Limits to EU Powers: A Case Study of EU Regulatory Criminal Law 9781509903351, 9781509903382, 9781509903368

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LIMITS TO EU POWERS Pursuant to the precepts of EU law, EU policy-makers are bound to ensure that any EU legislation must fall within the remit of the EU’s competences. This monograph looks at this highly contested issue, with particular reference to European Union criminal law. It looks at the powers enjoyed by the EU to impose criminal sanctions to suggest mechanisms by which legislative powers could be kept in check. The book argues that the main responsibility for providing checks against the exercise of EU power lies with the EU judiciary. It argues that the most effective form of review is procedural and through the case study of sanctions, provides the basis for such a review. Innovative, engaging and rigorous, this is an important publication both in the field of European criminal and constitutional law. Volume 4 in the series Hart Studies in European Criminal Law

Hart Studies in European Criminal Law Series Editors: Professor Katalin Ligeti, University of Luxembourg; Professor Valsamis Mitsilegas, Queen Mary University of London; Professor Anne Weyembergh, Brussels Free University Since the Lisbon Treaty, European criminal law has become an increasingly important field of research and debate. Working with the European Criminal Law Academic Network (ECLAN), the series will publish works of the highest intellectual rigour and cutting edge scholarship which will be required reading for all European criminal lawyers. The series is happy to consider both edited and single authored titles. The series defines ‘European’ and ‘criminal law’ in the broadest sense, so books on European criminal law, justice and policy will be considered. The series also welcomes books which offer different methodological approaches. Volume 1: EU Criminal Law after Lisbon: Rights, Trust and the Transformation of Justice in Europe by Valsamis Mitsilegas Volume 2: Challenges in the Field of Economic and Financial Crime in Europe and the US by Vanessa Franssen and Katalin Ligeti Volume 3: Chasing Criminal Money: Challenges and Perspectives On Asset Recovery in the EU Edited by Katalin Ligeti and Michele Simonato

Limits to EU Powers A Case Study of EU Regulatory Criminal Law

Jacob Öberg

OXFORD AND PORTLAND, OREGON 2017

Hart Publishing An imprint of Bloomsbury Publishing Plc Hart Publishing Ltd Kemp House Chawley Park Cumnor Hill Oxford OX2 9PH UK

Bloomsbury Publishing Plc 50 Bedford Square London WC1B 3DP UK

www.hartpub.co.uk www.bloomsbury.com Published in North America (US and Canada) by Hart Publishing c/o International Specialized Book Services 920 NE 58th Avenue, Suite 300 Portland, OR 97213-3786 USA www.isbs.com HART PUBLISHING, the Hart/Stag logo, BLOOMSBURY and the Diana logo are trademarks of Bloomsbury Publishing Plc First published 2017 © Jacob Öberg 2017 Jacob Öberg has asserted his right under the Copyright, Designs and Patents Act 1988 to be identified as Author of this work. All rights reserved. No part of this publication may be reproduced or transmitted in any form or by any means, electronic or mechanical, including photocopying, recording, or any information storage or retrieval system, without prior permission in writing from the publishers. While every care has been taken to ensure the accuracy of this work, no responsibility for loss or damage occasioned to any person acting or refraining from action as a result of any statement in it can be accepted by the authors, editors or publishers. All UK Government legislation and other public sector information used in the work is Crown Copyright ©. All House of Lords and House of Commons information used in the work is Parliamentary Copyright ©. This information is reused under the terms of the Open Government Licence v3.0 (http://www. nationalarchives.gov.uk/doc/open-government-licence/version/3) except where otherwise stated. All Eur-lex material used in the work is © European Union, http://eur-lex.europa.eu/, 1998–2017. British Library Cataloguing-in-Publication Data A catalogue record for this book is available from the British Library. ISBN: HB: 978-1-50990-335-1 ePDF: 978-1-50990-336-8 ePub: 978-1-50990-337-5 Library of Congress Cataloging-in-Publication Data Names: Öberg, Jacob, author. Title: Limits to EU powers : a case study of EU regulatory criminal law / Jacob Öberg. Description: Oxford [UK] ; Portland, Oregon : Hart Publishing, 2017.  |  Series: Hart studies in European criminal law ; volume 4  |  Includes bibliographical references and index.  |  Description based on print version record and CIP data provided by publisher; resource not viewed. Identifiers: LCCN 2017008370 (print)  |  LCCN 2017012711 (ebook)  |  ISBN 9781509903375 (Epub)  |  ISBN 9781509903351 (hardback : alk. paper) Subjects: LCSH: Competent authority—European Union countries.  |  Criminal jurisdiction—European Union countries.  |  Subsidiarity—European Union countries.  |  Criminal law—European Union countries.  |  Criminal law—European Union countries—Cases.  |  Criminal justice, Administration of—European Union countries. Classification: LCC KJE5086 (ebook)  |  LCC KJE5086 .O34 2017 (print)  |  DDC 345.24/0122—dc23 LC record available at https://lccn.loc.gov/2017008370 Typeset by Compuscript Ltd, Shannon To find out more about our authors and books visit www.hartpublishing.co.uk. Here you will find extracts, author information, details of forthcoming events and the option to sign up for our newsletters.

FOREWORD

The emergence of EU competence to legislate in the field of criminal law has been contested and fraught with constitutional complexity. The perceived adverse impact that EU competence in the field would have on state sovereignty and ­maintaining the diversity of national criminal justice systems has resulted in incremental steps towards supranational EU criminal law in a lengthy process beginning in modest constitutional developments in a three pillar Union structure in ­Maastricht and Amsterdam and ending up with the supranational breakthrough in the Lisbon Treaty. In this process, the role of the Court of Justice in delimiting EU competence in criminal matters has been instrumental, especially in periods where constitutional progress in the field appeared to be stagnating. A key example in this context has been the Court’s seminal ruling asserting first pillar EC criminal law competence in the field of environmental crime in an era when it was clear that the supranationalisation of criminal law via the entry into force of the Constitutional Treaty would not happen. This move towards supranational c­ riminal law has been criticised in a number of quarters across Europe, including, notably, academics with expertise not in EU law, but in domestic criminal law. Their critique has focused on the perceived corrosive influences of EU criminal law on domestic criminal justice systems and their coherence, as well as on the perceived democratic and legitimacy deficit of EU criminal law. However, the credibility of these lines of criticism is undermined by the fact that in many cases such critiques are based on limited knowledge and understanding of how EU law operates. Fundamentally underlying this critique is an approach equating the European Union with the state, and demanding the European Union to t­ ransplant—if not copy—criminal law principles which operate in a national c­ ontext. This approach however disregards the fact that the European Union is not a state, and that EU criminal law has developed not to replace national criminal justice systems, but to influence and interact with them in a system of multi-level criminal justice governance. The book by Jacob Öberg is also a critique of the expansion of EU powers in the field of criminal law, in particular powers to define criminal offences and adopt criminal sanctions. However, Öberg’s analysis is not just another superficial critique of EU action in the field, rather, it takes the debate many steps further by offering a critique of EU power from the perspective of European Union law, and not of national law. Recognising the changes brought about by the entry into force of the Lisbon Treaty, Öberg focuses primarily on the exercise, rather than on the existence of EU competence to criminalise and analyses in particular the Union’s ‘functional criminalisation’ powers under Article 83(2) TFEU.

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Foreword

Öberg accepts that his book proceeds from a narrow understanding of EU regulatory criminal law and examines the exercise of EU competence to criminalise on the basis of the key EU constitutional principles of conferral, proportionality and subsidiarity, ­focusing also on the possibilities to control EU powers via judicial review at EU level. The author examines in depth three key strands of post-Lisbon criminalisation in the fields of market abuse, money laundering and fraud against the EU budget, as well as controversial proposals to establish a European Public ­Prosecutor’s Office. He claims that on a number of occasions proposals for EU measures have been based on inadequate reasoning and unproven assumptions, and calls for further use of criminological evidence to back up proposals for EU legislation. He proposes a procedural standard of legality which requires the EU legislator to show that it has adequately reasoned its decisions and has taken into account relevant evidence and puts forward subsidiarity and conferral (but not proportionality) as the key tests for this approach. In this manner, Öberg puts forward a theoretically informed, sophisticated test which can make a significant academic and policy contribution to the ongoing discussion on the exercise of EU competence in the field of criminal law. Stemming from an in depth understanding of and focus on constitutional principles of EU law, the book is a valuable contribution in reframing the competence debate from analyses projecting upon the EU unrealistic expectations from national criminal justice systems to an analysis that views possibilities of EU action within the constitutional framework provided by EU law. While some readers will no doubt disagree with the outcome of Öberg’s analysis, which may be seen as restricting unduly EU powers to act in this field, the book constitutes invaluable and essential reading for academics, policy makers, practitioners and students interested in all aspects of EU criminal law, and in the evolution of EU constitutional law more broadly. I am delighted to host this book in the Hart Studies in European Criminal Law series. Valsamis Mitsilegas 18 April 2017

ACKNOWLEDGEMENTS

This book is a substantially revised and updated version of the PhD ­dissertation I defended at the Law Department of the European University Institute in ­Florence in September 2014. The four years (2010–14) I spent in Villa Schifanoia provided the inspiring surroundings in which to think about the intricate intersection between EU Criminal Law and EU Constitutional Law whilst my home in Stockholm and work-place in Örebro provided the calm environment in which I could patiently write and edit this book. There are many persons who have been involved in this project. As this is a rewritten version of my doctoral thesis I wish to give special thanks to Professor Giorgio Monti and Professor Loïc Azoulai (now Sciences Po) at the European University Institute. Giorgio was a very dedicated supervisor who carefully read my work and provided notes and comments on almost every page, both in terms of structure and substance. Giorgio has also, both during my doctoral studies and after their completion, helped me with various other important tasks, including writing articles, project applications, research assistant work and providing recommendation letters for jobs and grants. Giorgio has not only tried to teach me how to do research, but more importantly what it takes to become a scholar. Loïc was invaluable in his role as a second reader throughout my time at the EUI. With regard to the substance of my thesis, he also partly worked as a co-supervisor by providing comprehensive comments on chapters, introductions and the general thesis structure. He has also assisted me in several ways in my academic career: by patiently helping me publish a working paper at the EUI, by securing places in conferences and workshops, by reading through research projects, and by writing recommendation letters. I was particularly impressed by Loïc’s friendly manner and his capacity to engage in discussion with me as an individual and not only as a researcher. Secondly, I would like to thank Professor Valsamis Mitsilegas who was an external examiner at my PhD defence and subsequently helped convince me to turn the thesis into a book. Valsamis has provided very helpful feedback on my thesis and the monograph. The outcome of the new chapters on national parliaments and legal basis as well as the new case studies on money laundering, the EPPO and the directive on fraud against the Union’s financial interests sprung initially from Valsamis’ ideas on how the book should be structured. I have also attended several seminars and conferences together with Valsamis, where he has provided very valuable input on other projects and conference presentations. Valsamis’ openminded approach to younger researchers has been particularly welcome. I am also indebted to Anne Weyembergh and Katalin Ligeti, the other series editors, who,

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Acknowledgements

in addition to Valsamis, have supported this book project. Sinead Moloney and her team at Hart Publishing: Emily Braggins, Tom Adams, John Hort and Emma Swinden have had an important role in turning this thesis into a book by giving me the time and necessary editorial and linguistic support to complete this project. All involved made the production of the book a very smooth process. I am glad to acknowledge that some of the chapters are based on my previous publications: sections of Chapter 1 and Chapter 4 were published as ‘Do we really need criminal sanctions for the enforcement of EU law’ 5 (2014) New Journal of European Criminal Law 370–387, while parts of Chapter 6 was published recently as ‘Subsidiarity as a Limit to the Exercise of EU Competences’ 35 (2016) Yearbook of European Law (advance access) pp 1–30. Furthermore, a substantially revised version of Chapter 3 is currently being published as ‘The Rise of the Procedural Paradigm—Judicial Review of EU Legislation in Vertical Competence Disputes’ 13 (2017) European Constitutional Law Review. I would furthermore like to thank all those who helped me during my doctoral studies and after that by reviewing my work, providing feedback on presentations and helping me generally in the pursuit of my academic career. In relation to my work specifically on Article 83(2) TFEU, legal basis and the Union’s criminal law competence, endless discussions with Samuli Miettinen, Petter Asp and Ester-Herlin­Karnell have helped in developing the arguments in Chapters 4 and 5. I am also indebted to Renaud Colson, Stewart Field, Tom Poole, Panos ­Koutrakos, Takis Tridimas, Leonard Besselink, Damian Chalmers, Maria Kaiafa-Gbandi, Carl-Fredrik Bergström, Maria Bergström, Sakari Melander, Hans Micklitz, Dennis Patterson, Giovanni Sartor, Thomas Elholm, Raimo Lahti, Kimmo ­ Nuotio, Kasia Granat, Stephen Coutts, Anna Wetter, Antonina Bakardjieva­ Engelbrekt­ , Ragna Aarli, Per-Ole Träskman, Ulf Bernitz, Martin Trybus, ­Jannemieke Ouwerkerk, Marianne Wade, Annika Suominen, Joakim Nergelius, Josef Zila, Scott Crosby, Theodore Konstadinides, Xavier Groussout, Anders ­Fällman and Ann-Mari Roos. I am intellectually indebted to Ittai Bar-Siman-Tov, Koen ­Lenaerts and Ernest A Young for their work on procedural review and federalism. For linguistic support I would like particularly to acknowledge the great contributions of Nicki H ­ argreaves, Nathan Hooper, Stephen Coutts and Christian Ayerst, and Vicki ­Hillyard in correcting my work. Stephen Coutts corrected my PhD thesis and the new errors in the monograph were all meticulously removed by Vicki Hillyard,who did a wonderful job of editing this title. I am also very indebted to my close family; Monica, Göran, Johann, Oscar, Stina who has stood by me since I embarked on my academic path seven years ago. Finally, and most importantly, I would like to acknowledge the outstanding contribution of my wife Marja-Liisa and my new-born son August to this project. Marja-Liisa’s moral, emotional and heart-warming support was fundamental for the completion of the book. Her most important contribution to this project is that she gently and clearly reminded me of the fact that I am not only a researcher but also a person and a partner to someone else. Having said that, she also gave me the requisite time and support for writing this book, including

Acknowledgements

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assuming ­responsibility for our common tasks which I admittedly neglected during large phases of this project. While we have an academic life in common, the most important thing is that we share a life and (now) a family. My son August was born in April 2016 and the journey with him so far has been indescribably rewarding! I completed this book whilst being halftime on parental leave with him, which clearly shaped the experience. He helped me to remind me of the fact that academic life is not everything, as he never let me sit for more than one second at the computer while he was present. I believe his presence and gradual development into a little person undoubtedly helped me in completing this book by making my life more intriguing and meaningful, thus providing me with the necessary motivation to close this part of my life. I would like to end these acknowledgements by dedicating this book to Marja-Liisa and August. Without them, I would not have the motivation to engage in academic scholarship. Jacob Öberg Stockholm 31 March 2017

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CONTENTS

Foreword���������������������������������������������������������������������������������������������������������������������v Acknowledgements��������������������������������������������������������������������������������������������������� vii Table of Cases������������������������������������������������������������������������������������������������������������xv Table of Legislation����������������������������������������������������������������������������������������������� xxiii

1. Introduction��������������������������������������������������������������������������������������������������������1 I. The Question of EU Competence after Lisbon����������������������������������������1 II. The Problems of the Existing Limits to EU Competences����������������������3 III. Main Arguments of the Book��������������������������������������������������������������������8 IV. Case Study—EU Regulatory Criminal Law��������������������������������������������10 V. Chapter Synopsis�������������������������������������������������������������������������������������13 Part I: A Framework for Legality Review 2. Principles Limiting the Exercise of EU Competences�������������������������������������19 I. Introduction���������������������������������������������������������������������������������������������19 II. The System of Competence Monitoring������������������������������������������������20 III. Principle of Conferral������������������������������������������������������������������������������21 A. Theory and Judicial Review������������������������������������������������������������21 B. Can the Principle of Conferral Act as a Check on the Exercise of EU Competences?���������������������������������������������������������30 IV. Principle of Proportionality��������������������������������������������������������������������32 A. Theory and Judicial Review������������������������������������������������������������32 B. Evaluation: Is Proportionality a Principle that can be used to Challenge EU Measures before the Court?������������������������36 V. Principle of Subsidiarity��������������������������������������������������������������������������39 A. Theory and Judicial Review������������������������������������������������������������39 B. Evaluation: Is Subsidiarity a Ground Apt to Challenge the Exercise of EU Competences before the Court?����������������������40 VI. Conclusions����������������������������������������������������������������������������������������������43 3. Judicial Competence Review of EU Legislation����������������������������������������������45 I. Introduction���������������������������������������������������������������������������������������������45 II. The Link between Institutional and Conceptual Factors in Determining Intensity of Judicial Review������������������������������������������46 III. The Case for Strict Procedural Review���������������������������������������������������49

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Contents IV. The Court of Justice’s Track Record on Procedural Review������������������54 A. Vodafone: Article 114 TFEU and Proportionality�������������������������55 B. Afton Chemical: Procedural Proportionality���������������������������������57 C. Germany v Parliament and Council: Procedural Subsidiarity��������������������������������������������������������������������������������������59 V. Setting the Framework for a General Standard of Review and Test for Legality of EU Legislation���������������������������������������������������61 A. Spain v Council: Providing the Fruits for an Appropriate Standard for Judicial Review�����������������������������������������������������������61 B. Analysis: Why Does Spain v Council Provide a Good Source for a General Standard of Review and Test for Legality?�����������������������������������������������������������������������62 C. Spain v Council Expresses a General Standard of Review�������������64 D. Standard for Review and Test for Legality��������������������������������������65 E. Rationale and Issues with the Test��������������������������������������������������67 F. The Relationship of the Proposed Test to the EU Courts’ Current Approach��������������������������������������������������������69 VI. Conclusions����������������������������������������������������������������������������������������������71 Part II: Limits to EU Powers

4. Limits to the Union’s Criminal Law Competence�������������������������������������������75 I. Introduction���������������������������������������������������������������������������������������������75 II. Limits to the Exercise of the Union’s Criminal Law Competence Prior to the Lisbon Treaty�������������������������������������������������77 A. Account of the Environmental Crimes and the Ship-Source Pollution Judgments���������������������������������������������������77 B. Do the Environmental Crimes and Ship-Source Pollution Judgments Express a General Criminal Law Competence?�����������79 C. Was the Environmental Crimes Directive Validly Adopted under Article 192 TFEU?�������������������������������������������������80 i. Scope and Content������������������������������������������������������������������80 ii. Are Criminal Laws Essential to Enforce EU Environmental Policy?�������������������������������������������������������������81 III. Limits to the Exercise of Express Union Criminal Law Competence after Lisbon Treaty (Article 83(2) TFEU)�������������������������85 A. Substantive Limitations on the Exercise of Union Competence under Article 83(2) TFEU�����������������������������������������85 i. Effective Implementation of a Union Policy��������������������������85 ii. The ‘Essentiality’ Condition����������������������������������������������������86 iii. Does the Market Abuse Crimes Directive Conform to the ‘Essentiality’ Requirement in Article 83(2) TFEU?����������89 a. The Scope of the Directive�����������������������������������������������89 b. Are Criminal Laws Effective and Indispensable for the Enforcement of EU Market Abuse Policies?��������������92

Contents

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B. Procedural Limitations to the Exercise of Union Competences under Article 83(2) TFEU����������������������������������������97 i. What is the Meaning of ‘Harmonisation Measures’ in Article 83(2) TFEU?�������������������������������������������������������������97 ii. Application of the ‘Harmonisation’ Requirement to EU Market Abuse Legislation��������������������������������������������100 IV. Conclusions��������������������������������������������������������������������������������������������102 5. The Legal Basis for EU Criminal Law Legislation—A Constitutional Choice?������������������������������������������������������������������������������������������������������������105 I. Introduction�������������������������������������������������������������������������������������������105 II. The Relationship Between Article 83(2) TFEU and Article 114 TFEU with Respect to Criminalisation Measures��������������������������������106 A. The Scope of Article 114 TFEU in Legal Basis Litigation������������106 B. A Dormant Criminal Law Competence outside Title V��������������111 C. Case Study: The Fourth Anti-Money Laundering Directive�������114 III. The Fight Against Fraud: The Relationship Between Article 325 TFEU and Article 83(2) TFEU��������������������������������������������������������������119 A. The Context of the PIF Proposal��������������������������������������������������120 B. The Views of the EU Institutions on the Legal Basis for the PIF Proposal�����������������������������������������������������������������������121 C. Analysing the EU Institutions’ Arguments on the Legal Basis for the PIF Proposal�������������������������������������������������������������123 IV. Conclusions��������������������������������������������������������������������������������������������129 6. Subsidiarity as a Constraint to the Exercise of EU Competences����������������133 I. Introduction�������������������������������������������������������������������������������������������133 II. The Substantive Meaning of Subsidiarity���������������������������������������������135 A. Fleshing Out the Meaning of Subsidiarity—The Edinburgh Guidelines��������������������������������������������������������������������������������������135 B. Legitimate Justification for EU Internal Market Harmonisation�������������������������������������������������������������������������������136 C. An Evidence-based and Decentralised Understanding of Subsidiarity��������������������������������������������������������������������������������143 III. Judicial Review of Subsidiarity��������������������������������������������������������������145 A. The Problems of Judicial Enforcement of Subsidiarity���������������145 B. The Main Challenges in Enforcing Subsidiarity before the Court of Justice������������������������������������������������������������������������146 C. Intensity of Subsidiarity Review���������������������������������������������������147 D. A Test of ‘Adequate Reasoning’ and ‘Relevant Evidence’ for Subsidiarity Compliance���������������������������������������������������������148 E. National Parliaments, Impact Assessments and Subsidiarity Review�����������������������������������������������������������������������151 F. The Proposed Review Standard’s Relationship to the Court’s Current Approach������������������������������������������������������������152

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Contents IV. Case Study: The Market Abuse Crimes Directive��������������������������������153 V. Conclusions��������������������������������������������������������������������������������������������156

7. Political Control of EU Competences—National Parliaments in the Field of EU Criminal Law��������������������������������������������������������������������159 I. Introduction�������������������������������������������������������������������������������������������159 II. National Parliaments’ Remit under the EWS Procedure���������������������160 III. National Parliaments’ Pursuit of Competence Control in Practice—The Yellow Card Against the EPPO Proposal���������������������167 A. Context and Rationales for the EPPO Proposal���������������������������167 B. The Commission’s Subsidiarity Justification�������������������������������168 C. The Reasoned Opinions of the National Parliaments�����������������170 D. The Response of the Commission������������������������������������������������176 E. Evaluating the Merits of the National Parliament’s Objections�����������������������������������������������������������������177 IV. Conclusions��������������������������������������������������������������������������������������������182 8. Conclusion������������������������������������������������������������������������������������������������������187 I. Competence Control of the Exercise of EU Competences������������������187 II. Reconstructing the Limits of the Treaties���������������������������������������������191 III. Epilogue: Future Prospects��������������������������������������������������������������������199

Bibliography������������������������������������������������������������������������������������������������������������203 Index�����������������������������������������������������������������������������������������������������������������������215

TABLE OF CASES

Alphabetical list European Union Cases Court of Justice Accession by the Community to the European Convention for the Protection of Human Rights and Fundamental Freedoms (Opinion 2/94) [1996] ECR I-01759������������������������������������������������������������������������������21–24, 28–29, 31, 44 Accession of the European Union to the European Convention for the Protection of Human Rights and Fundamental Freedoms (Opinion 2/13) (Court of Justice, Opinion of 18 December 2014)������������������������������������������������������������29 Afton Chemical Case C-343/09 [2010] I-07027������������������������������������������������������������� 57–61 Åklagaren v Percy Mickelsson and Joakim Roos (Case C-142/05) ������������������������������������140 Alliance for Natural Health and others (Joined cases C-154/04 and 155/04) [2005] ECR I-06451����������������������������������������������������������������������������� 25–26, 28, 48, 53, 70, 148, 150, 152 Association belge des Consommateurs Test-Achats and Others (Case C-236/09) [2011] ECR I-00773������������������������������������������������������������������������������������������������������54, 69 Belgium v Commission (Case C-110/03) [2005] ECR I-2801���������������������������������������������39 Berlusconi and Others (Joined cases C-387/02, C-391/02 and C-403/02) [2005] ECR I-03565������������������������������������������������������������������������������������������������������������������������� 85–86 British American Tobacco (Investments) and Imperial Tobacco (Case C-491/01) [2002] ECR I-11453������������������������������������������������������ 24, 36, 41, 47–48, 64, 70, 134 Buet and others v Ministère public (Case 382/87) [1989] ECR 1235����������������������������������32 Caixa Bank France (Case C-442/02) [2004] ECR I-08961�������������������������������������������������140 Cartagena Protocol (Opinion 2/00) [2001] ECR I-9713������������������������������������������������������21 CILFIT v Ministero della Sanità (Case 283/81) [1982] ECR 3415�����������������������������������������8 Commission and others v Kadi (Joined cases C-584/10 P, C-593/10 P and C-595/10 P) (Court of Justice, 18 July 2013)������������������������������������������������������ 66–68 Commission of the European Communities v European Parliament and Council of the European Union (Shipments of waste) (Case C-411/06) [2009] ECR I-07585����������������������������������������������������������������������������������������������������������127 Commission v Council (Case 45/86) [1987] ECR 1493�������������������������������������������������������66 Commission v Council (Case C-155/91) [1993] ECR I-00939����������������������������110–11, 123 Commission v Council (Case C‑211/01) ����������������������������������������������������������������������������125 Commission v Council (Case C-338/01) [2004] ECR I-04829��������������109–10, 123–24, 126 Commission v Council (Case C‑94/03) ������������������������������������������������������������������������������126 Commission v Council (Case C-176/03) [2005] ECR I-07879��������������������� 2, 75–76, 78, 87, 111, 113

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Commission v Council (Case C-533/03) [2006] ECR I-01025����������������������������������110, 124 Commission v Council (Case C-440/05) [2007] ECR I-09097��������������� 2, 12, 75–76, 79–81, 86–87, 118 Commission v Council (Case C‑137/12) (Court of Justice, 22 October 2013)����������������������������������������������������������������������������������������110–11, 118, 130 Commission v Council (Case C-377/12) (Court of Justice, 11 June 2014)�����������������������111 Commission v Council (ECOWAS) (Case C‑91/05) ��������������������������������������������������� 125–26 Commission v Council (Titanium Dioxide)��������������������������������������������������4, 107, 110–111, 123, 127–28 Commission v Germany (Case 116/82) [1986] ECR 2519���������������������������������������������������32 Commission v Germany (Case C-103/01) [2003] ECR I-05369������������������������������������������39 Commission v Germany (Case C-518/07) [2010] ECR I-01885������������������������������������������40 Commission v Greece (Case 68/88) [1989] ECR 2965�������������������������������������������������13, 117 Commission v Parliament and Council (Case C‑178/03) [2006] ECR I‑107������������126, 128 Commission v Parliament and Council (Case C-43/12) (Court of Justice, 6 May 2014)�����������������������������������������������������������������������������������������������������������31, 111–12 Commission v Tetra Laval (Case C-12/03 P) [2005] ECR I-00987��������������������������������63, 66 Commission v Council (Case C-370/07) [2009] ECR I-8917������������������������������������105, 190 Dassonville (Case 8/74) [1974] ECR 837�����������������������������������������������������������������������������138 DHL (Case C-148/10) [2011] ECR I-09543������������������������������������������������������������������������140 Digital Rights Ireland and Seitlinger and Others (Case C-293/12) (Court of Justice, 8 April 2014)����������������������������������������������������������������������������������������200 E and F (Case C-550/09) [2010] ECR I-06213����������������������������������������������������������������������67 General Agreement on Trade in Services (Opinion 1/08) [2009] ECR I-11129����������������105 Germany v Commission (Case 24/62) [1963] ECR 131�������������������������������������������������������53 Germany v Commission (Case C-240/90) [1992] ECR I-05383����������������������������������������113 Germany v Parliament and Council (Case C-233/94) [1997] ECR I-02405����������������������������������������������������������������������������������� 40, 48, 59–60, 70, 148, 152 Germany v Parliament and Council (Case C-380/03) [2006] ECR I-11573����������������������������������������������������������������������������������������27, 70, 108–09 Germany v Parliament and Council (Tobacco Advertising) (Case C-376/98) [2000] ECR I-08419�������������������������������������� 4, 22–24, 26–29, 31, 41–42, 44–45, 56–57, 69, 108–09, 115, 129, 137–39, 144, 155, 180, 197 Graf (Case C-190/98) [2000] ECR I-00493�������������������������������������������������������������������������140 Hansen (Case 326/88) [1990] ECR I-02911��������������������������������������������������������������������������86 Hünermund (Case C-292/92) [1993] ECR I- 6787������������������������������������������������������������144 IMM Zwartveld (Case 2/88) [1990] ECR I-3365����������������������������������������������������������������117 Ireland v Parliament and Council (Case C-301/06) [2009] ECR I-00593�������������������������������������������������������������������������������� 28, 31, 70, 109, 111 Jippes and Others (Case C-189/01) [2001] ECR I-5689�������������������������������������������������51, 63 Keck and Mithouard (Case C-267/91) [1993] ECR I-06097����������������������������������������������140 Liselotte Hauer v Land Rheinland-Pfalz (Case 44/79) [1979] ECR 3727����������������������������32 Luxembourg v Parliament and Council (Case C-176/09) [2011] ECR I-03727���������������������������������������������������������������������������������� 35, 41, 48, 61, 133

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Netherlands v Parliament and Council (Case C-377/98) [2001] ECR I-07079���������������������������������������������������������������������������������������� 40, 47, 59, 176 Nunes and De Matos (Case C-186/98) [1999] ECR I-4883������������������������������������������������117 Omega Air and others (Joined cases C-27 and C-122/00) [2000] ECR I-2569�������������������36 Österreichische Unilever (Case C-77/97) [1999] ECR I-431����������������������������������������������117 Parliament v Commission (Case C-403/05) �����������������������������������������������������������������������105 Parliament v Council (Case C-187/93) [1994] ECR I-02857���������������������������������������������110 Parliament v Council (Case C-436/03) [2006] ECR I-03733���������������������������������������������112 Parliament v Council (Case C-166/07) [2009] ECR I-7135���������������������������������������112, 126 Parliament v Council (Case C-130/10) (Court of Justice, 19 July 2012)�������������������� 126–27 Parliament v Council (European Investment Bank) (Case C-155/07) [2008] ECR I-8103�������������������������������������������������������������������������22, 124 Peralta (Case C-379/92) [1994] ECR I-3453�����������������������������������������������������������������������140 Philip Morris Brands and Others (Case C-547/14) (Court of Justice, 4 May 2016)������������������������������������������������������� 26, 36, 40, 47–48, 59, 70 Remia BV and Others v Commission (Case 42/84) [1985] ECR 2545��������������������������������51 Ruiz Zambrano (Case C-34/09) [2011] ECR I-01177��������������������������������������������������������137 SAM Schiffart and Stapf v Germany (Joined cases C-248-9/95) [1997] ECR I-4475��������������������������������������������������������������������������������������������������������������36 Spain v Council (Case C-36/98) [2001] ECR I-779����������������������������������������������������111, 123 Spain v Council (Case C-310/04) [2006] ECR I-07285��������������������������� 8, 33–37, 49, 56, 58, 60–65, 152, 192 Swedish Match (Case C-210/03) [2004] ECR I-11893����������������������������� 3, 25, 28, 33, 47–48, 70, 87, 109 The Queen v Ministry of Agriculture, Fisheries and Food, ex parte FEDESA and Others (Case 331/88) [1990] ECR I-04023����������������������������������������������������������������64 UK v Council (Case 68/86) [1988] ECR 855�����������������������������������������������������������������������105 UK v Council (Case C-81/13) (Court of Justice, 18 December 2014)������������������������ 111–12 UK v Council (Switzerland-EEA Social Security Coordination) (Case C-656/11) (Court of Justice of 27 February 2014)���������������������������������������� 111–12 United Kingdom v Council Case (C-84/94) [1996] I-05755�����������������������������22, 36, 39–40, 48, 152 United Kingdom v Parliament and Council (Case C-217/04) [2006] ECR I-3771�������������96 United Kingdom v Parliament and Council (Case C‑270/12) (Court of Justice, 22 January 2014)�����������������������������������������������������������������������������������31 Vodafone and Others (Case C-58/08) [2010] ECR I-04999������������25–26, 40–42, 47, 55–58, 61, 66, 70, 133, 135, 176, 178 Volker und Martin Schecke and Eifert (Case C-92/09) [2010] ECR I-11063����������������54, 69 Yassin Abdullah Kadi and Al Barakaat International Foundation v Council and Commission (Joined Cases C-402 and C-415/05 P) [2008] ECR I-6351����������������27, 126 General Court Graphischer Maschinenbau GmbH v Commission (Case T-126/99) [2002] ECR II-2427������������������������������������������������������������������������������������������������������������70 Hungary v Commission (Case T-310/06) [2007] ECR II-4619��������������������������������������������70

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Iran Transfo v Council (Case T-392/11) (General Court, 16 May 2013)�����������������������������67 Pfizer Animal Health v Council (Case T-13/99) [2002] ECR II-03305��������������������������������63 Poland v Commission (Case T-183/07) [2009] ECR II-03395�������������������������������������������152 Tetra Laval (Case T-5/02) [2002] ECR II-04381�������������������������������������������������������������������63 Cases from the European Court of Human Rights Öztürk v Germany Judgment of the European Court of Human Rights of 21 February 1984 Series A no 73 [1984] 6 EHRR 409���������������������������������������������������������������������������12 Cases from Member States’ Constitutional Courts Lisbon Judgment Judgment of German Federal Constitutional Court of 30 June 2009, Case 2 BvE 2/08, BvE 5/08, 2 BvR 1010/08, BvR 1022/08, BvR 1259/08, BvR182/09 (2009)��������������������������������������������������������������������������32, 76, 125 Cases from US Supreme Court Marbury v Madison 5 US 137 (1803)����������������������������������������������������������������������������������200 Numerical list Court of Justice Case 24/62 Germany v Commission [1963] ECR 131����������������������������������������������������������53 Case 8/74 Dassonville [1974] ECR 837��������������������������������������������������������������������������������138 Case 44/79 Liselotte Hauer v Land Rheinland-Pfalz [1979] ECR 3727�������������������������������32 Case 283/81 CILFIT v Ministero della Sanità [1982] ECR 3415��������������������������������������������8 Case 116/82 Commission v Germany [1986] ECR 2519������������������������������������������������������32 Case 42/84 Remia BV and Others v Commission [1985] ECR 2545�����������������������������������51 Case 45/86 Commission v Council [1987] ECR 1493����������������������������������������������������������66 Case 68/86 UK v Council [1988] ECR 855��������������������������������������������������������������������������105 Case 382/87 Buet and others v Ministère public [1989] ECR 1235�������������������������������������32 Case 2/88 IMM Zwartveld [1990] ECR I-3365�������������������������������������������������������������������117 Case 68/88 Commission v Greece [1989] ECR 2965����������������������������������������������������13, 117 Case 326/88 Hansen [1990] ECR I-02911�����������������������������������������������������������������������������86 Case 331/88 The Queen v Ministry of Agriculture, Fisheries and Food, ex parte FEDESA and Others [1990] ECR I-04023�����������������������������������������������������������64 Case C-300/89 Commission v Council (Titanium Dioxide) [1991] ECR I-02867�������������������������������������������������������������������������������������4, 107, 110–111, 123, 127–28 Case C-240/90 Germany v Commission [1992] ECR I-05383�������������������������������������������113 Case C-155/91 Commission v Council [1993] ECR I-00939�������������������������������110–11, 123 Case C-267/91 Keck and Mithouard [1993] ECR I-06097 ������������������������������������������������140 Case C-292/92 Hünermund [1993] ECR I- 6787����������������������������������������������������������������144 Case C-379/92 Peralta [1994] ECR I-3453��������������������������������������������������������������������������140 Case C-187/93 Parliament v Council [1994] ECR I-02857������������������������������������������������110 Opinion 2/94 Accession by the Community to the European Convention for the Protection of Human Rights and Fundamental Freedoms [1996] ECR I-01759������������������������������������������������������������������������������21–24, 28–29, 31, 44

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Case C-84/94 United Kingdom v Council [1996] I-05755������������������� 22, 36, 39–40, 48, 152 Case C-233/94 Germany v Parliament and Council [1997] ECR I-02405�������������������������������������������������������������������� 40, 48, 59–60, 70, 148, 152 Joined cases C-248-9/95 SAM Schiffart and Stapf v Germany [1997] ECR I-4475������������36 Case C-77/97 Österreichische Unilever [1999] ECR I-431�������������������������������������������������117 Case C-36/98 Spain v Council [2001] ECR I-779�������������������������������������������������������111, 123 Case C-186/98 Nunes and De Matos [1999] ECR I-4883���������������������������������������������������117 Case C-190/98 Graf [2000] ECR I-00493����������������������������������������������������������������������������140 Case C-376/98 Germany v Parliament and Council (Tobacco Advertising) [2000] ECR I-08419������������������������������������������������������� 4, 22–24, 26–29, 31, 41–42, 44–45, 56–57, 69, 108–09, 115, 129, 137–39, 144, 155, 180, 197 Case C-377/98 Netherlands v Parliament and Council [2001] ECR I-07079���������������������������������������������������������������������������������������� 40, 47, 59, 176 Opinion 2/00 Cartagena Protocol [2001] ECR I-9713���������������������������������������������������������21 Joined cases C-27 and C-122/00 Omega Air and others [2000] ECR I-2569����������������������36 Case C-103/01 Commission v Germany [2003] ECR I-05369���������������������������������������������39 Case C‑211/01 Commission v Council [2003] ECR I‑891�������������������������������������������������125 Case C-189/01 Jippes and Others [2001] ECR I-5689����������������������������������������������������51, 63 Case C-338/01 Commission v Council [2004] ECR I-04829�����������������109–10, 123–24, 126 Case C-491/01 British American Tobacco (Investments) and Imperial Tobacco [2002] ECR I-11453���������������������������������� 24, 36, 41, 47–48, 64, 70, 134 Joined cases, C-391/02 and C-403/02 Berlusconi and Others [2005] ECR I-03565����������������������������������������������������������������������������������������������������� 85–86 Case C-442/02 Caixa Bank France [2004] ECR I-08961�����������������������������������������������������140 Case C-12/03 P Commission v Tetra Laval [2005] ECR I-00987�����������������������������������63, 66 Case C‑94/03 Commission v Council [2006] ECR I‑1 ������������������������������������������������������126 Case C-110/03 Belgium v Commission [2005] ECR I-2801�������������������������������������������������39 Case C-176/03 Commission v Council [2005] ECR I-07879��������� 2, 75–76, 78, 87, 111, 113 Case C‑178/03 Commission v Parliament and Council [2006] ECR I‑107���������������126, 128 Case C-210/03 Swedish Match [2004] ECR I-11893�������������������������������� 3, 25, 28, 33, 47–48, 70, 87, 109 Case C-380/03 Germany v Parliament and Council [2006] ECR I-11573����������������������������������������������������������������������������������������27, 70, 108–09 Case C-436/03 Parliament v Council [2006] ECR I-03733������������������������������������������������112 Case C-533/03 Commission v Council [2006] ECR I-01025�������������������������������������110, 124 Joined cases C-154/04 and 155/04 Alliance for Natural Health and others [2005] ECR I-06451���������������������������������������������������������������� 25–26, 28, 48, 53, 70, 148, 150, 152 Case C-217/04 United Kingdom v Parliament and Council [2006] ECR I-3771����������������96 Case C-310/04 Spain v Council [2006] ECR I-07285������������������������������ 8, 33–37, 49, 56, 58, 60–65, 152, 192 Case C‑91/05 Commission v Council (ECOWAS) [2008] ECR I-03651�������������������� 125–26 Case C-142/05 Åklagaren v Percy Mickelsson and Joakim Roos [2009] ECR I-4273������������������������������������������������������������������������������������������������������������140 Joined Cases C-402 and C-415/05 P Yassin Abdullah Kadi and Al Barakaat International Foundation v Council and Commission [2008] ECR I-6351�����������������������������������27, 126 Case C-403/05 Parliament v Commission [2007] ECR I-9045������������������������������������������105

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Case C-440/05 Commission v Council [2007] ECR I-09097������������������ 2, 12, 75–76, 79–81, 86–87, 118 Case C-301/06 Ireland v Parliament and Council [2009] ECR I-00593����������������� 28, 31, 70, 109, 111 Case C-411/06 Commission of the European Communities v European Parliament and Council of the European Union (Shipments of waste) [2009] ECR I-07585���������127 Case C-155/07 Parliament v Council (European Investment Bank) [2008] ECR I-8103������������������������������������������������������������������������������������������������������22, 124 Case C-166/07 Parliament v Council [2009] ECR I-7135������������������������������������������112, 126 Case C-370/07 Commission v Council [2009] ECR I-8917���������������������������������������105, 190 Case C-518/07 Commission v Germany [2010] ECR I-01885���������������������������������������������40 Opinion 1/08 General Agreement on Trade in Services [2009] ECR I-11129�������������������105 Case C-58/08 Vodafone and Others [2010] ECR I-04999���������������25–26, 40–42, 47, 55–58, 61, 66, 70, 133, 135, 176, 178 Case C-34/09 Ruiz Zambrano [2011] ECR I-01177������������������������������������������������������������137 Case C-92/09 Volker und Martin Schecke and Eifert [2010] ECR I-11063 ������������������54, 69 Case C-176/09 Luxembourg v Parliament and Council [2011] ECR I-03727���������������������������������������������������������������������������������� 35, 41, 48, 61, 133 Case C-236/09 Association belge des Consommateurs Test-Achats and Others [2011] ECR I-00773����������������������������������������������������������������������������������54, 69 Case C-343/09 Afton Chemical [2010] I-07027������������������������������������������������������������� 57–61 Case C-550/09 E and F [2010] ECR I-06213�������������������������������������������������������������������������67 Case C-130/10 Parliament v Council (Court of Justice, 19 July 2012) ���������������������� 126–27 Case C-148/10 DHL [2011] ECR I-09543���������������������������������������������������������������������������140 Joined cases C-584/10 P, C-593/10 P and C-595/10 P Commission and others v Kadi (Court of Justice, 18 July 2013)����������������������������������������������������� 66–68 Case C-656/11 UK v Council (Switzerland-EEA Social Security Coordination) (Court of Justice of 27 February 2014)��������������������������������������������������������������������� 111–12 Case C-43/12 Commission v Parliament and Council (Court of Justice, 6 May 2014)�����������������������������������������������������������������������������31, 111–12 Case C‑137/12 Commission v Council (Court of Justice, 22 October 2013)�������������110–11, 118, 130 Case C‑270/12 United Kingdom v Parliament and Council (Court of Justice, 22 January 2014)�����������������������������������������������������������������������������������31 Case C-293/12 Digital Rights Ireland and Seitlinger and Others (Court of Justice, 8 April 2014)����������������������������������������������������������������������������������������200 Case C-377/12 Commission v Council (Court of Justice, 11 June 2014)��������������������������111 Opinion 2/13 Accession of the European Union to the European Convention for the Protection of Human Rights and Fundamental Freedoms (Court of Justice, Opinion of 18 December 2014)�����������������������������������������������������������������������������������������29 Case C-81/13 UK v Council (Court of Justice, 18 December 2014)��������������������������� 111–12 Case C-547/14 Philip Morris Brands and Others (Court of Justice, 4 May 2016)������������������������������������������������������� 26, 36, 40, 47–48, 59, 70 General Court Case T-13/99 Pfizer Animal Health v Council [2002] ECR II-03305�����������������������������������63 Case T-5/02 Tetra Laval [2002] ECR II-04381�����������������������������������������������������������������������63

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Case T-310/06 Hungary v Commission [2007] ECR II-4619�����������������������������������������������70 Case T-183/07 Poland v Commission [2009] ECR II-03395����������������������������������������������152 Case T-126/99 Graphischer Maschinenbau GmbH v Commission [2002] ECR II-2427������������������������������������������������������������������������������������������������������������70 Case T-392/11 Iran Transfo v Council (General Court, 16 May 2013)��������������������������������67 Cases from the European Court of Human Rights Judgment of the European Court of Human Rights of 21 February 1984, Öztürk v Germany Series A no 73 [1984] 6 EHRR 409����������������������������������������������������12 Cases from Member States’ Constitutional Courts Judgment of German Federal Constitutional Court of 30 June 2009, Lisbon Judgment, Case 2 BvE 2/08, BvE 5/08, 2 BvR 1010/08, BvR 1022/08, BvR 1259/08, BvR182/09 (2009)���������������������������������������������������32, 76, 125 Cases from US Supreme Court Marbury v Madison 5 US 137 (1803)����������������������������������������������������������������������������������200

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Treaties Consolidated Version of the Treaty on European Union [2002] OJ C 325/5����������������������77 Consolidated Version of the Treaty Establishing the European Community [2002] OJ C 325/33���������������������������������������������������������������������������������������������������������������2 Consolidated Version of the Treaty on European Union [2010] OJ C 83/13������������������������3 Consolidated Version of the Treaty on the Functioning of the European Union [2010] OJ C 83/47������������������������������������������������������������������������������������2 Protocols Protocol (No 30) on the application of the principles of subsidiarity and proportionality (1997), [1997] OJ C 321/308����������������������������������������������������������135 Protocol (No 1) On the Role of National Parliaments in the European Union OJ [2010] C 83/203������������������������������������������������������������������4, 151, 160 Protocol (No 2) On the Application of the Principles of Subsidiarity and Proportionality OJ [2010] C 83/206����������������������������������������������� 4, 32, 127, 144, 160 Protocol (No 21) on the position of the United Kingdom and Ireland in respect of the Area of Freedom, Security and Justice, OJ C 83/295��������������������������������������������127 Protocol (No 22) on the position of Denmark, OJ C 83/299���������������������������������������������127 Protocol (No 27) on the Internal Market and Competition OJ [2010] C 83/309�������������137 Charter of Fundamental Rights of the European Union [2010] OJ C 83/389�������������������200 Conventions European Convention for the Protection of Human Rights and Fundamental Freedoms, as amended by Protocols Nos. 11 and 14, 4 November 1950, ETS 5��������������12 Directives Council Directive 89/428/EEC of 21 June 1989 on procedures for harmonizing the programmes for the reduction and eventual elimination of pollution caused by waste from the titanium dioxide industry [1989] OJ L 201/56���������������������������������107 Council Directive 93/104/EC of 23 November 1993 concerning certain aspects of the organization of working time [1993] OJ L 307/18�������������������������������������������������22 Directive 94/19/EC of the European Parliament and of the Council of 30 May 1994 on deposit-guarantee schemes [1994] OJ L 135/5��������������������������������������60 Directive 98/43/EC of the European Parliament and of the Council of 6 July 1998 on the approximation of the laws, regulations and administrative provisions of the Member States relating to the advertising and sponsorship of tobacco products [1998] OJ L 213/9���������������������������������������������������������������������������������������������������������������23

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Directive 2001/37/EC of the European Parliament and of the Council of 5 June 2001 on the approximation of the laws, regulations and administrative provisions of the Member States concerning the manufacture, presentation and sale of tobacco products [2001] OJ L 194/26������������������������������������������������������������� 24–25 Council Directive 2001/44/EC of 15 June 2001 amending Directive 76/308/EEC on mutual assistance for the recovery of claims resulting from operations forming part of the system of financing the European Agricultural Guidance and Guarantee Fund, and of agricultural levies and customs duties and in respect of value added tax and certain excise duties [2001] OJ 2001 L 175/17�������������109 Directive 2002/46/EC of the European Parliament and of the Council of 10 June 2002 on the approximation of the laws of the Member States relating to food supplements [2002] OJ L 183/51�������������������������������������������������������������25 Directive 2003/6/EC of the European Parliament and of the Council of 28 January 2003 on insider dealing and market manipulation (market abuse) [2003] OJ L 96/16���������������������������������������������������������������������91, 100, 154 Directive 2003/33/EC of the European Parliament and of the Council of 26 May 2003 on the approximation of the laws, regulations and administrative provisions of the Member States relating to the advertising and sponsorship of tobacco products [2003] OJ L 152/16���������������������������������������������������������������������������27 Directive 2004/35/EC of the European Parliament and of the Council of 21 April 2004 on environmental liability with regard to the prevention and remedying of environmental damage [2004] OJ L 143/56����������������������������������������������������������������������82 Directive 2005/60/EC of the European Parliament and of the Council of 26 October 2005 on the prevention of the use of the financial system for the purpose of money laundering and terrorist financing [2005] OJ L 309/15�����������������������10, 114, 116 Directive 2006/24/EC of the European Parliament and of the Council of 15 March 2006 on the retention of data generated or processed in connection with the provision of publicly available electronic communications services or of public communications networks and amending Directive 2002/58/EC [2006] OJ L 105/54�����������������������������200 Directive 2008/99/EC of the European Parliament and of the Council of 19 November 2008 on the protection of the environment through criminal law [2008] OJ L 328/28����������������������������������������������������������������������������9, 80, 150 Directive 2009/12/EC of the European Parliament and of the Council of 11 March 2009 on airport charges [2009] OJ L 70/11��������������������������������������������������35 Directive 2009/30/EC of the European Parliament and of the Council of 23 April 2009 amending Directive 98/70/EC as regards the specification of petrol, diesel and gas-oil and introducing a mechanism to monitor and reduce greenhouse gas emissions and amending Council Directive 1999/32/EC as regards the specification of fuel used by inland waterway vessels and repealing Directive 93/12/EEC [2009] OJ L 140/88������������������������������������������������������������������� 57–59 Directive 2009/52/EC of the European Parliament and of the Council of 18 June 2009 providing for minimum standards on sanctions and measures against employers of illegally staying third-country nationals [2009] OJ L 168/24��������������������������������������12 Directive 2009/123/EC of the European Parliament and of the Council of 21 October 2009 amending Directive 2005/35/EC on ship-source pollution and on the introduction of penalties for infringements [2009] OJ L 280/52������������������12

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Directive 2012/13/EU of the European Parliament and of the Council of 22 May 2012 on the right to information in criminal proceedings [2012] OJ L 142/1�������������������������43 Directive 2012/29/EU of the European Parliament and of the Council of 25 October 2012 establishing minimum standards on the rights, support and protection of victims of crime, and replacing Council Framework Decision 2001/220/JHA [2012] OJ L 315/57�������������������������������������������������43 Directive 2014/57/EU of the European Parliament and of the Council of 16 April 2014 on criminal sanctions for market abuse (market abuse directive) [2014] OJ L 173/79��������������������������������������������������������9, 89, 134 Directive (EU) 2015/849 of the European Parliament and of the Council of 20 May 2015 on the prevention of the use of the financial system for the purposes of money laundering or terrorist financing, amending Regulation (EU) No 648/2012 of the European Parliament and of the Council, and repealing Directive 2005/60/EC of the European Parliament and of the Council and Commission Directive 2006/70/EC [2015] OJ L 141/73���������������������������������������������������������������������������������10, 116 Directive (EU) 2016/343 of the European Parliament and of the Council of 9 March 2016 on the strengthening of certain aspects of the presumption of innocence and of the right to be present at the trial in criminal proceedings [2016] OJ L 65/1�����������184 Regulations Council Regulation (EC, Euratom) No 2988/95 of 18 December 1995 on the protection of the European Communities financial interests, [1995] OJ L 312/1������������������������������������������������������������������������������������� 120, 122, 124, 126 Council Regulation (EC) No 2821/98 of 17 December 1998 amending, as regards withdrawal of the authorisation of certain antibiotics, Directive 70/524/EEC concerning additives in feedingstuffs [1998] OJ L 351/4��������������������������������������������������63 Council Regulation (EC) No 1/2003 of 16 December 2002 on the implementation of the rules on competition laid down in Articles 81 and 82 of the Treaty [2003] OJ L 1/1��������������������������������������������������������������������������������������������������������12 Council Regulation (EC) No 1782/2003 of 29 September 2003 establishing common rules for direct support schemes under the common agricultural policy and establishing certain support schemes for farmers and amending Regulations (EEC) No 2019/93, (EC) No 1452/2001, (EC) No 1453/2001, (EC) No 1454/2001, (EC) No 1868/94, (EC) No 1251/1999, (EC) No 1254/1999, (EC) No 1673/2000, (EEC) No 2358/71 and (EC) No 2529/2001 [2003] OJ L 270/ 1, inserted by Article 1(20) of Council Regulation (EC) No 864/2004 of 29 April 2004 [2004] OJ L 161/ 48 �����������������������������������������������������������������������������������������������������������34 Regulation (EC) No 717/2007 of the European Parliament and of the Council of 27 June 2007 on roaming on public mobile telephone networks within the Community and amending Directive 2002/21/EC [2007] OJ L 171/32��������������������������55 Regulation (EU) No 596/2014 of the European Parliament and of the Council of 16 April 2014 on market abuse (market abuse regulation) and repealing Directive 2003/6/EC of the European Parliament and of the Council and Commission Directives 2003/124/EC, 2003/125/EC and 2004/72/EC [2014] OJ L 173/1������������91, 100 Decisions 1999/352/EC, ECSC, Euratom: Commission Decision of 28 April 1999 establishing the European Anti-fraud Office (OLAF) [1999] OJ L 136/20����������������������������������������������169

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Framework decisions Council Framework Decision 2003/80/JHA of 27 January 2003 on the protection of the environment through criminal law [2003] OJ L 29/55������������������������������������������77 Council Framework Decision 2005/667/JHA of 12 July 2005 to strengthen the criminal-law framework for the enforcement of the law against ship-source pollution [2005] OJ L 255/ 164������������������������������������������������������������������������������������������78 Conventions Council Act of 26 July 1995 drawing up the Convention on the protection of the European Communities’ financial interests [1995] OJ C 316/49 �����������������������120 Council Act of 27 September 1996 drawing up a Protocol to the Convention on the protection of the European Communities’ financial interests [1996] OJ C 313/2 ������������������������������������������������������������������������������������������������������������120 Council Act of 29 November 1996 drawing up, on the basis of Article K.3 of the Treaty on European Union, the Protocol on the interpretation, by way of preliminary rulings, by the Court of Justice of the European Communities of the Convention on the protection of the European Communities’ financial interests [1996] OJ C 151/2�������������������������������������������������������������������������������������������������������������120 Council Act of 19 June 1997 drawing up the Second Protocol of the Convention on the protection of the European Communities’ financial interests [1997] OJ C 221/12�����������������������������������������������������������������������������120 Impact Assessments Commission Staff Working Paper, Impact Assessment of Policy Options Relating to a Commission Proposal for a Regulation of the European Parliament and of the Council on Roaming on Public Mobile Networks Within the Community, SEC (2006) 925���������������������������������������������������������������������������������������������57 Commission Staff Working Document, Impact Assessment of a Proposal for a Directive of the European Parliament and of the Council modifying Directive 98/70/EC relating to the quality of petrol and diesel fuels, SEC (2007) 55���������������������59 Commission Staff Working Document, Accompanying Document to the Proposal for a Directive of the European Parliament and of the Council on the protection of the environment through criminal law, Impact Assessment’, SEC (2007) 160�����������������������������������������������������������82–84, 141, 150 Commission Staff Working Paper, Impact Assessment, Accompanying document to the Communication from the Commission to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions, Reinforcing sanctioning regimes in the Financial Services Sector, SEC (2010) 1496 final������������������������ 93, 95, 141, 153–54 Commission Staff Working Paper, Impact Assessment, Accompanying the document; Communication from the Commission to the European Parliament, the Council, the European economic and social Committee and the Committee of the Regions; Proposal for a Directive of the European Parliament and of the Council establishing minimum standards on the rights, support and protection of victims of crime, Proposal for a Regulation of the European Parliament and of the Council on mutual recognition of protection measures in civil matters’, SEC (2011) 580 final�������������������184

