU institutions.44 Also EC issued Green Paper on European
Transparency Initiative (ETI) in May 2006.45 In this working document deÀnition of lobbying was given. Lobbying was deÀned as „all activities carried out
with the objective of inÁuencing the policy formulation and decision making
process of the European institutions.“46 Lobbyists were deÀned as „persons
carrying out such activities, working in variety of organisations such as public affairs consultancies, law Àrms, NGOs, think-tanks, corporate lobby units
(„in-house representatives“) or trade associations.“47 This deÀnition was supported by the EP.48 DeÀnition is problematic. It provides general49 and wide50
scope of application. It refers to „all“ activities what can be seen as a problem
since it is not clear what activities are meant under this term.51 According to
the deÀnition, it could cover both public and private activities and latter seem
most problematic from the legal point of view. Any private activity that would
aim at inÁuencing policy formulation or decision must be put under scrutiny
of public authorities. This could include even grassroots lobbying.52 Term „in41
42
Cirone, op. cit., n. 22, p. 14.
43
See Key events, p. 2.
44
Parliament resolution on development of the framework for the activities of lobbyists in the
EU institutions (2007/2115(INI) (2009/C 271 E/06).
Green Paper, European Transparency Initiative, COM(2006) 194 Ànal, Bruxelles, 3 May
2006.
45
46
Ibid., ch. 2., 1.
47
Ibid., ch. 2., 1. 1.
48
49
OECD Self-regulation and regulation of the lobbying profession, Global Forum on Public
Governance, GOV/PGC/GF(2009)5 unclassiÀed, p. 12, (hereinafter referred to as Self regulation…), available at <http://www.oecd.org/ofÀcialdocuments/publicdisplaydocumentpdf/?cote=GOV/PGC/GF(2009)2&docLanguage=En>, last accessed on 26/11/2014.
50
51
„When lobbying is deÀned by its means, the problem is to keep the formulation narrow
enough so that every act of intended political inÁuence is not included, yet broad enough so
that every substantial or consequential act of intended political inÁuence will fall within it.“
See Lane, op. cit., n 16, p. 4.
52
6
Also OECD Self regulation…, p. 14.
Áuencing the policy formulation“ also seems wide. There is a question of type
of inÁuence. At the EU level policies concerning business interests are considered to be interest group policies,53 which include lobbyists. Does this include
only discussion at some meetings of parliamentary boards or can it cover eg.
right of lobbying groups to draft legislative proposals and send them via institutional channels to the EC or the EP? Both is possible in practice. Since „decision making process“ is common to wide range of the EU institutions, where
are the limits and can it lead to inÁuencing decisions given by the Council of
Ministers54 or even EU courts? This is interesting question due to the fact that
the most literature on lobbying in past decades deals with lobbying the EC.55
3. STRATEGIC LITIGATION BEFORE CJEU: LOBBYING OR NOT?
Direct lobbying pressure on court proceedings should be prohibited due to
principle of impartial judiciary.56 Nevertheless, courts can be venue for minority interests to challenge existing national rules or rules of the EU.57 CJEU
has been a target of strategic litigants seeking changes in national policies.58
Strategic litigation is a way of lobbying the CJEU.59 The reason can be found
in fact that each court ruling constitutes a piece of judge made law. Creating
„precedent“ or giving their best to avoid its creation is usually the goal of
interests group litigation.60 System of preliminary reference gives access to
organized interests to bring cases before the CJEU. The CJEU becomes a
venue for challenging national legislation with which litigants do not agree
and claiming that Member States’ law or practice violates some norm of EU
53
54
The inÁuence on the decision making process within the Council of Ministers is primarily
indirect and the Concil of Ministers is considered as the least directly accessible institution in
terms of lobbying pressure. Ibid., p. 183. Same Charrad, op. cit., n 3, p. 16.
55
Bouwen, op. cit., n 26. p. 366.
56
As regards judges of the CJEU, see arts 2 and 4, as regards Assistant Rapporteurs see art
13 and as regards Advocates General see art 49 of Protocol No. 3 on the Statute of the Court of
Justice of the European Union, as amended by Regulation (EU, Euratom) No. 741/2012 of the
European Parliament and of the Council of 11 August 2012 , OJ L 228 of 23. 8. 2012., p. 1.
57
McCown, M. in Coen, D.; Richardson, J. (eds), Lobbying the European Union: Institutions, Actors and Issues, Oxford, 2009., ch. 5. 1.
58
Ibid.
59
Amado, Olivert, A. et al., Lobbying at the European Court of Justice? Yes, we can! Paper
for Professor Guéguen’s lecture “Interest groups and Lobbies in the European Union” (POLI-O505), Institute for European Studies, 2012., p. 3.
60
Ibid.
7
law they prefer.61 Eg in case Defrenne Sabena 62 Court of Justice interpreted Article 119 of the Treaty of Rome saying that „in fact, since Article 119
is mandatory in nature, the prohibition on discrimination between men and
women applies not only to the action of public authorities, but also extends to
all agreements which are intended to regulate paid labour collectively, as well
as to contracts between individuals.“63 Member States’ concern was obvious
since “the Governments of Ireland and the United Kingdom have drawn the
Court’s attention to the possible economic consequences of attributing direct
effect to the provisions of Article 119, on the ground that such decision might,
in many branches of economic life, result in the introduction of claims dating
back to the time at which such effect came into existence.”64 In addition to that
“in view of the large number of people concerned such claims, which undertakings could not have forseen, might seriously affect the Ànancial situation
of such undertakings and even drive some of them to bankruptcy.” 65 From
reactions of national governments one can see that this single case had extensive legal and socio-economic effects, which is one of the “advantages”66 of
strategic litigation. By using preliminary reference as a powerful tool, interest
group represented by one single person can use CJEU as a venue for indirect
inÁuence on national governments, private undertakings and the EU legislation67 itself. Courts rulings are mandatory for Member States. If CJEU rules
that certain national norm or practice is not in line with legal provisions of EU
law, it will become a signal for Member States to adjust national legislation or
pratice to CJEU’s standpoints. If this led to changes in national regulations, it
would be considered as „lobbyistic“ success of strategic litigants.
4. MANDATORY REGISTRATION AND ARTICLE 352 TFEU
Regulation of lobbying should enhance transparency and accountability as prerequistes for reinforcement of public trust.68 Idea of establishment of manda61
Ibid.
62
Case 43/75, Gabrielle Defrenne v Société anonyme belge de navigation aérienne Sabena
[1976] ECR 455.
63
Ibid., para 39.
64
Ibid., para 69.
65
Ibid., para 70.
66
Amado, Olivert et al., op. cit., n 59, p. 4.
67
68
OECD (2007) „ Building a Framework for Enhancing Transparency and Accountability in
Lobbying, unclassiÀed, GOV/PGC(2007)17, p. 6, available at <http://search.oecd.org/ofÀcialdocuments/?hf=10&b=40&r=%2Bf%2FlastmodiÀeddate%2F2007&r=%2Bf%2FofÀcial_do-
8
tory lobbying register at the EU level is supported by stakeholders,69 including
lobbying professionals who recognise the need for such disclosure to protect
the integrity of profession.70 There are two problems when discussing issue of
mandatory registration. According to some interpretations,71 Art 352 TFEU
is a legal basis for possible mandatory regulation of lobbying profession. Under its provisions, unanimous consent in the Council of the European Union
would be nedded if the EU proposed regulation of lobbying. It must be pointed
out that measures based on Article 352 TFEU shall not entail harmonisation
of Member States’ laws or regulations in cases where the Treaties exclude
such harmonisation. Given that only few EU Member States72 have mandatory
registers and statutes on lobbying, this seems as serious obstacle for adoption
of mandatory register. In opposition to that interpretation, provisions of the
Article 84 TFEU seem as solution to the problem, at least in terms of improving transparency and mandatory disclosure. According to that article, the EP
and the Council may establish measures to promote and support the action
of Member States in the Àeld of crime prevention, excluding any harmonisation of the laws and regulations of the Member States. Although area of legal
cuments_theme%2Fpublic+governance+and+management&sl=ofÀcial_documents&s=desc
(document_lastmodiÀeddate)>, hereinafter referred to as Building Framework for…, last accessed on 23/11/2014.
69
In November 2013 more than 10000 people said “yes” to mandatory register. Inter-institutional working group (the EC and the EP) found Register of Transparency as most efÀcient way
towards regulation of lobbying. It aims to force EU lobbyists to register. Those who evade this
obligation would face decreased inÁuence and limited possibility to participate at EP’s meetings. The Alliance for Lobbying Transparency and Ethics Regulation (ALTER-EU) pointed
out some key elements for credibility of registry of transparency. According to their demands,
by 31 December 2014 EU institutions should move from volunteer registration to binding registration. It would include companies, lobbyists and consultants, law Àrms. This idea encourages registration. In case of failure to register, sanctions would be the following: staff of the
EC and Commissioners would refuse to meet non-registered lobbysts, no participation at the
EC and the EP’s working and consultative groups, EU staff will not participate at events (co)
organised by non –registered lobbyists, non-registered lobbyists would face prohibition to hold
debates, conferences and other events in the EC premises. This would lead to marginalisation of non-registered lobbyists. Concrete demands were proclaimed in November 2013. ALTER-EU seeks for establishing mandatory lobbying register (by 2015). Improved investigation
capacities and enforcement of rules, improved penalty mechanism, improved lobbyists’ code
of conduct and improved Ànancial disclosure, improved funding disclosure, improved lobby
issue disclosure, improved staff disclosure, declaring expenses and client lists are some of most
prominent demands among long list of requests.
70
OECD Self-regulation…, p. 36.
71
See <http://www.europeanvoice.com/article/mandatory-lobbyist-register-unlikely-undercurrent-law/>, last accessed on 26/11/2014.
72
Mandatory registers exist in: Austria, Denmark, France, Netherlands, Slovenia, UK.
9
regulation of lobbying covers more than mere crime prevention, preventing
crime in form of corruption and “trading on inÁuence” could be promoted and
supported by joint measures undertaken by the EP and the Council. Since lack
of transparency often leads to unlawful conduct, one of the measures could
be establishing of register under ordinary legislative procedure. In spite of the
fact that this would not lead to harmonization of national laws, it could be a
starting point, complementary measure to those which should be undertaken
by the Member States.
5. SINGLE DEFINITION OF LOBBYING AS PREREQUISITE FOR
FURTHER REGULATION
Clear deÀnitions of who is a lobbyist and what activities are considered lobbying are prerequisites for effective application of regulation on lobbying.73
Term „lobbying“ has been in use since the 19th century and it meant „faceto-face efforts by paid agents to inÁuence legislators to vote in their clients’
behalf, often by corrupt and covert means.“74 Due to pejorative connotations,
lobbying is considered to be controversial term75 but relevant from the legal
point of view, not only academic but practical as well.76 Eg. private-owned TV
stations urge their viewers to write a petition to national agency for electronic
media in order to repeal its decision which imposes limitations to quantity of
commercial TV shows in prime-time. Is this (indirect) lobbying? Technically
speaking, it might be considered as indirect exertion of inÁuence on decision
making process, if TV viewers prefer more commercial and less „serious“
TV content.77 But for legal deÀnition this is not enough since administrative
agencies are not among those institutions which are commonly „recognised“
by national statutes as those which cope with lobbying pressure. Consequently,
no lobbying in terms of enforced laws exists, although such petition could lead
to further governmental or parliamentary debates. In such unclear situation,
the most substantive problem is an attempt to reach consensus among Member
States to settle an agreement on single deÀnition of lobbying. Such deÀnition
should take into concern lobbyists as professionals and lobbying as providing
services.
73
OECD (2007) Building a Framework for …, p. 11.
74
Lane, op. cit., n 16, p. 4.
75
76
Ibid.
77
In theory this attempt to inÁuence speciÀc legislation is known under term „grassroots
lobbying“ or „call to action“. See ibid., p. 7. See also Hitoshi Mayer, op. cit., n 7, pp. 558-562.
10
5.1. REGULATION OF LOBBYING AS PROFESSION
The fact that during the 19th century lobbying was in principle individualized
and acquisitive business78 implies its commercial, entrepreneurial nature. Lobbyists acted as representatives of entrepreneurs who seeked to obtain some
value of government such as charters, loans, franchises etc.79 In the second
half of the 19th century, lobbying meant personal solicitation of legislative
votes, usually through the agency of hired lobbyists.80 Element of specialized
knowledge and their skills were integral part of what they traded on.81 Lobbyists acted on behalf of private pecuniary interests.82 Thus origins of lobbying
are of professional nature.83 But in theory there are some who seek to make
opposite argument and defend thesis that lobbying is mere occupation.84 Eg.
McGrath enumerates Àve key characteristics of profession: a set of professional values, membership in strong professional organizations, adherence to professional norms, an intellectual tradition and established body of knowledge
and technical skills acquired through professional training.85 As regards professional values, it has been pointed out the neccesity of trust in relation client
and lobbyist.86 In addition to afore-mentioned, the insufÀciency of education
and training has been pointed out as one reasons less to qualify lobbying as
profession87 and need for formal educational qualiÀcations is emphasized.88
The importance of rigorous and meaningful professional codes of conduct is
prerequisite for development of lobbying as profession,89 as well as existence
of relevant representative bodies.90 Afore-mentioned objections to „profession78
Lane, op. cit., n 16, p. 5.
79
Ibid.
80
Ibid., p. 8.
81
Ibid.
82
Ibid., p. 52.
83
Angloamerican scholars support this thesis. See eg Grantham C.; Seymour-Ure, C., Political Consultansts in: Parliament and Pressure Politics, Rush M (ed.), Clarendon Press Oxford,
1990; Berry, J. M., The Interest Group Society, 3rd edn. Longman, New York, 1997.Wolpe, B.
C.; Levine B. J., Lobbying Congress: How the System Works, 2nd edn, Congressional Quarterely, Washington, 1996.
84
McGrath, C., Towards a lobbying profession: developing the industry’s reputation, education and representation, Journal of Public Affairs, vol. 5 (124-135), 2005., p. 124.
85
Ibid., p. 125.
86
Ibid., p.126.
87
Ibid., p. 128.
88
Ibid., p. 130.
89
Ibid., p. 131.
90
Ibid.
11
alism“ of lobbying must be put under criticism. These remarks were made
almost ten years ago, prior to ETI in 2006 and establishment of voluntary
register in 2008. Some European states (not only Member States) passed lobbying legislation: Germany (1951), Lithuania (2001), Poland (2005), Hungary
(2006), Macedonia (2008), Slovenia (2011) and Montenegro (2011). In these
laws there are statutory provisions on deÀnition of lobbying, terms of doing
lobbying, liabilities, registration provisions, sanctions for non-compliance
etc.91 These trends undoubtedly indicate „waking“ the lobbyists as regulated
profession. Where lobbying services are provided under civil law contract,92
all terms and conditions, including keeping professional secrecy,93 shall apply. The ALTER-EU demands regarding disclosure of client lists at the EU
level show how stubborn lobbyists are to preserve anonimity of their clients,
what can be considered as keeping conÀdentiality. The number of registered
lobbying ofÀces in Brussels as well as tendency of establishment local lobbying associations show existence of networking among lobbyists.94 Although
step-by-step and not entirely and consistently but rather humble, lobbyist have
become, in particular in new Member States, recognised profession regulated
by statutes or at least codes of conduct, organised in national and supranational
associations, which work on promotion of its aims. In other words, lobbying
can be considered as profession in statu nascendi. By deÀning lobbying and
by undertaking steps towards regulation of lobbying profession, the EU has
recognised lobbying as a contemporary phenomenon and acknowledged its
legitimacy.95 But lobbying profession is still today a self-regulatory industry.96
91
Eg Polish Act of Law on the Lobbying Activity in the Legislative Process (Journal of Law
No. 169 of 2005).
92
For case of Poland see Makowski, op. cit., n 2, p. 4. According to Art 6 and 28 of Montenegrian Act on Lobbying (OfÀcial Journal of Montenegro no. 54/11, hereinafter referred to as
MAL), lobbying shall be executed on basis of written contract concluded among lobbyist and
its principal.
93
See Art 8 para 1 MAL, „Principle of conÀdentiality“.
94
Eg European Public Affairs Consultancies’ Association (EPACA) is the representative
trade body for public affairs consultancies working with EU institutions. EPACA promotes
and provides training to all member companies on its Code of Conduct. Public Affairs professionals are a vital part of the democratic process, acting as a link between the world of business, civil society, and policymakers. These professionals must therefore undertake to observe
the highest professional and ethical standards (emphasis added). See <http://www.epaca.org/
code-of-conduct/text-of-code>, last accessed on 27/11/2014.
95
96
Kallas, S., The European Transparency Initiative, speech held at Committee on Constitutional Affairs, European Parliament, Brussels, 16 July 2007, available at <http://europa.eu/
rapid/press-release_SPEECH-07-491_en.htm.>, last accessed on 23/11/2014.
12
5.2. LOBBYING AND SERVICES DIRECTIVE
Recognition of lobbying as profession is not of mere academic importance.
When discussing about lobbying, it should be born in mind that lobbying entails „public law“ and „private law“ element. Public law element deals with relations among lobbyists and their targets, institutions eg. in terms of prevention
of corruption. Private law element deals with internal relation lobbyist-client
and typical issues such as contractual provisions on remuneration, costs, professional secrecy, damages etc. due to the fact that there is civil law contract
as basis for professional lobbying.97 It addresses practical issues: when lobbying for some client in the Internal Market, under which fundamental freedom
shall it fall? From the afore-mentioned development of lobbying as profession
two conclusions can be made. Lobbyists, acting on behalf of a client, provide
intangible effort executed to fulÀll clients demand – to obtain information, to
take part in drafting of a bill or to promote, advocate or oppose certain act,
and they do that usually in return for remuneration. Services Directive98 stipulates that “service is any self-employed economic activity for remuneration.“99
It imposes obligation to Member States to „respect cross-border provision of
services and ensure free access and free exercise of services.“100 It prohibits
imposing „requirement of obtaining authorisation from national authority, including registration with a professional body or association in their territory,
except where provided in directive or elsewhere in EU law.“101
Services directive applies to wide-range of services including services of legal advisors102 who might act as consultants or lobbyists. According to some
authors,103 lobbying activities are of service to the members or clients of an
organisation. Acting „on behalf of“ arises out of fact that lobbyists act not
for their own account but for the account of someone else, whose particulars
are often not familiar to counterparty. Lobbyists act as sort of indirect representatives, not in terms of doing business with third parties, but in terms of
negotiating legislative bills or policies. Element of remuneration arises out of
97
See supra n 92.
98
Directive 2006/123/EC of the European Parliament and of the Council of 12 December 2006
on services in the internal market, OJ L 376, 27. 12. 2006, p. 36. Hereinafter referred to as
Services Directive.
99
Art 4(1) Services Directive.
100
101
102
See also <http://ec.europa.eu/internal_market/services/services-dir/guide/index_en.htm>,
last accessed on 27/11/2014.
103
13
element of professionalism. Professional lobbyists lobby for commission. Thus,
it can be concluded that lobbying is self- conducted activity for remuneration.
Element of professionalism is imanent to provision of lobbying services. If lobbying can be considered to be provision of speciÀc kind of service, free exercise
of lobbying must be respected. EU has acknowledged lobbying as legitimate
profession104 as well as many countries of Organisation for Economic Co-operation and Development.105 Would it be a sort of obstacle to insist on registration
or authorisation? The importance of this matter was addressed by the EC back
in 1992.106 Since there is no directive or any other mandatory source of EU law
which would allow Member States to impose registration requirements, it seems
that it would be an obstacle to require registration as a prerequisite for execution
of lobbying service. But proper interpretation leads to conclusion that it wouldn’t
be an obstacle to insist on prior registration in lobbyists’ home country. It arises
out of stipulation „in their territory“ in the context of cross border provision of
services, meaning in host country, in other Member State in which (lobbying)
service is being performed. Once registrated in country of primary establishment, they could freely execute lobbying services elsewhere within the EU. The
problem with lack of harmonised rules on, among others, registration might lead
to heterogeneity of national legislative approaches. If one Member State imposes
such requirement for its domestic lobbyists – natural or legal persons, and other
Member State does not impose similar requirement, lobbyists could easily start
to establish their principle place of business in countries with no prior registration or authorisation requirements. As a consequence of such practice, this
would lead to desintegration of internal market for services. Thus supranational
mandatory rules must be enacted in this area of law to prevent such practice.
If this continues, lack of special mandatory rules on provision of lobbying services will undoubtedely become a problem for Member States. In particular in
provision of cross-border lobbying services with non- EU element. Under some
data, the USA companies lobby the most. Eg. well-known Philip Morris spended
5,25 milion euros on lobbying against Directive on reducing smoking.107 There
is no EU or in most cases national legislation on lobbying on which companies
104
McGrath, C., The development and regulation of lobbying in the new member states of the
European Union, Journal of Public Affairs, vol. 8 (15-32), 2008., p. 22.
105
OECD (2007) „Building a Framework for …, p. 6.
The EC was Àrmly against accreditation of organised interested groups back in 1992, on
the grounds that this could create an obstacle to the open dialogue with civil society. Since all
groups must be treated equally, there should be no registration, accreditation or code of conduct. Also Mihut, op. cit., n 1, p. 9.
106
107
Available at <http://hdl.com.hr/na-lobiranje-najvise-trose-duhanska-i-naftna-industrija/>,
last accessed on 26/11/2014.
14
established in the USA are used to. The same lobbying company would be exposed to strong national regulation when lobby in the USA and to soft or even no
legislation when lobbying in the EU or its Member States. Although this way the
EU really seems as „lobbying paradise“108 in fact it is not paradise at all. Lack of
clear rules on conditions on lobbying, Ànancial disclosure, remuneration policy,
clear deinitions what is permissible and what could be considered as unlawful
„trading on inÁuence“ seriously undermines the idea of free provision of lobbying services and contributes to high level of legal uncertainty. In current situation, general framework for lobbying should apply to Àll in lacunae legis. But
speciÀc nature of this activity demands thorough regulation in separate sources
of law to suspend current uneven level of national lobbying regulation.
6. TOWARDS RECONCILING DIFFERENT LEGISLATIVE
APPROACHES
Bearing in mind above-mentioned overview of rather humble development of
EU lobbying regulation, one can conclude that there is a need to reconcile two
legislative approaches: mandatory diclosure and voluntary disclosure. Mandatory disclosure would introduce higher level of transparency. More transparency, if followed by severe penalties for non-compliance, would introduce
more discipline. Mandatory nature of disclosure implies lobbying regulation
by means of statutory provisions. One effort should be performed to reconcile
differences between professional lobbyists and others. Experiences of some
Member States109 show that there is no clear distinction between those two
types of lobbyists. The EC makes distinction among non-for-proÀt and proÀt
interest groups.110 According to this classiÀcation, proÀt interests groups are
law Àrms, public relations agencies, consultant (service providers) companies.
The proÀt interest groups engage individuals who are paid to act according to
principals instructions and they lobby for the interests of the third parties.111
These professional lobbyists act for fee. These are corporate lobbyists. Due to
wide deÀnitions of lobbying, even civil society associations such as consumer
associations can be treated as lobbyists since they inÁuence national and EU
policies and decison making process on daily basis. One differentia speciÀca
of such interests groups is that they are non-proÀt organisations and they lob108
Former EU Agriculture Commissioner called the EP „the lobbying paradise“. See <http://
www.ft.com/cms/s/0/8cd74a18-15e3-11df-b65b-00144feab49a.html#axzz3KE3btQF9>, last
accessed on 27/11/2014.
109
Eg Poland. More on this issue see in Makowski, op. cit., n 2, pp 8-9.
110
111
Ibid.
15
by on behalf of public interests. They can be considered as non-professional
lobbyists. Level of transparency in terms of diclosure of expenditures, incomes
and client lists is another problem due to the fact that it comprises question of
protection of personal data and professional secrecy. Wide deÀnitions of lobbying open issue of lobbyists and their addressees. In Member States not all
institutions are addressees of lobbying laws but just some (in most cases parliaments). What about regional and local authorities when deciding on some
infrastructural projects? One should undoubtedely consider the need to extend
lobbying laws to all levels of public administration.112 This is an argument
more to support above-mentioned statement on statutory regulation of lobbying which would provide basis for legal sources of minor degree – bylaws.
Lack of harmonised regulation is an obstacle. There is absence of mandatory
rules which would force Member States to establish mandatory disclosure.
The fact that some Member States have this stricter rules and others do not
lead to uneven conditions to pursue lobbying activity. Issue of fair competition and issue of forseeable pursuing lobbying as commercial activity are
matters of „sound entrepreneurial climate.“ Such situation seems challenging
for EU Member States. There are no speciÀc requirements for development
of national lobbying regulation ie no supranational patterns.113 No harmonised rules have to be implemented. There is no “good model” or “bad model.”
Each Member State has to make its own way and create its own model114 of
development of framework for lobbying, bearing in mind the EU dimension
of lobbying services. Although there are common problems and similar issues to be regulate across nations, eg. differentiation among professional and
non-professional lobbyists, client disclosure, Ànancial disclosure, registration,
deÀning limits of permissible inÁuence etc., each state should bear in mind
its own constitutional structure.115 Constitutional structure deÀnes modalities
of interaction among civil society, public and corporate interests groups and
national governments.116 Beside Member States, such situation is even more
challenging for states of Eastern Europe117 since those states traditionally follow EU patterns. Now they have to decide on their own how to approach it.
112
In Polish and Lithuanian legislation, as one of the few in the EU, provisions are limited to regulation of lobbying as exertion of inÁuence towards legislators and not towards executive, judicial
and local authorities. This is signiÀcant distinction in comparison to the USA acts on lobbying
which have wider scope of institutional application. See VidaĀak, op. cit., n 6, p. 119. On the other
side, Art 2 of MAL explicitly mentions local level as possible target of lobbying pressure.
113
Also Mihut, op. cit., n 1, p. 11.
114
Ibid.
115
OECD (2007) Building a Framework for …, p. 9.
116
Cf. VidaĀak, op. cit., n 6, p. 45.
117
16
Eastern European states started to regulate lobbying profession by statutes
ie. mandatory legislation and imposing requirements for mandatory registration.118 These states have shown will to face problems of deÀnition and regulation of lobbying. Reasons behind such trends can be found in gradual changes
of legacy of communism,119 Àght against corruption, appearance of business
associations120 and crime prevention. Moreover the fact that those states had
to lobby the EU on numerous of issues during enlargement process121 must
not be put aside when discussing increasing role of lobbying profession and
accompanying legal reforms. As regards legislation on lobbying, new Member
States are moving at a faster rate122 than was the case in old democracies.123
Unfortunately, literature on interests groups from Central European countries
and their lobbying activities is still rare.124
7. CONCLUSION
Due to speciÀc socio-political context, regulation on lobbying in the EU became relevant 25 years ago as a result of integration processes and strengthening of EU institutions. The EC and EP are considered to be the most directly
accessible institutions in terms of lobbying, although indirect lobbying in form
of strategic litigation is present even at the CJEU. During last decade humble
steps have been undertaken in terms of establishing voluntary register. Current discussions on introducing mandatory register face legal diffuculties in
light of Article 352 TFEU. Such obstacles can be overcomed by implementing complementary measures under Article 84 TFEU which might encourage Member States to establish national registers of lobbyists. Such measures
would increase transparency and accountability as prerequisite for functioning
118
For case of Poland see Makowski, op. cit., n 2, p. 5. See also Art 11 MAL.
119
According to McGrath,“transition from communism to democracy both permitted and
neccesitated a substantial increase in number of interest grups and in the extent of their interaction with government (…)“. McGrath, op. cit., n 104, p. 15.
120
Ibid., p. 18.
121
According to VidaĀak, during the enlargement process, the number of representation ofÀces of the interests groups from Eastern and Central European States was increasing. The
main reasons behind this tendency can be found in need to collect information on EU legislation, funding opportunities, relevant developments in the Member States, need to represent
their members in EU associations, providing special services to their members at their request
and preparing educational seminars with the purpose to improve members’ knowledge on the
EU enlargement process. VidaĀak, op. cit., n 18, p. 184.
122
123
McGrath, op. cit., n 104, p. 28.
124
Charrad, op. cit., n 3, p. 17.
17
of internal market for lobbying services. Considering its economic aspects,
lobbying must be treated as market activity and thus subsumed under one of
the market freedoms. Since features of lobbying activity comply with main
features of profession, lobbying has to be treated as self-regulated provision
of services. There are no special provisions on lobbying services at EU level. In such circumstances, general framework for provision of services under
Services Directive shall apply to lobbyists. Lack of supranational rules which
would harmonise this area of law, in combination with heterogeneity of national solutions, brings about two consequences. Lack of harmonised rules is
an obstacle for cross-border provision of services, in particular for lobbyists
established in the USA. Such „lobbying paradise“ is deterrent for provision of
lobbying services and can decrease the level of transparency in decision making processes. For Member States, lack of EU harmonised rules on lobbying
means that there are no patterns to be followed in drafting national lobbying
statutes. Such state of play is challenging for Member States. They should
decide on their own how to approach regulation on lobbying in terms of deÀnition of lobbying, rights and duties, liabilities, taxation, registration, penalties
for breach of law etc. Some new Member States have already undergone such
processes and enacted national statutes. The EU has to make step forward by
reaching a consensus on single deÀnition on lobbying as a platform for development of future supranational legilsation in this area of law.
LITERATURE:
BOOKS AND ARTICLES
1. Amado, Olivert, A. et al., Lobbying at the European Court of Justice? Yes, we
can! Paper for Professor Guéguen’s lecture “Interest groups and Lobbies in the
European Union” (POLI-O505), Institute for European Studies, 2012.
2. Anastasiadis, S., Understanding Corporate lobbying on its own terms, International Centre for Corporate Social Responsibility Research Paper Series, no. 402006, 2006.
3. Bouwen, P., Corporate Lobbying in the European Union: the logic of access,
Journal of European Public Policy, vol. 9 (3) 2002.
4. Briffault, R., The Anxiety of InÁuence:The Evolving Regulation of Lobbying,
Public Law & Legal Theory Working Paper Group, Columbia Law School, Paper
Number 14-367, 2014.
5. Charrad, K., Lobbying the European Union, Westfälische Wilhelms-Universität
Münster, Nachwuchsgruppe Europäische Zivilgesellschaft und Multilevel Governance, 2005.
18
6. Cirone, A., Patterns of Interest Group Lobbying at the EU: Examining How
Group Characteristics Affect Venue Choice, 2011.
7. Hitoshi Mayer, L., What is this „lobbying“ that we are so worried about?, Yale
Law and Policy Review, Vol. 26, Legal Studies Research Paper No. 07-42, 2008.
8. Lane, E., Lobbying and the Law, Berkeley and Los Angeles, 1964.
9. Makowski, G., Regulation of Lobbying in Poland, Institut pro Evropskou Politiku/Institute for European Policy, 2010., available at <http://www.europeum.org/
doc/pdf/makowski_PL.pdf>
10. McCown, M. in Coen, D.; Richardson, J. (eds), Lobbying the European Union:
Institutions, Actors and Issues, Oxford, 2009.
11. McGrath, C., Towards a lobbying profession: developing the industry’s reputation,
education and representation, Journal of Public Affairs, vol. 5 (124-135), 2005.
12. McGrath, C., The development and regulation of lobbying in the new member
states of the European Union, Journal of Public Affairs, vol. 8 (15-32), 2008.
13. Mihut, L., Lobbying in the United States and the European Union: New Developments in Lobbying Regulation, Romanian Journal of European Affairs, Vol. 8
(4) 2008.
14. VidaĀak, I., Interest groups and lobbying in the European Union, Croatian International Relations Review, vol. 9 (33) 2003.
15. VidaĀak, I., Lobiranje: interesne skupine i kanali utjecaja u Europskoj uniji, Zagreb, 2007.
EU LEGISLATION
1. Directive 2006/123/EC of the European Parliament and of the Council of 12 December 2006 on services in the internal market, OJ L 376, 27. 12. 2006.
2. Green Paper, European Transparency Initiative, COM(2006) 194 Ànal, Bruxelles, 3 May 2006
3. OECD (2007) „Building a Framework for Enhancing Transparency and Accountability in Lobbying, unclassiÀed, GOV/PGC(2007)17, <http://search.oecd.org/ofÀcialdocuments/?hf=10&b=40&r=%2Bf%2FlastmodiÀeddate%2F2007&r=%2Bf%2Fofficial_ documents_ theme%2Fpublic+governance+and+management&sl=ofÀcial_documents&s=desc (document_lastmodiÀeddate)>
4. OECD Self-regulation and regulation of the lobbying profession, Global Forum
on Public Governance, GOV/PGC/GF(2009)5 unclassiÀed, available at <http://
www.oecd.org/ofÀcialdocuments/publicdisplaydocumentpdf/?cote=GOV/PGC/
GF(2009)2&docLanguage=En>
5. Parliament resolution on development of the framework for the activities of lobbyists in the EU institutions (*) (2007/2115(INI) (2009/C 271 E/06)
19
6. Protocol No. 3 on the Statute of the Court of Justice of the European Union, as
amended by Regulation (EU, Euratom) No. 741/2012 of the European Parliament
and of the Council of 11 August 2012 , OJ L 228 of 23. 8. 2012.