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Commission Staff Working Paper, Impact Assessment, Accompanying the document Proposal for a Regulation of the European Parliament and of the Council on insider dealing market manipulation (market abuse) and the Proposal for a Directive of the European Parliament and of the Council on criminal sanctions for insider dealing and market manipulation, SEC (2011) 1217 final�������������92–93, 95, 100, 153–55 Commission Staff Working Paper- Impact Assessment (Part I), Accompanying the Document Proposal for a Directive of the European Parliament and of the Council on the protection of the financial interests of the European Union by criminal law, SWD (2012) 195 final�������������������������������������������������������������������������121, 125 Commission Staff Working Document, Impact Assessment, Accompanying the document, Proposal for a Directive of the European Parliament and of the Council on the prevention of the use of the financial system for the purpose of money laundering, including terrorist financing and Proposal for a Regulation of the European Parliament and of the Council on information accompanying transfers of funds’, SWD (2013) 21 final����������������������������������������� 114–15 Commission Staff Working Document, Impact Assessment, Accompanying the Proposal for a Council Regulation on the establishment of the European Public Prosecutor’s Office’, SWD (2013) 274 final��������������������������������������������168–70, 174 Commission Staff Working Document, Impact Assessment, Accompanying the document Proposal for measures on the strengthening of certain aspects of the presumption of innocence and of the right to be present at trial in criminal proceedings’, SWD (2013) 478 final�����������������������������������������������������������������������������������������������������������������������������184 Commission Staff Working Document, Impact Assessment (Part 1), Accompanying the document Proposal for a Directive of the European Parliament and of the Council on the Union legal framework for customs infringements and sanctions, SWD (2013) 514 final������������������������������������������������������������������������������������������������������������������������������������183 Commission Staff Working Document, Impact Assessment (Part I), Accompanying the document Proposal for a Directive of the European Parliament and of the Council on the Union legal framework for customs infringements and sanctions, SWD (2013) 514 final, Annex IB- Report from the Project Group on Customs Penalties������������������������183 Commission Proposals Amended proposal for a Directive of the European Parliament and of the Council on criminal measures aimed at ensuring the enforcement of intellectual property rights’, COM(2006) 168 final����������������������������������������������������������������11, 106–07 Proposal for a Regulation of the European Parliament and of the Council on roaming on public mobile networks within the Community and amending Directive 2002/21/EC on a common regulatory framework for electronic communications networks and services, COM(2006) 382 final������������������������������57, 149 Proposal for a Directive of the European Parliament and of the Council amending Directive 98/70/EC as regards the specification of petrol, diesel and gas-oil and introducing a mechanism to monitor and the introduction of a mechanism to monitor and reduce greenhouse gas emissions from the use of road transport fuels and amending Council Directive 1999/32/EC, as regards the specification of fuel used by inland waterway vessels and repealing Directive 93/12/EEC, COM(2007) 18 final�����������������������������������������������������������������������������������������������������57, 59

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Proposal for a Directive of the European Parliament and of the Council on the protection of the environment through criminal law, COM(2007) 51 final�������������������13 Proposal for a Council Decision on the conclusion of the Anti-Counterfeiting Trade Agreement between the European Union and its Member States, Australia, Canada, Japan, the Republic of Korea, the United Mexican States, the Kingdom of Morocco, New Zealand, the Republic of Singapore, the Swiss Confederation and the United States of America, COM(2011) 380 final������������������������������������������������������������195 Proposal for a Directive of the European Parliament and of the Council establishing minimum standards on the rights, support and protection of victims of crime, COM(2011) 275 final�������������������������������������������������������������������������������������������������������184 Proposal for a Regulation of the European Parliament and of the Council on insider dealing and market manipulation (market abuse), COM(2011) 651 final���������������������91 Proposal for a Directive of the European Parliament and of the Council on criminal sanctions for insider dealing and market manipulation, COM(2011) 654 final��������������������������������������������������������������13, 65, 89–90, 154, 193 Proposal for a Directive of the European Parliament and of the Council on the fight against fraud to the Union’s financial interests by means of criminal law’, COM(2012) 363 final����������������������������������������������������������������������10, 113 Proposal for a Council regulation on the exercise of the right to take collective action within the context of the freedom of establishment and the freedom to provide services, COM(2012) 130 final�������������������������������������������������������������������7, 170 Proposal for a Directive of the European Parliament of the Council on the prevention of the use of the financial system for the purpose of money laundering and terrorist financing, COM(2013) 45 final������������������������������������������������������������������115 Proposal for a Council Regulation on the establishment of the European Public Prosecutor’s Office’, COM(2013) 534 final����������������������������������������������������9, 168, 171–74 Position and Statements from European Parliament ‘Report on Legal Bases and Compliance with Community Law’, 22.5.2003, A5-0180/2003����������������������������������������������������������������������������������������������������������������������89 Committee on Legal Affairs, ‘Report on the proposal for a directive of the European Parliament and of the Council on the protection of the environment through criminal law’, 15.4.2008, A6-0154/2008�����������������������������������������������������������������������������80 ‘Resolution on the protection of the Communities’ financial interests—Fight against fraud–Annual Report 2009’, 06.04.2011, 2010/2247(INI)����������������������������������������������120 ‘Report on the proposal for a directive of the European Parliament and of the Council on criminal sanctions for insider dealing and market manipulation COM(2011) 0654’ 19.10.2012,A7-0344/2012�������������������������������������������������������������������90 Committee on Legal Affairs, ‘On the legal basis for the proposal for a Directive of the European Parliament and of the Council on the fight against fraud to the Union’s financial interests by means of criminal law’, 25.3.2014, A7-0251/2014������������������������123 Committee on Budgetary Control Committee on Civil Liberties, Justice and Home Affairs, ‘Report on the proposal for a directive of the European Parliament and of the Council on the fight against fraud to the Union’s financial interests by means of criminal law’, 25.3.2014 A7-0251/2014�������������������������119

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Council Council Legal Service, ‘Re: Appropriateness of the Legal Basis of the Proposals for a Directive of the European Parliament and of the Council on criminal sanctions for insider dealing and market manipulation and its compatibility with the Ne Bis in Idem principle’, Brussels, 27 July 2012, 12979/12��������������������������������������������������������������90 Council Legal Service, ‘Legal Opinion on Proposal for a Directive of the European Parliament and of the Council on the fight against fraud to the Union’s financial interests by means of criminal law’, Brussels, 22 October 2012, 15309/12��������������������123 From: Presidency To: Council, ‘Proposal for a Regulation on the establishment of the European Public Prosecutor’s Office, State of Play/Orientation debate’, Brussels, 21 May 2014, 9834/1/14������������������������������������������������������������������������������������177 From: Presidency To: Council, Subject: ‘Proposal for a Regulation on the establishment of the European Public Prosecutor’s Office—Partial general approach’, Brussels, 30 November 2015, No prev doc. 14280/15��������������������������������������������������������������������177 Presidency To: Delegations, Subject: ‘Proposal for a Council Regulation on the establishment of the European Public Prosecutor’s Office—Report on the State of Play’, Brussels, 22 December 2015, No prev doc: 9372/1/15 REV 1, 12621/15, 14718/15�����������������������������������������������������������������������������������������������������������177 Interinstiutional Agreements Interinstitutional agreement between the European Parliament, the Council of the European Union and the European Commission on better law-making of 13 April 2016, [2016] OJ L 123/01�������������������������������������������������������������������������������������59 Withdrawn Proposals from the Commission Withdrawal of Obsolete Commission Proposals, 2010/C 252/04, OJ 252/7������������������������12 Political Guidelines, Communications and Reports European Council, ‘Conclusions adopted at Edinburgh European Council, Annex 1 to Part A: Overall Approach to the Application by the Council of the Subsidiarity Principle and Article 3b of the Treaty on European Union’ Bulletin of the European Communities 12-1992, 11–12 December 1992����������������������������������������39, 135 —— ‘Laeken Declaration on the future of the European Union’, 14–15 December 2001��������������������������������������������������������������������������������������������������2, 202 —— ‘The Stockholm Programme: An Open and Secure Europe Serving and Protecting Citizens’ [2010] OJ C 115/1����������������������������������������������������������������������88, 114 European Convention, CONV 47/02, Discussion Paper, ‘Delimitation of competence between the European Union and the Member States—Existing system, problems and avenues to be explored’, Brussels, 15 May 2002������������������������� 2, 3, 5, 7, 22 —— CONV 178/02, Contribution from M Andrew Duff and M Alain Lamassoure, M Olivier Duhamel, M Karel De Gucht, Mme Sylvia Kaufmann, M Josef Zieleniec, members of the Convention, and Mme Pervenche Berès, alternate member, ‘Issues of competence and subsidiarity, and confusion arising therefrom’, Brussels, 9 July 2002��������������������������������������������������������������������������������������������������� 165–66

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—— CONV 255/02, Contribution by Mr Haenel, Member of the Convention: ‘The complementary role played by the national and European parliaments’, Brussels, 10 September 2002��������������������������������������������������������������������������������������������165 —— CONV 286/02, ‘Conclusions of the Working Group I on the Principle of Subsidiarity’, Brussels, 23 September 2002����������������������������������������������40, 160–63, 174 —— CONV 353/02, ‘Final report of Working Group IV on the role of national parliaments’, Brussels, 22 October 2002���������������������������������� 7, 134, 162–63, 166 —— CONV 375/1/02, ‘Final Report of Working Group V on Complementary Competencies’, Brussels, 4 November 2002�������������������������������������������������������������2–3, 196 —— CONV 426/02, ‘Final report of Working Group X “Freedom, Security and Justice”’, Brussels, 2 December 2002������������������������������������������������� 123, 128, 130, 193 —— CONV 727/03, ‘Draft sections of Part Three with comments’, Brussels, 27 May 2003�������������������������������������������������������������������������������������������������������193 Commission, ‘Communication on the Principle of Subsidiarity for Transmission to the Council and Parliament’, 25 European Communities Bulletin, SEC (92) 1990 final�����������������������������������������������������������������������������������������������������������143 —— ‘Green Paper on criminal-law protection of the financial interests of the Community and the establishment of a European Prosecutor’, COM(2001)715 final��������������������������������������������������������������������������������������������������������167 —— ‘Communication from the Commission to the European Parliament and the Council on the implications of the Court’s judgment of 13 September 2005 (Case C-176/03 Commission v Council)’, COM2005 (583) final������������������������������������75 —— ‘Impact Assessment Guidelines’, 15 January 2009, SEC (2009) 92��������������������� 150–51 —— ‘The EU Internal Security Strategy in Action: Five steps towards a more secure Europe’, COM(2010) 673 final�����������������������������������������������������������������114 —— ‘Communication from the Commission to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions—On the protection of the financial interests of the European Union by criminal law and by administrative investigations: An integrated policy to safeguard taxpayers’ money’, COM(2011) 293 final���������������������������������������������������120 —— ‘Communication from the Commission to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions— Towards an EU Criminal Policy: Ensuring the effective implementation of EU policies through criminal law’, COM(2011) 573 final���������������� 11–12, 85, 128, 193 —— ‘Report from the Commission to the European Parliament and the Council— Protection of the European Union’s financial interests—Fight against fraud-Annual Report, 2010’, COM (2011) 595 final�������������������������������������������������������121 —— Report from the Commission on Subsidiarity and Proportionality, COM (2012) 373 final����������������������������������������������������������������������������������������������������������6 —— Report from the Commission to the European Parliament and the Council—on the protection of the European Union’s financial interests—Fight against fraud Annual Report 2011’ COM(2012) 408 final����������������������������������������������������������169 —— Communication from the Commission to the European Parliament, the Council, The European Economic and Social Committee and the Committee of the Regions—Better protection of the Union’s financial interests: Setting up the European Public Prosecutor’s Office and reforming Eurojust, COM(2013) 532 final�������������������������������������������������������������������������������������������������������170

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—— Communication from the Commission to the European Parliament, the Council and the National Parliaments on the review of the proposal for a Council Regulation on the establishment of the European Public Prosecutor’s Office with regard to the principle of subsidiarity, in accordance with Protocol No 2’, COM(2013) 851 final���������������������������������������������������������������������������������������������������7, 176 —— Report from the Commission—Annual Report 2014 on Subsidiarity and Proportionality’, COM(2015) 315 final�������������������������������������������������������������������������������6 OLAF, ‘The OLAF report 2011’ (Luxembourg, Publications Office of the European Union, 2012)����������������������������������������������������������������������������������������������������178 National Legislation Swedish Code of Judicial Procedure of 1942 (SFS 1942:740), English Translation DS 1998:000������������������������������������������������������������������������������������������������������������������������86 Documents from National Legislators Folketingets Europaudvalg (Danish) ‘Begrundet udtalelse om forslag om toldovertrædelser’ KOM(2013) 884���������������������������������������������������������������������������������183 Chamber of Deputies (Romania), ‘Reasoned opinion finding the lack of conformity of the Proposal for a Council Regulation on the establishment of the European Public Prosecutor’s Office with the principle of subsidiarity’ COM(2013)534 (courtesy translation)’�������������������������������������������������������������168, 171–74 Croatian Parliament, ‘Opinion of the European Affairs Committee on the Proposal for a Regulation on the establishment of the European Public Prosecutor’s Office’, Zagreb, 1 April 2014 (courtesy translation)��������������������������������������������������������174 Dutch House of Representatives of the States General, ‘Reasoned opinion (breach of subsidiarity) on the proposal for a Council regulation on the establishment of the European Public Prosecutor’s Office’ (DOC (2013) 534), 10 October 2013 (courtesy translation)�������������������������������������������������������������������������������������������������������174 Dutch Senate of the States General, ‘Reasoned opinion (breach of subsidiarity) on the proposal for a Council regulation on the establishment of the European Public Prosecutor’s Office’ (DOC (2013) 534), 17 October, 2013, 153768.01 U’����������173 House of Commons, ‘Reasoned Opinion of the House of Commons concerning a Draft Regulation of the Council on the establishment of the European Public Prosecutor’s Office (EPPO)’����������������������������������������������������������������������������������172 House of Commons, ‘Reasoned Opinion of the House of Commons Submitted to the Presidents of the European Parliament, the Council and the Commission, pursuant to Article 6 of Protocol (No 2) on the Application of the Principles of Subsidiarity and Proportionality concerning a Draft Directive on the strengthening of certain aspects of the presumption of innocence and of the right to be present at trial in criminal proceedings’���������������������������������������������185 House of Lords, ‘Reasoned opinion by the House of Lords on Proposal for a Council Regulation on the establishment of the European Public Prosecutor’s Office’, COM(2013) 534 final, 12558/13, 28 October 2013���������������������������������������������������������172 House of Representatives of the Republic of Cyprus, ‘Reasoned Opinion submitted by the House of Representatives of the Republic of Cyprus with regard to the Commission’s proposal for a Council Regulation on the establishment of the European Public Prosecutor’s Office’ [COM (2013) 534] (executive summary in English)���������������������171

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Hungarian National Assembly, ‘Summary of the reasoned opinion adopted by the Hungarian National Assembly on 21 October 2013 concerning the Proposal for a Council regulation on the establishment of the European Public Prosecutor’s Office’ COM(2013)534; 2013/0255(APP)�����������������������������������������������������������������������173 Italian Chamber of Deputies, The Committee on EU Policies, Re: ‘Proposal for a directive of the European Parliament and of the Council on the strengthening of certain aspects of the presumption of innocence and of the right to be present at trial in criminal proceedings’ COM (2013) 821 final�������������������������������������������������185 Joint Committee on Justice, Defence and Equality (Ireland), ‘Proposal for a Council Regulation on the establishment of the European Public Prosecutor’s Office’ COM(2013) 534, October 2013���������������������������������������������������������������������������������������171 Senate of the Republic of Poland, ‘Opinion of the European Union Affairs Committee of the Senate of the Republic of Poland on the proposal for a Council regulation on the establishment of the European Public Prosecutor’s Office’ COM(2013)534’, adopted at the meeting of 9 October 2013 (courtesy translation)���������������������������������172 Sénat, ‘Résolution Européene Portant Avis Motive sur la conformité au principe de subsidiarité de la proposition de règlement portant création du Parquet européen’ (COM(2013) 534) No 26 Sénat Session Ordinaire De 2013–2014, 28 October 2013����������������������������������������������������������������������������������������������������������������171 Seimas of the Republic of Lithuania Committee on European Affairs, ‘On possible non-compliance with the principle of subsidiarity of the Proposal of the European Commission for a Directive of the European Parliament and of the Council on the Union legal framework for customs infringements and sanctions’ COM(2013) 884, Document No ES-14-51. 9 July 2014 No 100-P-71���������������������������183 Seimas of the Republic of Lithuania, Committee on European Affairs, ‘Opinion on the European Commission Proposal for a Council Regulation on the Establishment of the European Public Prosecutor’s Office’, 16 July 2014, No V-2014-4174L���������������171 Statement by the Committee on Justice, ‘Reasoned Opinion of Swedish Parliament-Subsidiarity check on the proposal on the establishment of the European Public Prosecutor’s Office’, 2013/14:JuU13������������������������������������������171 Statement of the Grand Committee (Eduskunta) 1/2013, ‘Government report on the proposed Council regulation establishing a European Public Prosecutor’s Office’ (Summary in English)���������������������������������������������������������������������171 Statement by the Committee on Taxation ‘Reasoned opinion of the Swedish Parliament’, 2013/14:SkU35, Appendix 2�������������������������������������������������������������������������183 The Parliament of the Czech Republic Senate, ‘On the Proposal for a Council Regulation on the establishment of the European Public Prosecutor’s Office’, Senate Press No N 082/09, 9th Term Committee on EU Affairs, 180th resolution delivered on the 18th meeting held on 8 October 2013������������������������������������������������������������������175

1 Introduction I.  The Question of EU Competence after Lisbon Prior to the Lisbon Treaty, EU law scholarship and the political debate was primarily preoccupied with the existence of EU competences1 and the division of powers between Member States and the EU.2 Gareth Davies aptly stated in 2006 that ‘competence anxiety’ was about safeguarding national autonomy in important policy fields. The point had been reached where EU law were restraining national policy-making in sensitive and traditional national competences such as criminal law, taxation and economic policy. The fundamental problem lay in deciding to what extent Member States were still competent to make and carry out policy in these fields.3 However, the evolution of EU law and the developments after the ratification of the Lisbon Treaty suggest that EU scholars no longer need to focus on the question of the existence of powers. The development of ‘regulatory criminal law’4 competence of the EU is a case in point. Prior to Lisbon there was a long-standing debate on whether the Community at all had a competence to enforce its rules through criminal sanctions. The debate touched on the core of national autonomy as it had been assumed for a long time that concerns for state integrity automatically made criminal law a matter of Member State competence.5 The Commission advanced a Community criminal law competence on the basis that it was needed

1 See Stephen Weatherill, ‘Competence creep and competence control’ (2004) 23 Yearbook of ­European Law 1; Paul Craig, ‘Competence: Clarity, Conferral, Containment and Consideration’ (2004) 29 European Law Review 323. 2  See Theodore Konstadinides, Division of Powers in European Union Law: The Delimitation of Internal Competence between the EU and the Member States (Alphen aan den Rijn, Kluwer Law International, 2009); Armin Von Bogdandy and Jürgen Bast, ‘The Federal Order of Competences’ in Armin von Bogdandy and Jürgen Bast, Principles of European Constitutional Law (Oxford, Hart Publishing, 2009). 3  See Gareth Davies, ‘Subsidiarity: the wrong idea, in the wrong place, at the wrong time’ (2006) 43 Common Market Law Review 63, 80. 4  See Maria Fletcher, Bill Gilmore and Robin Lööf, EU Criminal Law and Justice (Cheltenham, Edward Elgar Publishing, 2008) 183, for a description of the concept. 5  See Michael Dougan, ‘From the Velvet Glove to the Iron Fist: Criminal Sanctions for the Enforcement of Union Law’ in Marise Cremona (ed), Compliance and the Enforcement of EU Law (Oxford, Oxford University Press, 2012) 74–78, 91–92.

2 

Introduction

for the effective enforcement of EU policies.6 The Council and the Member States strongly disagreed, arguing that the absence of an express conferral of competence in the Treaties together with concerns for sovereignty militated against recognising such a competence in the first pillar.7 The Court of Justice of the European Union (‘Court’, ‘Court of Justice’) was called on to settle the issue. The Court accepted the Commission’s argument and recognised, in two notorious judgments, Environmental Crimes8 and Ship-Source Pollution,9 that the Community had a competence to impose criminal sanctions if this was essential for the effective enforcement of EU environmental policy. The debate on the existence of a first pillar competence was ultimately brought to an end by the Lisbon Treaty, which explicitly conferred a competence on the EU to impose criminal sanctions to enforce substantive Union policies.10 This example of regulatory criminal law shows that the competence question in EU law doctrine has transformed in character. Instead of discussing the existence of competence, commentators now debate how EU competences should be exercised.11 There was also a political debate that was equally concerned with a concern among EU citizens and politicians prior to Lisbon that the delimitation of competences between the Member States and the Union was not precise enough.12 To find a solution to this problem the Laeken Declaration asked the Convention, which was responsible for the negotiation of the Lisbon Treaty, to devise a ‘better division and definition of competence in the European Union’.13 Working Group no V on Complementary Competences,14 having taken on this task, suggested that the Treaties should contain a clean and easily understood delimitation of the

6  See Case C-176/03 Commission v Council [2005] ECR I-07879, paras 19–21; Case C-440/05, Commission Communities v Council [2007] ECR I-09097, paras 24–25, 28–39; The idea that the effective enforcement of EU law would require criminal sanctions had been advanced earlier by scholars such as Hanna G Sevenster, ‘Criminal Law and EC Law’ (1992) 29 Common Market Law Review 29, 53–59. 7  See Case C-176/03 Commission v Council (n 6), paras 26–27. 8  See Case C-176/03 Commission v Council (n 6), paras 47–48. The criminal law competence was conferred on the basis of Art 175 of the Consolidated Version of the Treaty Establishing the European Community [2002] OJ C 325/33 (‘EC’, ‘EC Treaty’). 9  See Case C-440/05 Commission v Council (n 6), paras 66–69. The Court inferred the competence on the basis of Art 80(2) EC. 10  See Art 83(2) of the Consolidated Version of the Treaty of the Functioning of the European Union [2010] OJ C 83/47 (TFEU). 11  See regarding EU criminal law: Steve Peers, ‘Mission Accomplished? EU Justice and Home Affairs Law after the Treaty of Lisbon’ (2011) 48 Common Market Law Review 661, 692, 693; Ester H ­ erlin-Karnell, ‘EU Competence in Criminal Law after Lisbon’, in Andrea Biondi, Piet Eeckhout and Stefanie ­Ripley (eds) EU Law After Lisbon (Oxford, Oxford University Press, 2012) 334, 338–39. See generally for this development of EU law: Robert Schütze, From Dual to Cooperative Federalism (Oxford, Oxford ­University Press, 2009); Loïc Azoulai, ‘Introduction: the Question of Competence’, in Loïc Azoulai (ed), The Question of Competence in the European Union (Oxford, Oxford University Press, 2014) 7. 12  See European Convention, CONV 47/02, ‘Delimitation of competence between the European Union and the Member States—Existing system, problems and avenues to be explored’, Brussels, 15 May 2002, 3–5, 16. 13 See European Council, ‘Laeken Declaration on the future of the European Union’, 14–15 ­December 2001, 21–22. 14  See European Convention, CONV 375/1/02, ‘Final Report of Working Group V on Complementary Competencies’, Brussels, 4 November 2002.

The Problems of the Existing Limits to EU Competences

 3

competence granted to the Union in each policy field. Whilst more radical ­solutions, such as having a detailed definition of all Union competences were discussed in the negotiations, Working Group no V considered it sufficient to enshrine the ‘basic delimitation’ of competence in each policy area, while keeping the detailed definition of competence similar to the in the EC Treaty.15 The Member States ultimately decided to adopt, as suggested by the Convention, a competence catalogue and a description of the nature of EU powers which was enshrined in the Lisbon Treaty.16 Given the concern that the EU should not intrude on sensitive national policy fields it appears that the focus on a clear division of powers is misplaced. The more important question after Lisbon is how the EU exercises its powers. The competence catalogue does not solve the problem of ‘competence creep’17 that exists by virtue of the wide functional legal powers in Article 114 and Article 352 TFEU. Although the negotiations did place on the table radical proposals, such as removing those legal bases from the Treaties, Working Group no V nevertheless decided to maintain both Article 114 and Article 352 TFEU in order to preserve a certain degree of flexibility in the Treaty’s system of competence, allowing the Union to respond to new challenges.18 Maintaining these provisions largely intact, however, means there remains considerable scope for competence creep. Whilst, the EU does not, under the Lisbon Treaty, enjoy a competence to harmonise ­Member States’ laws in relation to fields such as public health, education or culture, it is nevertheless perfectly entitled under Article 114 TFEU and Article 352 TFEU to enact legislation in these policy fields if that legislation benefits the internal market or if it is necessary for the pursuit of one of the Union’s policies.19 Having shown by these examples that it no longer makes sense to examine the question of the existence of EU competences it is possible to state the question of this study which is to examine how limits can be constructed to the exercise of EU powers.

II.  The Problems of the Existing Limits to EU Competences The Treaties contain numerous limits to the exercise of EU competences. There is the principle of conferral,20 which states that the EU can only act ‘within the 15 

ibid 2–3. See Arts 3–6 TFEU. The Lisbon Treaty distinguishes between different types of EU competences: exclusive competences, shared competences, coordinating competences and complementary competences, see Arts 2(1)–2(3) and 2(5) TFEU. 17  See Weatherill, ‘Competence creep and competence control’ (n 1) for this expression. 18  See CONV 375/1/02 (n 14) 14–15; CONV 47/02 (n 12) 10–11, 15. 19  See Case C-210/03 Swedish Match [2004] ECR I-11893, paras 31–32; Davies (n 3), 72–75. 20  See Art 5(2) of the Consolidated Version of the Treaty on European Union [2010] OJ C 83/13 (‘TEU’). 16 

4 

Introduction

limits of the competences conferred upon it by the Member States in the Treaties to attain the objectives set out therein.’21 In addition to the principle of conferral, there is the subsidiarity principle and the proportionality principle.22 The Lisbon Treaty has furthermore, by providing for a special review procedure for national parliaments of EU legislation,23 by adopting a specific protocol on subsidiarity and proportionality,24 and by adopting a new provision for the protection of the constitutional identity of Member States,25 made an effort to construct new limits to the exercise of EU powers. It is also well-known that the Court in its jurisprudence has constructed limits to the EU’s regulatory powers by requiring the EU legislator to show that measures pursued under Article 114 TFEU genuinely have as their objective the removal of obstacles to trade or ‘appreciable’ distortions to competition.26 The Court has moreover repeatedly held that the question of competences is not a political choice as the choice of the legal basis for a measure must be based on objective factors which are amenable to judicial review.27 Given all those limits, it is legitimate to question the need of embarking on an examination of how limits can be constructed to the exercise of competence. The point of this book is that there are problem with those limits. First, it seems that the theoretical limits to EU competences do not coincide with the practice. Already in the negotiations that led to the Lisbon Treaty, Working Group V raised the concern that the EU institutions, with the approval of the Court of Justice, has been pursuing an illegitimate interpretation of EU powers, paying mere lip service to the principle of conferred powers, proportionality and subsidiarity. The limits on competences have not been taken seriously by the EU institutions, allowing political reason to take precedence over observance of the rules on the exercise of competence in the Treaties.28 These perceptions have been detrimental to the legitimacy of the Union in the eyes of its citizens and in the eyes of national

21  In addition to Art 5(2) TEU, there are a number of other provisions which expressly or implicitly reinforce the principle of conferral: Art 1(1) TEU; Art 3(6) TEU; Art 4(1) TEU; Art 13(2) TEU, Art 48(6) TEU; Art 2(1) TFEU; Art 2(2) TFEU; Art 4(1) TFEU; Art 7 TFEU; Art 19 TFEU; Art 130 TFEU; Art 207(6) TFEU; Art 226 TFEU; Art 314(10) TFEU; Art 351(3) TFEU. 22  Art 5 (3)–(4) TEU provides that: ‘Under the principle of subsidiarity … the Union shall act only if and in so far as the objectives of the proposed action cannot be sufficiently achieved by the Member States, … but can rather, by reason of the scale or effects of the proposed action, be better achieved at Union level. … Under the principle of proportionality, the content and form of Union action shall not exceed what is necessary to achieve the objectives of the Treaties.’ 23  See Protocol (No 1) On the Role of National Parliaments in the European Union OJ [2010] C 83/203 (‘Protocol No 1’). 24  See Protocol (No 2) On the Application of the Principles of Subsidiarity and Proportionality OJ [2010] C 83/206 (‘Protocol No 2’). 25  See Art 4(2) TEU. 26  See Case C-376/98 Germany v Parliament and Council (Tobacco Advertising) [2000] ECR I-08419, paras 83–84, 106–07. 27  See Case C-300/89 Commission v Council (Titanium Dioxide) [1991] ECR I-02867, para 10. 28  See Joseph H H Weiler,’ The Transformation of Europe’ (1991) 100 The Yale Law Journal 2403, 2431–53; Ester Herlin-Karnell, The Constitutional Dimension of European Criminal Law (Oxford, Hart Publishing, 2012) 66–76; Michael Dougan, ‘The Treaty of Lisbon 2007: Winning Minds, Not Hearts’ (2008) 45 Common Market Law Review 617, 654–55.

The Problems of the Existing Limits to EU Competences

 5

constitutional courts.29 Secondly, the Treaties have not given the Court sufficient tools to seriously engage in competence control. Because the Union’s competence is associated with its objectives and because important competence norms such as Article 114 and Article 352 TFEU are framed in a wide manner, the Court’s task of supervising the exercise of this power is made very difficult. Thirdly, despite the existence of the principle of conferral, the EU institutions faces structural constraints that impede it from effectively sanction the vertical division of ­powers. These constraints have to do with the idea of integration which supports the view that the EU political institutions and the Court of Justice should give a wide ­interpretation of the EU’s legislative powers.30 What of the political limits to the exercise of EU competences? It is true that for a long time EU law has trusted the political safeguards of federalism and envisaged that the principal place for addressing the problems of ‘competence creep’ should lie in a stronger political monitoring of competences.31 The current Treaty system of competence monitoring is also founded on the assumption that the task of determining whether the Treaties confer on the Union competence to act in a specific case, and to what extent the subsidiarity and proportionality principle is being conformed to rests with the EU political institutions.32 It is however questionable whether the political limits of the Treaties provide for sufficient safeguards of federalism. Self-interest and perverse incentives have led the EU political institutions to expand EU competences to the detriment of state powers. The history of EU law shows that leaving the issues of the limits of EU competences to the political institutions is a hazardous policy.33 The inadequacies of political control of competences have been most tellingly demonstrated by the use of Article 308 EC (now Article 352 TFEU). Joseph Weiler has noted that from 1973 until the entry into force of the Single European Act, there was a dramatic shift in the understanding of the qualitative scope of this provision. In a variety of fields, the Community made use of this provision in a manner that was clearly inconsistent with a conventional interpretation of that provision. Only a radically broad reading of the article could justify its usage as, for example, the legal basis for granting emergency food aid to non-associated states.34 Robert Schütze similarly observed that the Community decided to pursue the so-called ‘flanking policies’

29  See CONV 47/02 (n 12) 3–5, 16; Stephen Weatherill, ‘Better Competence Monitoring’ (2005) 30 European Law Review 23, 24–28. 30  See below ch 2 III B for a development of these ideas. 31  See Stephen Weatherill ‘The limits of legislative harmonisation ten years after Tobacco ­Advertising: how the Court’s case law has become a “drafting guide”’ (2011) 12 German Law Journal 827, 854–60. 32  See CONV 47/02 (n 12) 10, 18. 33  See Craig, ‘Competence: Clarity, Conferral, Containment and Consideration’ (n 1) 324–25; Lucia Serena Rossi,’ Does the Lisbon Treaty Provide a Clearer Separation of Competences between EU and Member States?’ in Andrea Biondi, Piet Eeckhout and Stefanie Ripley, EU Law After Lisbon (Oxford, Oxford University Press, 2012) 95–96. 34  See Weiler, ‘The Transformation of Europe’ (n 28) 2444–46.

6 

Introduction

on the foundations of Article 308 EC despite the obvious linguistic contradiction this would entail. These wide readings meant that it would become impossible to find an activity which could not be brought within the ‘objectives of the Treaty’. If the Union could adopt acts which endeavoured to achieve closer relations between the Member States, such a competence would be devoid of internal boundaries since all harmonisation increases the legal proximity between the Member States.35 Such competence creep has not been limited to the general field of EU law, but also saturated the EU’s initiatives in the field of criminal law.36 Valsamis ­Mitsilegas and Robin Lööf have made the point clearly in their discussion of the EU’s ­initiatives in the pre-Lisbon third pillar contending that the Member States repetitiously exceeded its remit in Article 34 when adopting measures on the minimum standards for procedural rights. Whilst observing that the EU’s competence in this provision was strictly limited to promoting mutual recognition, they concluded that the EU institutions pushed for measures in the field of criminal procedures that went beyond this objective.37 The application of subsidiarity and proportionality also reveals historically a poor record in providing a check against competence creep. The perception is that the EU’s political institutions do not take these principles seriously. The legislative practice of subsidiarity illustrates the problem. The Commission has seldom been able to offer examples of when subsidiarity led to a decision not to advance a proposal.38 The Council has been equally untrustworthy in protecting subsidiarity concerns in legislative practice. Once it is decided to introduce rules at EU level, the bargaining process involves Member States seeking to secure a result as close as possible to their own pre-existing systems and to prevent the adoption of standards of protection lower than their own.39 35  See Schütze (n 11) 135, 137, 155. It should, however, be recognised that the concern for ‘competence creep’ by means of Article 352 TFEU may be less troublesome post-Lisbon. Whilst Article 352(1) TFEU is framed broadly in terms of the ‘policies defined in the Treaties’, the unanimity requirement means that it will be more difficult to use this power in an enlarged EU with 28 Member States. Article 352 TFEU also requires the consent of the Parliament, as opposed to mere consultation, as was previously the case under Article 308 EC. Furthermore, it is clear that the need for recourse to this power will diminish, given that the Lisbon Treaty created new legal bases areas where Article 308 EC had previously been used. These predictions seems to be substantiated by post-Lisbon legislative practice: See Theodore Konstadinides, ‘Drawing the Line between Circumvention and Gap-Filling: An Exploration of the Conceptual Limits of the Treaty’s Flexibility Clause’ (2012) 31 Yearbook of European Law 227, 228–30, 252–56. 36 See Herlin Karnell, The Constitutional Dimension of European Criminal Law (n 28); Samuli ­Miettinen, The Europeanization of Criminal Law: Competence and its Control in the Lisbon Era (DPhil, University of Helsinki, 2015). 37 See Valsamis Mitsilegas, ‘The Constitutional Implications of Mutual Recognition in Criminal ­Matters in the EU’ (2006) 43 Common Market Law Review 1277, 1305–07; Robin Lööf, ‘Shooting from the Hip—Proposed Minimum Rights in Criminal Proceedings’ 12 (2006) European Law Journal 421, 422–29. 38  The Commission’s recent reports are cases in point for this statement: Commission,’ Report from the Commission—Annual Report 2014 on Subsidiarity and Proportionality’, COM (2015) 315; Report from the Commission on Subsidiarity and Proportionality, COM (2012) 373. 39  See Weatherill, ‘Better Competence Monitoring’ (n 29) 26–28; Schütze (n 11), 256–57. See however, Paul Craig, ‘Subsidiarity: A Political and Legal Analysis’ (2012) 50 Journal of Common Market Studies 72, 74–79, for a recent and more positive assessment.

The Problems of the Existing Limits to EU Competences

 7

Despite this scepticism against political control of competences, it must be r­ ecognised that the Lisbon Treaty has enhanced the possibilities for stronger political control of the exercise of competence. The European Convention, which provided the intellectual impetus for the drafting of the Lisbon Treaty, suggested that monitoring of the exercise of EU competences should be intensified by strengthening control by national parliaments through an early warning mechanism.40 On the basis of the Convention’s proposal, the Lisbon Treaty enshrined a direct involvement for national parliaments in the legislative procedure of the EU by means of the early warning system in Protocol No 241 (EWS), which allows national parliaments to review legislation on the basis of the principle of subsidiarity.42 Notwithstanding the ambitious aspirations of the EWS, it is questionable whether it is capable of fully addressing concerns of competence creep. The first problem with the EWS is that one source of the EU’s legitimacy—its capacity to address transnational collective action problems that Member States are unable to deal with individually—will be restrained by deference to another source of its legitimacy, the democratic processes within the individual Member States.43 The second problem relates to the fact that the Lisbon Treaty does not allow national parliaments to review legislation on the basis of a ‘lack of competence’44 and ­proportionality.45 The third concern is that national parliaments lack the ability to challenge Union legislation directly under Article 263 TFEU.46 This being so, it still appears that the EWS procedure is a step in the right direction in the effort to reinforce the EU’s competence monitoring system. Recent challenges to the Monti II Regulation47 and the EPPO Proposal triggering a y­ ellow card procedure48 indicates that national parliaments can provide a check on the use of EU competences. For this reason this study also examines the input of national parliaments on the legislative procedure.49 With the exception of national parliaments, it, however, appears that there are no other strong political

40  See CONV 47/02 (n 12), 3–5; European Convention, CONV 353/02, ‘Final report of Working Group IV on the role of national parliaments’, Brussels, 22 October 2002, 10. 41  See Protocol (No 2) On the Application of the Principles of Subsidiarity and Proportionality (n 24). 42  See ch 7 for a comprehensive examination of this procedure. 43  See Weatherill, ‘Competence creep and competence control’ (n 1) 33–43, 54. 44  See Art 263(2) TFEU. 45  See Federico Fabbrini and Katarzyna Granat, ‘“Yellow card, but no foul”: The role of the national parliaments under the subsidiarity protocol and the Commission proposal for an EU regulation on the right to strike’ (2013) 50 Common Market Law Review 115, 120–25. 46  See Art 263(2)–(4). 47  See Commission, Proposal for a Council regulation on the exercise of the right to take collective action within the context of the freedom of establishment and the freedom to provide services, COM (2012) 130 final. 48 See Commission, ‘Communication from the Commission to the European Parliament, the ­Council and the National Parliaments on the review of the proposal for a Council Regulation on the establishment of the European Public Prosecutor's Office with regard to the principle of subsidiarity, in accordance with Protocol No 2’, COM(2013) 851 final. 49  See below ch 7.

8 

Introduction

­ onitoring mechanisms in the Treaties on the exercise of EU powers. Therefore m the main concern of the book will be about the judicial duty to monitor the exercise of EU competences.

III.  Main Arguments of the Book The argument of the book is divided in two parts. First, building on the existing constrains on the EU legislator in its exercise of its powers and on the problems associated with those limits, the book suggests that we need to rethink the existing limits if they are to act as checks on the exercise of EU legislative powers. Limits are, as demonstrated in Part II of the book, constructed by interpreting the legal bases and principles restraining the exercise of EU competences according to conventional canons of interpretation of EU law.50 The second line of argument contends that a better conceptual understanding of the limits to EU competences is emptied of practical meaning if those limits cannot be enforced by the EU Courts. For this reason, Part 1 of the book is devoted to tackle the institutional problems of challenging the exercise of EU powers before the Court. This book constructs a comprehensive argument for how judicial enforcement of the limits of the Treaties could be improved. This argument is divided in three parts. In the first stage, it is argued that the Court’s current standards and intensity of review is insufficient for attaining the objective of serious competence control. Secondly, it is contended that the Court’s current problems of enforcing the EU competences can be accounted for on a dual basis: i) the Court’s comparative institutional disadvantage in relation to the EU political institutions,51 and ii) on the basis of a lack of appropriate legal criteria in the Treaties.52 In the third stage, it is suggested that procedural review is a tool capable of enhancing judicial competence control and partly counter the institutional and conceptual problems of judicial review. Comprehensively discussing the case for procedural review, it is argued that a procedural legality test, of ’ adequate reasoning’ and ‘relevant ­evidence’ derived from the Court’s ruling in Spain v Council53 is the most appropriate standard for reviewing the exercise of EU legislative powers.54 This test is then applied to discrete examples of EU criminal law legislation to show how the Court can monitor the exercise of Union competences.55 The other strand of argument in the book is, as mentioned, that the limits of the Treaties can be reconceptualised by providing for more comprehensive and

50 

See Case 283/81 CILFIT v Ministero della Sanità [1982] ECR 03415, paras 18–20. See below ch 3 II. 52  See below ch 2 and ch 3. 53  See Case C-310/04 Spain v Council [2006] ECR I-07285, paras 122–23. 54  See below ch 3 III–IV. 55  See below ch 4 I C and II C; ch 6 III. 51 

Main Arguments of the Book

 9

exacting standards for legality. First, two substantive limits to EU competences are developed. The first one is the ‘essentiality’ condition, which is codified in Article 83(2) TFEU and also determines the EU’s general criminal law competence as it is derived from the Environmental Crimes judgment. A thorough examination of the new competence in Article 83(2) TFEU and of the EU’s general criminal law competence is conducted. Illustrating the argument by a review of the ­Market Abuse Crimes Directive56 and the Environmental Crimes Directive57 it is contended that the EU’s express and implied criminal law competence are constrained by the EU legislator’s need to show that criminal sanctions are not only suitable but also more effective than other non-criminal sanctions in the enforcement of EU policies.58 The other important substantive limit to the exercise of EU powers is the subsidiarity principle.59 The discussion of this principle is exemplified through an examination of the Market Abuse Crimes Directive and the EPPO ­Proposal.60 It is maintained that subsidiarity require that EU harmonisation can only take place if the EU legislator is able to demonstrate the existence of a ­transnational market failure61 or transnational interest making the Union a better avenue for exercising a shared competence.62 Secondly, two procedural limits to EU competences are elaborated. The first one is the ‘harmonisation’ requirement in Article 83(2) TFEU which suggests that this competence can only be triggered if the EU legislator prior to the criminal law measure had adopted substantive harmonisation measures by means of regulations and directives through the ordinary or special legislative procedure prescribed for in Article 294 TFEU. That argument is represented by looking at the field EU market abuse regulation.63 The other procedural limit to the exercise of EU competences is the requirement to act on the correct legal basis. This limit is examined in chapter 5 where the questions of the correct legal basis for the new

56  Directive 2014/57/EU of the European Parliament and of the Council of 16 April 2014 on criminal sanctions for market abuse (market abuse directive) [2014] OJ L 173/79. 57  Directive 2008/99/EC of the European Parliament and of the Council of 19 November 2008 on the protection of the environment through criminal law [2008] OJ L 328/28. 58  See below ch 4 I–III. 59  See Art 5(3) TEU. 60  See Commission,’ Proposal for a Council Regulation on the establishment of the European Public Prosecutor’s Office’, COM (2013) 534 final. 61  ‘Market failure’ can be defined as ‘deviations from perfect markets due to some element of the functioning of the market structure’. This is, for example, the case if market signals do not properly reflect social costs and benefits, ie externalities. Externalities can arise from negative effects occurring in one state as a result of an activity that is regulated or not regulated in another Member State. The most important market failure for the EU internal market is imperfections of competition, ie where there are deviations of effective competition due to market power, distortions to competition and protectionist trade barriers: See World Trade Organization (WTO) Secretariat, ‘World Trade Report 2004—­Exploring the linkage between the domestic policy environment and international trade’ 150–51; Jacques Pelkmans, ‘The Economics of Single Market Regulation’ (2012) Bruges European ­Economic Policy Briefings no 25/2012, 2–4. 62  See below ch 6 I–III; ch 7. 63  See below ch 4 III.

10 

Introduction

proposal for a Directive on the fight against fraud to the Union’s financial interests by means of criminal law64 and the right legal basis for the Fourth ­Anti-Money Laundering Directive (‘Fourth AMLD’) are comprehensively analysed.65 It is argued that Article 83(2) TFEU is a lex specialis in relation to other legal bases in cases where the envisaged criminal law measures fall within the procedural and material scope of that provision. However, in relation to criminal law measures, which by providing for criminalisation through ‘regulations’, fall outside the textual confines of Article 83(2) TFEU, other Treaty articles such as Article 114 could be used.66

IV.  Case Study—EU Regulatory Criminal Law Because the question of limits to EU competences is an ambitious one to explore, the scope of the enquiry has, in principle, been restricted to ‘EU regulatory criminal law’. The topic of the book falls within the confines of EU Criminal Law,67 which is a broad field covering all instances where the EU has normative influence on either substantive criminal law/criminal procedure or on the judicial cooperation between the Member States.68 In substantive terms, it contains the legislative competences in Articles 82–86 TFEU and those legal bases providing for criminal law competence outside Title V.69 To understand the notion of EU regulatory criminal law it is opportune to briefly review Article 83 TFEU. This is the main provision that governs the EU’s competence to harmonise ‘substantive criminal laws’ in relation to offences and sanctions.70 This provision has formalised the general national division between ‘core’ and ‘regulatory criminal law’ where Article 83(1) TFEU first deals with the

64  See Commission, ‘Proposal for a Directive of the European Parliament and of the Council on the fight against fraud to the Union’s financial interests by means of criminal law’, COM (2012) 363 final (‘PIF Proposal’). The Proposal and its legal basis are contested and it has been substantially amended by Council and Parliament in subsequent readings, see further details in ch 7 on the status of the PIF Proposal. 65  See Directive (EU) 2015/849 of the European Parliament and of the Council of 20 May 2015 on the prevention of the use of the financial system for the purposes of money laundering or terrorist financing, amending Regulation (EU) No 648/2012 of the European Parliament and of the Council, and repealing Directive 2005/60/EC of the European Parliament and of the Council and Commission Directive 2006/70/EC [2015] OJ L 141/73. 66  See below ch 5. 67  See Christopher Harding and Joanna Banach-Gutierrez, ‘The Emergent EU Criminal Policy: Identifying the Species’ (2012) 37 European Law Review 758, 759, for the terminological issues concerning the concept of EU Criminal Law. 68  See André Klip, European Criminal Law (Cambridge, Intersentia, 2012) 1–2; Helmut Satzger, European and International Criminal Law (Munich/Oxford, Beck/Hart Publishing, 2012) 43–44. 69  See Harding and Gutierrez (n 67) 761. 70  See Petter Asp, The Substantive Criminal Law Competence of the EU—Towards an Area of Freedom, Security & Justice—Part 1 (Stockholm, Jure, 2013)19–20.

Case Study—EU Regulatory Criminal Law

 11

former category of offences. This provision lists ten offences71 for which the EU has a right to establish minimum rules concerning the definition of criminal offences and sanctions. These offences are considered to be of a ‘particularly serious nature’ and the provision assumes that these offences deserve criminalisation because of the general harm and damage incurred by such offences without any need to establish that such criminalisation is beneficial for the achievement of the Union’s objectives.72 Then there is regulatory criminal law in Article 83(2) TFEU, which covers all criminal law provisions aimed at achieving the political objectives of the Union; protection of the environment; protection of the financial market; the four freedoms; and undistorted competition.73 EU regulatory criminal law is defined as encompassing all criminal law measures which are adopted ‘to ensure the effective implementation of a Union policy in an area which has been subject to regulatory harmonisation measures’.74 The field of EU regulatory criminal law has been selected for two reasons. First, a study of this policy area, constituting a general field of EU policy75 illustrates the limits to the exercise of EU competences. It also sheds new light on perennial constitutional questions such as the scope of EU internal market legislative competence and the choice of legal basis. The harmonization of EU regulatory criminal law, as other EU policies, has been proposed by scholars and the EU legislator under the functional power of Article 114 TFEU.76 Secondly, it is argued that ­regulatory criminal law is an important policy field. The EU’s power to enforce its existing policies by criminal sanctions is not only a theoretical question but a ­practical one.77 The EU has already adopted four regulatory criminal law measures, the Environmental Crimes Directive,78 the Ship-Source Pollution

71  ‘Terrorism, trafficking in human beings and sexual exploitation of women and children, illicit drug trafficking, illicit arms trafficking, money laundering, corruption, counterfeiting of means of payment, computer crime and organised crime.’ 72  See Fletcher, Gilmore and Lööf (n 4) 183. 73 See Commission, ‘Communication from the Commission to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions—Towards an EU Criminal Policy: Ensuring the effective implementation of EU policies through criminal law’, COM (2011) 573 final, 10–11; Memorandum by Maria Fletcher, in House of Lords’ European Union ­Committee, The Treaty of Lisbon: an impact assessment, 10th Report of Session 2007–08, Volume II: Evidence, HL Paper 62-II (London, The Stationery Office Limited) E 149, 150. 74  See Art 83(2) TFEU. 75  See Art 3(2) and Art 67 TFEU. 76  See Commission, ‘Amended proposal for a Directive of the European Parliament and of the Council on criminal measures aimed at ensuring the enforcement of intellectual property rights’, COM (2006) 168 final. For scholarly support for the use of Article 114 TFEU for criminalisation: Peter Whelan, ‘Contemplating the Future: Personal Criminal Sanctions for Infringement of EC Competition Law’ (2008) 19 King’s Law Journal 364, 369; Manfred Zuleeg, ‘Criminal Sanctions to be Imposed on Individuals as Enforcement Instruments in European Competition Law’ in Claus Dieter Ehlermann and Isabela Atanasiu (eds), European Competition Law Annual 2001: Effective Private Enforcement of EC Antitrust Law (Oxford, Hart Publishing, 2003), 456–57. 77  See further Valsamis Mitsilegas, EU Criminal Law after Lisbon Rights, Trust and the ­Transformation of Justice in Europe, (Oxford, Hart Publishing, 2016), ch 3. 78  See n 57.

12 

Introduction

Crimes Directive79 and the Employer Sanctions Directive,80 the Market Abuse Crimes Directive81 and submitted two other proposals; the PIF Proposal82 and finally the Intellectual Property Crimes Proposal83 which was subsequently rejected.84 It is clear from the legislative practice and the Commission’s Communication in 201185 that EU regulatory criminal law will remain a priority area for the EU legislator. It will finally become apparent from the discussion that this book proceeds from a narrow understanding of EU regulatory criminal law.86 With the exception of the analysis of the EPPO Proposal,87 the book only deals with individual88 criminal sanctions in a strict sense. This is not obvious from the concept of EU regulatory criminal law since this sometimes encompasses administrative sanctions/criminal sanctions in a broad sense. For example, the fines under competition law in Regulation 1/200389 would most likely fall within the definition of a ‘criminal charge’ according to Article 6 of the European Convention for the Protection of Human Rights and Fundamental Freedoms.90 This means that specific criminal law safeguards must be applied when such competition law fines are imposed. However, when it comes to this study, such administrative fines are not considered to be criminal in nature.91 The proposed definition of criminal sanctions in EU law is that such sanctions must communicate moral stigma, have a punitive purpose and finally entail intrusive and severe consequences for individuals, for example liberty deprivation.92 This implies that the book only examines ­imprisonment and

79 Directive 2009/123/EC of the European Parliament and of the Council of 21 October 2009 amending Directive 2005/35/EC on ship-source pollution and on the introduction of penalties for infringements [2009] OJ L 280/52. 80  Directive 2009/52/EC of the European Parliament and of the Council of 18 June 2009 providing for minimum standards on sanctions and measures against employers of illegally staying third-country nationals [2009] OJ L 168/24. 81  See n 56. 82  See above n 64 for full reference to this proposal. 83  See above n 76 for full reference to this proposal. 84  See Withdrawal of Obsolete Commission Proposals, 2010/C 252/04, OJ 252/7, 9. 85  See COM (2011) 573 (n 73) 2, 5–6. 86  The chosen definition of criminal sanctions becomes particularly relevant for the discussion in ch 5 on whether the Fourth Money Laundering Directive should have been adopted on the basis of Article 83 TFEU instead of Article 114 TFEU. 87  See ch 7. Whilst not strictly concerning the EU’s competence to impose criminal sanctions, the analysis of the national parliament’s review of the EPPO Proposal is a matter of the EU’s criminal law competence in a broad sense; ie the EU’s competence to establish supra-national criminal enforcement bodies. 88  Whilst several EU criminal law directives contain provision for criminal penalties for firms, it is more appropriate to focus on individual penalties since the discussion on the effectiveness of imprisonment only make sense within the framework of individual sanctions. 89  Council Regulation (EC) No 1/2003 of 16 December 2002 on the implementation of the rules on competition laid down in Articles 81 and 82 of the Treaty [2003] OJ L 1/1. 90  Council of Europe, as amended by Protocols Nos. 11 and 14’, 4 November 1950, ETS 5. 91  See Judgment of the European Court of Human Rights of 21 February 1984, Öztürk v Germany, Series A no 73 [1984] 6 EHRR 409, paras 47–49; Asp (n 70) 60–64. 92  See Asp (n 70) 64–68; Case C-440/05 Commission v Council (n 6), Opinion of AG Mazák, para 67.

Chapter Synopsis

 13

other sanctions93 that can be replaced by imprisonment sanctions if they are not complied with.94 Imprisonment sanctions will be the main focus in the discussion of specific EU legislative measures.95 It is arguably the imposition of imprisonment sanctions, in contrast to fines and other non-criminal sanctions, which makes a difference in terms of deterrence and the effectiveness of the enforcement ­system.96 If the criminal sanctions imposed by Member States are to comply with the requirement of being ‘proportionate, dissuasive and effective’,97 it is often necessary for Member States to impose ‘imprisonment sentences’ for the enforcement of the relevant EU policies.98 It is furthermore clear that the EU legislator’s general argument for criminalisation in the field of EU regulatory criminal is based on the presupposition that imprisonment sanctions are needed for the effective and uniform application of EU law.99

V.  Chapter Synopsis The book is divided in two parts and eight chapters. Part I (chapters two and three) is a general part examining the debate on the nature of the competence problems and the general issues of judicial review in setting limits to the exercise of EU powers. In order to construct limits to the exercise of EU competences, chapter two considers the three key principles in Article 5 TEU—conferral, subsidiarity; and proportionality—which guide the exercise of EU competences. It discusses the problems of these principles and particularly examines whether the limits imposed by the Court’s case law are apt to act as checks on the exercise of EU powers. Previous scholarly contributions criticising the conceptual basis for limiting the exercise of EU competences are also discussed and appraised. The chapter finally evaluates which principles are capable of challenging the exercise of EU competences before the Court.

93 

Criminal fines, conditional sentences, community service orders and probation orders. See Satzger (n 68) 51. 95  See below ch 4 I–II. 96  See Wouter PJ Wils, ‘Is Criminalization of EU Competition Law the Answer?’ (2005) 28 World Competition 117, 138–48; Dan M Kahan, ‘What do alternative sanctions mean?’ (1996) 63 University of Chicago Law Review 593, 621–24, 645, 649, 652. 97  This is the standard formula used in recent EU criminal law directives. The formula stems from the Court of Justice’s ruling in Case 68/88 Commission v Greece [1989] ECR 2965, para 24. 98  See Michael G Faure, ‘Effective, proportional and dissuasive penalties in the implementation of the Environmental Crime and Ship-source Pollution Directives: Questions and Challenges’ (2010) 19 European Energy and Environmental Law Review 256, 266–67; 99  See Commission,’ Proposal for a Directive of the European Parliament and of the Council on criminal sanctions for insider dealing and market manipulation’, COM (2011) 654 final (‘Market Abuse Crimes Proposal’) 2–3, 5; Commission, ‘Proposal for a Directive of the European Parliament and of the Council on the protection of the environment through criminal law’, COM (2007) 51 final, 2–3, 6. 94 

14 

Introduction

Having established the principles against which EU legislation can be c­ hallenged, the book proceeds in chapter three to examine how judicial monitoring of the exercise of EU competences can be improved. The chapter also tries to develop a framework for reviewing EU legislation. It analyses not only conceptual problems with existing limits to EU competences, but also institutional factors that have militated against serious judicial review. In particular, it is examined how the Court, given its comparative institutional disadvantage in relation to the EU institutions, can engage in serious review of the exercise of EU competences. A procedural review framework is elaborated to enhance judicial enforcement of the limits of the Treaties. The final part of the chapter suggests, on the basis of this framework, a standard of review and test for legality for review of EU legislation. Having tackled the institutional challenges for enhancing judicial enforcement of competences, Part II of the book applies the standard developed in chapters two and three by discussing specific limits to the exercise of Union competences. Chapter four considers the limits to the EU’s implied and express criminal law competence. The first part re-examines the scope of the Union’s general criminal law competence derived from the Court of Justices’ Environmental Crimes judgment with a particular focus on the EU’s implicit criminal law competence under Article 192 TFEU. There is particular focus on whether the ‘essentiality’ condition in the Court of Justice’s case law can act as a check on the adoption of criminal law measures under Article 192 TFEU. This part also illustrates the application of the ‘essentiality’ condition by means of a thorough examination of the Environmental Crime Directive. The second part of the section is exclusively focused on the new legal basis for criminal sanctions: Article 83(2) TFEU. This part first considers the substantive conditions of Article 83(2) TFEU, ie the meaning of the ‘essentiality’ condition, the scope of judicial review under the provision and the meaning of ‘effective implementation’ of EU law. The scope of Article 83(2) is demonstrated by a comprehensive review the new Market Abuse Crimes ­Directive adopted under this provision. Secondly, the procedural conditions of Article 83(2) TFEU are examined. In particular, it is discussed whether the ‘harmonisation’ requirement in this provision can act as a check on EU criminalisation, with a specific focus on EU market abuse regulation. Chapter five then examines the debate on legal basis for criminalisation measures after Lisbon Treaty. The chapter first considers the relationship between ­Article 114 TFEU and Article 83(2) TFEU, with particular reference to EU antimoney laundering legislation. This examination makes it possible to re-examine the limits to EU harmonisation under Article 114 TFEU. Finally, the recent debates on the right legal basis for the PIF Proposal are considered in depth. By closely analysing the Court of Justice’s case law on right legal basis and the aim and content of the PIF Proposal, it is evaluated whether this proposal should be adopted under Article 83(2) TFEU rather than Article 325 TFEU as proposed by the Commission. Chapter six considers the principle of subsidiarity as a check on the exercise of EU competences. The first part of the chapter examines how a reconstruction of the subsidiarity principle can help to challenge the basis for excessive EU

Chapter Synopsis

 15

­ armonisation in general and in relation to the field of EU criminal law. The h ­second part of the chapter discusses the judicial enforcement of subsidiarity. There is a specific case study of whether the Market Abuse Crimes ­Directive conforms to the subsidiarity criterion. Chapter 7 then examines the role of national parliaments in addressing the exercise of EU criminal law competences. Given the national parliaments’ enhanced mandate under the Treaties and Protocol No 2 to review EU legislation and recent challenges by parliaments to EU criminal law legislation, it is considered to what extent they can provide a political safeguard of federalism. A particular case study of the national parliaments’ challenge to the EPPO Proposal illustrates the argument. Chapter eight contains the conclusions of the book and an assessment of the lessons we can draw from the study for the EU law on competences.

16 

Part I

A Framework for Legality Review

18 

2 Principles Limiting the Exercise of EU Competences I. Introduction As indicated in chapter one, it has been difficult to identify conceptual means of delimiting the scope of EU powers. The principle of conferral and the principles of subsidiarity and proportionality in Article 5 TEU have proved inadequate as safeguards against the expansion of EU powers. This expansion has taken place by a broad and teleological interpretation by the EU political institutions of existing Treaty provisions such as Article 114 and Article 352 TFEU, tacitly supported by the Court.1 Although the general critique against the conceptual basis for challenging the exercise of EU competences is partly valid,2 it is contended in this chapter that there is still hope for credible competence review. Such a review requires that the existing limits to the exercise of EU competences are reconceptualised in a way that provides for more exact standards. In terms of structure and arguments, the chapter first introduces the competence monitoring system within the EU. The chapter moves on to examine the principles to challenge the exercise of EU competences and the possibilities of enforcing them before the Court of Justice. First, the ‘principle of conferral’ is analysed, with reference to the Court’s current approach to review in competence litigation. This is followed by a discussion of whether this principle is a sufficient check on the exercise of EU competences. Despite a questionable judicial record and conceptual concerns, there are limits in the Court’s case law and recent evolutions of EU law suggesting that the principle of conferral could be used to challenge the exercise of EU competences. Then, the principle of proportionality is considered. Having evaluated the case-law and the literature, it is argued that proportionality is not a credible principle to limit the exercise of EU competences. This is demonstrated by the weak judicial record on the matter and by the fact that there is no conceptual basis for serious proportionality review in competence

1  See above ch 1 II for a description of the practical and conceptual problems of restraining the expansion of EU competences. 2  See above ch 1 II for an account of this critique.

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Principles Limiting the Exercise of EU Competences

cases. The third principle to consider in the chapter is the subsidiarity principle. Based on an analysis of legal and judicial practice, and a discussion of the ­scholarly contributions on subsidiarity, it is argued that subsidiarity is capable of challenging the exercise of EU competences before the Court. Whilst witnessing little attention in the case law and being condemned as being essentially political in nature, it appears that subsidiarity (if conceived as a demand on the EU legislator to demonstrate transnational market failures or transnational interests), is capable of challenging the exercise of EU competences.

II.  The System of Competence Monitoring This section briefly accounts for how the system of competence monitoring is ­constructed. It is well known that one of the characteristic features of the EU is that it exercises, on the basis of the powers enshrined in the Treaties, public authority. The EU has thus a legal capacity to unilaterally determine natural p ­ ersons’, legal persons’ and Member States’ legal or factual situation. However, while the EU has broad powers, its powers are limited. Article 5 TEU sets out the basic principles governing the exercise of EU competences. Because of the importance of this ­provision, it is appropriate to restate it in extenso: ‘1. The limits of Union competences are governed by the principle of conferral. The use of Union competences is governed by the principles of subsidiarity and proportionality. ‘2. Under the principle of conferral, the Union shall act only within the limits of the competences conferred upon it by the Member States in the Treaties to attain the objectives set out therein. Competences not conferred upon the Union in the Treaties remain with the Member States. ‘3. Under the principle of subsidiarity, in areas which do not fall within its exclusive competence, the Union shall act only if and in so far as the objectives of the proposed action cannot be sufficiently achieved by the Member States, either at central level or at regional and local level, but can rather, by reason of the scale or effects of the proposed action, be better achieved at Union level … ‘4. Under the principle of proportionality, the content and form of Union action shall not exceed what is necessary to achieve the objectives of the Treaties …’

The principles of conferral, subsidiarity and proportionality guide how EU powers can be exercised. Whilst the principles are not easy to distinguish, it may be stated that conferral decides if the EU can act at all, whereas subsidiarity determines whether the EU should act, whilst proportionality determines how the EU should act.3 Conferral, subsidiarity and proportionality are principles that always 3  See Robert Schütze, From Dual to Cooperative Federalism (Oxford, Oxford University Press, 2009) 263–64.

Principle of Conferral

 21

must be observed by the EU legislature. If these principles are not adhered to when EU legislation is proposed, the Court is empowered to annul such EU legislation.4 Whilst other limits can act as checks on the exercise of EU legislative powers,5 it is appropriate to confine the enquiry to conferral, subsidiarity and proportionality. This is so for the simple fact that these set the standards for how the Union can use its legislative powers.6 The Court’s approach to them has constitutional implications for the Union legal order.7 The Court of Justice’s case law on the principle of conferral is illustrative. Not only does disputes on the correct legal basis shapes the vertical order of competences but it also defines the applicable standards for testing the legality of a Union act.8 These three principles and the Court’s approach to them will therefore be considered in turn.

III.  Principle of Conferral A.  Theory and Judicial Review The principle of conferral entails that the exercise of EU competences is limited by the competences conferred upon it by the Treaties and the objectives of the ­Treaties. Therefore it is always necessary to tie a Union measure to a legal basis in order ensure that the objective pursued can validly be pursued under that ­provision.9 It should be recalled that a Union legal act can be declared invalid by the Court it does not fall within the scope of a legal basis or pursues an objective that is not recognised as a ‘Union objective’.10 The requirement of a legal basis demands that the choice of the legal basis may only be founded on o ­ bjective

4 

See Arts 263 and 264 TFEU. See Thomas Horsley, ‘Reflections on the Role of the Court of Justice as the Motor of European Integration: Legal Limits to Judicial Lawmaking’ (2013) 50 Common Market Law Review 931, 949. 6  Art 263 TFEU (1)–(2) provides: ‘The Court of Justice of the European Union shall review the legality of legislative acts … It shall for this purpose have jurisdiction … on grounds of lack of competence, infringement of an essential procedural requirement, infringement of the Treaties or of any rule of law relating to their application, or misuse of powers …’. Emphasis is added to underline that challenges brought against the exercise of EU competences on the basis of the principle of conferral could be brought under both ‘lack of competence’ and ‘infringement to the Treaties’, whilst challenges brought under subsidiarity and proportionality would have to be brought under the heading ‘infringement of the Treaties’. 7  See Opinion 2/94, Accession by the Community to the European Convention for the Protection of Human Rights and Fundamental Freedoms [1996] ECR I-01759, paras 23–36; Alan Dashwood, ‘The Relationship Between the Member States and the European Union/European Community’ (2004) 41 Common Market Law Review 355, 356. 8  See Opinion 2/00, Cartagena Protocol [2001] ECR I-9713, para 5; Armin Von Bogdandy and ­Jürgen Bast, ‘The Federal Order of Competences’ in Armin Von Bogdandy and Jürgen Bast, ­Principles of European Constitutional Law (Oxford, Hart Publishing, 2009) 279, 301. 9  See Opinion 2/00 Cartagena Protocol (n 8), para 5. 10  See Arts 263 and 264 TFEU. 5 

22 

Principles Limiting the Exercise of EU Competences

e­ lements ­subject to judicial review. This entails that limits of the EU’s powers under a specific ­provision must be inferred from an interpretation of the wording of the provision in question analysed in the light of its purpose and placed in the scheme of the Treaty.11 But is the principle of conferral in Article 5(2) TEU a limitation prone to work before the Court? Alan Dashwood answers this question in the affirmative and suggests that the principle of conferral is one of the core principles in delimiting the exercise of Union competences. He explains that competences of the Union are conferred by particular provisions, legal bases which only authorise action by one or several designated institutions in a determined policy area or in pursuance of a determined objective, and no other. The technique of specific attribution remains the most successful method of setting identifiable limits to the competences of the EU.12 Recent Treaty revisions have also strengthened the principle.13 Although in the original Treaties legislative competence was generally conferred upon the Union on the basis of objectives to be attained, ie the functional method, successive revisions of the Treaties have replaced this method by a substantive allocation of competence consisting of defining the precise actions to be taken by the Union.14 Despite these optimistic predictions of how the principle should work, the judicial record suggests15 that the principle of conferral has not acted as a check on the exercise of EU competences before the Court of Justice. There are only two cases in the history of competence litigation, Opinion 2/9416 and Tobacco Advertising,17 where the Court annulled a whole piece of legislation or envisaged agreement for the ‘lack of competence’.18 Because these cases are ­potentially important for identifying the limits to the exercise of Union powers, a brief recapitulation of them seems appropriate. The first case in which an envisaged Union measure was considered to fall outside the Union’s competence was the prominent Opinion 2/94. Here the Court considered that accession by the Union to the European Convention on Human Rights fell outside the scope of Article 352 TFEU. That provision could not serve 11 

See Case C-155/07 Parliament v Council (European Investment Bank) [2008] ECR I-8103, para 34. See Dashwood, ‘The Relationship Between the Member States and the European Union/­European Community’ (n 7) 357–58, 361. 13  See above ch 1, n 21, for an enumeration of references in the Treaties to the principle of conferral. 14  See European Convention, CONV 47/02, Discussion Paper, ‘Delimitation of competence between the European Union and the Member States—Existing system, problems and avenues to be explored’, Brussels, 15 May 2002, 6, 9–12. 15  See above ch 1 II for a brief account of the Court of Justice’s problem of restraining the exercise of EU competences. 16  See Opinion 2/94 Accession of the Community to the European Human Rights Convention (n 7). 17  See Case C-376/98 Germany v European Parliament and Council (Tobacco Advertising) [2000] ECR I-8419. 18  See for partial annulment of Article 5, second sentence, on the basis of ‘lack of competence’ of Council Directive 93/104/EC of 23 November 1993 concerning certain aspects of the organization of working time [1993] OJ 1993 L 307/18 (‘Working Time Directive’): Case C-84/94 United Kingdom v Council [1996] I-05755, para 37. 12 

Principle of Conferral

 23

as a basis for widening the scope of Union powers beyond the general framework created by the provisions of the Treaty as a whole and, in particular, by those that define the tasks and the activities of the Union. The Court observed that accession to the Convention would entail a substantial change in the Union system for the protection of human rights. It would entail the entry of the Union into a distinct international institutional system as well as integration of all the provisions of the Convention into the EU legal order. Such a modification of the system for the protection of human rights in the EU, with equally fundamental institutional implications for the EU and for the Member States, would be of constitutional significance and would therefore be such as to go beyond the scope of Article 352 TFEU.19 The second case, where the Union was found to have acted outside its competence was the Tobacco Advertising judgment. This case concerned an action for annulment of a Tobacco Advertising Directive adopted on the basis of Article 114 TFEU. The German Government had challenged the validity of the Directive inter alia on the ground that it was adopted on the incorrect legal basis.20 The Court of Justice held forcefully that Article 114 TFEU could not be construed as vesting in the Union legislature a general power to regulate the internal market. Such an interpretation would not only be contrary to the express wording of Article 114 TFEU, but also incompatible with the principle of conferral. A mere finding of disparities between national rules and of the abstract risk of obstacles to the exercise of fundamental freedoms or of distortions of competition liable to result therefrom was not sufficient to justify the choice of Article 114 as a legal base. If such evidence was sufficient to justify compliance with Article 114 TFEU the Court would be prevented from discharging the function entrusted to it by Article 19 TEU of ensuring that the law is observed in the interpretation and application of the Treaty. On the basis of these propositions, the Court proceeded to annul the Tobacco Advertising Directive. According to the Court, the prohibitions on tobacco advertising on posters, parasols, ashtrays and other articles used in hotels, restaurants and cafés, and the prohibition of advertising spots in cinemas, did not in any way help to facilitate trade in the products concerned. Nor were those prohibitions liable to remove ‘appreciable distortions’ to competition.21 It has been argued that the Court’s approach in Tobacco Advertising and O ­ pinion 2/94 is compelling evidence of the Court’s ability to police the limits of the ­Treaties. Armin Von Bogdandy and Jürgen Bast submit that the Court of Justice has become increasingly self-confident with regard to the Council. They claim that the Court, by its ­decision in Tobacco Advertising, confirmed that it is able to assert itself as the

19  See Opinion 2/94 Accession of the Community to the European Human Rights Convention (n 7), paras 30, 35–36. 20  Directive 98/43/EC of the European Parliament and of the Council of 6 July 1998 on the approximation of the laws, regulations and administrative provisions of the Member States relating to the advertising and sponsorship of tobacco products [1998] OJ 1992 L 213/9. 21  See Case C-376/98 Tobacco Advertising (n 17), paras 83–84, 99–105, 109–16.

24 

Principles Limiting the Exercise of EU Competences

highest constitutional court willing to act as an honest broker between the EU and its Member States by delimiting the problematic breadth of Article 114 TFEU as a blanket clause for the regulation of the economy.22 In a similar vein, Dashwood has contended that the Court in Opinion 2/94 endorsed the principle of conferral as one of the general organising principles of the post-Maastricht constitution. The Court demonstrated according to Dashwood that it takes the principle of conferral seriously by not allowing the political institutions to fall back on Article 352 TFEU as a legal basis of last resort where an action could be seen as furthering one or other of the Union’s objectives. Opinion 2/94 also shows according to him that the principle of conferral places the onus of proof on the party asserting that a power exists or can be used in a certain way.23 Although these observations seem promising, it appears that ensuing case law on the scope of Article 114 and Article 352 TFEU casts serious doubts on the potency of the limits laid in Tobacco Advertising and Opinion 2/94.24 In BAT,25 concerned with the validity of a subsequent tobacco advertising ­directive,26 the EU legislator had enacted a ban on the manufacture of cigarettes within the EU for export to non-Member countries on the basis of Article 114 TFEU. The ban was, however, not ‘likely’ to remove ‘obstacles to trade’ or ‘appreciable distortions to competition’, which were the limits imposed by the earlier Tobacco Advertising judgment. The Court even recognised that the prohibition did not aim to improve directly the conditions for the functioning of the internal market. Even if a Union measure can be addressed to future trade obstacles which are ‘likely’ to arise according to the Tobacco Advertising judgment,27 the risk for unlawful trade in cigarettes and fraudulent practices was in this case too uncertain to constitute a relevant justification. The evidence in the case rather showed that it was not possible to evaluate with precision the volume of unlawful trade in ­cigarettes and that the circumvention of the provisions relating to the composition of the cigarettes was not the cause of unlawful trade.28 The measure was, however, upheld by the Court as falling within the scope of Article 114 TFEU.

22 

See Von Bogdandy and Bast (n 8) 286, 301. Alan Dashwood,’ Commentary’ in (1996) Centre of European Legal Studies, Cambridge Occasional Paper No. 1, ‘The Human Rights Opinion of the ECJ and its Constitutional Implications’, 21–22, 24. 24  See Stephen Weatherill, ‘The limits of legislative harmonisation ten years after Tobacco Advertising: how the Court’s case law has become a “drafting guide”’ (2011) 12 German Law Journal 827, 850; Derrick Wyatt, ‘Community Competence to Regulate the Internal Market’, in Michael Dougan and Samantha Currie, 50 Years of the European Treaties: Looking Back and Thinking Forward (Oxford, Hart Publishing, 2009) 93, 135–36. 25  See Case C-491/01 British American Tobacco (Investments) and Imperial Tobacco [2002] ECR I-11453. 26  Directive 2001/37/EC of the European Parliament and of the Council of 5 June 2001 on the approximation of the laws, regulations and administrative provisions of the Member States concerning the manufacture, presentation and sale of tobacco products [2001] OJ L 194/26, Art 3(2). 27  See Case C-376/98 Tobacco Advertising (n 17), para 86. 28 See Case C-491/01 British American Tobacco (Investments) and Imperial Tobacco (n 25), paras 81–88. 23 See

Principle of Conferral

 25

In Swedish Match, the Court endorsed its broad interpretation in BAT to the scope of Article 114 TFEU by accepting the EU legislator’s reliance on this legal basis for a directive29 prohibiting the marketing and selling of ‘snuff ’ products. The Court found that there were national divergences in relation to the regulation of snuff products at the time of the adoption of the Snuff Directive. Some ­Member States had prohibited ‘snuff ’, while others had not. Moreover, as the market in tobacco products is one in which trade between the Member States represents a relatively large part, those prohibitions on marketing contributed to a heterogeneous development of that market and were therefore such as to constitute obstacles to the free movement of goods.30 Nevertheless, there was no evidence that a prohibition against marketing ‘snuff ’ products improved the trade for that product. It rather seemed that the prohibition in the Snuff Directive, instead of facilitating trade, which presumably would be the main objective of a directive adopted under Article 114 TFEU, completely banned trade in the product concerned.31 Despite this, the Court accepted that the Union legislature had competence under Article 114 TFEU to adopt the ‘Snuff ’ Directive. Alliance for Natural Health32 is another case demonstrating the Court’s weak enforcement of the limit that EU measures must have a link to the internal market. This case concerned a challenge to the legality of a number of provisions in the Food Stuffs Directive33 which had been adopted on the basis of Article 114 TFEU. The claimants in the case submitted that Article 114 TFEU was an inadequate legal basis for the prohibition on marketing food stuffs not complying with the Directive since this prohibition did not contribute to improving the conditions for the establishment and functioning of the internal market. The recitals of the Directive showed that food supplements were regulated, before the Directive was adopted, by differing national rules liable to impede their free movement and thus had a direct impact on the functioning of the internal market. These assertions were demonstrated by the fact that, prior to the adoption of the Directive, a number of cases were brought before the Commission and the Court which related to situations in which traders had encountered obstacles when marketing in a Member State other than their State of establishment food supplements lawfully marketed in the latter State. In those circumstances the Court accepted that reliance on ­Article 114 TFEU for the Directive was valid.34

29  Directive 2001/37/EC of the European Parliament and of the Council of 5 June 2001 on the approximation of the laws, regulations and administrative provisions of the Member States concerning the manufacture, presentation and sale of tobacco products [2001] OJ L 194/26. 30  See Case C-210/03 Swedish Match [2004] ECR I-11893, paras 35–41. 31  See Case C-58/08 Vodafone [2010] ECR I-04999, Opinion of AG Maduro, para 13. 32  See joined cases C-154/04 and C-155/04 Alliance for Natural Health and Others [2005] ECR I-06451. 33  Directive 2002/46/EC of the European Parliament and of the Council of 10 June 2002 on the approximation of the laws of the Member States relating to food supplements [2002] OJ 2002 L 183/51. 34  See joined cases C-154/04 and C-155/04 Alliance for Natural Health and Others (n 32), paras 35–39, 41–43.

26 

Principles Limiting the Exercise of EU Competences

Alliance for Natural Health showed that the EU legislature needs to do very l­ ittle to show compliance with the conditions of Article 114 TFEU. The claim that there were obstacles to trade was supported by a simple reference to the preamble, stating that there were divergences in the regulation of food supplements in trade and that those divergences would potentially have an adverse effect on the internal market in the future. While divergent legislations in relation to the regulation of food supplements may give rise to obstacles to trade, this is too weak of a justification for harmonising national laws. If Tobacco Advertising had been properly enforced, then a simple mentioning of the justification in the recitals in the Food Stuff Directive would not have been accepted as sufficient to justify recourse to Article 114 TFEU. BAT, Swedish Match and Alliance for Natural Health shows that the Court has taken a questionable approach35 to the requirement in Tobacco Advertising that a link to the internal market should be demonstrated. There is also evidence in the case law that other limits to the functional competences have been proved unworkable in practice. Supposedly, the Court should enforce the limit in Article 352 TFEU that only ‘Union objectives’ can be pursued. If the objective of a Union legislative act would fall outside the definition of ‘Union objectives’ as defined in the Treaties (eg an objective relating to the field Common Foreign and Security Policy (CFSP) or a general objective of achieving peace in the European Union)36 it would supposedly be invalid under Article 352 TFEU. The case law nevertheless indicates that this limit has not been successful in restraining the exercise of Union competences.37 The Kadi case illustrates this observation. In this case, it was clear that the objective of the Regulation was a CFSP objective and not a Community objective. Whilst the Community at this stage did not have a competence to combat terrorism it had under Articles 60 and 301 EC a competence to authorise the adoption of sanctions against states. The issue in Kadi was that the Court not only recognised that the Community had the above-mentioned competence but went even further and stated that Articles 60, 301 and 308 EC (Article 352 TFEU) conjointly included the objectives of imposing sanctions against individuals. Even if this objective did not fall within the Community’s competences, Article 308 EC (Article 352 TFEU)

35  See also Case C-58/08 Vodafone and Others (n 31), paras 38–47, for further evidence of the Court’s inadequate enforcement of Article 114 TFEU and Case C-547/14 Philip Morris Brands and Others (Court of Justice, 4 May 2016) for recent examples of the Court’s deferential approach to the legislator’s use of Article 114 TFEU. In the latter case a revised tobacco advertising directive was contested inter alia on the ground that it prohibited the marketing of tobacco products with a ‘characterising flavour’, thus preventing rather than facilitating trade with regard to the product concerned. Despite this, the directive was considered as falling within the scope of Article 114 TFEU (paras 107–25, 127–36). 36  Declaration (no 41) on Article 352 TFEU states that it is ‘excluded that an action based on Article 352 TFEU … would only pursue objectives set out in Article 3(1) of the TEU …’ Art 3(1) TEU states that ‘The Union’s aim is to promote peace, its values and the well-being of its peoples’. Furthermore, pursuant to Article 24 TEU, ‘legislative acts may not be adopted in the area of the Common Foreign and Security Policy’. 37  See Schütze, From Dual to Cooperative Federalism (n 3) 136–39.

Principle of Conferral

 27

could according to the Court bridge the gap between the pillars and provide for this objective.38 Critically, the Court’s reasoning failed to appreciate the distinction between means and objectives and its conclusion flies in the face of the wording of ­ Article 308 EC which limited the Community’s competence to ‘one of the objectives of the Community’. A proper reading of Article 308 EC did not give room for including CFSP objectives as this provision cannot create new objectives but only provide the means to achieve the objectives of the Community. The Court’s ruling also undermined its earlier finding that it was wrong to assume that Article 308 EC could allow the adoption of Community measures that concerned not one of the objectives of the Community but one of the objectives under the EU Treaty in the sphere of external relations, including the CFSP.39 In light of this, it is remarkable how the Court, later in the judgment, could come to the conclusion that Article 308 EC could include CFSP policies. This interpretation of Article 308 EC is difficult to square with the principle of conferral. If all provisions of the Treaty intend to pursue the common market, everything that the EU does will logically pursue the common market and will fall within the scope of the then Article 308 EC.40 Another limit that has proved inadequate in restraining the exercise of Union powers is the explicit prohibitions in the Treaties for the Union to harmonise certain policy fields such as public health.41 Tobacco Advertising II,42 which was concerned with a new tobacco advertising directive,43 exemplifies the problem. The important fact of the case is that the directive at issue was primarily designed to deal with a public health problem, the increased use of cigarettes.44 It is also clear from the Court’s case law that Article 114 TFEU cannot be used as a legal basis in order to circumvent the prohibition in Article 169(5) TFEU for the EU to harmonise Member States rules in the field of public health.45 These points were raised by Germany who challenged the new tobacco advertising directive on this basis.46 The Court nevertheless held that the existence of Article 169(5) TFEU did not imply that harmonising measures adopted on the basis of other provisions of

38  See Joined Cases C-402 and C-415/05 P Yassin Abdullah Kadi and Al Barakaat International Foundation v Council and Commission [2008] ECR I-6351, paras 226–31, 235. 39  ibid, paras 198–203. 40  See Takis Tridimas, ‘Terrorism and the ECJ: Empowerment and Democracy in the EC Legal Order’ Queen Mary School of Law Legal Studies Research Paper No 12/2009, 6 (19 March 2009). papers.ssrn. com/sol3/papers.cfm?abstract_id=1365385. Accessed 1 December 2016. 41  See Art 169(5) TFEU. Similar prohibitions against EU harmonisation apply for vocational training (Art 166 (4) TFEU) and culture (Art 167(5) TFEU). 42  See Case C-380/03 Germany v Parliament and Council [2006] ECR I-11573. 43  Directive 2003/33/EC of the European Parliament and of the Council of 26 May 2003 on the approximation of the laws, regulations and administrative provisions of the Member States relating to the advertising and sponsorship of tobacco products [2003] OJ 2003 L 152/16 (‘the Third Tobacco Advertising Directive’). 44  See the Third Tobacco Advertising Directive (n 43), recitals 3, 6, 7 and 8. 45  See Case C-376/98 Tobacco Advertising (n 17), paras 76–79. 46  See Case C-380/03 Germany v Parliament and Council (n 42), para 90.

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the Treaty could not have any impact on the protection of human health. Since the conditions for recourse to Article 114 TFEU were met in this instance, the contested directive could not be challenged on the basis that it pursued public health objectives.47 Basically, the reason provided by the Court in Tobacco Advertising II is that ­insofar as the internal market is served to any extent through the measure, the exclusion of competence in Article 169(5) TFEU does not work as a constitutional limit. While internal market measures must primarily serve the purposes of free movement and undistorted competition, this need not be their ‘primary impact’.48 This is, however, a questionable conclusion given the aim and wording of this provision. It appears plain that the Member States’ express exclusion of a harmonisation competence of public health in Article 169(5) TFEU was intended to have some legal consequences. The effectiveness of that provision would be seriously jeopardised if the Court of Justice can circumvent it by holding that this provision does not impede Union measures from having an effect on public health. In addition, it appears that the contested directive in Tobacco Advertising II entailed more than an ‘effect’ on public health. The immediate consequence of the Third Tobacco Advertising Directive was, strictly speaking, harmonisation since all Member States were required to harmonise their public health policies in relation to the marketing, sponsoring and advertising of tobacco products.49 Given this, it is remarkable that the Court did not enforce this provision.50 Having shown how the Court’s case-law, post-Tobacco Advertising and O ­ pinion 2/94 has diluted the limits of Article 114 and Article 352 TFEU, it may be q ­ ueried whether there are some conceptual problems with the limits imposed by the Court in those judgments or whether the absence of successful challenges can be explained with reference to the factual context of subsequent cases and more careful drafting of legislation.51 In this regard, it appears that the former proposal is a more accurate reflection of reality. First, BAT, Swedish Match, Alliance for Natural Health, Kadi and Tobacco Advertising II were all cases where the Court should have, if it had enforced the limits imposed by Tobacco Advertising and Opinion 2/94, accepted the challenges as well-founded. All the claimants in these cases argued coherently on the

47 

ibid, paras 39–40, 95–96. See Gareth Davies, ‘Democracy and Legitimacy in the Shadow of Purposive Competence’ (2015) 21 European Law Journal 2, 10. doi:10.1111/eulj.12079; Case C-376/98 Tobacco Advertising (n 17), Opinion of AG Fennelly, paras 58, 64, doi:10.1111/eulj.1207977. 49  See the Third Tobacco Advertising Directive (n 43), Arts 3–5. 50  The Court of Justice’s conclusions in Tobacco Advertising II, is however, consistent with other judgments such as Swedish Match and Ireland v Parliament and Council. The Court’s approach appears to be that that the Union objective can have an ancillary role for a measure whose main content may pursue a policy falling outside the Union’s competences as long as the legislator can make a link to a Union objective; Case C-210/03 Swedish Match (n 30), para 31; Case C-301/06 Ireland v Parliament and Council [2009] ECR I-00593, paras 56, 79–85). 51  This is Weatherill’s hypothesis, ‘The limits of legislative harmonisation’ (n 24) 848–49. 48 

Principle of Conferral

 29

basis of the Court of Justice’s case law that the measures did not fall within the­ competences of the Union, either because the measures showed no convincing link to the internal market, because they infringed the constitutional savings clause or because they pursued objectives, as non-Community objectives, which could not arguably be pursued under the designated legal basis as demanded by Opinion 2/94. Despite this all challenges were unsuccessful.52 Secondly, it is arguable that Opinion 2/94 and Tobacco Advertising were clear-cut cases. While the limits in Tobacco Advertising and Opinion 2/94 may have appeal in theory, the Court’s finding that the Union had transgressed the limits of its competences were strongly related to the specific circumstances of these cases. The Tobacco Advertising judgment involved, as mentioned above, a directive which encompassed a prohibition of advertising on posters, parasols, ashtrays and other articles used in hotels, restaurants and cafés, and a prohibition of advertising spots in cinemas, prohibitions which had no effect on the internal market and crossborder trade. Further, as Member States had a right to lay down stricter requirements they deemed necessary to guarantee the health protection of individuals, the Directive did not even ensure free movement of products that were in conformity with its provisions. Therefore, it was evident that the Directive fell outside the scope of Article 114 TFEU.53 In terms of Opinion 2/94, the matter at hand was the envisaged accession to the ECHR, which was indeed an extraordinary measure. The planned accession was and still is today a measure which would have serious institutional and constitutional implications for the Union, especially in terms of uniform application of Union law, the jurisdiction of the Court and the autonomy of Union law. Such an important measure could only be agreed through the means of a Treaty revision, providing for specific powers for the Union to accede to the Convention.54 The lessons from this discussion are quite straightforward. Tobacco ­Advertising and Opinion 2/94 were two exceptions to the general approach of the Court of showing judicial deference to the Union legislature when it reviews measures adopted under the broad functional provisions in Article 114 and 352 TFEU.55 These observations thus lead to the tentative conclusion that the limits imposed by the Court have failed to provide for sufficient checks on the exercise of EU powers.

52  See eg Wyatt ‘Community Competence to Regulate the Internal Market’ (n 24) 117–19, 121, 126–27. See also Tridimas (n 40) 7. 53  See Case C-376/98 Tobacco Advertising (n 17) paras 99–101. 54  That accession to the ECHR required a specific mandate and a Treaty revision is apparent from Article 6(2) TEU. The Court’s recent Opinion 2/13, Accession of the European Union to the European Convention for the Protection of Human Rights and Fundamental Freedoms (Court of Justice, Opinion of 18 December 2014), however, shows that this mandate was not sufficient and constitutes evidence of the serious problems for the EU to accede to the Convention. 55  See Weatherill,’ The limits of legislative harmonisation’ (n 24) 843; Wyatt, ‘Community Competence to Regulate the Internal Market’ (n 24) 93–94, 135–36.

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B. Can the Principle of Conferral Act as a Check on the Exercise of EU Competences? In light of this, we have to examine whether the principle of conferral still could be meaningfully employed to challenge the exercise of EU competence and analyse the reasons behind the Court’s deferential approach.56 First, there are conceptual problems of the existing limits. Several important legislative powers such as Article 114 and Article 352 TFEU are framed as purposive and functional powers defined by the goal to be achieved.57 Appeals to objectives or policies cannot, however, work as a limit to EU competences since they do not provide the Court with hard legal criteria to resolve disputes. Since the limits imposed on the Union when exercising its functional competences, a link to ‘market making’ under Article 114 and a link to the Union’s policies under Article 352 TFEU, lack precision the Court’s task of supervising the exercise of this power is made very difficult. Given this, its policy of deference is understandable.58 Secondly, the teleological imperative of further market and political integration enshrined in the design of the EU legal order has placed constraints on the Court to effectively enforce the principle of conferral. Strict judicial review of the exercise of EU competences would compromise the Union’s capacity to act efficiently in order to fulfil the tasks of the Treaties and impose significant costs reflected in inflexibility.59 The Court has instead supported a more expansive and ­‘purposive’ interpretation of the scope of Union competences in order to enhance the ­effectiveness of Union law.60 This approach to interpreting the scope of EU competences fits well with the structure of the EU legal order. If the Union is to achieve the objectives and tasks set out in the Treaties and resolve functional problems, the necessary powers must be placed at the service of the Union.61 Despite the pessimistic picture painted above, it is sustained that the Court is still up for the task of reviewing the exercise of EU competences. The concern that the limits, imposed by the Treaties and developed by the Court of Justice’s case law, are insufficient should, however, be taken seriously.

56 

See above ch 1 II for earlier discussion of these reasons. See Davies, ‘Democracy and Legitimacy in the Shadow of Purposive Competence’ (n 48) 4, 6. Stephen Weatherill, ‘Competence creep and competence control’ (2004) 23 Yearbook of ­European Law 1, 25, 27, 46, 49; Derrick Wyatt,’ Community Competence to Regulate the Internal ­Market’ (n 24) 128–36. 59  See Weatherill,’ The limits of legislative harmonisation’ (n 24) 851; Paul Craig, ‘The ECJ and Ultra vires action: a conceptual analysis’ (2011) 48 Common Market Law Review 395, 410. 60  See Joseph H H Weiler, ‘The Transformation of Europe’ (1991) 100 The Yale Law Journal 2403, 2442–48; Loïc Azoulai, ‘Introduction: the Question of Competence’ in Loïc Azoulai (ed), The Question of Competence in the European Union (Oxford, Oxford University Press, 2014) 2, 5–6. 61  See Pierre Pescatore, Law of Integration: Emergence of a New Phenomenon in International Relations, Based on the Experience of the European Communities (Vienna, Springer, 1974, English translation) 40–43, 50–51. 57 

58 See

Principle of Conferral

 31

In order for the Court to maintain its own legitimacy, it must first and foremost reassert the limits imposed by Tobacco Advertising and Opinion 2/94 and disallow Union measures which are used as instruments of ‘general governance’62 or that compromise the ‘constitutional identity of the Union’.63 The Court must control whether the measure is likely to remove either obstacles to trade or ‘appreciable’ distortions to competition which are the rationales recognised by the Court as for harmonisation.64 The Court ought to furthermore, as argued below,65 strictly police conventional legal issues such as whether the contested Union measure is adopted on the right legal basis66 and whether EU legislation constitutes a ­‘harmonisation’ measure for the purposes of Article 83(2) TFEU.67 Those limits express, because of their wording, hard legal criteria which the Court is well-equipped to monitor.68 Secondly, the Court of Justice needs to be provided with a solid basis of evidence and reasoning to perform this task. To become a credible arbiter in competence disputes, the Court ought to conduct its review in a ­procedural fashion. This procedural enquiry should be implemented through a standard of legality asking the EU legislator to show that it has provided for adequate reasoning and taken into account all relevant evidence when adopting a piece of legislation.69 How can we then respond to the legitimate concern that the Court is not well placed to review the exercise of EU competences? First, it appears that the evolution of EU law give the Court strong reasons to move to more intense judicial review in order to maintain its credibility.70 The increased emphasis in the Lisbon Treaty on the limitation of competences71 and the adoption of new protocols and the inclusion of new actors in the monitoring of EU competences demonstrate this point.72 Lisbon furthermore gives the Court of Justice a broad mandate to adjudicate as a neutral arbiter of c­ompetences. Articles 5, 19(1) TEU and Article 263 TFEU empower the Court to review all secondary legislation on the basis of a ‘lack of competence’ and ‘infringement’ of the ­Treaties.73 Secondly, it appears that pressure from national constitutional

62 

See Wyatt, ‘Community Competence to Regulate the Internal Market’ (n 24) 136. Opinion 2/94 Accession by the Community to the European Convention for the Protection of Human Rights and Fundamental Freedoms (n 7) paras 30, 35. 64  See Davies, ‘Democracy and Legitimacy in the Shadow of Purposive Competence’ (n 40) 9. 65  See below ch 4 II B and ch 5 for a comprehensive discussion of such procedural limitations. 66 See Case C-301/06 Ireland v Parliament and Council (n 50) para 56; Case C‑270/12, UK v European Parliament and Council (Court of Justice, 22 January 2014) paras 97–117; Case C-43/12, Commission v Parliament and Council (Court of Justice, 6 May 2014) paras 29–51. 67  See Steve Peers, EU Justice and Home Affairs Law (Oxford, Oxford University Press 2011) 775–76. 68  See Paul Craig, EU Administrative Law (Oxford, Oxford University Press, 2012) 435 discussing these institutional considerations. 69  See below ch 3 V. 70  This thought is further developed below in ch 3 III. 71  The voluminous references to the principle of conferral, see ch 1 fn 21, is witness of this. 72  See above ch 1 II. 73  See Werner Vandenbruwaene, ‘Multi-Tiered Political Questions: The ECJ’s Mandate in Enforcing Subsidiarity’ (2012) 6 Legisprudence 321, 329–30, 344. 63  See

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courts may induce the Court to become a trustworthy arbiter in competence ­disputes.74 This is demonstrated by a notable challenge from the German Federal ­Constitutional Court which expressed the view that they consider it their task to ensure that EU institutions do not amend the Treaties and enact legislation ultra vires. It insisted that it had the right to intervene if there were indications that the Court of Justice was not fulfilling its task of controlling the exercise of EU ­competences according to the principle of conferral.75

IV.  Principle of Proportionality A.  Theory and Judicial Review The principle of proportionality embodies a binding rule of primary law which the Union legislature has to comply with when it exercises its powers.76 Protocol No 2 attached to the Lisbon Treaty substantiates the principle of proportionality suggesting that ‘any draft legislative act should contain a detailed statement making it possible to appraise compliance with the principles of … proportionality’ and a duty ‘to take account of the need for any burden, whether financial or administrative, falling upon the Union, national governments, regional or local authorities, economic operators and citizens, to be minimised and commensurate with the objective to be achieved’.77 Despite recent codifications of the principle, it has been present since the early days of the Community as a general principle of law fleshed out in the case law of the Court. Pursuant to the standard formula, proportionality implies that the Union legislator should consider whether the legislative measure is ­appropriate to reach the pursued objective78 and if so, whether the legislative measure is ­indispensable for achieving the pursued objective (the ‘least restrictive measure’ test).79 Finally, the principle requires that the Union legislative measure cannot entail excessive effects on the individual(s) affected by the legislative act ­(proportionality stricto sensu).80

74  See Mattias Kumm, ‘Constitutionalizing Subsidiarity in Integrated Markets: The Case of Tobacco Regulation in the European Union’ 12 (2006) European Law Journal 503, 530; Michael Dougan, ‘From the Velvet Glove to the Iron Fist: Criminal Sanctions for the Enforcement of Union Law’ in Marise ­Cremona (ed), Compliance and the Enforcement of EU Law (Oxford, Oxford University Press, 2012) 112. 75  See Judgment of German Federal Constitutional Court of 30 June 2009, Lisbon Judgment, Case 2 BvE 2/08, 5/08, 2 BvR 1010/08, 1022/08, 1259/08, 182/09 (2009), paras 226, 231, 237–242. 76  See Art 5(4) TEU. 77  See Protocol (No 2) On the Application of the Principles of Subsidiarity and Proportionality OJ [2010] C 83/206 (‘Protocol No 2’), Art 5. 78  See Case 116/82 Commission v Germany [1986] ECR 2519, para 21. 79  See Case 382/87 Buet and others v Ministère public [1989] ECR 1235, paras 11–17. 80  See Case 44/79 Liselotte Hauer v Land Rheinland-Pfalz [1979] ECR 3727, paras 123–30.

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 33

The case law, however, suggests that proportionality cannot be easily employed to challenge Union legislative acts. Apart from the exception of Spain v Council,81 no general EU legislative act has been struck down on the basis of proportionality. In order to illustrate the problems of judicial review we must take a more detailed look at how the Court applies proportionality in cases concerned with broad EU policy measures. Swedish Match provides a good illustration of the problems of judicial review. As we know from the previous section of this chapter, Swedish Match concerned a challenge to the Snuff Directive prohibiting the marketing of ‘snuff ’. In addition to their plea that the Directive was adopted on the wrong legal basis, the ­claimants argued that a prohibition of marketing ‘snuff ’ products breached the proportionality principle, since the Union legislature had failed to take into account relevant available scientific information when the prohibition was adopted. The Court stated, with regard to the judicial review of proportionality, that the Union legislature must be allowed a broad discretion in the area of public health policies, which involve political, economic and social choices on its part, and in which it is called on to undertake complex assessments. Only if a measure adopted in this field is ‘manifestly inappropriate’ in relation to the objective pursued can the legislative measure be invalidated. When assessing the ‘suitability’ of the prohibition, the Court found that the preamble to the Snuff Directive showed that the prohibition was the only measure that was appropriate to cope with the danger that ‘snuff ’ products would be used by young people. The Court noted that the scientific information available at the time of the adoption of the Directive allowed for neither the conclusion that the consumption of ‘snuff ’ products presented no danger to human health nor that the harmful effects of ‘snuff ’ products were lesser than those of other tobacco products. The adoption of the prohibition consequently took into account the development of scientific information. The Union legislature was also able to consider that a prohibition on the marketing of tobacco products for oral use was necessary. Other measures aimed at imposing technical standards on manufacturers in order to reduce the harmful effects of the product or at regulating the labelling of packaging of the product and its conditions of sale would not have the same preventive effect in terms of health protection.82 Swedish Match shows that the least restrictive measure test is not easy to apply in practice. It is not surprising that the measure was considered proportionate given the overriding objective of protecting public health. There were no less restrictive measures which could achieve the objective of removing all the health risks of ‘snuff products’ to the same extent as a complete prohibition. Furthermore, given the fact that the evidence concerning the effects of ‘snuff ’ products and its comparative health risks to other tobacco products was contested, it seems that the Court’s conclusions on the necessity of the prohibition were justified. This case

81  82 

See Case C-310/04 Spain v Council [2006] ECR I-07285. See Case C-210/03 Swedish Match (n 30), paras 48–57.

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illustrates why proportionality, in cases where the Union legislature is faced with conflicting evidence and complex policy choices, will rarely be an obstacle for the EU legislature when proposing a legislative measure. The second case to discuss is Spain v Council. This is potentially an important case since it is a rare example of how proportionality can be used to strike down parts of a general Union act.83 Spain v Council was concerned with a challenge by Spain to a Council Regulation on a new cotton support scheme.84 Spain contended the regulation to be disproportionate on the basis that the Commission had failed to take into account relevant empirical evidence on the profitability of cotton growing under the new support scheme. In brief the Court accepted Spain’s arguments and held that the Commission had not provided for relevant information by failing to include direct labour costs in its determination of the specific aid and by not performing a socio-economic study on the effects of the reform on ginning undertakings. The Commission was unable to show that it had exercised its discretion as it had not presented clearly the basic facts that had to be taken into account as the basis for the contested measure. For these reasons the measure fell afoul of the proportionality principle.85 Although this case is an excellent example of how the Court should pursue a credible review, it cannot be interpreted as a strong example of the application of the proportionality principle. First, this case must be distinguished from other proportionality cases regarding the review of general legislative measures, since the annulment did not endanger the pursuit of a broad EU policy scheme. Whilst the regulation at issue concerned common rules for direct support schemes under the common agricultural policy, the annulment was only concerned with a part of the measure, ie Chapter 10A of the regulation, which concerned the rules on support schemes for cotton production.86 There were only three Member States which were directly concerned with the application of the support scheme for cotton: Portugal, Greece and Spain.87 Secondly, the effects of the annulment were to be limited in time, so the Union would have a chance to adopt a new regulation.88 In sum, the annulment of the measure would have limited consequences for the

83  Since there is an extensive discussion of this judgment in ch 3 V, there will only be a brief mentioning of the facts and the Court’s reasoning here. 84 Council Regulation (EC) No 1782/2003 of 29 September 2003 establishing common rules for direct support schemes under the common agricultural policy and establishing certain support schemes for farmers and amending Regulations (EEC) No 2019/93, (EC) No 1452/2001, (EC) No 1453/2001, (EC) No 1454/2001, (EC) No 1868/94, (EC) No 1251/1999, (EC) No 1254/1999, (EC) No 1673/2000, (EEC) No 2358/71 and (EC) No 2529/2001 [2003] OJ 2003 L 270/1, inserted by Article 1(20) of Council Regulation (EC) No 864/2004 of 29 April 2004 [2004] OJ 2004 L 161/48 (‘the Council Regulation’). 85  Case C-310/04 Spain v Council (n 81), paras 87–95, 116–18, 124–36. 86  ibid, paras 3–13 for a description of the legislative history of the act and an account of the relevant rules of the Regulation. 87  See Article 110c of the Regulation (n 84). 88  See Case C-310/04 Spain v Council (n 81) paras 137–41.

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 35

implementation of the Union’s agricultural policy. It thus appears that this case was an exception to the rule that the Court pays deference to the Union ­legislature’s assessment of proportionality in challenges to general Union legislation.89 Another case demonstrating the problem of applying proportionality is ­Luxembourg v Parliament and Council.90 In this case, Luxembourg claimed that the directive on airport charges91 infringed proportionality by including in its scope airports located in Member States where no airport reaches the minimum size laid down in the Directive and which have the highest passenger movements per year, regardless of the actual number of such movements. The Court identified that the ‘manifestly inappropriate’ test also applied in this case, since the Directive was concerned with air transport matters, which is a field in which the EU legislature has a broad legislative discretion. Given the risk that airport managing bodies would be in a dominant position vis-á-vis the airport users and assume that position when fixing airport charges, the Court found that a common framework for establishing airport charges was an appropriate measure to prevent such a risk from materialising. The Court subsequently observed that Luxembourg had failed to propose any less restrictive measures which would ensure that the stated objective was attained as effectively as the common framework. Luxembourg also argued that the Directive was disproportionate on the basis that it imposed procedures and administrative burdens that were excessive in relation to the size of airports located in Member States where no airport reaches the threshold of five million passenger movements per year and which had the highest number of such movements. The Court, however, refuted this argument. First, the Directive provided only that Member States were to ensure that airport managing bodies instituted a procedure for regular consultation between them and airport users without stipulating the details of that consultation procedure. Secondly, it did not appear that the costs associated with the implementation of the Directive would cause airlines to decide to abandon an airport such as that of Luxembourg-Findel. In sum, there was no breach of the proportionality principle.92 Luxembourg v Parliament and Council shows the difficulty of applying the ‘suitability’ test in competence litigation. First, it was clearly very difficult for the Union legislature to find a measure that ensured that airport managing bodies did not misuse their dominant position, and at the same time, ensure that the measure did not discriminate between different airports in the Member States. By excluding airports such as Luxembourg-Findel, there could have been a claim for discriminatory treatment. Given these objectives, it appears that the inclusion in the Directive of main airports that had less than five million passenger movements

89  See Xavier Groussout, ‘Judgment C-310/04’ (2007) 44 Common Market Law Review 761, 772–73, for support of this argument. 90  See Case C-176/09 Luxembourg v Parliament and Council [2011] ECR I-03727. 91  Directive 2009/12/EC of the European Parliament and of the Council of 11 March 2009 on ­airport charges [2009] OJ 2009 L 70/11 (‘Directive’). 92  Case C-176/09 Luxembourg v Parliament and Council (n 90) paras 60–84.

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per year was an appropriate measure.93 The case also shows the Court’s restraint in applying proportionality when the claimants have not adequately argued the case for the disproportionality of the measure. Since the standard of proof for challenges to EU legislation on the basis of proportionality requires the applicant to show the presence of less restrictive measures94 and given Luxembourg’s failure to suggest such measures, the Court could hardly have reached any conclusion other than that the common framework was ‘necessary’. While only three cases have been discussed here, the tentative argument suggests that proportionality is problematic as a plea for challenging broad Union policy measures. This argument is reinforced by the Court of Justice’s rulings in other cases concerned with proportionality challenges to broad EU policy measures. The Union legislature has been allowed a broad discretion in areas which involve political, economic and social choices on its part, and where it is called on to undertake complex assessments. The Court has consequently adopted a ‘manifestly inappropriate’ test in relation to areas such as agricultural policy,95 transport policy,96 environmental policy,97 social policy98 and health protection99 and clearly limited the intensity of judicial review of proportionality in relation to acts of a normative nature.100

B. Evaluation: Is Proportionality a Principle that can be used to Challenge EU Measures before the Court? Given the above observations, it must be examined whether the Court’s current approach to proportionality is indicative of any inherent problems making this principle unsuitable as a check on the exercise of Union powers. Gareth Davies and Mattias Kumm have developed arguments for employing proportionality as the primary vehicle to restrain the exercise of competences. The premise for these arguments is that that the Member States’ claim to preserve autonomy is legitimate. According to them, proportionality concerns the question of whether the disadvantages associated with a loss of Member State autonomy outweigh the benefits achieved by EU intervention. Kumm takes the basis of his argument from the Court of Justice’s jurisprudence on fundamental

93 

ibid, paras 41–51. ibid, paras 98–104. 95  See Case C-310/04 Spain v Council (n 81), paras 98–99. 96 See Joined Cases C-248-9/95 SAM Schiffart and Stapf v Germany [1997] ECR I-4475, paras 23–24, 69. 97  See joined cases C-27 and C-122/00, Omega Air and others [2000] ECR I-2569, paras 63–64. 98  See Case C-84/94 United Kingdom v Council (n 18), para 58. 99  See Case C-491/01 British American Tobacco (Investments) and Imperial Tobacco (n 25), para 123; Case C-547/14 Phillip Morris and others (n 35), para 166. 100  See Graínne De Búrca, ‘The Principle of Proportionality and its Application in EC Law’ (1993) 13 Yearbook of European Law 105, 116, 125. 94 

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 37

rights and submits that it is no more difficult to weigh policies against each other than to weigh policies against individual rights. The highly open-ended empirical and normative assessment of Member State acts in the Court’s rights jurisprudence is not a qualitatively different enquiry from jurisdictional proportionality ­analysis.101 Davies argues that the Court’s competence to engage in jurisdictional proportionality review is demonstrated by the fact that the Court regularly assesses national measures in some detail to see whether they are justified by the Member State’s stated aim. Any desire to avoid balancing policies against each other must therefore be seen as more political than principled. Given this, and given that there is no other principle which can protect important areas of national autonomy, the Court should apply jurisdictional proportionality intensively.102 Notwithstanding these arguments, it is questionable whether proportionality is a principle apt to act as a check on the exercise of Union competences. First, if one accepts the argument that Spain v Council was not concerned with annulment of a broad Union policy scheme, there is no judgment in the history of the Court’s jurisprudence annulling a general Union measure on the basis of the proportionality principle. This case law seems to indicate that it is either hard to construct a good proportionality argument or that Union courts are unwilling to engage in socio-political assessments of the necessity of Union measures.103 Secondly, the author concurs with Paul Craig’s observation that proportionality is conceptually not well placed to be applied in competence disputes. The mere fact that a Member State believes that a certain piece of EU legislation involves too great an intrusion on its values does not mean that the measure infringed the proportionality principle. The issue is whether the contested measure could objectively have been regarded as disproportionate because it involved generally too great an interference in the regulatory autonomy of Member States as a whole. Given the absence of clear criteria on how such intrusions should be established, it is difficult to imagine how a single Member State (or a minority of Member States) could argue that a measure objectively entailed too great an intrusion on Member State values.104 Furthermore, if proportionality should work as a restraint on the exercise of Union competences, this presupposes that the national autonomy feature is integrated into the proportionality stricto sensu test. The burden is on the applicant to show that an incursion on Member State values is

101 

See Kumm (n 74) 521–24, 528. See Gareth Davies, ‘Subsidiarity: the wrong idea, in the wrong place, at the wrong time’ (2006) 43 Common Market Law Review 63, 81–83. 103  See Weatherill ‘Competence creep and competence control’ (n 58), 16–17; Xavier Groussout and Sanja Bogojevic, ‘Subsidiarity as a Procedural Safeguard of Federalism’ in Loïc Azoulai, The Question of Competence in the European Union (Oxford, Oxford University Press, 2014) 250. Against; Kumm, (n 74) 522–24, 528–29; Davies, ‘Subsidiarity: the wrong idea, in the wrong place, at the wrong time’ (n 102) 81–83. 104  See Paul Craig ‘Subsidiarity: A Political and Legal Analysis’ (2012) 50 Journal of Common Market Studies 72, 83. 102 

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­disproportionate stricto sensu in light of the EU objective before the EU Courts. This is not an easy task to discharge. The Union Courts will already have decided that the ­contested measure withstands scrutiny under the suitability and necessity limbs of the test.105 Thirdly, it appears that there is no foundation in the case law for the Court to adopt a more intense review in cases where the EU legislator adopts general normative acts. It is clear that EU Courts have good reasons to apply proportionality strictly in the case of the fundamental freedoms. These are cases where a breach of such a freedom has been found before we even get to proportionality, and the Member State then raises a defence based on the relevant Treaty article. The four freedoms are also central to the very idea of market integration that lies at the economic heart of the EU. In contrast, in cases concerning challenges to general Union legislative acts on the basis of proportionality, different considerations apply. In such cases, it is recognised that the EU political institutions make policy choices and that the EU courts should not overturn these merely because they believe that a different way of doing things or a different balance could have been made. There are numerous and complex factors to be balanced by the EU legislature in the context of broad policy schemes. Whether a measure is ‘suitable’ for the implementation of a policy or what balance should be struck between different public and private interests are not questions upon which the Court is well equipped to adjudicate. Although ‘procedural’ proportionality offers a more promising prospect by not requiring the Court of Justice to make substantive policy choice, it is debatable whether it will lead to successful outcomes.106 Procedural proportionality thereto requires the Court to enter into open-ended empirical and political assessments in relation to questions of the effectiveness of EU policies.107 Nor could the Court impose the Spain v Council standard of review of ‘relevant circumstances’ and ‘basic facts’108 in cases of broad EU measures without facing the criticism that it would be intruding on the EU legislator’s discretion. This evidential standard would be too demanding to be placed on the EU legislator in its application of the proportionality principle.109 Since the above cautiously suggests that proportionality is not a principle apt to challenge Union measures before the Court, it will not (with the exception of the discussion of Spain v Council in chapter three) be subject to a specific examination in this book.

105 Craig, EU Administrative Law (n 68) 601–04; Alberto Alemanno, ‘Regulatory Impact Assessment and European Courts: When Ex Ante Evaluation Meets Ex Post Judicial Control’ (2011) 17 European Public Law 485, 498. 106  Against Groussout and Bogojevic (n 103) 245–51; Koen Lenaerts, ‘The European Court of ­Justice and Process-Oriented Review’ (2012) 31 Yearbook of European Law 3, 7–9, 15–16. 107  See Kumm (n 74) 525, 528. 108  See Case C-310/04 Spain v Council (n 68), paras 122–23. 109  See Craig, EU Administrative Law (n 81) 592–93, 600–04, 629–30, 639.