7.
Treaty on the Functioning of the European Union (consolidated version, OJ C
326, 26. 10. 2012., p. 47.
NATIONAL LEGISLATION
1. Act of Law on the Lobbying Activity in the Legislative Process (Journal of Law
No. 169)
2. Act on Lobbying (OfÀcial Journal of Montenegro no. 54/11)
CASE LAW
1. Case 43/75, Gabrielle Defrenne v Société anonyme belge de navigation aérienne
Sabena [1976] ECR 455
INTERNET SOURCES
1. Bursting the Brussels Bubble: the battle to expose corporate lobbying at the
heart of the EU, Alter – EU, available at < http://www.alter-eu.org/book/bursting-the-brussels-bubble
2. Kallas, S., The European Transparency Initiative, speech held at Committee on
Constitutional Affairs, European Parliament, Brussels, 16 July 2007, available at
<http://europa.eu/rapid/press-release_SPEECH-07-491_en.htm.>,
3. <http://www.theguardian.com/world/2014/may/08/lobbyists-european-parliament-brussels-corporate>,
4. <http://ec.europa.eu/transparencyregister/info/about-register/keyEvents.do?locale=en>
5. <http://www.europeanvoice.com/article/mandatory-lobbyist-register-unlikely-under-current-law/>,
6. <http://www.epaca.org/code-of-conduct/text-of-code>
7.
<http://ec.europa.eu/internal_market/services/services-dir/guide/index_en.htm>
8. <http://hdl.com.hr/na-lobiranje-najvise-trose-duhanska-i-naftna-industrija/>
9. <http://www.ft.com/cms/s/0/8cd74a18-15e3-11df-b65b-00144feab49a.html#axzz3KE3btQF9>
20
A. Akulshina, D. Galushko: Transformation of the European education and research area and Russia
Review Article
UDC 001:37]( 470+571:4-67EU)
TRANSFORMATION OF THE EUROPEAN
EDUCATION AND RESEARCH AREA AND RUSSIA
Alla Akulshina *
Dmitriy Galushko **
ABSTRACT
This paper analyzes the policy of the European Union and the Russian Federation in
the sphere of science and education. The authors considered the regulatory framework for relations between EU and Russia in the sphere of education and science, legal acts, governing this area within both sides and reasons for bringing it to the new
level during the next decade. In their paper, the authors summarize the experience of
implementation of joint projects between Russian and European partners, with focus
on the experience of the VSU in this direction.
*
Associate Professor, Director of the Centre for International Projects and Programmes,
Voronezh State University; akulshina@vsu.ru.
**
Associate Professor, Department of International and European Law, Faculty of Law, Voronezh State University; galushkodv@gmail.com
21
1. INTRODUCTION
«The European Union’s research policy is as old as the European Union itself; as old, more precisely, as the European project, as the initial elements
appeared with the creation of what was known at the time as the ‘European
Community’, at the end of the 1950s».
Such a descriptive deÀnition was given to date of process of building European
research policy by Michel André, an adviser in the European Commission’s
Directorate-General for Research1.
During his visit to the Voronezh State University in September 2014, Nicola
Scaramuzzo, who has been working almost 20 years in the creation of the
common educational space, who is currently the acting Head of the OfÀce of
the EU-Russian Cooperation Programme, said following:
«First of all, science and education should help to overcome the crisis in the
relationship that exists between the EU and Russia, as in these areas of interaction we have huge potential. We must actively cooperate with each other something that in English sounds like «people-to-people contact».
2. STATE-OF-THE-ART IN THE EU
The current stage of development of education and science, the complexity of
challenges facing society, their global character in almost all spheres dramatically reduce the efÀciency of a country in their resolution. This principle has been
incorporated into the concept of the European Research Area - combined efforts
of different countries to solve problems jointly in various Àelds of science.
Moving on to the concept of the European Research Area (ERA), it should be
noted that its original vision was founded on the analysis of the unfavorable
gap between Europe and the USA and Japan on key science and technology
indicators (1,8% of GDP in the EU in average whereas 2,8% in the USA and
2,9% in Japan), thus the scientists’ ratio to employed population is less than
in the countries compared, problem of brain drain from Europe to the US
and others. Fragmentation of the European scientiÀc and technological system
was identiÀed as the main problem. It became clear that scientiÀc activities of
the European Union should cease to be merely a supplement to the research
area of the EU member states. There were made attempts to create a uniÀed
1
Michel André, an adviser in the European Commission’s Directorate-General for Research. The 7th Framework Programme in the history of European research. RTD info. Special Edition – June 2007.
22
approach to ERA, which could connect national, European and intergovernmental levels.
According to the results of 10-year-long implementation of the ERA concept,
in January 2009 European Commissioner for the research Janez Potochnik
made very interesting report about state-of-the-art in ERA, where he marks
stagnations in the development of research policy2. The tasks put in the Lisbon
strategy (employment level – 70% and 3% of GDP expenditure on S/T development) were not fulÀlled to time (2010). It is hard to talk about any signiÀcant
progress.
The percentage of GDP spent on R&D by the EU-27 was 1.85% in 2007. This
share has been quite stable over the past years (1.84%, 2006; 1.86%, 2000). While
in the same period the percentage of GDP spent on R&D by Japan grew from
3,04% to 3,39%, by Korea from 2,3 to 3,36%3, by China from 0,90 to 1,44%4.
EU-27 spent € 237 billion on R&D in 2008 as compared to € 270 billion
spent by the United States and € 110 billion by Japan. Most R&D expenditure
of EU-27 in 2008 was in the business and enterprise sector (BES) with 64%
(on the level of 2005), but this phenomenon is more signiÀcant in Japan with
77.8% (75%, 2005), as well as in the United States with 72.6% (70%, 2005).
However R&D expenditures differ considerably between the EU Member
States. In 2008, R&D expenditure as a percentage of GDP (R&D intensity) was highest in Sweden (3.75% of GDP) and Finland (3.73%), followed
by Austria (2.67%), Denmark (2.72%) and Germany (2.63%), and lowest in
Cyprus (0.46%), Slovakia (0.47%), Bulgaria (0.49%) and Malta (0.54%). The
highest increases in R&D intensity between 2001 and 2008 were found in
Austria (from 2.07% of GDP to 2.67%), Estonia (from 0.71% to 1.28%) and
Portugal (from 0.80% to 1.5%)5.
It should be noted that technological advances of Europe are less signiÀcant.
More than 50% of all patent applications received by the European Patent
OfÀce (EPO) are not from the EU Member States, but from other countries of
the world; more than half of the EU Member States do not produce high-tech
2
A more attractive European Research Area but stagnating EU R&D intensity: no time to
take a break! IP/09/92, Brussels, 22 January 2009 // Press releases RAPID. URL: http://ec.europa.eu/research/index.cfm?pg=reports&reportyear=2011#report
3
Source of Data: Eurostat. URL: http://epp.eurostat.ec.europa.eu/tgm/table.do? tab=table
&plugin=1&language=en&pcode=tsdec320
4
OECD Factbook 2010: Economic, Environmental and Social Statistics. – 2010. URL:
http://www.oecd-ilibrary.org/economics/oecd-factbook-2010_factbook-2010-en
5
Science, technology and innovation in Europe : Eurostat pocketbooks - 2011. URL: http://
epp.eurostat.ec.europa.eu/cache/ITY_OFFPUB/KS-31-11-118/EN/KS-31-11-118-EN.PDF
23
patents, and the highest concentration of patents can be traced only in a few
European regions6.
The EU initiated a new very ambitious scientiÀc programme – Horizon 2020.
The Commission proposed an increase in the EU R&D budget to EUR80 billion for Horizon 2020, and Member States committed themselves to the EU
target to invest on average 3% of EU GDP in research by 2020.
The European Commission performed a number of initiatives to change the situation. As far as the new framework for EU research and innovation funding after
2013 concerned, the Commission’s proposal for a “Common Strategic Framework” in its February 2011 Green Paper (IP/11/138) is about making participation
in EU programmes for research and innovation easier and focusing investment
on tackling “grand challenges”, in particular climate change, energy and food
security, resource efÀciency, health and ageing population. The Commission
aimed to increase scientiÀc and economic impact and get the best value for every
euro invested. The proposal was to cover the whole “innovation chain” with a
harmonized approach starting from basic research, culminating in bringing innovative products and services to market, and also supporting non-technological
innovation, for example in design and marketing. Participants will therefore be
able to concentrate on their objectives and not on confusing red-tape. The «Common Strategic Framework» would cover the current Framework Programme for
Research (FP7), the Competitiveness and Innovation Framework Programme
(CIP) and the European Institute of Innovation and Technology (EIT).
The new name is an important symbol of a new departure and a new adventure. «Horizon 2020» is a new, integrated funding system that will cover all
research and innovation funding currently provided through the Framework
Programme for Research and Technical Development, the Competitiveness
and Innovation Framework Programme (CIP) and the European Institute of
Innovation and Technology (EIT). These different types of funding will be
brought together in a coherent and Áexible manner. Horizon 2020 is open for
international cooperation as key factor of ERA development.
3. STATE-OF-THE-ART IN THE RUSSIAN FEDERATION
What should be marked are comparable challenges the Russian and European
science is facing. During the 2000th Russian Federation internal R&D expenses in absolute Àgures were steadily increasing. According to Àgures provided
6
European Commission / Innovation Union Competitiveness report 2011. URL: http://
ec.europa.eu/research/innovation-union/pdf/competitiveness-report/2011/iuc2011-full-report.
pdf#view=Àt&pagemode=none
24
by the Ministry of Finance, in 2009 state spendings on R&D were 166.5 bln.
rubles, in 2011 - 240.6 bln. rubles, in 2012 - 249.8 bln rubles, in other words
expenditures of the federal budget increased by half7.
As a result, Russia becomes one of the Àrst ten world countries leading in general volume of inputs in this sphere concerned, although it remains appreciably
behind of the leaders in such indicator as share of R&D expenses to GDP.
In spite of better Ànancing for science the number of research institutions is
decreasing: in 2000 - 4099 institutions, in 2009 it counted 3536. The number
of staff occupied in R&D sphere is decreasing as well: from 887.7 thousand
people in 2000 to 742.4 thousand people in 2009. Decreasing number of researchers for the period was 22 thousand people8.
Indicators of research effectiveness in Russia are much lower than in Europe.
In 2010 Russia accounts for only 2,08% of research articles published in scientiÀc journals indexed in Web of Science database. While France – 4,67%,
Germany – 6,4%, and China – 15,8%9.
According to the number of scientiÀc publications Russia was between Brazil
(2,59%) and the Netherlands (2,46%). The share of Russia at the world market
of scientiÀc products is only 0,3% - 0,5%, while the share of the USA is 36 %,
Japan – 30 %, Germany – 17%. The share of innovation-active SMEs in Russia
industry (9,4 % in 2007) is several times lower than in developed countries and
the results of the process of innovation can be characterized as insufÀcient. So
the share of high-tech products in Russia export doesn’t come over 4%-5 %,
while in China this indicator is 22,4 %, in South Korea - 38,4 %, in Hungary 25,2%. Russia holds only 24th place on the total number of patent applications.
For all that, according to different estimations, not more than 2-5% of patents
are realized in economic activity and only about 1% in industrial high technology design. In absolute volume of high technology export Russia is at the
level of such countries as India, Portugal, and Slovakia. It is 14 times inferior
to Korea, and 42 times - to China and the USA10.
The Decree of the President of the Russian Federation dated May 7, 2012 No
599 “On measures for implementation of the state policy in the Àeld of educaFederal Service of the State Statistics / Russia in Àgures - 2011 - URL: http://www.gks.ru/
bgd/regl/b11_11/Main.htm
7
Federal Service of the State Statistics / Russia in Àgures - 2011 - URL: http://www.gks.ru/
bgd/regl/b11_11/Main.htm
8
9
Government of the Russian Federation / Strategy of innovative development of the Russian
Federation for the period up to 2020. - 8 December 2011 G. - No 2227-p – 2011 - S.11. URL:
http://government.ru/gov/results/17449/
10
Ibid.
25
tion and science” deÀned the task of systematization of scientiÀc activities and
priorities of its development through the formation of the programme of fundamental scientiÀc researches in the Russian Federation for the long term and
development of mechanisms its Ànancing, aimed at achieving domestic spending
on research and development at 1.77% of gross domestic product by 2015 (for
2013 - 1.5%, for 2014 - 1.63%). The Strategy of innovative development adopted
guidelines for increasing of this parameter up to the level of 3% by 202011.
In this context strategic task of R&D policy is to return Russia to the number
of countries leading in the sphere of research and to make it able to perform
breakthrough in fundamental and applied research in themes that are relevant
for world economics on the whole and for Russia specially.
4. EU-RUSSIA RELATIONSHIPS IN THE SPHERE
In 2005 at the Summit EU-Russia in Moscow it was set an ambitious task
to create a “common space on research and education, including cultural aspects”.
The legal basis for scientiÀc and technological EU-Russia cooperation and is
formed by the group of agreements
- Agreement on scientiÀc & technological cooperation between the European Community and the Russian Federation (concluded in 2000 and renewed in 2003 and in 2009);
- Agreement for cooperation between the European Atomic Energy Community and the Government of the Russian Federation in the Àeld of nuclear
safety (2001);
- Agreement for cooperation between the European Atomic Energy Community and the Government of the Russian Federation in the Àeld of controlled
nuclear fusion (2001);
- Roadmap for the EU-Russia Common Space in Research and Education
including Cultural Aspects (2005).
- EU-Russia Partnership & Cooperation Agreement (chapter on science &
technology - article 62).
The practical cooperation basis is formed by multilateral mechanisms at the
level of the Russian Ministry of Education and Science and EC Directorate for
Research and Innovation:
11
26
Council on science and education. URL: http://snto.ru/Analiticheskie_svedeniya
- Permanent Partnership Council (PPC) in Science
- Joint EC-Russia S&T Cooperation Committee
- Joint EU-Russia Thematic Working Groups (WG) in priority research areas
(Nanotechnologies & New Materials, Health, Food-Agriculture-Biotechnology, Non-Nuclear Energy, Nuclear Fission, Aeronautics, and ICT), with
possibly more to come in future.
The topic of modernization is eternal in dialogue Russia-Europe. Historically Europe provided a powerful source of development and modernization in
Russia. Now in Russian case, modernization is primarily understood as innovation. Under P4M there are envisaged supplementary mechanisms for cooperation, especially the sectoral dialogues on Science, Intellectual Property, but
not only these targeted dialogues. We have to note that innovation is prevailing
theme in such dialogues as Energy, Transport, Health, Industrial Regulations,
Agriculture, Space, and Environment. It’s obvious, that modernization should
not be limited by science and innovation; we need full modernization of various economy sectors, public governance and social life.
Now “Partnership for Modernization” is the only working concept in EU-Russia dialogue. Key step in establishing concept of Partnership for Modernization was made on 25th Summit EU-Russia in Rostov-upon-Don on May
31-June 1, 2010, when the European Union and Russia launched a Partnership for Modernization. «Priority areas of the Partnership for Modernization
will include: expanding opportunities for investment in key sectors driving
growth and innovation, enhancing and deepening bilateral trade and economic relations, and promoting small and medium-sized enterprises; promoting
alignment of technical regulations and standards, as well as a high level of
enforcement of intellectual property rights; improving transport; promoting a
sustainable low-carbon economy and energy efÀciency, as well as international negotiations on Àghting climate change; enhancing cooperation in innovation, research and development, and space; ensuring balanced development by
addressing the regional and social consequences of economic restructuring;
ensuring the effective functioning of the judiciary and strengthening the Àght
against corruption; promoting people-to-people links; and enhancing dialogue
with civil society to foster participation of individuals and business»12.
At the 30th EU-Russia Summit, held on 21 December 2012 in Brussels, political leaders of the EU and Russia have declared 2014 as «The EU-Russia Year
of Science» in order to enhance EU-Russia cooperation in research, higher
education, and innovation spheres13.
12
Joint Statement on the Partnership for Modernisation EU-Russia Summit 31 May-1 June 2010.
13
URL: http://eu-russia-yos.eu/en/index.php
27
In the current political situation, in the Àeld of scientiÀc and educational cooperation it was established institutional background, which in many respects is
ahead of today’s realities and creates a good basis for cooperation, primarily
by implementing a «bottom-up» approach.
In the progress report of December 2012 we can see some optimistic points
about S&T cooperation. The very good cooperation in the priority area of enhancing cooperation in innovation and research and development, including
space and nuclear research continued, in particular the increased active role of
Russia in EU Framework Programmes and of EU researchers in Russian Federal Targeted Programmes. 475 Russian research organizations are involved in
302 projects, receiving an EU contribution of around € 60 million. 19 research
organizations from Germany, 11 from France, 8 from the UK along with the
organizations from other EU member states participate in 64 Russian projects.
Agreement was reached to develop a strategic partnership for research and innovation to increase further the scale and scope of cooperation, to be launched
with the start of the new EU Framework Programme «Horizon 2020». Continued university cooperation and academic mobility in particular goes through the
European Union’s TEMPUS and Erasmus programmes, including new Russian
initiatives to enhance the internationalization of their students as of 201314.
Research policy takes a universal character that places it a priori out of the frontiers of any single state. Regarding the contemporary economy challenges. R&D
policy should become an important priority of society strategic development.
5. RUSSIA AND EU FRAMEWORK PROGRAMMES:
ASSOCIATED OR THE THIRD COUNTRY?
To realize EU-Russia common space on research it is necessary to coordinate activities on deÀning research themes, organizing joint research, supporting participation of Russian scientists in European research projects and
programmes, assisting integration of Russian research teams into European
scientiÀc networks.
Participation of Russian scientists in the EU Framework programmes is a practical tool for creating EU-Russia common space. Over the period of the Sixth
Framework Programme for Research & Technological Development (20022006) 450 Russian research institutions participated in 330 projects. The total
budget of the projects was about 1,4 billion euro, EC contribution for Russian
14
Report agreed by the coordinators of the EU-Russia Partnership for modernization for
information to the EU-Russia summit of 21 December 2012.
28
participants came to about 50 billion euro, co-Ànancing from Russian side
amounted to 20 billion euro.
In the meantime, Russia has a great number of researchers considering indicator of a number of scientists per 10 thousand of in the labour force – 72,
comparing to Germany - 69, France - 77, Norway - 92, and Denmark - 95,
and even more than in the Netherlands - 45, Poland – 45, and Italy – 29, that
evidently does not correspond an existing level of Russian participation in EU
research projects. Thus, Russian scientists has taken part in 330 FP6 research
projects with indicative budget of 50 million euro while the whole number of
the projects is 7 thousand, where Germany has implemented 4100 projects
(2.29 billion euro) and France – 3500 (1.4 billion euro)15.
The whole range of reasons for such state-of-the-art can be mentioned, such as
lack of experience of participation in the EU Framework Programmes (European researchers has participated since 1984), backwardness of Russian S&T
support infrastructure as well as administrative and language barriers.
One of the key determinants of low level of Russian participation in FP7 is the
third country status of Russia. It ties up. Participation of Russian organizations
in the most of calls for proposals should be justiÀed in terms of the enhanced
contribution to the objectives of FP7. In some calls for proposals under the
so-called SpeciÀc International Cooperation Actions (SICA) participation of
third countries is obligatory. In this case Russia enjoys the same conditions
as almost 160 other countries that are included into a group of International
Cooperation Partner Countries (ICPC).
Associated participation in the Framework Programmes provides the same
rights as the Member States: involvement in whole range of calls for proposals
as obligatory partners, more actual opportunities to initiate and coordinate
projects, and joint development of topics for new calls. The associated countries allocate funding to the programme budget. The cost depends on GDP for
the last 10 years; besides, reduced contribution system is provided considering
experience of participation in FPs. At present, Association Agreements are
concluded with Albania, Bosnia and Herzegovina, Former Yugoslavian Republic of Macedonia, Israel, Iceland, Liechtenstein, Norway, Serbia, Turkey,
Montenegro, and Switzerland.
In April 2008 the Russian government expressed their interest to join the FP7
as an associate member. In May 2008 was the Àrst meeting of the EU-Russia
Permanent Partnership Council on Research. This change in Russian status in
15
First FP7 Monitoring Report. Research Directorate General, February 2009.
29
the EU Framework programmes has a crucial importance for development of
EU-Russia S/T cooperation. Participation in the EU Framework Programmes
as an associated country could be a signiÀcant step in creation of competitive
European Research Area having a strategic importance both for Russia and
the EU, which issues an ambitious challenge to establish itself as a leader in
science and innovation. In the Ànal joint statement of EU-Russia Permanent
Partnership Council on Research necessity of speedy introduction of the inquiry and making steps to negotiations on Russian Association Agreement
to FP716.
Association agreement is considered in the framework of negotiations on
PCA, that is a strategic error and leads to indeÀnite prolongation of talks.
Since according to Daniel Descoutures, the European Commission policy ofÀcer, a consistent initiator of Russian association to FP7 “Overall political &
strategic importance of a possible association to the Framework Programmes
is clear, over and above the obvious scientiÀc and Ànancial beneÀts which it
would entail»17.
The negotiations have received an unexpected end. As the result of joint meeting of the Russian Government and the European Commission on 24 February
2011, the EU side declared non-expediency of initiating further negotiations
on association of Russia to the FP7 under new Russia-EU Agreement by present time. Relating to that and according to instructions of Mr. Shuvalov of
28 April “there was taken decision to discontinue supervision over the Government order of initiating negotiations process on the issue of Russian association to the EU framework programmes for research and technological
development. Due to absence of a subject of the further negotiations with the
European Commission there was taken decision to dissolve Russian part of the
delegation»18.
6. PRACTICAL RESULTS OF S&T COOPERATION EAP+RUSSIA,
2007-2012
In the Progress Report of December 2012 we can see some optimistic points
about S&T cooperation: ”The very good cooperation in the priority area of
16
URL:
http://www.eu2008.si/en/News_and_Documents/Press_Releases/May/0526EU_
Russia_Research_Joint_Statement.html
17
Joint Statement of EU-Russia Permanent Partnership Council on Science. URL: http://
www.eu2008.si/en/News_and_Documents/Press_Releases/May/0526EU_Russia_Research_
Joint_Statement.html
18
30
URL: http://formodernization.com/projects/3_1_1.php
enhancing cooperation in innovation and research and development, including
space and nuclear research continued, in particular the increased active role of
Russia in EU Framework Programmes and of EU researchers in Russian Federal Targeted Programmes. 475 Russian research organisations are involved
in 302 projects, receiving an EU contribution of around € 60 million. 19 research organisations from Germany, 11 from France, 8 from the UK along
with the organisations from other EU member states participate in 64 Russian projects. Agreement was reached to develop a strategic partnership for
research and innovation to increase further the scale and scope of cooperation,
to be launched with the start of the new EU Framework Programme “Horizon
2020”. Continued university cooperation and academic mobility in particular
through the European Union’s TEMPUS and Erasmus programmes, including
new Russian initiatives to enhance the internationalisation of their students as
of 201319;
Table 1 Participation in FP7
Russia
Number of FP7 Number of FP7
applications supported projects
2124
298
EU Ànancial contribution to
the country (mln. euro)
63,4
Ukraine
1084
150
16.4
Armenia
137
30
2.5
Moldova
120
16
1,6
Belarus
204
39
2,5
If we overview the dynamic of Russian participation in FP7 for the latest 4
years (from 2007 to 2011) we could observe the signiÀcant reduction of volume of Ànancing of Russian participants under EU programmes - from 2007
to 2011 the funding has reduced from 19 mln euro to 6,7 mln - three times less.
The Àgures are presented in table 2220.
19
Report agreed by the coordinators of the EU-Russia Partnership for modernization for
information to the EU-Russia summit of 21 December 2012.
20
Report of the EU Delegation to Russia. Russian “Participation in FP7 (December 2012)”,
presented at the InfoDay in Moscow 26.03.2013.
31
Table 2
Cooperation
Capacities
Euratom
Ideas
People
Total
2007
16.127.014
2.963.828
322.680 €
2008
8.661.892
1.418.404
80.000 €
2009
2010
2011
total
10.869.46 9.877.194 6.071.07 51.606.632
1.005.934
813.264 305.004 6.506.434
2.101.132
308.000 297.250 3.109.062
134.100
134.100
437.961 1.409.398
72.260
75.000
86.250 2.080.869
19.085.483€ 11.569.694 14.182.889 11.073.458 6.759.573 63.437.097
It is very interesting to compare the dynamics of real participation of Russia
and most active countries in S&T (under Eastern partnership).
We have taken participation in FP6 (5 years) and the Àrst 5 years of FP7 for
Russia, Ukraine, Armenia, Moldova, and Belarus. In absolute Àgures Russia
is number one indeed – both FP6 and FP7. But let’s follow the dynamic – only
Russia has a negative one.
Number of supported projects in FP6 (2002-2006) and Àrst 5 years of FP7
(2007-2011)21
Participation in FP6 (2002-2006)
Number of FP6 applications
Number of FP6 supported projects
Success rate (%)
21
Belarus Ukraine Moldova Russia
82
340
64
2378
16
64
12
309
19,5
18,8
18,8
13
Project INCONET EECA, Country Report 2011 “Ukraine”. URL: http://www.increast.
eu/_media/Country_Report_Ukraine_2011.pdf;
Project INCONET EECA, Country Report 2011 “Moldova”. URL: http://www.increast.eu/_
media/Country_Report_Moldova_2011.pdf;
Project INCONET EECA, Country Report 2012 “Armenia”. URL: http://www.increast.eu/_
media/Armenia_Country_Report_EN_January2012.pdf; INCO-NET-EECA project Fourth
annual monitoring report on EECA participation in FP7 (2011); Fifth FP7 monitoring report,
p. 23; E-URAL project report on Russian participation in FP7 (2007-2011). URL: http://www.e-ural.vsu.ru/en/e-ural/activities; FP7 web-site, section “Find a project – Database”. URL:
http://cordis.europa.eu/fp7/projects_en.html; Belarus National Information Point of the 7th
Framework Programme for Research, Technological Development and Demonstration Activities of the European Community. URL: http://fp7-nip.org.by; Project INCONET EECA,
Country Report 2011 “Belarus”. URL: http://www.increast.eu/_media/Belarus_Country_Report_EN_March2012.pdf
32
Participation in FP7 (data for 2007-2011)
Number of FP7 applications
Number of FP7 supported projects
Success rate (%)
Belarus
204
39
19
Ukraine Moldova
1084
120
150
16
13,8
13,3
Russia
2124
291
13,7
These Àgures demonstrate a quite paradoxical situation – when despite great
efforts at institutional level, new mechanisms created under P4M (new EU-Russia dialogues in Science and Innovation) level of Russian real participation in
joint projects is falling in several times.
In the same time – number of projects in Ukraine and Belarus under FP7 has
increased twice.
Quite an ambiguous situation – when despite great efforts at institutional level,
new mechanisms created under P4M (new EU-Russia dialogues in Science
and Innovation) level of Russian real participation in joint projects is falling in
several times.
If we have a look at education area, where is also an evident need for modernization and turn to the implementation of well-known European programme
in Education – Tempus for the latest 4 years (Table 2), we could observe the
same situation.
The number of the projects has been also reduced from 20 projects in 2008 to
15 in 2012, and volume of funding has reduced correspondingly. Besides, in
2008 there were submitted 144 applications of which 20 where supported, in
2012 there were submitted 200 applications and only 15 of them were successful. Total number of proposals from Russian participation is around 200 each
year, so success rate is 7-8%.
Under the Tempus priorities there is a reform of governance structures and
university management. For the last three years there are only 5 projects on
this priority, and during of the realization of P4M Russia, has only one project.
Meanwhile, we observe inverse tendency in Eastern partnership countries as
Ukraine, Armenia, Belarus, and Georgia. Each country has actively improved
its participation in the programme. Armenia, Azerbaijan and Ukraine have
almost doubled the number of the projects, but the most dramatic increase
belongs to Georgia - four times more!
Thus, the Àgures reveal a rather strange picture: being the most experienced
and signiÀcant actor in Tempus, Russia has been surviving a great fall of the
success rate from 14% to 7%. How could it have happened that such a rich
expertise has suddenly disappeared and the place of leader takes newcomer?
33
Participation in TEMPUS (data for 2008-2012)22
Russia
Ukraine
Georgia
Moldova
Armenia
Belarus
Azerbaijan
Number of
Number of
EU Ànancial contribution
applications supported projects
(mln. euro)
787
68
62,4
650
61
57,5
222
29
27,8
203
26
22,7
194
22
19
186
21
21
144
17
16,2
Participation in TEMPUS
Applications
Armenia
32
Azerbaijan
21
Belarus
25
Georgia
37
Moldova
37
Ukraine
95
Russia
144
22
2008
Supported Success Applicaprojects
rate %
tions
4
12,5
52
3
14,3
45
4
16
55
3
8,1
70
9
24,3
62
12
12,6
169
20
13,9
200
2012
Supported Success
projects
rate %
9
17,3
5
11,1
8
14,5
12
17,1
9
14,5
23
13,6
15
7,5
Tempus IV - List of accepted projects and partners involved. Source: Tempus internal
database - December 2012. URL: http://eacea.ec.europa.eu/tempus/results_compendia/documents/2012-list-of-accepted-tempus-iv-projects.xls;
Number of applications submitted by country (Tempus IV - Fifth Call for proposals). URL:
http://eacea.ec.europa.eu/tempus/results_compendia/documents/stats_for_5th_call_for_proposals.pdf; Accepted projects - Tempus IV – 2008. Breakdown of projects by partner country,
region and type of project. URL: http://eacea.ec.europa.eu/tempus/results_compendia/documents/stats_tempus_4_2008_accepted_a.pdf; Accepted projects - Tempus IV – 2009. Breakdown of projects by partner country, region and type of project. URL: http://eacea.ec.europa.
eu/tempus/results_compendia/documents/accepted_a20_07_2010phe.pdf; Accepted projects Tempus IV – 2010. Breakdown of projects by partner country, region and type of project. URL:
http://eacea.ec.europa.eu/tempus/results_compendia/documents/stats_tempus4_2010_a_phe.
pdf; Accepted projects - Tempus IV – 2011. Breakdown of projects by partner country, region and type of project. URL: http://eacea.ec.europa.eu/tempus/results_compendia/documents/20120131_stats_tempus_iv_2011_accepted_a.pdf; Accepted projects - Tempus IV
– 2012. Breakdown of projects by partner country, region and type of project. URL: http://
eacea.ec.europa.eu/tempus/results_compendia/documents/stats-2012-by-partner-country-region-and-type.pdf
34
To this extent, even brief overview of the last results on EU-Russia cooperation in
modernisation of S&T and education shows the real problems and this paragraph
in the progress report “The very good cooperation in the priority area of enhancing cooperation in innovation and research and development in particular the increased active role of Russia in EU Framework Programmes and of EU researchers in Russian Federal Targeted Programmes” seems not really good enough.
Russia is the number one between the Eastern countries in absolute Àgures,
but level of real participation in joint projects (success rate, negative dynamic,
decrease number of the projects in versus previous years) is falling despite
great efforts at institutional level, despite new mechanisms created under P4M.
7. EXPERIENCE OF THE VORONEZH STATE UNIVERSITY (RUSSIA)
Voronezh State University has a-long-time cooperation with European universities, including joint researches, development of new academic courses, exchange
of teachers and students, joint supervision of graduate and post-graduate students.
Since 1995 VSU has been participating in European programs in the Àeld
of education and science - such as TEPMUS, Erasmus Mundus, Framework
Programmes. VSU was one of the Àrst Russian regional universities, which
had been a project coordinator of the EU’s Sixth Framework Programme «RegionERA - Regional network of support for scientiÀc and technological cooperation between the European Union and the Russian regions” (2006-2008).
Nowadays VSU participates in 10 Tempus and FP7 projects in the Àelds of
environment, humanities, information and communication technologies, economic research, development of foreign language teaching, improving the
quality of education, as well as in projects aimed at development of international scientiÀc and academic cooperation.
Participation in European programmes is not only additional funding, but primarily “quality mark” for a University, for its achievements in the Àeld of science and
education as well as a possibility for staff development, prestige and competitiveness of educational programmes, and an access to double degree programmes.
8. CONCLUSION
In our opinion, to develop EU-Russia efforts on forming Common ScientiÀc
Area is optimal. Contemporary state of science, complexity and global challenges that the society faces practically in all spheres, essentially decrease effectiveness of a single country efforts. The fundamental principle of European Research Area is to join efforts of different countries to solve various scientiÀc prob35
lems. EU-Russia S/T cooperation is traditionally less politicized sphere possessing
great potential for developing. The implementation of the 4th Common Space for
Research is the most advanced and the least controversial of the four spaces. In
fact, unlike some other areas of the overall EU-Russia relationship, we have no
outstanding or vexing problems to solve in the area of research cooperation, but
only a positive agenda to move forward. High-quality progress in the S/T sphere
– that means Russia associated participation in FP7 – can become some kind of
engine to develop EU-Russia dialogue in more problematic Àelds of cooperation.
Nowadays, there are no doubts that the European Union and the Russian Federation make revision of their attitude to the science and research area. Both
EU and Russia try to solve problems in this area, aiming primarily at improving the effectiveness of research, at increasing the quality and quantity of research activities, development and introduction of innovative technologies and
practices in the Àeld of education, at improving the level of staff training, and
at expansion of acquired competencies.
To date, within EU-Russia relations, in the light of the current geopolitical
situation, there are a lot of mutual claims and contradictions between two
sides. However, in our opinion, the spheres of science, research and education,
through international cooperation, international projects and programmes, can
become that driver for surmounting differences and developing cooperation,
including the basis for common goals and interests, with the prospect of real
implementation of the pan-European space of education and science.
LITERATURE:
1. André M. The 7th Framework Programme in the history of European research.
RTD info. Special Edition – June 2007.
2. European Commission / Innovation Union Competitiveness report 2011. URL:
http://ec.europa.eu/research/innovation-union/pdf/competitiveness-report/2011/
iuc2011-full-report.pdf#view=Àt&pagemode=none
3. First FP7 Monitoring Report. Research Directorate General, February 2009.
4. Joint Statement of EU-Russia Permanent Partnership Council on Science. URL:
http://www.eu2008.si/en/News_and_Documents/Press_Releases/May/0526EU_
Russia_Research_Joint_Statement.html
5. OECD Factbook 2010: Economic, Environmental and Social Statistics. – 2010. URL:
http://www.oecd-ilibrary.org/economics/oecd-factbook-2010_factbook-2010-en
6. Report agreed by the coordinators of the EU-Russia Partnership for modernization for information to the EU-Russia summit of 21 December 2012.
7. Science, technology and innovation in Europe : Eurostat pocketbooks - 2011.
URL:
http://epp.eurostat.ec.europa.eu/cache/ITY_OFFPUB/KS-31-11-118/EN/
KS-31-11-118-EN.PDF
36
B. Kneževiþ, N. Knego, M. Deliþ: The retail concentration and changes of the grocery retail structure
Review Article
UDC 339.37(4-67EU:497.5)
THE RETAIL CONCENTRATION AND CHANGES
OF THE GROCERY RETAIL STRUCTURE
Blaženka Kneževiþ *
Nikola Knego **
Mia Deliþ ***
ABSTRACT
Concentration is one of several key processes that are taking place in retail markets
of the European countries. Retail concentration process occurs in all EU countries
and it’s manifested with the decreasing number of leading retailers with simultaneous
increase in their market share. Undergoing process of retail market concentration is
bringing new challenges to all market participants: suppliers, existing retailers and
customers. In this paper we will discuss concentration in retail industry, particularly
in grocery retailing. The reached level of the grocery retail market concentration
will be explained on European and national level in Croatia. In addition, we will
address the impact of concentration process on some other trends and its inÁuence
on the retail market structure.
KEYWORDS: concentration, retail, concentration level, Europe, Croatia
*
Professor at Faculty of Economics and Business University of Zagreb; bknezevic@efzg.hr.
**
Professor at Faculty of Economics and Business University of Zagreb; nknego@efzg.hr.
***
Teaching and Research Assistant at Faculty of Economics and Business University of Zagreb; mselic@efzg.hr.
37
1. INTRODUCTION
Concentration is one of the phenomena that characterized the economic progress of number of countries, starting with the nineteenth century. Its affect on
modern economic progress has intensiÀed particularly over the last decades,
inÁuenced by scientiÀc-technological progress.
Leading companies in the retail trade grow above average1, especially among
the new EU member states2 and market concentration is observed as a one of
key concepts and trends that marked the European retail industry in the past
two decades.
By deÀnition, concentration should lead to achieving greater efÀciency, competitiveness and proÀtability. Moreover, we can remember that Schumpeter3
argued that, due to the increased concentration of capital, large companies
have the necessary force for new product development, process innovation and
investment in new services, so they are really drivers of economic development. But, on the other hand, as the practice shows, market concentration can
have detrimental impact on the economy as a whole.
Critics of the process of market concentration generally warn of possible negative consequences of the process. They warn that the power of one or several
large players will expand, until the stronger force does not stop it. Critics will
call attention to the excessive accumulation of resources as a result of a market
concentration, preventing the functioning of free markets, which can ultimately result in uneven distribution of wealth and poverty in the global market. As
the market situation after concentration is more akin to a monopolistic situation, critics warn, that total cost of concentrated markets will ultimately be
paid by consumers and suppliers. In Table 1 potential effects of concentration
in retail are systematized according to contemporary literature in the Àeld of
retailing management.
1
Dawson, J., Retail Trends in Europe, in Kraft, M. and Mantrala, M. K. (eds). Retailing in
the 21st Century, Springer, Berlin, 2006, pp. 41-58.
2
Knezevic, B., Renko, S., Knego, N., Changes in Retail industry in EU, Business, Management and Education, 9 (1) 2011, pp. 34-49.
3
81.
38
Schumpeter, J. A. (1942), Capitalism, Socialism and Democracy, Harper, New York, pp.
Table 1: Potential effects of retail concentration
Positive effects of retail concentration
• increased the competitiveness of parties
• growth in productivity per employee in
dominant companies
• growth in productivity per square meter of
retail space
• increased opportunity to invest in new
commercial models and forms of sales
(large retailers can implement sophisticated ECR projects and implement ICT in
cooperation with suppliers),
• increased possibility of expanding the
product range and positive effect on quality
of life of consumers in the relevant market
• increased power of process innovation,
staff development and additional services
to customers
• greater ability to enter foreign markets in
the region
• increased potential to boost the growth of
national economy through partnerships
with suppliers to the domestic market (i.e.
domestic producers).
Negative effects of retail concentration
• strong bargaining power of dominant companies because large retailers determine the basic requirements in relation to suppliers (price
and contractual conditions)
• wealth is accumulated in a limited
number of companies and it reduces
the level of competition in the relevant market, thus, the market becomes closed for new entrants
• dominant company can have stable
long cycles, when investments are
needed, but can lead to obsolescence of technology and processes,
and falling levels of customer service
• the end consumers pay higher prices
for the same quality of products or
services because the choice in the
market is reduced.
Source: compiled Àndings available at Battezzati & Magnani, 2000; Marjanen, 2000; Hollingsworth, 2004; Evans 2005; Dawson 2006; Haines 2007; Amato and Amato 2009; Knezevic et
al, 2011; Knezevic and Jagic, 2012
In this paper we will explore concentration level in grocery retail in Europe,
and then in Croatia. Afterwards, based on secondary research, we will explain
how retail concentration drives other changes in economy and give some data
on change in retail structure in grocery retailing.
2. CONCENTRATION LEVEL IN GROCERY RETAIL IN EUROPE
There are two basic ways of acquiring a leading market position, namely
through4: (1) rapid organic growth of one or several companies in the market,
and (2) concentrations throughout: mergers and acquisitions.
4
Segetlija, Z., Knego, N., Knezevic, B., Dunkovic, D., Ekonomika trgovine, Novi informator, Zagreb (in Croatian), pp. 441.
39
The rapid organic growth is a purely economic and business concept, without
the involvement of the state in the terms of regulation of concentrations5. On
the other hand, concentrations via mergers and acquisition are regulated by the
state in order to avoid substantial lessening of competition at a certain market.
Legal framework in this Àeld and regulatory and enforcement bodies are set
up in order to clear or prohibit certain concentrations according to competition
law rules.
Market concentration is measured by different ratios, which indicate whether
an industry is comprised of a few large Àrms or many small Àrms6. Studies
and analysis, carried out within EU member states, examine the concentration
level of retail industry or of some of its segments based on CRn ratio. CR
means concentration ratio, and index n is determining a degree of the market
controlled by n leading companies. For instance CR5 shows the percentage
of the market controlled by Àve leading companies. In some studies, the fourÀrm concentration ratio (CR4) is used, as well, it consists of the market share
(expressed as a percentage) of the four largest Àrms in an industry7.
Another indicator which is used in order to evaluate the level of market concentration is the HerÀndahl index (HHI), it is based on large Àrms market
shares and has a fair amount of correlation to the concentration ratio (CR). It
is calculated as a sum of squared market shares of each Àrm competing in the
relevant market. But for the purpose of this paper we will use only CRn ratios.
In Table 2 concentration ratios are calculated on the basis of top 4, 5 and 10
leading grocery retailers’ market shares in the EU grocery retail market. As it
can be seen, all calculated ratios on EU level grew from 2000 to 2011 meaning that even at EU average level the concentration of grocery retail is one of
the obvious ongoing economic trends because the growth of ratios means that
large retailers are taking larger part of grocery retail market each year.
5
Knezevic, B., Jagic, T., Market Concentration and Concentrations in Retail, at Kaynak, E.,
Harcar, T. H. (eds.), Global Competitiveness in a Time of Economic Uncertainity and Social
Change: Current Issues and Future Expectations, Advances in Global Management Development, Vol. 21, Haaga Helia, University of Applied Sciences, 2012, pp. 197-204.
6
Knego, N.; Knezevic, B. Internationalization in the Function of Retail Trade Concentration in the Croatia, in Kandzija, V.; Kumar, A. (eds.), Economic Integration, Growth Prospects
and Enlargement / Intégrations économiques, perspectives de croissance et élargissement, University of Rijeka, Faculty of Economics, Rijeka, 2010, pp. 378-392.
7
for instance see Clarke, R., Davies, S., Dobson, P. and Waterson, M., Buyer Power and
Competition in European Food Retailing, Edward Elgar Publishing Limited, Chellenham,
2002.
40
Table 2: Top European grocery retailers and overall EU concentration ratios
2000
Company
% EU grocery
retail market share
Carrefour
5,2
Intrermarche
3,2
Rewe Group
2,6
Tesco
2,7
Edeka
2,5
Aldi
2,5
Ahold
1,9
Schwarz Group
1,8
Auchan
1,8
Leclerc
1,8
CR4
13,7
CR5
16,2
CR10
26,0
Company
Schwarz Group
Carrefour
Tesco
Edeka
Aldi
Rewe Group
Auchan
Intermarche
Leclerc
Ahold
CR4
CR5
CR10
2011
% EU grocery
retail market share
4,7
4,5
3,8
3,4
3,1
3,0
2,2
2,1
2,1
1,9
16,4
19,5
30,8
Source: own calculation according to data available in European Commission (2014), pp. 51-52.
In order to make an interpretation of the market structure in retail, Clarke
et al8 suggest criteria shown in Table 3. According to criteria in Table 3 and
data in Table 2, we can conclude that overall EU market was not concentrated in 2011.
But Clarke et al. (2002) suggest that countries in EU differ signiÀcantly according the retail market structure if one apply given criteria. On the basis
of exact data in food retailing in European countries, in Clarke et al,9 argue
that, for instance, in Netherlands. Sweden, Denmark, Belgium and Luxemburg
there is situation of the dominant Àrm, in Austria and UK there is duopoly,
while in Finland and Italy there is triopoly. Also, in given study, Germany
and France are classiÀed as markets with symmetric oligopoly in food retail
industry.
8
Clarke, R., Davies, S., Dobson, P. and Waterson, M., Buyer Power and Competition in
European Food Retailing, Edward Elgar Publishing Limited, Chellenham, 2002.
9
Ibid.
41
Table 3: Criteria to interpret the market structure
Type of the market
structure
Dominant Àrm
Duopoly
Triopoly
Symetric oligopoly
Unconcentrated
Criteria
MS1 > 20% and MS1 > 1,5*MS2
MS1<20% and MS 1> MS2 > 12,5% and MS2 >1,5*MS3
MS1>MS2>MS3 and MS3 > 10% and MS3 >1,5*MS4
CR5 > 33%; no Àrm in Top 5 has MS>8%
No Àrm has MS > 10%; CR5 < 33%
Source: adapted according Clarke et al., 2002,, p. 79; Note: MS – market share, MS1 – market
share of the Àrst company at given market ranked according to market shares; MS2 - market
share of the second company at given market ranked according to market shares; MS3 - market
share of the third company at given market ranked according to market shares; MS4 - market
share of the fourth company at given market ranked according to market shares
According to Bukeviciute et al.10 the EU food retail sector nowadays is characterized by a high degree of concentration because in a large number of member
states Àve largest retailer chains account for over 50% of the food market (see
Figure 1). It can be observed that concentration levels are higher in the socalled “old member states” and in northern EU countries.
According to European Comission11, this trend continues in majority of EU
countries where, for instance, concentration ratio grew signiÀcantly in 15
member states in period 2000 to 2011 (see Table 4). In given period (20002011), only in Austria, CR5 decreased. Furthermore, if we compare data at
Figure 1 for year 2007 and data for 2011 given in Table 4, we can conclude
that 9 countries had a signiÀcant growth of CR5 in period 2007-2011 and those
are: Bulgaria, Portugal, UK, Belgium, Czech Republic, Slovakia, Denmark,
Estonia and Austria. Unfortunately, data for comparison in some new member
states for this period is not available in given sources (those are Slovenia, Latvia and Croatia).
10
Bukeviciute, L., A. Dierx and F. Ilkovitz, The functioning of the food supply chain and its
effect on food prices in the European Union, European Economy, Occasional Papers No. 47.
European Commission, 2009.
11
<http://ec.europa.eu/competition/publications/KD0214955ENN.pdf>, last accessed on:
05/12/2014
42
Figure 1: CR5 in grocery retail in EU
Source: Bukeviciute et al., 2012, p. 22.
Table 4: Change of concentration ratios in EU countries
Country
Poland
Latvia
Romania
Bulgaria
Greece
Spain
Slovenia
Portugal
Ireland
UK
Belgium
Czech Republic
Slovakia
Denmark
Estonia
Austria
CR5 is in range
for 2000 (%)
<20
<20
<20
<20
<20
20-40
20-40
40-60
40-60
40-61
40-60
40-60
40-61
60-80
60-80
>80
CR5 is range
for 2011 (%)
20-40
20-40
20-40
20-40
20-40
40-60
40-60
60-80
60-80
60-80
60-80
60-80
60-80
>80
>80
60-80
Source: European Commission (2014), pp. 50; Note: data for Croatia are not available in this
source.
43
3. CONCENTRATION LEVEL IN GROCERY RETAIL IN CROATIA
The process of market concentration in the retail trade in Croatia is actually mapped
to a process that was going back twenty years in the developed Western economies12.
If we analyze market shares of the leading food retailers in Croatia, given by Croatian Chamber of Commerce13, we will see that CR5 grew from 22,7% in 2001
to 47,0%, but the main part of the market share holds the largest retailer (around
21,5% in 2006). Moreover, process of further concentration is accelerating in grocery market. In Table 5 we can see that almost 80% of grocery market is held by
10 largest companies while CR5 is near 60% and CR4 is over 50%. The leading
company at the market held 28,8% of the market while 3 following companies had
a sum of 25,1%. According to criteria14, given data bring us to conclusion that we in
Croatia, in grocery retail market, are dealing with the situation of dominant Àrm.
Table 5: Grocery market shares of leading grocery chains and concentration ratios in Croatia from 2006 to 2013
Company
Konzum
KauÁand
Lidl
Plodine
Billa
dm-Drogerie Markt
Mercator
Spar
Tommy
KTC
Dinova-Diona
CR4
CR5
CR10
2006
21,5
6
0,2
3,9
7,7
2,3
4,1
0,4
2,4
4,5
1,6
39,7
43,8
54,6
2009
25,8
7,7
5,3
5,4
5,2
3,9
4,9
1,8
2
2,9
2,4
44,2
49,4
67,3
2011
27,8
8,9
7,6
7
4,7
4,5
5,7
3,6
2,2
2,5
2,7
51,3
57,0
77,2
2013
28,8
9,4
8,3
7,4
4,6
4,4
4,3
3,7
3,2
2,2
2
53,9
58,5
78,3
Source: own calculation according to data in CCE (2010) and GfK (2014)
12
13
<http://www2.hgk.hr/en/depts/trade/distributivna_trgovina_2008_web.pdf>,
cessed on: 22/06/2011
14
last
ac-
given by Clarke, R., Davies, S., Dobson, P. and Waterson, M., Buyer Power and Competition in European Food Retailing, Edward Elgar Publishing Limited, Chellenham, 2002.
44
Anic et al 15 are discussing the problem of a relevant market which when market share and the level of concentration is evaluated. They suggest various
approaches to the problem of the relevant market. One approach is to calculate
the market share according to retail formats and they simulate how different
market shares are in 2009 if relevant market consists only of supermarkets
and hypermarkets in comparison to total grocery market including all retail
formats (see Table 6). According to data in Table 6 we can conclude that in
the Àeld of large retailing formats the concentration level is higher comparing to total grocery retail and the situation of a dominant Àrm is even more
emphasized (the leading company yet in 2009 held 47,4% of grocery retail in
supermarkets and hypermarkets).
Table 6: Market shares in grocery retail – emphasizing the problem of relevant
market according to the retail format in Croatia in 2009
Company
Konzum
Mercator
Plodine
KauÁand
Lidl
CR4
CR5
Relevant market 1 Relevant market 2 Relevant market 3
47,4
38,6
22,3
11,9
9,7
5,6
13,1
10,6
6,1
11,4
9,3
5,3
9,3
7,6
4,4
83,8
68,2
39,3
93,1
75,8
43,7
Note: Relevant market 1 – supermarkets and hipermarkets; Relevant market 2 – supermarkets
and hypermarkets and discounts; Relevant market 3 – all retail formats (including small shops).
Source: Anic et al.: Mjerodavno tržište i tržišni udjeli u trgovini na malo u Hrvatskoj i EU,
Ekonomski institut Zagreb, 2012, pp. 18.
4. PROCESSES DRIVEN OR INFLUENCED BY RETAIL
CONCENTRATION
For developed markets Alexander16 noted several processes which are directly
connected with retail concentration, those are: (a) less growth, more segmentation; (b) fewer national operators, more international operators; (c) fewer shops,
more sales area; (d) less stock, more customer service; (e) fewer independent
retailers, more afÀliations and (f) lower turnover per square meter, greater
15
Anic et al.: Mjerodavno tržište i tržišni udjeli u trgovini na malo u Hrvatskoj i EU, Ekonomski institut Zagreb, 2012.
16
Alexander, N., Internationalisation: interpreting the motives, in: Group of authors: International Retailing-Trends and Strategies, Pitman Publishing, London, 1995.
45
margin differentials. Moreover, all mentioned processes are documented in
various research studies in different markets where retail concentration is taking a place, thereby conÀrming that the undergoing changes at the Croatian
retail market are not speciÀc, but rather which it is something that competitive
markets come across either sooner or later, with either lesser greater intensity. Accordingly, the Croatian market is no exception. In comparison to some
other markets, it can be differentiated only by the extent of the phenomena
mentioned and by their intensity.
Moreover, Knezevic et al17 explained in detail following trends in European
retailing:
(1) polarization of company structure in retail industry
(2) growth of importance of retailing in employment and GDP
(3) growth of the average size of retail company
(4) growth of the retail productivity measured by turnover per employee.
Polarization of company structure in retail industry is meaning that in retail
market SMEs are losing the battle and only micro and large companies split
the retail market in terms of total registered or total active companies. In total
number of registered companies in retail market in 2009 there was 42% percent of micro and 35% of large companies. But, Knego and Knezevic18 further
explained the problems that micro and small companies are facing in the concentrated retail market and concluded that only large retailers can maintain
proÀtability rates in such circumstances. Nonetheless, we have to emphasize
that the market share of micro companies is extremely small measuring by
generated turnover. As mentioned earlier, in Croatia nowadays almost 80% of
grocery market in this sense is owned by ten largest retailers. Even at overall
European level, large companies are controlling more and more market if we
measure with generated turnover.
Growth of importance of retailing in employment and GDP is taking a place
particularly in transitional and Southeastern European countries which, traditionally, have lower levels of GDP per capita, i.e. less developed manufacturing
industry. Moreover, this trend can be correlated with the trend of retail internationalization taking place in those countries in last two decades. Knego and
17
18
Knego, N., Knezevic, B, The Position of Small Retailers in Croatia on the Verge of Entereing the EU in Kandzija, V.; Kumar, A. (eds.), Economic Integration, Growth Prospects and Enlargement / Intégrations économiques, perspectives de croissance et élargissement, University
of Rijeka, Faculty of Economics, Rijeka, 2012, pp. 502-516.
46
Knezevic19 give an overview how process of internationalization is accelerating the process of retail concentration.
In majority of EU members, the average size of retail company20 is growing
meaning that larger retail formats are taking the market from the smaller ones.
This trend will be elaborated in next chapter.
Knezevic et al21 (2011) claim that in all European countries there is growth of
retail productivity in terms of turnover per employee and that the largest productivity rates were achieved in transitional countries which had the highest
increase concentration processes. This brings us back to the Scumpeter’s claim
that large companies, due to the increased concentration of capital, have the
necessary force to invest and improve productivity even more.
4.1. CHANGES IN GROCERY RETAIL STRUCTURE
The grocery retail structure is usually described throughout retail formats
which are present at given market. Retail formats, ranging from the smallest
to the biggest sales area, can be differentiated as following: convenience store
(smallest), supermarkets, hypermarkets, super-centers (super-stores) and shopping malls.
Convenience stores are stores with less than 400 square meters they are mostly located in neighborhoods. Supermarkets have sales area between 400 and
2500 square meters. Modern stores which sizes exceed 2500 square meters are
classiÀed as hypermarkets. Moreover, we have to distinct one more type that
is covered in recent publications and those are discounters which of size like
supermarkets and hypermarkets, but have a narrower assortment comprised of
1000 to 5000 stock-keeping units (SKUs), which is signiÀcantly lower compared to supermarkets which have 5000 to 10000 SKUs and hypermarkets
with more than 10000 SKUs.
19
20
see Knezevic, B., Jagic, T., Market Concentration and Concentrations in Retail, at Kaynak, E., Harcar, T. H. (eds.), Global Competitiveness in a Time of Economic Uncertainity
and Social Change: Current Issues and Future Expectations, Advances in Global Management
Development, Vol. 21, Haaga Helia, University of Applied Sciences, 2012, pp. 197-204.
21
47
One of the most obvious outcomes or following trends of retail concentration
is the growth of retail sales area. And this is proven in practice by data presented in Figure 2. Both indicators, change in the number of outlets and sales
area in square meters by retail format between 2000 and 2011 brings us to the
conclusion that large retail format are taking over grocery retail at European
level and that retail structure is changing towards domination of large formats.
The predictions are that this trend will continue in following period, especially
in transition economies.
Figure 2: Change in large retail formats in Europe 2000-2011
Source: own presentation according data in European Commission (2014)
Croatian market is not exception to this trend, either. According to CCE (2010)
and CCA (2012) we can observe the rising market share of large formats such
as hypermarkets, while the market share of small shops, i.e. convenience store
is rapidly shrinking (see Table 7).
Table 7: Market shares (%) according to retail format in grocery retail
Company
Hypermarkets
2001
6
2006
16,5
2009
21
2012*
24
Supermarkets
Small shops
Discounts
29
53
-
32
37
-
28
34,6
5
44
22
n/a
Source: CCE (2010); * for 2012 data are compiled from the report of CCA (2012)
48
5. CONCLUSION
Retail concentration in grocery retailing is one of the obvious trends present
in European economy with different intensity and scope among EU member
states. Concentration level indicator was determined on the basis of the market
share of the Àrst four, Àve and ten companies controlling the grocery retail
market.
Concentration as a process has been present in the Croatian grocery retail as
well. The importance of the Àrst four, Àve or ten large retailers is continuously
increasing and the structural characteristic of Croatian retail market is a structure with a dominant Àrm.
Concentration as a process is inÁuencing structural changes in given market.
For instance, the retail market structure is shifting from small shops towards
formats with large sales area. As it can be seen, both on overall European and
analyzed Croatian market, hypermarket as a retail format is growing rapidly
faster in its importance comparing with other retail formats.
As shown in this paper, the economic consequences of the retail concentration
are numerous in the relevant market (in this case grocery retailing), but also
in the overall national economy. Even though, there are numerous positive
impacts of concentration process, the process has to be monitored, regulated
and controlled in order to prevent negative consequences pointed out by critics.
Therefore, the legal and institutional framework in the Àeld of competition
must be well developed and effectively implemented.
In addition, given that the process of retail concentration affects smaller business entities, i.e. smaller retailers, it would be necessary to establish the institutional framework and adopt a series of economic policies and measures to
ensure their survival and to improve their competitiveness in a respectively
concentrated market.
LITERATURE:
1. Alexander, N., Internationalisation: interpreting the motives, in: Group of authors:
International Retailing-Trends and Strategies, Pitman Publishing, London, 1995.
2. Amato, L. H., Amato, C. H., Changing retail power and performance in distribution channels, International Journal of Retail & Distribution Management, 37, (12)
2009, pp. 1057-1076.
3. Anic et al., Mjerodavno tržište i tržišni udjeli u trgovini na malo u Hrvatskoj i EU,
Ekonomski institut Zagreb (in Croatian), 2012.
49
4. Battezzati, L, Magnani, R., Supply chains for FMCG and industrial products in Italy: Practices and the advantages of postponement, International Journal of Physical Distribution & Logistics Management, 30, (5) 2000, pp. 413 – 424.
5. Bukeviciute, L., A. Dierx and F. Ilkovitz, The functioning of the food supply chain
and its effect on food prices in the European Union, European Economy, Occasional Papers No. 47. European Commission, 2009.
6. CCA, Prikaz tržišta trgovine na malo mješovitom robom, pretežno hranom, piþima I higijenskim proizvodima za domaþinstvo u Republici Hrvatskoj u 2012.,
Agencija za zaštitu tržišnog natjecanja – Croatian Competition Agency (in Croatian), 2012.
7. CCE, Distributive trade, Croatian Chamber of Economy, 2008 available at:
<http://www2.hgk.hr/en/depts/trade/distributivna_trgovina_2008_web.pdf>, last
accessed on: 22/06/2011.
8. CCE, Distributive trade, Croatian Chamber of Economy, 2010 available at:
<http://www2.hgk.hr/en/depts/trade/distributivna_trgovina_2010_web.pdf>, last
accessed: on 25/06/2011.
9. Clarke, R., Davies, S., Dobson, P. and Waterson, M., Buyer Power and Competition in European Food Retailing, Edward Elgar Publishing Limited, Chellenham,
2002.
10. Dawson, J., Retail Trends in Europe, in Kraft, M. and Mantrala, M. K. (eds). Retailing in the 21st Century, Springer, Berlin, 2006, pp. 41-58.
11. European Commission, The Economic impact of modern retail on choice and innovaion in the EU food sector, 2014 available at: <http://ec.europa.eu/competition/
publications/KD0214955ENN.pdf>, last accessed on: 05/12/2014
12. Evans, J. R., Are the largest public retailers top Ànancial performers? A longitudinal analysis, International Journal of Retail & Distribution Management, 33, (11)
2005, pp. 842-857.
13. Gfk, Consumer trends in CEE countries, presentations at 5th and 6th Grow East
Congress 2013 and 2014, 2014, available at: <http://www.neusicht.at/>, last accessed on: 20/09/2014
14. Haines, D.C., Manufacturer and retailer power in retailer response to trade discounts, Academy of Marketing Studies Journal, 11 (2), 2007, pp. 1-18.
15. Hollingsworth, A., Increasing retail concentration: Evidence from the UK food
retail sector, British Food Journal, 106 , (8), 2004, pp. 629 – 638.
16. Knego, N.; Knezevic, B., Internationalization in the Function of Retail Trade Concentration in the Croatia, in Kandzija, V.; Kumar, A. (eds.), Economic Integration,
Growth Prospects and Enlargement / Intégrations économiques, perspectives de
croissance et élargissement, University of Rijeka, Faculty of Economics, Rijeka,
2010, pp. 378-392.
50
17. Knego, N., Knezevic, B., The Position of Small Retailers in Croatia on the Verge
of Entereing the EU in Kandzija, V.; Kumar, A. (eds.), Economic Integration,
Growth Prospects and Enlargement / Intégrations économiques, perspectives de
croissance et élargissement, University of Rijeka, Faculty of Economics, Rijeka,
2012, pp. 502-516.
18. Knezevic, B., Jagic, T., Market Concentration and Concentrations in Retail, at
Kaynak, E., Harcar, T. H. (eds.), Global Competitiveness in a Time of Economic Uncertainity and Social Change: Current Issues and Future Expectations, Advances in Global Management Development, Vol. 21, Haaga Helia, University of
Applied Sciences, 2012, pp. 197-204
19. Knezevic, B., Renko, S., Knego, N., Changes in Retail industry in EU, Business,
Management and Education, 9 (1) 2011, pp. 34-49.
20. Marjanen, H., Retailing in rural Finland and the challenge of nearby cities, International Journal of Retail & Distribution Management, 28, (4) 2000, pp. 194
– 206.
21. Schumpeter,J. A., Capitalism, Socialism and Democracy, Harper, New York,
1942.
22. Segetlija, Z., Knego, N., Knezevic, B., Dunkovic, D., Ekonomika trgovine, Novi
informator, Zagreb (in Croatian), 2011.
51
D. Vuletiþ: Direct horizontal effect of the free movement of goods and reshaping of the European Economic Constitution...
Review Article
UDC 339.5:341](4-67EU)
DIRECT HORIZONTAL EFFECT OF THE FREE
MOVEMENT OF GOODS AND RESHAPING OF THE
EUROPEAN ECONOMIC CONSTITUTION.
BACK TO THE FUTURE?
Dominik Vuletiþ *
ABSTRACT
The Court of Justice of EU has established very early in its history direct vertical
effect of Treaty provisions on free movement of goods. However, direct horizontal
effect of the same rules has never been recognized. This paper furthers a following
thesis: hypothetical future recognition of direct horizontal effect of the Article 34
and 35 TFEU (prohibition of quantitative restrictions on imports and exports and all
measures having equivalent effect) would reshape European Economic Constitution
and provide basis for more ordoliberal reading of the Treaty. Viewing market freedoms as fundamental constitutional rights on which individuals can rely in private
relations is logical consequence of such interpretation. This paper looks to the case
law development, like the recent judgement in the Fra.bo case, to detect possible
shifts from established jurisprudence in non recognizing horizontal direct effect of
the free movement of goods rules.
KEYWORDS: direct horizontal effect, free movement of goods, European Economic
Constitution, EU Internal Market Law, ordoliberalism, social market economy, judicial activism.
*
Teaching and Research Assistant at Faculty of Economics and Business University of Zagreb; dvuletic@efzg.hr.
53
1. PROBLEM
The direct vertical effect of Treaty provisions on free movement of goods has
been established by activist interpretation by the Court of Justice of the European Union (CJEU) very early in the history of EU Law. Famous judgement
in the landmark 1963 Van Gend en Loos1 case introduced the principle of
direct effect. This judge-made principle forms essential, almost sacrosanct,
element of genesis narrative in every conventional introductory EU Law course. Although Treaty provisions on free movement of goods encompass prohibition of customs duties on imports/exports (including charges having equivalent effect)2 between Member States and prohibition of tax discrimination3
main regulatory impetus in market-building process was, so far at least4, to
be found in the Àeld of quotas. More formally put, it was based in prohibition
of quantitative restrictions on imports and exports and all measures having
equivalent effect contained in Articles 345 and 356 of the TFEU. In the words
of W.P.J.Wils aforementioned prohibition became the tool for policing the borderline between legitimate and illegitimate national regulation7. While vertical direct effect of Articles 34 and 35 became non-contentiously established
doctrine and one of the corner-stones of the EU Law, direct horizontal effect
of this same rules has never been recognized. Why?
Most simplistic and obvious answer is that Court wanted to limit the regulatory scope of these provisions. Transversal of rights to individuals, natural
and legal persons, was intended via principle of direct effect only to protect
them from Member States interventions in the internal market (exclusively in
situations with actual or potential cross border effect)8. In the words of Norbert
1
Case 26/62 NV Algemene Transporten Expeditie Onderneming van Gend en Loos v Nederlandse Administratis der Belastingen, EU:C:1963:1
2
Article 30 TFEU
3
Article 110 TFEU
Recently the Court of Justice of the EU in the Àeld of free movement of goods experienced
inÁux off tax discrimination cases.
4
5
Article 34 of the TFEU (Quantitative restrictions on imports and all measures having
equivalent effect shall be prohibited between Member States).
6
Article 35 of the TFEU (Quantitative restrictions on exports, and all measures having
equivalent effect, shall be prohibited between Member States).
7
Wils, W.P.J., The Search for the Rule in Article 30 EEC: Much Ado About Nothing?,European Law Review 18,1993, p 478.
8
Problem of absence of direct horizontal effect in Treaty provisions on free movement of
goods is of such magnitude that the Court of Justice extend obligation of harmonious interpretation (or indirect effect), Àrst developed in the case law on the effect of Directives (Von
Colson and Kamman – Marleasing - Kolpinghuis Nijmegen-Pupino line of jurisprudence), to
54
Reich EU Law is not a panacea against every state regulation which restricts
competition9. Thus free movement of goods is not designed to be a source
of independent constitutional fundamental right, something like an economic
due process clause, but only a freedom from the Member State intervention.