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V.  Principle of Subsidiarity A.  Theory and Judicial Review The principle of subsidiarity is a matter of whether regulations should be adopted at a centralised level or at a local level. There are three main arguments for moving decision-making power from a centralised level to local decision-making bodies. First, the diversity of collective preferences across Member States in conjunction with the benefits of reduced costs of experimentation and greater potential for innovation favours deciding policy questions at a lower level. Secondly, the values of legitimacy and democracy will be enhanced if decisions are taken at a lower level, since citizens will then be more involved and provided with more opportunities to have a meaningful say in the political process. Thirdly, cultural and national identities are more protected by moving decision-making power to the lower level as local policy-makers have better understanding of the local environment and national preferences.110 The principle of subsidiarity is now codified in the TEU.111 Apart from the codification of the principle, the most important reform of the subsidiarity principle is the adoption of the new Protocol No 2. The procedural dimension of subsidiarity, apparent from the Protocol, implies that the EU legislator is compelled to follow certain procedures for enacting legislation and suggests that the Union must show through qualitative, and wherever possible, quantitative evidence that a Union objective can be better achieved at the Union level.112 Notwithstanding this, it appears that subsidiarity has played a marginal role in the Court’s case law as a principle restraining the exercise of EU competences. There are three concerns relating to the Court’s application of subsidiarity. First, it appears that the Court has never annulled a measure on the basis of subsidiarity. This indicates that there is some inherent problem with the Court’s current approach to the review of subsidiarity.113 The second part of the criticism is related to the fact that the Court’s review does not extend to review of material subsidiarity.114 The Court does not apply the substantive subsidiarity criteria in the Edinburgh Guidelines,115 ie it does not examine whether the Union ­measure

110  See Andrea Biondi, ‘Subsidiarity in the Courtroom’ in Andrea Biondi, Piet Eeckhout and Stefanie Ripley (eds) EU Law after Lisbon (Oxford, Oxford University Press, 2012) 214, 224; Kumm (n 74) 518. 111  See Art 5(3) TEU. 112  See Protocol No 2 (n 77), Art 5. 113  See Biondi (n 110) 213; Weatherill, ‘The limits of legislative harmonisation’ (n 24) 844. 114  Case C-84/94 United Kingdom v Council (n 18), para 23; Case C-103/01 Commission v Germany [2003] ECR I-05369, paras 46–47; Case C-110/03 Belgium v Commission [2005] ECR I-2801, paras 56–58. 115  European Council, ‘Conclusions adopted at Edinburgh European Council, Annex 1 to Part A: Overall Approach to the Application by the Council of the Subsidiarity Principle and Article 3b of the Treaty on European Union’ Bulletin of the European Communities 12-1992, 11–12 December 1992.

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at stake has transnational aspects which could not be satisfactorily regulated by national measures, whether Member State measures would conflict with the requirements of the Treaty or whether action at the Union level would provide clear benefits compared with action at the national level. If the Union legislature found that Union action could be better achieved at the Union level, the Court will not overturn these judgments.116 Thirdly, the Court does not enforce procedural subsidiarity, ie it requires neither proper reasoning nor evidence to establish compliance with subsidiarity. It appears sufficient for the Union legislature to simply assert, in the preamble, a need for Union action, without any justification for this need or without any enquiry into whether Member State action would be sufficient to achieve the objective.117 In sum, it appears that the Court’s message up to now is that it cannot or does not wish to enforce the subsidiarity principle.118

B. Evaluation: Is Subsidiarity a Ground Apt to Challenge the Exercise of EU Competences before the Court? Given the weak judicial record, it should be examined whether subsidiarity is predestined to be a weak principle in restraining the exercise of EU competences. The problem of judicial review of subsidiarity has been related to the lack of firm justiciable limits and the principle’s inherent ‘political’ nature.119 The first critique to subsidiarity explains the Court’s weak approach to subsidiarity on a very fundamental basis by arguing that the principle’s politicaleconomic nature makes it inappropriate for judicial enforcement. It has been suggested that the assessment of subsidiarity is too difficult for judges, because the issue of whether or not decision-making powers are best exercised at a central or a national level is a question of political and economic judgement, which falls outside the realm of legal reasoning.120 The argument that the monitoring of subsidiarity is an essentially ‘political’ question is flawed by legal and principled reasons. First, there is an explicit obligation on the Union courts to apply subsidiarity. A ‘political’ question ­ 116  See C-377/98 Netherlands v Parliament and Council [2001] ECR I-07079, para 33; Case C-518/07, Commission v Germany [2010] ECR I-01885, paras 21–25, 54–55. 117  See C-84/94 United Kingdom v Council (n 18), paras 74–77, 81; Case C-58/08 Vodafone and Others (n 31), para 77; Case C-233/94 Germany v Parliament and Council [1997] ECR I-02405, paras 26–28; Case C-547/14 Phillip Morris and others (n 35), paras 225–27. 118  See Antonio Estrella, The EU Principle of Subsidiarity and Its Critique (Oxford, Oxford University Press, 2002) 139, 145–47, 155–57; Schütze, From Dual to Cooperative Federalism (n 3) 254–56. 119  See Estrella (n 118) 147, 165, 176; Gráinne De Búrca, ‘Re-appraising Subsidiarity’s Significance after Amsterdam’ (1999) Harvard Jean Monnet Working Paper no 7/1999, 7. 120  See Gil Carlos Rodriguez Iglesias, ‘The Court of Justice, Principles of EC Law, Court Reform and Constitutional Adjudication’ (2004) 15 European Business Law Review 1115, 1117–18; Lord Mackenzie Stuart, ‘Subsidiarity: A Busted Flush?’, in Deirdre Curtin and David O’Keeffe (eds), Constitutional Adjudication in European Community and National Law (Dublin, Butterworth Ltd, 1992) 19; AG Toth ‘Is Subsidiarity justiciable?’ (1994) 19 European Law Review 269, 282–83; European Convention, CONV 286/02, ‘Conclusions of the Working Group I on the Principle of Subsidiarity’, Brussels, 23 September 2002, 9.

Principle of Subsidiarity

 41

­doctrine121 is ­contrary to Articles 5(3) TEU, 263 TFEU and Article 8 of Protocol No 2 which mandates the Court to review EU legislation for compliance with subsidiarity. That the principle is justiciable is also supported by the case law of the Court of Justice.122 Second, there is an unacceptable ‘moral cost’ in allowing a potential legal violation of subsidiarity to go unsanctioned.123 Acceptance of the doctrine would be a source of serious concern since it would absolve the Court from its judicial duty to uphold the law pursuant to Article 19 TEU124 and fly in the face of the foundations of judicial review, which is the need to render public power accountable and ensure that the Union legislator complies with the precepts of the Treaties.125 Although the ‘political question’ argument is not convincing, it has been cogently sustained that the legal content of subsidiarity is so weak that it makes judicial review of the principle impossible. The evidence for the conceptual ­problems of subsidiarity comes from the fact that subsidiarity has not yet, as mentioned above, been used to strike down EU legislation.126 The key problem is how subsidiarity should be argued in order to be successful in mounting a challenge. This concern is best illustrated by considering the case of the exercise of the functional competences in the Treaties. Gareth Davies has compellingly argued that subsidiarity, instead of providing a method of balancing Member State and Union interests, assumes that the Union goals have absolute priority and simply asks who should implement them. His argument is demonstrated by the Court’s case law on the scope of Article 114 TFEU in relation to EU harmonisation measures. In such cases, a frequent challenge raised by Member States was that the EU harmonisation measure regulated areas such as public health which is primarily a Member State competence.127 The subsidiarity argument was that the public health objectives of the measure could have been achieved just as well by the Member States acting alone.128 However, defining the EU measure in terms of public health objectives is incomplete, since the aim of these measures was that

121  See on the political question doctrine generally: Fritz Scharpf, ‘Judicial Review and the Political Question: A Functional Analysis’ (1966) 75 Yale Law Journal 517. 122 See Case C-58/08 Vodafone and Others (n 31), paras 72–79; Case C-176/09 Luxembourg v ­Parliament and Council (n 90), paras 73–83. 123  See Martin H Redish, ‘Judicial Review and the “Political Question”’ (1985) 79 Northwestern University Law Review 1031, 1060; Bruce V Harris, ‘Judicial Review, Justiciability and the Prerogative of Mercy’ (2003) 62 Cambridge Law Journal 631, 633. 124  See Case C-376/98 Tobacco Advertising (n 17), para 84, for the Court of Justices’ recognition of its duty under the Treaties to review the exercise of EU competences. 125  See Paul Craig, ‘Political Constitutionalism and Judicial Review’ (2009), Oxford Legal Studies Research Paper No. 58/2009, 43. papers.ssrn.com/sol3/papers.cfm?abstract_id=1503505. Accessed 5 December 2016. 126  See, however, Craig, ‘Subsidiarity: A Political and Legal Analysis’ (n 104) 81, who has questioned the value of the evidence contending that the cases would have been decided in favour of Union action even if a proper subsidiarity analysis had been conducted by the Court of Justice. 127  See Arts 6(a) and 168(5) TFEU. 128 Citing cases such as Case C-491/01 British American Tobacco (Investments) and Imperial Tobacco (n 25).

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of approximation as such, ie the removal of diverse ­Member State laws causing obstacles to the fundamental freedoms. Since ­Member States acting alone cannot harmonise, there is no subsidiarity criticism to be made. If the sole objective is to achieve uniformity in the law, Union harmonisation will always be justified. The consequence of this argument, if taken to its logical implications, is that ­subsidiarity challenges will always fail.129 Advocate General Maduro responded to this challenge and endeavoured in Vodafone, concerned with a Union regulation on price controls on roaming traffic, to show how a subsidiarity argument could be made in relation to an envisaged EU harmonisation measure adopted under Article 114 TFEU. He contended that compliance with subsidiarity requires that there should be a reasonable justification for the claim that there is a need for Union action. It would not be sufficient to highlight the possible benefits accruing from Union action but the justification must also involve a determination of the possible problems involved in leaving the matter to be addressed by the Member States. He noted that price differences exist in almost any domain among Member States and that such differences in prices may or may not entail competitive advantages for the economic operators of some Member States and that the market for roaming charges displayed no clear difference from the market for domestic calls in terms of price ceilings. On the basis of this he refuted the Commission’s claim that there was a distortion of competition arising from different price controls at the retail level of roaming charges. Ultimately, however, the Advocate General accepted that there was a need for Union action on the basis of the problem’s ‘transnational’ nature. The crossborder nature of roaming made it a Union interest which Member State could not be trusted to protect.130 Maduro’s final argument summarises the problem of demonstrating a claim for breach of subsidiarity. It seems unlikely that the Union would not be able to construct a link to the alleged cross-border nature of the issue or to the potential problems for the common market arising in the absence of harmonisation. Despite these doubts raised against the added value of subsidiarity, it is argued that a refashioning of the principle would make it possible to successfully employ subsidiarity to challenge the exercise of EU competences. First, in a substantive sense, a tightly argued case on subsidiarity must employ the limits imposed by the Court in Tobacco Advertising to deconstruct the internal market justification for Union harmonisation question the EU’s competence harmonisation competence.131 This is in contrast to current legislative practice which consists of simple assertions from the EU legislator that the EU is, due to

129  See Davies, ‘Subsidiarity: The Wrong Idea, in the Wrong Place, at the Wrong Time’ (n 2) 67–68, 73–75. 130  See Case C-58/08 Vodafone and Others (n 31), Opinion of AG Maduro, paras 30–31, 33–34. 131  See Case C-376/98 Tobacco Advertising (n 17) paras 84, 86–87, 106–07.

Conclusions

 43

­ ivergences in Member States’ legislation in relation to a given subject, more suited d to achieving the internal market objectives.132 There ought to be a presumption for Member States’ right to diverge in regulating their policies which can only be rebutted if the EU legislator is able to show that there is a transnational market failure or a transnational interest justifying centralised Union action.133 From the perspective of judicial review, it is suggested that the Court must move to apply subsidiarity in a procedural style. The procedural enquiry should be implemented through a standard of legality asking the EU legislator to show that it has provided for ‘adequate reasoning’ and taken into account all ‘relevant circumstances’ relating to the subsidiarity question.134

VI. Conclusions This chapter has examined which principles are capable of acting as a check on the exercise of Union competences. Building on the introductory chapter, it elaborated on the problems of limiting the exercise of EU competences before the Court by examining the three key constitutional principles in Article 5 TEU: ‘conferral’; ‘proportionality’; and ‘subsidiarity’. A general theme of the chapter was that judicial review on the basis of these principles has been feeble and led to very few successful challenges. The explanations for the Court’s approach were not difficult to identify. First, the principles intended to restrain the exercise of EU competences lack hard legal criteria. Appeals to the ‘Union objectives’ that are the foundations for the principle of conferral, subsidiarity and proportionality are not a useful way of limiting EU powers since objectives can be conceptualised on a very general basis. Moreover, the teleological imperative of further integration has instead of limiting the exercise of EU powers, provided the rationale for an expansion of EU powers and made it difficult for the Court of Justice to impose strict judicial review on the exercise of EU powers. Secondly, the principles restraining the exercise of EU competences are worded in a very general manner. This problem is apparent with Article 114, with its limit to ‘market making’ and with Article 352 with its limit to ‘Union objective’. It is equally present in relation to the principles of subsidiarity and proportionality that are governed by criteria such as the ‘effectiveness’ of a proposed measure and

132  See Directive 2012/13/EU of the European Parliament and of the Council of 22 May 2012 on the right to information in criminal proceedings [2012] OJ L 142/1, recital 43; Directive 2012/29/EU of the European Parliament and of the Council of 25 October 2012 establishing minimum standards on the rights, support and protection of victims of crime, and replacing Council Framework Decision 2001/220/JHA [2012] OJ L 315/57, recital 67. 133  See ch 6 for an elaboration of this argument. 134  See below ch 3 V; ch 6 III.

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whether EU action infringes ‘national autonomy’ (proportionality). The case law on Article 114 TFEU and subsidiarity suggests that as long as the EU’s objective is to harmonise, the Court of Justice has no ground to question the exercise of EU competences. Despite these concerns, the chapter argued that ‘conferral’ and ‘subsidiarity’ were still useful pleas to challenge the exercise of EU competences. Nevertheless, both the conceptual and institutional problems of judicial review must be responded to in order to ensure that these limits are enforced. In substantive terms, the Court must reassert the limits imposed by Tobacco Advertising and Opinion 2/94 and disallow Union measures that are used as instruments of ‘general governance’ or that upset the constitutional identity of the Union. The proposal for reinforcing the subsidiarity principle and question the broad understanding of the scope of Article 114 TFEU was to require the EU legislator show that there is a transnational market failure or transnational interest involved. From the perspective of judicial review in, the Court must move to apply the limits in Article 5 TEU in a more procedural fashion. Arguing that the evolution of EU law and the Treaties has reinforced the Court’s powers and legitimacy to review the exercise of EU competences, it is suggested that the best way for the Court to enforce the said constitutional principles is to adopt a procedural enquiry asking for ‘relevant information’ and ‘adequate reasoning’. Although it was argued that ‘conferral’ and subsidiarity was meaningful heads of review, the judgment on proportionality was more sceptical. Since proportionality claims can only be successful if a measure can be ‘objectively’ considered to be too intrusive in relation to Member States’ regulatory autonomy; it would be difficult for Member States to successfully invoke proportionality before the Court. Secondly, there is no basis in the case law on proportionality for the Court to adopt a review of a higher intensity in relation to Union legislation. Although the prospect of ‘procedural’ proportionality may be more attractive it is, at least, tentatively questioned whether such a review could be effective in taming ‘competence creep’. Since the standard imposed in Spain v Council of ‘relevant circumstances’ entails intense scrutiny the Court would risk facing severe criticism that it substituted its own policy choice for that the EU legislator if it ventured on this path. Without completely rejecting such review it was considered more useful for the Court of Justice to focus on conferral and subsidiarity scrutiny.

3 Judicial Competence Review of EU Legislation I. Introduction The role of the Court of Justice in controlling the exercise of Union legislative ­powers is a long-standing topic in EU legal scholarship. There are two main issues with the Court’s current approach to competence review. The principal critique of the Court is that it has taken too accommodating an approach to the EU l­ egislator’s broad interpretation of its legislative powers, paying mere lip service to the principle of conferred powers, proportionality and subsidiarity.1 The Court’s reluctance to enforce the limits of the Treaties is, as discussed in chapter 2, arguably related to the weak legal content of those limits and to the fact that the structure of the EU legal order strongly promotes the telos of further EU integration. Given this, it is not surprising that the Court has opted not to impose strict judicial review on the exercise of EU competences.2 The second concern with the Court’s capacity to engage in serious competence monitoring is that the Court is institutionally ill-equipped to engage in proper substantive judicial review of the exercise of broad Treaty powers.3 This chapter is devoted primarily to examining the latter question. It particularly responds to the concerns coupled with enforcing the constitutional limits of conferral, subsidiarity and proportionality as outlined in Article 5 TEU in a challenge to EU legislation.4 The chapter also makes certain proposals how judicial

1 See Stephen Weatherill, ‘Better Competence Monitoring’ (2005) 30 European Law Review 23, 26–28; Ester Herlin-Karnell, ‘EU Competence in Criminal Law after Lisbon’, in Andrea Biondi, Piet Eeckhout and Stefanie Ripley (eds) EU Law After Lisbon (Oxford, Oxford University Press, 2012), 339–46. 2  See above ch 1 II; ch 2 III–V. 3  See AG Toth ‘Is Subsidiarity justiciable?’ (1994) 19 European Law Review 269, 282–83; Stephen Weatherill, ‘The limits of legislative harmonisation ten years after Tobacco Advertising: how the Court’s case law has become a “drafting guide”’ (2011) 12 German Law Journal 827, 843, 849. 4  See, however, for the potential use of these principles to challenge the Court of Justice’s activities: see Thomas Horsley, ‘Reflections on the Role of the Court of Justice as the Motor of European Integration: Legal Limits to Judicial Lawmaking’ (2013) 50 Common Market Law Review 931; Gareth Davies, ‘Legislative control of the European Court of Justice’ (2014) 51 Common Market Law Review 1579, 1584.

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monitoring of the exercise of EU competence could be reinforced. It advances the argument that a more intense ‘procedural’ review rather than ‘substantive’ review5 of EU legislation would address at least some of those concerns. The chapter is structured as follows: Section II evaluates the rationales behind the Court’s conventional approach to competence review by examining how the framing of the Treaties have influenced the Court of Justice’s capacity to engage in judicial review. Section III then considers the case for procedural review. It will be argued that institutional considerations and concerns for legitimacy support the view that procedural review is the appropriate ‘paradigm’ for review of the principles in Article 5 TEU. Section IV considers the Court of Justice’s current approach to procedural review arguing that this approach is inadequate to enforce the limits of the Treaties. Section V subsequently develops a test for judicial review, based upon an analysis of the Court’s ruling in Spain v Council that the Court can apply to assess the legality of EU legislation. The final section summarises the argument.

II.  The Link between Institutional and Conceptual Factors in Determining Intensity of Judicial Review The questionable track record of the Court in competence disputes is arguably related to the conceptual problems of existing EU limits6 and the Court’s associated institutional disadvantage. The premise within the context of review of EU legislation7 is that principled analysis of the kind required by the limits of the Treaties involving complex empirical and normative judgement of the effectiveness and appropriateness of different EU policies is beyond the institutional capacities of the EU courts. This is because in such cases the Union Courts are operating at the border of judicial legitimacy derived from their authority, expertise and ­competence.8 A conventional understanding of democratic legitimacy suggests that the primary responsibility for policy-making should reside with the EU political institutions which enjoy the legitimacy to perform this task. Only a political procedure can ensure that important decisions are taken after a transparent procedure in which all relevant stakeholders can participate and engage

5 

The distinction between these two forms of review is outlined below in s III. See above ch 2 III–V. 7  See for the general institutional argument against judicial review: Neil Komesar, ‘A Job for the Judges: The Judiciary and the Constitution in a Massive and Complex Society’ (1988) 86 Michigan Law Review 657, 665, 668–90, 697; Paul Daly, A Theory of Deference in Administrative Law: Basis, Application and Scope (Cambridge, Cambridge University Press, 2012) 70–137. 8  See Joanne Scott and Susan Sturm ‘Courts as Catalysts: Rethinking the Judicial Role in New ­Governance’ (2007) 13 Columbia Journal of European Law 565, 569; Alexander Fritzsche, ‘Discretion, scope of judicial review and institutional balance in European law’ (2010) 47 Common Market Law Review 361, 363, 368. 6 

The Link between Institutional and Conceptual Factors

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in a g­enuine political debate over the balance to be struck between conflicting ­interests.9 Demanding substantive review—which requires the Court to go beyond its competence and legitimacy—also encroaches on the principle of institutional balance in EU law.10 The institutional problems of judicial review within the EU context are reinforced by the conceptual problems of enforcing the existing limits on EU competences. A lack of clarity as to the meaning of the principles in Article 5 TEU means that if the Court of Justice is to engage in proper substantive judicial review, it must become involved in assessing open-ended political, economic and social issues.11 The Court is fundamentally ill-equipped for this task. The link between institutional and theoretical considerations in determining the intensity of judicial review is demonstrated by the Court of Justice’s approach to scrutiny of legislation adopted under Article 114 TFEU. The wording of this provision—giving the EU legislator power to adopt the measures ‘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’— suggests that the EU legislator has been conferred with a wide margin of discretion as to how it executes the internal market objectives. The EU legislator’s discretion in exercising its competence under Article 114 TFEU is well-recognised by the Court’s case law. For example, the Court has upheld the view that the authors of the Treaty intended to confer a freedom of choice to the Union legislator under Article 114 TFEU depending on the general context and the specific circumstances of the matter to be harmonised, and with regards to the most appropriate mode, measures and method for achieving the objectives of the internal market.12 Ultimately, the Court’s deferential approach has resulted in a review of low intensity and an inadequate enforcement of Article 114 TFEU.13 The reasons behind the Court’s cautious stance to subsidiarity and proportionality can be traced to similar conceptual and institutional problems. The construction of the subsidiarity principle forces the Court to engage in an assessment of the empirically complex political-economic questions of reliance on Member State alternatives, and seek compromise using the values of efficiency and democracy in order to determine whether there is a need for EU action. These are matters of political judgement that the EU legislative institutions for reasons of 9  See Janneke H Gerards, ‘Pluralism, Deference and the Margin of Appreciation Doctrine’, (2011) 17 European Law Journal 80, 86; Jeremy Waldron, ‘The Core of the case against judicial review’ (2006) 115 The Yale Law Journal 1346. 10  See Art 13 TEU; Fritzsche (n 8) 381–93. 11  See Robert Schütze, From Dual to Cooperative Federalism (Oxford, Oxford University Press, 2009) 136–39. 12  See Case C-58/08 Vodafone and Others [2010] ECR I-04999, para 35; Case C-210/03 Swedish Match [2004] ECR I-11893, paras 33–34; Case C-547/14 Philip Morris Brands and Others (Court of Justice, 4 May 2016), paras 63, 80, 134–35. 13  See Case C-377/98 Netherlands v Parliament and Council [2001] ECR I-07079, paras 14–18, 20–22, 24–25, 27–29; Case C-491/01 British American Tobacco (Investments) and Imperial Tobacco [2002] ECR I-11453, paras 81–88; Case C-210/03 Swedish Match (n 12), paras 35–40.

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legitimacy and competence are better equipped to evaluate.14 These predictions reflect the ­reality well. The Court’s own perception of its institutional capacity and legitimacy p ­ ermeates its approach to subsidiarity review which is marked by an extremely deferential review of the principle.15 When it comes to the Court’s proportionality review of general EU policy schemes, it seems to be recognised that EU political institutions make policy assessments which involve complex ­factors to be balanced and weighed by the EU legislature. The EU courts are not well equipped to make these assessments and balancing and should therefore not overturn the EU legislator’s political choices merely because they believe that a different way of doing things would be more appropriate.16 These general considerations have led the Court to review proportionality on the basis of a ‘manifestly inappropriate’ test which has resulted in poor enforcement of Article 5(4) TEU in competence disputes.17 This account of the rationales for deferential review by the Court requires some observations. The first is the connection between the clarity of the Treaty limits in Article 5 TEU and institutional arguments for deferential judicial review. Since the Court does not have any hard legal criteria against which it can assess conformity with the Treaty limits, it must venture into the borders of its authority and analyse issues beyond the law to engage in the review required by Article 5 TEU. The Court is apparently not comfortable to take on this task. Secondly, there is force in the institutional arguments for lenient review of EU legislation. It appears axiomatic that the Court of Justice should, in order to uphold the principle of institutional balance and the precepts of democracy, neither substitute the judgement of the appropriateness EU measures or political choices where the EU legislature were required to balance divergent political interests against each other. This consequently suggests that it may be difficult for the Court to engage in stronger substantive review as this would mean that the Court would have to go beyond its legitimacy and competence by reconsidering the appropriateness of the EU legislator’s choices. Notwithstanding these observations, there is still hope for more intense judicial scrutiny of the principles in Article 5 TEU. As contended in the remainder of this chapter, in order to respond to the arguments for deferential review advanced above, the Court is strongly encouraged to develop its

14  See George A Bermann ‘Taking Subsidiarity Seriously’ (1994) 94 Columbia Law Review 332, 337, 385–86, 391–94, 400; Antonio Estrella, The EU Principle of Subsidiarity and Its Critique (Oxford, Oxford University Press 2002) 139, 147, 165, 176. 15  See Case C-233/94 Germany v Parliament and Council [1997] ECR I-02405, paras 26–28; Case C-491/01 British American Tobacco (Investments) and Imperial Tobacco (n 13), paras 177–85; Joined cases C-154/04 and 155/04 Alliance for Natural Health and others [2005] ECR I-06451, paras 104–07; Case C-547/14 Philip Morris Brands and Others (n 12), paras 213–26. 16  See Paul Craig, EU Administrative Law (Oxford, Oxford University Press, 2012) 592–93, 600–04, 629–30, 639. 17  See C-84/94 United Kingdom v Council [1996] ECR I-05755, paras 57–67; Case C-210/03 Swedish Match (n 12), paras 48–57; Case C-176/09 Luxembourg v Parliament and Council [2011] ECR I-03727; paras 62–72; Case C-547/14 Philip Morris Brands and Others (n 12), paras 150–62, 165–90, 192–212.

The Case for Strict Procedural Review

 49

current procedural form of review. Apart from an understanding of how it should ­perform its review, the Court, is also in need of insights into what criteria it should use to police conformity with conferral and subsidiarity.18 Part II (chapters 4–7) of the book is devoted to the latter task.

III.  The Case for Strict Procedural Review Because of the numerous terms used in the literature for the phenomenon of procedural review,19 an account of a definition of procedural review is necessary for the purposes of the present chapter. The chapter proceeds from a strict understanding of procedural review that compels the Court to consider whether the reasoning and evidence of the EU legislator is sufficient to justify the exercise of general legislative powers.20 On the one hand, this definition is broader than that of ‘pure’ procedural review which entails that courts in its review focus exclusively on whether the legislature met certain statute-based procedural requirements in the legislative process. On the other hand, it is narrower than ‘substantive review’ that requires courts to determine the validity of legislation based strictly on an examination of the statute’s content.21 What then are the pros and cons of procedural review? The key argument in support of procedural review is that it responds to the institutional objections against the Court of Justice’s capacity to enforce the principles enlisted in Article 5 TEU.22 Accepting that the EU legislator’s choice of policy may for institutional reasons go beyond the Court’s authority to review, the question of whether EU ­legislative institutions has backed up its legislative choices with adequate reasoning and evidence is an issue that the Court is well equipped to examine.23 Procedural requirements relating to the adequacy of the evidential basis for decision-making also helps remedy the problems of reviewing Treaty limits that lack precision.24 Since procedural review requires policy-makers to collect evidence, the Court will

18 

See above nn 11, 14 and 16 for literature pinpointing these problems. Alberto Alemanno ‘The Emergence of Evidence-based Judicial Reflex: A Response to Bar-Siman-Tov’s Semiprocedural Review’ (2013) 1 The Theory and Practice of Legislation 327; Dan T Coenen, ‘The Pros and Cons of Politically Reversible ‘Semisubstantive’ Constitutional Rules’ (2008– 2009) 77 Fordham Law Review 2835; Ittai Bar-Siman-Tov, ‘Semiprocedural Judicial Review’ (2012) 6 Legisprudence 271. 20  See Case C-310/04 Spain v Council [2006] ECR I-07285, paras 122–23. 21 See Bar-Siman-Tov, ‘Semiprocedural Judicial Review’ (n 19) 272, 275, 279–80; Alemanno, ­‘evidence-based judicial reflex’ (n 19) 332, 334–35. 22  See above text to nn 7–11. 23  See Koen Lenaerts, ‘The European Court of Justice and Process-Oriented Review’ (2012) 31 ­Yearbook of European Law 3, 15–16; Scott and Sturm (n 8) 575. 24  See s II for an outline of this problem. 19 See

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have at its disposal a useful mass of materials that will help it to determine the legality of a given act.25 The argument that procedural review avoids institutional objections is, however, only valid as far as the review retains its ‘procedural’ nature. Martin Shapiro has convincingly contended that there is a blurry, if not virtually unidentifiable line between intense procedural review for ‘adequate’ reasoning and substantive review as regards giving reasoning requirements.26 Referring to the example of US constitutional law and the reasoning requirement in the Administrative Procedure Act, Shapiro expresses concerns that procedural requirements imposed by courts may develop to an intrusive style of substantive review. This occurs when the court not only looks at the purely procedural question of whether reasoning exists, but also at the substantive question of whether the reasoning is sufficient. Procedural review also gives judges unbridled discretion in deciding in each case what the relevant information is, and what would constitute appropriate reasoning.27 There is force in Shapiro’s criticism. It is clear that procedural review may turn into substantive review if the Court of Justice assesses the adequacy of the reasoning given. The scope of the suggested procedural review is, however, limited. Procedural review does not suggest review of the appropriateness of legislation as such review goes beyond the Court’s expertise and legitimacy. Instead, it grants a substantial amount of discretion to the EU legislature in the context of social and economic legislation as long as the legislature has considered the evidence of the case. Procedural review does not ask the Court to substitute the EU legislator’s political choices if those choices fall within the objective legal standard proposed here. Neither does procedural review suggest that the Court should track the whole legislative procedure. It is limited to considering whether legislative choices fit with the reasoning and the evidence in the legislative background documents such as impact assessments, explanatory memoranda, and proposals/amendments to the legislative proposal deriving from EU institutions.28 Can strict procedural review be distinguished from substantive review? Admittedly, there is a very fine line between these two forms of review. This line is crossed if the Court starts to assess whether the EU legislator’s choice was the

25  See Scott and Sturm (n 8) 582, 586, 588, 590; Alemanno, ‘evidence-based judicial reflex’ (n 19) 333–36, 338. 26  See Art 296 TFEU. 27  See Martin Shapiro, ‘The Giving Reasons Requirement’ (1992) University of Chicago Legal Forum 179, 179, 184–86, 188–89, 202, 206, 209–10, 218; Christopher Bryant and Timothy J Simeone, ‘Remanding to Congress: The Supreme Court’s New “On the Record” Constitutional Review of Federal Statutes’, 86 (2001) Cornell Law Review 328, 395–96. 28 See Lenaerts (n 23), 4, 15; Emily Hammond and David L Markell, ‘Administrative Proxies for ­Judicial Review: Building Legitimacy from the Inside-out’ (2013) 37 Harvard Environmental Law Review 313, 316, 321–26; Scott and Sturm (n 8) 590–91; Mattias Kumm, ‘Constitutionalizing ­Subsidiarity in Integrated Markets: The Case of Tobacco Regulation in the European Union’ 12 (2006) European Law Journal 503, 525, 529.

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 51

best or most appropriate choice.29 Shapiro illustrates where the line may be drawn between strict procedural review and substantive review through the Remia case.30 In Remia, the Court of Justice held that it had competence to review whether the simple, first order facts were accurately stated, and whether the legislator’s reasoning indicated that the legislator had considered those facts.31 The Court, however, disclaimed competence to review the economic/political/sociological analysis that the legislator had applied to the facts in order to reach its decisions.32 Shapiro’s criticism that judicially created procedural demands may give too much discretion to courts should also be taken seriously. It is recognised that the Court of Justice might, when faced with an uncertain construction of Union ­legislation, in pursuing strict procedural review be led to a different mode of analysis to which it may not be accustomed. This problem is, however, not unique to demanding procedural review. The Court’s substantive review in fundamental rights cases and its proportionality jurisprudence within the context of the fundamental freedoms is engrained with difficult political judgements as well as openended assessments of the appropriateness of certain measures. If such review is considered as legitimate it is difficult to see why procedural forms of review assessing the adequacy of reasoning and the evidence for measures should be considered as too intrusive.33 Another critique against procedural review, primarily advanced by US scholarship, is the problem of separation of powers which occurs when courts engage in intense procedural review. Taking the example of the Supreme Court’s jurisprudence, Cristopher Bryant and Timothy Simeone suggest that the judiciary has no authority to impose requirements regarding the kind of legislative record that the legislator must compile when enacting a statute. Courts’ legitimacy to engage in such a form of review is also questionable. Judgments relating to the need for legislation are often inherently value-laden, political and consigning such judgments to the judiciary also flies in the face of the principle of institutional balance. This criticism is exacerbated when courts impose upon the legislature heightened judicially created requirements. Such review risks being transformed into substantive review of the legislator’s policy choices resulting in substitution of judgment.34 Bryant and Simeone’s argument against procedural review is undoubtedly compelling. There is obviously a risk that courts, in identifying the procedural

29  See Case C-189/01 Jippes and Others [2001] ECR I-5689, para 83. See below section V for a more concrete illustration of how procedural review should be applied. 30  See Case 42/84 Remia BV and Others v Commission [1985] ECR 2545. 31  ibid, paras 34–36. 32  See Shapiro (n 27) 214. 33  See Kumm, ‘Constitutionalizing Subsidiarity in Integrated Markets’ (n 28) 528; Gareth Davies, ‘Subsidiarity: the wrong idea, in the wrong place, at the wrong time’ (2006) 43 Common Market Law Review 63, 68–69. 34  See Bryant and Simeone (n 27) 383–88, 391–92; Philip P Frickey and Steven S Smith, ‘Judicial Review, the Congressional Process, and the Federalism Cases: An Interdisciplinary Critique’ (2002) 111 Yale Law Journal 1707, 1740–44, 1750, 1754.

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steps to be followed, might make value judgments similar to those expressed by substantive review courts. Procedural review, nonetheless, poses a lesser challenge to democratic political theory35 and the principle of institutional balance than substantive review. To the extent that intense process-based review requires normative judgments, they are judgments about how it should be made rather than substitutions of the democratic legislator’s policy choices. The aim of this review is to refine rather than to frustrate democratic decision-making.36 Although a strong case could be made that procedural review may, at times upset the institutional balance between courts and the legislator and be subject to similar institutional criticism in terms of legitimacy and competence as substantive review, there is still a good argument for courts to develop demanding forms of procedural review. Strict procedural review has an intrinsic value in promoting a more legitimate legislative process. The problem of legitimacy in the EU was and is still strongly connected to the values of transparency and accountability.37 Evidence suggests that even post-­Lisbon the EU suffers from a lack of transparency as regards the allocation of responsibility. A Eurobarometer survey in 2011 revealed that 42 per cent of ­European citizens are not satisfied with the level of transparency in the EU administration, while only nine per cent are satisfied.38 The EU’s specific institutional structure, the complicated and opaque decision-making procedure and the complexity of the typology of legal acts, obscure appreciation of the vertical allocation of powers and the accountability for decisions.39 Although there have been general improvements as regards access to documents and more open legislative deliberations, citizens still perceive a great distance between themselves and the governing EU institutions in Brussels. It is argued that more demanding procedural review imposed by the Court will be instrumental in enhancing the both the transparency and accountability of the EU legislative procedure. The premise for this argument is that strong procedural review by courts ­supports a discourse of legitimacy by focusing on the legislator’s justification, by fostering deliberation and by structuring the exercise of public power. Procedural

35 

See above text to nn 8–10 for the general democratic argument against judicial review. See Burt Neubome, ‘Judicial Review and Separation of Powers in France and the United States’ (1982) 57 New York University Law Review 363, 364–67; Harry H Wellington, ‘The Nature of Judicial Review’ (1982) 91 Yale Law Journal 486, 504–05. 37  See Gráinne De Búrca, ‘The Quest for Legitimacy in the European Union’, (1996) 59 Modern Law Review 349, 367–76. 38  See The European Ombudsman, ‘Annual Report 2011’ (2011), 6 www.ombudsman.europa.eu/ activities/annualreports.faces;jsessionid=36BB77F9D3E8B63EDAAE9C73470AA169. Accessed 23 October 2016. See also European Commission, ‘Special Eurobarometer 397—Corruption’ (2014) ec.europa.eu/public_opinion/archives/ebs/ebs_397_en.pdf. Accessed 23 October 2016 for the continuous transparency problems. 39  See Herwig CH Hofmann, Gerard C Rowe, and Alexander H Türk, Administrative Law and Policy of the European Union (Oxford, Oxford University Press, 2011) 170–71; Paul Craig, ‘Democracy and rule-making within the EC: An Empirical and Normative Assessment’ (1997) 3 European Law Journal 105, 110–11. 36 

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 53

review has its strongest underpinnings in procedural democratic theories that consider the process by which laws are generated as the main source of legitimacy. Such theories contrast to substantive legitimacy theories which focus on the content of the law and its conformity with some substantive moral standard. In the present context it is not necessary to determine whether it is most appropriate to endorse the procedural or substantive theories of democracy. There may be particular legitimacy benefits connected to procedural justice and it is sustained that strict procedural review is apt to produce them. Several empirical studies (particularly of the US congress) indicate that a person’s perception that the legislator employs fair decision-making procedures positively impacts on the social legitimacy of the legislative procedure.40 The literature on procedural justice also suggests that a deliberative process that is perceived to be fair and inclusive to differing points of view not only receives higher legitimacy assessments than one that is perceived to be closed and partial but can also lead to more positive assessments of the outcomes produced.41 It is of course questionable to what extent procedural review in the form advanced here will enhance the values of transparency and accountability among EU institutions. On the basis of the literature reviewed in the previous paragraph it is, however, tentatively suggested that such a justification-based model of judicial review will promote the values mentioned and thus a legitimacy-reinforcing instrument within the EU.42 The relationship between transparency and procedural review illustrates this point. In this respect, it appears that the Court of Justice’s case law on the giving-reasoning requirement in Article 296 TFEU exhibits that transparency is a basic foundation for strong procedural review. Such a review requires that citizens may legitimately claim a right to know about the reasons behind a government decision. By requiring the EU institutions to demonstrate that they were informed by an adequate factual basis when they exercised their discretion procedural review reinforce the importance of transparency in the ­legislative procedure.43

40  Social legitimacy, as defined here, suggests that decisions are legitimate if the relevant public regards it as justified or deserves of support for reasons beyond fear of sanctions; see Richard H Fallon, ‘Legitimacy and the Constitution’ 118 (2005) Harvard Law Review 1787, 1794–1801. 41  See Amy Gangl, ‘Procedural Justice Theory and Evaluations of the Lawmaking Process’ (2003) 25 Political Behavior 119, 119–32; Ittai Bar-Siman- Tov, ‘The Puzzling Resistance to Judicial Review of the Legislative Process’ (2011) 91 Buffalo Law Review 1915, 1927–31; Tom R Tyler, ‘Governing amid Diversity: The Effect of Fair Decision-making Procedures on the Legitimacy of Government’ (1994) 28 Law & Society Review 809, 809–11, 813, 818–26; Hammond and Markell (n 28), 316, 321–26; Michael X Delli Carpini, Fay Lomax Cook and Lawrence R Jacobs, ‘Public Deliberation, Discursive Participation and Citizen Engagement: A Review of the Empirical Literature’ (2004) 7 Annual Review of Political Science 315, 320, 327, 336. 42  See Neil Walker and Gráinne De Búrca, ‘Reconceiving Law and New Governance’ (2007) 13 Columbia Journal of European Law 519, 533–34; Dorota Leczykiewicz, ‘“Constitutional Justice” and Judicial Review of EU Legislative Acts’ (2013) Oxford Legal Studies Research Paper No 95/2013, 2–3. ssrn.com/abstract=2355961. Accessed 24 October 2016. 43  See Case 24/62 Germany v Commission [1963] ECR 131, 69; Joined cases C-154/04 and 155/04 Alliance for Natural Health and Others (n 15), para 133; Scott and Sturm (n 8)572.

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It is thus contended that stringent procedural review may increase both social and legal legitimacy44 of the EU’s decision-making procedures. By enforcing more demanding standards of rational decision-making and by requiring EU action to be more accountable the Court promotes the social legitimacy of the EU system of governance as a whole (and confidence among EU citizens to this system).45 A more evidence-based approach to judicial review is also capable of advancing a broader culture of justification in policymaking. It does so by inducing the EU legislators to rely upon sufficient knowledge before they exercise their legislative competences.46 This will in turn reinforce legal legitimacy as the procedural requirements of ‘adequate’ reasoning and ‘relevant’ evidence will serve as a check that the legislative outcome is in conformity with the Treaty mandate. The aspiration of procedural review is, thus, ultimately, to restore integrity in the making of EU legislation.47

IV.  The Court of Justice’s Track Record on Procedural Review This section traces and evaluates the Court’s case law on process-based review by examining three judgments on proportionality, subsidiarity and legal basis. The judgments have been selected on the basis that each of them illustrates the Court’s approach to the principles in Article 5 TEU48 and since they are arguably leading judgments on the Court’s process-based review.49

44  Legal legitimacy depends on adherence to rules and suggests that decision of a public body is illegitimate if it transgresses some other rule or norm itself considered authoritative when it exercises its powers, see Fallon (n 40). 45  See Thomas Poole, ‘Legitimacy, Rights and Judicial Review’ (2005) 25 Oxford Journal of Legal Studies 697, 713–17, 722, 725; Bar-Siman Tov,’ The Puzzling Resistance’ (n 41) 1928; Hammond and Markell (n 28) 316, 321–26. 46  See Scott and Sturm (n 8) 570–71, 582–83; Mattias Kumm, ‘The Idea of Socratic Contestation and the Right to Justification: The Point of Rights based Proportionality Review’ (2010) 4 Law and Ethics of Human Rights 142, 153, 160–64. 47  See Poole (n 47) 719, 724. See Ronald Dworkin, Law’s Empire (Cambridge, Harvard University Press, 1986) 176–276 for an examination of the concept of ’ integrity’ in the law. 48  There are other intriguing cases on intense procedural review such as Case C-92/09 Volker und Martin Schecke and Eifert [2010] ECR I-11063 and Case C-236/09 Association belge des Consommateurs Test-Achats and Others [2011] ECR I-00773, but these are concerned with procedural review and fundamental rights and not competence review, which is the topic of this chapter. 49  See Alberto Alemanno, ‘Regulatory Impact Assessment and European Courts: When Ex Ante Evaluation Meets Ex Post Judicial Control’ (2011) 17 European Public Law 485, 499–503; Lenaerts (n 23) 4–10.

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A.  Vodafone: Article 114 TFEU and Proportionality Vodafone demonstrates the Court’s approach to impact assessments as a framework for considering the legality of EU legislation. In the judgment, the claimants challenged the validity of the EU Roaming Regulation,50 on the ground inter alia that Article 114 TFEU was not adequate as a legal basis for the regulation and that the measure breached the proportionality principle. In relation to the plea of wrong legal basis, the Court of Justice initially observed that the Regulation introduced a common approach so that users of public mobile telephone networks would not pay excessive prices for Union-wide roaming services and so that mobile operators could operate within a single regulatory framework. The EU legislator suggested that the level of retail charges for international roaming services was high at the time of adoption of that regulation and not such as would prevail in competitive markets. The explanatory memorandum observed the insufficiency of the existing EU regulatory framework to address this concern and the residual competence of the Member States to adopt consumer protection rules. The EU legislature was thus confronted with a situation in which it appeared likely that national measures would be adopted to address the problem of the high level of retail charges for Union-wide roaming services which in its turn would have led to a divergent development of national laws and be liable to cause significant distortions of competition. All this considered together justified the Union legislature to rely on Article 114 TFEU. The Court then examined whether the Roaming Regulation infringed the principle of proportionality by reason of the fact that it did not only impose ceilings for the wholesale charge, but also laid down ceilings for retail charges as well as an obligation to provide information about those charges to roaming customers. The Court emphasised that the EU legislature had carried out an exhaustive study, summarised in the impact assessment, which showed that the Commission examined various regulatory options before exercising its discretion. This showed that the regulation of the wholesale market for EU-wide roaming services alone would not ensure that the reduction in wholesale charges would be reflected in retail charges. In the light of the broad discretion which had been conferred to the EU legislature in this field it could legitimately take the view that regulation of both wholesale market and the retail market was necessary and thus consistent with the principle of proportionality.51 Koen Lenaerts contends that the Court of Justice’s procedural review in ­Vodafone is a positive development since the ruling demonstrated that the Court gives, by basing its reasoning on the impact assessment, important incentives to the EU

50  Regulation (EC) No 717/2007 of the European Parliament and of the Council of 27 June 2007 on roaming on public mobile telephone networks within the Community and amending Directive 2002/21/EC [2007] OJ 2007 L 171/32 (‘Roaming Regulation’). 51  See Case C-58/08 Vodafone (n 12), paras 38–49, 51–71.

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l­egislator to investigate alternative policies. He has drawn broader ­conclusions based on Vodafone and Spain v Council52 and argued that the Court of Justice by those rulings has commenced to develop guiding principles which aim to improve the way in which the political institutions of the EU adopt their ­decisions. The Court’s approach has been to examine whether law-makers had done their work properly by following the procedural steps mandated by the Treaties when ­exercising their competence.53 It is recognised that Vodafone was a step in the right direction. What is promising about the case is that the Court did not only examine the preamble to control the legality of the measure, but it is the first case in which the Court of Justice relied on the impact assessment and explanatory memorandum when examining the legality of an EU policy measure.54 The Court referred to the impact assessments and explanatory memorandum in no less than eight paragraphs.55 Whilst this process-based review is endorsed, it is questionable whether the Court went far enough in its review to check whether the reasoning and evidence was adequate to defend compliance with Article 114 TFEU and proportionality. Although the Court referred to the legislative background documents in its decision, it employed these documents primarily to confirm the Commission’s unproven assumption that unless the Union intervened, there was a risk that divergent national measures would be adopted which would lead to distortions on the EU roaming market.56 The evidence of the Court’s deferential approach in Vodafone is that the Court did not in this case apply the demanding standard it had imposed in Spain v Council for the EU legislator to show that it had taken into account ‘relevant circumstances’.57 The key problem with the Roaming Regulation was the justification for harmonisation which appears to have been the potential risk that national measures to regulate charges for roaming would lead to distortions and presumably justify Union intervention. The Court’s reluctance to engage in review of the criterion of likelihood was striking as it appears from the judgment that the assertions by the EU legislature which did not on the face of it appear unlikely were sufficient. Pre-emptive harmonisation to avoid potential distortions is, however, not legitimate unless those distortions are ‘likely’ to occur.58 The EU legislator would thus need to provide specific indications of planned national laws or statements from

52 

See Case C-310/04 Spain v Council (n 20). See Lenaerts (n 23) 3–10, 15; Xavier Groussout and Sanja Bogojevic, ‘Subsidiarity as a ­Procedural Safeguard of Federalism’ in LoïcAzoulai (ed), The Question of Competence in the European Union (Oxford, Oxford University Press, 2014) 246, 252. 54  See Groussout and Bogojevic (n 53) 246, 252 for this observation. 55  See Case C-58/08, Vodafone and Others (n 12), paras 39, 43, 45, 55, 58, 59, 63, 65. 56  See Martin Brenncke, ‘Case note on European Court of Justice, C-58/08, Vodafone Ltd and ­Others v Secretary of State for Business, Enterprise and Re’ (2010) 47 Common Market Law Review 1793, 1801. 57  See Case C-310/04 Spain v Council (n 20), para 122. 58  See Case C-376/98 Germany v Parliament and Council (Tobacco Advertising) [2000] ECR I-08419, paras 86, 107. 53 

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national legislative bodies to show that a measure is in the formal legislative stage and that there would crop up national measures leading to costs for operators of such nature that they would qualify as distortions.59 A close reading of the impact assessment did not, however, provide evidence that such national measures were about to be taken nor that those would amount to ‘appreciable’60 distortions of competition.61 Given this, how could the Court have been so certain that ‘relevant circumstances had been taken into account’? If the Court would have followed the proposal advanced here and applied its Spain v Council standard, it is likely to have reached the conclusion that the EU legislator had failed to show the likelihood of distortions and annulled the measure.62 The Court’s procedural proportionality review was also of a deferential character. The Court again primarily referred to the explanatory memorandum and impact assessment as support for clearing the measure, not as grounds for challenging the measure. The Court of Justice’s emphasis on the EU legislator’s discretion is furthermore evidence of lax proportionality review. Although the Court normally defers to the EU legislature in relation to review of broad EU policies, it was striking that the Court perceived it necessary in Vodafone to repetitiously underline the legislator’s margin of appreciation in the field of roaming to ultimately clear the measure. Given its adverse effects on undertakings, it was only the importance of the consumer objective and the limited time-frame of the measure which made it defendable.63

B.  Afton Chemical: Procedural Proportionality Afton Chemical consolidates the Court’s approach to the value of impact assessments as benchmarks for legality. In Afton Chemical, the claimants had argued that a provision64 of a directive on the specification of petrol, diesel and gas-oil was invalid due to the fact that it limited the use of MMT65 in fuel after 1 January 2011. The claimants submitted that the EU legislator had committed a manifest error of

59 

See Brenncke (n 56), 1801–02, 1805–07. See Case C-376/98 Tobacco Advertising (n 58), paras 109–14. 61  See Commission, ‘Proposal for a Regulation of the European Parliament and of the Council on roaming on public mobile networks within the Community and amending Directive 2002/21/EC on a common regulatory framework for electronic communications networks and services’, COM(2006) 382 final, 4; Commission, ‘Commission Staff Working Paper, Impact Assessment of Policy Options Relating to a Commission Proposal for a Regulation of the European Parliament and of the Council on Roaming on Public Mobile Networks Within the Community’, SEC(2006) 925, 25. 62  See Brenncke (n 56), 1809–10. 63  See Case C-58/08 Vodafone (n 12), paras 68–69. 64 See Directive 2009/30/EC of the European Parliament and of the Council of 23 April 2009 amending Directive 98/70/EC as regards the specification of petrol, diesel and gas-oil and introducing a mechanism to monitor and reduce greenhouse gas emissions and amending Council Directive 1999/32/EC as regards the specification of fuel used by inland waterway vessels and repealing Directive 93/12/EEC [2009] OJ 2009 L 140/88, Art 1(8). 65  Methylcyclopentadienyl manganese tricarbonyl; see Directive 2009/30/EC (n 64), recital 35. 60 

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assessment and breached the proportionality principle when it adopted the provision. The claimant argued that there was no support for the imposition of those limits in the impact assessment preceding the adoption of the Directive.66 The Court stated that the impact assessment did not bind the Union legislator because it was, under the ordinary decision procedure laid down by Article 294 TFEU, entitled to make amendments to that proposal.67 It also held, by referring to some studies and to the statements of the Parliament and the Council, that those institutions took into account the available scientific data during the legislative procedure in order to exercise their discretion. Therefore there was no ‘manifest error’ of assessment. In relation to the proportionality assessment the Court observed that, when the Directive was adopted, no scientific assessment of the effects of MMT on health had been undertaken. Even though it was impossible to determine the extent of the health risks associated with MMT, there was a likelihood of real harm to public health if the risk of such harms would materialise. Based on this the precautionary principle justified the adoption of restrictive measures. The measure was consequently consistent with the proportionality principle.68 The lesson of Afton Chemical is that EU legislation does not, according to the Court, need to conform to the underlying impact assessment, nor is there any requirement that deviation from the impact assessment is explained. The case also showed a feeble application of procedural proportionality.69 Whilst the Court referred to the test in Spain v Council of ‘relevant circumstances’,70 it is clear that the Court in Afton Chemical did not apply the standard with the intensity that it was applied in the first-mentioned case.71 The statements from the EU institutions claiming that it had taken into account sufficient information were debateable. The EU institutions referred to studies demonstrating that the use of MMT is damaging to human health and to the proper functioning of emissions control systems.72 They also relied on the fact that vehicle manufacturers had advised against the use of fuel containing metallic additives.73 This reference is, however, insufficient to show that the EU legislator had taken into account all ‘relevant ­circumstances’ when setting the limits to MMT. It was apparent that there was a clear divergence of opinion between different sectors in relation to the risks of metallic additives, the impact of metallic additives on emission control systems and the ethanol and vapour pressure limits, and the risks of damage to vehicle exhaust control systems. Nor was there any agreed test method for verifying

66 

See Case C-343/09 Afton Chemical [2010] I-07027, paras 9, 28. ibid, paras 30, 57. ibid, paras 36–42, 56–69. 69  See Case C-58/08 Vodafone (n 12), paras 59–79 for similar deferential approach to procedural proportionality. 70  See Case C-343/09 Afton Chemical (n 66), para 34. 71  See Case C-310/04 Spain v Council (n 20), paras 97–35. 72  See Case C-343/09 Afton Chemical (n 66), paras 35–37. 73  See Directive 2009/30/EC (n 64), recital 35. 67  68 

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 59

whether metallic additives caused damage. The impact assessment thus concluded that ­sufficiently c­ ompelling evidence had not been provided to justify a generalised ban on metallic additives or a ban of a specific product.74 Consequently, the ­original Commission proposal contained no limit to MMT.75 Given this, it is remarkable that such limits were imposed in the final directive without any clear scientific basis for this limit or any explanation for why it had been included in the directive, but not in the original proposal. It is argued that the EU legislator should have drafted a new impact assessment on the proposed amendment76 or inserted the evidence it relied upon in the hearing before the Court directly in Directive 2009/30/EC or in the proposal to those studies. It is thus questionable how the Court could maintain that the EU institutions had taken sufficient information into account when exercising its discretion.77 Had the Court applied the standard of legality of ‘adequate reasoning’ and ‘relevant evidence’ proposed below it is probable that it would have annulled the measure.

C.  Germany v Parliament and Council: Procedural Subsidiarity Germany v Parliament and Council78 demonstrates the Court’s application of procedural subsidiarity.79 In this case the Court held that the Deposit Guarantee Directive conformed to the subsidiarity principle despite the fact that the Commission had failed to mention this principle in the Directive. The Court mentioned the recital in the Directive in which the Commission pointed to a scenario in which ‘deposits in a credit institution that has branches in other Member States become unavailable’ and that it was ‘indispensable to ensure a harmonised minimum level of deposit protection wherever deposits are located in the Community’. The Court also pointed to the preamble, in which the Commission had asserted that ‘a decision regarding the guarantee scheme which is competent in the event of the insolvency of a branch situated in a Member State other than that in which

74 See Commission, ‘Proposal for a Directive of the European Parliament and of the Council amending Directive 98/70/EC as regards the specification of petrol, diesel and gas-oil and introducing a mechanism to monitor and the introduction of a mechanism to monitor and reduce greenhouse gas emissions from the use of road transport fuels and amending Council Directive 1999/32/EC, as regards the specification of fuel used by inland waterway vessels and repealing Directive 93/12/EEC’, COM(2007) 18 final, 5; Commission, ‘Commission Staff Working Document, Impact Assessment of a Proposal for a Directive of the European Parliament and of the Council modifying Directive 98/70/EC relating to the quality of petrol and diesel fuels’, SEC(2007) 55, 68–73. 75  See COM 2007/18 (n 74), Art 8(a). 76  See Interinstitutional agreement between the European Parliament, the Council of the European Union and the European Commission on better law-making of 13 April 2016, [2016] OJ L 123/01, point 15; Alemanno, ‘Regulatory Impact Assessments and European Courts’ (n 49) 503. 77  See Case C-343/09 Afton Chemical (n 66), para 42. 78  See Case C-233/94 Germany v Parliament and Council (n 15). 79  See Case C-377/98 The Netherlands v Parliament and Council (n 13), para 33; Case C-547/14 Phillip Morris and others (n 12), paras 225–27 for equally feeble application of procedural subsidiarity.