Following that interpretation distinction between vertical and horizontal direct effect of Articles 34 and 35 becomes demarcation between constitutional
fundamental right on one side and a freedom from the State intervention (in
cross-border situations) on the other side. It is not very hard to conclude from
such reading that hypothetical change in the recognition of horizontal direct
effect of free movement of goods would signal shift in the EU Law and nature
of integration process in general.
2. MODELS OF EUROPEAN ECONOMIC CONSTITUTION: NEW
HORIZONS
Former Advocate General Maduro in his reward wining research10 on the
application of Article 34 of the Treaty (at that time Article 30), develops different models of European Economic Constitution: judicial, centralised, competitive and decentralised model. Constitutional models are results of different
intrinsic tensions in the process of market integration. Basic idea behind this
approach establishes a correlation between application of rules on free movement of goods and building of the European Economic Constitution. Maduro
borrows from theory of comparative institutional analysis developed by US
scholar Neil Komesar11. Answer to the question of content of the European
Economic Constitution can be found somewhere in dichotomy between broader economic liberalism and pure anti-protectionism. Maduro develops this
dichotomy on the framework of discrimination tests, typological tests and balancing (cost/beneÀt) tests for the application of Article 34. The Economic
Article 34 TFEU. In Spanish strawberries and Schmidberger cases France and Austria were
held liable for not taking adequate steps to remove barriers to free movement of goods generated by private entities (protestors blocking the road trafÀc). See case C-265/95 Commission v
France , EU:C:1997:595 and case C-112/00 Schmidberger, EU:C:2003:333
9
Reich, N, Review article: Europe’s economic constitution, or: a new look at Keck, Oxford
Journal Of Legal Studies, 19(2), 1999, p 343.
10
Maduro, L.M.P., We the Court - The European Court of Justice and the European Economic Constitution, Oxford Hart Publishing, 1998
11
Komesar, Neil K., In Search of a General Approach to Legal Analysis: A Comparative
Institutional Alternative, Michigan Law Review, Vol. 79, 1350, 1981 and Komesar, Neil K.,
Imperfect Alternatives: Choosing Institutions in Law, Economics, and Public Policy, University of Chicago Press, 1994
55
Constitution has three building elements: EU, Member States and individuals
(perceived as market citizens).
Judicial model basically interprets approach taken by the European Court of
Justice within framework of majoritarian activism. Majoritanian activism in
the sense that Court of Justice , when acting as a market regulator, balances
between various confronting interests and seeks a majoritanian interests against minoritarian positions of some states or trades12. This forms ‘reasons
behind reasoning’. Judicial regulation in the application of free movement of
goods is primarily designed against national measures of Member States with
cross-border effect, especially in areas lacking harmonization at EU level. It
is not protection against any public intervention in the market. When majoritanian view is difÀcult to ascertain Court is no longer ready to strike down
national measures13.
Centralised model favours a process of market regulation by the replacement
of national laws with EU legislation: national regulation incompatible with the
aim of integrated market should be replace with harmonised legislation. This
model lies upon two basic assumptions: Àrst, political control over the internal
market is only possible at EU level, secondly, political control over the economic sphere is legitimate14. Centralised model requires setting up institutions at
Union level responsible for harmonising legislation. Competitive model of the
European Economic Constitution has its basis on a fully-Áedged application
of free movement and competition rules15. These are intended to safeguard
the market from public intervention and to promote competition among rules
(regulatory competition) through the mutual recognition. Decentralised model
can be summarised as a system in which States retain regulatory powers but
are, at the same time, required not to discriminate against foreign products or persons in the exercise of those powers16. For consumers decentralised
model offers more choice but competitive model offers more protection. In a
decentralised model main regulatory institutions will be the Member States
themselves.
Maduro links competitive model with ordoliberalism (although he does not
distinguish clearly ordoliberalism and neoliberalism). Ordoliberalism has
its roots in Freiburg school of economic thought founded in 1930’s. It was
was developed by German economists and legal scholars like Walter Eucken,
12
Supra note 9, pp. 339
13
14
Ibid, pp. 111
15
Ibid, pp. 126
16
Ibid, pp. 143
56
Franz Böhm and Hans Grossmann-Doerth. Ordoliberlas shared opposition to
corporatist and oligopolistic economic policy of Nazi Germany which made
them subject to moderate prosecution. Ordoliberal theory holds that the state
must create neutral legal environment for the economy and maintain a high
level of competition (ordungspolitik). Thus, ordoliberalism traditionally puts
strong emphasize on competition rules. Unlike neoliberals orodliberals are not
opposed a priori to the strong role of the State (or public authority). For them
market principles are the source of legitimacy for regulatory intervention. It
is not hard to see how in Maduro’s competitive model market freedoms are
perceived as fundamental rights which guarantee EU citizens opportunity to
pursue economic activity free from interference of public intervention. In the
words of Ernst-Ulrich Petersmann: fundamental freedoms are the sources of
legitimation of market integration, non-discriminatory competition, in that
they increase individual autonomy, equality and responsibility, control abuses of government and maximize economic welfare17.
Maduro denies any real basis for ordoliberal reading of the European Economic Constitution and argues for its open character. This open character of
Economic Constitution emerges from the need to balance between various
conÁicting interests intrinsic to the process of market integration. Open character is presupposed to exist within the framework of general economic liberal
idea and comparative advantage.
Absence of purely and exclusively ordoliberal, or neoliberal for that matter, reading of the Treaty provisions on free movement of goods is a conclusion that
can hardly be rejected. European regulatory market policy can certainly be described as Áoating between heuristic models excellently developed by Maduro.
However, there is a twist that separates Àndings of this paper from Maduro’s
original conclusions. Open character of the European Economic Constitution
requires critical review in light of recent changes to the primary EU law.
Changes in primary EU Law introduced by the entry into legal force of the
Lisbon Treaty on December 1st 2009 are telling somewhat different narrative than fully open nature of European Economic Constitution. Article 3 of
the TEU requires that EU establish its Internal Market as highly competitive
social market economy. Social market economy is a concept of undeniably
German origin (Soziale Marktwirtschaft)18 that evolved from ordoliberalism.
17
Petersmann, E-U, Proposals for a new constitution for the European Union: Building-blocks for a constitutional theory and constitutional law of the EU, 32 Common Market
Law Review, Issue 5, 1995 p. 1154
The term Soziale Marktwirtschaft was probably Àrst used by its main theoretical proponent, economist Alfred Müller-Armack, in his article Wirtschaftslenkung und Marktwirtschaft
18
57
It keeps original ordoliberal emphasize on rule of law and competition rules. It
also interprets market freedoms as fundamental rights but allows for more balancing with wider societal interests. However, this balancing (between market
and wider societal interests) in social market economy should be exercised
by neutral public authority in non-discriminatory and proportional manner.
Sounds familiar? Social market economy became dominate at home in West
Germany and is often accredited for impressive post-war economic recovery
(Wirtschaftswunder). Maduro’s claim that there is no correspondence between
ordoliberal economic constitutional concepts and the constitutional traditions of Member States(...) Nor are such concepts reÁected in the text, or even
the genesis, of the EC Treaty19 in the light of the existence the new aim of the
Treaty - social market economy (and its clear German origin) can therefore be
rejected.
How can the European Economic Constitution be still open in character
when Lisbon Treaty stipulates social market economy as aim of EU Internal
Market? Previous versions of the Treaties lacked any mention of social market economy. Treaty of Nice used the concept of open market economy with
free competition (Art 4 of TEC). Normative shift from open market economy to social market economy in EU primary law is clearly visible when
describing character of the Economic Constitution. This does not represent
radical change in substance of the European Economic Constitution. Social
market economy itself is a heteronymous concept. Such normative change
represents evolution because it merely narrows wide scope of regulatory choices. European Economic Constitution did not become purely ordoliberal
but it became more ordoliberal in comparison to previous normative teleos.
This reading also follows from the principle of sincere cooperation: Member States shall facilitate the achievement of the Union’s tasks and refrain
from any measure which could jeopardise the attainment of the Union’s
objectives (Art 4 TEU). Since entry into legal force of the Lisbon Treaty, let
us conclude, European Economic Constitution became more closed in character. In the future it will be implemented within the broader framework of
social market economy.
(Müller-Armack , A, Wirtschaftslenkung und Marktwirtschaft, Verlag für Wirtschaft und Sozialpolitik Hamburg, 1947, p 88). On possibility that Ludwig W. Erhard coined the term (or that
more person came to used independently) see more in Glossner L, Christian; Gregosz, David
(eds.), 60 years of social market economy- Formation, Development and Perspectives of a
Peacemaking Formula, Konrad-Adenauer-Stiftung e.V , 2010.
19
58
3. DIRECT HORIZONTAL EFFECT OF ARTICLE 34. TFEU: CASE
LAW ANALYSIS
Opposite to what could be derived from the introduction of this paper CJEU case
law on the direct horizontal application of Article 34 is not perfectly clear. Case
law that rejects direct horizontal effect is, naturally, dominant. Case often cited
by legal commentators20 conÀrming absence of horizontal direct effect is Sapod
Audic judgment from 2002. The Court interpreted that a contractual provision
cannot be regarded as a barrier to trade for the purposes of Article 34 since it
was not imposed by a Member State but agreed between individuals21. However,
there are cases that could potentially be seen as challenging traditional conclusion of non-existence of direct horizontal effect. We could classify these cases into
three following categories: early IP (intellectual property) cases, cases applying
direct horizontal effect as supposed legal reality (very rear) and ‘shades of grey’
cases in which horizontal/vertical distinction is blurred by different modes of
delegation of public authority to private entities.
Early IP cases, starting from the 1971 and judgement in Deutsche Grammophon22 case, introduced clear line of jurisprudence by virtue of which exercise
of IP rights by their private holders could be subject of judicial review under
the present Article 34. This line of jurisprudence borrowed from the case law
on competition rules (in the matter of separating competition and IP law) when
differentiating between exercise and existence of IP rights. Meer existence
of IP right was not sufÀcient to evoke horizontal application of Article 34.
However, exercise of these rights by their private holders in situations with
cross-border effect was sufÀcient for a judicial review under the Article 34. In
Terrapin23 and Centrafarm v. American Home Products24 the Court of Justice
developed particular criteria for judicial review of IP rights under Article 34.
Out of the scope of Treaty prohibition contained in Article 34 were measures
(exercise of IP rights) not discriminatory in nature and deprived of intention of
market partition (subjective element). However limited25, this line of jurispru20
See for example: Krenn, C, A Missing Piece in the Horizontal Effect “Jigsaw”: Horizontal
Direct Effect and the Free Movement of Goods, Common Market Law Review, Vol 49, pp 177215, 2012 and Löwisch, S, Die horizontale Direktwirkung der Europäischen Grundfreiheiten,
Nomos, 2009.
21
Case C-159/00 Sapod Audic, EU:C:2002:343, para 74
22
Case 78/70 Deutsche Grammophon, EU:C:1971:59
23
Case 119/75 Terrapin, EU:C:1976:94
24
Case 3/78 Centrafarm v. American Home Products, EU:C:1978:174
25
Aplicabble in speciÀc situations when IP rights of private holders impede free movement
of goods.
59
dence that could potentially be seen as recognizing direct horizontal effect of
Article 34 has been abandoned by the subsequent case law development. By
the end of 1980’s the Court of Justice did not use demarcation between exercise and existence of IP rights anymore. Scope of judicial review in this matter
has been limited only to IP legislation of Member States. Exercise of IP rights
by their private holders could only be scrutinised via compatibility of national
legislation with free movement of goods.
Cases applying direct horizontal effect of Article 34 as supposed legal reality
are very rear occurrence indeed. The ultimate example for this category of cases is 1981 judgment of the Court in the Dansk Supermarked26 case. The case
was about group of private Danish hardware merchants called Imerco. Imerco
commissioned in UK a china service with pictures of Danish royal castles and
group markings on the occasion of their anniversary. The sale of that service
was reserved exclusively to members of Imerco group. However, it was agreed
between them and the British manufacturer that the substandard pieces might
be marketed by the manufacturer in the UK but might not in any circumstances be exported to Denmark (or to other Scandinavian countries). Dansk Supermarked, a company that does not hold any afÀliations with Imerco group,
has been able to obtain through its dealers a number of china services which
marketed in the UK and offer them at prices considerably lower than those
sold by Imerco’s members. Upon a law suit from Imerco group Dansk Supermarked has been found in breach of Danish Marketing Law. Supermarked
claimed that this Danish decision amounts to measure having equivalent effect
to quantitative restriction of imports. The Court of Justice in his judgement
applied principle of mutual recognition27. Obvious problem with this case is
lingering question of direct horizontal effect. Strikingly, the Court very explicitly states:
It must furthermore be remarked that it is impossible in any circumstances for
agreements between individuals to derogate from the mandatory provisions
of the Treaty on the free movement of goods28[!].
When Dansk Supermarked case was decided in the beginning of the eighties
it could seam, especial in the aftermath of the Walrave and Koch29 judgment
(from the Àeld of freedom to provide services), that outright introduction of
26
Case 58/80 Dansk Supermarked A/S v A/S Imerco, EU:C:1981:17
27
Ibid, para 18: importation into a Member State of goods lawfully marketed in another
Member State cannot as such be classiÀed as an improper or unfair commercial practice.
28
29
Ibid, para 17
Case 36/74 B.N.O. Walrave and L.J.N. Koch v Association Union cycliste internationale,
Koninklijke Nederlandsche Wielren Unie et Federación Española Ciclismo, EU:C:1974:140
60
horizontal direct effect of the Treaty provisions on free movement of goods
is eminent. However, this did not happen. The subsequent case-law remained
more or less persistent in the denial of horizontal direct effect. In retrospective
it is quite possible that the Court in the period from the beginning of 1970’s to
the end of 1980’s had been open to the possibility of horizontal direct effect.
Case law analysis certainly point towards that conclusion. Pressure generated
by increasing case-load in the Àeld of free movement of goods after Cassis
de Dijon30 judgment in 1979 combined with impetus for market integration
from the legislative process after the adoption of Single European Act in 1986
closed this openness on the side of the Court. Keck31 judgment which substantially reduced the regulatory scope of Article 34 in 1993 conÀrms this line of
reasoning.
Third categories are ‘shades of grey’ cases in which distinction between horizontal and vertical is blurred by different modes of delegation of public authority to private entities. These cases are probably most interesting from the
standpoint of direct horizontal effect due to the two reasons. Firstly, they are
simply actually and potentially most numerous. Secondly, they potential allow
for wide scope of regulatory choices between outright recognition or denial of
horizontal direct effect of Article 34. The Court of Justice has, in number of
occasions32, demonstrated that it prefers to leave itself a widest possible range
of regulatory choices in case-law development. Therefore “shades of grey”
category would be most suitable area for any hypothetical shift in the question
of direct horizontal effect of Treaty provisions on free movement of goods.
Most recent (and quite popular in legal scholarship33) case that can be classiÀed into ‘shades of grey’ category is the judgment of the Court from 2012 in
Fra.bo34. The case revolves around German private professional non-proÀt
association DVGW. DVGW, among its many activities issues various technical certiÀcates to private undertakings. Fra.bo, Italian manufacturer of copper
30
Case 120/78 Rewe-Zentral AG v Bundesmonopolverwaltung für Branntwein, EU:C:1979:42
31
Joined cases C-267 i 268/91 Criminal proceedings against Bernard Keck and Daniel Mithouard, EU:C:1993:905
32
Most obvious example of such regulatory approach is judge – made Dassonville formula
deÀning what constitutes a measure having equivalent effect (all trading rules enacted by
Member States which are capable of hindering, directly or indirectly, actually or potentially,
intra-Community trade are to be considered as measures having an effect equivalent to quantitative restrictions).
33
Van Harten, H; Towards horizontal direct effect for the free movement of goods? Comment on Fra.bo, European Law Review, 38(5), 2013, 677-694.
34
Case C-171/11 Fra.bo SpA v Deutsche Vereinigung des Gas- und Wasserfaches eV
(DVGW) - Technisch-Wissenschaftlicher Verein, EU:C:2012:453
61
Àttings was denied certiÀcate for its copper Àttings on the grounds it did not
meet the requirements of a new endurance test organised by the DVGW. Fra.
bo brought an action against the DVGW before the Landgericht Köln arguing
that the cancellation and/or the refusal to extend the certiÀcate are contrary to
EU Law. In Fra.bo’s view, the DVGW is bound by the provisions governing the
free movement of goods. As a private-law association, the DVGW considered
that it is not bound by Treaty provisions on free movement of goods and that
only Germany is required to answer for any infringements of EU Law. However, the whole case was determined by the Court upon the fact that German
public procurement legislation gave special status to DVGW certiÀcates. Therefore, the Court interpreted:
...it is clear that a body such as the DVGW, by virtue of its authority to certify
the products, in reality holds the power to regulate the entry into the German
market of products such as the copper Àttings at issue in the main proceedings
Accordingly, the answer to the Àrst question is that Article 28 EC [Article 34
TFEU] must be interpreted as meaning that it applies to standardisation and
certiÀcation activities of a private-law body, where the national legislation
considers the products certiÀed by that body to be compliant with national
law and that has the effect of restricting the marketing of products which are
not certiÀed by that body 35.
Seemingly Fra.bo turned to be just a case of delegation of powers by the Member Sate to a private organisation. However, one interesting circumstance remains: Fra.bo copper Àttings were certiÀed in Italy. The underlying issue of
mutual recognition was not tackled by the judgement. Furthermore, in Fra.bo
the Court of Justice conÀrmed that is willing to scrutinise measures of private
entities according to the criteria of market access (e.g. power to entry into
speciÀc market) under Article 34. Emphasize seems to be more on substantive
power to regulate market and less on delegating acts of public power. Advocate
General Trstenjak in her Opinion suggested the applicability of the principle
of the free movement of goods to a private-law association with de facto rule-making competence36. Such substantive criteria can be viewed as opening
the door for application of Article 34 in situations when private entities are
in reality holding the position of market regulator even without any speciÀc
act of delegation by Member Sate (which was not the case in Fra.bo). Let us
imagine situation where DVGW certiÀcates are not empowered by the national
(public procurement or other) legislation but are generally recognized by the
35
36
Ibid, para 31-32.
Opinion of Advocate General Trstenjak in Case C-171/11, Fra.bo SpA v Deutsche Vereinigung des Gas- und Wasserfaches eV (DVGW) - Technisch-Wissenschaftlicher Verein,
EU:C:2012:453, para 45
62
national business community. Thus, in this hypothetical situation, certiÀcation
activity would also constitute a substantive barrier to entry (or to stay) in the
market. What would the Court decide then? If hypothetical judicial decision in
that situation would remain the same as in the real Fra.bo case it would mean
recognition of horizontal direct effect of Article 34 to, at least, private entities
that engage in standardisation and certiÀcation activities.
4. LEGAL REASONING AND DIRECT HORIZONTAL EFFECT OF
FREE MOVEMENT OF GOODS RULES
There are many proponents of recognition of direct horizontal effect of free
movement of goods rules in legal scholarship. We would not even try to name
or number them all. Instead, this paper will try to summarise main arguments
for direct horizontal effect and then proceed to generating some new ones in
relation with the reshaping of European Economic Constitution and entry into
legal force of the Lisbon Treaty. Before embarking into afÀrmative argumentation we should note that there are also numerous legal arguments against
recognition of direct horizontal effect.
Substantive negative argument is that there is simply no need for it. This view
naturally views freedom of movement of goods as merely freedom from State
intervention and not as a constitutional fundamental freedom with full direct
effect. As we have seen earlier, the Court of Justice is also37 dominantly lining
to such line of reasoning when it comes to free movement of goods rules (which is not the case in other market freedoms). According to this view addressee
of Article 34 and 35 are Member States and not individuals. The wording of
Article 34 and 35 is neutral. Thus, fundamental question behind this dilemma
is really a nature of Economic Constitution embedded in the norm. Obstacles
to free movement of goods can be generated by private entities (statement akin
to common knowledge). Attributing direct effect only to State actions, without
any substantive explanation of reasons for doing so in case law, could be seen
as deprived of substance and formalistic. Especially because the existence of
possibility that private entities generate obstacles to free movement was used
as argumentation for recognizing direct horizontal effect in other market freedoms. Another traditional negative argument is, of course, interference with
competition rules. That argument is, in general, rejected in the case law. In
judgment in joined cases DiP Sp.A38 the Court of Justice cumulative applied
competition rules (on state aid) with Treaty provisions on free movement of
37
Supra 3. Direct horizontal effect of Article 34. TFEU: case law analysis.
38
Joined Cases C-140 & 142/94, DiP Sp.A, EU:C:1995:330
63
goods. Possibility of cumulative application of free movement rules with competition rules has also been accepted in the other market freedom by the case
law development.
First afÀrmative argument is coherence of the EU Internal Market Law. There
can be hardly any doubt about existence of convergence between market freedoms39. In Walrave and Koch judgment Court recognized direct horizontal
effect of Treaty provisions on freedom to provide services and in Angonese40
case it conÀrmed direct horizontal effect of Treaty provision on free movement of workers. Furthermore, some commentators, like Schepel41, believe
that is only a matter of time for Court to establish the horizontal direct effect of Article 63 TFEU (free movement of capital). Naturally, convergence of
market freedoms is not, and shall never be, absolute because of the intrinsic
differences between market freedoms. Goods are not humans et vice versa, to
put it simply. However, according to this line of argumentation, similarities
in regulatory choices made in EU Internal Market Law serve the purpose of
establishing and maintaining Internal Market (that should be exercised, let us
not forget, within the concept of social market economy).
Catherine Barnard developed idea of so called ‘extended vertical direct effect’42. This idea basically points that horizontal direct effect is only to be established when private subjects assert the regulatory powers of the Member State. These powers are not necessarily transferred to them. Private individuals
can also undertake metamorphosis into quasi-state behaviour. Most obvious
examples are processional sport organizations (e.g. FIFA). This is different of
simply delegation powers to private subjects. Schepel in his paper on horizontal application of free movement rules43 rejects idea of ‘extended vertical direct
effect’. Such general explanation, as Scehpel interprets, is denied by the Court
inter alia in the important Viking judgment: it does not follow from the case-law (…) that that interpretation applies only to quasi-public organisations
or to associations exercising a regulatory task and having quasi-legislative
39
Krenn, C, A Missing Piece in the Horizontal Effect “Jigsaw”: Horizontal Direct Effect
and the Free Movement of Goods, Common Market Law Review, Vol 49, p 183 and Maduro,
L.M.P., We the Court - The European Court of Justice and the European Economic Constitution, Oxford Hart Publishing, 1998, pp. 101
40
Case C-281/98 Roman Angonese v Cassa di Risparmio di Bolzano SpA EU:C:2000:296
41
Schepel, H, Constitutionalising the Market,Marketising the Constitution, and to Tell
the Difference: On the Horizontal Application of the Free Movement Provisions in EU Law,
European Law Journal, 18, 2, 2012, 177–200.
42
Barnard, C, The Substantive Law of the EU - the four freedoms, Oxford University Press,
2004, pp. 262
43
64
Supra note 38
powers44. However, possible rejection of this idea in one set of free movement
rules (or in general for that matter) does not necessary means rejection in other
set of rules – free movement of goods in particular. Obviously, then coherence
between market freedoms becomes secondary. Professional sport organizations mainly self-regulate in the Àeld of free movement of workers and services
but professional standardisation private organizations (such as DVGW) mainly regulate in the Àeld of free movement of goods. If one accept ‘shades of
grey’ category of cases as most likely candidates for horizontal direct effect
of Article 34, which is proposed earlier in this paper, than idea of ‘extended
vertical direct effect’ can Àt perfectly into the picture of hypothetical future
recognition.
Second argument is effet utile application of Article 34. Krenn in his paper on
the topic adapts logical four step interpretation original made by Körber45 in
other market freedoms that excellently summarise this line of argumentation:
i. The wording of Article 34 TFEU is neutral, so as to make it in principle
possible to include private parties among its addressees.
ii. The internal market comprises an area without internal frontiers where
the free movement of goods, persons, services and capital is ensured. The
free movement of goods serves the objective of an internal market by ensuring free movement.
iii. Not only States but also private parties can compromise this objective.
iv. From this follows that Article 34 TFEU must apply to the conduct of private actors.46
Krenn (basically) accepts effet utile argumentation and proposes de minimis
threshold for the direct horizontal application of Article 34. Krenn’s de mnimis
threshold represents adoption of market access criteria. Horizontal applicability, according to Krenn’s proposal, would exist in situations when behaviour
of private entities impedes access of product to market (he is citing judgment
in Commission v. Italy47). Interestingly, the same legal reasoning is deployed,
as we have seen, by the Court of Justice in Fra.bo case. Of course, important
addition is that in Fra.bo judgement the Court, apart from deploying market
access criteria, scrutinised behaviour of private entity in relation to delegation
of public powers.
44
Case C-438/05 International Transport Workers’ Federation and Finnish Seamen’s Union
v Viking Line ABP and OÜ Viking Line Eesti EU:C:2007:772, para 64.
45
Körber, T, Grundfreiheiten und Privatrecht, Mohr Siebeck, 2004, pp. 776.
46
Supra note 20, Krenn, pp. 199
47
Case C-110/05, Commission v. Italy, EU:C:2009:66
65
Third argument is the necessity to correlate free movement rules with other
Treaty provisions, mainly general principles and fundamental rights. This has
been done in judicial application of other market freedoms. General prohibition of discrimination on grounds of nationality (now contained in Article 18 TFEU), which is directly horizontally applicable, is the most obvious
link. Striking example of such legal reasoning in the area of free movement
of workers can be found in Angonese and Raccaneli48 judgements. In both
of this cases general prohibition of discrimination on grounds of nationality
served as a building block for establishing direct horizontal effect on Treaty
provisions on free movement of workers (present Article 45 TFEU). General
prohibition of discrimination on grounds of nationality in the free movement
of workers covers indirect discrimination. Thus, analogous application of this
principle with horizontal application of Article 34 would constitute signiÀcant
substantive expansion of regulatory scope. Furthermore, such argumentation
can be used to equalise market freedom with fundamental rights. This was
what Court has done in Bosman49 when free movement of workers has been
interpreted cumulatively as a market freedom and fundamental right from the
aspect of right to a free access to employment. Very ordoliberal indeed. Proposal of Derrick Waytt on direct horizontal application of free movement rules in situations when private entities engage in discriminatory steps outside
normal market behaviour50 is within this line of argumentation, albeit more
moderate in scope. Of course, correlation of free movement of goods rules
with general principles and fundamental rights is ‘a whole different ball game’
in comparison to the pervious afÀrmative arguments. Nevertheless, it can be a
way of attributing horizontal direct effect to Articles 34 and 35. That line of
argumentation, although it may seem tempting, is not derived of risks for regulatory policy. Danger of such correlation for judicial regulatory policy is that it
represents a slippery slope. Once when general principle or fundamental right
is linked with free movement provisions denying full blown direct horizontal
effect becomes very hard task. Therefore, idea of ‘extended vertical effect’ in
‘shades of grey’ category of cases seems as more likely candidate, at least in
the opening phase, for attributing horizontal direct effect to free movement of
goods Treaty provisions.
48
Case C-94/07, Raccanelli, EU:C:2008:425, para 45
49
Case C-415/93, Bosman, EU:C:1995:463, para 129
50
Waytt, D, Horizontal Effect of Fundamental Freedoms and the Right to Equality after
Viking and Mangold, and the Implications for Community Competence, Croatian Yearbook of
European Law & Policy, Vol. 4, 2008 and Oxford Legal Studies Research Paper No. 20/2008.
Waytt considers that purchasing choices, even if discriminatory, should fall out of the scope of
direct horizontal applicability (since they constitute normal market behaviour).
66
5. CONCLUSION
Lisbon Treaty stipulates social market economy as objective of EU Internal
market. Normative shift from open market economy to social market economy
in EU primary law (from Nice to Lisabon) dictates substantive shift in reading
of European Economic Constitution. Normative shift could not happen without majoritanian consensus at EU level. Although there are differences between
original ordoliberalism and concept of social market economy correlation is
undeniable. Thus, normative conclusion is that reading of EU Internal Market
Law is required to become more ordoliberal than before December 1st 2009.
Market integration process still encompasses different intrinsic tensions and
competing heuristic models (excellently described by Maduro). The European
Economic Constitution did not become exclusively ordoliberal but it became
more ordoliberal in comparison to previous normative teleos. We did not see
yet any real changes in market regulatory policy that would follow from this
formal normative shift.
Dilemma of horizontal direct effect of market freedoms is one of the most
suitable areas for manifesting shifts in nature of European Economic Constitution. This is because the rules on free movement are source of constitutional legitimacy. In orodliberalism market principles are the source of
legitimacy for regulatory intervention in market. Viewing market freedoms
of EU Law as fundamental freedoms follows that ordoliberal interpretation.
This is exactly what the European Court of Justice has done in the Àeld of
free movement of workers, freedom to provide services and right of establishment (and failed to do in the Àeld of free movement of goods and capital).
Advocate General Maduro in his Opinion in the Viking case has unwittingly
summarised orodliberal reading of market freedoms in respect to the issue
of horizontal direct effect:
The rules on freedom of movement and the rules on competition achieve this
purpose principally by granting rights to market participants. Essentially,
they protect market participants by empowering them to challenge certain
impediments to the opportunity to compete on equal terms in the common
market. The existence of that opportunity is the crucial element in the pursuit
of allocative efÀciency in the Community as a whole. Without the rules on
freedom of movement and competition, it would be impossible to achieve the
Community’s fundamental aim of having a functioning common market.
(...)
On the contrary, such horizontal effect would follow logically from the Treaty
where it would be necessary in order to enable market participants throug67
hout the Community to have equal opportunities to gain access to any part of
the common market51.
Direct horizontal effect of Treaty provisions on free movement of goods,
mainly of Article 34 TFEU, has been a subject of a much academic debate.
Despite explicit and dominant rejection of direct horizontal effect of Article
34 in the case-law (one of the most recent examples is Sapod Audic judegment) there have been, from time to time, cases that could suggest different
narrative. This paper classify such cases into three categories: early IP cases, cases applying direct horizontal effect as supposed legal reality (Dansk
Supermarked judgement being probably most striking example) and ‘shades
of grey’ cases in which horizontal/vertical distinction is blurred. Case law
evolution in each of these categories can potentially go back and generate
interpretative shifts in the doctrine (enough room to go back to the future).
‘Shades of grey’ category of cases is detected to be a most suitable candidate for the shift in the doctrine of direct horizontal effect of free movement
of goods rules. ‘Shades of grey’ category potential allow for wide scope of
regulatory choices between outright recognition or denial of horizontal direct effect of Article 34. Most recent case from this category is judgment in
Fra.bo that turned to be speciÀc situation of delegation of powers. However,
power of private entity to regulate market was emphasized in the judgement.
Another basis of recognizing direct horizontal effect of free movement rules
could be their correlation with general principles and fundamental rights.
Especially with horizontally applicable general prohibition on grounds of
nationality. However, such method represent a slippery slope because once
when general principle is linked with free movement provisions denying full
blown direct horizontal effect becomes very hard task.
‘Shades of grey’ category of cases encompasses situations when private entities undertake metamorphosis into quasi-state behaviour. Public powers are
not necessarily transferred to them, they simply generate self-regulation. Such
private regulation can of course create obstacles to free movement of goods.
Particularly interesting is private regulation that can impede access of products to markets (as in Fra.bo, with important addition of Member State sanctioning this impediment). Catherine Barnard developed idea of ‘extended vertical
direct effect’. This concept when applied to aforementioned situations (‘shades
of grey’ category deprived of delegating acts) would amount to recognition of
horizontal direct effect of free movement of goods. Such recognition would be
limited in regulatory scope by market access criteria and address only private
51
Opinion of Advocate General Maduro in the Case C-438/05 International Transport
Workers’ Federation and Finnish Seamen’s Union v Viking Line ABP and OÜ Viking Line
Eesti, , EU:C:2007:772, para 33 and 35.
68
entities that engage in self-regulation. This could be a good starting point for
reshaping of European Economic Constitution.
LITERATURE:
1. Barnard, C, The Substantive Law of the EU - the four freedoms, Oxford University Press, 2004.
2. Glossner L, Christian; Gregosz, David (eds.), 60 years of social market economy- Formation, Development and Perspectives of a Peacemaking Formula, Konrad-Adenauer-Stiftung e.V , 2010
3. Komesar, N, In Search of a General Approach to Legal Analysis: A Comparative
Institutional Alternative, Michigan Law Review, Vol. 79, 1350, 1981
4. Komesar, N, Imperfect Alternatives: Choosing Institutions in Law, Economics,
and Public Policy, University of Chicago Press, 1994
5. Körber, T, Grundfreiheiten und Privatrecht, Mohr Siebeck, 2004
6. Krenn, C, A Missing Piece in the Horizontal Effect “Jigsaw”: Horizontal Direct
Effect and the Free Movement of Goods, Common Market Law Review, Vol 49,
2012, 177-215
7. Löwisch, S, Die horizontale Direktwirkung der Europäischen Grundfreiheiten,
Nomos, 2009
8. Maduro, L.M.P, We the Court - The European Court of Justice and the European
Economic Constitution, Oxford Hart Publishing, 1998
9. Müller-Armack , A, Wirtschaftslenkung und Marktwirtschaft, Verlag für
Wirtschaft und Sozialpolitik Hamburg, 1947
10. Petersmann,E-U., Proposals for a new constitution for the European Union: Building-blocks for a constitutional theory and constitutional law of the EU, 32 Common Market Law Review, Issue 5, 1995
11. Reich, N, Review article: Europe’s economic constitution, or: a new look at Keck,
Oxford Journal Of Legal Studies, 19(2), 1999
12. Schepel, H, Constitutionalising the Market,Marketising the Constitution, and to
Tell the Difference: On the Horizontal Application of the Free Movement Provisions in EU Law, European Law Journal, 18, 2, 2012, 177–200.
13. Waytt, D, Horizontal Effect of Fundamental Freedoms and the Right to Equality after Viking and Mangold, and the Implications for Community Competence,
Croatian Yearbook of European Law & Policy, Vol. 4, 2008 and Oxford Legal
Studies Research Paper No. 20/2008.
14. Wils, W.P.J, The Search for the Rule in Article 30 EEC: Much Ado About Nothing?,European Law Review, 18,1993
69
CASE LAW:
1. Case 26/62 NV Algemene Transporten Expeditie Onderneming van Gend en Loos
v Nederlandse Administratis der Belastingen, EU:C:1963:1
2. Case 78/70 Deutsche Grammophon, EU:C:1971:59
3. Case 36/74 B.N.O. Walrave and L.J.N. Koch v Association Union cycliste internationale, Koninklijke Nederlandsche Wielren Unie et Federación Española Ciclismo, EU:C:1974:140
4. Case 119/75 Terrapin, EU:C:1976:94
5. Case 3/78 Centrafarm v. American Home Products, EU:C:1978:174
6. Case 120/78 Rewe-Zentral AG v Bundesmonopolverwaltung für Branntwein,
EU:C:1979:42
7. Case 58/80 Dansk Supermarked A/S v A/S Imerco, EU:C:1981:17
8. Joined cases C-267 i 268/91 Criminal proceedings against Bernard Keck and Daniel Mithouard, EU:C:1993:905
9. Case C-415/93 Bosman, EU:C:1995:463
10. Joined Cases C-140 & 142/94 DiP Sp.A, EU:C:1995:330
11. C-265/95 Commission v France, EU:C:1997:595
12. Case C-281/98 Roman Angonese v Cassa di Risparmio di Bolzano SpA,
EU:C:2000:296
13. Case C-112/00 Schmidberger, EU:C:2003:333
14. Case C-110/05 Commission v. Italy, EU:C:2009:66
15. Case C-438/05 International Transport Workers’ Federation and Finnish Seamen’s
Union v Viking Line ABP and OÜ Viking Line Eesti, EU:C:2007:772
16. Opinion of Advocate General Maduro in Case C-438/05 International Transport
Workers’ Federation and Finnish Seamen’s Union v Viking Line ABP and OÜ
Viking Line Eesti, EU:C:2007:772
17. Case C-94/07 Raccanelli, EU:C:2008:425
18. Case C-171/11 Fra.bo SpA v Deutsche Vereinigung des Gas- und Wasserfaches eV
(DVGW) - Technisch-Wissenschaftlicher Verein, EU:C:2012:453
19. Opinion of Advocate General Trstenjak in Case C-171/11 Fra.bo SpA v Deutsche
Vereinigung des Gas- und Wasserfaches eV (DVGW) - Technisch-Wissenschaftlicher Verein, EU:C:2012:453
70
T. Jakupak: Shareholders activism
Review Article
UDC 347.7:65.012.4(4-67EU)
SHAREHOLDERS ACTIVISM
Tina Jakupak *
ABSTRACT
The author in text analyses the European Commission’s Proposal of Shareholders
Rights Directive (hereinafter as: Directive 2007/36/EC) revision. A dynamic development of European company law demands amendment and improvement in existing
legal frame. The proposal to revise the existing Directive 2007/36/EC has come as an
answer to economy crisis in Europe. One main lesson of the crisis is that appropriate
regulation and supervision of Ànancial sector is necessary to restore Ànancial stability and conÀdence in the markets. Directive 2007/36/EC and its proposed amendment are the Àrst and foremost instruments of company law, with improved corporate governance as their underlying policy objective. Company law, in the frame
of European Union, is a Àeld where obligations are imposed to the companies and
their boards especially for protection of their members and other interested parties.
Some of these obligations are considered as anachronism and non relevant. For this
reason, the European Commission is constantly seeking for better solutions. In the
proposal, the European Commission wants to give shareholders – and institutional
investors in particular – a more transparent, easily managed and inÁuential role in
corporate governance. The Proposal focuses on shareholders, but we should bear
in mind that other actors –employees, consumers and local communities – are also
highly relevant. For companies to be well - run, there has to be a respect for and
active engagement from all shareholders. Stimulating stronger shareholder engagement is one of several ways to do that. A set of measures proposed by the European
Commission is a reasonable step in the right direction. In this context, this is an
outline of the new legislation highlights.
*
Judge at Commercial Court in Zagreb, tina.jakupak@tszg.pravosudje.hr
71
1. INTRODUCTION
On 9 April 2014, the European Commission presented a proposal to revise Directive 2007/36/EC1 on shareholders rights (hereinafter as: Directive 2007/36/
EC) and Directive 2013/34/EC on the annual Ànancial statements (hereinafter
as: Directive 2013/34/EC).2 The principal objectives of proposal of Directive
2007/36/EC are: to increase transparency, to make sure that the internal market works in the time of crisis and to invite investors to take their commitments
seriously. The European Commission wants to improve corporate governance
of listed companies by engaging the shareholders more. The European Commission wants to activate shareholders in exercising their rights.3 The objective
of European Commission is to improve and enhance the obligation of company stakeholders, Àrst of all the institutional shareholders, asset managers,
proxy advisers, to report. The proposal introduces ‘say on pay’4 and shareholder oversight on related party transaction.
2. A LITTLE BIT OF HISTORY
The “corporate governance” Àrst came into vogue in 1970’s in the United
States. Within 25 years the corporate governance has become the subject of
debate worldwide by academics, regulators, executives and investors.5 Corporate governance and company law are essential to ensure that companies are
1
Directive 2007/36/EC of the European Parliament and of the Council od 11 July 2007 on
the exercise of certain rights of shareholders in listed companies, OJ L 184, 14.7.2007.
2
Directive 2013/34/EC of the European Parliament and of the Council of 26 June 2013on
the annual Ànancial statements, consolidated Ànancial statements and related reports of certain
types of undertakings, amending Directive 2006/43/EC of the European Parliament and of the
Council and repealing Council Directives 78/660/EEC and 83/349/EEC OJ L 182/19, 29 June
2013
3
More on shareholders rights see in Horak, H., DumanĀiþ, K: JaĀanje prava dioniĀara i pravo dioniĀara na informacije, Pravni vjesnik : tromjeseĀni glasnik za pravne i društveno-humanistiĀke znanosti Pravnog fakulteta SveuĀilišta J.J. Strossmayera u Osijeku, quarterly journal
of law and social sciences of the Law Faculty of University J.J. Strossmayer in Osijek, (2011),
3/4, str. 191-217
4
„Say on pay“ principle is one of the corporate governance rules. It is prerequisite for transparency rules regarding companies. More on comply or explain principle and its connection
with say on pay principle see in Horak, H., Bodiroga-Vukobrat, N.: EU Member States´ Experiences with the „Comply or explain“ Principle in Corporate Governance, Croatian Yearbook
of European Law and Policy, Vol. 7, Zagreb, 2011.
5
Brian R. ChefÀns The History of Corporate Governance University of Cambridge - Faculty of Law; European Corporate Governance Institute (ECGI), December 1, 2011
72
well-governed and sustainable6 in a long-term and therefore have an important
role to play in a long-term Ànancing of the European economy.
Corporate governance is the system of rules, practices and processes by which
a company is directed and controlled.7 In the company, we have to distinguish:
the management and the shareholders. The company’s management makes decisions in the best interests of the company. The shareholders are the owners of
companies and they have commitments to the company. They should exercise
their rights, monitor the company, etc. They should hold company boards accountable. Corporate governance and company law are essential to ensure that
companies are well-governed. They also have very important role in Ànancing
the European economy.
Since 1990’s the shareholders activism has been high on the corporate governance agenda, as has executive pay (Murphy, 2002: 856-57), and corporate
governance had a strong international dimension.8
Shareholders activism is the way in which the shareholders can assert their
power as owners of the company to inÁuence its behaviour. Activism covers a wide spectrum of activities. Activism includes “voting with ones feet”
(exit), private discussion or public communication with corporate boards and
management, press campaigns, blogging and other e-ways of public “naming
and shaming”, openly talking to other shareholders, putting forward the shareholder resolutions, calling shareholder meetings and – ultimately - seeking to
replace individual directors or the entire board. In some cases, the shareholders activism is directed against other large shareholders, not against directors.
6
Horak, H., DumanĀiþ, K.: Transparency and disclosure as key elements for companies and
markets, The 2nd International Conference “Legal and Economic Aspects of Corporate Governance - Market Transparency and Disclosure in Private and Public Companies” was held on
3rd and 4th May 2013 in organization of the Jean Monnet Chair/Department of Law Faculty
of Economics and Business, University of Zagreb and the Judicial Academy of the Republic of
Croatia, Proceedings 2013.- see more at http://web.efzg.hr/dok/KID/Zbornik%20s%20konferencije%20o%20korp%20%20upr%20%202013%20.pdf
7
Ibid. For deÀnitions of corporate governance see also Classens, S., Yurtoglu, B: Corporate governance in emerging markets: A Survey, 2012, available at http://ssrn.com/abstract=1988880, p. 4., OECD Principles of Corporate Governance Àrst realised in 1998 and
last time revised in 2004. Available at http://www.oecd.org/daf/ca/corporategovernanceprinciples/31557724.pdf., Zingales, L., Corporate Governance. The New Palgrave Dictionary of
Economics and the Law, 1998. Available at SSRN: http://ssrn.com/abstract=46906 or http://dx.doi.org/10.2139/ssrn.46906; Shleifer, A., Vishny, R.W.: A Survey of Corporate Governance,
The Journal of Finance, Vol. 52, No. 2 (Jun., 1997), pp. 737-783, available http://www.jstor.org/
stable/2329497 .
8
Brian R. ChefÀns The History of Corporate Governance University of Cambridge - Faculty of Law; European Corporate Governance Institute (ECGI), December 1, 2011
73
Shareholders activism can be collaborative, in particular when it is conducted
in private.9
3. CROATIAN COMPANIES ACT AND DIRECTIVE 2007/36/EC
Since the Companies Act was introduced the Croatian companies law is fully harmonized with acquis communautaire.10 As regarding the company law
the main provisions are contained in the Companies Act. As regarding the
shareholders rights, the main provisions, among other directives, of the Directive 2007/36/EC are stipulated by the Companies Act. The main shareholders
rights in the Croatian company law are right to vote in the general meeting
of the company and right to receive a portion of company proÀts.11 There is
also a right to receive a portion of the remainder of liquidation or bankruptcy
estate of the company. Pursuant to Article 169 of Companies Act12 each share
gives the right to vote in the general meeting of the company. Only preferred
shares may be issued without the right to vote. Shares that provide different
rights to vote in the general meeting of the company for equal par value shall
not be permitted. If statutory law or Articles of Association require publication of company data or announcements, such data or announcements shall be
published in the OfÀcial Gazette of the Republic of Croatia. The Articles of
Association may also stipulate that company information and announcements
should be also made accessible to the public through other media of public
communication as well as the electronics informatic media. Under the same
conditions, the shareholders shall be equal in the company (Article 211. of the
Companies Act).
9
Shareholder Activism-Available at http://www.ecgi.org/activism/ visited on 14.11.2014.
10
Horak, H.; DumanĀiþ, K.: Harmonisation of the Croatian Company Law with Aquis Communitaire of the European Union, The Business Review, Cambridge, Vol. 18, No. 2, 2011
(Horak,H., DumanĀiþ, K.: Usklaāivanje u podruĀju prava društava Republike Hrvatske s pravnom steĀevinom EU, Pravo i porezi, br.5, 2011)
11
Horak,H., DumanĀiþ, K.: JaĀanje prava dioniĀara i pravo dioniĀara na informacije, Pravni
vjesnik : tromjeseĀni glasnik za pravne i društveno-humanistiĀke znanosti Pravnog fakulteta
SveuĀilišta J.J. Strossmayera u Osijeku, quarterly journal of law and social sciences of the Law
Faculty of University J.J. Strossmayer in Osijek, (2011), 3/4, str. 191-217
12
Companies Act (OfÀcial Gazette of Republic of Croatia no. 111/1993, 34/1999, 121/1999,
52/2000, 118/2003, 107/2007, 146/2008, 137/2009, 111/2012, 125/2011, 68/2013)
74
4. REVISION OF THE SHAREHOLDER RIGHTS DIRECTIVE DIRECTIVE 2007/36/EC
The EU Áagship initiative “An industrial policy for the globalisation era” – Elements of the Commission´s Strategy13 as a part of Europe 2020 Strategy highlights the importance of improving the business environment, especially for
SMEs14 and to support the development of a strong and sustainable industrial
base able to compete globally.15 Different analysis of the shareholders rights exercise shows a lack of their involvement and use of rights in concrete situations.16
One of the main reasons for revision of Directive 2007/36/EC was intention to
„force“ the shareholders to actively participate in realisation of their rights.
Directive 2007/36/EC implemented the minimum standards relating to the exercise of shareholders’ rights to vote, and participate in, general meetings as
well as shareholders’ access to information.
The proposal involves a corporate governance shortcomings relating to listed companies and their boards, shareholders (institutional investors and asset
managers), intermediaries and proxy advisors.
4.1. LEGAL ELEMENTS OF PROPOSAL
The proposal is based on Article 50(2) (g) and Article 114 of the Treaty on the
Functioning of the European Union (TFEU)17 which is the legal basis for Di13
European Commission, An industrial policy for the globalization era, MEMO/10/532, available at http://europa.eu/rapid/press-release_MEMO-10-532_en.htm?locale=en
14
Small and medium-sized enterprises are in the focus of numerous strategic EU documents
and are deÀned as an engine of the European economy. See more on SMEs in The new SME
deÀnition, User guide and model declaration, European Commmission, Enterprise and industry publications, 2005., available at http://ec.europa.eu/enterprise/policies/sme/Àles/sme_deÀnition/sme_user_guide_en.pdf
15
Communication from the Commission Europe 2020. A strategy for smart, sustainable
and inclusive growth, COM(2010) 220 Ànal-available at http://ec.europa.eu/europe2020/index_en.htm
16
Horak, H., DumanĀiþ, K.: JaĀanje prava dioniĀara i pravo dioniĀara na informacije, Pravni
vjesnik: tromjeseĀni glasnik za pravne i društveno-humanistiĀke znanosti Pravnog fakulteta
SveuĀilišta J.J. Strossmayera u Osijeku, quarterly journal of law and social sciences of the Law
Faculty of University J.J. Strossmayer in Osijek, (2011), 3/4, str. 191-217; see also Study on
monitoring and enforcement pracitces in Corporate Governance in the Member States, RiskMetrics Group, 2009., available at http://ec.europa.eu/internal_market/company/ecgforum/
studies_en.htm
17
Treaty of Lisbon amending the Treaty on European Union and the Treaty establishing
the European Community, OJ C 306 od 17. 12. 2007. -Consolidated versions of the Treaty
75
rective 2007/36/EC. Article 50(2)(g) provides for the EU a competence to act
in the area of corporate governance. It provides in particular for coordination
measures concerning the protection of interests of companies’ members and
other stakeholders, such as creditors, with a view to making such protection
equivalent throughout the European Union. Article 114 is the legal basis for
the approximation of the provisions laid down by law, regulation or administrative action in Member States which have as their object the establishment
and functioning of the internal market.18
4.2. REASONS FOR REVISION
Directive 2007/36/EC establishes requirements in relation to the exercise of
certain shareholders rights attaching to voting shares in relation to general
meetings of companies which have their registered ofÀce in a Member State
and whose shares are admitted to trading on a regulated market situated or
operating within a Member State.19
The proposal for Revision has been prepared following the 2010 Green Paper
on corporate governance in Ànancial institutions,20 the 2011 Green Paper on
the EU corporate governance framework21 and the 2013 Green Paper on a
long-term Ànancing of the EU economy.22
The European Commission has identiÀed a number of corporate governance
shortcomings particularly at the level of shareholder control. This is why the
proposal focuses on the role of shareholders.
on European Union and the Treaty on the Functioning of the European Union, OJ C 115 od
9.05.2008.
18
Document 52014PC0213 Proposal for a DIRECTIVE OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL amending Directive 2007/36/EC as regards the encouragement of long-term shareholder engagement and Directive 2013/34/EU as regards certain
elements of the corporate governance statement /* COM/2014/0213 Ànal - 2014/0121 (COD) */
available at http://eur-lex.europa.eu/legal-content/EN/TXT/?uri=COM:2014:213:FIN
19
Horak, H., DumanĀiþ, K., Pecotiþ Kaufman, J.: Uvod u europsko pravo društava, Školska
knjiga Zagreb, 2010.
GREEN PAPER Corporate governance in Ànancial institutions and remuneration policies,
COM(2010) 285 Ànal, COM(2010) 286 Ànal available at: http://ec.europa.eu/internal_market/
company/docs/modern/com2010_284_en.pdf
20
GREEN PAPER The EU corporate governance framework, COM(2011) 164 Ànal; available at http://ec.europa.eu/internal_market/company/docs/modern/com2011-164_en.pdf
21
22
GREEN PAPER LONG-TERM FINANCING OF THE EUROPEAN ECONOMY,
COM/2013/0150 Ànal, available at: http://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX:52013DC0150
76
The European Commission in Directive 2007/36/EC proposal explanatory
memorandum says:
„The impact assessment undertaken by the Commission services identiÀed
Àve main issues: 1) InsufÀcient engagement of institutional investors and asset
managers; 2) InsufÀcient link between pay and performance of directors; 3)
Lack of shareholder oversight on related party transactions and 4) Inadequate
transparency of proxy advisors 5) DifÀcult and costly exercise of rights Áowing from securities for investors.”23
In light of careful assessment of these policy options, it appeared that the following preferred option would best fulÀl the objectives without imposing disproportionate burdens:
1) Mandatory transparency of institutional investors and asset managers on
their voting and engagement and certain aspects of asset management arrangements;
2) Disclosure of the remuneration policy and individual remunerations, combined with a shareholder vote;
3) Additional transparency and an independent opinion on more important related party transactions and submission of the most substantial transactions
to shareholder approval;
4) Binding disclosure requirements on the methodology and conÁicts of interests of proxy advisors;
5) Creating a framework to allow listed companies to identify their shareholders and requiring intermediaries to rapidly transmit information related to
shareholders and to facilitate the exercise of shareholder rights.24
4.3. IMPROVING THE ENGAGEMENT OF INSTITUTIONAL INVESTORS
AND ASSET MANAGERS
The emphasis is given to shareholders whose degree of engagement can be
essential to a long-term sustainability of a company. In that view it is necessary
that institutional shareholders25 and asset managers develop an engagement
23
Ibid 10
24
Ibid 10
25
The instutional shareholders are a business, such as a mutual fund, bank or insurance
company, that holds shares in a publicly-traded company-deÀnition available at: http://Ànancialdictionary.thefreedictionary.com/Institutional+Shareholders
77
policy. The practice will show us how institutional investors26 will be able to
disclose the results of engagement policies. Articles 3f to 3h try to increase the
transparency of institutional investors and asset managers.
Article 3f contains a deÀnition of ‘engagement policy’ and what engagement
policy should determine, i.e. how institutional investors and asset managers
should conduct all of the following actions:
(a) to integrate shareholder engagement in their investment strategy;
(b) to monitor investee companies, including on their non-Ànancial performance;
(c) to conduct dialogues with investee companies;
(d) to exercise voting rights;
(e) to use services provided by proxy advisors;
(f) to cooperate with other shareholders.
Basically, all institutional investors and asset managers should be obliged to
develop an engagement policy and to be transparent about its application.
Institutional investors and asset managers must publicly disclose their engagement policy and explain how it has been implemented as well as the results of
the policy. This should include a disclosure, for each company in which they
hold shares, of how they cast votes in general meeting and an explanation for
their voting behaviour. Institutional investors must disclose to the public in
what way their equity investment strategy is aligned with the proÀle and duration of their liabilities and how it contributes to the medium and to a long-term
performance of their assets (Article 3g).
Asset managers must disclose to institutional investors how their investment
strategy complies with the arrangements agreed with the particular institutional investor and how the investment strategy and decisions contribute to the
medium to long-term performance of the assets of the institutional investor. 27
26
Institutional investors are entities with large amounts to invest such as investment companies, mutual funds, brokerages, insurance companies, pension funds, investment banks and
endowment funds. Institutional investors are covered by fewer protective regulations because
it is assumed that they are more knowledgeable and better able to protect themselves. They
account for a majority of overall volume. Read more: http://www.investorwords.com/2504/
institutional_investor.html#ixzz3KjcH7Z67
27
http://www.linklaters.com/Insights/Publication1005Newsletter/UK-Corporate-Update-16-April 2014/Pages/European-Commission-proposes-directive.aspx
78
4.4. STRENGTHENING THE LINK BETWEEN THE REMUNERATION
AND PERFORMANCE OF DIRECTORS
In the past years, the efforts in remuneration of directors have been made
through legislation and through corporate governance codes in each of the
national corporate governance system. The new level of legislation is being
proposed by this Directive 2007/36/EC. The European Commission has proposed the following amendments to be adopted by the Member States in due
course: right to vote on the remuneration policy and information to be disclosed in remuneration report and the rights to vote. Listed companies will
be required to publish a remuneration policy every three years and a remuneration report every year setting out how they have paid each director in
the previous year. Articles 9a and 9b will require listed companies to publish
detailed and user-friendly information on the remuneration policy and on the
individual remuneration of directors, while Article 9b empowers the Commission to provide for a standardized presentation of some of this information in
an implementing act.28
There are positive sides as to help increase the conÀdence in companies by
giving clear information on remuneration of directors. A balance is needed to
avoid the negative side effects. Shareholders are entitled, among other things,
to dismiss the board, if the board does not take appropriate corporate decision.
So there is a potential negative side effect of mixing up the roles in companies:
the shareholders’ role and the boards’ role. Besides, different companies have
different organisational structure, so the question is: Is it necessary to shift the
competences (and responsibilities) from the board to the shareholders?
Article 9a (3) contain binding inclusion of maximum amounts of total remuneration in the policy. Every company has its own speciÀcs depending on many
factors so it is difÀcult to compare indexes of different companies. It should
have in mind what is important for shareholders and investors: directors’ remuneration should ensure that the remuneration is adjusted to their competence, responsibilities and companies proÀt. For a system with remuneration
policies to be rational and meaningful, the policies cannot too often or too
much be put to the side. It needs to be clear that there is a difference between
procedures for establishing the remuneration of directors and systems of wage
formation for employees.
28
Ibid 18 at http://eur-lex.europa.eu/legal-content/EN/TXT/?uri=COM:2014:213:FIN
79
4.5. IMPROVING THE SHAREHOLDER OVERSIGHT ON RELATED
PARTY TRANSACTIONS
When it comes to related party transaction, national legislations have various
and speciÀc conformance.
The amendment proposes that related party transactions representing more
than 5% of a listed company’s assets or that can have a “signiÀcant impact” on
proÀts or turnover must be put to a vote of the shareholders in general meeting
and cannot be completed without the shareholders’ approval. Listed companies must publicly disclose related party transactions that represent more than
1% of the listed company’s assets and include a report from an independent
third party that the transaction is fair and reasonable from the perspective of
the shareholders, including minority shareholders.29 There should be a proper
European minimum level to counter a problematic pattern of abusive transactions, but that level does not have to be very high, depending on national
conditions and practices.
4.6. ENHANCING TRANSPARENCY OF PROXY ADVISORS
Proxy advisor means a legal person that provides, on a professional basis, recommendations to shareholders on the exercise of their voting rights.30
A key problem regarding proxy advisors is that some of them sometimes tend
to work for different stakeholders at the same time. This is not reasonable.
Under new, not yet adopted, rules the Member States should ensure that proxy
advisors adopt and implement adequate measures to guarantee that their voting recommendations are accurate and reliable, based on a thorough analysis
of all the information that is available to them.31
The role of proxy advisors is increasingly decisive because a great number of
shareholders engage with companies they are investing in.
29
http://www.linklaters.com/Insights/Publication1005Newsletter/UK-Corporate-Update16-April2014/Pages/European-Commission-proposes-directive.aspx#sthash.tPornT2j.dpuf
30
Ibid 18 Article 2i Amendments to Directive 2007/36/EC-http://eur-lex.europa.eu/legal
content/EN/TXT/?uri=COM:2014:213:FIN
31
Ibid 18 Article 3i (1) Amendments to Directive 2007/36/EC-http://eur-lex.europa.eu/legal
content/EN/TXT/?uri=COM:2014:213:FIN
80
4.7. FACILITATING THE EXERCISE OF RIGHTS FLOWING FROM
SECURITIES FOR INVESTORS
Articles 3a to 3c empower the European Commission to adopt implementing
acts to ensure an efÀcient and effective system of shareholder identiÀcation,
transmission of information and facilitation of exercise of shareholder’s rights,
and also transparency on costs and third country intermediaries.
Article 3a of the proposal requires Member States to ensure that intermediaries offer to listed companies the possibility to have their shareholders identiÀed. Intermediaries should, on the request of such a company, communicate
without undue delay the name and contact details of the shareholders.
Article 3b provides that if a listed company chooses not to directly communicate with its shareholders, the relevant information shall be transmitted to
them by the intermediary.
Article 3c requires that intermediaries facilitate the exercise of the rights by
the shareholder, including the right to participate and vote in general meetings
and requires companies to conÀrm the votes cast in general meetings by or on
behalf of shareholders.32
5. CONCLUSION
The European Commission has recognised that it must harmonise regulation, improve transparency, delete and replace anachronisms and boost the
cross-border investment. Amending Directive 2007/35/EC is a right way to
improve a long-term sustainability of EU corporations by identifying and addressing the gaps in the current European corporate governance regime. However, the proposal should take into account the differences in the existing laws
of Member States. It should also preserve the existing Áexibility on companies
which is required to encourage entrepreneurship. Directive is not as precise
as the Regulation and Áexibility is needed for Member States to transpose the
Directive into the national law,33 taking into account different markets and
different laws.
Under new rules, key decision and powers are moving from the boards to
shareholders. Is that a right way? An effective board consists (or should con32
Ibid 18 at http://eur-lex.europa.eu/legal-content/EN/TXT/?uri=COM:2014:213:FIN
33
On transposition oft he directives into the national law see more in Horak, H., DumanĀiþ,
K..: Problemi implementacije Direktive o uslugama u pravo RH – odustajanje od socijalnog
modela na nacionalnom nivou, Zbornik pravnog fakulteta u SveuĀilišta u Rijeci, Vol. 32, br.2,
Rijeka, 2011.
81
sist) of individuals with a signiÀcant amount of relevant experience, expertise
and they are placed to oversee the best interests of the company. The board is the
body where the company’s interest is considered, while in the general meeting
the opinion and individual interests of shareholders will prevail. By mixing these
two things, the board and shareholders, may cause a great risk and problems. A
better way may be the board transparency instead of shareholders engagement
by providing information about the board and its activities.
To conclude, legislation is easy to propose but it is difÀcult to wind off. Positive sides of amendment are: larger engagement of shareholders through the
possibility to vote shares abroad without any obstacles; shareholders should
have the right to approve the remuneration policy and report of companies
directors; related party transactions are not transparent for shareholders so it
is required to provide shareholders with an independent auditor’s report conÀrming that the transaction was fair and reasonable. Passivity of shareholders
is not acceptable.
Other issues are yet to be seen but the European Commission must uphold the
principle of better regulation.
LITERATURE:
BOOKS AND ARTICLES/PAPERS
1. Barbiþ, J.: Pravo društava, Knjiga prva, opþi dio, Organizator, Zagreb 1999.
2. Barbiþ, J.: Sazivanje glavne skupštine i ostvarenje prava dioniĀara nakon Novele Zakona
o trgovaĀkim društvima iz 2009. godine, u Zborniku 48. Susreta pravnika, Hrvatski savez
udruga pravnika u gospodarstvu, Opatija 2010.
3. Brian R. ChefÀns: The History of Corporate Governance University of Cambridge - Faculty of Law; European Corporate Governance Institute (ECGI), December 1, 2011.
4. Classens, S., Yurtoglu, B: Corporate governance in emerging markets: A Survey, 2012,
available at http://ssrn.com/abstract=1988880, p. 4., OECD Principles of Corporate Governance Àrst realised in 1998 and last time revised in 2004.
5. Gorenc, V.: Komentar Zakona o trgovaĀkim društvima, RRIF, Zagreb, 2008.
6. Horak,H., DumanĀiþ, K., Pecotiþ Kaufman, J.: Uvod u europsko pravo društava, Školska
knjiga, Zagreb, 2010.
7. Horak,H., DumanĀiþ, K.: JaĀanje prava dioniĀara i pravo dioniĀara na informacije, Pravni
vjesnik : tromjeseĀni glasnik za pravne i društveno-humanistiĀke znanosti Pravnog
fakulteta SveuĀilišta J.J. Strossmayera u Osijeku, quarterly journal of law and social sciences of the Law Faculty of University J.J. Strossmayer in Osijek, (2011), 3/4, str. 191-217
8. Horak, H., DumanĀiþ, K.: Usklaāivanje u podruĀju prava društava RH s pravnom steĀevinom EU, Pravo i porezi, br.5, 2011.
82
9. Horak, H., Bodiroga-Vukobrat, N.: EU Member States´ Experiences with the „Comply or
explain“ Principle in Corporate Governance, Croatian Yearbook of European Law and
Policy, Vol. 7, Zagreb, 2011.
10. Horak, H., DumanĀiþ, K..: Problemi implementacije Direktive o uslugama u pravo RH
– odustajanje od socijalnog modela na nacionalnom nivou, Zbornik pravnog fakulteta u
SveuĀilišta u Rijeci, Vol. 32, br.2, Rijeka, 2011.
11. Horak, H., DumanĀiþ, K.: Transparency and disclosure as key elements for companies and
markets, The 2nd International Conference “Legal and Economic Aspects of Corporate
Governance - Market Transparency and Disclosure in Private and Public Companies” held
on 3rd and 4th May 2013 in organization of the Jean Monnet Chair/Department of Law
Faculty of Economics and Business, University of Zagreb and the Judicial Academy of the
Republic of Croatia, Proceedings 2013.
12. Horak, H., Bodiroga-Vukobrat, N., DumanĀiþ, K., Šafranko, Z.: Hrvatsko i europsko pravo
društava, Zbornik, Ekonomski fakultet SveuĀilišta u Zagrebu, listopad 2012.
13. Shleifer, A., Vishny, R.W.: A Survey of Corporate Governance, The Journal of Finance,
Vol. 52, No. 2 (Jun., 1997), p. 737-783
14. Zingales, L., Corporate Governance. The New Palgrave Dictionary of Economics and the
Law, 1998.
LEGAL ACTS:
1. Treaty of Lisbon amending the Treaty on European Union and the Treaty establishing the
European Community, OJ C 306 od 17. 12. 2007. -Consolidated versions of the Treaty on
European Union and the Treaty on the Functioning of the European Union, OJ C 115 od
9.05.2008.
2. Directive 2007/36/EC of the European Parliament and of the Council of 11 July 2007 on
the exercise of certain rights of shareholders in listed companies, OJ L 184, 14. 7. 2007
3. Amendments to Directive 2007/36/EC - Document 52014PC0213 Proposal for a DIRECTIVE OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL amending Directive 2007/36/EC as regards the encouragement of long-term shareholder engagement and
Directive 2013/34/EU as regards certain elements of the corporate governance statement
COM/2014/0213 Ànal - 2014/0121 (COD) */ available at http://eur-lex.europa.eu/legal-content/EN/TXT/?uri=COM:2014:213:FIN
4. Directive 2013/34/EC of the European Parliament and of the Council of 26 June 2013on
the annual Ànancial statements, consolidated Ànancial statements and related reports of
certain types of undertakings, amending Directive 2006/43/EC of the European Parliament and of the Council and repealing Council Directives 78/660/EEC and 83/349/EEC
OJ L 182/19, 29.7.2013.