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the credit institution has its head office has repercussions which are felt outside the borders of each Member State’. According to the Court, this showed that, in the Union legislature’s view, the aim of its action could, because of the cross-border dimensions of the intended action, be best achieved at the Union level.80 The Commission’s statement of reasons was not acceptable in this case due to the fact that the EU legislature had failed to offer any reason which could justify compliance with the subsidiarity criterion. In fact, none of the recitals in the Directive expressly mentioned the subsidiarity criterion. One way to argue for subsidiarity compliance would have been to point to the fact that divergent depositor schemes gave rise to ‘obstacles to the freedom of the establishment’ or ‘distortions of competition’ and that such problems could only be remedied by EU action. Such reasons were also mentioned in the preamble to the directive.81 The EU legislature did not, however, try to make a link between those reasons and the subsidiarity criterion. Those reasons were instead offered to demonstrate why the measure was consistent with the designated legal basis of Article 57(2) EC.82 This review necessitates some reflections. This section shows on the one hand the Court’s increasing tendency to engage in more process-based review. This being so, a modest reading of the case law suggest that it would be premature to characterise these efforts as a success. The Court did admittedly, in Spain v Council, lay down high informational requirements on the Union legislator. We know from above that the Court in this case quashed a regulation on a new cotton support scheme83 on the basis of the proportionality principle. The basis for annulment was the Commission’s failure to take into account all relevant information pertaining to the situation and its failure to present clearly the basic facts which had to be taken into account as the basis of the contested regulation.84 There are, however, as demonstrated by Vodafone, Afton Chemical, Germany v Parliament and Council indications in the case law prior and subsequent to Spain v Council that the Court’s threshold for compliance with informational requirements has been fixed at an insufficiently low level. If we compare the Court’s application of procedural review to the proposal here, it seems that the Court’s procedural enquiry is limited to considering whether the EU legislator has stated a justification and not whether this justification is coherent with the grounds for exercising the competence under the relevant competence-conferring provision. Neither does the Court examine, as required by the argument advanced here,85 whether the reasoning for exercising the competence is supported by any evidence. The second point concerns the scope of procedural review. This section involved examples of procedural review in relation to all the principles in Article 5 TEU. It 80 

See Case C-233/94 Germany v Parliament and Council (n 15) paras 27–28. Directive 94/19/EC of the European Parliament and of the Council of 30 May 1994 on deposit-guarantee schemes [1994] OJ L 135/5, recitals 1, 5, 13 and 15. 82  See Case C-233/94 Germany v Parliament and Council (n 15) paras 13–20. 83  For full reference to the regulation; see above ch 2 fn 84. 84  See Case C-310/04 Spain v Council (n 20), paras 122–35. 85  See below section V D. 81  See

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is argued that the Court should not, although the most prominent procedural review cases has been concerned with proportionality,86 circumscribe procedural review to this plea, but also use this form of review to examine the principle of conferral and subsidiarity.87 The Court should furthermore take the intense proportionality review in Spain v Council further to be employed not only in relation to challenges to more detailed legislative schemes but also to more general legislative pieces. The intense test in Spain v Council of ‘relevant circumstances’ has not been used consistently in relation to review of broad EU policy schemes.88 An expansion of procedural review of proportionality to also cover the other principles in Article 5 TEU together with a broadening of the Court’s current approach to procedural review to encompass a genuine enquiry into the evidence for an EU measure would consequently alleviate the Court’s problem of enforcing the limits in Article 5 TEU.

V.  Setting the Framework for a General Standard of Review and Test for Legality of EU Legislation A. Spain v Council: Providing the Fruits for an Appropriate Standard for Judicial Review This section develops, on the basis of the procedural review framework suggested in section III and the Court’s current approach to procedural review described in section IV, a more concrete benchmark which the Court should use to review the legality of EU legislation. Spain v Council will be used as an instance of a suitable benchmark for judicial review. As we know from above, in this case, Spain challenged a Council regulation on new support schemes for cotton89 on the basis that it infringed the proportionality principle by not taking into account relevant information when deciding upon the specific amount of aid granted under the scheme. The Court underlined, as regards judicial review of the principle of proportionality, the wide discretion enjoyed by the Union legislature in the field of the Common Agricultural Policy and that a measure adopted in this field could only be affected if the measure was manifestly inappropriate in terms of the objective which the EU institution is seeking to pursue and if the institution has manifestly exceeded the limits of its discretion. The Court then examined whether the EU

86  See Case C-310/04 Spain v Council (n 20); Case C-58/08 Vodafone (n 12); Case C-343/09 Afton Chemical (n 66). 87  See Craig, EU Administrative Law (n 16) 389–90. 88  See Case C-58/08 Vodafone (n 12); Case C-176/09 Luxembourg v Parliament and Council (n 17). 89  See n 83.

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legislature, when determining the amount of specific aid for cotton, had taken into account relevant information regarding the profitability of cotton growing under the new scheme.90 Up to this point, the Court simply followed its standard case law on review of proportionality within the sphere of broad EU policies. However, the Court dramatically changed this course of reasoning in paragraph 122 and 123 by imposing a new standard of review and burden of proof on the EU legislator: ‘However even though [such] judicial review of [proportionality] is of limited scope, it requires that the Community institutions which have adopted the act in question must be able to show before the Court that in adopting the act they actually exercised their discretion, which presupposes the taking into consideration of all the relevant factors and circumstances of the situation the act was intended to regulate. It follows that the institutions must at the very least be able to produce and set out clearly and unequivocally the basic facts which had to be taken into account as the basis of the contested measures of the act and on which the exercise of their discretion depended.’91

On the basis of these general principles, the Court proceeded to annul the regulation. The Court noted that the Commission had failed to include certain labour costs in the study of the foreseeable profitability of cotton growing under the new support scheme. The Court emphasised that the relevance of labour costs, for the purposes of calculating the production costs of cotton and the foreseeable profitability of that crop, could not be denied. The Court also found that the potential effects of the reform on the economic situation of the ginning undertakings, whilst being a ‘basic factor’ to be taken into account when assessing the profitability of the cotton scheme were not examined. The Court recognised that cotton production is not economically possible without the presence of such undertakings operating under sustainable conditions, since cotton has little commercial value before being processed and cannot be transported over long distances. Given that the Commission had been unable to show that it had actually exercised its discretion when adopting the new support scheme by taking into account all the relevant circumstances, the Court concluded that there was a breach of the principle of proportionality.92

B. Analysis: Why Does Spain v Council Provide a Good Source for a General Standard of Review and Test for Legality? Commentators have argued that Spain v Council marks a clear evolution towards greater intensity in the judicial review of facts and in the application of procedural proportionality. It has also been suggested that the standard of legality proposed by this case fits well with the Court of Justice’s earlier jurisprudence in the field

90 

See Case C-310/04 Spain v Council (n 20), paras 96–99, 104–05. ibid, paras 120–23. 92  ibid, paras 102, 131–35. 91 

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of judicial review of administrative decisions.93 While Spain v Council appears to be an important judgment of principle, it is questionable whether this case can be interpreted as sufficient evidence for a transformation from deferential review to intense examination of facts in relation to review of EU legislation. First, there are, as mentioned above,94 no cases on competence review, post-Spain v Council, which have followed the intensity of review suggested by that judgment. Nor is there any clear basis in the Court’s case law on review in the field of the common policies prior to Spain v Council under which the Court‘s propositions in that judgment could be grounded.95 Secondly, although the factual review by the Court of Justice in Spain v Council was reminiscent of the Court of First Instance’s (CFI)96 strict factual review in Tetra Laval and Pfizer, the last-mentioned judgments must be distinguished from Spain v Council. The CFI’s extremely searching enquiry in Pfizer97 and Tetra Laval,98 although like Spain v Council phrased in terms of ‘manifest error’ and ‘manifestly inappropriate’, was prompted by the fact that both Pfizer and Tetra Laval were in principle related to individual decisions. Such decisions are generally subject to a highly intense review by the EU courts.99 Although the regulation100 in Pfizer was formally of a general nature, its effect had the nature of a decision by withdrawing Pfizer’s authorisation to market virginiamycin and since Pfizer was the only company having such an authorisation. The act was thus of ‘direct’ and ‘individual’ concern to Pfizer’.101 Tetra Laval on the other hand was concerned with a Commission decision prohibiting a prospective merger. The fact that this decision immediately affected the rights of Tetra Laval required a full judicial review of the Commission’s decision both in relation to law and facts.102 Given the distinction in the EU courts’ case law between the nature of review in situations involving administrative decisions and general legislative provisions, it appears that Spain v Council was an exception to the rule that general EU legislation is subject to low intensity review.

93  See Xavier Groussout, ‘Judgment C-310/04, Kingdom of Spain v Council of the European Union’ (2007) 44 Common Market Law Review 761, 777–82; Alemanno, ‘Regulatory Impact Assessments and European Courts’ (n 49) 501. 94  See n 48 for reference to Court of Justice judgments on fundamental rights reflecting high intensity review. 95  See, however, Case C-189/01, Jippes v Minister van Landbouw, Natuurbeheer en Visserij, [2001] ECR I-5689, paras 80–101, 113–22, for an exception of more searching proportionality review. 96  Now referred to as the ‘General Court’. 97  See Case T-13/99 Pfizer Animal Health v Council [2002] ECR II-03305, paras 166–70. 98  See Case T-5/02 Tetra Laval v Commission [2002] ECR II-04381, paras 119, 140–41, 197–99, 224, 283, 308, 335–36; Case C-12/03 P Commission v Tetra Laval [2005] ECR I-00987, paras 38–39. 99  See Craig, EU Administrative Law (n 16) 416–24, 427–30, 438–39. 100  Council Regulation (EC) No 2821/98 of 17 December 1998 amending, as regards withdrawal of the authorisation of certain antibiotics, Directive 70/524/EEC concerning additives in feeding stuffs [1998] OJ 1998 L 351/4. 101  See Art 263(3) TFEU; Case T-13/99 Pfizer Animal Health v Council (n 97) paras 42, 81–87, 89–106, 171–72. 102  See Case T-5/02 Tetra Laval v Commission, (n 98) paras 89–90.

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Notwithstanding this, it is argued that the benchmark suggested by Spain v Council provides an appropriate yardstick for showing what the Court of Justice should be doing to ensure that review of EU legislation becomes credible. The Court’s legality standard requiring the objectives of the legislation to be clearly set out and substantiated is an appropriate ‘middle-way’ solution between full substantive review of facts and complete surrender to the political authority of the EU legislator.103 The Court’s burden of proof, (whilst deviating from the main rule that applicants challenging general EU legislative acts must demonstrate the measure to be disproportionate), requiring the EU institutions to show that it had exercised its discretion contributed in making the standard of review ­credible.104 Secondly, it is clear that the intensity of the Court’s review was appropriate to implement the legality standard. The strict intensity entailed that the Court did not accept the assertions made by the Commission but examined independently whether it had taken into account ‘relevant information’.105

C.  Spain v Council Expresses a General Standard of Review If we generalise the Court’s propositions from Spain v Council, it is contended that this case suggests a standard of legality both in relation to reasoning and evidence. The benchmark is whether the EU legislator provided for ‘adequate reasoning’ and took into account ‘relevant circumstances’ when it exercised its l­egislative competence. Even though the reasoning requirement in the proposed benchmark did not follow explicitly from Spain v Council, the expression ‘relevant information’ used by the Court clearly connotes a requirement in relation to the quality of the reasoning. The Court of Justice was not only critical of the fact that the Commission had not included labour costs and failed to perform a socio-economic impact study. It particularly condemned the fact that the Commission had been unable to explain why an impact study was not necessary and why labour costs were not included in the assessment of profitability.106 The requirement of ‘adequate reasoning’ was furthermore evident from the Court’s assessment of the profitability study. The Council, basing its argument on the reform’s budgetary neutrality, contended that the profitability study should also take into account the income deriving from the single payment equivalent to 65 per cent of the existing aid in that sector. Since the sum of the coupled and decoupled aid under

103 

See Lenaerts (n 23), 7–9, 15. Case 331/88 The Queen v Ministry of Agriculture, Fisheries and Food, ex parte FEDESA and Others [1990] ECR I-04023, para 14; Case C-491/01 British American Tobacco (Investments) and ­Imperial Tobacco (n 13) paras 123, 130, 140. 105  See Case C-310/04 Spain v Council (n 20), paras 110, 113–19, 131, 132–33. 106  ibid, paras 105–11, 116–18, 124–29, 131. 104 See

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the new scheme was equivalent to the total amount of the indirect aid granted under the p ­ revious scheme, the future profitability of cotton growing could not be doubted. The Court was not ­convinced by these arguments. In the case of a study of the profitability of alternative crops, the single payment should not be taken into account according to the Court as it is granted independently of the crop chosen, even if the farmer decides not to produce anything. The budgetary neutrality of the reform was neither of relevance for assessing whether in the future farmers will abandon cotton g­ rowing.107 The standard of ‘relevant circumstances’ also entails a requirement with regard to the quality of the evidence. In Spain v Council the Court itself decided what constituted ‘relevant’ information. It found in particular that fixed labour costs should have been included in the profitability assessment under the new support scheme and that the potential effect of the reform on the economic ­situation of the ginning undertakings was also ‘relevant information’ without which the Commission could not exercise its discretion.108

D.  Standard for Review and Test for Legality The enquiry that follows from the proposed benchmark entails a two-step examination of legality of EU measures. First, it implies that the Court of Justice should look ‘beyond the preamble of the measure’ when examining the adequacy of the reasoning and consider whether the reasons stated by the EU legislator in preparatory documents such as explanatory memorandums, impact assessment, and other official documents directly related to the adoption of the measure (‘legislative background documents’) are pertinent for assessing compliance with the principles in Article 5 TEU. One example is if the EU legislator employs an argument based on distortions of competition to justify the ‘essentiality’ of criminal sanctions under Article 83(2) TFEU.109 Since the question of ‘essentiality’ of criminal laws is only concerned with a comparison of criminal laws with other sanctions, it seems clearly incoherent to mingle internal market considerations into this assessment.110 Such considerations are not ‘relevant factors’.111 The test to assess whether the standard of ‘adequate reasoning’ has been conformed to is the following. The EU legislator must offer at least one justification,

107 

ibid, paras 108–11. ibid, paras 112–18, 126, 128–32. 109  See for example Commission, ‘Proposal for a Directive of the European Parliament and of the Council on criminal sanctions for insider dealing and market manipulation’, COM (2011) 654 final, 3, 5, recital 7. 110 See Petter Asp, The Substantive Criminal Law Competence of the EU—Towards an Area of ­Freedom, Security & Justice—Part 1 (Stockholm, Jure, 2013), 130–32; Peter Whelan, ‘Contemplating the Future: Personal Criminal Sanctions for Infringement of EC Competition Law’ (2008) 19 King’s Law Journal 364, 370–71. 111  See Case C-310/04 Spain v Council (n 20), para 122. 108 

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which is by itself sufficiently compelling in abstracto to justify compliance with the relevant condition or relevant principle whose observance the institutions must ensure.112 The reference point here is the substantive justification for the exercise of EU competences, as this has been recognised by the relevant literature and the Court of Justice’s case law. The legal basis thus has to be mentioned by every piece of legislation since the legal basis gives the standard for the Court of Justice to assess whether the EU legislator is competent to act.113 ‘Adequate’ reasoning does not, however, require an examination of whether the EU legislator offered the most appropriate reasoning for defending compliance with the precepts of the Treaties.114 It is sufficient that the reasoning is ‘adequate’ to support the claim for compliance with the underlying Treaty condition or principle. The second limb of the test considers whether the reasons are backed up with evidence. In order to pass this part of the test, the EU legislator needs to show that one of the reasons, which in itself justified the EU legislator’s compliance with the relevant conditions in the legal basis or the relevant EU rule, is supported by sufficient and relevant evidence.115 This standard entails requirements both in relation to the quantity and quality of the evidence. First, in order to prove a statement, it is necessary to refer to more than one source. If, for example, the evidence for a theoretically sound claim consists of a reference to only one study or one scholarly article, this would be insufficient. The Court may thus consider annulment when relevant material is missing in the legislative background documents.116 The Court ought furthermore to examine whether the evidence in the legislative background documents is ‘adequate’ for substantiating the exercise of the legislative competence.117 Taking again the example of EU criminal law competence it is suggested that if the EU legislator uses evidence concerning ‘distortions of competition’ to justify the ‘essentiality’ of criminal sanctions it would also fail to conform to the standard of ‘relevant evidence’. This is because the ‘essentiality’ of criminal sanctions can only be justified on the basis of evidence showing that criminal sanctions are a greater deterrent than other sanctions.118 The evidence should finally

112  See joined cases C-584/10 P, C-593/10 P and C-595/10 P Commission and others v Kadi (Court of Justice, 18 July 2013, ‘Kadi II’), para 130. 113  See Case C-45/86 Commission v Council [1987] ECR 1493, paras 8–10, 12; Shapiro (n 27) 218–20. 114  See a similar formula for the assessment of proportionality; Case C-58/08 Vodafone (n 12), para 52. 115  See joined cases C-584/10 P, C-593/10 P and C-595/10 P Commission and others v Kadi (n 112), paras 119 and 124, 130. This standard for the ‘evidence’ requirement is also supported by the Court’s ruling in Case C-12/03 P Commission v Tetra Laval (n 98), para 39; ‘Not only must the Community Courts, inter alia, establish whether the evidence relied on is factually accurate, reliable and consistent but also whether that evidence contains all the information which must be taken into account in order to assess a complex situation and whether it is capable of substantiating the conclusions drawn from it.’ 116  See Alemanno, ‘evidence-based judicial reflex’ (n 19) 333–35, 338. 117  See joined cases C-584/10 P, C-593/10 P and C-595/10 P Commission and others v Kadi (n 112) paras 118–19, 124. 118  See n 110 for reference to literature supporting this point.

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be ‘reliable’. Insignificant evidence or evidence of low credibility (such as hearsay evidence) cannot be used to support a statement. This means that the evidence needs to be in the nature of statistical studies, policy studies or scientific articles which provide more serious support for an argument.119

E.  Rationale and Issues with the Test The following considers the purpose of the test. The test is not a substantive one intended to limit EU action or finding out the proper level of action.120 The test is functional to ensure that the political discretion granted to EU an institution is exercised in a rational manner and that the Court is empowered to review the exercise of EU competences.121 Since the proposed test requires reasons and evidence to always be given for the exercise of competences, it is more likely that the Court will be able to fulfil its task of monitoring that the law of the Treaties is observed.122 The pragmatic rationale for the test is that it is predictable by clearly articulating under which circumstances intervention is justified. In the absence of some articulated criterion ‘inadequate reasoning’ or ‘irrelevant’ evidence could be used to justify intervention in almost any circumstances.123 The reference point here is whether one of the reasons relied upon in a legislative act constitutes sufficient basis to support that act and is substantiated by relevant evidence.124 The main critique against the proposed test is probably that the suggested requirement on the EU legislator of offering ‘one cogent reason supported with sufficient evidence’ is borrowed from the Court of Justice’s case law on fundamental rights125 and its case law in the field of competition law/risk regulation126 and that the concerns underlying this standard of review may not be applicable in the field of common policies.127 In the context of fundamental rights, the strict interpretation of ‘manifest error’ has been driven by the continuing limitations on the review of the Security Council resolutions that form the basis for EU regulations freezing assets of individuals and the fact those decisions have substantive

119  See joined cases C-584/10 P, C-593/10 P and C-595/10 P Commission and others v Kadi (n 112), paras 151–62 for the application of the evidence standard. What the Court does is to monitor whether any of the relevant reasons submitted, which in theory can support the decision, is supported by ­sufficient evidence (para 162). This is the same method that the Court should apply in cases of review of EU legislation. 120  See Art 5 TEU. 121  See Scott and Sturm (n 8) 592–93. 122  See Art 19 TEU; Shapiro (n 27), 218–20; Scott and Sturm (n 8) 582–83. 123  See Craig, EU Administrative Law (n 16) 434–36. 124  See above section V D. 125  See for example joined cases C-584/10 P, C-593/10 P and C-595/10 P Commission and others v Kadi (n 112), paras 119, 121, 122, 130; Case T-392/11 Iran Transfo v Council (Court of First Instance, 16 May 2013), paras 34, 44; Case C-550/09 E and F [2010] ECR I-06213, para 57. 126  See the cases referred to in nn 97–98. 127  This criticism is partly general to the whole spectre of procedural review, see above section II.

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negative effects for individuals.128 In relation to competition law, the strict review of ­‘manifest error’ have been driven in part by the criticisms voiced about the role of the Commission as prosecutor and judge, and the fact that competition law enforcement is intrinsically concerned with potential infringements of the fundamental rights for the accused. In relation to judicial review of the EU legislator’s discretion other considerations are relevant. It might be argued that scrutiny in the context of broad EU common policies should be very deferential because the facts are complex, since the EU legislator undertakes policy choices and because the EU legislature has to reconcile divergent interests when making such policies.129 These concerns must be addressed since the proposed benchmark for legality is similar to the ‘manifest error’ test in Kadi II and Tetra Laval. It is, however, suggested that a distinction must be made between the ‘test’ for legality and the ‘intensity’ of the review. The argument here does not suggest that the Court of Justice should review with the same intensity EU legislation as it does administrative decisions. ‘Manifest error’ review in the style of Tetra Laval and Kadi II is strict substantive review that is used when the Court examine individual administrative decisions. It entails a de novo assessment of the legal and factual assessment made by the administrative agency.130 Such a review is different from review of EU legislation in competence disputes which cannot be as intensive as this would be contrary to the principle of institutional balance.131 It is only claimed here that the test, ie whether the EU legislator offered at least one compelling rationale for exercising competence and whether this rationale was supported with ‘relevant’ evidence, should be analogous to the one adopted for review of administrative decisions.132 This being so, it is a legitimate concern that the proposed test may impinge upon the EU legislator’s discretion. If the Court would apply the test as proposed here, there would be a risk that the Court exceeds the limits of its ‘authority’ and ‘legitimacy’ as derived from the Treaties. Whether this criticism can be sustained depends on ‘how’ the test, if it ever finds its way into the Court of Justice’s jurisprudence, is applied by the Court. If the Court applies the proposed test with the same rigour as it has done in fundamental rights and competition law/risk regulation cases and substantively re-examines the EU legislator’s factual assessment this would entail an encroachment on the EU legislator’s authority.133 Then, the Court should face criticism. If the Court, however, reviews legislation according to the guidelines provided above, the concern that the test would lead to substitution of judgment will be undermined.134

128  See joined cases C-584/10 P, C-593/10 P and C-595/10 P Commission and others v Kadi (n 112), paras 132–33. 129  See Craig, EU Administrative Law (n 16) 437–38. 130  ibid, 434–36. 131  See Art 13 TEU. 132  See Coenen (n 19), 2887–88. 133  See Toth (n 3) 283–84, for an argument on how the application of subsidiarity may result in substitution of judgment. 134  See Craig, EU Administrative Law (n 16) 433–34.

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Finally, whilst an evidence criterion in cases of competence review has not yet been fully embraced by the Court of Justice, there are implicit foundations in the Court’s case law to construct such an evidence requirement. As we saw above, there was a requirement imposed in Spain v Council, that compliance with the proportionality principle needed to be defended by specific figures and evidence.135 More importantly, it is argued that the Tobacco Advertising judgment indicates a firm evidence criterion for the EU legislature to fulfil when legislating under Article 114 TFEU. The Court stated in this judgment that it is not sufficient to show ‘hypothetical’ risks of obstacles or potential/incidental distortions to competence. The EU legislator must thus show that it is likely that such obstacles will arise and that the distortions of competition at issue are ‘appreciable’.136 Finally, although cases such as Test Achat and Volker und Martin Schencke on fundamental rights cannot be used as evidence for a transformation to stricter ‘competence review’ it appears that the intense review in Spain v Council was endorsed in those cases. In both these cases which focussed on the EU legislator’s justification for infringing the right to personal data (Volker und Martin Schenke)137 and the right to equality (Test Achat)138 the Court made a strict procedural enquiry of the EU legislator’s reasoning for infringing those rights. There is no principal reason why the Court cannot use its approach in these fundamental right cases to also review challenges based on Article 5 TEU.139 Given the foundations for an evidence criterion in the Court’s case law, it would not be such a bold move for the Court of Justice to apply the proposed test for legality. It would simply be a matter of asking the Court to move further, on the basis of the mentioned judgments, and employ the test suggested of one convincing justification sustained with relevant evidence for general use in review of the legality of broad EU policy measures.

F. The Relationship of the Proposed Test to the EU Courts’ Current Approach Whilst the genesis of the proposed standard comes from the Court’s test in Spain v Council and the concrete test is derived from the Court’s manifest error review in Kadi II it develops the Court of Justice’s intensity further than the Court’s current approach to review of EU legislation. It appears that the Court’s current case law does not entail demanding informational demands on the Union legislator. The Court has never in its previous jurisprudence imposed any requirement to submit evidence for compliance with

135 

See above section V A—C. See Case C-376/98 Tobacco Advertising (n 58) para 84, 86, 98–99, 106–07. See Case C-92/09 Volker und Martin Schecke (n 48), paras 65–89. 138  See Case C-236/09 Test-Achats and Others (n 48), paras 25–32. 139  See n 33 for reference to literature supporting this proposition. 136  137 

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certain requirements of the Treaties such as ‘quantitative’ indicators in relation to subsidiarity or ‘appreciable distortions to competition’ in Article 114 TFEU. The Court seems to accept simple assertions of the EU institutions on the existence of effects or problems. In fact, it seems that the Court, instead of standing outside the legislative procedure, endeavours to support the EU legislator’s case by looking for evidence and reasoning that can justify compliance with the precepts of the Treaties.140 The proposed test does not accept insufficient evidence for establishing compliance with Article 5 TEU. The Court must reverse its light test for judicial intervention and strike down legislation which contains assertions that are not justified by the facts of the case. Contrary to the Court’s approach in Germany v Council141 and Swedish Match,142 the suggested test for legality does not accept mere reference to preambles as justification for legislation but requires references to evidence in legislative background documents such as impact assessments and explanatory memorandums. The Court must also consider, in contrast to cases such as ­Vodafone143 and Alliance Health,144 whether the evidence is connected to the rationale for exercising the competence. While this does not mean that a proper impact assessment is a requirement for legality, it implies that the EU legislator must refer to empirical evidence, whether that be a scientific study or statistics, to support the measure.145 The intensity of the test as applied to proportionality review entails that the EU courts would have to inquire more in greater depth into the claim that the decision was ‘manifestly inappropriate’ as compared to the classical approach.146 Instead of simply clearing the Union legislator by noting that he has not crossed the barrier of ‘manifestly inappropriate’, the standard forces the Court to autonomously determine whether the EU legislator has supported his conclusions by relevant evidence.147 The key distinction from the Court’s current approach is thus that the proposal here asks the Court to be more intrusive when considering whether the necessary facts and reasons have been taken into account before exonerating the EU legislator.

140  See Case C-491/01 British American Tobacco (Investments) and Imperial Tobacco (n 13), paras 68–73, 84–87, 124, 134–35, 181–84; Case C-380/03 Germany v Parliament and Council [2006] ECR I-11573 paras 46–48, 62, 66, 85–86; Case C-301/06 Ireland v Parliament and Council [2009] ECR I-00593, paras 66–72, 83; Case C-547/14 Philip Morris Brands and Others (n 12) 66–84, paras 91–94, 98–104, 108–24, 128–35. 141  See Case C-233/94 Germany v Parliament and Council (n 15) paras 26–28. 142  See Case C-210/03 Swedish Match (n 12), paras 36–41. 143  See Case C-58/08 Vodafone and Others (n 12) paras 38–47, 76–79. 144  See joined cases C-154/04 and 155/04 Alliance for Natural Health and Others (n 15), paras 35–40, 105–07. 145  See Alemanno, ‘Regulatory Impact Assessments and European Courts’ (n 49) 501. 146  See the Court of Justice’s case-law referred to in n 17. 147  See Case T-310/06 Hungary v Commission [2007] ECR II-4619, paras 144–67; Case T-126/99 Graphischer Maschinenbau GmbH v Commission [2002] ECR II-2427, paras 32–59, 74–98; Craig, EU Administrative Law (n 16), 425, 438–39, 442.

Conclusions

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VI. Conclusions This chapter has examined the problems of judicial competence review within the context of enforcing the constitutional-restricting principles in Article 5 TEU. It has taken a constructive approach and showed how judicial review of EU ­legislation could be intensified whilst taking into account the institutional and conceptual constraints faced by the Court of Justice. Three themes were subject to closer scrutiny in the chapter. The problems of competence review were initially considered. It was observed that institutional constraints in terms of expertise and legitimacy, together with unclear wording of the competence-restricting principles in Article 5 TEU, have led the Court to adopt a lenient and ultimately inadequate standard of review for EU legislation. Admittedly, it is clear that reasons for deference are often well maintained with reference to the Court’s limited institutional legitimacy, competence and the conceptual problems of enforcing the limits of the Treaties. Such reasons are often present in relation to the Court’s review of the exercise of broad Treaty powers because scrutiny of such provisions often entail an assessment of questions of an empirical and political nature that lie outside the borders of judicial enquiry. The second theme of the chapter was identifying potential solutions to the institutional problem of judicial review. It was argued that intense procedural review should be the main focus for judicial review of EU legislation. Whilst such review could upset the institutional balance in EU law, be transformed to substantive review (and therefore be subject to similar criticisms as substantive review) it still offers a better option for the Court than substantive review. This is because such review responds to the institutional and conceptual challenges to credible competence review. In particular such a review provides the Court with sufficient information and adequate reasoning from the legislative institutions which enables the Court to determine whether the EU ­legislator has exercised its discretion in conformity with the Treaties. Since such a review is not focused on the appropriateness of legislation it neither intrudes on the EU legislator’s sphere of discretion. The legitimacy of the EU legislative procedure is also likely to be improved by means of procedural review. The third general theme considered the proper standard of review and test for judicial intervention. It was contended that the current standards of review, phrased in terms of ‘manifest error’ have not provided the Court with the tools to engage in a more intense scrutiny of the exercise of EU powers. Because of the inadequacy of the current standard of review, a specific standard of review and test for legality for the review of all broad EU policy measures was developed on the basis of the Spain v Council judgment. The legality standard suggested in the chapter is that the EU legislator provide for ‘adequate reasoning’ for its legislative choices and take into account ­‘relevant ­circumstances’ to substantiate conformity with the constitutional principles in Article 5 TEU. Finally, to implement this standard a test for legality was proposed on the basis of the Kadi II judgment. This test entails that the EU legislator must suggest one compelling justification for compliance with the Treaty limits which is substantiated with ‘sufficient’ and ‘relevant’ evidence.

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Part II

Limits to EU Powers

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4 Limits to the Union’s Criminal Law Competence I. Introduction This chapter explores the limits of the Union’s express and implied competence to adopt individual criminal sanctions under the legal bases of the Treaties. The analysis is based on the findings in chapter two on how limits to the exercise of EU competences can be reconstructed by interpreting the legislative powers of the Treaties and by applying the test for legality developed in chapter three to review two pieces of EU criminal law legislation. The chapter first takes stock of the debates in the literature and among the EU institutions following the Court’s judgments in Environmental Crimes and ShipSource Pollution. As noted above, the Union lacked an express competence to enforce its policies by means of criminal law prior to the Lisbon Treaty. While concerns for state sovereignty and political inertia long held back the development of EU criminal law, this delay in the development of EU criminal law was finally ended by the above-mentioned judgments of the Court.1 In these judgments, the Court held that the EU had the power to impose criminal sanctions if this was essential for the effective enforcement of EU environmental policies.2 The dominant view in the literature and at the Commission has been and is that the Court’s rulings in Environmental Crimes and Ship-Source Pollution express a general criminal law competence that could be exercised under most legal bases of the Treaties. If competence to criminalise could not be found in the sectorial provisions of the Treaties, eg Article 103 TFEU (competition policy) or Article 192 TFEU (environmental policy), resort could always be had to the functional powers in Article 114 and Article 352 TFEU.3 Based on this broad understanding of the

1 

See ch 1 I. Case C-176/03 Commission v Council [2005] ECR I-07879, para 48; Case C-440/05 Commission v Council [2007] ECR I-09097, para 69. 3  See Commission, ‘Communication from the Commission to the European Parliament and the Council on the implications of the Court’s judgment of 13 September 2005’ (Case C-176/03 Commission v Council), COM 2005 (583) final (‘COM 2005/583’), 3, points 6–10; Wouter PJ Wils, ‘Is Criminalization of EU Competition Law the Answer?’ (2005) 28 World Competition 117, 157; Michael Dougan, 2 See

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judgments, the EU legislature adopted two directives, the Ship-Source Pollution Crimes Directive,4 on the basis of Article 100(2) TFEU, and the Environmental Crimes Directive,5 on the basis of Article 192 TFEU. Against this backdrop, the second section of the chapter considers the scope and limits of the EU’s criminal law competence as derived from the Environmental Crimes judgment. The reader may ask if this question is relevant, given that the novel Article 83(2) of the TFEU, discussed in the third section of this chapter, clarifies that the Union has competence to impose criminal law measures and criminal sanctions. To counter this argument, it is sustained that it is still unclear, as argued below in chapter five, whether Article 83(2) TFEU constitutes a lex specialis to the other legal bases in the Treaties, excluding the exercise of a criminal law competence on a different legal basis in the Treaty.6 Moreover, the examined piece of legislation, the Environmental Crimes Directive, was adopted on the basis of Article 175 EC (192 TFEU). The legality of this Directive should thus be assessed primarily on the basis of the Court of Justice’s pre-Lisbon case law and the EU’s general implied criminal law competence derived from this case law. The third section of the chapter examines the scope of the new provision on criminal law in the Lisbon Treaty: Article 83(2) TFEU. Despite the fact that a competence to enforce substantive Union policies through criminal sanctions has been expressly recognised in Article 83(2) TFEU, the question of the proper role for criminal sanctions in the enforcement of Union substantive policies remains largely unresolved. Article 83(2) TFEU is one of the most debated provisions of the new Treaty. It is first contested because the Union has been given a general power to adopt criminal sanctions that is in sharp contrast to the Court’s judgments in Environmental Crimes7 and Ship-Source Pollution.8 Secondly, the German Federal Constitutional Court, in its Lisbon Judgment, has prominently, due to the sensitive nature of criminal law for state sovereignty, expressed its reservations in relation to an excessive use of the Union’s new criminal law powers.9 Given the

‘From the Velvet Glove to the Iron Fist: Criminal Sanctions for the Enforcement of Union Law’ in Marise Cremona (ed), Compliance and the Enforcement of EU Law (Oxford, Oxford University Press, 2012) 103–04. 4 

See ch 1 n 79 for full reference to the Ship-Source Pollutions Crimes Directive. See ch 1 n 57 for full reference to the Environmental Crimes Directive. 6  See Ester Herlin-Karnell, ‘EU Competence in Criminal Law after Lisbon’, in Andrea Biondi, Piet Eeckhout and Stefanie Ripley (eds), EU Law After Lisbon (Oxford, Oxford University Press, 2012) 334, 340–44; Samuli Miettinen, ‘Implied Ancillary Criminal Law Competence After Lisbon’ (2013) 2 ­European Criminal Law Review 194; Samuli Miettinen, The Political Constitution of EU Criminal Law— Choices of Legal Basis and their Consequences in the New Constitutional Framework, (Oxford, Hart Publishing, forthcoming); Jannemieke Ouwerkerk, Criminalisation Powers of the European Union and the Risks of Cherry-Picking Between Various Legal Bases: The Case for a Single Legal Framework for EU-Level Criminalisation’ (2017) 23 Columbia Journal of European Law (forthcoming, summer issue). 7  See Case C-176/03 Commission v Council (n 2). 8  See Case C-440/05 Commission v Council (n 2) para 70; Steve Peers, EU Justice and Home Affairs Law (Oxford, 3rd edn, Oxford University Press, 2011) 764. 9  See Judgment of German Federal Constitutional Court of 30 June 2009, Lisbon Judgment, Case 2 BvE 2/08, 5/08, 2 BvR 1010/08, 1022/08, 1259/08, 182/09 (2009), para 226. 5 

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theoretically broad scope of this provision, ie that the EU can impose criminal sanctions for the ‘effective implementation’ of its policies, the second section of the chapter considers the limits to this new competence. The structure of the chapter is as follows. The second section of the chapter recapitulates and examines the EU’s pre-Lisbon criminal law competence. This discussion particularly analyses whether the Environmental Crimes judgment expresses a general criminal law power in the EU to enforce its policies. The conditions for exercising the EU’s dormant criminal law competences as derived from the Court’s judgments are also accounted for. To show the application of the EU’s general criminal law competence, it is examined whether the Union legislature correctly exercised its competence to adopt the Environmental Crimes Directive under Article 192 TFEU. The third section of the chapter considers the scope of Article 83(2) TFEU in imposing criminal sanctions. The first subsection comprehensively analyses the substantial requirement that criminal sanctions shall be ‘essential’ for the ‘effective implementation of Union policies’. The limits of the ‘essentiality’ requirement are then demonstrated by an examination of the novel Market Abuse Crimes Directive.10 The second sub-section explores the procedural requirements of Article 83(2) TFEU which is that there must be previous harmonisation measures in the policy field which the Union legislator intends to criminalise. The application of this requirement is illustrated by a case study of EU market abuse policy.

II.  Limits to the Exercise of the Union’s Criminal Law Competence Prior to the Lisbon Treaty A. Account of the Environmental Crimes and the Ship-Source Pollution Judgments In order to explain the scope of the EU’s criminal law competence as derived from the Court’s rulings in Environmental Crimes and Ship-Source Pollution, it is appropriate to give a more detailed account of these judgments. In the Environmental Crimes judgment, the Council had enacted a framework decision on criminal law measures to protect the environment on the basis of the provisions of the (pre-Lisbon) Treaty on the European Union.11 The Commission challenged this measure, arguing that since its predominant purpose was to

10  See ch 1 n 56 for full reference to the Market Abuse Crimes Directive. This is the first directive adopted on the basis of Article 83(2) TFEU. 11  See Arts 31 and 34(2) of the [Pre-Lisbon] Consolidated Version of the Treaty on European Union [2002] OJ C 325/5; Council Framework Decision 2003/80/JHA of 27 January 2003 on the protection of the environment through criminal law (OJ 2003 L 29/55; ‘Framework Decision’).

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protect the environment, the act should have been adopted under Article 175 EC (192 TFEU). Opining that the choice of the legal basis for a Community measure must rest on objective factors amenable to judicial review the Court found that both the content and the predominant purpose of the Framework Decision were to ensure environmental protection. The Court admitted that the Framework Decision entailed partial harmonisation of the criminal laws of the Member States and confirmed that, as a general rule, neither criminal law nor criminal procedure was a Community competence.12 Nevertheless, in the next paragraph of the judgment, the Court radically altered its established case law and recognised a Community criminal law competence: ‘the last mentioned-finding (ie the absence of a general criminal law competence) does not prevent the Community legislature when the application of effective, proportionate and dissuasive criminal penalties by the competent national authorities is an essential measure for combating serious environmental offences, from taking measures which relate to the criminal law of the Member States which it considers necessary in order to ensure that the rules which it lays down on environmental protection are fully effective.’13

Based on this proposition, the Court went on to examine the Framework Decision. The Court underlined that the acts listed in the Framework Decision included infringements of a considerable number of Community measures, which were listed in the Annex to the proposed directive. The recitals of the Framework Decision further showed that the Council took the view that criminal penalties were essential for combating serious offences against the environment. Since both the aim and the content of the Framework Decision related to the protection of the environment, it should have been adopted on the basis of Article 175 EC. Given this, the Framework Decision encroached on the powers of the Community14 and had to be annulled.15 The Court’s judgment was one of the most remarkable judgments delivered before the Lisbon Treaty. The finding of a Community criminal law competence was striking, particularly given the sensitive nature of criminal law for the Member States’ sovereignty claims and the lack of such an express competence in the EC Treaty. However, soon after the Court’s judgment in Environmental Crimes, a new inter-institutional battle was triggered. The Commission decided to challenge Council Framework Decision 2005/667/JHA16 on criminal law measures in the enforcement of ship-source pollution, ie the Ship-Source Pollution judgment, on the basis that this Framework Decision encroached upon the Community’s powers under Article 80(2) EC (Article 100(2) TFEU).

12 

See Case C-176/03 Commission v Council (n 2) paras 46–47. ibid, para 48. 14  See Art 47 TEU (Pre-Lisbon). 15  See Case C-176/03 Commission v Council (n 2), paras 49–53. 16 Council Framework Decision 2005/667/JHA of 12 July 2005 to strengthen the criminal-law framework for the enforcement of the law against ship-source pollution [2005] OJ L 255/164. 13 

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The Court found that since requirements relating to environmental protection must be integrated into the implementation of Community policies, such protection must be regarded as an objective which also forms part of the common transport policy and thus within the scope of Article 80(2) EC. The Court subsequently applied the ‘objective legal basis test’ and found that both the content and the main purpose of the Framework Decision were to ensure maritime safety and environmental protection. The Court then repeated the above-cited formula from the Environmental Crimes judgment and opined that when the application of criminal penalties is an essential measure for combating serious environmental offences, the Community legislature could require the Member States to adopt such penalties. The Court found that the provisions in the Framework Decision related to conduct which was likely to cause particularly serious environmental damage infringing the Community rules on maritime safety and that the Council had taken the view that criminal penalties were necessary to ensure compliance with the Community rules on maritime safety. The Framework Decision should therefore have been adopted on the basis of Article 80(2) EC. The Court clarified that a determination of the type and level of criminal penalties did not fall within the Community’s competence. Nonetheless, the Court concluded that the Framework Decision, in encroaching on the Community’s powers in Article 80(2) EC had to be annulled.17

B. Do the Environmental Crimes and Ship-Source Pollution Judgments Express a General Criminal Law Competence? Opinions have been divided on the issue of the scope of the EU’s criminal law competence as expressed by the Court’s judgments. A narrow interpretation of the Court’s judgment in Environmental Crimes has been proposed, suggesting that EU criminal law measures can only be adopted when two conditions are fulfilled. First, the objective of environmental protection must be at stake, either due to serious violations of EU environmental rules or where the protection of the environment is materially affected by severe violations of other Union rules. Secondly, the Union must prove that the measure is essential to enforce EU environmental law.18 Whilst the second criterion is endorsed, it appears too restricted a reading to maintain that the EU’s general criminal law competence only applies to environmental law. In light of the structure of the pre-Lisbon Treaties, it is difficult to accept the claim that the Court’s ruling in Environmental Crimes was limited to environmental protection. Environmental policy is not more special than other

17 

See Case 440/05, Commission v Council (n 2) paras 59–70, 74. This was the favoured interpretation by the United Kingdom, Ireland and Denmark; see House of Lords’ European Union Committee, 42nd Report, Session 2005–06, The Criminal Law Competence of the European Community, Report with Evidence, London: Stationery Office Limited, HL Paper 227, 19, paras 44–45. 18 

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areas of EU policies.19 Moreover, the Treaties contained ‘integration clauses’ for other policy fields analogous to that concerned with environmental protection under Article 6 EC20 (Article 11 TEU).21 Instead of a narrow interpretation of the judgment, the proposition here is that the reasoning followed by the Court in the Environmental Crimes and the Ship-Source Pollution judgments establishes general principles for deciding the contours of the Union’s power to impose criminal sanctions. This is due to the fact that the rationale for conferring a criminal law competence on the EU was premised on the ‘effectiveness principle’. Given this, this competence must also apply in relation to any other EU policy (such as market abuse) which involves binding legislation whose effective implementation requires criminal penalties.22 The limits to the EU’s general criminal law power as derived from the Court’s case law can be stated as follows. First, it entails an examination of whether criminal laws contribute to the ‘effective implementation’ of a specific EU policy. If the EU legislature demonstrates that criminal laws contribute to the ‘effective implementation’ of the Union policy, it should, in a second stage, consider whether other, non-criminal, sanctions would contribute in equal measure to the ‘effective implementation’ of this specific EU policy.

C. Was the Environmental Crimes Directive Validly Adopted under Article 192 TFEU? i.  Scope and Content The Environmental Crimes Directive sets forth a minimum set of serious environmental offences that should be considered criminal throughout the Community when committed intentionally or with at least serious negligence. It also prescribes that the offences should be punishable by effective, proportionate and dissuasive criminal sanctions.23 From the legislative history it appears that the different institutions disagreed slightly on the scope of the Directive both in relation to the scope of the offences and the penalties. The focus here, as this has bearing for the essentiality condition, will be on the penalties.24

19 

See Article 2 EC (now Article 3 TEU). See Articles 3(2), 153(2) EC. 21  See Dougan, ‘From the Velvet Glove to the Iron Fist’ (n 3) 102–03. 22 See Case C-440/05 Commission v Council (n 2) Opinion of AG Mázak, paras 97–99; COM 2005/583 (n 3) 3. 23  See Directive 2008/99/EC of the European Parliament and of the Council of 19 November 2008 on the protection of the environment through criminal law [2008] OJ L 328/28, Arts 3 and 5. 24  On the basis of legal certainty the Parliament and the Council particularly criticised the vague scope of the offences in the original proposal; See European Parliament, Committee on Legal Affairs, ‘Report on the proposal for a directive of the European Parliament and of the Council on the protection of the environment through criminal law’, 15.4.2008, A6-0154/2008, 7–9, 13–17, 18–21, 31. See in contrast the Commission’s original proposal:’ Proposal for a Directive of the European Parliament and 20 

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In relation to the scope of the penalties the Commission had prescribed for more specified sanctions both in relation to the type and level of the penalty for the offences in the Directive interpreting the Environmental Crimes judgment broadly.25 The Parliament and the Council nevertheless underlined the limits imposed by the Court of Justice in the Ship Pollution case by reiterating that determining the type and level of criminal penalties to be applied fell outside the Community’s criminal law competence This entailed that the Commission’s proposal ran counter to the Ship Pollution ruling and had to be corrected, particularly by deleting the detailed penalty prescriptions in the original proposal.26 The Council accepted the European Parliament’s amendments without any debate meaning that the final Environmental Crimes Directive contained no specification of the type and length of the criminal penalties to be imposed by the Member States.27 It is worth underlining that the Parliament and Council was right to maintain this point. The implicit general criminal law competence recognised by the Court of Justice in its pre-Lisbon case law is limited to definition of offences and the imposition of a general criminalisation requirement.28 Although it is possible to argue on a principled basis that the limitation to criminalisation requirement makes it difficult to enforce environmental rules, it is obvious that the Court of Justice considered this limitation important to conform to the principle of proportionality and to respect the legal diversity in the Member States’ sanctioning systems.29 Below it is considered whether this limitation, have bearings on the assessment of the ‘essentiality’ condition.

ii.  Are Criminal Laws Essential to Enforce EU Environmental Policy? Having discussed the inter-institutional debate on penalties preceding the Directive, the latter part of this subsection considers on the basis of the legality standard developed in chapter three, whether the Directive conforms to the conditions of the Community’s general criminal law competence.30 First, there is an examination of whether there is ‘adequate’ reasoning to justify a resort to Article 192 TFEU. Secondly, there is an enquiry into whether the EU legislature has taken into account ‘relevant evidence’ showing that criminal laws are ‘essential’ for the effective implementation of Union environmental laws. of the Council on the protection of the environment through criminal law’, COM (2007) 51 final, Arts 3 and 4. The Parliament and the Council’s suggestions were respected in the final directive; see Arts 3 and 4 of the Environmental Crimes Directive (n 23). 25 

See Environmental Crimes Proposal (n 24), Art 5, 13. See Parliament Report on Environmental Crimes Proposal (n 24), 7–9, 18–21, 31. Council, ‘Press Release’, C/08/299 14667/08, 2899th Council meeting Justice and Home Affairs, Luxembourg, 24 October 2008; Brussels, 12 August 2008. 28  See Case C-440/05 Commission v Council (n 2), para 70. 29  See Case C-440/05, Commission v Council (n 2), Opinion of AG Mázak paras 103–11; Renaud Colson and Stewart Field, EU Criminal Justice and the Challenges of Diversity—Legal Cultures in the Area of Freedom, Security and Justice (Cambridge, Cambridge University Press, 2016). 30  See above ch 4 II B. 26 

27 See

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How then does criminal law contribute to the protection of the environment? The Commission’s main argument is that criminal law is effective because it works as a deterrent for illegal activities. The Commission assumes that environmental crime is a typical white-collar crime, where the offenders are rational calculators aiming to making a profit. Due to the nature of environmental offences, the imposition of criminal sanctions is an appropriate response.31 This claim is well-supported by the relevant literature, which generally holds that criminal law is effective for enforcing environmental offences.32 Why then is criminal law ‘essential’, ie more effective than other non-criminal sanctions? The Commission argues that criminal laws have greater deterrence value than other sanctions. Existing Union and Member State measures are insufficient to ensure the effective implementation of Union environmental policies. The Environmental Liability Directive (ELD) only requires the operator to bear the costs for the preventive and remedial actions actually taken pursuant to that directive and fails to sanction the responsible operator.33 Criminal sanctions are more effective, since they sanction a past illegal behaviour and prevent the repetition of the same illegal behaviour in the future.34 The Commission seems, judged by the relevant literature, to be correct in the assumption that the civil liability regime established by the ELD has a weaker deterrent effect than criminal sanctions.35 The Commission furthermore claims that individual administrative fines are an inappropriate option, since Member States set their sanctions at a level that is too low. As the huge profits offenders enjoy are not calculated in the fines applied to their offences, the fines imposed on offenders are simply considered as an acceptable cost of doing business, taking into account the low risk of detection. This general argument is also sustained by the criminal law literature.36 The Commission

31  See Commission, ‘Commission Staff Working Document, Accompanying Document to the Proposal for a Directive of the European Parliament and of the Council on the Protection of the Environment through Criminal Law, Impact Assessment’, SEC (2007) 160 12, 23–24, 28, 30. 32  See Gavin Hayman and Duncan Brack, ‘International Environmental Crime: The Nature and Control of Environmental Black Markets’, Royal Institute of International Affairs, 2002, 37. ec.europa. eu/environment/archives/docum/pdf/02544_environmental_crime_workshop.pdf. Accessed 17 June 2016; Michael Faure and Günter Heine, Criminal Enforcement of Environmental Law in the European Union (Alphen aan den Rijn, Kluwer Law International, 2005) 58. 33  See Arts 2(6) and 8(1) of Directive 2004/35/EC of the European Parliament and of the Council of 21 April 2004 on environmental liability with regard to the prevention and remedying of environmental damage [2004] OJ L 143/56. 34  See SEC (2007) 160 (n 31) 24. 35  See Ricardo Pereira, ‘Environmental Criminal Law in the First Pillar: A Positive Development for Environmental Protection in the European Union?’ (2007) 16 European Energy and Environmental Law Review 254, 260–61; Geraldine S Moohr, ‘An Enron Lesson: The Modest Role of Criminal Law in Preventing Corporate Crime’ (2003) 55 Florida Law Review 937, 969. 36  See Martin F McDermott, ‘Occupational Disqualification of Corporate Executives: An Innovative Condition of Probation’ (1982) 73 Journal of Criminal Law and Criminology 604, 614; Richard Macrory, ‘Regulatory Justice—Making Sanctions Effective’, Macrory Review, Cabinet Office, London, Final Report, November 2006, 47. webarchive.nationalarchives.gov.uk/20121212135622/http:/www. bis.gov.uk/files/file44593.pdf. Accessed 17 June 2016.

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thereto appeals to criminal law’s social stigma. The stronger deterrent effect of criminal sanctions over administrative or civil sanctions is due to the moral disapproval connected to a criminal penalty and the inclusion of convictions in criminal records. This claim is equally well defended by criminal law scholars as the previous mentioned arguments.37 The Commission moreover considers that criminal law is more effective than other sanctions due to its stronger enforcement mechanisms;38 a proposition which also seems to be generally recognised by experts on the enforcement of environmental law.39 Is there ‘adequate reasoning’ to support that criminal law is effective and essential for the enforcement of EU environmental policies? To test this, it should be examined whether the reasons put forward by the Commission are defendable in theory, ie supported by the general academic literature on the effects of criminalisation.40 The Commission has suggested two arguments that are sufficiently compelling to defend the superiority of criminal sanctions over non-criminal sanctions. These are the assumptions, well defended in the literature, that the superior moral stigma of criminal law and the stronger enforcement tools associated with criminal law make it a more effective sanction than non-criminal sanctions. Thus, it appears that the Commission’s reasoning is adequate to pass the legality standard. What then is the evidence for the effectiveness and ‘essentiality’ of criminal laws in the implementation of Union environmental policies? First, the Commission refers to scientific studies in its impact assessment to support the view that environmental crimes are typical white collar crimes to which criminal sanctions are the appropriate response.41 There is, nevertheless, no reference to the literature or studies of the legislative background documents supporting the claim that criminal laws provide a greater moral stigma than administrative sanctions. Such evidence exists,42 and it is regrettable that the Commission failed to refer to it. Secondly, the Commission submits evidence from Member States showing that the use of effective investigation methods, such as technical surveillance or interception and recording of mail, and telecommunications, require there to be serious offences with high prison penalties. The evidence from the country examples, however, only demonstrates that severe prison sentences render criminal enforcement more effective. General criminalisation of infringements of EU

37  See Dan M Kahan, ‘What Do Alternative Sanctions Mean?’ (1996) 63 University of Chicago Law Review 591, 593, 650; James Gobert and Maurice Punch, Rethinking Corporate Crime (Cambridge, Cambridge University Press, 2003) 220, 275–76. 38  See SEC (2007) 160 (n 31) 18, 24, 28, 35; Environmental Crimes Proposal (n 24) 2; 39  See Hayman and Brack (n 32) 22–24. 40  See ch 3 V. 41  The article mentioned in the IA is Hayman and Brack’s article; see n 32; SEC (2007) 160 (n 31) 12–13, 24. 42  See above n 37 for such evidence.

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environmental laws, without accompanying severe sanctions (which was excluded from the Directive as underlined above), will thus not necessarily entail access to stronger investigation methods and thus to improved enforcement of EU environmental policies.43 In relation to the superiority of criminal laws over individual administrative fines, the Commission refers to evidence from the House of Commons suggesting that the current low fines applied in the UK are merely a business cost, since many businesses in the UK currently see the payment of fines as the cheaper option to full environmental compliance.44 The Commission then relies upon two studies, one study by TRAFFIC Europe45 and one conducted by HugloLepage & Associés,46 to show the national divergences in terms of the type and level of penalties imposed and the insufficiency of national sanctioning regimes. However, although the Commission has spent considerable effort to point out the insufficiency of existing national sanctioning regimes, there is no evidence in the legislative background documents to support the claim that criminal sanctions are superior to other, non-criminal sanctions, which is the main point in demonstrating compliance with the ‘essentiality’ condition. While such evidence exists in the literature,47 the Commission did not refer to it. In order to pass the legality test, the EU legislature must show that the reasons which justified why EU criminalisation is ‘effective’ (the ‘effectiveness’ criterion) and ‘essential’ (the ‘essentiality’ criterion) for the enforcement of EU policies is supported by sufficient and relevant evidence.48 This test has not been met in this case. First, while the Commission proposed three reasons (‘deterrence’ and ‘social stigma’) which justify why criminal laws are ‘effective’ for the enforcement of EU environmental laws, none of these reasons have been supported by sufficient and relevant evidence. Secondly, although the Commission submitted two reasons (criminal law’s superior social stigma and better enforcement tools) which could justify criminal law’s superiority over non-criminal sanctions, neither of those reasons were buttressed by relevant evidence to show how criminal laws are superior to non-criminal sanctions.