5. Companies Act (OfÀcial Gazette of Republic of Croatia no. 111/1993, 34/1999, 121/1999,
52/2000, 118/2003, 107/2007, 146/2008, 137/2009, 111/2012, 125/2011, 68/2013)
83
OTHER SOURCES
1. Communication from the Commission Europe 2020. A strategy for smart, sustainable and
inclusive growth, COM(2010) 2020 Ànal.
2. GREEN PAPER Corporate governance in Ànancial institutions and remuneration policies,
COM(2010) 285 Ànal, COM(2010) 286 Ànal available at: http://ec.europa.eu/internal_market/company/docs/modern/com2010_284_en.pdf
3. GREEN PAPER The EU corporate governance framework, COM(2011) 164 Ànal; available at http://ec.europa.eu/internal_market/company/docs/modern/com2011-164_en.pdf
4. GREEN PAPER LONG-TERM FINANCING OF THE EUROPEAN ECONOMY,
COM/2013/0150 Ànal
5. User guide and model declaration, European Commmission, Enterprise and industry publications, 2005.
6. http://ec.europa.eu/enterprise/policies/sme/Àles/sme_deÀnition/sme_user_guide_en.pdf
7. European Commission, An industrial policy for the globalization era, MEMO/10/532,
http://europa.eu/rapid/press-release_MEMO-10-532_en.htm?locale=en
8. http://www.ecgi.org/activism/
9. http://www.linklaters.com/Insights/Publication1005Newsletter/UK-Corporate-Update16-April 2014/Pages/European-Commission-proposes-directive.aspx
10. http://www.investorwords.com/2504/institutional_investor.html#ixzz3KjcH7Z67
11. http://Ànancialdictionary.thefreedictionary.com/Institutional+Shareholders
84
I. Alekseeva: Cross-border economic cooperation as a form of European integration of Ukraine
Professional Paper
UDC 339.92(477:4-67EU)
CROSS-BORDER ECONOMIC COOPERATION
AS A FORM OF EUROPEAN INTEGRATION
OF UKRAINE
Iryna Alekseeva *
ABSTRACT
The paper is devoted to reviewing of cross border economic cooperation as one of
forms of European integration. Nowadays, in this stage of its development, Ukraine
is deepening its foreign economic relations, and the neighborhood with EU countries
gives to Ukraine an impulse for harmonization of Ukrainian legislation to EU legislation. In the paper there are performed elements of cross border elements as instruments of governmental opportunity to connect inside economic activity with economic activity of related territories of neighboring states that serves to development
of foreign economic activity of Ukraine and its integration into the world economics
and establishment of good neighborly relations with EU states.
*
Assistant professor, Postgraduate student of the Department of economic law and procedure at National University “Odesa Law Academy”; irina.m.alekseeva@gmail.com.
85
1. INTRODUCTION
Cross border economic cooperation reÁects a complex of foreign economic
relations of cross border territories of related states, which are a united system
of economic relations. As a part of international economic relations cross border cooperation contributes reduction of economic borders and formation of
cross border territories in the structure of a united economic space. Formation
of cross border economic relations system is based on globalization and integration process.
Globalization of economic life on the modern stage is accompanied by intense
development of regional integration process. It can be reviewed on different
levels – continental, transcontinental, regional and local. In Europe, development of the system of cross border cooperation had impact on the European
integration development.
2. FOREIGN ECONOMIC RELATIONS AS A PART OF EU
INTEGRATION PROCESS
2.1. ECONOMIC SENSE OF “THE BORDER”
Cross border cooperation of Ukraine with the states of the Central and Eastern Europe has found its reÁection in scientiÀc works. These contain enough
materials in different spheres of cross border cooperation, but they almost do
not include critical analyze of real perspectives of cross border cooperation. 1
Cross border cooperation considered using of beneÀts of neighborhood for
solving problems of everyday life and perspective social and economic development of each of related regions.2
In the researches of theoretical limnology, the cross border cooperation is
determined as a form of interregional cooperation, international relations of
1
See: Kalenichenko P.M., Kolesnik V.P. Granica Druzhby i Mira: O sovetsko-polskom prigranichnom sotrudnichestve. 1956-1979. - Lvov: Vishha shkola. izd-vo pri Lvov. un-te, 1980.
- 159 s.; Kolesnik V.P. Internacionalnye svyazi trudyashhihsya prigranichnyx oblastej SSSR i
evropejskih socialisticheskih stran. - Lvov: Vishha shkola. Izd-vo pri Lvov. un-te, 1984. - 176
s.; Shmanko G.I., Studenyak P.Yu. Druzhba mezhdu lyudmi - druzhba mezhdu narodami. Uzhgorod: Karpati, 1984. - 128 s.; Shmanko G.I. Micna yak krinicya. - Uzhgorod: Karpati,
1975. - 176 s.; Plody bratskogo edineniya / I.M. Granchak, P.I. Halus, G.I. Shmanko i dr. - Uzhgorod: Karpati, 1980. - 224 s.; Sotrudnichestvo obshhestvennyh organizacij stran socializma /
I.N. Melnikova, P.P. Brickij, S.V. Vidnyanskij i dr. - K.: Nauk. dumka, 1983. - 271 s.
2
Kiryukhin O. Transkordonne spivrobitnictvo u rosijsko-ukraïnskykh vidnosinakh //
Ukraina: strategichni prioriteti. Analitichni ocinki. - K., 2006. - S. 433.
86
cross border territories, as a level of economic integration, and as a form of
community within euro region.3
The Western European works denote three kinds of border cooperation:
- cross border cooperation – direct cross border cooperation between regional and local powers of different sides of the border;
- interregional (transborder) cooperation – cooperation between local regional national powers, the purpose of which is development of integration process in big groups of regions, some of which can be not bound with each
other on a territorial level;
- transnational cooperation – cooperation between states including sometimes regions in exact spheres.4 Thus, each of the kinds of cooperation has
its own speciÀcity. But some of the authors distinguish cross border and
transborder cooperation. Implementing the program of integration into the
EU Ukraine should use terminology that has already been using in Europe.
During the long period of time in Ukraine it has been used the term “cross
border cooperation” and only for the last decades it has been used the term
“transborder”. Both deÀnitions reÁect the sense of cooperation, but the Àrst
one is more used in Ukraine and has been used in the conditions of enough
closeness of borders for wide exchanges. Nowadays relations between cross
border territories are more intensive and in more spheres.
Trans border cooperation means any common acts directed on strengthen and
deepening of good neighborly relations between territorial communities or powers which are under jurisdiction of both or several agreed parties and on entering
with this purpose in any necessary agreements or reaching understanding.5
One of the most active instruments on the way to the promotion of the European Union on a regional level is an active participation of local communities
of Ukraine in euro regions, where cooperation of administrative units of European countries is performed with the purpose of combining efforts in economic sphere, development of social, informational and industrial infrastructure,
building and modernization of border infrastructure, development of transport
3
Davidov D.M. Prigranichnoe i transgranichnoe sotrudnichestvo kak faktor razvitiya esklavnogo regiona Rossii // Vestnik Rossijskogo gosudarstvennogo universiteta im. Immanuila Kanta.
- Vyp. 6. Ser. Gumanitarnye nauki. - Kaliningrad: Izd-vo RGU im. I. Kanta, 2008. - S. 72.
4
OfÀcial site of the Association of European Border Regions http://www.aebr.net/
5
Yevropejska ramkova Konvenciya transkordonnogo spivrobitnictva mizh teritorialnimi
obshhinami abo vlastyami (21 travnya 1980 r., m. Madrid). Tekst ukrainskoyu movoyu //
Transkordonne spivrobitnictvo yak alternativa novij «zaliznij zavisi» ta konÁiktam: kompleksne doslidzhennya. - Uzhgorod: Karpati, 2007. – S. 65
87
network, scientiÀc and cultural collaboration, environmental protection etc.
in accordance to bilateral and multi agreements on cross border cooperation.
Euro region is a form of trans border cooperation between territorial communities or local authorities of cross border regions of two or more states, which
have a common border, which is focused on coordination of common efforts
and their implementation of agreed measures in different sectors of life in
accordance with national legislation and international law for solving common
problems and for interests of people, inhabiting its territory on different sides
of the state border.6
Having the longest border in Europe (19 from 25 regions of Ukraine are cross
border ones), common borders with the EU in the West and with Russia and
Belarus in the East, Ukraine has a signiÀcant experience in organization of
international relations. Thus the question of cross border territories, which are
speciÀc administrative unities due to geographical and social and economic
particularities, are very important for research, because potential exactly of
cross border territories in Ukraine have been realizing not fully for nowadays.7
Cross border territories of neighboring states are zones of cooperation of national economic complexes. Related territories of both sides of a state border
are initiators of a form of international economic cooperation. For Ukraine
they have currently strategic role, since the Western Ukrainian cross border
territories are a contact zone of intensive cooperation of national economics
with EU and its Internal Market.
Considering the above mentioned facts, research of economic aspects of cross
border cooperation is very topical on scientiÀc theoretical and practical levels
especially in connection with the strategy of European integration of Ukraine.
In this way, the purpose of this paper is to show, that cross border cooperation
should be considered as a part of European integration at whole.
In conditions of limited raw materials, resource and Ànancial capacity next to
the search of inside resources of investment of social and economic development, the task is growing on the strengthen of paying attention to the formation
of investment and innovative character of measures of cooperation on international and interregional levels.
Within this context it is very important to stress the development of cross
border cooperation with European community. Cross border cooperation in
6
Studennikov I. Transkordonne spivrobitnictvo ta jogo rol v procesi evropejskoï integraciï
Ukraïni // Mizhnarodni zv’yazki Ukraïni: naukovi poshuki i znahidki. - Vip. 15. - K., 2006. S. 320.
7
S. M. Frolov Analiz socialno-ekonomichnoï politiki derzhavi na prikordonnih teritoriyah.
Elektronnij resurs. Rezhim dostupu: http://www.economy.nayka.com.ua/?op=1&z=946
88
Ukraine is considered now in two directions – as an instrument of development
of the cross border territories and as a factor of realizing European integration.
In this way cross border cooperation has an additional potential to stimulate
social and economical development of cross border territories, giving to it features of sustainability and targeting improving the quality of life.
2.2. SPECIAL REGIMES OF ECONOMIC ACTIVITY IN CROSS BORDER
COOPERATION
Next to the elements of cross border cooperation it is necessary to recognize
creation of special regimes as an important mechanism of formation foreign
economical relations in cross border territories in the condition of European
integration of Ukraine. Such kinds of regimes are expected to contribute intensiÀcation of regional development of cross border territories of Ukraine including deepening and diversiÀcation of foreign economic relations with cross
border territories of neighboring states of the European Union.
As the basic preferential economic regimes established in Ukraine with the
purpose of promotion of cross border territories economic development and
intensiÀcation of their foreign economic relations, it is possible to consider
creation of special economic zones, customs zones and cross border zones as
a separate kind of special economic regime. At the same time, in the world
practice are used duty-free zones, free trade zones, business incubators and
transborder techno parks. Mechanism of action of preferential regimes in cross
border territories is in stimulation of foreign investment, mastering of new
technologies and high-tech equipment imports, that is leading for doing cross
border business and diversiÀcation of cross border markets of goods and services.
As a result there is intensiÀcation of investment cooperation within cross border territory and also volume of cross border trade of goods and services is
increasing.
Additionally, as an element of cross border cooperation it is performed cross
border trade, that is a form of economic impact of preferential regimes within
development of foreign economic relations in cross border territories.
Key elements of border-trade mechanism for the formation and development
of foreign economic relations of cross-border territories are: formation of trade
and brokerage networks within cross border territories, development of logistics systems targeted on cross border trade activity service and also impact on
development of informal institutes of development of cross border business
activity and evolution of cross border markets.
89
2.3. LEGISLATIVE APPROACHES TO CROSS BORDER COOPERATION
DEVELOPMENT
The territories (oblast’), which are involved in cross border cooperation, as a
rule, are developing the programs on cross border cooperation and plans of
their realization. In comparison with state programs they include provisions
on development of exact objects, actions and executors.
Taking into account the importance to adapt the legislation of Ukraine to the
requirements of legislation of the European Union it was synchronized in directions of cooperation, providing:
- implementation of Memorandum of understanding on regional policy;
- establishment of interaction between local and regional authorities of
Ukraine and the EU in the framework of the EU Committee of the Regions
(CoR);
- implementation of the Joint EU initiative on Crimea;
- implementation on regional level projects through EU Ànancial instruments
(European Neighborhood and Partnership Instrument) and the Ànancial institutions of the EU (European Investment Bank, European Bank for Reconstruction and Development);
- participation in the Pilot Program for Regional Development of the Eastern
Partnership (EaP HIPRR);
- participation in the Joint Operational Programme ENPI CBC “Ukraine-Hungary-Slovakia-Romania”;
- participation in the Joint Operational Programme ENPI CBC “Ukraine-Poland-Belarus”;
- participation in the Joint Operational Programme ENPI CBC “Romania-Ukraine-Republic of Moldova”.8
2.4. STEPS OF LEGISLATIVE AMENDMENTS
By making steps forward for adaptation of Ukrainian legislation to the EU legislation on cross border cooperation there is a range of problems and questions
that require special attention.
8
Regionalne spivrobitnictvo mizh Ukrainoyu ta ES // OÀcijnij veb-sajt MZSU [Elektronnij
resurs]. – rezhim dostupu: http: mfa.gov.ua/ua/about-ukraine/European-infgration/eu-regionalcooperation.
90
The legislation of Ukraine on cross and transborder cooperation is characterized by certain failures and inconsistencies with ratiÀed international regulations and standards of the EU and respectively needs improvement and amendments. Topicality of adaptation of domestic legislation to the EU standards is
because of policy of European integration and cross border cooperation with
the EU states including Poland, Slovakia, Hungary, Romania, and Bulgaria as
well.
The Àrst “stone” can be met by researching Ukrainian legislation on cross border cooperation that it is not regulated in the way of economic activity, and the
Act of Ukraine “On transborder cooperation” has a range of lacks:
- provisions of the Act do not determine exact mechanisms of transborder
cooperation and division of authorities competence, and also Ànancing of
transborder cooperation projects;
- there are no exact provisions on regulation of special status of transborder
cooperation bodies established by local communities, mechanism of their
establishment and functioning in a case of their location in Ukraine.
By the mentioned Act it is denoted, that the bodies of transborder cooperation
can be established as legal persons and in separate cases their functions can be
delegated to the respective executive bodies of self government and structural
divisions of local bodies of executive power.
At the same time in the provisions of the Ukrainian Act of “On local state administration” there are no direct regulations on the administration competence
on cross and transborder cooperation. The rules have indirect character as obligations on work with international agreements of Ukraine on an appropriate
territory.
Centralization of distribution of powers in the sphere of cross and transborder
cooperation in Ukraine is also in order of formation of the structure of the Interdepartmental Commission for support transborder cooperation – consulting
body within the Cabinet of Ministers of Ukraine, whose one of the functions
is reviewing offers of decision making on transborder cooperation and euro
regions. The structure of the Commission is formed from representatives of
almost all Ministries, but mandatory involvement of representatives of local
communities is not provided.
As a negative factor that discredits the participation of the Ukrainian party
should be considered predictable lack of the budget expenditures at different levels of funds guaranteed by the Ukrainian beneÀciaries (usually regional councils
and regional administrations, other state administrations) for co-Ànancing from
the Ukrainian side, required as a part for joint projects with the EU.
91
Increasing volume of interbudgetary transfers in the whole volume of incomes
of local budgets, competence contradictions and inconsistencies between authorities of different levels does not allow Ànancing cross and transborder projects from this source properly. Research of practice shows that the funds are
coming from foreign partners.9
The urgent need for cross border cooperation is developing of a properly legislative based on regulation of a mechanism of Ànancing cross and transborder
projects, that is an integral part of the processes of their implementation.10
There is also a complex and inÁexible system of the national selection process
on projects of euro regional cooperation for getting state Ànancial support.
There are signiÀcant gaps in the preferential mechanism of stimulation of foreign economic and investment activity of cross and trans-border territories for
participants of euro regional cooperation.
It is denoted insufÀcient competence of subjects of cross and transborder cooperation of Ukraine by preparation of project applications and their applying for selection process on getting international technical assistance within
European programmes of cross and transborder cooperation, the European
instruments of neighborhood and partnership and Ànancing from the budget
of Ukraine.11
On the base of the state policy there are no favorable conditions for increasing
of activity and human potential of non-governmental organizations that does
not allow mastering possibilities for Ànancing projects of the EU.12
9
Regionalne ta transkordonne spivrobitnictvo mizh Ukraïnoyu ta ES. Elektronnij resurs.
Rezhim dostupu: http:// www. mfa.gov.ua.; Goblik V.V. Rol transkordonnogo spivrobitnictva
u procesi evropejskoï integraciï Ukraïni. V: Evroregionalne spivrobitnictvo Ukraïni ta jogo
integracijnij potencial. Zbirnik nauk. prac /Vidp. red.I.O. Artomov.- Uzhgorod: ZakDU, 2012.
– s. 27.
10
Pro zatverdzhennya programi rozvitku transkordonnogo spivrobitnictva na 2011-2015 rr.:
Postanova KMU vid 1 grudnya 2010 r. No 1088 /Elektronnij resurs. Rezhim dostupu: http//
zakon2.rada.gov.ua
11
Nosa N.O. Rol mizhnarodnoï asociaciï instituciï regionalnogo rozvitku (MAIIPP) v osnovi
evropejskogo spivrobitnictva. V: Evroregionalne spivrobitnictvo Ukraïni ta jogo integracijnij
potencial: zbirnik nauk. prac za materialami kruglogo stolu ekspertiv (m. Uzhgorod 20. 04.
2012). Vidp. red. I.V. Artomov. – Uzhgorod: ZakDU. – s. 137 -138.
12
The 6-th Europe-Ukraine Forum. Budapest, 12-14 May, 2013. Gorshenin institute.
Ukraine 2012. Report on transformation. Institute for Eastern Studies, 2013. p. 35-38, 54-78, //
www. Economic-forum.pl.
92
3. CONCLUSION
By the above mentioned conclusion, there is an urgent need to introduce
cost-oriented model of euro regions in Ukraine, that will help optimize the
impact carried by governance system of regional economic development in the
context of providing of the overall dynamics focused in a positive direction
and providing access to new quality of cooperation in euro regions targeted
on the implementation of economic projects and creating conditions to attract
private funds to implement euro regional cooperation.
Transition to a new level of management of transboundary processes, adoption
of its standards to the Association with the EU, FTZ and in a prospective with
conditions of membership of Ukraine in the EU requires from the Verkhovna
Rada of Ukraine, the Cabinet of Ministers of Ukraine, regional administrations and councils to improve institutional provisions of the cross and transborder cooperation through division functions of powers of local and central
executive authorities, bodies of local self government on cross and transborder
cooperation.
Formation of a new policy of cross and transborder and euro regional cooperation involves introduction of the range of measures on synchronous modernization tools of regional development in Ukraine by the Cabinet of Ministers
of Ukraine..
The cross and transborder cooperation development, that has a signiÀcant role
in solving problems of cross border territories related to peripheral location
promotes doing-business activities and acceleration of the social and cultural
changes which are prerequisite for good neighborhood relations and as a result
will brings Ukraine to European integration.
LITERATURE:
1. Pro zatverdzhennya programi rozvitku transkordonnogo spivrobitnictva na 20112015 rr.: Postanova KMU vid 1 grudnya 2010 r. No 1088 /Elektronnij resurs. Rezhim dostupu: http//zakon2.rada.gov.ua.
2. Goblik V.V. Rol transkordonnogo spivrobitnictva u procesi evropejskoï integraciï
Ukraïni. V: evroregionalne spivrobitnictvo Ukraïni ta jogo integracijnij potencial.
Zbirnik nauk. prac /Vidp. red.I.O. Artomov.- Uzhgorod: ZakDU, 2012. – s. 27.
3. Davidov D.M. Prigranichnoe i transgranichnoe sotrudnichestvo kak faktor razvitiya esklavnogo regiona Rossii // Vestnik Rossijskogo gosudarstvennogo universiteta im. Immanuila Kanta. - Vyp. 6. Ser. Gumanitarnye nauki. - Kaliningrad:
Izd-vo RGU im. I. Kanta, 2008. - S. 72-77.
93
4. Kalenichenko P.M., Kolesnik V.P. Granica druzhby i mira: O sovetsko-polskom
prigranichnom sotrudnichestve. 1956-1979. - Lvov: Vishha shkola. Izd-vo pri
Lvov. un-te, 1980. - 159 s.
5. Kiryuxin O. Transkordonne spivrobitnictvo u rosijsko-ukraïnskih vidnosinah //
Ukraïna: strategichni prioriteti. Analitichni ocinki. - K., 2006. - S. 432-438.
6. Kolesnik V.P. Internacionalnye svyazi trudyashhihsya prigranichnyh oblastej
SSSR i evropejskih socialisticheskih stran. - Lvov: Vishha shkola. Izd-vo pri Lvov.
un-te, 1984. - 176 s.
7. Nosa N.O. Rol mizhnarodnoï asociacï instituciï regionalnogo rozvitku (MAIIPP)
v osnovi evropejskogo spivrobitnictva. V: evroregionalne spivrobitnictvo Ukraïni
ta jogo integracijnij potencial: zbirnik nauk. prac za materialami kruglogo stolu
ekspertiv (m. Uzhgorod 20. 04. 2012). Vidp. red. I.V. Artomov. – Uzhgorod: ZakDU. – S.137 -138.
8. S. M. Frolov Analiz socialno-ekonomichnoï politiki derzhavi na prikordonnih
teritoriyah. Elektronnij resurs. Rezhim dostupu: http://www.economy.nayka.com.
ua/?op=1&z=946
9. Studennikov I. Transkordonne spivrobitnictvo ta jogo rol v procesi evropejskoï
integraciï Ukraïni // Mizhnarodni zv‘yazki Ukraïni: naukovi poshuki i znahidki.
- Vip. 15. - K., 2006. - S. 309-322.
10. Shmanko G.I., Studenyak P.Yu. Druzhba mezhdu lyudmi - druzhba mezhdu
narodami. - Uzhgorod: Karpati, 1984. - 128 s.
11. Shmanko G.I. Micna yak kricya. - Uzhgorod: Karpati, 1975. - 176 s.
12. Evropejska ramkova Konvenciya transkordonnogo spivrobitnictva mizh teritorialnimi obshhinami abo vlastyami (21 travnya 1980 r., m. Madrid). Tekst ukraïnskoyu
movoyu // Transkordonne spivrobitnictvo yak alternativa novij «zaliznij zavisi» ta
konÁiktam: kompleksne doslidzhennya. - Uzhgorod: Karpati, 2007. - 240 s.
13. Plody bratskogo edineniya / I.M. Granchak, P.I. Xalus, G.I. Shmanko i dr. - Uzhgorod: Karpati, 1980. - 224 s.
14. Regionalne spivrobitnictvo mizh Ukraïnoyu ta ES // OÀcijnij veb-sajt MZSU
[Elektronnij resurs]. – rezhim dostupu: http: mfa.gov.ua/ua/about-ukraine/European-infgration/eu-regional-cooperation.
15. Regionalne ta transkordonne spivrobitnictvo mizh Ukrainoyu ta ES. Elektronnij
resurs. Rezhim dostupu: http:// www. mfa.gov.ua.
16. Sotrudnichestvo obshhestvennyh organizacij stran socializma / I.N. Melnikova,
P.P. Brickij, S.V. Vidnyanskij i dr. - K.: Nauk. dumka, 1983. - 271 s.
17. The 6th Europe-Ukraine Forum. Budapest, 12-14 may, 2013. Gorshenin institute.
Ukraine 2012. Report on transformation. Institute for Eastern Studies, 2013. p. 3538, 54-78, //www. Economic-forum.pl.
18. OfÀcial site of the Association of European Border Regions http://www.aebr.net/
94
S. Yu. Marochkin, S. Al. Stepanov: Challenges of higher education in Russia in light of integration and creation...
Professional Paper
UDC 378.014.3(470)
CHALLENGES OF HIGHER EDUCATION IN RUSSIA
IN LIGHT OF INTEGRATION AND CREATION OF A
DOUBLE DIPLOMA MASTER PROGRAMME
Sergei Yu. Marochkin *
Sergei Al. Stepanov **
ABSTRACT
One among many driving forces of progress in any Àeld of the human activity and
knowledge is synthesizing of the accumulated world experience. Taking into consideration an unending process of reformation of higher education, it is increasingly important to study and analyze all tendencies of development of today’s higher education.
The process of reformation of any higher education system is complicated because
a necessity arises to duly tackle a whole range of challenges. A rapid widening of a
sphere of education and subsequent changes of its status are accompanied by growing
problems which have led some researches to believe that there is a current crisis of
education. A several causes of this crisis are emphasized such as inability of existing
schools and universities to cope with a scale of a constantly growing need of education
for population as well as visible insufÀciency of resources and inertia of society.
Tendencies of education systems in the world have left their mark on the Russian
society as well. Many experts point out pressing challenges of the Russian higher
education system that need attending to. But considering modern processes of the
global integration, it can be said for sure that analysis of the Russian higher education system in a context of integration and creation of a double diploma master
program may give us proper means to successfully tackle pressing issues of higher
education of Russia.
Based on the aforementioned, the following aims of this paper should be emphasized:
- studying the modern Russian higher education system from a position of integration;
- highlighting pressing issues of the higher education system of Russia as well as
taking them into consideration in the process of creation and implementation of the
joint international master programme.
*
Professor at Tyumen State University; s.y.marochkin@utmn.ru.
**
Magister student, Tyumen State University; sergey-u29@mail.ru.
95
1. INTRODUCTION
Science and education are, probably, among the most conservative spheres of
social life which is determined by the very peculiarities of this Àeld of human
activity. Incessancy and consistent succession of traditions are major conditions and prerequisites for successful development of education as a whole
and jurisprudence in particular. On the other hand, rash changes, including
those accompanied by benevolent slogans for modernization and reform, could
come into conÁict with national and historic traditions in a Àeld of education
and lead to loss of everything that has been achieved.
Importance of higher education for modern society can hardly be overestimated. This is referred to in international documents as well. As indicated in Convention on the Recognition of QualiÀcations concerning higher education in
the European Region1, higher education, which is instrumental in the pursuit
and advancement of knowledge, constitutes an exceptionally rich cultural and
scientiÀc asset for both individuals and society.
Considering these overall ideas, it seems important to look into assessments
of today’s challenges and tendencies of development of higher education at an
international level as well as to grasp its nature and destiny as a constitutional
value of a modern democratic and rule-of-law state. Taking the abovementioned into account, this paper focuses, on the one hand, on main issues of the
higher education system of Russia in light of implementation of the Bologna
declaration2 in the ongoing process of creation of the common educational
space in Europe. On the other hand, the paper is concentrated on a role of a
double diploma master program in a process of improvement of higher education quality.
2. THE GROWING INTEGRATION AND THE ROLE OF
INTERNATIONAL AND EUROPEAN LAW
There is no doubt whatsoever that nowadays interconnection and integrity of
the world have been increasing. Many domestic and regional challenges become global giving rise to talks on the process of globalization of problems
facing humanity. A tendency of the integration as well as creation of the common political, economical and legal space, in particular within the European
region has been emerging.
1
Convention on the Recognition of QualiÀcations concerning higher education in the European Region of 11 April 1997 (CETS No 165), Preamble.
2
96
Joint declaration of the European Ministers of Education convened in Bologna on 19 June 1999.
The foundation of the post-war system in the middle of the twentieth century and the creation of the UN system signiÀcantly changed the picture of
the world. The social nature of international law has grown from the law of
only the so-called ‘civilized’ nations into the law of communication among
all states with different social systems and backgrounds, meaning developed
states as well as developing and emerging ones. Practically the entire globe
and all types of space, including cosmic space, are nowadays within international law. The range and types of the subjects of international law were
immensely expanded due to an unprecedented growth of a number of international organizations, other structures and intergovernmental bodies. Former
colonial states indigenous and tribal people, legal entities natural persons and
non-governmental organizations have also been involved in the sphere of legal
regulation. A number of new branches of international law have been set up.
At the same time, international law still undergoes changes and prospects for
development. The incentives for this are the great changes in the social and
political picture of the world, the increase of coherence and interdependence
among states and also the globalization process, which is obviously steady and
irreversible. Many problems which were of domestic and regional character
have become universal. The tendency to integration, “disappearance” of frontiers and creation of common political, economical, Ànancial and legal space is
obvious. This tendency is best revealed within the European region and it has
preconditions for further development and expansion3.
Speaking of the integration process of education one should take into account
the relationship between legal systems, in particular, between European and
International law.4 The EU is an international organization in origin, but has
become highly constitutionalized possessing the supranational legislation of
detailed norms, the advanced and widespread law-making procedures, the EU
courts with jurisdiction in procedures that create an elaborate system of compulsory dispute settlement mechanisms.
Some authors5 highlight such speciÀc points: tensions between internationalism and constitutionalism in EU law (both they are very prominent when
analyzing the relationship between EU and international law); the nature of
the EU (it is not merely of academic relevance, not the least because there are
3
Marochkin S.Yu., On the Recent Development of International Law: Some Russian Perspectives, Chinese Journal of International Law (Oxford Journal), Vol. 8 (3), 2009, p. 695 – 714.
4
See, eg, Ignatenko G.V. and Tiunov O.I. (eds.), Mezhdunarodnoe Pravo, 4th ed., Moscow,
2008, p. 27-28; Kuznetsov V.I. and Tuzmukhamedov B.R. (eds.), Mezhdunarodnoe Pravo, 2nd
ed., Moscow, 2007 (both in Russian).
5
Ziegler K. S., The Relationship between EU law and International Law, University of
Leicester School of Law Research Paper No. 13-17, Leicester 2013, p. 89.
97
consequences and “even if taking the position that EU law is only an especially
advanced type of international law, the relationship between EU law and international law has become a complex one due to a number of factors” (such as the
triangular relationship between EU law, international law and the EU Member
States)); possibilities of conÁicts of norms and conÁicts between courts and
tribunals about jurisdiction and substantive interpretation of rules between EU
law and general international law (‘fragmentation’); fact that general international law also beneÀts from the more evolved, more constitutionalized parts
of international law/international organizations in several respects).
There are also the issues of the legal personality of the EU under international law, and its capacity to act internationally; of the scope of the powers of
the EU. Discussing such issues unearths some complicated (and unresolved)
underlying jurisprudential debates into such topics as the precise nature and
function of legal personality and the concept of legal powers. By the same
token, the relationship between international law and EU law provokes reÁections on the co-existence of distinct legal orders. While there are excellent
studies of the details of EU external relations law, most of these focus on the
constitutional dimension or on concrete policies, rather than on the place of the
EU in the broader scheme of things. It is difÀcult, moreover, to identify serious
jurisprudential work on the EU’s position in international law. Yet, it is by no
means eccentric to suggest that such serious work ought to be undertaken: the
more the EU matures, the more it acts as a global power, the more fundamental
issues concerning its position in international law will be raised.6
Such a necessity reÁects in different Àelds including higher education, in particular, common master programs of the universities of different countries (including Russia) and legal orders.
3. UNIFICATION OF HIGHER EDUCATION WITHIN THE
BOLOGNA PROCESS
Before focusing attention on the pressing challenges of the Russian higher education, it is wise to highlight importance of the Bologna process because a lot
of unsolved issues of higher education of Russia have to do with implementation of provisions of the Bologna declaration.
It is well known that an ofÀcial process of the uniÀcation of educational space
in Europe was triggered “from below” by 250 heads of European universities
6
.Klabbers J., 1) Presumptive Personality: The European Union in International Law, in
Martti Koskenniemi (ed.), International Law Aspects of the European Union, Martinus Nijhoff
Publishers, 1998, p.47; 2) The EU and International Law >http://ivr-enc.info/index.php?title=
98
after signing the Magna Charta Universitatum7. Afterwards, once the European process became an increasingly concrete and relevant reality for the Union
and its citizens, the Bologna declaration was adopted.
With this declaration traditionally, but not always in a well-founded way, the
beginning of the Bologna process is associated. In this document a task to
coordinate policies of European countries was proclaimed. Implementation
of the task is supposed to lead to achievement of such aims as adoption of a
system essentially based on two main cycles, undergraduate and graduate and
promotion of mobility by overcoming obstacles to the effective exercise of free
movement of students and teaching staff.
Researches point out that the mission of the Bologna Process is that of making
Europe “the most competitive and dynamic knowledge-based economy in the
world, capable of sustainable economic growth with more and better jobs and
social cohesion”8.
The Bologna Process is, undoubtedly, a positive development. It is an analogue
to the macroeconomic theory of convergence, the ways in which nations move
from different stages of development to a more-or-less common platform of
performance. Macroeconomic historians have demonstrated time-and-again:
nations that learn from other nations grow; those that do not learn, don’t9.
The Bologna process is not just a matter of higher education. It presents another form of globalization that is needed, like the global market or global media.
In other words, the Bologna process is a part of the larger picture in which
people, ideas and information are moving freely across national borders. One
of the cores of the national identity, the higher education, is being increasingly
internationalized, as states are adapting their policies to this new development.
The Àrst sentences of the Bologna Declaration refer to the EU and its enlargement process, but it would be wrong to see the Bologna process as an EU
project. Rather, the spirit of the process is clearly pan-European, with Russia’s
full participation.
7
Magna Charta Universitatum of Rectors of European Universities convened in Bologna on
18 September 1988.
8
Juretiþ K., Kaštelan K., Lack of Communication in the World of Highly Developed Communications Technologies, The International Language Conference on the Importance of
Learning Professional Foreign Languages for Communication between Cultures 2011.
9
Clifford A., The Bologna Process for U.S. Eyes: Re-learning Higher Education in the Age
of Convergence. Washington, DC: Institute for Higher Education Policy, Location reference:
www.ihep.org/Research/GlobalPerformance.cfm., 2009
99
Researches10 consider that Russia is a member of the Bologna process for three
following reasons, such as:
a) a)..formation of the so called world intellectual climate which stands for
international university mobility;
b) the Bologna process is an integral part of emerging knowledge economy. In
today’s world knowledge has become an essential factor of production that
provides maximum beneÀts from investments;
c) emergence of the Bologna process relates to changes in power and inÁuence in the modern world. Traditional categories of power, such as territory,
natural resources and military which are referred to as “hard power”, give
way to “soft power” that represents competitive economy, active engagement in diplomacy and moral authority.
In other words, the Bologna process presents a challenge to Russia at three
levels: economical, socio-cultural and also in a context of the state power.
It should be kept in mind that the Bologna process is closely connected to the
EU-Russia relations. The Bologna process, leading to the European Higher
Education Area, is deÀned as the core framework in the EU-Russia cooperation in the Àeld of higher education.
While the Bologna process is, as any integration process, about harmonization
in order to achieve greater compatibility and comparability, this harmonization is combined with an effort of maintaining diversity and respect of cultural
traditions in the Àeld of higher education. The main instrument for avoiding a
mechanic homogenization in this integration process is autonomy at the level
of universities.
Of course, there are some critics of the Bologna process. For instance, the
Bologna process is blamed for excessive standardization of education which
sometimes poses a challenge for introduction of innovations such as joint
cross-border degrees. It is also suggested that instead of standardization the
Bologna process is aimed at, attention should be directed toward wider adoption of practical learning methods which could help to create the next generation of graduates needed for innovation societies11. But, despite this, we can
see a real picture all around us: beginning with the day the Bologna declaration was adopted, more and more countries have expressed their wish to join
in creation of the common educational space which has resulted in similarities
10
Medvedev, S.A., Pursyinen, K., The Bologna process and its importance for Russia, Moscow, 2005., p. 199 (in Russian).
11
<http:// www. Times higher education. co. uk/ news /eus-national-systems-need-morealignment-conference-told/2016623.article>, last accessed on 10/11/2014.
100
of higher education systems of many countries. But does the Russian higher
education meet the high requirements of the Bologna process? To answer this
question, we need to look into existing obstacles of higher education which
Russian society faces. Only then can we conclude that Russia have been carrying out ideas of the Bologna process in practice in a right way.
4. CHALLENGES OF HIGHER EDUCATION IN RUSSIA
It is clear from the above why Russian is a member of the Bologna process. But
implementation of requirements of the Bologna process in practice has struck
a snag in a form of unresolved issues of higher education. We will not go into
details of all of them because they are quite numerous. Instead, we will highlight a several challenges which are major in such a way that even the Russian
government pays a great deal of attention to them. On 15 July 2014 a meeting
in the Russian government was held which was dedicated to development of
higher education in Russia. The meeting saw a range of today’s challenges
highlighted, such as12:
- a received diploma of the higher education does not correspond to a student’s real knowledge on a subject.
Unfortunately, a person with a higher education diploma does not always possess adequate knowledge. This applies, by the way, to all universities but the
most challenging situation has been manifesting itself in non-state universities
and their branches. Often it has to do with the university being unable to provide students with a necessary level of educational programmes. There is no
proper teaching staff as well as corresponding foundation for their training.
Also, there are no adequate conditions for studies especially for some professions. Opportunities for successful research work have not been created, not
everywhere anyway. All this results in a low position of the university compared to leaders of the Russian education.
- monitoring of the university effectiveness, which was introduced in 2012,
has not been as successful as it was planned. The work in this direction
needs improving.
The head of the Russian government D.A. Medvedev emphasized that education quality is not the only factor which determines effectiveness of the university. Also need to be taken into consideration other as important factors, such
as employment of graduates, a level of organization of students’ research work,
qualiÀcation of a teaching staff as well as implementation of programmes of
12
<http://government.ru/news/13753/>, last accessed on 16/11/2014.
101
postgraduate education and additional professional education and their correspondence to requirements of labour market.
- reorganization of the universities often violates rights of a teaching staff
and students.
In the process of monitoring, necessity of reorganization has been detected
with respect to some universities. But such reorganization does not provide the
observance of rights of a teaching staff. Students’ rights are violated as well.
They lose an opportunity to complete their studies based on the same conditions as those existing during their enrolment to the universities.
- monitoring of effectiveness and scheduled inspections by the Federal service
of education supervision have shown that many branches of state and non-state
universities as well as substantial part of non-state universities do not meet
minimum requirements.
Having evaluated 2014 monitoring results, it has been deduced that more than
1 000 universities or their branches did not meet baseline requirements established by the state. Considering that today in Russia there are approximately
1 000 universities and 1 500 branches, the indicated number is of great concern.
Such are the problems highlighted by the Russian government. There is another type of challenges as well which relate to Russia’s conversion to Bologna
standards. And these challenges cannot be ignored.
It is necessary to note that two-level higher education in Russia has been introduced as early as 1992 but persistent rejection of the Àrst cycle of this education by employers has hampered its progress.
A Russian researcher in a Àeld of education Valeriy A. Belov emphasizes that
some universities (especially technical ones) without additional public Ànancing and support, continue to produce “specialists” since the industry works
under the old standards. In this respect, he underlines importance of Ànancial
support of the EU through programmes and grants. They are necessary for
those higher education institutions which begin the new stages of training and
will face resentment of the population, business community and the society
(including their own teachers who do not want to restructure without salary
increase)13.
In the same research Valeriy A. Belov sees the introduction of the European
Credit Transfer System (ECTS) (as an instrument for comprehensive expan13
Belov, V.A., The Bologna process and its importance for Russia, Moscow, 2005., pp. 48-51
(in Russian).
102
sion of the student mobility) as one of the priority problems. In his opinion,
its implementation will take a long time since only leading educational institutions or regional or proÀle-based institutional associations are capable of
implementing pilot projects in some of the specialisations. This work requires
thoroughness and additional funding and therefore it should be better broken
into stages with project in 10–20 specialisations being implemented every
three years and tested in pilot universities and departments.
Surely, this is just a fraction of all troubles relating to implementation of the
Bologna requirements in Russia. There is one agreed point, however: without
doubt, Russian connection to the European educational space depends on existence and implementation of a nationwide programme which would introduce
gradual changes over time. That, however, requires political will and Ànancial
capacity on the part of both the state and society.
5. WHAT IS REQUIRED OF TODAY’S LAWYER AND HOW
DOUBLE DIPLOMA MASTER PROGRAMME IMPROVES
HIGHER EDUCATION?
Pushed by time requirements, education nonetheless is undoubtedly moving
forward. Thus the abovementioned difÀculties need to be surmounted one way
or another.
Nowadays, modernization of the economy and the Ànancial sphere is the main
direction of development of Russian and European society. Qualitative training of qualiÀed lawyers could and must become a foundation for a successful
reformation of both Ànancial and economical systems. At the same time, such
training could provide adequate changes of law demanded by urgent tasks.
Activity of Ànancial and economic structures under the circumstances of exclusive requirements of modernization is not possible without competent legal
support.
It is important to realize, that a picture of a lawyer of 21th century and legal
education as a whole are inÁuenced by processes taking place not only in one
particular country, but in the entire world as well. Common processes of world
development can not be left out while working on programmes of training of
higher education specialists. And legal profession is the Àrst in such regard.
So, what skills should a lawyer have? Speaking about mental abilities, every
lawyer is expected to be able to analyze different situations as well as understand his mistakes. Apart from such traits as resolution, persistence or persuasion, a lawyer should aspire for compromise being Áexible and diplomatic in
the process.
103
From a position of knowledge, it is clear that a lawyer of the future will not be
successful in practice possessing no grasp of International and European law.
Furthermore, a lawyer that is good at domestic law only will fall behind time.
It is a mistaken opinion that if a lawyer is engaged in business relationships, he
needs to rely on other Àelds of law which are beyond international and European law. A real situation is quite opposite. It is thought that lawyers possessing
great knowledge of both International and European law are much more in
advantageous position with respect to others.14 Of equal importance are other
disciplines such as economics and governance.15
It should be kept in mind that interaction between states within the world community has never been chaotic, spontaneous and unsystematic. It has always
been determined by both objective and subjective factors. From the moment
the Àrst states emerged and a necessity to determine their mutual rights and
obligations arose, International law has always been in the spotlight. After so
many years of human existence there is still no regulator of resolving issues
and relations between states which would be as meaningful as International
law. Taking all this into account, the issue of importance of International and
European law falls out of question by itself.
A great knowledge of International and European law by Russian students
does not seem possible without international cooperation between universities.
And this is what joint programmes are designed for. Such programmes serve
as a natural new stage of the institutional cooperation during which their interaction takes place within the very process of educational delivery. Thus, new
opportunities are established for the synergies between educational cultures as
well as quality of curricula is improved and their appeal and competitiveness
enhance.
Among the joint programmes spreading widely throughout Europe and the
rest of the world creation of the double diploma master programme is the most
obvious. And it should not come as a surprise. A Russian researcher Sergei
M. Yakovlev sees a double diploma master programme as an instrument for
solution of the following challenges16:
14
See in detail, Marochkin S.Yu., Mezhdunarodnoe Pravo v Yuridicheskom Obrazovanii v
Nachale XXI Veka, Yurist XXI Veka: Real’nost’ I Perspectivi (Proceedings of the All-Russian
ScientiÀc-and-Practical Conference). Ekaterinburg, 2002, p. 31-35 (in Russian).
15
See, in particular, Marochkin S.Yu., Tordia I.V., Shunevich M.I., Some Issues of Development of Corporate Governance in Russia in the Light of European and International Law,
Journal for the International and European Law, Economics and Market Integrations, Vol. 1 (1)
2014, p. 133-144.
16
Yakovlev, S.M., The Bologna process and its importance for Russia, Moscow, 2005., pp.
75-87 (in Russian).
104
- establishment of the curricula where all the basic elements of educational
process (the curriculum, methods of training and assessment, the content
requirements to courses and teachers) are agreed;
- an automatic recognition of results of training at the partner university by
all members of the partnership as a guarantee of embedding an element of
mobility as a necessary part of the educational process;
- establishment of joint steering bodies for the programme;
- issuance of the joint (on behalf of the programme participants) diploma or
diplomas by the participating universities upon the completion of training.
But what do students, teachers and universities gain from this? Sergei M. Yakovlev insists that importance of double diploma programmes in the European
understanding is determined by the gains they bring to the participants:
- students get new additional opportunities for mastering trades, developing
new type of thinking and gaining experience in other academic and social
settings, which creates preconditions for their wider professional mobility
and a demand on a labour market as well as developing their sense of “European citizenship”;
- teachers get new opportunities for professional cooperation and growth,
particularly research cooperation with foreign colleagues and establishment of long-term professional contacts;
- universities get a kind of added value in the form of better and more attractive educational programmes, augmentation of their academic potential
owing to new opportunities of cooperation with other higher schools, use
of their experience in multiple different areas and, as a result, improved
reputation and competitiveness.
It is worth mentioning that a number of countries (Àrst and foremost, Eastern
European ones) see an important interest for themselves in taking part in joint
programmes for curricula and training techniques modernization and increasing competitiveness and quality of educational programmes.
Undoubtedly, as clearly seen from the above, a double diploma master program
conduces directly to mastering of all facets of International and European law.
In general, it can be surely said that graduates of universities taking part in
the project are becoming more competitive on the labour market and getting
employed in prestigious companies including International ones. Furthermore,
they are getting more demanding to the very process of studying. After all, as
is well-known, Tempus projects provide for compulsory studying in European
partner universities (the so-called mobility) and students get an opportunity
to get in on a process of training in a different academic and cultural envi105
ronment. After such studies they no longer want to passively, for many hours,
listen to lecturers but they wish to discuss and have more opportunities to
participate in practical and applied work as well as other projects. They wish
to become equal in rights participants of a process of studying so they would
be listen to and have their opinion respected.
Thanks to the Tempus project double diploma program, majority of partner
universities introduce new practice and approaches aimed at providing qualitative education. Nevertheless, this Àeld has a lot that needs to be worked on
in order to form a modern system of quality assurance in every university17.
6. CONCLUSION
On 26 and 27 April 2012 in Bucharest at the Ministerial Conference of the European Higher Education Area (EHEA)18 it has been indicated that higher education structures in Europe are now more compatible and comparable. Quality
assurance systems contribute to building trust, higher education qualiÀcations
are more recognizable across borders and participation in higher education has
widened. Students today beneÀt from a wider variety of educational opportunities and are increasingly mobile.
And yet, unfortunately as can be clearly seen from above, for too many students
progress through their higher education experience is more a labyrinth than a
straight path. Students encounter many unnecessary hurdles on the way from
enrollment to completion.
Assessing the Àrst results of participation of Russia in the Bologna process, it
is important to point out that the main issue for Russia seems to be increasing
of effectiveness of universities. That is why it can be concluded that achievement of a full Russian membership in the common education space at what the
Bologna process is aimed will take some time in the future.
One of the keys to solving the task of creation of the common educational
space as well as challenging issues of higher education is working out of a
double master’s diploma degree programme. As for Russia, one of the major
priorities in double diploma programmes with foreign universities consists in
the opportunity of achieving de facto international recognition of their diplomas, strengthening of the academic capacity due to interaction with a foreign
university, improvement of quality and competitiveness of the programme,
creation of new broad opportunities of development for the faculty and train17
Oleynikova O.N., The Tempus program celebrates 20 years of its existence, Education
quality, 2010. No 10. 46-50 p.
18
<http://www.ehea.info/article-details.aspx?ArticleId=267>, last accessed on 19/11/2014.
106
ing of students, strengthening of positions in the world educational markets
and establishment of preconditions for the export of educational services.
Researches19 believe that double diplomas are one of the key indications of innovative activity of the university as well. A double diploma degree is recognized
by all partners taking part in a programme which, no doubt, serves a purpose
of creation of common educational space and bringing new opportunities for a
holder of such a degree. But the main beneÀciary, as a result of all this, is the
university. Apart from becoming more competitive and providing more qualitative education, the university grows in the international arena. Quality of methodological and research work is going up as well. Therefore, by successfully
implementing double diploma programmes in practice, we, undoubtedly, are
pushing coordination between universities up to the new heights and hopefully
will gradually Ànd ways of solving the issues mentioned in the paper.
LITERATURE:
1. Belov, V.A., The Bologna process and its importance for Russia, Moscow, 2005.,
pp. 48-51 (in Russian).
2. Clifford A., The Bologna Process for U.S. Eyes: Re-learning Higher Education in
the Age of Convergence. Washington, DC: Institute for Higher Education Policy,
Location reference: www.ihep.org/Research/GlobalPerformance.cfm., 2009
3. Convention on the Recognition of QualiÀcations concerning higher education in
the European Region of 11 April 1997 (CETS No 165).
4. Ignatenko G.V. and Tiunov O.I. (eds.), Mezhdunarodnoe Pravo, 4th ed., Moscow,
2008, p. 27-28 (in Russian).
5. Klabbers J., 1) Presumptive Personality: The European Union in International
Law, in Martti Koskenniemi (ed.), International Law Aspects of the European
Union, Martinus Nijhoff Publishers, 1998, p.47; 2) The EU and International Law
>http://ivr-enc.info/index.php?title=
6. Kuznetsov V.I. and Tuzmukhamedov B.R. (eds.), Mezhdunarodnoe Pravo, 2nd ed.,
Moscow, 2007 (in Russian).
7. Joint declaration of the European Ministers of Education convened in Bologna on
19 June 1999.
8. Juretiþ K., Kaštelan K., Lack of Communication in the World of Highly Developed Communications Technologies, The International Language Conference on
the Importance of Learning Professional Foreign Languages for Communication
between Cultures 2011.
19
<http://www.tempus-russia.ru/MIIT-seminar/DD-Oleynikova.pdf>, last accessed on 19/11/2014.
107
9. Magna Charta Universitatum of Rectors of European Universities convened in
Bologna on 18 September 1988.
10. Marochkin S.Yu., Mezhdunarodnoe Pravo v Yuridicheskom Obrazovanii v Nachale XXI Veka, in: Yurist XXI Veka: Real’nost’ I Perspectivi (Proceedings of the
All-Russian ScientiÀc-and-Practical Conference). Ekaterinburg, 2002, p. 31-35 (in
Russian).
11. Marochkin S.Yu., On the Recent Development of International Law: Some Russian Perspectives, Chinese Journal of International Law (Oxford Journal), Vol. 8
(3), 2009, p. 695 – 714.
12. Marochkin S.Yu., Tordia I.V., Shunevich M.I., Some Issues of Development of
Corporate Governance in Russia in the Light of European and International Law,
Journal for the International and European Law, Economics and Market Integrations, Vol. 1 (1) 2014, p. 133-144.
13. Medvedev, S.A., Pursyinen, K.,The Bologna process and its importance for Russia, Moscow, 2005., p. 199 (in Russian).
14. Oleynikova O.N., The Tempus program celebrates 20 years of its existence, Education quality, 2010. No 10. 46-50 p.
15. Yakovlev, S.M., The Bologna process and its importance for Russia, Moscow,
2005., pp. 75-87 (in Russian).
16. Ziegler K. S., The Relationship between EU law and International Law, University
of Leicester School of Law Research Paper No. 13-17, Leicester 2013, p. 89.
17. <http:// www. Times higher education. co. uk/ news /eus-national-systems-needmore-alignment-conference-told/2016623.article>, last accessed on 10/11/2014.
18. <http://government.ru/news/13753/>, last accessed on 16/11/2014.
19. <http://www.ehea.info/article-details.aspx?ArticleId=267>,
19/11/2014.
last
accessed
on
20. <http://www.tempus-russia.ru/MIIT-seminar/DD-Oleynikova.pdf>, last accessed
on 19/11/2014.
108
I. Mylnikova: Problems of harmonization and implementation WTO rules and norms to the national legislation...
Professional Paper
UDC 339.52(100)WTO:34(470+571)
PROBLEMS OF HARMONIZATION AND
IMPLEMENTATION WTO RULES AND NORMS
TO THE NATIONAL LEGISLATION OF THE
RUSSIAN FEDERATION
Irina Mylnikova *
ABSTRACT
World Trade organization (WTO) law is a system of rules and principles governing
the whole complex of social relations are related to international trade. WTO rules
and regulations must be implemented into national law of its Member States. Author
focuses that WTO law do not become part of the domestic legal system automatically, moreover the agreements itself does not contain the requirements on the direct
effect and the WTO members are free to determine methods of implementation and
order of application into domestic law.
Russia must implement fully its obligations under the WTO Agreement, as part of
the terms of its accession to the WTO. Especially paid attention to the questions of
direct effect of the WTO rules and norms in relation to the national law of Russian
Federation, Custom Union, taking into accounts the positions of other countries on
this issue.
KEYWORDS: World Trade Organization, the rule and norms WTO, national law, the
direct effect of WTO rules and norms.
*
Assistant Professor at Institute of state and law, Tyumen State University; irin792@gmail.com.
109
1. INTRODUCTION
The purpose of the WTO is to create a united legal space for international
trade, provide security and stability of the international trade.
Creation of the World Trade Organization gives to the states the transition of
international trade regulation’s from bilateral to multilateral level.
The WTO multilateral international agreements are a “lex generalis” regarding to a bilateral international agreements, concluded between WTO member
States. These bilateral international agreements can not contradict the provisions of the WTO multilateral international agreements.
The feature of WTO law is a signiÀcant inÁuence of its legal norms to the national legal system. The WTO is committed to the principle that international
law is part of national legislation.
That is, the WTO rules and norms must be transferred into national legislation
of its member States and receive a priority aplication, which allows to unify
them and to create for foreign economic activity of a united legal space1.
From this follows the idea of an over-nationalism of the WTO legal system.
Primarily WTO law contributes to the uniÀcation “de facto” national legal
systems of WTO members.
According to the Marrakesh Agreement establishing the World Trade Organization: “Each Member shall ensure the conformity of its laws, internal regulations and administrative procedures with its obligations provided for in this
Agreement”.2 Thus, one of the most important principles of the WTO law is
the principle of compulsory application its norms for its members (except two
agreements with a limited number of participants), which explains in order to
the purpose of the WTO3: creating legal space or foreign economic activity
and correlation with domestic law.
WTO rules and norms do not become the part of the domestic legal system automatically. An important feature of the WTO agreements is that they do not
automatically become part of the domestic legal system, and the implementation by the member States of the requirements of the organization shall be
effected by changes in the national legal regulation. Moreover the agreements
itself does not contain the requirements on the direct effect.
1
Kovalev, A.A., Mezdunarodnoe economicheskoe pravo i pravovoe regulirovanie mezdunarodnoj ekonomicheskoj dejtelnosti, M., 2007.
2
Marrakesh Agreement Establishing the WTO, 1994
3
Marrakesh Agreement Establishing the WTO, 1994
110
WTO rules must be implemented into national law of its Member States. The
WTO members are free to determine methods of implementation and order of
application into domestic law.
So, WTO norms and rules must be implemented into national legal order of its
member States and the important task of the Russian Federation is provision
correspondence national law to its norms, as part of the terms of its accession
to the WTO.
The system of the WTO agreements is a complex of legal documents, which
cover international exchange of goods and services, and some areas of production goods in the case that directly related to international trade. WTO rules
are a system of nearly 60 agreements:
GATT 1947/94 (GATT, General Agreement on Tariffs and Trade);
GATS (GATS, the General Agreement on Trade in Services);
TRIMS (The Agreement on Trade-Related Investment Measures);
TRIPS (Agreement on Trade-Related Aspects of Intellectual Property Rights);
SPS (Agreement on Sanitary and phytosanitary Measures);
AG (Agreement on Agriculture);
TBT (Agreement on Technical Barriers to Trade);
CV (Customs Valuation)
SCM (Subsidies and Countervailing Measures)
SG (on Safeguards -special protective measures)
ADA (application VI GATT 1994 (antidumping))
TBT (Technical Barriers to Trade)
SPS (Sanitary and phytosanitary Measures)
DSU (Agreement on the rules and procedures of dispute resolution)
- Decisions of Appellate Body (100) and DSB panels (170).
2. THE LEGAL FRAMEWORK OF THE WTO RULES AND
NORMS APPLICATION BY THE WTO MEMBERS: GENERAL
POSITIONS.
WTO law has an internal hierarchy: it laid the principles for resolving potential conÁicts between the some agreements of the WTO package.
111
WTO law has a hierarchical structure, i.e. it contains the principles for resolving potential conÁicts between individual agreements “package” of the WTO.
General agreement on tariffs and trade, 1994 (GATT-94) is an international
treaty governing trade regulations, which was adopted in the Uruguay round
negotiations.
GATT-94 includes: GATT-47 (excluding the Protocol of provisional application); agreement on the interpretation of some articles of the GATT-47 reached
during the Uruguay round; and 12 agreements regulating trade in goods, the
so-called treaties, adjacent to the GATT.
GATT-94 has a compulsory application for WTO members, participating in
the agreement. While General agreement on tariffs and trade 1947 (GATT-47)
was applied only to the extent compatible with the laws of the member States
(in accordance to the Protocol of provisional application of the GATT-47).
So, in the case of a conÁict of the Marrakesh Agreement (article XVI, p. 3)
with GATT, the priority has GATT norns. Thus, the text of the GATT relates
to the right of the WTO as “lex specialis” (“special law”) with “lex generalis”
(“General law”)4.
However, in the case of a conÁict between the GATT rules and norms of the
other multilateral trade agreements of the WTO package priority will have the
last.
During the participation and the operation of WTO, the key point is the domestic application of WTO laws.
It should be added that the members of the WTO, use different approaches
regarding the application of WTO law:
1) direct application (the national courts apply rules of the WTO agreements
to resolve a dispute, private parties can bring suits in domestic courts based
on WTO law, private parties can be awarded damages for violation of WTO
decisions caused by the actions of public bodies or abolition national act
that does not conform to WTO rules).
2) indirect (implicit) application (national Courts apply the WTO law for the
interpretation of unclear or disputed provisions of domestic law).
There are different basic theories of international law application in national
legal order:
4
Rachinskaja, P. O., Pravovaja sistema, regulirujushaja dejatelnost WTO v oblasti arbitraza,
serija «Economika i pravo», No 11, 2013.
112
1) Monistic theory. According to the monistic theory, all the laws are unitary
entities which are composed by the binding rules. Therefore the internal
and international laws are two relative parts of a single legal structure. The
nature of monistic theory is that once the treaties were signed by the constitutional law, it would become parts of internal laws directly. But in most
cases it is necessary the experienced legislation to convert international
laws into parts of domestic laws. And the laws without the experienced
legislation are called self-executing treaties.
2) Dualistic theory. Dualistic theory insists that internal laws and international laws are two different separated law entities. Moreover the internal and
international laws have a lot of differences on the legal subjects and the
sources. The legal subjects of the internal laws are individual but the subjects of the international laws are sovereign.
Hence, the fully or partly application of international laws in speciÀed judicial
districts is the expression of prestige of the internal laws. This theory converts
the international laws into internal laws for application. Then the international
treaties are applied as the internal laws rather than the international laws. Once
the judges come across the conÁicts between internal laws and international
laws, they choose to apply the internal laws.
3. THE POSITION OF EUROPEAN UNION ON THE DIRECT
EFFECT OF WTO RULES
The European Union (EU) adheres to the monistic concept of correlation between national and international law, according to which international law is
an integral part of the national law without requiring changes to domestic legislation5.
GATT directly imposes obligations on the EU and the countries - participants
of the EU without the need for its transformation into EU law and thus is part
of the rule of law countries - participants of the EU international treaties would
become parts of internal laws directly, by the constitutional law of EU and its
participants6.
Preamble of the EC Council Decision on the Participation of the European
Community in the WTO: «by its nature, the Agreement establishing the WTO,
5
Gudkov, I., Mizulin N., Pravila WTO: problem prjamogo dejstvija i effectivnosti mer otvetstvennosti za narushenija, Vneshnetorgovoe pravo, No 1, 2012.
6
Ershov, S.V., Pravovoje osobennosti formirovanija nadnacionalnoj vlasti EC v processe
vzaimodejstvija prava EC i nacionalnogo prava gosudarstv-chlenov: avtoref. dis. … kand. jur.
nauk, M., 2003.
113
including the Annexes thereto, is not susceptible of being directly invoked in
the Community or Member State courts»7.
Thus, in the EU a direct effect of the WTO rules is excluded by the EU Council decision of ratiÀcation, but the ways of their implementation is the prerogative of the EU authorities.
The effect of the WTO law for the subjects of private law within the European
Union became determined under the jurisprudence of the ECJ (in case Portugal v Council, Chiquita, Biret, International Fruit Company, Fiamm and
Fedon and ect.).
According to the application of the GATT, it should be noted, Àrst of all, that
in the ECJ has consistently recognized direct application of norms of international law, however, the European Court of justice at the same time refused
GATT in direct effect. The position of the EU was formed in European Court
of Justice (in the case of Portugal v Council8, Chiquita9, Biret10, International
Fruit Company11, Fiamm and Fedon and others12).
In the EU, there is a presumption that, in respect of speciÀc international
agreements, including certain provisions of the WTO agreements, for the subjects of private law do not have direct effect, but it can be set individually by
the Court of the EU under certain conditions:
a) The contested acts intended to implement EU bodies speciÀc provisions of
the WTO agreements or speciÀc commitments of the EU to the WTO; or
b) The contested acts contain direct references to speciÀc provisions of the
WTO agreements.
In addition, the ECJ tirelessly refer to an important argument against the recognition of direct effect of WTO law, namely the absence of the consent of the
major trading partners of the European Union.
And if the EU Court gives a direct effect of WTO law, foreign manufacturer
will be able to appeal against the internal EU measures in the national courts.
7
EC Council Decision on the Participation of the European Communities in the WTO
8
Case C-149/94, Portuguese Republic v. Council, [1999] E. C.R. I-08395.
9
Case T-19/01, Chiquita Brands International, Inc., [2005] ECR II-315 ECJ, Case C-377/02,
Lé on Van Parys NV, [2005] ECR I-1465
10
Case C-94/02, Etablissements Biret et Cie SA v. Council, [2003] E. C.R. I-10565.
11
Joined Cases C-21/72 & C-24/74, International Fruit Company NV v. Produktschap voor
Groenten en Fruit [1972] E. C.R. I-1219.
12
Joined Cases C-120/06 P & C-121/06 P, Fabbrica Italiana Accumulatori Motocarri Montecchio SpA v. Council, [2008] E. C.R. I-6513
114
At the same time, companies from member States of the EU are deprived of
such opportunities in respect of measures taken outside the EU by the main
partners of the European Union. Therefore, the EU Court considers that himself has no right to take unilateral disarmament of the EU, thereby creating
additional competitive advantages for foreign manufacturers.
According to the Court of the EU trading partners, the EU has already concluded that “WTO provisions do not apply to the discharge standards that will
directly apply their judicial authorities when considering questions about the
legitimacy of the norms of internal law”13.
EU Court took a very tough position, saying that individuals can not claim in
the courts of the EU, nor in case of recognition of the illegal EU acts contradicting with WTO law can claim damages on the not performing European
Union WTO DSB decisions.
4. THE POSITION OF USA ON THE DIRECT EFFECT OF WTO
RULES
In the US legal system, international law is considered as a part of national
law, but the international treaties do not have priority over national law in case
of conÁict.
The Uruguay Round Agreements Act of 1994: «No provision of any of the
Uruguay Round Agreements, nor the application of any such provision to any
person or circumstance, that is inconsistent with any law of the US shall have
effect…No person other than the US - (A) shall have any cause of action or
defense under any of the Uruguay Round Agreements or by virtue of congressional approval of such an agreement, or (B) may challenge, in any action
brought under any provision of law, any action or inaction by any department,
agency, or other instrumentality of the US, any State or any political subdivision of a State on the ground that such action or inaction is inconsistent with
such agreement»14.
Article 102 (a) of the Act established that the provisions of the WTO agreements will not have power in the U.S. if they are contrary to any law of the
United States and no person, except the United States, cannot establish its
claim or to build their defense in court on the basis of any of the provisions of
13
Dani, M., Remedying European Legal Pluralism: The FIAMM and Fedon Litigation and
the Judicial Protection of International Trade Bystanders, The European Journal of International Law, N 2, Vol. 21, 2008.
14
Uruguay Round Agreements Act, 1994
115
the WTO agreements. may not be challenged on the basis of WTO rules and
none of the provisions of internal regulations, as well as the action or inaction
of any governmental body.
ConÁicts between internal laws and international laws will be solved with the
priority of the internal laws.
The Uruguay Round Agreements Act solved a question of a priority of WTO
law in a way that the above mentioned agreements will have no direct effect, if
they are contrary to any law of the United States.
A more difÀcult question is the indirect effect (interpretation of the US law
norms). Interpreting the provisions of domestic law, US courts do not give
priority to WTO norms, DSB solutions - they give priority to the interpretation
given by an executive authority (case Charming Betsy15, case Chevron16).
The legislative and executive authorities of the States shall decide on the execution of decisions DSB WTO (not executed, not properly executed U.S. or
refuse to do), thereby showing a clear disagreement with the direct effect of
WTO law.
Thus, similarly to the United States, the European Union rejected direct effect
of WTO law.
However, the ECJ’s approach to WTO law appears to be more Áexible and
allows more opportunities for indirect application of the WTO law.
5. THE POSITION OF RUSSIAN FEDERATION ON THE DIRECT
EFFECT OF WTO RULES
In accordance Article 15 of the Constitution “The universally-recognized norms
of international law and international treaties and agreements of the Russian
Federation shall be a component part of its legal system. If an international treaty or agreement of the Russian Federation Àxes other rules than those envisaged
by law, the rules of the international agreement shall be applied”17.
At the same time, paragraph 151 of the Report of the working group on Russia’s accession to the WTO States that “from the date of ratiÀcation by the Russian Federation of the Protocol of accession, including the WTO Agreement
and other commitments of the Russian Federation as part of the conditions of
accession to the WTO, it becomes an integral part of the legal system of the
15
Murray v. Schooner Charming Betsy, 6 U.S. (2 Cranch) 64 [1804].
16
Case Chevron U.S. A., Inc. v. Natural Res. Def. Council, Inc., 467 U. S. [1984].