43 

See SEC (2007) 160 (n 31) 13–14. See House of Commons’ Environmental Audits Committee: ‘Report on Corporate Environmental Crime’, Second Report of Session 2004-2005, HC 136, Evidence from Environmental Industries Commission, Ev 65–68, 20–22; SEC (2007) 160 (n 31) 22–23. 45 See Tobias Garstecki, ‘Implementation of Article 16, Council Regulation (EC) No 338/97 in the 25 Member States of the European Union’ (2006) A TRAFFIC Europe Report for the European Commission, Brussels, 4–5, 40; SEC (2007) 160 (n 31) 14–18. 46  See Huglo-Lepage & Associés, ‘Criminal Penalties in EU Member States’ Environmental Law’, final report, (2003), 15/09/2003, 354–55, 407–10, 542, 663–64, 708, 759, 828–30 ec.europa.eu/environment/legal/crime/pdf/criminal_penalties2.pdf. Accessed 17 June 2016; SEC (2007) 160 (n 31) 14–18. 47  See above n 35–36 in the present chapter for such evidence. 48  See above ch 3 V. 44 

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III.  Limits to the Exercise of Express Union Criminal Law Competence after Lisbon Treaty (Article 83(2) TFEU) The second section of this chapter examines the scope of the new provision Article 83(2) TFEU, which was introduced by the Lisbon Treaty. The central question in the literature and among the EU institutions has been how the competence in Article 83(2) TFEU should be exercised49 and it is this question that this section addresses. For this purpose, it is appropriate to begin the analysis with a close examination of the wording of the provision: ‘If the approximation of criminal laws and regulations of the Member States proves essential to ensure the effective implementation of a Union policy in an area which has been subject to harmonisation measures, directives may establish minimum rules with regard to the definition of criminal offences and sanctions in the area concerned. Such directives shall be adopted by the same ordinary or special legislative procedure as was followed for the adoption of the harmonisation measures in question …’

This section explores in turn the three central and italicised conditions in this provision: i) that criminal law should be ‘effective’ for the enforcement of EU policies; ii) that they must be ‘essential’, ie that no other equally effective measures exist; and iii) that there must be previous ‘harmonization’ measures in the area concerned.

A. Substantive Limitations on the Exercise of Union Competence under Article 83(2) TFEU i.  Effective Implementation of a Union Policy Although Article 83(2) TFEU presumes that criminal sanctions contribute to the ‘effective implementation’ of Union policies, the meaning of this concept ought to be examined. Advocate General Kokott’s definition in the Berlusconi case of what is an ‘effective’ criminal sanction is an appropriate point of departure for the discussion. In her Opinion, AG Kokott argued that within the context of ascertaining what the term ‘appropriate penalties’ means in relation to the publication of false company documents, rules laying down penalties are ‘effective’ where they are framed in such a way that they do not make it practically impossible or excessively

49  See; Dougan, ‘From the Velvet Glove to the Iron Fist’ (n 3) 100–02, 108–13; Commission, ‘Communication from the Commission to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions—Towards an EU Criminal Policy: Ensuring the effective implementation of EU policies through criminal law’, COM 2011(573) final (‘COM 2011/573’) 6, 9–11.

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difficult to impose the penalty provided and to attain the ‘objectives’ pursued by Union law. Furthermore, a penalty is ‘dissuasive’ when it prevents an individual from infringing the objectives pursued and the rules laid down by Union law.50 Kokott’s reasoning on ‘dissuasiveness’ is analytically sound. It is firmly based within the classical deterrence discourse, which suggests that the effectiveness of criminal penalties depends on the severity of the penalty.51 Even more pertinent is Kokott’s definition of appropriate criminal penalties, which envisage that criminal sanctions, in order to be ‘effective’, must be appropriate to achieve a certain EU objective or EU policy.52 This is arguably a correct definition of effectiveness in the field of criminal penalties. It is also consistent with the practice of the Court and the Commission. The Commission has stated that sanctions can be considered ‘effective’ when they are capable of ensuring compliance with EU law.53 The Court suggested in a similar way in the Ship-Source Pollution judgment that ‘effectiveness’ refers to the capacity of criminal penalties to achieve ‘compliance’ with Union rules and the extent to which rules are applied in practice and complied with in practice.54 The definition proposed is therefore that ‘effective implementation of Union policies’ is concerned with the extent to which criminal laws can contribute to achieving Union objectives in the policy area concerned. The first part of the Article 83(2) TFEU test is thus that the Union legislature must show that criminal sanctions are capable of s­ upporting the realisation of the Union objective in question.

ii.  The ‘Essentiality’ Condition This subsection explores the second part of the test of Article 83(2) TFEU, the ‘essentiality’ condition from a textual, functional and contextual and principled perspective. In a linguistic sense, the ordinary meaning of ‘essentiality’ in the English language suggests that ‘essential’ means ‘without factor x result, y cannot take place’. It means something that is indispensable or an absolute necessity for the attainment of a given objective.55 To take an example, one can imagine a situation in which a lower court shall, as a matter of procedure, consider both res judicata (ie law x) and litispendens (law y) to make a valid decision.56 If either of these legal principles is 50  See Joined cases C-387/02, C-391/02 and C-403/02 Berlusconi and Others [2005] ECR I-03565, Opinion of AG Kokott, paras 88–89. 51  See Gary Becker, ‘Crime and Punishment: An Economic Approach’ (1968) 76 Journal of Political Economy 169, 207–09; Jeremy Bentham, The Rationale of Punishment (London, Robert Heward, 1830) 19–20. 52  See similarly Case 326/88 Hansen [1990] ECR I-02911, Opinion of AG Van Gerven, para 8. 53  See COM 2011/573 (n 49) 9. 54  See Case C-440/05 Commission v Council (n 2) paras 68–69. 55 See Black’s Law Dictionary (6th edn, St Paul, West Publishing Company 1990) 546, 773, 1029–30 for the definitions of ‘necessary’ and ‘necessity’ which, in some contexts, have a similar meaning to ‘essential’ and ‘indispensable’. 56  See Swedish Code of Judicial Procedure of 1942 (SFS 1942:740), English Translation DS 1998:000, Chapter 13, section 6 and Chapter 17, section 11.

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disregarded, the judgment is not valid. Consequently, it is ‘essential’ that both res judicata and litispendens are considered to make a valid decision. It follows that ‘essential’, in the sense of Article 83(2) TFEU, implies semantically that ‘without criminal sanctions (X), the effective implementation of Union policy (Y) cannot take place’. It is only when it is ‘absolutely necessary/indispensable’ for the effective implementation of a Union policy that the Union should resort to criminal sanctions.57 In textual terms the ‘essentiality’ condition thus seems to suggest that the Union legislature will have a substantial burden when making the case for criminal law harmonisation under Article 83(2) TFEU. The next aspect to be considered is whether the linguistic interpretation of the ‘essentiality’ requirement fits with the Court’s existing case law. The Court has, as discussed in chapter two,58 adopted a ‘manifestly inappropriate’ test and conferred a broad discretion to the EU institutions when examining the compatibility of general normative acts with the proportionality principle. Based on this case law, it is ­arguable that the Court should apply a similar standard of legality under Article 83(2) TFEU as the proportionality test. This test implies that the intensity of the review would be light and that the lawfulness of a criminal law measure adopted under Article 83(2) TFEU can only be affected if it is ‘manifestly inappropriate’ in relation to the objective which the Union institutions are hoping to achieve.59 Since the principles established by the Court in Environmental Crimes and Ship-Source Pollution are of general importance for determining the scope of the EU’s criminal law competence, these rulings should also be taken into account in the analysis. In the Environmental Crimes and the Ship-Source Pollution judgments, the Court took a cautious approach and accepted the Council’s assessment that c­ riminal sanctions were ‘essential’ in those cases for the effective implementation of Union environmental law.60 This test suggesting that the Court would be unable to ­question the Union legislature’s choice, even when it appears on the face of it to be patently unreasonable, seems to be an even weaker test than the ‘manifestly inappropriate’ test, which the Court employs when reviewing EU legislation in the field of common policies. The Court’s approach could be criticised as incoherent and unprincipled.61 One could reasonably expect the Court to adopt a s­imilar approach in the review of EU legislation in the field of criminal law as it has when reviewing EU legislation in the field of the internal market or in the fields of other common policies.62 Furthermore, there are good moral reasons to contest the Court’s de facto slippery essentiality test. One would not envision the Court

57  For support of this position: see Petter Asp, The Substantive Criminal Law Competence of the EU—Towards an Area of Freedom, Security & Justice—Part 1 (Stockholm, Jure, 2013) 130. 58  See above ch 2 IV. 59  See Case C-210/03 Swedish Match [2004] ECR I-11893, para 48. 60  See Case C-176/03 Commission v Council (n 2) para 50; Case C-440/05 Commission v Council (n 2) para 68. 61  See, however, for a support of the Court’s position: Case C-440/05 Commission v Council (n 2), Opinion of AG Mazák, paras 119, 121; Dougan, ‘From the Velvet Glove to the Iron Fist’ (n 3) 102. 62  See Asp (n 57) 131.

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adopting a lighter test than ‘manifestly inappropriate’ in a field such as criminal law, which is sensitive for fundamental rights concerns and where such concerns militate against turning the ‘essentiality’ condition into a political question. Accepting such a test would exclude criminal law legislation from the judicial domain and would prevent the Court from discharging its judicial function.63 Whilst the analysis so far suggests that we should settle for the Court’s current application of the ‘manifestly inappropriate’ standard for the review of legislation adopted under Article 83(2) TFEU, it is argued that the Court should involve itself in a more intense review of ‘essentiality’. This is because the intensity with which the ‘manifestly inappropriate’ standard is applied in relation to the review of broad EU policies is ill-suited to police the exercise of the competence in Article 83(2) TFEU.64 First, it is sustained that the nature of criminal law favours a more demanding enquiry into the legality of broad EU criminal law measures. Criminal penalties severely restrict the freedom of individuals, and they entail serious socio-ethical implications and stigmatisation of the offender. A more far-reaching application of ‘essentiality’ than the Court’s current application of the ‘manifestly inappropriate’ standard is therefore justified by the fact that criminal sanctions are inextricably linked to individual fundamental rights and substantial social costs.65 Secondly, more serious judicial scrutiny of legislation adopted under Article 83(2) TFEU is also justified because of the ‘essentiality’ requirement’s appeal to the principle of ultima ratio.66 If the ‘essentiality’ condition is interpreted in light of the ultima ratio principle, we should expect the EU legislature to show by empirical evidence that alternative sanctions are not effective in the enforcement of EU policy. While the ultima ratio principle is primarily directed to the EU legislator we should expect the Court, given the emphasis placed by the literature and the official EU documents on the ultima ratio principle, to apply the ‘essentiality’ condition in the light of this principle.67 Thirdly, from a contextual perspective, a more searching judicial enquiry is also supported by political statements of the Parliament and the Commission, which acknowledge the need to take the ‘essentiality’ requirement seriously. The application of this criterion thus requires a thorough analysis in the

63 See Martin H Redish, ‘Judicial Review and the “Political Question”’ (1985) 79 Northwestern University Law Review 1031, 1060; Bruce V Harris, ‘Judicial Review, Justiciability and the Prerogative of Mercy’ (2003) 62 Cambridge Law Journal 631, 633, for the moral and principal problems of extremely light judicial review. 64  For this point, see above ch 2 IV. 65  See Maria Kaiafa-Gbandi, ‘The Importance of Core Principles of Substantive Criminal Law for a European Criminal Policy Respecting Fundamental Rights and the Rule of Law’ (2011) 1 European Criminal Law Review 7, 17–21; Sakari Melander, ‘Ultima Ratio in European Criminal Law’ (2013) 3 European Criminal Law Review 45, 52. 66  That the ‘essentiality’ condition should be considered in light of the principle of ultima ratio is clear from key policy documents; COM 2011/573 (n 49) 6–8, 12; European Council, ‘The Stockholm Programme: An Open and Secure Europe Serving and Protecting Citizens’, (2010) OJ C 115/1, C 115/15. 67  See Melander (n 65) 45–46, 50–53; Kaiafa-Gbandi (n 65) 17–19.

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impact assessments preceding any legislative proposal, including an assessment of whether measures other than criminal law measures could not sufficiently ensure the policy implementation.68 Having argued for an intense review of the ‘essentiality’ requirement, it must be considered how this condition should be enforced before the EU courts. The Court must be careful not to enter into ‘substantive review’ of the appropriateness of EU legislation or a reassessment of the factual evidence for a particular criminal law measure as this would exceed the Court’s legitimacy and authority.69 Because of these concerns it is suggested that the Court should adopt a procedural review enquiry and apply the test of legality developed in chapter three to implement the ‘essentiality’ condition. This test, requiring the EU legislature to offer reasons for the ‘essentiality’ of criminal laws that are compelling in theory and supported by relevant evidence, provides for more intensity than the Court’s conventional ‘manifestly inappropriate’ test.70

iii. Does the Market Abuse Crimes Directive Conform to the ‘Essentiality’ Requirement in Article 83(2) TFEU? In order to complete the analysis of the substantive conditions of Article 83(2) TFEU, this sub-section considers whether the new Market Abuse Crimes Directive, adopted under Article 83(2) TFEU, conforms to the ‘effectiveness’ and ‘essentiality’ condition. a.  The Scope of the Directive As a part of its regulatory enforcement reform package in the financial services sector, the Commission decided to propose a directive on criminal sanctions for market abuse which was later endorsed as a directive.71 Before going further in the analysis of whether the Directive conforms to the ‘essentiality’ condition, it is worth considering the scope of the Directive. The Directive defines three offences: insider dealing; unlawful disclosure of information; and market manipulation, which should be regarded by Member States as criminal offences if committed intentionally.72 There were similarly, as in the case of the Environmental Crimes

68  See Parliament, ‘Report on Legal Bases and Compliance with Community Law’, A5-0180/2003, 22.5.2003, Explanatory Statement, point II, 8–10; COM 2011/573 (n 49) 5–7, 11. 69  See above ch 3 II–III for a general discussion of the institutional arguments against demanding judicial review. 70  See above ch 3 V for this test. 71  Directive 2014/57/EU of the European Parliament and of the Council of 16 April 2014 on criminal sanctions for market abuse (market abuse directive) [2014] OJ L 173/79 (‘Market Abuse Crimes Directive’ ‘Directive’); Proposal for a Directive of the European Parliament and of the Council on criminal sanctions for insider dealing and market manipulation, COM (2011) 654 final, (‘Market Abuse Crimes Proposal’ or ‘Proposal’). 72  See Market Abuse Crimes Directive (n 71), Arts 3–5.

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Directive,73 some disagreements among the institutions concerning the scope of the offences in the negotiations of the Directive. The Parliament and the Council clarified the scope of the disclosure offence and the possession offence in the Directive to ensure that the principle of legal certainty was conformed to. The Parliament also underlined the need to safeguard maximal consistency between the Market Abuse Regulation and the Directive by ensuring that definitions of administrative offences and criminal offences were consistent.74 The important issue for the present purpose of analysing the ‘essentiality’ requirement concerned, however, the inter-institutional debate on penalties. The Commission had in its original proposal only prescribed more generally that the offences should be ‘punishable by criminal sanctions which are effective, proportionate and dissuasive’.75 This wording was kept intact for the first part of Article 7 in the final version of the Directive.76 The Council, however, amended the rest of the provision by prescribing that market manipulation and insider dealing offences should be punished by a maximum term of at least four years’ imprisonment.77 This wording was partly an outcome of discussions among the delegates where there was a perception that an approximation of penalties was required in order to ensure the effective implementation of EU market abuse policy.78 The Parliament particularly emphasised that the need for the Market Abuse Crimes Directive relied on the fact that Member States’ sanctioning regimes were weak and heterogeneous. Given this, harmonising at least the minimum of the maximum sanction appeared more appropriate.79 The final phrasing of the provision was also probably influenced by the Council Legal Services’ (CLS) opinion on the original MAD proposal and its compatibility of Articles 83(2) TFEU. CLS’ opinion on Article 83(2) TFEU was intriguing as it in fact showed the CLS understanding of the ‘essentiality’ condition. CLS held that the ‘essentiality’ condition in Article 83(2) TFEU boiled down to the question of whether an effective implementation of the underlying harmonisation measure could be achieved by merely harmonising the offences and not the nature and level of the corresponding sanctions.80 The CLS then proceeded to critique the Commission’s original proposal since an ‘effective implementation’ of the underlying EU harmonisation measure, the

73 

See above II C. See European Parliament, ‘Report on the proposal for a directive of the European Parliament and of the Council on criminal sanctions for insider dealing and market manipulation COM (2011)0654, 19.10.2012, A7-0344/2012, 26–29. 75  See Market Abuse Crimes Proposal (n 71), 12, Art 5. 76  See Market Abuse Crimes Directive (n 71), Arts 7(1), 9. 77  See Market Abuse Crimes Directive (n 71), Art 7(2)–(3). 78 See Council, ‘Press Release 9179/12’, 3162nd Council meeting Justice and Home Affairs ­Luxembourg, 26 and 27 April 2012. 79  See Parliament Report on Market Abuse Crimes Directive (n 74), 26–27, 19–20, 31–32. 80  See Council, Council Legal Service, ‘Re: Appropriateness of the Legal Basis of the Proposals for a Directive of the European Parliament and of the Council on criminal sanctions for insider dealing and market manipulation and its compatibility with the Ne Bis in Idem principle’, 12979/12, Brussels 27 July 2012, 4–5. 74 

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Market Abuse Regulation, could only be achieved through a simultaneous harmonisation of offences and sanctions. It observed that the simultaneously negotiated proposal for a Market Abuse Regulation allowed for a number of administrative sanctions and allowed Member States to provide the competent authorities with additional sanctioning powers and to provide for higher levels of sanctions.81 The various approaches in these legislative acts could, however, cause concerns on the implementation stage of the MAR and the Market Abuse Regulation. In particular, because the vague penalty requirements in the Market Abuse Crimes Directive give a lot of discretion to Member States in relation to the penalty to be imposed, this could result in ne bis in idem issues where administrative sanctions resulting from the MAR are more severe in some Member States than criminal sanctions in other Member States for the same conduct. Harmonisation of the definition of criminal offences but not the corresponding penalties applicable to them would thus entail that the MAD would not possibly fulfil the condition of ‘proving essential to ensure the effective implementation’ of the MAR as required by Article 83(2) TFEU.82 CLS’ argument must be taken seriously. It may be argued that divergent and conflicting approaches in administrative and criminal regimes may hinder the effective implementation of a certain policy. But lack of uniformity in approach is arguably not an issue of ‘effective implementation’ as this has nothing to do with whether criminal law deters individuals more than other sanctions from committing crimes, which is the real question when assessing the ‘essentiality’ condition.83 The question of uniformity is rather a subsidiarity issue of the rationale for harmonisation and whether the Union should regulate the issue of the fight against market abuse through criminal law.84 If CLS’ argument, however, is understood in the way that it argues that only high penalties would deter individuals from committing offences it is a more compelling claim. It appears plausible that higher sanctions may provide a deterrent for individuals contemplating engaging in insider trading dealings. This argument has also, however, a weak spot. While criminal law and sanctioning system may have a modest deterrent effect, criminologists seem to be in agreement that the length or magnitude has little influence on deterrence, ie individual’s decision to commit crimes. More important for deterrence is the celerity of the sanctions, that there is a sanction at all and the risk for detection and prosecution.85 81  See Commission, ‘Proposal for a Regulation of the European Parliament and of the Council on insider dealing and market manipulation (market abuse)’, COM (2011) 651 final (‘MAR Proposal’), Art 26. This provision was later transferred intact to the final regulation: Art 30, See Regulation (EU) No 596/2014 of the European Parliament and of the Council of 16 April 2014 on market abuse (market abuse regulation) and repealing Directive 2003/6/EC of the European Parliament and of the Council and Commission Directives 2003/124/EC, 2003/125/EC and 2004/72/EC [2014] OJ L 173/1 (MAR). 82  See CLS (n 80), 14–16. 83  See Asp (n 57), 129–31. 84  See Art 5(3) TEU. 85  See Raymond Paternoster, ‘How much do we really know about criminal deterrence?’ (2010) 100 Journal of Criminal Law and Criminology 765 with further references.

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b. Are Criminal Laws Effective and Indispensable for the Enforcement of EU Market Abuse Policies? Having initially considered the issue of penalties, it is now time to explore, on the basis of the legislative background documents, whether the EU legislator correctly exercised its competence in conformity with the ‘essentiality’ requirement when it adopted the Directive. Firstly, it is considered whether the Commission’s reasoning in the legislative background documents is ‘adequate’ to support the claim for criminalisation under Article 83(2) TFEU. The Commission advances one general contention to sustain that criminal laws are ‘effective’ and ‘essential’ for the enforcement of EU market abuse policies: the deterrence argument. It is defended on three grounds. First, criminal sanctions express a particularly strong social disapproval towards individual offenders and therefore give it a dissuasive value. This assumption also explains the superiority of criminal laws over non-criminal responses since criminal sanctions according to the Commission are of a qualitatively different nature making them more dissuasive than non-criminal penalties.86 This argument has strong support in the literature.87 Secondly, the deterrent nature of criminal laws is explained with reference to the ‘educative function’ of criminal laws. The Commission suggests that establishing criminal offences for the most serious forms of market abuse improves deterrence by setting clear boundaries that emphasise that such behaviour is regarded as unacceptable.88 Thirdly, the ‘communicative’ function of criminal law also contributes to the deterrent function of criminal law according to the Commission. It is contended that successful convictions for market abuse offences under criminal law often result in extensive media coverage, which helps to deter potential offenders by drawing public attention to the commitment of authorities to tackling market abuse.89 The second and the third arguments are defended by leading criminal law scholars.90 The Commission also distrusts, on deterrence grounds, alternative non-criminal sanctions. It claims that the deterrent effect of civil sanctions is limited, as first, they do not cover all possible violations of EU financial services rules, and secondly, they cannot always be imposed due to difficulties in quantifying damages. In addition, the compensation of losses is not a deterrent in cases in which the profit derived from the violation is higher than the 86 

See Market Abuse Crimes Proposal (n 71) 3. See n 37 for reference to the relevant literature supporting this point. See Market Abuse Crimes Proposal (n 71) 3; Market Abuse Crimes Directive (n 71) recital 6. 89 See Commission, ‘Commission Staff Working Paper, Impact Assessment, Accompanying the document Proposal for a Regulation of the European Parliament and of the Council on insider dealing market manipulation (market abuse) and the Proposal for a Directive of the European Parliament and of the Council on criminal sanctions for insider dealing and market manipulation’, SEC (2011) 1217 final, 165. 90  For support of the deterrent function of criminal law due to its educative function: see Joel Feinberg, ‘The Expressive Function of Punishment’, in Joel Feinberg (ed), Doing & Deserving: Essays in the Theory of Responsibility (Princeton, Princeton University Press, 1970). For support of the dissuasive nature of criminal law due to its communicative function: Antony Duff, Punishment, Communication, and Community (Oxford, Oxford University Press, 2001). 87  88 

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damages awarded. Nor, according to the Commission, are non-criminal fines the solution to the enforcement problem. Since violations of insider dealing regulations can lead to gains of several million euro, a fine of a few thousand euros, as provided in several Member States, does not seem to be sufficiently dissuasive.91 The argument that non-criminal fines and civil liability sanctions generally are inferior to criminal sanctions is also well-supported by the scholarship.92 The proposed test of legality for ‘adequate reasoning’ requires control of whether the reasons submitted are sufficient in theory to sustain the effectiveness of criminal laws.93 This seems to be the case. The Commission’s general claim that criminal laws act as a ‘deterrent’ and the three sub-arguments supporting this claim: the ‘social stigma’ of criminal laws, and the ‘educative’ and ‘communicative’ function of criminal laws, are all supported by the relevant literature. Secondly, it is examined whether the Commission has proposed satisfactory reasoning for the contention that criminal laws are ‘essential’ for the enforcement of EU market abuse law. In this regard, it is suggested that the Directive should pass the test for ‘adequate’ reasoning. The Commission has suggested the moral stigma argument, which in itself, on the basis of the pertinent literature, explains why criminal laws are superior to non-criminal sanctions.94 The second part of the legality test involves determining whether the justifications offered to defend the ‘effectiveness’ of criminal sanctions and the ‘essentiality’ of criminal laws are backed up by ‘relevant’ and ‘sufficient evidence’.95 First, it is queried whether the Commission’s justifications for the appropriateness of criminal laws are supported by such evidence. The Commission relies on the statements of Margaret Cole, a former director of enforcement of the UK Financial Services Authority (FSA) (now Financial Conduct Authority (FCA)), to prove the effectiveness of criminal law in this area. Cole asserted that criminal laws are effective in enforcing market abuse rules since they provide strong deterrence. Her statement is also invoked to support the ‘essentiality’ of criminal laws. According to Cole, criminal sanctions, and in particular, custodial sentences, have a stronger dissuasive effect on potential market abuse offenders than administrative sanctions. On the basis of these statements, the Commission claims that some national regulators consider criminal sanctions to have a deterrent value.96 This claim does,

91  See SEC (2011) 1217 (n 89) 26; Commission, ‘Commission Staff Working Paper, Impact Assessment, Accompanying document to the Communication from the Commission to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions, Reinforcing sanctioning regimes in the Financial Services Sector’, SEC (2010) 1496 final, 12–14, 19, 25–26. 92  See above n 35–36 in the present chapter, for references to the relevant literature supporting this point. 93  See ch 3 V. 94  See above n 37 for references to the relevant literature. 95  See above ch 3 V. 96  See SEC (2011) 1217 (n 89) 166, at n 312; speech by Margaret Cole, ‘How Enforcement Makes a Difference’ 18 June 2008. www.fsa.gov.uk/pages/Library/Communication/Speeches/2008/0618_ mc.shtml. Accessed 26 June 2016.

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however, not appear compelling. The Commission misrepresents the reality, since ‘some national regulators’ refers only to the views of the director of one national regulator, ie the FSA. Moreover, the evidentiary value of Cole’s statements is questionable, given the risk of bias. The director has a personal interest in promoting trust in the enforcement activities of the FSA and to assure the regulatory community and the public that its enforcement of market abuse regulation is effective.97 This evidence does not seem sufficient to prove the claims of the deterrent nature of criminal laws. Secondly, the Commission refers to market cleanliness surveys from the FSA which demonstrate a reduction of pre-announcement price movements from 30.6 per cent (in 2009) to 21.2 per cent in 2010. By means of these figures the FSA claims that increased criminal enforcement had a positive effect on compliance. This evidence does not, however, as recognised by the FSA itself, prove any causal link between increased enforcement and the reduction in the indicator.98 Thirdly, the Commission points to one company survey from the Office of Fair Trading (OFT) suggesting that criminal sanctions, and in particular, incarceration, is the strongest possible deterrent for a potential infringer.99 The OFT report refers to an earlier OFT company survey which indicates that many companies rank criminal penalties highly as a factor to promote compliance. While this study gives some support for the statement that criminal laws are superior over non-criminal sanctions, it is insufficient as evidence for the general superiority of criminal laws. First, since this study is not included in the Commission’s impact assessment from 2011, it is questionable whether it can be counted as evidence. Furthermore, even if it would count as evidence for the greater effectiveness of criminal laws, this survey is limited to the assessment of penalties in the field of competition law.100 The additional evidence for the ‘effectiveness’ of criminal sanctions arises from an article by Michael Levi on the use of shaming within the context of corporate fraud. He suggests that criminal sanctions may, under certain conditions, contribute to the objective of increasing deterrence due to the stigma attached to criminal conduct. Although the argument gives some support for the effectiveness of criminal law, it is debatable whether it amounts to evidence of the ‘essentiality’ of criminal sanctions in the enforcement of market abuse rules. First, Levi’s

97  See also statements to the same effect from Martin Wheatley, one of the new directors of the FCA: Martin Flanagan, ‘FCA chief pledges to enforce “credible” deterrence’ Scotsman (31 March 2013) www.scotsman.com/scotland-on-sunday/business/fca-chief-pledges-to-enforce-credible-deterrence1-2868289. Accessed 26 June 2016. 98 See FSA, ‘Annual report 2010/11’, 62. www.fsa.gov.uk/pubs/annual/ar10_11/ar10_11.pdf. Accessed 26 June 2016; SEC (2011) 1217 (n 89) 52 at n 127. 99  See London Economics, ‘An Assessment of Discretionary Penalties Regimes’ OFT1132, Report for the Office of Fair Trading (UK), October 2009, paras 1.18, 3.32. 100 See Deloitte and Touche, ‘The Deterrent Effect of Competition Enforcement by the OFT’, A report prepared for the OFT by Deloitte, November 2007, OFT 962, paras 1.23, 1.26, 5.58–5.59, 5.109–5.110. webarchive.nationalarchives.gov.uk/20140402141250/http://www.oft.gov.uk/shared_oft/ reports/Evaluating-OFTs-work/oft962.pdf. Accessed 26 June 2016.

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s­ haming argument only relates to the fraud offence, and the Commission has not explained how this argument could be used within the context of market abuse.101 Secondly, the Commission’s representation of the article is not entirely accurate. Instead of contending that ‘criminal sanctions contribute strongly to the objective of increasing deterrence due to the stigma attached to criminal conduct’,102 Levi merely expresses the view that the shaming function of criminal sanctions is effective in achieving compliance with the rules of society.103 In addition, the Commission referred to six scientific articles104 and studies, presumably to argue that criminal sanctions are more effective than non-criminal fines.105 Having reviewed these studies, it is striking that none of them sustains that criminal sanctions are superior to non-criminal fines or other alternative sanctions. They only demonstrate the insufficiency of existing national sanctioning regimes.106 Although there is evidence in the literature that demonstrates the superiority of criminal sanctions over alternative sanctions for the enforcement of regulatory commands,107 the Commission has failed to refer to such evidence. It can also be observed that there is no discussion in the impact assessment of whether other alternative sanctions108 on a Union level in combination, such as individual fines, trading prohibitions109 and civil liability,110 would be sufficient to ensure the effective implementation of Union market abuse policies. Since the Union legislature has a competence under Article 114 TFEU to adopt several

101  See Michael Levi, ‘Suite Justice or Sweet Charity? Some Explorations of Shaming and Incapacitating Business Fraudsters’ (2001) 4 Punishment and Society 147, 149; Market Abuse Crimes Proposal (n 71) 3. 102  See SEC (2011) 1217 (n 89) 166. 103  See Levi (n 101) 155, 158. 104  See John C Coffee Jr, ‘Law and the Market: The Impact of Enforcement’ (2007), 7 March 2007, Columbia Law and Economics Working Paper No 304. ssrn.com/abstract=967482. Accessed 26 June 2016; Uldis Cerps, Greg Mathers and Anete Pajuste, ‘Securities Laws Enforcement in Transition Economies’ (2012), 20 December 2012 iweb.cerge-ei.cz/pdf/gdn/RRCV_100_paper_01.pdf. Accessed 26 June 2016; Rafael La Porta, Florencio Lopez-De-Silanes and Andrei Shleifer ‘What Works in Securities Laws?’ (2006) 61 Journal of Finance 1; Peik Granlund, ‘Regulatory Choices in Global Financial Markets— Restoring the Role of Aggregate Utility in the Shaping of Market Supervision’ (2008) Bank of Finland Research Discussion Papers 1/2008; Wouter PJ Wils, ‘Optimal Antitrust Fines—Theory and Practice’ (2006) 29 World Competition 183, 199; CRA International/City of London, ‘Assessing the Effectiveness of Enforcement and Regulation’ (2009), London, April 2009. www.cityoflondon.gov.uk/business/economic-research-and-information/research-publications/Documents/research%202009/Assessing%20 the%20Effectiveness%20of%20Enforcement%20and%20Regulation.pdf. Accessed 24 January 2017. 105  See SEC (2010) 1496 (n 91) 12. 106  ibid, 12–20. 107  See nn 35–36 for references to such literature. 108  See Market Abuse Crimes Proposal (n 71) 2. 109  The usefulness of disqualification orders was recognised by the Commission in SEC (2010) 1496 (n 91) 12. 110  The impact assessment from 2010, SEC (2010) 1496 (n 91) 19, merely states that civil liability sanctions have a limited deterrent effect, while completely failing to compare such sanctions to criminal sanctions.

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non-criminal sanctions to support the internal market,111 it may be queried why the Union legislature did not consider this option. Although the Union legislature need not prove that alternative non-criminal sanctions do not work on the Union level, there should be comprehensive references to evidence showing the superiority of criminal sanctions over administrative sanctions. Such references are lacking in the impact assessment. Moreover, it is difficult to comprehend how differences between the Member States’ legislation would prove the insufficiency of national sanctioning regimes. There is no empirically established relationship between differences between the Member States’ legislation and its lack of deterrent effect.112 Does the evidence, despite this criticism, nevertheless pass the proposed test? As we saw above, there only needs to be sufficient and relevant evidence to support ‘one of the reasons’ which constitutes a justification for criminalisation to pass the evidence limb of the test. Since the Commission has been able to refer to three separate studies—the OFT survey, Levi’s article and the market cleanliness survey—to support the notion that criminal laws have a deterrent effect, it has successfully demonstrated that criminal laws are ‘effective’ for the enforcement of EU market abuse rules. However, it seems that the Commission has failed to show that criminal sanctions are more effective than non-criminal sanctions for the enforcement of EU market abuse policies (‘essentiality’ condition). Having dismissed the statements by Margaret Cole above, the market cleanliness study from FSA, Levi’s article and the scientific studies on the impact of different levels of fines as inadequate or irrelevant, there is only one piece of evidence which supports the ‘essentiality’ of criminal laws. This is the OFT survey invoked by the Commission in its impact assessment. While this piece of evidence goes in the right direction, more than a single study must be produced as evidence to show the indispensability of criminal laws. Even if we interpret the Commission’s argument for the ‘essentiality’ of criminal laws as a general claim that criminal laws have a greater deterrence value than non-criminal sanctions, it is insufficient to support this thesis with only one relevant piece of evidence.113 In sum, it seems that the Commission partly has failed to show that the justifications offered for the ‘essentiality’ of criminal laws are supported by sufficient and relevant evidence. Thus the Market Abuse Crimes Directive does not appear to be, as it stands, in conformity with Article 83(2) TFEU.

111  See Case C-217/04 United Kingdom v Parliament and Council [2006] ECR I-3771; MAR Proposal (n 81), 5. 112  See Melander (n 65), 56–57. 113  There is, however, compelling evidence for the superiority of criminal laws over non-criminal sanctions. For comparison to civil liability: Urska Velikonja, ‘Leverage, Sanctions, and Deterrence of Accounting Fraud’ (2011) 44 University of California, Davis Law Review 1281, 1313–15; Macrory (n 36) 18–19. For the superiority of criminal laws over individual administrative fines: Cristopher D Stone, ‘The Place of Enterprise Liability in the Control of Corporate Conduct’ (1989) 90 Yale Law Journal 1, 46–48; Reinier H Kraakman ‘Corporate Liability Strategies and the Costs of Legal Controls’ (1984) 93 Yale Law Journal 857, 859.

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B. Procedural Limitations to the Exercise of Union Competences under Article 83(2) TFEU This subsection considers whether the ‘harmonisation’ requirement in Article 83(2) TFEU could act as a check on the exercise of Union criminal law competence. The analysis begins by considering the definition of ‘harmonisation’ measures under Article 83(2) TFEU, followed by a discussion of how much harmonisation is required before Article 83(2) TFEU can be invoked. Finally, the application of the general discussion is illustrated by means of a case study; EU market abuse rules.

i. What is the Meaning of ‘Harmonisation Measures’ in Article 83(2) TFEU? When examining the meaning of ‘harmonisation measures’ in Article 83(2) TFEU, it is appropriate to consider first when harmonisation must have taken place. Steve Peers has argued that a criminal law measure cannot be adopted before the harmonisation measure due to the lack of a Union policy to implement. He claims, however, that it should be possible to adopt the harmonisation measure simultaneously with the criminal law measure, given that Article 83(2) TFEU is guided by the ‘effectiveness’ criterion.114 While Peers’ suggestion to take the effectiveness principle into account when interpreting this provision seems reasonable, as ­Article 83(2) TFEU explicitly refers to ‘effective implementation’, it appears questionable whether ‘effectiveness’ can be used to circumvent the textual constraints of Article 83(2) TFEU. In contrast to Peers’ interpretation, it is claimed here that there can be no simultaneous adoption of the harmonisation measure and the criminal law directive. This argument is supported by the wording of Article 83(2) TFEU, which states that ‘(criminal law) directives shall be adopted by the same … legislative procedure as was followed for the adoption of the harmonisation measures in question’. The wording ‘as was followed’ points to past legislative activity and suggests that the underlying harmonisation measure must already have been adopted before the criminal law measure is adopted. Furthermore, if harmonisation measures are not in place, the adoption of criminal law measures cannot logically prove to be ‘essential to ensure the effective implementation of a Union policy’, since such a policy would not exist. Additionally, this strict temporal interpretation meets the concern that the provision should not lead to hasty recourse to criminal sanctions before other measures has been proven ineffective.115 The second issue is what kind of harmonisation is necessary in order to justify the use of Article 83(2) TFEU. It is argued, on the basis of textual and

114 

See Steve Peers, EU Justice and Home Affairs Law (Oxford, Oxford University Press, 2011) 769. Asp (n 57) 133–34; Gurgen Hakopian, ‘Criminalisation of EU Competition Law Enforcement—A possibility after Lisbon?’ (2010) 7 Competition Law Review 157, 165. 115 See

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systematic considerations, that harmonisation must have taken place through secondary law in the form of regulations, directives or decisions and through procedures designated as the ‘ordinary’ or ‘special’ legislative procedures. To understand the argument, it is important to grasp the meaning of ‘ordinary’ and ‘special’ legislative procedure and ‘legislative acts’ as they are defined in the Treaties.116 A review of Article 289 TFEU shows that there is a definition of which type of legislation is subject to the ‘ordinary’ or ‘special’ legislative procedures and which type of procedures constitute the ‘ordinary’ and ‘special’ legislative procedures. First, since regulations, directives and decisions are the only types of acts that can constitute ‘legislative’ acts according to the Treaties;117 it appears that ‘harmonisation measures’ in Article 83(2) TFEU must refer to such instruments. Secondly, previous ‘harmonisation’ measures in Article 83(2) TFEU must be ‘legal acts’ which means that it has to be adopted by means of the ‘ordinary’ or ‘special’ legislative procedure pursuant to Article 289 TFEU. Legislative procedures in the Treaties can, however, only be defined as ‘special’ or ‘ordinary’ legislative procedures if they are specifically designated as such by the specific legal basis providing the Union with the competence to act. It then follows from Article 289 TFEU and the general scheme of the Treaties that Union measures adopted through procedures not d ­ esignated as ‘special’ or ‘ordinary’ legislative procedures are not, by definition, ‘legal acts’.118 Harmonisation through Treaty amendments or through other secondary measures that have been designated as non-legislative in character cannot therefore constitute ‘harmonisation’ measures under Article 83(2) TFEU.119 Another intriguing question about Article 83(2) TFEU is the ‘nature’ of harmonisation which must be in place in order for the Union to exercise its competence under the said provision. Ester Herlin-Karnell suggests that there is not much in contemporary EU law that has not already been the subject of some kind of harmonisation and that could not be linked to the effectiveness criterion in Article 83(2) TFEU. The ‘harmonisation’ requirement does not therefore constitute an obstacle to the exercise of Union competences under Article 83(2) TFEU.120 In slight contrast to Herlin-Karnell, the argument here is that the ‘harmonisation’ requirement could act as a check on the exercise of the power contained in Article 83(2) TFEU, since it first, as argued above, requires harmonisation through the ‘ordinary’ and ‘special’ legislative procedure, and secondly, because it demands harmonisation of a certain quality.

116  See Alexander Türk, ‘Law-Making After Lisbon’ in Andrea Biondi, Piet Eeckhout and Stefanie Ripley, EU Law After Lisbon (Oxford, Oxford University Press, 2012) 66–74. 117  See Arts 288(1) and 289(1) TFEU. 118  See Arts 289(3) TFEU and 297(2) TFEU. 119 See Michael Dougan, ‘The Treaty of Lisbon 2007: Winning Minds, Not Hearts’ (2008) 45 Common Market Law Review 617, 638; Türk (n 116) 69–70. 120  See Ester Herlin-Karnell, ‘White-collar Crime and European Financial Crises: Getting Tough on EU Market Abuse’ (2012) 37 European Law Review 481, 485.

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In order to determine the nature of harmonisation necessary to trigger Article 83(2) TFEU, the meaning of the term ‘harmonisation’ measures should be explored in more detail. A starting point for this enquiry is to examine how ‘harmonisation’ is defined elsewhere in the Treaties. The most reasonable way of approaching this question is to examine Title VII, Chapter 3 of the TFEU, entitled ‘Approximation of Laws’.121 It follows from Articles 114(1), 115(1) and 116(1) TFEU that ‘harmonisation’ refers to the approximation of the provisions laid down by the Member States’ laws and regulations which have as their object the establishment and functioning of the internal market and to Union measures which have the aim of removing distortions to competition.122 Applying these general definitions to Article 83(2) TFEU, it can be contended that the underlying harmonisation measures must have, as their object, either strengthening the internal market or maintaining competition in the common market. Harmonisation, from a qualitative perspective, furthermore entails a modification of the substance of internal laws by providing for common EU laws in relation to certain policy fields.123 This suggests that the precondition for employing Article 83(2) TFEU is ‘substantive harmonisation’.124 Underlying harmonisation measures must either contain the substantive content of the rule whose infringement entails criminal sanctions, be a substantive definition describing the prohibited activity and/or be a measure prescribing sanctions for certain defined behaviour. Such harmonisation measures can, for example, be expressed in terms of a prohibition on individuals or undertakings to engage in a specific activity. The Council Legal ­Service has elaborated on this requirement and its application in relation to Article 83(2) TFEU. It has compellingly argued that the criminal law directive is not only instrumental to achieve the aims of another substantive EU law instrument (the ‘main instrument’) but also ‘dependent’ on the main instrument. This means that the criminal law instrument should not extend its scope to offences and sanctions falling outside the scope of the main instrument pursue different objectives than the main instrument or criminalise conducts that are permitted by the main instrument.125 This interpretation of the ‘harmonisation’ requirement is also sensible from a criminal policy perspective. It would appear premature to introduce criminal sanctions without specific evidence that a basic approximation of non-criminal

121  See Walter Van Gerven ‘Harmonization of Private Law: Do we need it?’ (2004) 41 Common Market Law Review 505, 505–06. 122  This is clear from the fact that Arts 114(4), 114(5), 114(7), 114(8) and 114(10) TFEU all refer back to the term ‘harmonisation’ to describe the measures adopted under Article 114(1) TFEU. 123 See Anne Weyembergh, L’harmonisation des legislations penales: condition de l’espace pénal européen et révélateur de ses tensions (Bruxelles, édition de l’Université de Bruxelles, 2004) 31–36; Felicitas M Tadić, ‘How Harmonious Can Harmonisation Be? A Theoretical Approach Towards Harmonisation of (Criminal) Law’ in André Klip and Harmen van der Wilt (eds), Harmonisation and Harmonising Measures in Criminal Law (Amsterdam, Royal Netherlands Academy of Science, 2002) 17–18. 124  See Asp (n 57) 135. 125  See CLS (n 80) 4–6.

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sanctions and the prohibited activity was insufficient to ensure compliance with the substantive EU rules. There should thus at least have been an attempt to secure compliance of an EU policy by means other than via criminal law before criminal law measures are adopted.126

ii. Application of the ‘Harmonisation’ Requirement to EU Market Abuse Legislation This subsection considers whether the Market Abuse Crimes Directive proposed under Article 83(2) TFEU conforms to the ‘harmonisation’ requirement in said article. In the current circumstances, the Commission could refer to either the Market Abuse Directive from 2003 (MAD)127 or to the recently adopted Market Abuse Regulation (MAR)128 as the underlying ‘harmonisation’ measures, given that references to both of these measures have been made in the Market Abuse Crimes Directive.129 The EU legislature should, however, rely on the MAR, rather than the MAD, as a ‘harmonisation’ measure for the Market Abuse Crimes Directive. First, the MAR amends and replaces all of the provisions of the MAD, which was repealed on 3 July 2016.130 Given this, and due to the existence of the MAR, it seems moot to examine whether the MAD could constitute a ‘harmonisation’ measure.131 Secondly, given the wide scope and ambitious regulatory framework established by the MAR, the case for qualifying this measure as a’ substantive’ harmonisation measure is more compelling than the corresponding case with respect to the MAD. The latter was not able to foresee the legal, financial and technological evolutions that have taken place during the last ten years.132 For example, whilst the MAD focused on financial instruments admitted to trading on a regulated market,133 the MAR covers not only those, but also instruments traded on a multilateral trading facility or an organised trading facility.134 The MAR also extends the prohibitions on insider trading and market manipulations to trade in ‘spot commodity contracts’ which was not covered by the MAD.135 126 

See Asp (n 57) 135; Kaiafa-Gbandi (n 65) 17–19; SEC (2011) 1217 (n 89) 55, 168. See Directive 2003/6/EC of the European Parliament and of the Council of 28 January 2003 on insider dealing and market manipulation (market abuse) [2003] OJ L 96/16 (‘MAD’). 128  See n 81 for reference to the MAR. 129  See recitals 9, 17, 18, 22, 23 and Arts 1(3)(a)–(c), 2(2), 2(4), 2(6)–(8), 2(14), 3(8), 4(2) and 13 of the Market Abuse Crimes Directive (n 71), which all refer to the MAR (n 81), while the explanatory memorandum and recitals 2, 4 and 7 of the Market Abuse Crimes Directive refer to the MAD (n 127). 130  See MAR (n 81) recital 87, Art 37 and Art 39(2). 131  The title of the MAR (n 81) is support for this: ‘Regulation no 596/2014 of the European Parliament and of the Council of 16 April 2014 on market abuse (market abuse regulation) and repealing Directive 2003/6/EC of the European Parliament and of the Council…’ 132  See MAR (n 81) recital 3 and Art 1. 133  See MAD (n 127) Art 9. 134  See MAR (n 81) recital 8. 135  See MAR (n 81) Arts 7 and 12; MAR Proposal (n 81) 20–23. 127 

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 101

Having argued that the MAR is the relevant measure, it must be examined whether it constitutes a ‘substantive’ harmonisation measure. It is apparent that the EU legislature intended the MAR to be a ‘substantive’ harmonisation measure. The preamble of the MAR confirms that it is envisaged to approximate national laws, as well as to contribute to the proper functioning of the internal market by eliminating remaining obstacles to trade and significant distortions of competition, and by preventing further obstacles to trade and distortions of competition from arising.136 Furthermore, the fact that the MAR was adopted on the basis of Article 114 TFEU,137 as well as the fact that both the preamble and the articles of the Market Abuse Crimes Directive refer to the MAR, support the conclusion that the MAR is indeed to be regarded as a ‘substantive’ harmonisation measure.138 The MAR is furthermore a de facto ‘harmonisation’ measure. The key harmonising feature of the MAR is that it lays down material prohibitions against insider dealing, unlawful disclosure of inside information and market manipulation which are then reproduced in the criminalisation provisions of the Market Abuse Crimes Directive. First, the prohibition of insider trading found in the MAR conform, in essence, to the insider dealing offence in the Market Abuse Crimes Directive. While the MAR prohibits behaviours in which a person possesses inside information and uses that information by acquiring or disposing of, for his/her own account or for the account of a third party, directly or indirectly, financial instruments to which that information relates,139 the Market Abuse Crimes Directive mirrors the MAR and criminalises the same actions.140 Secondly, the prohibition against unlawful disclosure of inside information is consistent with the criminal offence in the Market Abuse Crimes Directive. The MAR prohibits disclosing inside information to any other person, unless such disclosure is made in the normal course of the exercise of his employment, profession or duties.141 The Market Abuse Crimes Directive replicates this provision and criminalises the same conduct.142 Thirdly, in terms of market manipulation and dissemination offences, it seems that the criminalisation in the Market Abuse Crimes Directive is derived directly from the prohibitions in the MAR. While the MAR prohibits entering into a transaction, placing an order to trade or any other behaviour which: i) ‘gives false or misleading signals as to the supply of, demand for, or price of, a financial instrument related spot commodity contract’; ii) ‘secures the price of one or several

136 

See MAR (n 81) recitals 4–6; MAR Proposal (n 81) 2. See MAR (n 81) recital 4. Article 114 TFEU is one of the general harmonisation provisions of the Treaties, see above ch 2 III; ch 3 II. 138  See n 129 for all the references to the MAR in the Market Abuse Crimes Directive. 139  See MAR (n 81), Arts 8 and 14. 140  See Market Abuse Crimes Directive (n 71), Art 3(2). 141  See MAR (n 81), Arts 10(1) and 14. 142  See Market Abuse Crimes Directive (n 71), Art 4(2). 137 

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financial instruments or a related spot commodity contract at an abnormal or artificial level’; iii) ‘… behaviour which affects the price of one or several financial instruments or a related spot commodity contract, which employs a fictitious device or any other form of deception or contrivance’; and iv) ‘transmitting false or misleading information or providing false or misleading inputs or any other behaviour which manipulates the calculation of a benchmark’,143 the Market Abuse Crimes Directive perfectly complements the MAR by criminalising those behaviours.144 In sum, the MAR is both intended to be and is a de facto ‘substantive’ harmonisation measure; it can be considered a ‘harmonisation measure’ within the meaning of Article 83(2) TFEU.

IV. Conclusions This chapter considered the limits to the Union’s implied and express criminal law competence. Two themes were subject to closer scrutiny. The first theme considered was how criminal law contributes to the enforcement of existing EU policies. This theme was explored within the framework of the EU’s ‘implicit’ criminal law competence derived from the Environmental Crimes judgment and its express criminal law competence in Article 83(2) TFEU. The enquiry used legal, principal and criminological arguments to challenge the rationale for the exercise of EU criminal law competences and to develop a strict test for judicial review. In order to be able to exercise its criminal law competence under Articles 83(2) and 192 TFEU the Union must prove on a case-by-case basis, by reference to empirical evidence, that criminal sanctions are first ‘effective’ and secondly ‘essential’ for the ‘implementation of Union policies’. Then the application of the ‘essentiality’ condition was examined by a detailed review of the Environmental Crimes Directive and Market Abuse Crimes Directive adopted on the basis of Articles 83(2) and 192 TFEU the application of the ‘essentiality’ condition. This review showed that none of these directives met the proposed legality test in chapter three that the Commission must show that at least one of the reasons, which are considered to offer an independent justification for criminalisation, is supported by sufficient and relevant evidence. This was particularly because the Commission in the legislative background documents had not been able to invoke sufficient evidence for the ‘essentiality’ of criminal laws. This suggests that the EU legislator presently

143  The substantive prohibitions in the MAR (n 81) against market manipulation and dissemination offences appear from Arts 12 and 15. 144 See Market Abuse Crimes Directive (n 71), Arts 5(2)(a)–(c) for criminalisation of ‘market manipulation’ and dissemination offences.

Conclusions

 103

seems to justify criminal law legislation on questionable assumptions, which are not backed by proven facts. The second consideration of the chapter was the relationship between criminalisation and existing EU harmonisation measures. It was proposed that it is only secondary legislation, adopted prior to the criminal law directive through the ‘ordinary’ or ‘special’ legislative procedures that can constitute a ‘harmonisation’ measure within the meaning of Article 83(2) TFEU. It was also argued that the precondition for employing Article 83(2) TFEU is ‘substantive’ harmonisation of the relevant prohibitions or harmonisation of conditions for non-criminal liability. Thereupon the practical application of the harmonisation requirement was considered. It was shown that the recently adopted MAR provides for sufficient ‘harmonisation’ to be used as a basis for the recently adopted Market Abuse Crimes Directive. This is firstly so since the MAR aims to remove distortions of competition and obstacles to trade arising from divergent national rules on market abuse. The MAR furthermore is a de facto harmonisation measure by laying down the material prohibitions against insider dealing and market manipulation, which is then directly linked to the description of the offences in the Market Abuse Crimes Directive.

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5 The Legal Basis for EU Criminal Law Legislation—A Constitutional Choice? I. Introduction Having examined the scope of Articles 83(2) and 192 TFEU for EU criminalisation measures in chapter four, this chapter considers how the choice should be made between different legal bases in the Treaties. Although it has been assumed by Member States that Article 83(2) TFEU is the only basis for EU regulatory criminal law measures, this chapter will make clear that this question is far from settled.1 The question of the right legal basis for EU criminalisation measures is a pressing matter for the EU institutions and the Member States and has, unsurprisingly, provoked a lot of controversy since the adoption of the Lisbon Treaty. First, the choice of a legal basis bears important political and institutional consequences. The procedure for the adoption of every legal act determines the scope of the formal input of each of the EU legislative institutions and the Member States, and failure to respect the relevant procedures encroaches upon the delicate balance of powers between institutions.2 Disputes concerning legal basis is not purely a formal or political one since the choice of the legal basis may affect: (a) the procedure to be followed in the adoption of the measure; (b) the respective influence of the various institutions which participate in that procedure; and (c) the determination of the content of the measure as well as (d) the voting requirements in the Council. In view of this, the choice of the correct legal basis is of fundamental constitutional importance,3 thus provoking the interest of the academic community.4 1 

See ch 4 I. Art 13(2) TEU; Case C-403/05 Parliament v Commission [2007] ECR I-9045, para 49; Case 68/86 UK v Council [1988] ECR 855, para 6. 3  See Case C-370/07 Commission v. Council [2009] ECR I-8917, paras 46–49; Opinion 1/08 General Agreement on Trade in Services [2009] ECR I-11129, para 110. 4  See Kieran St Clair Bradley, ‘Powers and Procedures in the EU Constitution: Legal Bases and the Court’ in Paul Craig and Gráinne De Búrca, Evolution of EU Law (Oxford, Oxford University Press, 2011); Marcus Klamert, ‘Conflicts of Legal Basis: No Legality and No Basis but a Bright Future under the Lisbon Treaty?’ (2010) European Law Review 497; René Barents, ‘The Internal Market Unlimited: Some Observations on the Legal Basis of Community Legislation’ (1993) 30 Common Market Law Review 85. 2  See

106  The Legal Basis for EU Criminal Law Legislation—A Constitutional Choice? In addition to this, it is clear that the choice of legal basis for criminalisation measures is even more controversial due to the significance of choosing a legal basis outside Title V of the Treaties.5 The concern is that the Member States’ safeguards in Title V do not apply if another legal basis in the Treaties can be employed for the adoption of criminal law measures. The choice of Article 83(2) TFEU is preferable from a Member State perspective since it grants the possibility for them to pull an emergency brake if a proposed measure affects the fundamental aspects of that Member States’ criminal justice system. Use of other legal bases outside Title V would also mean that the UK, Denmark and Ireland would not be able to employ their opt-outs that apply to in relation to legislation within the Area of Freedom, Security and Justice (AFSJ). Finally, if criminal law legislation can be adopted under Article 114 TFEU future acts may be proposed in the form of directly applicable regulations.6 Against this background, this chapter explores the question of legal basis for criminalisation measures. The second part of the chapter considers the relationship between Article 83(2) TFEU and the broad functional provision of Article 114 TFEU. The latter is a genuine alternative to Article 83(2) TFEU since it has been proposed both by scholars and the EU legislature as constituting a legal basis for the harmonisation of criminal law.7 As a specific case study, the correct legal basis for the Fourth Anti-Money Laundering Directive (‘Fourth AMLD’), being adopted under Article 114 TFEU, will be examined. In the third part of the ­chapter, it is considered to what extent Article 83(2) TFEU also has priority in relation to more specific legal bases such as Article 325 TFEU. Given the controversy among the EU institutions surrounding the choice of legal basis for the Directive on Fraud against the EU’s interests (‘PIF Proposal’), this issue is considered in detail.