17
Constitution of Russian Federation, 12/12/1993, Art. 15
116
Russian Federation. The judicial authorities of the Russian Federation shall be
competent to interpret and apply its provisions”18.
Thus, paragraph 151 of the Report of the Working group reproduces the provisions of Art. 15 of the Constitution and the Federal law “On international
treaties”
The representative of the Russian Federation further explained that, international treaties of the Russian Federation formed an integral part of the legal system of the Russian Federation, the judicial authorities of the Russian
Federation would interpret and apply its provisions, international treaties had
priority in application over both prior and subsequent Federal laws, as well
as all subordinate regulatory acts (Decrees and Regulations of the President,
Resolutions and Regulations of the Government, acts of Federal Executive
bodies). So, the Report of the Working Group does not exclude the possibility
of lawsuits from private parties in the domestic courts based on WTO law and
is still unresolved the question of direct or indirect effect WTO law within the
framework of the Russian legal system.
Some of the matters regarding the application of WTO law include: the possibility of lawsuits from private parties in the domestic courts based on WTO
law, private parties can be awarded damages for violation of WTO decisions by
Russia, interpretation of WTO law and Russian domestic law by national courts.
Plenum of the Supreme Court of the Russian Federation establishes that the
norms of the ofÀcially published international treaties of the Russian Federation, which do not require the publication of domestic instruments for applications that apply in the Russian Federation directly19. It is highlighted that
international agreements, endowed with the power of direct action in the legal
system of the Russian Federation, are applicable by the courts in case that the
international agreement establishes rules other than the applicable law of the
Russian Federation20.
Thus, Russian legislation and decisions of the highest courts of our country
took a very tough position on the priority of international law over the domestic, namely the international treaties have precedence over laws enacted both
before and after the entry of treaties into force.
As part of the process of adaptation of the normative legal base of Russia to
the WTO requirements, have been adopted a number of new federal laws and
amended existing laws.
18
Report of the Working group 17/11/2011
19
Postanovlenije Plenuma Verhovnogo Suda RF, 31/10/1995, No 8.
20
Postanovlenije Plenuma Verhovnogo Suda RF, 10/10/2003, No 5.
117
Thus, by analyzing the above, we can agree with the statement of Djumoulin I.I.21 that there is “own Russian way” of adopting national legislation with
the WTO rules. The speciÀcs of this “way” is that the rapprochement of the
Russian law and WTO law is provided in three areas: reception of the WTO
rules, transfer them into the Russian normative legal acts, reference to the rules
of WTO law, if the presence of normative legal acts, is not contrary to WTO
rules.
One should agree with Gubarev V.I. that “the practice of active actions of Russian Federation for implementation of the WTO agreements into national law
has actually face to the fact, that in Russia for a long time exists the WTO law
framework, and Russia is not a member of this organization yet”22.
The national courts practice speaks generally of different approaches. All
these create a space for discussion about the possible direct effect.
The points of report of the working group dedicated to correlation of the Custom Union and WTO law are: “Rights and obligation of members states of
the Customs Union under the WTO agreements will take priority over all the
normative acts of the Customs Union”.
Moreover, according to p. 186 of the report, if the rights and obligations of a
member state of the Customs Union are violated by acts of the Customs Union,
may be appealed to the Court of Eurasian economic community (EurAsEC
Court) by States, bodies of the Customs Union and individuals. Thus, in the
report of the working group is assumed that WTO law is directly applicable to
appeals against acts of the Customs Union within the EurAsEC Court.
So the decision of EurAsEC Court of 24 June 2013 (plaintiff -Novokramatorsk plant) is called a Landmark decision.23 According to that decision, “the
relationship of the international treaties concluded within the WTO and those
within the framework of the Customs Union, are not in a hierarchical subordination to each other. To establish priority of one, it requires the existence of
contradictions between these two norms”.
However, in the present case, court has not found the contradictions - “The
Court sees no contradiction between the universal international treaties concluded within the WTO, regional and international agreements concluded by
States - members of the Customs Union ... so, the Court comes to the conclusion that the international treaties concluded within the framework of the Cus21
Dimulen, I.I., WTO — osobennosti pravovogo i organizacionnogo ustrojstva, sovremennaja rol, 2-epererabotannoje izdanije, M., 2000.
22
Gubarev, V.I., Recepcija rossijskim pravom norm soglashenij WTO, Jurist, No 10, 2005.
23
Decision of EurAsEC Court, 24/06/2013, Bujllujten EurAsEC Court, No 2, 2013, C.18
118
toms Union, are in special relation to contracts concluded within the WTO, as
regulating relations exclusively within the Customs Union”.
Neshataeva TN, Deputy Chairman of the EurAsEC Court said: “We joined the
WTO, under the condition that WTO law has a priority in the contradictions
with national law, but lawyers need brain not to Ànd any controversy”24.
We can say that the impact of WTO law on the rule of Customs Union will be
determined by legal interpretation given in the decisions of EurAsEC Court.
It remains an open question about direct and indirect application WTO law in
the legal order of the Customs Union, that is: the right of individuals to invoke
the law of the WTO in the EurAsEC Court challenging acts of commission or
Eurasian in the interpretation of the Customs Union law. Currently issues are
controversial and give space for discussion until EurASEC and the Highest
Court of RF Ànd landmark decisions.
6. CONCLUSION
So, the questions concerning direct or indirect application of WTO law, if
private parties can bring suits in domestic courts based on WTO law, interpretation of the Customs Union law leaves open.
We can say that the impact of WTO law on Customs Union law will be determined by a legal interpretation given in decisions EurAsEC Court.
But the EurAsEC Court will cease to exist from January 2015 and authority
pass to the Court of Eurasian Economic Union.
According to opinion Neshataeva T.N. “the period of EurAsEC Court existence is a preamble for the appearance of the Court of Eurasian Economic
Union and EurAsEC Court creating the base for, over nationalism Àxed in
judicial decisions, laid approaches to the hierarchy of international treaties,
Àxing dualistic method of legal regulation in integration relations”.
One will be able to say whether it will be used by the new Court of Eurasian
Economic Union in the near future, as we hope.
24
http://www.rg.ru/2014/07/01/souz.html on 01.07.2014
119
LITERATURE:
1. Chuprina, Ja.S., Nazarenko, N.A., Realizacija norm WTO: porjadok primenenija i mehanismi obespechenja, Sovrenenije nauchnije issledovanija, Vipusk 2,
2014– ART 54279. – URL: http://e-koncept.ru/2014/54279.htm. – Gos. reg. El. No
FS 77-49965. – ISSN 2304-120X.
2. Dimulen, I.I., WTO — osobennosti pravovogo i organizacionnogo ustrojstva,
sovremennaja rol, 2-epererabotannoje izdanije, M., 2000.
3. Dani, M., Remedying European Legal Pluralism: The FIAMM and Fedon Litigation and the Judicial Protection of International Trade Bystanders, The European
Journal of International Law, Vol. 21, N 2, 2008.
4. Danilov, I., Soglashenija i pravopije standarti WTO, Materiali mezdunarodnoj
naucho-practicheskoj konferencii “Realizacija pravovih standartov WTO v sudebnoj praktike” Visshij arbitraznij sud RF, Moskva, 30/11/2012.
5. Ershov, S.V., Pravovoje osobennosti formirovanija nadnacionalnoj vlasti EC v processe vzaimodejstvija prava EC i nacionalnogo prava gosudarstv-chlenov: avtoref.
dis. … kand. jur.nauk, M., 2003.
6. Gianni, Fabrizio Di and Antonini, Renato. DSB Decisions and Direct Effect of
WTO Law: Should the EC Courts be More Flexible when the Flexibility of the
WTO System has come to an end, Journal of World Trade, No 4, Vol. 40, 2006.
7. Gubarev, V.I., Recepcija rossijskim pravom norm soglashenij WTO, Jurist, No 10,
2005.
8. Gudkov, I., Mizulin N., Pravila WTO: problem prjamogo dejstvija i effectivnosti
mer otvetstvennosti za narushenija, Vneshnetorgovoe pravo, No 1, 2012.
9. Guljaeva, T.K., Fedosova, Ja.K., Pravo WTO: Kak instrument regulirovanija mezdunarodnoj torgovli v epohu globalizaciji// http://vgnki.ru/cooperation/wto_law
10. Ispolnivov, A.S., Voprosi prjamogo primenenija prava WTO v pravoporjadke
Rossiji, Zakonodateljstvo, N 2, 2014.
11. Jia Liu, The Domestic Application of WTO Laws, Journal of Politics and Law, No
3, Vol. 2, 2009.
12. Kovalev, A.A., Mezdunarodnoe economicheskoe pravo i pravovoe regulirovanie
mezdunarodnoj ekonomicheskoj dejtelnosti, M., 2007.
13. Mamlyuk, Boris N., Russia & Legal Harmonization: An Historical Inquiry into
IP Reform As Global Convergence and Resistance, Washington University Global
Studies Law Review, Issue 3, Volume 10, 2011.
14. Muranov, A., Primenenije prava WTO v rossijskih sudah: statistika, prakticheskije voprosi, problemi, vozmoznoje buducheje, Materiali Mezdunarodnoj konferencii ICC Russia «Primenenije norm WTO i zashita rossijskogo biznesa: nastupateljnaja i oboroniteljnaja strategija, Moskva», 03/10/2013 g., www.rospravo.ru
120
15. Neshataeva, T.N., K voprosam o sozdanii Evrazijskogo sojuza: integracija i nadnacionalizm, Zakon, No 6, 2014.
16. Pascal, Huizinga, The laws and legislation of the World Trade Organization and
its effect on European Trade, http://www.europeseÀscalestudies.nl/upload/Huizinga,%20Pascal.pdf
17. Rachinskaja, P.O., Pravovaja sistema, regulirujushaja dejatelnost WTO v oblasti
arbitraza, serija «Economika i pravo», No 11, 2013.
18. Smbatjan, A.S., Perspectivi Suda EurAsEC v sisteme organov mezdunarodnogo
pravosudija, Mezdunarodnoe pravo i mezdunarodnije ogranizacii, M.: NOTA
BENE, No 1,2013.
19. Shegolev, S.I., Primenenija prava WTO sudami uchastnikov WTO: mezdunarodnij i zarubeznij opit, Zakon, No 5, 2013.
121
T. Ruban: EU harmonization within the law of WTO
Professional Paper
UDC 347.7:<339.52WTO:061EU>
EU HARMONIZATION
WITHIN THE LAW OF WTO
Tatiana Ruban *
ABSTRACT
Coherence of regional and universal legal norms is always an issue: EU law and the
law of WTO is not an exception. The two-stage procedure of UE harmonization in
the Àeld of trade law turns out to be more complex process within the framework of
the law of WTO.
The main aim of the paper is to reveal possible problems of such harmonization.
To this aim it is necessary to expound theoretical approaches to the harmonization
within the law of WTO as well as legal practice on the matter.
Moreover the author observes the process of harmonization as possible in other regional economic integrations and beside that, the universal level in the framework
of legal order of WTO.
*
Post-graduade student at Kazan (Volga region) Federal University; markodeeva91@list.ru.
123
1. INTRODUCTION
Before speaking about harmonization one well-known statement should be
emphasized: there is a general duty of the states to bring domestic law into
conformity with obligations under international law.
States are free to decide how best to translate their international obligations
into internal law and to determine which legal status these have domestically1 - and whether will these norms have direct effect or not. These decisions
basically depend on legal theories on relationships of international law and
municipal law: monist and dualist theories.
When looking at the situation from the purposeful point of view it really does
not matter which theory is applicable; whether the rule of international law automatically becomes part of internal legal systems and can be applied without
legislative measures or not if the international obligation is fulÀlled anyway.
From this point of view the value of this theoretical polemics is somehow
exaggerated.
But the practical importance of the question and unceasing discussion of this
matter do not let us to come to the conclusion2 that those theories have only scientiÀc, doctrinal signiÀcance. Presumption that only results of the fulÀllment
of international obligations matter is inaccurate and incomplete.
The way to realize international rule and obligations in domestic system also
counts: whether it is incorporation, adoption, transformation or reception.
This coherence arises from the fact that in the end states create legal rules both
in international (including regional) and domestic legal orders and they don’t
have equal positions. This situation boldly appears in the process of harmonization.
2. HARMONIZATION
In spite of wide application and signiÀcance of the phenomenon of EU harmonization there is no common ofÀcial deÀnition of the process.
In doctrine, the harmonization is understood as a process or as a method.
Harmonization as a process is approximation of member states legislatures
due to formation and effective functioning of internal market3.
1
Shaw M., International Law, New York, 2008, p. 129.
2
Wolfgang G. V., International Law, Moscow, Berlin, 2011, p. 128-129.
3
Davies K., Law of the European Union, Kiev, 2005, p. 43.
124
Harmonization as a method is one of the methods of legal integration, the
essence of which is to transform legal rules by bringing them into conformity
with each other. Within this method the Union creates legal basics and member states bring domestic law in accordance with this basis. The method of
harmonization logically makes legal rules and systems of member states and
EU similar without uniformity. Lack of uniformity distinguishes harmonization from uniÀcation which presumes common rules directly regulating social
relations4.
Legal instrument of harmonization is directive, which shold be implemented
in the legal systems of EU member states as provided by the EU treaties. Article 288 of Treaty on the functioning of the EU (ex Article 249 TEC) provides
the following: “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”.
Directive is a legislative act obliging member state to fulÀll some requirements, goals and results in Àxed time without directing precise means by
which it should be done; it leaves for member states freedom of choice which
under the general international law is essential.
This implementation is held by way of transformation, also called transposition, meaning that member state creates a legal act normal for this or that
situation in order to accomplish the goal provided by the directive. At that
instead of one rule of law presented in directive there appear two provisions:
one in internal legal system and another remains in international legal order
as a rule creating international obligation; legal nature and addresses of these
provisions are different.
Non-implementation and non-transformation of international rule should be
regarded as a breach of international law and cause primary right to request
fulÀllment of an obligation on implementation and international responsibility.
It should be noted that the notion of transformation is narrower, than the notion of implementation. Implementation is a whole complex of measures that
are necessary to translate international obligations into domestic law, including, for example, creating a new public agency. Transformation therefore is an
element of implementation and actually the way harmonization takes place
through.
Transformation does not belong only to the sphere of internal affairs; it is the
way of realization of the rule of international law and therefore an obligation of
a state. This statement is fair for directives and the process of harmonization.
4
Kashkin S., Law of the European Union, Moscow, 2011, p. 16.
125
There can be another approach within the terminology: the term transformation can be used sometimes as the synonym of harmonization itself. Therefore
the notion implementation is understood as “implantation” of rules of directives into the legal systems of member states. Thus harmonization and transformation mean rapprochement of legal systems of EU and its member states.
Unfortunately binding nature of directives and obligation of its implementation does not clarify the question whether these acts have direct effect or not.
Basically direct effect can be regarded as one of the essential principles of
European law. The issue of the direct effect has been scrutinized by the ECJ
in the judgment on 5 February 1963 Van Gend and Loos5. The ECJ decided
that the provisions of European primary legislation which are precise, clear
and unconditional can be invoked by a person before national court or the ECJ.
The doctrine of direct effect also applies to acts of secondary legislation but
only direct effect of EU regulations is provided explicitly by the EU treaties.
Directives can enjoy direct effect on conditions expounded by the ECJ.
First, only vertical direct effect is possible, meaning that directives do not
apply by individuals inter se. Second, to enjoy direct effect provisions of directives should be unconditional, sufÀciently clear and precise (M. H. Marshall
v Southampton and South-West Hampshire Area Health Authority (Teaching)
19866, Van Duyn v Home OfÀce 19747, Aannemersbedrijf P.K. Kraaijeveld BV
e.a. v Gedeputeerde Staten van Zuid-Holland 19968).
And third, there is a possibility of claim before the court if member state fails
to fulÀl the obligations on time or is inactive on this matter at all - do not implement the directive (Pubblico Ministero v Ratti 19799). This exception can
be regarded as one of consequences of non-implementation. The ECJ therefore
encourages direct effect of EU directives due to protect rights and interests of
individuals.
5
Case 26/62, ECJ, Van Gend en Loos v Nederlandse Administratie der Belastingen.
6
Case 152/84, ECJ, M. H. Marshall v Southampton and South-West Hampshire Area Health
Authority (Teaching).
7
Case C-41/74, ECJ, Van Duyn v Home OfÀce.
8
Case C-72/95, ECJ, Aannemersbedrijf P.K. Kraaijeveld BV e.a. v Gedeputeerde Staten van
Zuid-Holland.
9
Case 148/78, ECJ, Pubblico Ministero v Ratti.
126
3. EU AND WTO
Speaking about EU and WTO it should be Àrst noted that WTO as an international organization has a whole complex of connections with other actors of
international relations. Not only the effectiveness but also legitimacy of law of
WTO depends on the coherence of its rules with other legal systems and on the
character of relationships with other organizations. So it is a mutual process:
on one hand, it is a sort of recognition of WTO and its importance on international trade arena; on the other hand, law of WTO as universal organization
recognizes and encourages regional economic integration. Article XXIV of
the GATT determines necessary conditions for the member states to create
regional integration organizations. Also WTO includes the Committee on regional trade agreements aimed to exercise the supervision on the compliance
of those conditions by regional organizations.
Regional integration creates international economic and legal subsystems
which have numerous connections with multilateral trade system represented
by WTO. The number of those connections is constantly growing: in 1990th
there were only 20 agreements, by the year of 2007 the number rose till 159
and in 2010 almost reached 40010. The change from GATT to WTO and the
strengthening of existing trade principles improved compliance of law of WTO
members with WTO law and reduced the use of unilateral trade measures11.
It is well-known that both EU and its member states are the members of WTO:
EU enjoys legal personality and therefore can be a member of international
organization; this fact should not be disputed. And so EU bears responsibility
for breaching WTO agreements in full extent as its member states do. Still this
rule is only applicable for trade agreements. In accordance with Article 133 of
the EC Treaty it has competence to conclude treaties on the matters related to
trade of goods. In the spheres of the GATS and the TRIPS the competence is
mutual. The main consequence of parallel membership in WTO is this division of competences.
Unlike the most part of legal rules of the GATT-47 (meaning part II of the
Agreement which is in accordance with the Protocol on provisional application of the GATT applied in the fullest extent not inconsistent with existing
legislation of states), legal rules of law of WTO are totally and fully legally
binding and obligatory for its members. EU, as a signatory and party to WTO
10
Bartels L., Ortino F., Regional Trade Agreements and the WTO Legal System, New York,
2007, p. 59-60.
11
Princen S., EC Compliance with WTO Law: The Interplay of Law and Politics, European
Journal of International Law, Vol. 15 (3) 2004, p. 556.
127
along with its member states, clearly accepts that the obligations contained in
WTO agreements are legally binding upon it. Whether rules of law of WTO
have direct effect or not can be a matter of dispute, but their binding nature
cannot be doubted.
Speaking about direct effect it should be noted, that members of international
community normally take an international obligation and free to decide how
to fulÀll it, it is pretty much the same thing with law of WTO: if law of WTO
does not expressly declares whether its rules have direct effect or not, and does
not specify the effect it should have in domestic legal order, it means that it is
up to member states to decide whether to provide direct effect to these rules
or not.
Actually the purpose of WTO agreements as eventually all agreements under
international public law are, of course, to govern relations between states or
regional organizations for economic integration and not to protect individuals
and they do not expressly create rights on which private parties and individuals
can rely on directly before the court. Addressees of legal rules are states, not
individuals.
And furthermore, it turns out to be clear that the rules of law of WTO have
no direct effect within the legal order of EU: between them and private parties there is always the Àlter of EU implementing norm. It means that WTO
rules may be invoked by private parties before EC courts through the Àlter of
legislative measures, such as directives. It also means that with taking international obligations EU political bodies have to ensure the conformity of its laws,
regulations and administrative procedures with its obligations as provided in
Agreements as it is stated in Article 16.4 of the Marrakesh agreement.
So WTO agreement and its annexes do not include rules by which the European Court of Justice review the legality of acts adopted by the Community
institutions under Article 230 of the EC Treaty12.
And the ECJ stands on that: no direct effect of WTO agreements except where
the Community intended to implement a particular obligation13.
It was the same with the General Agreement on tariffs and trade: there was no
direct effect provided. The ECJ stated that its provisions are Áexible and not
unconditional, derogation was possible, so Court denied in direct application
in the domestic legal system14.
12
Tancredi A., EC Practice it the WTO: How Wide is the ‘Scope for Manoeuvre’?, European
13
Case C-149/96, ECJ, Portugal v Council.
14
Case C-280/93, ECJ, Germany v Council.
128
Under the general rule, provided by the ECJ, international agreement can
be granted direct effect within EU if its provisions are sufÀciently unconditional, clear and precise (Demirel v Stadt Schwäbisch Gmünd 198715). The
Court states that the rules of WTO agreements are not enough speciÀc and not
self-executing and that is an argument against direct effect.
But still there are exceptions. Only where the Community intended to implement a particular obligation assumed in the context of WTO, or where the
Community measures refer expressly to the precise provisions of WTO agreements, it is up to EC’s courts to review the legality of the Community measure
in question in the light of WTO rules.
Direct effect also may not be provided within EC for political reasons (that is
what is called lack of reciprocity) – if the most important trade partners of the
Community (such as US) do not provide direct effect to WTO rules, why the
Community would. That, as the ECJ note can lead to non-uniform application
of WTO rules.
If speaking about compliance with law of WTO, there can be distinguished
two situations where the rules of EU law should be brought into conformity
with law of WTO:
1. Law of WTO directly requires European law to be in accordance with WTO
agreements. This idea is logically indisputable as far as law of WTO occupies
centered position in the modern trade law and it is necessary for its effectiveness that legal orders of its members correspond with its legal provisions.
2. There is a DSB decision that should be fulÀlled within the European legal
order in a reasonable period of time. This situation appears if any trade
measure adopted by EU in its directives violates law of WTO.
But even if there is a DSB ruling, which has to be implemented, the situation
is not transparent.
There are two obstacles: Àrst, this decision won’t be necessarily implemented
in reasonable period of time16. There are scientiÀc papers that harshly criticize EC’s reputation on this matter; they contain opinion that EU does not
effectively implement rulings17. It does not mean that EU refuses to implement
decisions at all but the practice of delays in implementing (when the reasonable
15
Case 12/86, ECJ, Demirel v Stadt Schwäbisch Gmünd.
16
Case EC – Measures Concerning Meat and Meat Products (Hormones), AB-1997-4, WT/
DS26&48AB/R.
17
Tancredi A., EC Practice it the WTO: How Wide is the ‘Scope for Manoeuvre’?, European
129
period of time has already expired) has become frequent. The practice shows,
that involving formal ruling does not mean that authorities will promptly implement it and bring the measures in compliance with law of WTO.
Compliance with law of WTO may even be less likely in cases that involve
formal ruling than in cases that do not. That is exactly what happened in the
Leghold trap regulation case: even though there was no formal WTO dispute
and ruling, “the shadow of law of WTO” strongly affected the negotiating process and helped parties in dispute reach an agreement on restrictive measures
avoiding an open trade dispute18.
Second obstacle appears when the parties in dispute can reach reciprocal and
mutually advantageous agreement, even when the decision on a dispute has
already been pronounced19.
Still law of WTO and rulings of the DSB vastly impact EU trading process
and its regulation by the directives which under the pressure can be reversed
or amended.
4. WTO AND EURASEC
EU is considered to be a standard for regional economic integration. Eurasian
economic community (since January 1st, 2015 Eurasian economic union) passes the same stages of economic integration as EU did, focuses on entering in
the international trade system as a large regional organization and it is logically expected to adopt EU approaches towards multilateral trade system. However such adoption does not seem to be possible.
First, not all member states of EurAsEC are simultaneously member states
of WTO; those states are entering WTO each in its own rate. Second, an approach on the direct effect within EurAsEC is different from such of EU.
Article 1 of the Treaty on functioning of the Customs Union within the multilateral trade system provides the rule, that WTO agreements and obligations
taken by member state of the Union under WTO (in accordance with the protocol of accession) become part of the legal system of the Customs Union. As
an exception member state of the Customs Union, non-member state of WTO
may not stick to these rules but only if it does not affect other member states
of the Customs Union.
18
Princen S., EC Compliance with WTO Law: The Interplay of Law and Politics, European
Journal of International Law, Vol. 15 (3) 2004, p. 561-565.
19
Case EC – Regime for the Importation, Sale and Distribution of Bananas. AB-1997-3. WT/
DS27/AB/R.
130
Furthermore, the legal system of the Customs Union and decisions of its bodies should be brought in accordance with law of WTO (Article 2). Until that
the rules of WTO agreements have priority on agreements within the Customs
Union and decisions of its bodies.
The jurisprudence within EurAsEC is quite speciÀc as well.
Basically, in accordance with the Statute of the Court of EurAsEC the Court
does not have the competence to apply and interpret WTO agreements and
obligations of member states under these agreements. Also the Court cannot
directly decide whether measures of member state or decisions of EurAsEC
bodies are in accordance with law of WTO.
Still there is a loophole. If those agreements under WTO are part of the legal
system of EurAsEC it would not it be correct to deprive the Court of the right
to apply these agreements.
The Court of EurAsEC already had the case20 when the private party disputed
the decision of the Customs Union commission as non-consistent with WTO
agreements.
Even though the Court decided to exclude law of WTO from applicable law, it
can be stated that rules of law of WTO are granted the direct effect in the EurAsEC legal order. It means that the most signiÀcant consequence of integration of law of WTO in the EurAsEC legal system is the possibility for private
parties to dispute decisions of EurAsEC bodies before the Court on the ground
of its coherence with law of WTO.
As far as the rules of law of WTO promote the process of harmonization of
legislations of member states of EurAsEC, these legislations have to be consistent not only with general principles of international law but also with the rules
of law of WTO. Besides that, member states of EurAsEC have to coordinate
actions to the accession in WTO aiming at analogous obligations under law
of WTO.
EurAsEC Inter–parliamentary Assembly amended the Program of lawmaking
and started work on implementation of the rules of WTO law into draft projects of legislative acts and recommendations on harmonization of legislature.
The rules of law of WTO therefore create the framework for lawmaking of
EurAsEC member states.
20
Case 1-7/2-2013 [16.04.2013] The Court of the EurAsEC.
131
5. CONCLUSION
The notion harmonization appeared within European law and is used traditionally in its framework. Still the same tendency is observed in other regional
organizations such as EurAsEC.
The instrument of EU harmonization (including harmonization in the trade
sphere) is directive. Directive as an act containing legal goals and results should
be implemented by member states due to rapprochement of legal systems.
EurAsEC harmonization has the same aim but its instruments are different.
Rapprochement of legal systems is being achieved in two stages: comparison
of legal systems and creating of draft legal acts that should be enacted by
member states.
In both regional integrations harmonization of trade law is held under the inÁuence of WTO as membership in the organization requires legal systems of
its members to be in compliance with law of WTO. The inÁuence of WTO law
is stronger on EurAsEC legal order as far as WTO law became part of it and
should be applicable directly.
Evolution of the international trade law, growing impact of law of WTO and
strengthening requirements of the compliance with law of WTO are showing
that the horizon has to be moved further.
The term harmonization should be used as a broad term covering the process
of two or more systems of law approaching and accommodating each other.
But taking into consideration WTO the process of harmonization of trade
turns out to be universal.
There are reasons for that. First, there is a general target – liberalization of
trade. Second, law of WTO provides the most general rules of international
trade, these norms are nowadays basis of international trade law, so it would
be wrong to afÀrm that it does not inÁuence the legal orders of the regional
economic integrations.
All in all, it makes legal orders of WTO members similar to each other as far
as they should be in compliance with WTO law. The universal harmonization
is aimed to simpliÀcation of international trade by making it more legally predictable for trading actors.
Consolidation of the international trade law and strengthening of its principles
after foundation of WTO in 1995 opened the doors for this process and made
it signiÀcant even though there are still obstacles for compliance with the law
of WTO such as non-implementation of the DSB ruling in reasonable period
of time.
132
LITERATURE:
1. Appleton A., The World Trade Organization: Legal, Economic and Political Analysis, Vol.1, New York, 2005.
2. Bartels L., Ortino F., Regional Trade Agreements and the WTO Legal System,
New York, 2007.
3. Davies K., Law of the European Union, Kiev, 2005.
4. Kashkin S., Law of the European Union, Moscow, 2011.
5. Princen S., EC Compliance with WTO Law: The Interplay of Law and Politics,
European Journal of International Law, Vol. 15 (3) 2004.
6. Shaw M., International Law, 6th ed., New York, 2008.
7. Tancredi A., EC Practice it the WTO: How Wide is the ‘Scope for Manoeuvre’?,
European Journal of International Law, Vol. 15 (5) 2004.
8. Wolfgang G. V., International Law, Moscow, Berlin, 2011.
133
Z. Šafranko: The book overview: European Market Law - Handbook Vol. 1
UDC 346.5(4-67EU)(049.3)
THE BOOK OVERVIEW:
EUROPEAN MARKET LAW – HANDBOOK Vol. 1
Zvonimir Šafranko *
The book “European Market Law Handbook vol. 1”
by authors Hana Horak, Kosjenka DumanĀiþ, Kristijan
Poljanec and Dominik Vuletiþ has been published in
October 2014 within the Tempus IV project INTEREULAWEAST - European and International Law Master Programme Development in Eastern Europe.
The book is a joint publication of the project partners:
Voronezh State University, Faculty of Law and University of Zagreb, Faculty of Economics and Business,
Department of Law and is available both as the printed
and online edition. The paperback edition was printed in
Voronezh in smaller amount of copies and is not intended for the classical market distribution but rather for the academic institutions,
libraries and Tempus centers, while the online edition which is originally published by the Library and Documentation Centre of the Faculty of Economics
and Business Zagreb, is available online, free of charge, to the wider public.1
The authors’ desire to write such a book was present even before the Tempus project started, in order to meet the basic literature requirements for the
students who enrolled European Market Law and European Company Law
courses at Bachelor Degree in Business (BDiB) studies, performed at the Faculty of Economics and Business in Zagreb, and as such, the book represents
*
Teaching and Research Assistant at Faculty of Economics and Business, University of
Zagreb; zsafranko@efzg.hr.
1
The book can currently be accessed through the following WebPages: Faculty of Economics and Business Zagreb, Library and Documentation Centre <http://www.efzg.unizg.hr/
default.aspx?id=12418>; INTEREULAWEAST Project ofÀcial webpage < http://iele.weebly.
com/books.html>; Tempus Centre Zagreb <http://www.efzg.unizg.hr/default.aspx?id=20556>;
Tempus Centre Voronezh < http://www.intlawvsu.ru/ centre-european-international-law>;
Tempus Centre Odessa < http://iele.bazick.com/books>.
135
the reÁection of the lectures given by Professor Hana Horak and her associates
in the past few years. However, the Tempus project was one additional motivation and the breaking point for the realization, as the need for such book was
also recognized at the partners’ institutions in Russia and Ukraine, mainly to
serve as the literature for the future Master programs which are to be developed through the INTEREULAWEAST project.
The handbook itself is written on more than three hundred and Àfty pages and
basically consists of two separate parts. The Àrst part deals with the searching
databases on EU law. The guiding idea for this part was to give students and
researchers in general the basic knowledge on techniques of searching the online databases, covering the EU law topics and helping them to Ànd the desired
information and documents among the thousands of others. It covers the most
relevant databases such as: Europa, EUR-Lex, Curia, PreLex, e-Justice, JuriFast
and many others. This part is written in the form of manual, giving the basic
information on speciÀc database and the nature of sources contained within, followed by the step-by-step guidelines on how and where to search for desired information through more than eighty images with the pointers and explanations.
The practical value of the Àrst part is in providing the great tool for training the
database search – the best way to use it is simultaneously with the database.
The second part of the handbook is hitting the core. It is the collection of the most
important cases of the European Court of Justice. It is divided into general part, providing the most relevant case law on the basic principles of the EU law, such as principle of supremacy of the EU law and the principle of the direct effect, and continues
through the case law on the four freedoms of the internal market: free movement of
goods, freedom to provide services, freedom of establishment, and free movement
of workers and capital. Each of the twenty four analyzed cases consists of the summary, keywords, the authors’ overview and the text of the judgment with operative
parts. The authors’ overviews are stressing the problems and solutions as well as the
signiÀcance of the particular judgment for development of the internal market law.
This part of the handbook comes very handy for the students who have enrolled the
courses on EU law topics, but also for the wider public e.g. entrepreneurs and professionals in Croatia who are yet to learn their rights and possibilities provided by the
mechanisms and legal framework of the internal market.
Overall, the handbook provides the useful guidelines for the database searching and makes the great introduction to the EU case law on internal market.
The fact that it is written in English language and accessible online for free,
makes its usage more universal and more available to the wider public.
However the given story is still untold to the end. The theoretical part of the
European Market Law along with the analysis of its primary and secondary
sources is yet to be written to round off and complete the topic. Hopefully the
textbook written in the same manner will be published soon.
136
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