II.  The Relationship Between Article 83(2) TFEU and Article 114 TFEU with Respect to Criminalisation Measures A.  The Scope of Article 114 TFEU in Legal Basis Litigation When analysing potential conflicts between Article 83(2) TFEU and Article 114 TFEU within the context of criminalisation measures, it is appropriate to first 5  See House of Lords’ European Union Committee, The Treaty of Lisbon: an impact assessment, 10th Report of Session 2007–08, Volume I: Report, HL Paper 62-I1, London: The Stationery Office Limited, paras 6.179–6.189. 6  See Samuli Miettinen, ‘Implied ancillary criminal law competence after Lisbon’ (2013) 2 European Criminal Law Review 194, 194–96; Ester Herlin-Karnell, ‘White-collar crime and European financial crises: getting tough on EU market abuse’ (2012) 37 European Law Review 481, 486. 7 See Commission, ‘Amended proposal for a Directive of the European Parliament and of the Council on criminal measures aimed at ensuring the enforcement of intellectual property rights’, COM

The Relationship Between Article 83(2) TFEU and Article 114 TFEU  107 examine the scope of the latter provision. The expression ‘save where otherwise provided in the Treaties’ in Article 114 TFEU (‘lex specialis limitation’) seems, at first sight, to suggest that this provision is a subsidiary legal basis to other more specific provisions of the Treaties when it comes to achieving the internal ­market objectives in Article 26 TFEU. The consequence of this interpretation is that Article 83(2) TFEU presumably takes precedence over Article 114 TFEU. This being so, it seems that the Court’s case law casts doubts on the claim that Article 114 TFEU assumes a secondary priority in legal bases conflicts. The early case law on conflicting legal bases suggested that the only criterion which was necessary to give precedence to Article 114 TFEU over other more specific legal bases was that the conditions for recourse to the aforementioned provision were met. If the measure had a link to the internal market by either removing obstacles to trade or distortions of competition, Article 114 TFEU had priority over other legal bases. This case law also suggested that Article 114 TFEU should, in legal basis litigation, be given a broad meaning. All legislation, which in one way or another was relevant for the competitive position of enterprises, fell within the ambit of Article 114 TFEU.8 Titanium Oxide illustrates these observations. In this case, which was concerned with an action for the annulment of the Waste Directive,9 the Commission contended that the directive, which was adopted under Article 192 TFEU, should have been adopted under Article 114 TFEU, since it was an internal market measure. The Court, who endeavoured to find the appropriate legal basis pursuant to its standard ‘centre of gravity’ test, came to the conclusion that the Waste Directive was equally concerned with environmental protection and the internal market. While the normal solution to the problem would be to adopt the Directive under a dual legal basis, this solution was not available in this case, since Article 114 TFEU and Article 192 TFEU provided for incompatible decision-making procedures. The Court then, having again reviewed the aim and the content of the measure, found that since environmental protection should be integrated into legislation under Article 114 TFEU, and since different environmental legislation in the Member States could distort competition, Article 114 TFEU was the more appropriate legal basis.10 The Court’s ruling requires some explanation. Whilst the measure was concerned with two legal bases, Article 114 TFEU (internal market) and Article 192

(2006) 168 for an example of legislation proposed on the basis of Article 114 TFEU. For scholarly support of the use of Article 114 TFEU for the criminalisation of EU Competition Law: Peter Whelan, ‘Contemplating the Future: Personal Criminal Sanctions for Infringement of EC Competition Law’ (2008) 19 King’s Law Journal 364, 369. 8 

See Barents (n 4), 100–01, 107–09. Council Directive 89/428/EEC of 21 June 1989 on procedures for harmonising the programmes for the reduction and eventual elimination of pollution caused by waste from the titanium dioxide industry [1989] OJ L 201/56. 10  See Case C-300/89 Commission v Council (Titanium Dioxide) [1991] ECR I-02867, paras 2–25. 9 

108  The Legal Basis for EU Criminal Law Legislation—A Constitutional Choice? TFEU (on environmental protection), the Court rightly found that the environmental law component in the measure was weaker than the internal market component. Since the measure harmonised obligations concerning the treatment of waste from the titanium dioxide production process, the measure was primarily intended to equalise competitive conditions for firms in the titanium oxide business.11 The Court’s textual argument was persuasive. Since the Treaties had provided that environmental protection should be integrated into the policies of the internal market and given that other provisions of the Treaty could provide a legal basis for measures affecting the environment, it was logical that the measure was brought into the framework of Article 114 TFEU.12 Ester Herlin-Karnell has, on the basis of the Court’s case law on the scope of Article 114 TFEU, constructed an argument for why Article 114 TFEU should take precedence over Article 83(2) TFEU. Her specific claim is that the Commission’s original Market Abuse Crimes Proposal, proposed under Article 83(2) TFEU, should, because of the absence of constraints in this provision, instead have been adopted under Article 114 TFEU. If it is accepted that the Market Abuse Crimes Proposal could be adopted under Article 83(2) TFEU, this would, according to Herlin-Karnell, undermine the limits to Union criminal law harmonisation. This is because Article 83(2) TFEU does not have any threshold in terms of ‘market creation’, which is what is required by Article 114 TFEU. Secondly, she submits that Article 114 TFEU is more suitable than Article 83(2) TFEU, because the Market Abuse Crimes Proposal is, in fact, an ‘internal market’ measure aiming to prevent market failures in the form of manipulative practices that lead to an inefficient allocation of resources and to control new integration risks. The monitoring of such risks and the prevention of market dysfunctions should be accommodated within Article 114 TFEU. She further suggests that the case law on the legal basis supports the use of Article 114 TFEU for the Market Abuse Crimes Proposal. Pursuant to the Tobacco Advertising II13 judgment, the only thing needed to trigger Article 114 TFEU according to her is that the measure at issue contributes to ‘market creation’.14 Although Herlin-Karnell’s argument of the broad scope of Article 114 TFEU in legal basis litigation is compelling, it does not entirely capture the complex reality of this provision’s status in relation to other legal bases. As a first point, it is questionable whether Tobacco Advertising II can be used as evidence to demonstrate the priority of Article 114 TFEU in relation to other specific legal bases. In fact, no one suggested any appropriate legal basis for the contested directive in Tobacco Advertising II other than Article 114 TFEU. This case was indeed about the scope of Article 114 TFEU and whether the Union had a competence at all to adopt the

11 

See Waste Directive (n 9) recital 2 and Article 3. See Arts 11 and 114(3) TFEU; Art 192(2) TFEU. 13  See Case C-380/03 Germany v Parliament and Council [2006] ECR I-11573. 14  See Herlin-Karnell, ‘White-collar Crime and European Financial Crises’ (n 6) 485–87. 12 

The Relationship Between Article 83(2) TFEU and Article 114 TFEU  109 measure under the Treaties.15 It is well known that the Court can be inclined to give a broad interpretation of Article 114 TFEU if the challenge at issue concerns whether the Union at all has a competence to act on the matter.16 Demanding judicial review of EU legislation may endanger the EU legislator’s efforts to achieve the objectives of the EU.17 It appears unlikely, however, that the Court sees it necessary to give such a broad interpretation of Article 114 TFEU when the Union in any case due to another more specific legal basis is competent to act on the matter. Subsequent case-law after Titanium Oxide thereto appears to confirm the importance of the lex specialis limitation in Article 114 TFEU.18 Particularly illustrative of the subsidiary nature of Article 114 TFEU is Commission v Council.19 In this case, the Commission argued that the directive on the recovery of indirect taxes,20 which had been adopted on the basis of Article 113 TFEU and Article 115 TFEU, was adopted on the wrong legal bases and should have been adopted on the basis of Article 114 TFEU, as it was primarily an internal market measure. The Court first restated the ‘predominant purpose’ rule, holding that the measure at issue should be adopted under the legal basis to which it was, by way of its content and aim, more closely connected. The use of a dual legal basis was not possible since the different decision-making procedures in Article 113 TFEU and Article 115 TFEU, on the one hand, and Article 114 TFEU, on the other hand, made it impossible to employ Article 114 TFEU conjointly with the first-mentioned legal bases. The Court then emphasised that the very wording of Article 114 TFEU provided that that article should only be applied if the Treaty does not provide otherwise. If the Treaty contains a more specific provision that is capable of constituting the legal basis for the Directive, it must be founded on such a provision. That was particularly the case with regard to Article 113 TFEU, so far as it concerned the harmonisation of legislation concerning turnover taxes, excise duties and other forms of indirect taxation. The Court also found that Article 114(2) TFEU expressly excludes ‘fiscal provisions’ whose harmonisation therefore cannot take place on the basis of Article 114 TFEU. Given the fact that the aim and content of the Directive suggested that it was predominantly concerned with ‘fiscal provisions’ within the meaning of Article 114(2) TFEU, the

15 

See Case C-380/03 Germany v Parliament and Council (n 13) paras 15–24, 45–65, 70–88. See Case C-210/03 Swedish Match [2004] ECR I-11893; Case C-301/06 Ireland v Parliament and Council [2009] ECR I-00593. 17 See Stephen Weatherill, ‘The limits of legislative harmonisation ten years after Tobacco Advertising: how the Court’s case law has become a “drafting guide”’ (2011) 12 German Law Journal 827, 851. 18  See Holly Cullen and Andrew Charlesworth, ‘Diplomacy by Other Means: The Use of Legal Basis Litigation as a Political Strategy by the European Parliament and Member States’ (1999) 36 Common Market Law Review 1243, 1248, 1256, 1262–63. 19  See Case C-338/01 Commission v Council [2004] ECR I-04829. 20  Council Directive 2001/44/EC of 15 June 2001 amending Directive 76/308/EEC on mutual assistance for the recovery of claims resulting from operations forming part of the system of financing the European Agricultural Guidance and Guarantee Fund, and of agricultural levies and customs duties and in respect of value added tax and certain excise duties [2001] OJ 2001 L 175/17. 16 

110  The Legal Basis for EU Criminal Law Legislation—A Constitutional Choice? Court concluded that Article 114 TFEU was not the appropriate legal basis for the directive.21 This case reinforces two lessons learned from earlier and subsequent case law about the nature of Article 114(1) TFEU in relation to other legal bases. First, if the proposed measure fits better under a specific legal basis, Article 114 TFEU cannot be used for the measure. If the measure at issue primarily is adopted with the aim of protecting another Union objective such as public health, the environment, consumer policy or the Union’s common commercial policy the measure cannot be considered as an internal market measure.22 Secondly, notwithstanding the Titanium Dioxide judgment, it appears that the Court of Justice still endorse the’ centre of gravity’ test according to which the proper legal basis for a measure is the one to which the measure, on the basis of its content and aim, has the closest connection.23 In order for Article 114 TFEU to have priority over another legal basis the proposed measure must have a demonstrable connection to the internal market. Recourse to Article 114 TFEU where the measure at issue has only incidental or accidental effects on the conditions of competition and trade is not possible.24 Herlin-Karnell’s argument, suggesting that Article 114 TFEU can be used as a plein pouvoir for imposing criminal laws, must thus be qualified. The thesis argued for below is rather that Article 114 TFEU is only to be used as a subsidiary legal basis when other specific legal bases, such as Article 83(2) TFEU, cannot be employed for the adoption of criminal laws. In addition to the subsidiary nature of Article 114 TFEU discussed above, there is a systemic and teleological argument based on the new structure of the Treaties supporting the view that Article 83(2) TFEU is a lex specialis in relation to Article 114 TFEU. Petter Asp has presented this argument in the most compelling way. He submits that the new institutional setting, with special rules and arrangements for the criminal law cooperation, militates against interpreting articles outside Title V of the TFEU as entailing criminal law competence. The Member States have, by introducing Title V, via the Treaty, expressed their will to take control over the development of EU criminal law and taken a step towards a limited supranational criminal law competence. First, the cooperation is equipped with an emergency brake and subject to opt-out arrangements for some Member States. Secondly, the cooperation, as regards harmonisation of substantive criminal law, is limited to directives. He particularly queries as to why the Member States would bother to arrange for a specific institutional framework for criminal law if they still leave

21 

See Case C-338/01 Commission v Council (n 19) paras 13–14, 17–18, 54–57, 59–62, 67, 70–76. Case C-533/03 Commission v Council [2006] ECR I-01025 paras 45–46; Case C-187/93 Parliament v Council [1994] ECR I-02857, paras 18–28; Case C‑137/12 Commission v Council (Court of Justice, 22 October 2013), paras 51–76. 23  See Cullen and Charlesworth (n 18) 1268–69; Bradley (n 4) 104–09. 24 See Case C-155/91 Commission v. Council [1993] ECR I-939, paras 19–21; Case C-533/03 Commission v Council (n 22) para 48; Case C-137/12 Commission v Council (n 22), paras 60–72. 22 See

The Relationship Between Article 83(2) TFEU and Article 114 TFEU  111 the door open for EU involvement via other articles. It would be inconsistent and make Article 83(2) TFEU superfluous if express provision is made in the Treaty for national safeguards and then those safeguards could be immediately circumvented by resorting to previous jurisprudence by the Court of Justice, ie the Environmental Crimes judgment,25 to give a general criminal law competence under other legal bases of the Treaties.26

B.  A Dormant Criminal Law Competence outside Title V Having argued above that Article 83(2) TFEU ought to be primary choice for EU criminalisation measures, there remains a possibility of the exercise of a general criminal law competence under the Treaties. First, it seems clear, as ­suggested above, that the Court of Justice will determine the right legal basis for criminal law measures on the basis of its centre of gravity test and that the content and the aim of the proposed measure thus will be decisive for the assessment. In the case of conflict between Article 83(2) TFEU and Article 114 TFEU, the key issue will be whether the envisaged directive has a stronger criminal law component than an internal market constituent.27 A number of recent Court judgments substantiate this point and suggest that the fact that a measure simply contains AFSJ elements does not necessarily require the EU legislator to resort to a legal basis in Title V. If the predominant aim and content of the measure favours a non-AFSJ legal basis this one has, pursuant to the Court’s centre of gravity test, priority notwithstanding that there are effects on or provisions or ancillary elements relating to criminal law,28 migration policy, police cooperation29 or any other AFSJ policy.30 The Court has also held that the opt-out protocols attached to Title V and the other safeguards attached to Title V could not have the effect of prioritising an AFSJ legal basis or criminal law generally if a measure merely has merely incidental effects on an AFSJ legal basis.31 It is equally clear that the Court seems unwilling to give a broad interpretation

25 

See Case C-176/03 Commission v Council [2005] ECR I-07879 para 48. Petter Asp, The Substantive Criminal Law Competence of the EU—Towards an Area of Freedom, Security & Justice—Part 1 (Stockholm, Jure, 2013) 151–52, 163; House of Lords’ European Union Committee (n 5), para 6.188. 27  See Case C-300/89 Titanium Dioxide (n 10) paras 10, 22–25; Case C-155/91 Commission v Council (n 24) paras 7, 19–21; Case C-36/98 Spain v Council [2001] ECR I-779, para 59. 28  See Case C-137/12 Commission v Council (n 22) paras 70–72. 29  See Case C-43/12 Commission v Parliament and Council (Court of Justice, 6 May 2014), paras 32–43. 30  See Case C-656/11 UK v Council (Switzerland-EEA Social Security Coordination (Court of Justice, 27 February 2014), paras 47–66; Case C-377/12, Commission v Council (Court of Justice, 11 June 2014), paras 36–60; Case C-81/13 UK v Council (Court of Justice, 18 December 2014), paras 55–69; Case 301/06 Ireland v Parliament and Council (n 16), paras 56–92. 31  See Case C-137/12 Commission v Council (n 22), paras 72–75; Case C-656/11 UK v Council (n 30), paras 49–50; Case C-81/13 UK v Council (n 30) para 21. 26 See

112  The Legal Basis for EU Criminal Law Legislation—A Constitutional Choice? to AFSJ legal bases, such as Article 79 (migration)32 or Article 87 TFEU (police cooperation),33 to also cover measures that contain minor provisions relating to the mentioned AFSJ legal bases or measures that have only marginal effects or relationship to such provisions. It is thus possible to argue, as Samuli Miettinen convincingly does, that the Court of Justice’s case law gives space for criminal law measures being adopted outside Title V if they are an incidental aspect of another substantive policy (like transport policy or internal market) if the instrument is drafted so that this is the ‘main aim’.34 Secondly, even though the telos of Article 83 TFEU may provide an indication that this was envisaged to be the sole legal basis for criminalisation measures, this intention has not been fully realised. Article 83 TFEU cannot impede the exercise of implied criminal law competences elsewhere in the Treaties in a situation where the proposed criminal law measure, even with a broad interpretation, cannot be brought within the framework of the latter provision.35 First, given the narrow remit of Article 83(2) TFEU, it seems unreasonable that the Treaty drafters had the intention of removing the previously held competence under the Court of Justice’s pre-Lisbon jurisprudence. Article 83(2) TFEU does not cover criminalisation in the form of ‘regulations’ or criminalisation in such fields that have not been subject to ‘harmonisation’ measures.36 This would, in fact, mean that the EU would not at all have the competence to adopt regulations criminalising breaches against EU law or in areas where the EU has not adopted ‘harmonisation’ measures. It is unlikely that this is the bargain that the Member States struck when they negotiated the Lisbon Treaty. Furthermore, there is no textual indication in the Treaties that the harmonisation of criminal laws would be prohibited under provisions of the Treaties other than those in Title V. If the drafters of the Treaties had had an intention to reserve criminal law harmonisation to Title V of the Treaties, they should have expressed this by means of more unambiguous wording. Finally, and most importantly, it must be recognised that the scope of the EU’s general criminal law competence is driven by the objectives of the Union. The Union’s implied criminal law powers deriving from the Court’s pre-Lisbon case law,37 is of a horizontal and instrumental nature, conditioned on the ‘effectiveness’ 32  See Case C-656/11 UK v Council (n 30) paras 65–66; Case C-81/13 UK v Council (n 30) paras 40–46. 33  See Case C-43/12 Commission v Parliament and Council (n 29), paras 45–49. 34  See Samuli Miettinen, ‘Criminal competence and the choice of legal basis: space in the margins?’ (2015) 5 European Criminal Law Review 222, 235, 241–42. 35 See Case C-436/03 Parliament v Council [2006] ECR I-03733, paras 40–44; Case C-166/07 Parliament v Council [2009] ECR I-7135, paras 59–64, 68–69. 36  It is, for example, unclear whether Article 83(2) TFEU would allow for criminalisation in the field of EU competition policy, as the relevant rules in this field are contained in the primary Treaty provisions, Article 101 and Article 102 TFEU, and not in ‘legislative’ acts per se, and such measures as are adopted by the Union institutions have been designated as ‘non-legislative’ in character, ie Article 103 TFEU’; see Michael Dougan, ‘From the Velvet Glove to the Iron Fist: Criminal Sanctions for the Enforcement of Union Law’ in Marise Cremona (ed), Compliance and the Enforcement of EU Law (Oxford, Oxford University Press, 2012) 109. 37  See ch 4 II for an account of this pre-Lisbon case law.

The Relationship Between Article 83(2) TFEU and Article 114 TFEU  113 criterion38 and to be used to the benefit of all Union regulatory policies.39 The fact that the exercise of the Union’s implied criminal law competence is linked to the ‘effectiveness’ criterion and the policies of the EU cannot be underestimated. The exercise of this competence can undoubtedly be contained within the broad remit of the functional power in Article 114 TFEU. Since the Union only needs to show a link to ‘market making’ when it legislates under Article 114 TFEU, it is difficult to sustain that criminalisation measures could not be encompassed under the scope of this provision.40 If the Union is to achieve the objective of creating an internal market41 and enforce those policies effectively, the necessary criminal powers must be placed at the service of the Union.42 Given all of these reasons, it is premature to assume that the EU’s competence in criminal law would be unequivocally restrained to Article 83(2) TFEU. To illustrate the argument let us assume that the Union considered adopting a regulation which both criminalised and decriminalised certain activities. The fictive reason for adopting a regulation is that the Commission considers that criminal laws enforced by means of directives lead to a fragmented application of Union law, since directives give too much scope in the implementation phase to Member States. The rationale for including decriminalisation provisions in the regulation is to restrain the over-penalisation trend currently present in the Member States. Although one could stretch the interpretation of Article 83(2) TFEU very far, it is difficult to argue that such a measure falls within the remit of said provision. Given that the Union only has the power to adopt ‘directives’ pursuant to Article 83(2) TFEU, and given that it can only ‘criminalise’ under that provision, a cogent argument could be made that Article 114 TFEU could be used for such a ‘residual’ measure.43 Recognising these more exceptional scenarios, it is clear that most proposals in the field of criminal law, which will, as envisaged by Title V of the Treaties, be concerned with ‘directives’ and ‘criminalisation’, could thus not be adopted under other legal bases of the Treaties.44

38 

See Case C-176/03 Commission v Council (n 25) para 48. See Case C-240/90 Germany v Commission [1992] ECR I-05383, Opinion of AG Jacobs, para 12. 40 See Stephen Weatherill, ‘Competence creep and competence control’ (2004) 23 Yearbook of European Law 1, 25, 27, 46, 49; Gareth Davies, ‘Democracy and Legitimacy in the Shadow of Purposive Competence’ (2015) 21 European Law Journal 2, 6. doi:10.1111/eulj.12079. 41  See Art 3(3) TEU. 42 See Pierre Pescatore, Law of Integration: emergence of a new phenomenon in international relations, based on the experience of the European communities (Vienna, Springer, 1974, English Translation) 40–43, 50–51. 43  As discussed below, this position is held by the Commission, whose recent proposal on the criminalisation of fraud against the EU budget suggests that there is a criminal law competence under Article 325 TFEU; ‘Proposal for a Directive of the European Parliament and of the Council on the fight against fraud to the Union’s financial interests by means of criminal law’, COM (2012) 363 final. 44  As suggested in the concluding chapter, recent legislative practice suggests that the EU legislature will employ Article 114 TFEU for the general internal market part of the measure and Article 83(2) TFEU for the criminal law part when there is a potential conflict between these provisions. 39 

114  The Legal Basis for EU Criminal Law Legislation—A Constitutional Choice?

C.  Case Study: The Fourth Anti-Money Laundering Directive In order to understand the relationship between Article 114 TFEU and Article 83(2) TFEU it is appropriate to consider the right legal basis for a specific piece of legislation. The Fourth AMLD constitutes a perfect case study. Whilst being adopted on the legal basis of Article 114 TFEU it has been alleged that this directive, though not explicitly requiring criminal sanctions, should have been adopted on a legal basis in Title V. The basis for the argument is that money laundering is claimed to be inherently concerned with criminal law and since one of the predominant purposes of the Fourth AMLD is cooperation against criminal activity, particularly terrorist financing, which arguably falls within Title V of the TFEU.45 Money laundering has for a long time been a central policy for the EU legislator.46 The EU’s policy in this field has been strongly intertwined with the financial crisis and a part of the Union’s strategic and prioritised efforts to combat terrorist financing and financial crimes.47 Consistent with the underlying theme of the EU’s involvement in the field of financial services, the Fourth AMLD represents an attempt to solve the current financial crises and the attached market failures by using criminal law to boost investor confidence, investor protection and market integrity.48 The said directive builds on the comprehensive regulatory framework that was imposed by the Third Money Laundering Directive designed to protect the integrity and confidence in the financial system as a whole, against the risks of money laundering and against organised crime in general.49 The Commission’s revision of the Directive is mainly a product of the changed recommendations

45 See Ester Herlin-Karnell, Constitutional Dimension of European Criminal Law (Oxford, Hart Publishing, 2012) 147–48. See for the debate in the United Kingdom: Letter of Lord Deighton on 4 December 2014 to Lord Boswell; Letter of Lord Deighton on 10 June 2014 to Lord Boswell; Letter from Lord Boswell on 14 January 2015 to Lord Deighton. 46  See eg Valsamis Mitsilegas, Money Laundering Counter-Measures in the EU: A New Paradigm of Security Governance versus Fundamental Legal Principles (Kluwer Law International/Aspen, The HagueLondon-Boston, 2003); Brigitte Unger, Joras Ferwerda, Melissa van den Broek and Ioana Deleanu, The Economic and Legal Effectiveness of the European Union’s Anti-Money Laundering Policy (Cheltenham, Edward Elgar Publishing, 2014). 47  See Commission,’ Commission Staff Working Document, Impact Assessment, Accompanying the document, Proposal for a Directive of the European Parliament and of the Council on the prevention of the use of the financial system for the purpose of money laundering, including terrorist financing and Proposal for a Regulation of the European Parliament and of the Council on information accompanying transfers of funds’, SWD(2013) 21, 1; Commission Communication:’ ‘The EU Internal Security Strategy in Action: Five steps towards a more secure Europe’, COM (2010)673 final; The Stockholm Programme: An Open and Secure Europe Serving and Protecting Citizens’ (2010) OJ C 115/1. 48  See Ester Herlin-Karnell, ‘The Fight against White-Collar Crime as European Financial Crisis Rescuer: Regulatory Challenges and the Tough on Crime Approach’ in Luis Hinojosa, Jose Beneyto (eds), European Banking Union: The New Regime (Alphen aan den Rijn: Kluwer Law International, Banking Law series 2015). 49  See Directive 2005/60/EC of 26 October 2005 on the prevention of the use of the financial system for the purpose of money laundering and terrorist financing (2005) OJ L 309/15.

The Relationship Between Article 83(2) TFEU and Article 114 TFEU  115 of the Financial Action Task Force (FATF) of 2012, which strengthens the antimoney laundering and combating terrorist financing framework.50 What is then the correct legal basis for the Fourth AMLD? There is a plausible argument that the EU legislator was right to use Article 114 as a legal basis. The Directive explicitly aims to strengthen the internal market by reducing complexity across borders. Without uniform EU rules on money laundering, Member States will adopt measures inconsistent with the internal market, which could result in fragmentation and seriously jeopardise free movement and damage the stability and reputation of the financial sector and threaten the single market. The lack of coherence between national rules would also make the organisation of EU crossborder business models more complex and burdensome. The Commission furthermore contends that the breaking down of barriers within the internal market facilitates not only the establishment or development of legitimate businesses across the EU, but may also provide increased opportunities for money laundering if certain coordinating measures are not adopted at Union level.51 It thus appears plausible to argue that the directive falls within the broad formula of Tobacco Advertising I; that is, it aims to prevent the emergence of future obstacles to trade resulting from multifarious development of national laws on money laundering.52 It is, however, also possible to contest the use of Article 114 TFEU for antimoney laundering legislation. Ester Herlin-Karnell has convincingly made such an argument in relation to the Third Money Laundering Directive. She observed that this legislation primarily was justified on the basis of reinforcing ‘confidence’ in the market by stating that the market could be seriously jeopardised by the efforts of criminals, so that EU action is necessary in order to avoid Member States adopting divergent measures in this area. This considered together with EU enlargement and the consequent rise of organised crimes could create potential obstacles to trade. Admitting that the Third Money Laundering Directive may be consistent with the Court of Justice’s test of allowing Article 114 TFEU for measures that are ‘likely’ to prevent the emergence of ’ future obstacles to trade’, she still queried whether it is reasonable to accept the consequences of the enlargement as obstacles.53 By doing so the notion of ’ disparities’ becomes a very low threshold to cross when justifying legislative action which is difficult to reconcile with the principle of conferral in Article 5(1) TEU. She finally rejected in general the market confidence justification for harmonisation contending, referring to research

50  See Commission, ‘Proposal for a Directive of the European Parliament of the Council on the prevention of the use of the financial system for the purpose of money laundering and terrorist financing’, COM(2013) 45 final, 3. 51  See COM (2013) 45 (n 50), 2, 6, 8, 12, recital 1–2; SWD (2013) 21 (n 47), 4, 7, 16, 21, 26–30, 55, 58–59. 52  See Case C-376/98 Germany v Parliament and Council (Tobacco Advertising) [2000] ECR I-08419, para 86. 53  See above n 52.

116  The Legal Basis for EU Criminal Law Legislation—A Constitutional Choice? on capital markets, that there is no obvious connection between criminalisation of money laundering and confidence in the market.54 Herlin-Karnell’s questioning approach to the use of Article 114 TFEU is legitimate also in relation to the Fourth AMLD. Given the absence of convincing evidence that anti-money laundering criminal legislation would be necessary to correct market failures on the EU financial market, the justification for EU action in this field seems feeble. Is there any other relevant legal basis for the measure? Whilst money laundering could be conceived as a part of EU ‘regulatory criminal law’ (Article 83(2) TFEU) it appears more reasonable, given the wording of Article 83(1) TFEU, to consider money laundering as ‘core criminal law’.55 By enlisting money laundering as a crime with a particular cross-border dimension in Article 83(1) TFEU, the Lisbon Treaty has conferred a specific competence to the Union to adopt anti-money laundering criminal law legislation. Despite this, the Fourth AMLD was adopted, like its, predecessors under Article 114 TFEU. The rationale for not using Article 83(1) for the Fourth AMLD is that the Directive contains no explicit rules on criminal law. Article 1 of the Directive which is the central provision simply states that ‘money laundering’ is prohibited, not that it is criminalised. Nor do the provisions on sanctions contain an obligation on Member States to impose criminal sanctions. The relevant provision on sanctions in the Directive merely prescribes that obliged entities can be held liable for breaches of national provisions transposing the directive and that any resulting sanction or measure shall be effective, proportionate and dissuasive.56 Natural persons breaching the national rules transposing the directive can also be subjected to sanctions such as temporary trading prohibitions and fines.57 Finally, Article 58 entails that the option to impose criminal sanctions remain in the hands of the Member States. At first sight it thus seems that this is not a ‘criminal law’ directive that could be adopted under the legal basis of Article 83 TFEU. Herlin-Karnell has, however, contested this straightforward conclusion. When discussing the Third Money Laundering Directive, which had similar provisions on sanctions, she contended that although that directive did not explicitly require criminalisation, it could be argued that it did so implicitly. She questioned whether in practice Member States had a real choice in refraining from harmonising their criminal laws while still providing for proportionate, dissuasive and effective

54  See Ester Herlin-Karnell, ‘Is There More to it Than the Fight Against ‘Dirty Money’? Article 95 EC and the Criminal Law’ (2008) 19 European Business Law Review 557, 561–63, 570, 574–75; HerlinKarnell, Constitutional Dimension (n 45) 147, 158–59, 185–89. 55  See ch 1 IV for this distinction. 56  See Directive (EU) 2015/849 of the European Parliament and of the Council of 20 May 2015 on the prevention of the use of the financial system for the purposes of money laundering or terrorist financing, amending Regulation (EU) No 648/2012 of the European Parliament and of the Council, and repealing Directive 2005/60/EC of the European Parliament and of the Council and Commission Directive 2006/70/EC [2015] OJ L 141/73, Art 58(1). 57  See Fourth AMLD (n 56), Art 59(2) (D) and Art 59(3)(B).

The Relationship Between Article 83(2) TFEU and Article 114 TFEU  117 sanctions58 as required by the directive. If the sanctions imposed by Member States are to comply with this requirement and the principle of loyalty,59 they must often impose ‘imprisonment sentences’.60 In support of this argument it appears from a review of the Fourth AMLD that the Directive in itself provides the basis for Member States to criminalise. The expression ‘criminal’ and ‘criminals’ appears abundantly throughout the Directive.61 Likewise in the Fourth AMLD, as the previous directive requires that Member States may only prohibit offences ‘when committed intentionally’ and that ‘knowledge, intent or purpose may be inferred from objective factual circumstances’.62 These subjective requirements implicitly suggest criminal law as opposed to administrative sanctions with strict liability. Furthermore, it is to be noted that the directive implicitly foresees criminalisation by stipulating that Member States’ obligations in the directive to impose administrative sanctions is without prejudice to the right of Member States to impose ‘criminal sanctions’.63 There are also a few judgments from the Court of Justice which hints at the possibility that the principle of loyalty together with the requirement of prescribing effective, proportionate and dissuasive sanctions obliges Member States to impose criminal sanctions for offences against EU rules. The Court has stated that Article 4(3) TEU requires Member States to take all the measures necessary to guarantee the effectiveness of Union law, if necessary by instituting criminal proceedings.64 The Court has, however, never held that Article 4(3) TEU could impose an explicit obligation on Member States to criminalise certain behaviours or impose criminal sanctions to enforce the relevant EU rules. Furthermore, there is no case that expressly states that the requirement to impose’ effective, dissuasive or proportionate’ sanctions entail an obligation to impose criminal sanctions. There is thus meagre evidence for the proposition that the principle of loyalty requires Member States to enforce Union obligations through criminal sanctions.65 The argument that the Fourth AMLD cannot be adopted under Article 83 TFEU is premised on a certain understanding of what a ‘criminal s­ anction’ entails. The proposition here is that Article 83 TFEU only deals with criminal sanctions

58 

See Case 68/88 Commission v Greece [1989] ECR 2965, paras 23–24. See Art 4(3) TEU. 60 See Herlin-Karnell, Constitutional Dimension (n 45) 16–18; Peter Whelan, ‘A Principled Argument for Personal Criminal Sanctions as Punishment under EC Cartel Law’ (2007) 4 Competition Law Review 7; Michael G Faure, ‘Effective, proportional and dissuasive penalties in the implementation of the Environmental Crime and Ship-source Pollution Directives: Questions and Challenges’ (2010) 19 European Energy and Environmental Law Review 256, 266. 61  See Fourth AMLD (n 56), Recitals 1, 2, 9, 11 and 14, 21, 28, 33, 37, 42, 44, 51, 58, 59, 60; Arts 1(3) (A)–(C), 3(4), 3(4)(C), 3(4)(F), 6(2)(C), 9(2)(A)(i), 33(1)(A), 35(1), 37, 40(2), 45(8), 47(3), 55(2); 57, 58(2), 62(2). 62  See Fourth AMLD (n 56), Art 1(3) and Art 1(6). 63  See Fourth AMLD (n 56), Art 58(2); Herlin-Karnell, Constitutional Dimension (n 45) 152, 154. 64 See Case C-2/88 IMM Zwartveld [1990] ECR I-3365. See also Case C-77/97 Österreichische Unilever, [1999] ECR I-431, para 36; Case C-186/98 Nunes and De Matos [1999] ECR I-4883, para 12. 65  See Dougan (n 36), 81–82. 59 

118  The Legal Basis for EU Criminal Law Legislation—A Constitutional Choice? in a ‘strict’ sense. The definition of criminal sanctions proposed for the purposes of determining the scope of the competence in Article 83 TFEU and questions of right legal basis is, as argued in chapter one, narrower than the definition of ‘criminal charge’ in Article 6 ECHR, which also includes administrative sanctions/ criminal sanctions in a broad sense, eg competition law fines and disqualification orders.66 To constitute a criminal sanction in the strict sense the sanctions at issue must, if they are not ‘labelled’ as such, express a particular social disapproval (I) and entail very intrusive consequences for individuals (II) such as deprivation of liberty, permanent or temporary loss of income opportunities or serious financial hardship. The only sanctions that generally express sufficient moral condemnation among the members of the political community and entail so serious hardship for individuals that they can be termed as ‘criminal’ sanctions is imprisonment (because liberty is so intensively and universally valued) and sanctions that acts as substitutes67 for imprisonment.68 To come within the criminal law definition of Article 83(1) there must be an explicit requirement to criminalise and an obligation to impose sanctions that are either labelled as ‘criminal’ or enjoys the characteristics enlisted in the previous section.69 Although the measure can still fall within Article 83(1) TFEU if the sanctions are sufficiently serious and morally condemning to be called ‘criminal’ nothing in the Directive suggests this to be the case. First, there is little evidence that the fines imposed in the Directive and the temporary trading prohibitions, are sufficiently dissuasive in practice.70 Secondly, it is implausible that the sanctions in the Directive express particular social disapproval in the political community. To impose a fine or a disqualification order without a prison term or without a link to the commission of a criminal offence, the message is that the offenders’ conduct is being priced rather than sanctioned.71 It thus appears that the Fourth AMLD cannot be adopted on the basis of Article 83 TFEU as it is not explicitly concerned with ‘criminal’ law or ‘criminal’ sanctions. To sum up, it appears that the EU legislature’s procedure for adopting its new anti-money laundering package by employing Article 114 TFEU for the general internal market part of the measure and Article 83 TFEU for the criminal law part is legitimate from a strict legal point of view. This is so because the Fourth AMLD does not contain any explicit criminalisation requirement or obligations to

66 

See above ch 1 IV. Criminal fines, conditional sentences, community service orders and probation orders could be considered as such substitutes. 68  See Case C-440/05 Commission v Council [2007] ECR I-09097, Opinion of AG Mazak, para 67; Dan M Kahan, ‘What do alternative sanctions mean?’ (1996) 63 University of Chicago Law Review 593, 621–24, 645, 649, 652. 69  This also seems to be the view of the Court of Justice; see Case C-137/12 Commission v Council (n 22), para 72. 70  See Fourth AMLD (n 56), Art 59 for the list of the relevant sanctions in the directive. The fines, however, amount to at least EUR 5,000,000, which still makes them a significant penalty. 71  See Kahan (n 68), 617–30. 67 

The Fight Against Fraud

 119

impose ‘criminal’ sanctions for breach of the relevant provisions of the Directive. Although the use of Article 114 TFEU for the Fourth AMLD measure could be questioned given the weak empirical link of the provisions on money laundering to obstacles to the fundamental freedoms, this provision nevertheless appears to be a more appropriate choice than Article 83 TFEU.

III.  The Fight Against Fraud: The Relationship Between Article 325 TFEU and Article 83(2) TFEU This section considers, on the basis of the more general discussion in section II, the relationship between Article 325 TFEU (another potential candidate for EU criminalisation) and Article 83(2) TFEU. In particular it considers the debate on the legal basis of the recent PIF proposal on criminalisation of fraud against the EU’s budget. This constitutes a very pertinent case study as it clearly exposes the institutions’ different views on the constitutional landscape of EU criminal law after Lisbon. The EU institutions have in this regard battled fiercely on the choice of legal basis for this proposal. Commission has suggested that the PIF proposal can be adopted on the basis of Article 325 TFEU.72 The Council and the Parliament have, however, patently disagreed with the Commission and sustained that Article 83(2) TFEU should be the correct legal basis.73 Before setting out the context of the PIF proposal and the Commission’s case for using Article 325 TFEU for this legislative initiative, it is appropriate to restate the wording of this provision: ‘1. The Union and the Member States shall counter fraud and any other illegal activities affecting the financial interests of the Union through measures to be taken in accordance with this Article, which shall act as a deterrent and be such as to afford effective protection in the Member States, and in all the Union’s institutions, bodies, offices and agencies. 2. Member States shall take the same measures to counter fraud affecting the financial interests of the Union as they take to counter fraud affecting their own financial interests. 3. Without prejudice to other provisions of the Treaties, the Member States shall coordinate their action aimed at protecting the financial interests of the Union against fraud. To this end they shall organise, together with the Commission, close and regular cooperation between the competent authorities.

72 

See n 43 for full reference to the PIF proposal. It also appears that the Parliament and the Council will ensure that the PIF proposal ultimately is adopted under Article 83(2) TFEU; see European Parliament, ‘Report on the proposal for a directive of the European Parliament and of the Council on the fight against fraud to the Union’s financial interests by means of criminal law’, Committee on Budgetary Control Committee on Civil Liberties, Justice and Home Affairs, 25.3.2014, A7-0251/2014. 73 

120  The Legal Basis for EU Criminal Law Legislation—A Constitutional Choice? 4. The European Parliament and the Council, acting in accordance with the ordinary legislative procedure, after consulting the Court of Auditors, shall adopt the necessary measures in the fields of the prevention of and fight against fraud affecting the financial interests of the Union with a view to affording effective and equivalent protection in the Member States and in all the Union’s institutions, bodies, offices and agencies.’

It is clear from the wording that Article 325 TFEU does not explicitly entail criminal law competence as compared to Article 83 TFEU. Thus, the question mainly concerns if it is possible to invoke the Court’s pre-Lisbon case law on implied criminal law competence to employ Article 325 TFEU for criminalisation measures.74

A.  The Context of the PIF Proposal It is clear that the fight against fraud, including criminal law as well as administrative measures, has always been a key strategic interest for the EU institutions. A body of administrative law for the fight against illegal activities at the expense of EU public money was established in the mid-1990s by Regulation No 2988/95/ EC.75 The administrative component of protection EU financial interests was complemented simultaneously by a criminal law dimension when the Council adopted the PIF Convention, which obliged the Member States to criminalise frauds affecting the EU’s financial interest.76 The Commission was, however, not entirely satisfied with the results of the existing EU acquis and contended in a communication of 2011 that criminal law would be a necessary to option to protect the Union’s financial interests.77 This and the European Parliament’s resolution on more effective anti-fraud policies, in particular through criminal law,78 paved the way for the PIF proposal.

74 

See above ch 4 II for a discussion of this competence. Regulation (EC, Euratom) No 2988/95 of 18 December 1995 on the protection of the European Communities financial interests, [1995] OJ L 312/1. For other administrative law instruments, see: GHK in association with Milieu Ltd, ‘Study on the legal framework for the protection of EU financial interest by criminal law’, RS 2011/07, 4 April 2012, 22. 76  See Council Act of 26 July 1995 drawing up the Convention on the protection of the European Communities’ financial interests [1995] OJ C 316/49; Council Act of 27 September 1996 drawing up a Protocol to the Convention on the protection of the European Communities’ financial interests [1996] OJ C 313/2; Council Act of 29 November 1996 drawing up, on the basis of Article K.3 of the Treaty on European Union, the Protocol on the interpretation, by way of preliminary rulings, by the Court of Justice of the European Communities of the Convention on the protection of the European Communities’ financial interests [1996] OJ C 151/2); Council Act of 19 June 1997 drawing up the Second Protocol of the Convention on the protection of the European Communities’ financial interests [1997] OJ C 221/12, 12). 77 See Commission, ‘Communication from the Commission to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions—On the protection of the financial interests of the European Union by criminal law and by administrative investigations: An integrated policy to safeguard taxpayers’ money’, COM(2011)293 final. 78  European Parliament, ‘Resolution on the protection of the Communities’ financial interests— Fight against fraud—Annual Report 2009’ 2010/2247(INI), 04.06.2011, recital 2. 75  Council

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The rationale for the PIF proposal is to protect the EU budget, ensure sound public finances and that taxpayer money allocated to the EU is spent as appropriately as possible.79 According to the 2010 Commission report on the protection of the Union’s financial interests, suspected fraud amounts to approximately EUR 600 million annually on the revenue and expenditure side.80 Despite the development of an EU acquis in this area Member States have adopted diverging rules on the definition of frauds and divergent sanctions within their national legal systems.81 This entails according to the Commission that there is no equivalent protection of the Union’s financial interests and that measures against fraud have not reached the necessary level of deterrence thus undermining the EU’s policies to protect its financial interests. The damage to the EU budget and the absence of uniform and effective protection for against the EU budget in the Member States calls according to the Commission for EU criminal law measures in order to safeguard such protection.82

B. The Views of the EU Institutions on the Legal Basis for the PIF Proposal The Commission, basing its proposal on Article 325 TFEU, observed that this provision has conferred the EU with a broad competence to enact ‘measures’ against fraud and other illegal activities affecting the Union’s financial interests which ‘act as a deterrent’ and ‘afford effective’ and ‘equivalent protection’.83 The Commission argued that the term ‘fraud’ must be understood in a broad sense, including also certain fraud-related criminal offences. Criminal law is needed to deter illegal activities affecting the Union’s financial interests since the threat of criminal law sanctions, including its potential to express strong social disapproval, can act as a strong disincentive for potential perpetrators to commit the illegal act in the first place. The adoption of the PIF proposal on the basis of Article 325 TFEU will also provide more effective protection of EU finances as the opt-outs in Title V attached to Article 83 TFEU will not apply if this legal basis is applied. Furthermore, contrary to the pre-Lisbon Treaty version of the provision,84 Article 325(4) TFEU now does not exclude measures having an effect on the application of national

79 

See PIF proposal (n 43) 6. See Commission, ‘Report from the Commission to the European Parliament and the Council— Protection of the European Union’s financial interests—Fight against fraud—Annual Report 2010’, COM(2011)595 final. 81  Commission’s reports on the implementation of the PIF Convention in Commission, ‘Commission Staff Working Paper—Impact Assessment (Part I), Accompanying the Document Proposal for a Directive of the European Parliament and of the Council on the protection of the financial interests of the European Union by criminal law, SWD(2012) 195 final, 10, 14, 18–19, 22, 25. 82  See PIF Proposal (n 43), 2–5; SWD (2012) 195 (n 81), 4–6. 83  See Art 325(1) and (4) TFEU. 84  See Art 280 (4) EC. 80 

122  The Legal Basis for EU Criminal Law Legislation—A Constitutional Choice? criminal law’. Against this backdrop and having regard to the reformed wording of the article, it is according to the Commission clear that Article 325 TFEU includes the power to enact criminal law provisions in the context of the protection of Union’s financial interests.85 Teleological arguments can also be invoked to defend conferral of criminal law competence under Article 325 TFEU. If the EU has been provided with a budget, it must, as argued by Petter Asp, reasonably have the possibility to protect its financial interests in an effective way and this cannot be done if the criminal law competence is limited to Article 83 TFEU.86 The Council Legal Service (CLS) and the Parliament disagreed with the ­Commission’s proposal arguing instead that the proposal should be adopted on the basis of Article 83(2) TFEU. They both applied the Court of Justice’s ‘centre of gravity’ test, arguing that the purpose of reinforcing the criminal law response to improve the fight against fraud and the safeguarding of the Union’s financial interests was one of the predominant aims of the PIF proposal. The proposed Directive thus intended to ensure the ‘effective implementation of a Union policy’, ie the protection of the EU’s financial interests. It also conformed to the ‘harmonisation’ requirement since the policy in question had been subject to such measures, in particular Regulation 2988/95. Furthermore, given the Commission’s strong arguments to the effect that criminal law would be needed to deter potential wrongdoers in the field of fraud and illegal activities against the Union’s financial interests, it seems that the proposal conformed to the ‘essentiality’ condition.87 Due to the fact that Article 83(2) TFEU refers explicitly to the ‘the definition of criminal offences and sanctions’, it moreover appeared that this provision according to the Parliament and Council Legal Service (CLS) is an appropriate legal basis for a proposal which aims at ‘defining criminal offences and sanctions’.88 The CLS and the Parliament furthermore contested the view that the deletion of the qualification in the former Article 280(4) EC made the case for EU harmonisation under Article 325 TFEU. This deletion should be read in conjunction with the insertion of the new legal basis in Article 83(2) TFEU in the Lisbon Treaty, which was intended to exhaustively cover all cases where the EU legislature needed to enforce effectively its policies through criminal sanctions. The deletion of the last sentence of Article 280(4) EC could thus not be interpreted as establishing a special criminal law regime under Article 325 TFEU to flank Article 83(2) TFEU. The CLS and the Parliament also rejected the Commission’s argument to the effect that Article 325 TFEU would be a lex specialis for criminalisation within the field of fraud. Such a construction of the provision could be extended to all other enabling provisions depriving Article 83(2) TFEU of any practical meaning. They instead posited the idea that Article 83(2) is a lex specialis

85 

See PIF Proposal (n 43), 6–7; SWD(2012) 195 (n 81), 26–27. See Asp (n 26), 142–43, 147–48. See House of Commons European Scrutiny Committee, ‘Twelfth Report’, Documents considered by the Committee on 12 September 2012, 10.27. 88  See PIF Proposal (n 43), Art 1. 86  87 

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as regards the protection of the EU financial interests referring to evidence in the European Convention.89 The prominence of Article 83(2) TFEU for criminalisation measures is reinforced by the new institutional setting and the limits attached to the exercise of the competence under Article 83 TFEU. Article 83(2) TFEU contains specific requirements, the ‘essentiality’ condition90 and limits the exercise of criminal law competence to the adoption of ‘minimum rules’. Furthermore, if a draft directive is proposed under this provision every Member State is entitled to invoke an emergency brake if that directive would affect fundamental aspects of its criminal justice system.91 To proceed with criminal law harmonisation on a different legal basis would thus be tantamount to circumventing these limits and protective mechanisms.92

C. Analysing the EU Institutions’ Arguments on the Legal Basis for the PIF Proposal The key question here is, as suggested by the EU institutions, which of Article 83(2) TFEU and Article 325 TFEU should be considered as the predominant legal basis for the PIF proposal: that is for a measure in the fight against fraud/protection of EU financial interests which are essential for the effective implementation of a Union policy in an area which has been subject to harmonisation measures. Whilst there is no Court judgment which clearly settles the issue of the legal basis for criminal law legislation, the answer must still be sought from the guidelines provided by the Court’s general case law on legal basis. Pursuant to the Court’s established case law the choice of the legal basis for a Union measure must rest on objective factors amenable to judicial review, which include the aim and the substantive content of that measure.93 If a measure then pursues two aims/components and one of those aims or components is identifiable as the main one, whereas the other is merely incidental the measure must be founded on the legal basis required by the predominant aim or component.94 Furthermore, where the Treaty contains a more specific provision that is capable

89  See CONV 426/02, ‘Final report of Working Group X “Freedom, Security and Justice”’, Brussels, 2 December 2002, 10. 90  See ch 4 III for discussion of this condition. 91  See Art 83(3) TFEU. 92  See Council Legal Service, ‘Legal Opinion on Proposal for a Directive of the European Parliament and of the Council on the fight against fraud to the Union’s financial interests by means of criminal law’, Brussels, 22 October 2012, 15309/12, 3–7; European Parliament, Committee on Legal Affairs, ‘On the legal basis for the proposal for a Directive of the European Parliament and of the Council on the fight against fraud to the Union’s financial interests by means of criminal law’, 25.3.2014, A7-0251/2014, paras 31–34; Asp (n 26), 150–151, 153. 93  See Case C‑300/89 Titanium Dioxide (n 10), para 10; Case C-155/91Commission v. Council (n 24), para 7; Case C‑338/01 Commission v Council (n 19), para 54. 94  See Case C‑155/91 Commission v Council (n 24), paras 19 and 21; Case C‑36/98 Spain v Council (n 27) para 59.

124  The Legal Basis for EU Criminal Law Legislation—A Constitutional Choice? of constituting the legal basis for the measure in question, the measure must be founded on that provision (lex specialis).95 On the basis of these standards, the following examines in detail which is the proper legal basis for the PIF proposal. Article 325(4) TFEU offers on the one hand a broad competence to adopt ‘measures in the fields of the prevention of and fight against fraud affecting the financial interests of the Union with a view to affording effective and equivalent protection’. Article 83(2) TFEU accords, however, an equally broad scope for the EU legislator to adopt measures that are ‘essential’ for the enforcement of an EU policy which has already been subject to ‘harmonisation’ measures. First, it seems clear that the title of the Directive itself, ‘the fight against fraud to the Union’s financial interests by means of criminal law’, suggests that it falls within Article 325(4) TFEU which confer the EU legislator with competence to adopt the necessary measures in this field. The case for using Article 83(2) TFEU seems, nevertheless, also convincing given that there are sufficient harmonisation measures in this field to legislate under Article 83(2) TFEU. First, there is a plausible argument that the protection of the EU’s financial interest is an independent substantive policy. Secondly, there is a harmonisation measure, Regulation 2988/95, which was adopted on the basis of Article 114 TFEU by means of the then ordinary legislative procedure in Article 251 TFEU (now 294 TFEU).96 Regulation 2988/95 also seems to have entailed ‘substantive’ harmonisation as it included a definition of irregularity for the purposes of determining whether administrative sanctions should be imposed.97 Thirdly, it appears that criminal sanctions arguably are ‘essential’ to ensure the safeguarding of the Union’s financial interests. Potential and actual perpetrators engaged in illegal activities affecting the EU’s financial interests too often find the risk of being caught and being seriously sanctioned as too low to act as an effective deterrent. By referring explicitly to modern criminological science, the Commission suggests that the ‘fear of being caught’, ‘certainty of sentencing’ and/or ‘be shamed’ by the imposition of a criminal sanction can have an effect on potential perpetrators’ decision as to commit an offence.98 The only problem with the Commission’s deterrence claim is the absence of an enquiry into whether alternative sanctions such as fines or disqualification orders would be sufficient against illegal activities affecting the EU’s financial interests. There is neither any

95  See Case C‑338/01 Commission v Council (n 19) para 60, and Case C‑533/03 Commission v Council (n 22), para 45; Case C-155/07 European Parliament v Council of the European Union (EIB Guarantees) [2008] ECR I-8103, para 34. 96  See ch 4 III B for a discussion of this requirement. 97  See Regulation 2988/95 (n 75), Art 1. 98  The Commission referred to this evidence: Andrew Ashworth, ‘Sentencing’ in Mike Maguire, Rod Morgan, and Robert Reiner (eds), The Oxford handbook of criminology (3rd edn, Oxford, Oxford University Press, 2002) 1079; Raymond Gassin, Criminologie, (6th edn, Paris, Dalloz, 2007) 633–34; Ulrich Eisenberg, Kriminologie, (5th edn, Munich, Vahlen Franz Gmbh, 2000) §41, no 4; Herbert Tröndle and Thomas Fischer, Strafgesetzbuch, 53rd edn (München, Verlag CH Beck, 2006) §46 no 2; COM(2011)595 final (n 80), 10, Table 1.

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reference to evidence or literature in the legislative background documents demonstrating the insufficiency of such sanctions in the fight against fraud.99 This concern with the proposal would, however, be equally problematic in relation to Article 325 TFEU. This is because an exercise of a criminal law competence under this provision would also need to satisfy the condition imposed by the Court of Justice’s case law that criminalisation must be essential to enforce the underlying EU policy.100 It thus appears that there is also a plausible case for employing Article 83(2) TFEU for the PIF proposal.101 A quick review of the aim and the content of the PIF proposal seem at first sight to suggest that the proposed directive’s aim and content is equally strongly concerned with Article 325 TFEU as Article 83(2) TFEU. In a substantive sense one may even argue that the directive is more strongly connected to Article 325 TFEU as it still concerns measures against ‘fraud’ and other misbehaviours damaging the EU’s financial interests. After all, the title, purpose102 and content of the proposed directive103 underline its apparent link to the fraud-specific legal basis in Article 325 TFEU. In terms of the exact nature of the powers, it nevertheless appears that the sanctions in the directive, the offence descriptions and the criminalisation requirement clearly connect the PIF proposal to Article 83(2) TFEU, which is the specific provision for criminal law.104 It appears clear that Article 325 TFEU does not, in contrast to Article 83(2) TFEU, explicitly give the EU competence to adopt ‘criminal law’ measures and criminal sanctions. Criminal law furthermore seems to be sufficiently important as a sanction mechanism to be considered as an independent policy component for the purpose of the Court of Justice’s legal basis test.105 It thus seems that the directive is equally concerned with the fight against fraud and fraudulent behaviours affecting the EU’s financial interests as with a criminal law dimension. If the ‘predominant purpose’ test cannot give us any conclusive answers, could the measure then be adopted on a dual legal basis? As is well known, the Court has held that where a measure simultaneously pursues a number of objectives/ components which are inseparably linked without one being incidental to the other and various legal bases are applicable, such a measure may be founded on those legal bases and a combination of their procedural provisions.106 However, 99  See ch 4 III A for a discussion of the ‘essentiality’ requirement and the need to show by empirical evidence the superiority of criminal laws over alternative sanctions. 100  See ch 4 II for a discussion of the conditions imposed by the Court of Justice in the Environmental Crimes judgment. 101  See PIF proposal (n 43), 3–6; SWD (2012) 195 (n 81), 10–12. 102  ibid, recitals 2, 3, 4 and 8. 103  ibid, Arts 1, 3 and 4. 104  ibid, Art 1, Title II, Art 3, Art 4, Title III, Arts 5–9, 11. The words ‘criminal’ and ‘criminalisation’ are mentioned no less than 56 times in the proposal and its preamble. 105  See Judgment of German Federal Constitutional Court of 30 June 2009, Lisbon Judgment, Case 2 BvE 2/08, BvE 5/08, 2 BvR 1010/08, BvR 1022/08, BvR 1259/08, BvR182/09 (2009), paras 252–53, 352–66. 106  See Case C‑211/01 Commission v Council [2003] ECR I‑8913, para 40; Case C‑91/05 Commission v Council (ECOWAS) [2008] ECR I-03651, para 75.

126  The Legal Basis for EU Criminal Law Legislation—A Constitutional Choice? the Court has also stated that recourse to a dual legal basis is not possible where the procedures laid down for each legal basis are incompatible with each other, eg where there is change in voting rule in the Council or where the rights of the European Parliament are encroached upon.107 For the present purposes it also appears that where one of the legal bases is surrounded by a specific decision-making framework and a distinct institutional setting it is more difficult to combine that legal basis with another legal basis. This would, for example, be the case where one of the provisions required a prior specific CFSP decision adopted by unanimity in the Council acting alone and a mere requirement to inform the European Parliament.108 As Article 83(2) TFEU does not offer in itself a pre-defined legislative procedure but instead refers to the legislative procedure used for the underlying harmonisation measure,109 it is not easy to compare this provision to Article 325 TFEU. If it is assumed, however, that the procedure to be used under Article 83(2) TFEU would be the same for the one employed for Regulation 2988/95 (the previous harmonisation measure), ie the ordinary legislative procedure, there seems to be no apparent concern of combining Article 325 TFEU with Article 83(2) TFEU for the PIF proposal. From a perspective of the Parliament it would be appropriate to adopt the PIF proposal on a dual legal basis as Article 83(2) and Article 325 TFEU entail the same rights for this institution. Also, the Council can act in both cases on the basis of qualified majority voting. Thus, the EU legislative institutions would in principle have the same powers as they would have under the most typical legislative procedures.110 Whilst the ordinary legislative procedures detailed in Article 294 TFEU is the point of departure also in the context of measures based on Article 83 TFEU, the differences with the arrangements in relation to this provision and Article 325 TFEU entail that it may not be correct to equate these from the point of view of a choice of legal basis. The procedures under Title V and Article 83(2) TFEU come with a very distinct institutional and procedural framework. First, measures adopted under Article 83(2) TFEU could be subject to emergency break objections from Member States under Article 83(3) TFEU, which suspends the ordinary legislative procedure and requires unanimity in the European Council if a Member State considers that the draft proposal would affect fundamental aspects of its

107  See Case C‑338/01 Commission v Council (n 19) para 57; Case C‑94/03 Commission v Council [2006] ECR I‑1, para 52; and Case C‑178/03 Commission v Parliament and Council [2006] ECR I‑107, para 57; See for more discussion of incompatibility: Tim Corthaut, ‘Case C-166/07, European Parliament v. Council of the European Union, Judgment of the Court of Justice (Grand Chamber) of 3 September 2009’ (2011) 48 Common Market Law Review 1271, 1286–96. 108  See Case C-130/10 Parliament v Council (Court of Justice, 19 July 2012) paras 79–82; Case C-91/05 ECOWAS (n 106), paras 75–77. 109  See ch 4 III B. 110  See Case C-178/03 Commission v Parliament and Council (n 107) paras 57-60; Joined Cases C-402 and C-415/05 P Yassin Abdullah Kadi and Al Barakaat International Foundation v Council and Commission [2008] ECR I-6351, para 235.

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criminal justice system. Secondly, the opt-outs from UK, Ireland and Denmark111 only apply to measures adopted under Article 83(2) TFEU. The participation of the UK or Ireland will alter voting thresholds used for the purposes of calculating qualified majority.112 Thirdly, the threshold for the subsidiarity control varies between Title V and Article 325 TFEU. The threshold for triggering the yellow card is only a quarter of all the votes allocated to the national parliaments in the case of a proposal submitted on the basis of Article 76 TFEU in comparison to the normal rule for initiatives outside Title V which requires at least one-third of all the votes allocated to the national parliaments.113 On the basis of this and the Court’s case law on procedural incompatibility,114 it appears that the setting in the AFSJ is so specific that it excludes that Article 83(2) TFEU is combined with Article 325 TFEU.115 Since the two legal bases cannot be combined a final assessment has to be made regarding which one is the more appropriate for the measure. Whilst the Court has not indicated clearly how this choice has to be made, it seems that this assessment should be pursued on the basis of the centre of gravity test, including a renewed review of the aim and content of the measure.116 This thus entails an attempt to find the legal basis which the PIF proposal has the absolutely strongest connection to. When the aim of this proposal is examined, it is not easy to distinguish the two legal bases. Admittedly an argument could be made that Article 83(2) TFEU is an enforcement provision and Article 325 TFEU a substantive legal basis for fraud policy and not only an enforcement provision.117 The rationale for this is that Article 325 TFEU could provide the basis also for substantive prohibitions against fraudulent behaviour and other infringements of the rules on the EU budget. The PIF proposal indeed aims to ensure the effective protection of the Union’s financial interests thus falling within the scope of Article 325 TFEU. It, however, intends in particular to do so by reinforcing existing harmonisation measures in the field of preventing fraud and irregularities against the EU budget by means of ’ criminal law’. This suggests that the aims of the PIF proposal can be pursued by means

111  See Protocol (No 22) on the position of Denmark, OJ C 83/299. Denmark is by means of this protocol excluded from all post-Lisbon AFSJ measures, Arts 1 and 2. 112  See Protocol (No 21) on the position of the United Kingdom and Ireland in respect of the Area of Freedom, Security and Justice, OJ C 83/295, Arts 1 and 3. 113  See Art 69 TFEU; Protocol (No 2) On the Application of the Principles of Subsidiarity and Proportionality OJ [2010] C 83/206, Art 7(1) and Art 7(2). 114  See the case law referred to in n 108. 115  See, however, Miettinen, ‘Criminal competence’ (n 34) 227, 235, 241–42. 116  See Case C-300/89 Titanium Dioxide (n 10), paras 21–25; Case C-411/06 Commission of the European Communities v European Parliament and Council of the European Union (Shipments of waste) [2009] ECR I-07585, paras 61–76; Case C-130/10 Parliament v Council (n 108) paras 47–49, 67–78. Whilst Parliament rights matter for determining the compatibility of legal bases they do not, however, seems to be decisive for resolving incompatibility: see Case C-130/10 Parliament v Council (n 108), paras 79–82. See for further discussion, Klamert (n 4) 507–14. 117  See Miettinen, ‘Criminal competence’ (n 34) 234.

128  The Legal Basis for EU Criminal Law Legislation—A Constitutional Choice? of the more general legal basis of Article 83(2) TFEU which, as suggested above, is intended to be used for all criminal law measures supporting all substantive EU policies. Since Article 83(2) TFEU is also explicitly concerned with ‘criminal offences’ and ‘criminal sanctions’ this provision is more specific concerning criminalisation of fraud in comparison to Article 325 TFEU.118 Whilst there is no clear response to whether the PIF proposal pursues more strongly non-criminal aims than criminal aims, the content of this initiative, however, has a much stronger ‘criminal law’ component.119 A closer review of the proposal suggests that it is not generally concerned with the fight against fraud, but the substantive provisions and the specific aims suggests that it concerns mainly the ‘criminal law’ dimension of fraud. There are no other sanctions than criminal sanctions in the PIF proposal and the key provisions therein are the criminalisation provisions.120 The proposal neither contains any general provisions on how fraud should be enforced nor any specific requirements on individuals or firms that is intended to protect the safeguarding the EU’s financial interests. Although the general aims of the PIF proposal both relate to Article 83(2) TFEU and Article 325 TFEU, it seems clear that the specific criminal law aims and content of the PIF proposal indicates that the former legal basis is the proper one for this legislative initiative. The contention that Article 83(2) TFEU would be a lex specialis for the PIF proposal would also be consistent with will of the Member States to restrain criminal law cooperation to Title V of the Treaties. It is clear from the drafting process of the Lisbon Treaty that Member States proceeded on the basis that substantive EU criminal competence would be exhausted by the provision in Article 83 TFEU. A strong indication for this is that directive was finally chosen as the only instrument allowed for criminalisation in Article 83 TFEU. Further evidence of this proposition is that Working Group X stated that Article 83(2) TFEU was intended to cover several types of criminalisation, including the protection of the Union’s financial interests by means of criminal law.121 If Article 83(2) TFEU is considered to be the correct legal basis, this solution would also respect the prerogatives of the Parliament as the ordinary decision procedure will apply for the PIF proposal if it is adopted on the basis of Article 83(2) TFEU. The Council’s rights will neither be encroached upon as Article 325 provide similarly as Article 83(2) TFEU qualified majority.122 The Council’s prerogatives 118  See Asp (n 26), 151–52; Commission, ‘Communication from the Commission to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions—Towards an EU Criminal Policy: Ensuring the effective implementation of EU policies through criminal law’, COM 2011(573) final, 10. 119  See above section II C on the concept of criminal law. 120  See n 104 for all the content references to ‘criminal law’ and ‘criminal sanctions’. 121  See CONV 426/02 (n 89), 9–10; Merita Kerttunen, Legitimizing the use of transnational criminal law: The European framework (DPhil, University of Helsinki, 2015), 143–45, 210–11, 225–27, 244–46; Miettinen, ‘Implied ancillary criminal law competence’ (n 6) 199, 205. 122 See Case C-300/89 Titanium Dioxide (n 10), paras 18–21; Case C-178/03 Commission v Parliament and Council (n 107), paras 57–59.

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will be even enhanced if Article 83(2) TFEU is employed as the Member States will have access to the emergency brake.123 It seems equally clear that the rights of the national parliaments will be reinforced as the threshold, as mentioned above, for the triggering of a Yellow Card under the Early Warning Procedure, will be lower than under Article 83(2) TFEU.124

IV. Conclusions This chapter considered the correct legal basis for criminalisation of e­xisting EU policies. By scrutinising the relationship between Article 83(2) TFEU and the general legislative power under Article 114 TFEU and the more specific Article 325 TFEU, it was argued that there is still space for litigation over the legal basis for criminalisation measure. In the scenario where the envisaged measure does not fall within the scope of Article 83(2) TFEU, because the proposed measure is a ‘regulation’ and provides for ‘decriminalisation’ of certain offences, there could be a case for employing other legal bases such as Article 114 TFEU for the measure. The use of other legal basis outside Title V of the Treaties may also be legitimate if the criminal law component of an envisaged measure is substantially weaker than the main policy component of the measure. The case study on the Fourth Anti-Money Laundering Directive illustrated this argument. Admittedly, this directive contained rules and obligations that were of a criminal law character such as subjective fault requirements and the term ‘criminal law’ was repetitiously mentioned therein. However, given the narrow scope of Article 83 TFEU and the strict limitation in this provision to definition of ­‘criminal offences’ and ‘criminal sanctions’, it was argued that the Fourth AMLD could not have been adopted on this legal basis. The choice of Article 114 TFEU for the Fourth AMLD was also justified given that the different requirements on individuals and firms in relation to sanctions and money laundering obligations at least potentially could give rise to obstacles to the fundamental freedoms thus satisfying the Tobacco Advertising I test. The main thesis of the chapter was, however, that most proposals containing criminalisation requirements and the imposition of ‘criminal’ sanctions would have to be adopted under Article 83 TFEU. Article 83 TFEU has indeed, given the specific institutional setting of the AFSJ and the telos of Title V, assumed the role of lex specialis in the field of criminal law. Although the Court of Justice’s postLisbon case law appears to have favoured non-AFSJ legal bases over AFSJ legal bases in competence disputes, this case law cannot be interpreted as entailing strong evidence for implicit criminal law competence outside Title V. The j­udgments

123  124 

See Art 83(3) TFEU. See Art 76 TFEU; Protocol No 2 (n 113), Art 7.

130  The Legal Basis for EU Criminal Law Legislation—A Constitutional Choice? at issue were concerned with minor AFSJ elements or situations where the AFSJ legal basis concerned clearly was not an appropriate legal basis for the envisaged measure.125 Those measures whose primary objective is of a criminal law nature or entail obligations to impose sanctions of an exclusively criminal-law nature should thus still arguably be adopted under Title V.126 This ‘Member State’-friendly interpretation of Article 83(2) TFEU in legal basis conflicts is conducive to promote the institutional legitimacy of the EU legislator’s criminal policy. The tenor of this provision embodies a restrained approach to criminal law harmonisation containing power-restricting elements (such as the emergency brake and the ‘essentiality’ condition) impeding excessive EU criminalisation. It suggests that only EU criminal legislation that would enhance the Member States’ capacity to tackle transnational crime should be adopted.127 A narrow interpretation of the scope of the EU’s criminal law competence thereto respects the distinctive nature of criminal law entailing the imposition of censure and tangible harsh treatment and infringing regularly on basic fundamental rights. The close connection between criminal law and sovereignty (being one of the ultimate manifestations of state power)128 particularly favours a restrictive approach when it comes to EU-interference with criminal law.129 All this suggests that criminal law for the enforcement of EU policies should be used as a last resort and only exercised under such strict conditions as are prescribed in Article 83(2) TFEU (thus rejecting the use of other legal bases outside Title V).130 This proposition was demonstrated by a careful review of the PIF proposal which illustrated the very delicate assessments involved in choosing the right legal basis for the measure. The proposal had, as correctly argued, by the Commission a strong connection to Article 325 TFEU being concerned with the fight against fraud and because it repetitiously mentioned the ‘criminal law’ dimension of the fight against fraud. On the merits the arguments for using Article 83(2) TFEU for the proposal were, however, equally compelling. There were already ‘harmonisation’ measures in the field of fraud and proper reasoning by the Commission to why it believed the criminal law response was ‘essential’ for the enforcement of the underlying EU policy. The PIF proposal also contained extensive rules providing for the ‘definition’ of ‘criminal offences’ and requirements to impose ‘criminal sanctions’.131 A dual legal basis could, however, not be used for the measure as the specific institutional setting in Title V with a potential emergency brake, the lower thresholds for national parliaments in triggering a yellow card and the opt-outs

125 

See the cases referred to in nn 28–33. See Case C-137/12 Commission v Council (n 22) para 72. See Art 5(3) TEU; Kerttunen (n 121), 210–11, 244–45; CONV 426/02 (n 89) 10–11. 128  As recognised by the requirement in Art 4(2) TEU on the EU legislator to have respect for Member States’ national identity. 129 See the German Constitutional Court’s distinctive treatment of ‘criminal law’ in its Lisbon Judgment as referenced in n 105. 130  See Kerttunen (n 121), 136–37; Asp (n 26), 76–78. 131  See Art 83(2) TFEU. 126  127 

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could not be combined with the ordinary decision-making procedure provided by Article 325 TFEU. This necessitated a choice to be made between Article 325 and Article 83(2) TFEU. The choice in the end fell on Article 83(2) TFEU as it was considered that the predominant aim and content of the proposal was the ‘criminal law’ enforcement of fraud. There were no general obligations to combat fraud or any other administrative sanctions in the proposal. Finally, the structure and purpose behind Article 83(2) TFEU, particularly the Member States’ will to limit supranational criminal law cooperation to Title V, made this a more legitimate choice for a measure which has strong ‘criminal law’ components.

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6 Subsidiarity as a Constraint to the Exercise of EU Competences I. Introduction The principle of subsidiarity is one of the most contested issues in European Law scholarship. While the debate of subsidiarity was initially focused on whether it was judicially enforceable and its impact on EU law,1 the discussion on whether subsidiarity is justiciable has now been settled by the Court of Justice.2 The debate has also for a long time revolved around the issue on how subsidiarity can be made operational. It has been generally alleged that subsidiarity’s weak conceptual contours3 has made it unworkable as a legal principle that restricts the exercise of Union competences, in particular under the broad remit of Article 114 TFEU.4 Those allegations are supported by a judicial record demonstrating that the Court has so far been unable to develop criteria with which subsidiarity can be applied to limit the exercise of EU competences. Observers have with good reason denounced the Court for not taking ‘subsidiarity seriously’.5 Those observers have not, however, yet developed robust criteria against which subsidiarity can be measured. The discussion on subsidiarity has also at times suffered from conceptual confusion. While some commentators have conceptualised subsidiarity as ‘federal proportionality’6 others have focused on subsidiarity as a ‘matter of competence’.7 It appears that the problems of delineating subsidiarity from ‘competence’ and

1 See George Bermann ‘Taking Subsidiarity Seriously’ (1994) 94 Columbia Law Review 332; AG Toth ‘Is Subsidiarity Justiciable?’ (1994) 19 European Law Review 269; Edward T Swaine, ‘Subsidiarity and Self-Interest: Federalism at the European Court of Justice’ (2000) 41 Harvard International Law Journal 1. 2  See eg Case C-58/08 Vodafone and Others [2010] ECR I-04999, paras 72–79; Case C-176/09 Luxembourg v Parliament and Council [2011] ECR I-03727, paras 73–83. 3  See Art 5(3) TEU. 4  See Robert Schütze, From Dual to Cooperative Federalism (Oxford, Oxford University Press, 2009) 250–53; Gareth Davies, ‘Subsidiarity: The Wrong Idea, in the Wrong Place, at the Wrong Time’ (2006) 43 Common Market Law Review 63, 68–75. 5  See Bermann (n 1); Schütze (n 4) 255–56. 6  See Davies, ‘Subsidiarity: The Wrong Idea’ (n 4) 81–83; Schütze (n 4) 263–65. 7  See Philip Kiiver, The Early Warning System for the Principle of Subsidiarity (Abingdon, Routledge Publishing, 2012) 75, 98, 100.

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‘proportionality’ have undermined the impact of the principle as a restraint to the exercise of EU competences. Conceptually, subsidiarity cannot be transformed into a proportionality mechanism or into a competence issue. It provides neither substantive protection for national autonomy nor a balancing mechanism between the interests of the Member States and the interests of the EU.8 It is a matter of ‘who’ should implement the EU’s regulatory objective in fields of shared competences and thus a question of whether a specific measure should, given its objective, the geographical scope and nature of the problem, be adopted by the Member States or the EU.9 Against this background, the outline of the chapter can be presented. This chapter intends to examine whether subsidiarity could act as a check on the EU legislator. It develops the argument from chapter two that subsidiarity must be constructed as a principle challenging the internal market justification and the contention from chapter three that a procedural enquiry could help to enforce the subsidiarity principle. Section II of the chapter tries to respond to the conceptual challenges of subsidiarity by finding a meaningful definition to the principle. It argues that the substantive notion of subsidiarity entails a demand on the EU legislator to demonstrate the risk of a transnational ‘market failure’10 or transnational interest in order to exercise its harmonisation powers. In the third section of the chapter, the challenge of judicial enforcement is tackled This section argues for stringent procedural review of subsidiarity as a solution for the problems of judicial review. In the fourth section of the chapter, the subsidiarity concept developed earlier is applied to a case study in the field of EU criminal policy: the recently adopted Market Abuse Crimes Directive.11 The final section then summarises the argument.

8  See for contrasting views, however: Xavier Groussout and Sanja Bogojevic, ‘Subsidiarity as a Procedural Safeguard of Federalism’ in Loïc Azoulai (ed), The Question of Competence in the European Union (Oxford, Oxford University Press, 2014) 236–37, 251; European Convention, CONV 353/02, ‘Final report of Working Group IV on the role of national parliaments’, Brussels, 22 October 2002, 10. Unfortunately, it appears that the Court of Justice has contributed to the problem in Case C-491/01 British American Tobacco (Investments) and Imperial Tobacco [2002] ECR I-11453, where the Court conflated the subsidiarity test both with the competence question (para 182) and the proportionality assessment (para 184). 9  See Art 5(3) TEU. 10  ‘Market failure’ can be defined as ‘deviations from perfect markets due to some element of the functioning of the market structure’. This is the case, for example, if market signals do not properly reflect social costs and benefits, ie externalities. Externalities can arise from negative effects occurring in one state as a result of an activity that is regulated or not regulated in another Member State. Society’s regulatory cost of producing that particular good is greater than the Member State’s cost. The most important one for the EU internal market is imperfections of competition, ie where there are deviations of effective competition due to market power, distortions to competition and protectionist trade barriers: See World Trade Organization (WTO) Secretariat, ‘World Trade Report 2004—Exploring the linkage between the domestic policy environment and international trade’, Chapter 3, 150–51. www.wto.org/english/res_e/booksp_e/anrep_e/wtr04_2c_e.pdf. Accessed 31 October 2016; Jacques Pelkmans,’ The Economics of Single Market Regulation’ (2012) Bruges European Economic Policy Briefings no 25/2012, 2–4. 11  Directive 2014/57/EU of the European Parliament and of the Council of 16 April 2014 on criminal sanctions for market abuse (market abuse directive) [2014] OJ L 173/79.

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II.  The Substantive Meaning of Subsidiarity A. Fleshing Out the Meaning of Subsidiarity— The Edinburgh Guidelines In order to understand the content of the principle of subsidiarity, we should closely review the Edinburgh Guidelines,12 which provide substantive guidelines on how subsidiarity should be conceptualised.13 These guidelines list three criteria that must be taken into account in assessing the need for Union action: the cross-border criterion; the criterion that Member State action or lack of EU action conflicts with the requirements of the Treaty; and the ‘clear benefits’ criterion.14 The interpretation of the guidelines determines whether subsidiarity can restrain excessive EU harmonisation within the internal market. If one adopts an interpretation which accepts that each of the guidelines can independently justify EU action, subsidiarity offers no threshold to the exercise of EU competences. However, if one argues, as this chapter does, for a construction which entails that the guidelines must be considered in conjunction with each other, subsidiarity may act as a check on EU harmonisation. A literal reading of the guidelines offers an ambiguous response. The original Edinburgh Guidelines suggested, by using the terms ‘and/or’ between the three indents, that the guidelines can be both cumulative and alternative.15 Koen Lenaerts has argued that the need for EU action exists when it is ascertained that one of these guidelines are met. The ineffectiveness of the means available to the Member States, as suggested by the first and second guidelines, and the greater efficiency of action at Union level, as suggested by the ‘clear benefits’ criterion are alternative criteria for the assessment of the need for Union action. This is why the three guidelines are linked to one another with the words ‘and/or’.16 12  European Council, ‘Conclusions adopted at Edinburgh European Council, Annex 1 to Part A: Overall Approach to the Application by the Council of the Subsidiarity Principle and Article 3b of the Treaty on European Union’ Bulletin of the European Communities 12–1992, 11–12 December 1992, 18–19. 13  The Court assumes that the Edinburgh Guidelines (n 12), as they were previously codified by the Amsterdam Protocol (no 30) ‘on the application of the principles of subsidiarity and proportionality’ [1997] OJ C 321/308, provide for an authoritative definition of subsidiarity; see eg Case C-58/08 Vodafone and Others (n 2), paras 72–74. 14  The Edinburgh Guidelines (n 12) 20, state that the Union should consider the following criteria to decide whether there is a need for EU action:

‘— the issue under consideration has transnational aspects which cannot be satisfactorily regulated by action by Member States; and/or ‘— actions by Member States alone or lack of Community action would conflict with the requirements of the Treaty (such as the need to correct distortion of competition or avoid disguised restrictions on trade or strengthen economic and social cohesion) or would otherwise significantly damage Member States’ interests; and/or ‘— action at Community level would produce clear benefits by reason of its scale or effects compared with action at the level of the Member States.’ 15 

ibid, 20. See Koen Lenaerts ‘The Principle of Subsidiarity and the Environment in the European Union: Keeping the Balance of Federalism’ (1994) 17 Fordham International Law Journal 846, 878–79. 16 

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Lenaerts’ interpretation could, however, be contested given the subsequent amendments of the guidelines in the Amsterdam Protocol.17 This protocol removed the phrasing ‘and/or’ that were encompassed in the original guidelines to explain the relationship between the guidelines. It thus seems that there is a lack of clarity as to whether the guidelines should be considered conjunctively or disjunctively. Given the fact that a textual interpretation is inadequate to offer any insights, it is necessary to employ alternative methods of interpretation to clarify the meaning of the guidelines. Given its importance in EU law, it seems appropriate to employ teleological and contextual grounds for this purpose.18 Taking into account such considerations it seems that the guidelines should be applied cumulatively. Such an interpretation is supported by the fact that the overarching purpose of the guidelines is to protect ‘national identities of the Member States’ and ensure that ‘decisions are taken as closely as possible to citizens’. This interpretation also makes sense given that subsidiarity was introduced in Maastricht as a device to counter the concerns of Member States as to ‘creeping EU competences’.19 EU action is thus permissible with reference to the cross-border nature of the problem or with reference to the need to protect EU objectives only when EU action offers clear advantages.20

B. Legitimate Justification for EU Internal Market Harmonisation This subsection examines the justification for EU action in more detail on the basis of the Edinburgh Guidelines. The enquiry starts with considering the cross-border criterion as this is the first rationale for Union action listed in the guidelines. The fact that an issue is of a cross-border nature is one of the core justifications for the Union’s harmonisation efforts particularly under Article 114 TFEU and Article 352 TFEU. The scope of Union competences both in the field of legislative action21 and the application of the free movement rules22 have, at least before the ratification of the Lisbon Treaty and the Court of Justice’s recent rulings on EU citizenship,

17 

See n 13 for reference to the Amsterdam Protocol. See Gunnar Beck, The Legal Reasoning of the Court of Justice of the EU (Oxford, Hart Publishing, 2012) 210–19 on the teleological method. 19  See Derrick Wyatt ‘Could a ‘Yellow Card’ for National Parliaments Strengthen Judicial as well as Political Policing of Subsidiarity?’ (2006) 2 Croatian Yearbook of European Law & Policy 1, 6. 20  See Swaine (n 1) 53, 55. 21  Regarding the scope of EU legislative competence within the context of the internal market; see René Barents, ‘The Internal Market Unlimited: Some Observations on the Legal Basis of Community Legislation’ (1993) 30 Common Market Law Review 85, 106–09. 22  See regarding scope of application of the fundamental freedoms in the field of citizenship: Koen Lenaerts, ‘“Civis europaeus sum”: from the cross-border link to the status of citizen of the Union’ (2011) 3 FMW Online journal of free movement of workers 6, 6–7. ec.europa.eu/social/main.jsp?catId=7 37&langId=sv&pubId=6193&type=1&furtherPubs=no. Accessed 31 October 2016. 18 

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depended on the need to show a cross-border aspect.23 EU action in addressing cross-border problems is, for example, justified where there is a ‘collective action’ problem.24 This is the case where a problem affects more than one Member State at the same time and decentralised decision-making by independent states cannot adequately promote the welfare of citizens because of various kinds of crossborder externalities.25 There is a case for common Union action since such action may reap efficiency benefits by reducing the costs associated with these externalities and prove mutually beneficial for the Member States.26 Whilst the ‘claimed’ cross-border nature of the regulated problem may constitute a reason for Union intervention, subsidiarity requires there to be proof that the problem has a transnational dimension. If the nature of the problem have a national dimension without any externalities or affect only incidentally more than one Member State, the Union’s right to act in the matter should be questioned.27 The cross-border nature of the regulated activity must be evident as to demonstrate that the EU gives ‘clear benefits’ in relation to Member State action.28 The second criterion in the Edinburgh Guidelines suggests that there is a need for EU action if it is necessary to protect EU objectives or to avoid significant damage to Member State interests. Whilst the need to protect general Treaty objectives29 can substantiate the need for EU action, it is no coincidence that the guidelines explicitly indicate distortions of competition and restrictions to trade as central objectives. Those references allude to the most central justification for arguing that EU rather than Member State action is warranted: the need to maintain and create an internal market.30 The internal market justification is a wide one which in theory can be employed to justify Union intervention in all national policy fields. Potentially

23  It is, for example, unclear whether Article 21 TFEU, given the Court’s ruling in Ruiz Zambrano (Case C-34/09 Ruiz Zambrano [2011] ECR I-01177, paras 40–45), would require such a cross-border link to legislate on citizenship; see Lenaerts, ‘Civis europaeus sum’ (n 22) 17–18. 24  See Mattias Kumm, ‘Constitutionalizing Subsidiarity in Integrated Markets: The Case of Tobacco Regulation in the European Union’ 12 (2006) European Law Journal 503, 513–15, 519–21, for the concept of ‘collective action’. 25  See Frederick J Lee, ‘Global Institutional Choice’ (2010) 85 New York University Law Review 328, 329–36, for a general description of the application of subsidiarity to resolve ‘collective action’ problems. 26  See Richard B Stewart: ‘Environmental Law in the United States and the European Community: Spillovers, Cooperation, Rivalry, Institutions’ (1992) University of Chicago Legal Forum 41, 44. 27 See Case C-376/98 Germany v Parliament and Council (Tobacco Advertising) [2000] ECR I-08419, paras 83–84; Josephine Van Zeben, ‘Regulatory Competence Allocation: The Missing Link in Theories of Federalism’ (2012) Law, Institutions and Economics in Nanterre Workshop, Paris, France, 11 December 2012, 30. economix.fr/pdf/seminaires/lien/Van-Zeben.pdf. Accessed 31 October 2016. 28  This argument and the interpretation of ‘clear benefits’ are developed in detail below in the text to fn 35–57 in this section. 29  See Art 3 TEU. 30  See Art 3(3) TEU; Art 4(2) (a) TFEU; Protocol (no) 27 on Internal Market and Competition OJ [2010] C-83/309. This justification is explicitly enshrined as a basis for Union action under Arts 114 and 115 TFEU.

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any difference in the laws of the different Member States can be construed as a distortion to competition or as a barrier to trade.31 When the Court of Justice defines an obstacle in the context of free movement law, it also defines the kind of things that may be harmonised. This reading of the internal market is supported by the use of Article 114 TFEU by the Union legislative institutions whose legislative practice suggests that there are no constraints on Union action under the internal market paradigm. Gareth Davies regrettably observes that the logic of the internal market argument provides no real boundaries. Since successful integration of states and peoples are plainly affected by matters such as language, culture, wealth differences and education, all these matters can be harmonised. If there are to be genuinely no obstacles to the fundamental freedoms and a level playing field, then almost any aspect of life can be harmonised. Davies suggests, however, that there must be limits to the internal market argument. He therefore proposes that harmonisation efforts should be subjected to a test built on objective economic criteria.32 Taking Davies’ proposition further, it is argued that in order to avoid an indefinite expansion of Union competences and to protect national diversity, the EU’s internal market justification must be subjected to the above-mentioned ‘clear benefits’ criterion.33 This begs the question of when and how EU action provides for ‘clear benefits/substantive added value’. EU action gives substantive added value when it deals with a transnational market failure beyond the reach of Member State capacity—for example, cross-border environmental pollutions—or situations of perverse Member State incentives such as ‘safe haven’ scenarios or ‘regulatory races’, or situations where it is unlikely that Member States because of ‘protectionist’ rationales treats national and foreign products or services alike hindering market access.34 First, we consider the key justifications for EU action under Article 114 TFEU which are that EU legislation either should: a) have the object of removing differences between national legislations that hinder the freedom of movement (transboundary externalities); or b) the object of removing disparities between national rules which are liable to distort conditions for competition (fair competition).35 Whilst these rationales may justify central intervention, there ought to be constraints in how they are used. Subsidiarity suggests that Article 114 TFEU 31 

See Case 8/74 Dassonville [1974] ECR 837, para 5. See Gareth Davies, ‘Democracy and Legitimacy in the Shadow of Purposive Competence’ (2015) 21 European Law Journal 2, 7, 17. doi: 10.1111/eulj.12079; Gráinne De Búrca, ‘Re-appraising Subsidiarity’s Significance after Amsterdam’ (1999) Harvard Jean Monnet Working Paper no 7/1999, 26–29. 33  See Kumm, ‘Constitutionalizing Subsidiarity in Integrated Markets’ (n 24) 509–10, 524; Bermann (n 1) 370, 383–84. 34 See Alexander Somek, ‘The Argument From Transnational Effects I: Representing Outsiders Through Freedom of Movement’ (2010) 16 European Law Journal 315, 318–19, pointing out these arguments whilst focusing on the’ national protectionism’ argument. 35  See Case C-376/98 Tobacco Advertising (n 27), paras 83–84, 106–07; Anthony Ogus, ‘Competition between National Legal Systems: A Contribution of Economic Analysis to Comparative Law’ (1999) 48 The International and Comparative Law Quarterly 405, 416. 32 

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cannot be used for the sole objective of harmonization, but that this provision must be used to address transnational market failures/transnational interests. Thomas Horsley illustrates this argument by examining the Court of Justice’s case law on the scope of Article 114 TFEU through the lens of subsidiarity. He argues that whilst subsidiarity has not explicitly been used to limit the exercise of EU powers, it has conditioned the Court’s approach to review of EU l­egislation adopted under Article 114 TFEU. He suggests that the prominent Tobacco Advertising judgment was not so much about setting limits to the competence contained in Article 114 TFEU, but rather about operationalising Article 5(3) TEU.36 The classical pronouncements of the Court that the Union does not enjoy a general power to regulate the internal market, and that it has to show ‘appreciable distortions to competition,’ or the existence of national measures forming barriers to free movement addressed the ‘exercise’37 of competence and the subsidiarity principle. The Court of Justice also endorsed implicitly the subsidiarity test in Article 5(3) TEU by stating that the proposed Tobacco Advertising Directive did not add ‘clear benefits’ as it did not ‘help to facilitate trade in the products concerned’.38 The key lesson from the Tobacco Advertising judgment is perhaps that a claim from the EU legislator that a measure removes obstacle to trade or distortions to competition must be demonstrated. This test is not satisfied by merely showing an ‘abstract’ case that the measure might serve internal market purposes but by showing concretely through evidence that the measure actually will serve such purposes. Market analysis, actual and predicted economic consequences of measures and different scenarios, as evidenced by impact assessments, should thus, as suggested by Davies, be the benchmarks to decide whether the EU should adopt harmonisation measures.39 But the need to demonstrate transboundary externalities is not the only constraint on the EU’s harmonisation powers. It is also suggested that certain national divergences are not by nature such that they can constitute obstacles. There is a certain strand in the case law on the fundamental freedoms which implicitly narrows down the EU’s harmonisation powers to removing obstacles that are likely to hinder cross-border trade in goods and services. In the prominent Keck judgment the Court of Justice held that a national prohibition on resale at a loss did not—even whilst it restricted the volume of sales from other Member States—qualify as an obstacle to trade pursuant to Article 34 TFEU as it did not hinder market access for foreign products. The Court stated more generally that restrictions on certain selling arrangements could not qualify as obstacles unless those provisions were applied discriminately to traders operating within its national territory or in law and in fact affected differently the marketing 36  See Thomas Horsley, ‘Subsidiarity and the Court of Justice: Missing Pieces in the Subsidiarity Jigsaw?’ (2012) 50 Journal of Common Market Studies 267, 269–71. 37  See Art 5(1) TEU. 38  See Case C-376/98 Tobacco Advertising (n 27), paras 84, 98–99, 106–07. 39  See Davies, ‘Democracy and Legitimacy in the Shadow of Purposive Competence’ (n 32) 17–18.

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of domestic products and of those from other Member States.40 The Keck judgment was followed up by the Graf judgment on free movement of workers where the Court held that a national rule which denied a worker entitlement to compensation on termination of employment if he terminates his contract of employment himself in order to take up employment in another Member State, when those provisions grant him entitlement to such compensation if the contract ends without the termination being at his own initiative or attributable to him, was not such as to hinder the free movement of workers. The key reason for not holding this to be an obstacle was that it applied indiscriminately, because the entitlement to compensation depended on an uncertain event namely the termination of a worker’s contract without such termination being at his own initiative or attributable to him and hence did not affect access of workers to the labour market.41 If one then assumes for systemic reasons that there is congruence between the law of free movement and the law of EU competences, there seems to be limits to the internal market argument.42 The judgments in Keck and Graf together with DHL43 and Peralta44 confines the exercise of EU jurisdiction by holding that it is not only the likelihood of the risk of obstacles that matters, but whether the character of the rule is such as to affect cross-border trade, that is whether it concerns an internal situation.45 This means that national divergences which only limit the volume of sales; or traders’ commercial freedom,46 regardless of the nationality of the trader, is not as such as to constitute obstacles in need of harmonisation under Article 114 TFEU. Furthermore, potential obstacles that are too uncertain do not fall within the scope of the EU’s power to regulate the internal market.47 The ‘distortion of competition’ rationale for EU harmonisation is the next aspect to be considered. Distortion concerns may arise in certain scenarios, where firms and individuals relocate to jurisdictions with standards that are so low that a moral dilemma arises. Firms and individuals could then unfairly take advantage of certain states’ weak regulation using these states as ‘safe havens’.48 Another potential distortion is that Member States, in the absence of harmonisation, could enter into a regulatory race in order to attract businesses to their own jurisdiction on

40 

See Case C-267/91 Keck and Mithouard [1993] ECR I-06097 paras 11–18. See Case C-190/98 Graf [2000] ECR I-00493, paras 23–25. 42  See Horsley (n 36), 277–80, who makes a similar argument in relation to the Court’s case law on free movement. 43  See Case C-148/10 DHL [2011] ECR I-09543, para 62. 44  See Case C-379/92 Peralta [1994] ECR I-3453, paras 23–24. 45  See Jukka Snell, Goods and Services in EC Law A Study of the Relationship Between the Freedoms (Oxford, Oxford University Press, 2002) 104–06. 46  It must be recognised, however, that other judgments from the Court of Justice such as Caixa Bank and Mickelsson and Roos seem to go in the opposite direction; Case C-442/02 Caixa Bank France [2004] ECR I-08961, paras 12–17; Case C-142/05 Åklagaren v Percy Mickelsson and Joakim Roos [2009] ECR I-4273, paras 24–28. 47  See Andrew Johnston and Phil Syrpis, ‘Regulatory Competition in European Company Law after Cartesio, (2009) 34 European Law Review 378, 379–80. 48  See Kumm ‘Constitutionalizing Subsidiarity in Integrated Markets’ (n 24), 509–10. 41 

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the basis of socially sub-optimal deregulation giving rise to the ‘Delaware effect’.49 The EU institutions have also used such type of ‘race to the bottom’ reasoning to justify Union intervention. The Commission’s recent proposals to harmonise national criminal laws in relation to infringements of EU regulatory schemes are cases in point. In these proposals, the Commission has assumed that differences in Member States’ sanctioning regimes may create a regulatory ‘race to the bottom’ in order to attract investment and firms. Firms in this scenario are subject to different costs for compliance because of different regulatory standards, putting businesses in a jurisdiction with stringent regimes under a competitive disadvantage, giving rise to competitive distortions.50 Whilst the distortion of competition argument is employed and recognised in theory as a justification for EU harmonisation, there is an abundance of regulatory, economic and legal literature challenging the evidence for and the premises for ‘race to the bottom’ and ‘safe haven’ scenarios.51 Economic literature on harmonisation suggests that harmonisation should only take place if it is shown that: a) national disparities risks giving rise to transnational market failures; and b) Union action is more efficient than Member State action in avoiding or remedying those failures by increasing social welfare (taking into account the costs of the new rules).52 Luca Enriques and Matteo Gatti illustrate why EU harmonisation infrequently conforms to these conditions. Taking the example of the harmonisation of EU company law, they question the validity behind the assumptions underlying arguments of ‘distortions of competition’ invoked for general harmonisation. First, they criticise the justification based on distortions of competition as not substantiated in the case of European company law harmonisation. With no ­European ‘Delaware’ in sight, rules to prevent a ‘race to the bottom’ are unwarranted. Secondly, they claim that there are no other efficiency gains from EU harmonisation. Far from lowering transaction costs, Union harmonisation has raised them and can

49  See William L Cary, ‘Federalism and Corporate Law: Reflections upon Delaware’ (1974) 83 Yale Law Journal 663, 668, 701–05; Lucian Arye Bebchuk, ‘Federalism and the Corporation: The Desirable Limits on State Competition in Corporate Law’ (1992) 105 Harvard Law Review 1435, 1443–44; Roger Van den Bergh, ‘The subsidiarity principle in European Community law: some insights from law and economics’ (1994) 1 Maastricht Journal of European and Comparative Law 337, 345, 355–56. 50  See Commission, ‘Commission Staff Working Document, Accompanying Document to the Proposal for a Directive of the European Parliament and of the Council on the protection of the environment through criminal law, Impact Assessment’, SEC (2007) 160, 24; Commission, ‘Commission Staff Working Paper, Impact Assessment, Accompanying document to the Communication from the Commission to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions, Reinforcing sanctioning regimes in the Financial Services Sector’, SEC (2010) 1496 final, 15. 51  See Claudio M Radaelli, ‘The Puzzle of Regulatory Competition’ (2004) 24 Journal of Public Policy 1, 5–6, 8; David Vogel ‘Trading up and governing across: transnational governance and environmental protection’ (1997) 4 Journal of European Public Policy 556, 559, 561. 52  See Luca Enriques and Matteo Gatti, ‘The Uneasy Case for Top-Down Corporate Law Harmonization in the European Union’ (2006) 27 University of Pennsylvania Journal of International Economic Law 939, 953, 969, 978, 998.

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hardly be expected to do otherwise in the future.53 Whilst their argument does not suggest that company law harmonisation is never justified it proposes that the notion that differences in legislation give rise to distortions of competition is not so self-evident that it is in need of no empirical support.54 Evidence from regulatory scholarship also suggests that race to the bottom scenarios have overestimated the role played by regulation in market behaviour. David Vogel, discussing the race to the bottom and environmental standards in the USA, notes that while state jurisdictions compete with one another to attract investment, they have generally not chosen to do so by maintaining lower environmental standards. On the contrary, many state standards are stricter than federal ones. Empirical research also shows that industrial location is sensitive to factors other than regulations such as the local opposition to new plants, delays, a welldeveloped industrial base, labour costs, and access to markets, a culturally attractive environment and other non-regulatory variables. It seems that international competition for comparative advantage will not necessarily lead to a race to the bottom.55 Having argued that distortion of competition concerns are not conclusive arguments for EU intervention, we revert to the most appropriate justification for EU action: the ‘transnational interests’ argument. If one consider the situations in which it is important to have special protection for products, services and persons those situations are limited to scenarios where these production factors move into a Member State other than their own. Service providers and individuals have much less capacity, because of cultural, epistemic and language barriers, to influence other Member States’ legislation. Mattias Kumm has made this point clearly by observing that when Member State regulation addresses cross-border economic activities, each Member State has an incentive to engage in strategic competitive behaviour and privilege mobile economic actors. ‘Distortions of competition’ resulting from perverse effects on economic actors being subjected to different packages of burdens and benefits is particularly problematic and may give rise to structural bias demanding collective EU action.56 Christian Joerges and Jürgen Neyer summarise the argument well. There is a legitimate suspicion that the legitimacy of the governance of Member States may be flawed in certain situations because of ‘protectionist’ reasons. Because a single state’s democracy represents the collective identities of the citizens of that state, it may not have proper mechanisms ensuring that foreign interests are taken into account within their decision-making processes. In such situations where the

53 

See Enriques and Gatti (n 52) 969, 978, 998. See, however, Johnston and Syrpis (n 47) 392–93, 400–01, arguing for a need of EU company law harmonisation. 55  See Vogel (n 51) 557–59, 561; Radaelli (n 51) 2–3, 5–6; Richard Revesz, ‘Rehabilitating Interstate Competition: Rethinking the “Race to the Bottom” Rationale for Federal Environmental Regulation’ (1992) 67 New York University Law Review 1210, 1234–35, 1240–47. 56  See Kumm ‘Constitutionalizing Subsidiarity in Integrated Markets’ (n 24), 514–15, 517, 524. 54 

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democratic process within a Member State is likely to lead to a failure to protect transnational interests, EU action is required. It is precisely the transnational element which makes the EU a more legitimate body than Member States to act on such a matter.57

C. An Evidence-based and Decentralised Understanding of Subsidiarity The question of whether subsidiarity should require that a proposed Union measure provide for ‘clear benefits’ is a contested issue. Apart from the proposed narrow ‘decentralising’58 interpretation of subsidiarity, there is a ‘centralising’ interpretation of the Edinburgh Guidelines which means that Member States must surrender their regulatory powers whenever a problem can be better tackled at the collective level. Factors such as the effect or the scale of the operation, transfrontier problems, the cost of inaction, Member States’ lack of capacity (including cases of potential market distortions where some Member States were able and willing to act and others were not able to or willing to do so), and the necessity to ensure that competition is not distorted within the common market, can justify Union action.59 Koen Lenaerts is an advocate of this interpretation. He argues, within the context of EU environmental law, that the Edinburgh Guidelines contain an extremely low threshold with regard to the need for Union action and submits that that ‘any kind of ’ of cross-border spill-over effects justify Union action under those guidelines. He first observes that spillovers in the field of environmental law arise from the fact that Member States might fear that the imposition of strict environmental standards could discourage industry and put the national economy at a competitive disadvantage relative to other Member States. Such a ‘race to the bottom’ could be avoided by Union action and is therefore justified under the second guideline and ‘the need to correct distortion of competition’. Furthermore, even if Member States may be capable of producing the required outcome, the third guideline supports Union action as it would be more ‘efficient’ than the individual Member States in achieving the objectives of removing ‘spillovers’.60 Pursuant to Lenaert’s argument the EU would always be entitled to harmonise

57  See Christian Joerges and Jürgen Neyer, ‘From Intergovernmental Bargaining to Deliberative Processes: The Constitutionalisation of Comitology’, (1997) 3 European Law Journal 273, 294–95; Somek (n 34), 323–25, 329. 58  See Deborah Z Cass ‘The Word that Saves Maastricht? The Principle of Subsidiarity and the Division of Powers within the European Community’ (1992) 29 Common Market Law Review 1107, 1124. 59 See Commission, ‘Communication on the Principle of Subsidiarity for Transmission to the Council and Parliament’, 25 European Communities Bulletin, SEC (92) 1990 final, 2. 60  See Lenaerts ‘The Principle of Subsidiarity and the Environment in the European Union’ (n 16) 879–81.

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national divergent laws on the sole conditions that national diversities give rise to restriction on the freedom to do business.61 Lenaert’s broad ‘centralising’ construction of the Edinburgh Guidelines— meaning that any cross-border problem will be sufficient to justify EU action or that such action is justified if it is simply more efficient62—is at variance with the narrow interpretation proposed. The central distinction between this interpretation and the narrow ‘decentralising’ construction is related to the role of evidence. This is best shown by examining Lenaert’s previous example on environmental spillovers. Under the narrow interpretation it is not sufficient to refer to a potential spillover to make the case for EU harmonisation. There must be concrete evidence that the existence of spillovers are likely to give rise to distortions such as a ‘regulatory race’ where states compete with each other by ever more lenient environmental laws.63 Conversely, the ‘centralising’ interpretation accepts the risk of potential spill-overs as a justification for Union action. It is argued that the ‘centralising’ interpretation is not to be preferred as it would take most of the force out of the subsidiarity principle. It is also irreconcilable with the idea that the EU legislator should provide for ‘clear benefits’ in order to make the case for harmonisation. Following Derrick Wyatt’s argument it is proposed that the ‘clear benefits’ criterion prescribes a standard of proof suggesting a presumption against action at the EU level.64 This evidence-based interpretation of subsidiarity is supported by the fact that the EU must, pursuant to the Edinburgh Guidelines65 and Protocol No 2 on the Application of the Principle of Subsidiarity and Proportionality,66 substantiate the need for EU action by ‘quantitative’ and ‘qualitative’ indicators. If the internal market justification is considered in conjunction with the ‘clear benefits’ criterion, this means that the internal markets benefits of harmonisation must be sufficiently persuasive to justify Union action.67 The ‘centralising’ interpretation of subsidiarity is also incompatible with the democratic aims of subsidiarity which are to afford local populations the benefits of self-determination and thereby encourage the survival of social and cultural identities and foster diversity within the larger polity. Subsidiarity suggests that important issues should be answered in a legislative process with as much direct participation as possible by citizens and expresses a preference for governance at the most local level. The preconditions for a good and informed public debate are better at the national level than at the EU level, given the fact that the Union is huge and consists of 28 Member States. It is a very cumbersome task to conduct a

61 

See Case C-292/92 Hünermund [1993] ECR I-6787, Opinion of AG Tesauro, paras 1, 7–9. See Lenaerts ‘The Principle of Subsidiarity and the Environment in the European Union’ (n 16) 865, 895. 63  See Case C-376/98 Tobacco Advertising (n 27), paras 84–86, 106–07. 64  See Wyatt, ‘Could a “Yellow Card” for National Parliaments’ (n 19) 8–9. 65  See Edinburgh Guidelines (n 12) 20. 66  OJ [2010] C 83/206 (‘Protocol No 2’), Art 5. 67  See Swaine (n 1) 53. 62 

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meaningful public debate that includes participants from so many countries with so many barriers to communication. The legitimacy of EU harmonisation would thus be enhanced if matters without a clear cross-border link would be decided at the local level.68 In sum, the decentralised understanding of subsidiarity respects the idea inherent in the principle that Member States should be able to make different policy judgements. It would turn that principle on its head to presume too easily that the need to prevent divergence justifies Union intervention. The subsidiarity principle contains a presumption in favour of Member State action which can be rebutted only if the conditions for harmonisation are fulfilled; that is, where central regulation helps to address transnational market failures or transnational interests beyond the capacity of individual Member States.69

III.  Judicial Review of Subsidiarity A.  The Problems of Judicial Enforcement of Subsidiarity While the previous section drew the contours of the subsidiarity concept in substantive terms, this section addresses with procedural subsidiarity and judicial review. It endeavours in particular to respond to the challenge, discussed in chapter two, that subsidiarity so far has been subject to inadequate judicial enforcement.70 The explanations for the Court’s deferential approach are well known. First, the lack of firm justiciable limits, the complex Edinburgh Guidelines and the principle’s inherent ‘political’ nature has made it excessively difficult for the Court to engage in credible review.71 Secondly, because of the principle’s weak legal content and the Court’s relative institutional disadvantage in relation to the Union institutions, a firm judicial analysis of the need for Union action, as required by the subsidiarity principle, has not been a viable option for the Court.72 Against this background the following considers how to square a judicial review of subsidiarity with the Court of Justice’s relative institutional constraints in enforcing the material subsidiarity criterion. It is suggested here that the main way of empowering the Court and overcoming its institutional disadvantage is to maintain a ‘legality’ review but review material subsidiarity indirectly through 68 See Petter Asp, ‘The Importance of the Principles of Subsidiarity and Coherence in the Development of EU Criminal Law’ (2011) 1 European Criminal Law Review 44, 46; Bermann (n 1), 339, 341–42. 69  See Swaine (n 1) 53–55, 57–58; Kumm ‘Constitutionalizing Subsidiarity in Integrated Markets’ (n 24), 515, 520–21. 70  See above ch 2 V A. 71  See Antonio Estrella, The EU Principle of Subsidiarity and Its Critique (Oxford, Oxford University Press, 2002) 147, 165, 176; De Búrca (n 32) 7; Schütze (n 4) 256. 72  See Estrella (n 71) 139.

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implementing a stringent procedural review test. Before developing this test, the rationale for a deferential review of subsidiarity is considered in more depth.

B. The Main Challenges in Enforcing Subsidiarity before the Court of Justice The main objections to stronger judicial enforcement of subsidiarity are in fact generic arguments against a judicial review of legislation; that is, the Court of Justice is at a comparative disadvantage in relation to the Union institutions both in terms of legitimacy, expertise and competence.73 George Bermann and Ernest Young have expounded on these arguments within the subsidiarity context. According to these commentators, the Court of Justice faces a difficult task in assessing the trade-off between democratic legitimacy, localism and efficiency as required by subsidiarity. Subsidiarity also involves a complex empirical investigation by the legislator, who may then rely on a degree of epistemic superiority in relation to the Court. In addition, the Court is ill-equipped to undertake a comprehensive and non-legal assessment of social, economic or political factors. The issue of whether decision-making powers should be exercised at a central or at national level is arguably a question of political judgment which goes beyond the realm of legal reasoning.74 Bermann and Young’s concerns should be taken seriously. Reasons based on democratic legitimacy and institutional expertise would make it difficult for the Court of Justice to move to intense substantive review of subsidiarity. The proposal for a way to respond to these voiced institutional concerns is therefore to control compliance with subsidiarity by means of an intense procedural review along to the lines suggested in chapter three.75 What are then the benefits of intense procedural review? This form of review is a serious response to Bermann and Young’s institutional argument against stronger enforcement of subsidiarity. Even though it may be beyond the Court of Justices’ legitimacy and competence to examine the test for material subsidiarity as proposed—a test which requires the Union legislator to demonstrate the risk of a transnational market failure or the presence of a transnational interest76—the Court is well-equipped to examine the question of whether the EU institution has backed up the need for Union harmonisation with adequate reasoning and evidence. Such a review does not intrude upon the EU legislator’s discretion and the

73 

See ch 3 II for a general discussion of the ‘institutional’ arguments against strong judicial review. Bermann (n 1) 336, 391–92; Ernest A Young, ‘Protecting Member State Autonomy in the European Union: Some Cautionary Tales from American Federalism’ (2002) 77 New York University Law Review 1612, 1679–82. 75  See ch 3 III for a general discussion of the benefits of procedural review. 76  See above section II. 74  See

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axiom that the Court can only engage in a ‘legality’ review.77 Intense procedural review also responds to the ‘epistemic’ concerns related to subsidiarity review. Since procedural review requires policymakers to draft impact assessments and collect evidence, the Court of Justice will have a useful critical mass of materials at its disposal that will help it to assess the findings and reasoning to justify the need for Union action under Article 5(3) TEU.78 The objections to the Court’s competence to engage in a politically open-ended normative and empirical assessment of whether objectives should rather be address at Union level than Member State level is also, as contended in chapter three, overstated. The Court is engaged in qualitatively similar enquiries in its fundamental rights jurisprudence and free movement case law.79 While subsidiarity cannot easily be validated by operational criteria and the Court lacks epistemic abilities to deal with fact finding, this does not mean that the Court should refrain from enforcing procedural demands on the EU legislator.80

C.  Intensity of Subsidiarity Review If we accept that the institutional objections to judicial enforcement of subsidiarity can be overcome by means of a procedural form of subsidiarity review enquiry the next issue is with the level of intensity with which the Court of Justice should perform such a review. Bermann has argued that the Court’s task in enforcing procedural subsidiarity is to analyse whether the Union institutions, before adopting legislation, meaningfully enquired into the capacity of the Member States to attain the objectives of the proposed measure and whether the Union institutions properly explained why action was necessary at Union level. The test for intervention must, however, take into account the Court of Justice’s institutional constraints in assessing subsidiarity. Substitution of judgment cannot take place, but at the very most the Court can decide whether the Union institutions’ decision to act was egregiously mistaken.81 Gráinne De Búrca, for her part, conceives the demands of procedural subsidiarity as a requirement on the EU institutions to provide a well-reasoned assessment of subsidiarity compliance. It is a matter of showing that the Union legislator articulated the choices at hand, enumerated the arguments for and against Union harmonisation and explained how the balancing exercise between

77  See Andreas Fritzsche, ‘Discretion, scope of judicial review and institutional balance in European law’ (2010) 47 Common Market Law Review 361, 387–88, for a description of the problem of ‘legality’ review. 78  See Koen Lenaerts, ‘The European Court of Justice and Process-Oriented Review’ (2012) 31 Yearbook of European Law 3, 15–16; Paul Craig, EU Administrative Law, 2nd edn (Oxford, Oxford University Press, 2012) 389–90, 396. 79  See ch 3 IV. 80  See Kumm, ‘Constitutionalizing Subsidiarity in Integrated Markets’ (n 24) 528. 81  See Bermann (n 1) 332–36, 379, 385–86, 391, 393, 400.

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different values—such as national diversity, localism and democracy—and the need for maintaining the internal market was undertaken. She also suggests that inadequate reasoning may indicate a failure to take the subsidiarity question seriously and provide a sufficient basis for a challenge to the measure.82 These are interesting proposals. In contrast to Bermann’s suggestion of framing the test in terms of ‘manifest error’, it is proposed that the Court must adopt a slightly more demanding standard of review. Although the Court, if it abandoned the ‘manifest error’ test for more intense enforcement of subsidiarity, would ultimately impose substantive limits on EU harmonisation, this is something that is desirable. The Court has an important role as guarantor of the values of subsidiarity, national diversity and localism. If the Court were to announce that subsidiarity values are entirely subject to the caprices of politics, the Union legislator would not take these values seriously.83 De Búrca’s proposal is commendable since it shows how the Court of Justice can intervene to police subsidiarity. Based on her general argument a more general test for judicial intervention of ‘adequate’ reasoning and ‘relevant evidence’ is suggested. Whilst this test was already articulated above in chapter three, its meaning within the context of subsidiarity will be elaborated upon further.

D. A Test of ‘Adequate Reasoning’ and ‘Relevant Evidence’ for Subsidiarity Compliance The first limb of the test, ‘adequate reasoning’, suggests, as a minimum, that the EU legislator should articulate the reasons for subsidiarity compliance in recitals, explanatory memorandums and impact assessments.84 The ‘giving reasons’ requirement in Article 296 TFEU entails pursuant to settled case law that the statement of reasons must show unequivocally the reasoning of the Union legislator and disclose the essential factual and legal considerations on which a measure is based and the essential objective pursued by the measure.85 Nevertheless, the reason-giving requirement in Article 296 TFEU seems in light of case law to be of a merely formal nature and only require that reasons, whatever their merits, are offered.86 While Article 296 TFEU is triggered only if no reasons at all were given for legislation, I, however, argue for a more intense review that requires not only that reasons be given for subsidiarity compliance but that these reasons are

82 See De Búrca, ‘Re-appraising Subsidiarity’s Significance after Amsterdam’ (n 34) 28–30, 33; Kumm,’ Constitutionalizing Subsidiarity in Integrated Markets’ (n 25) 526–29. 83  See Ernest A Young, ‘Two Cheers for Process Federalism’ (2001) 46 Villanova Law Review 1349, 1391. 84  See Art 296 TFEU; Protocol No 2 (n 66), Art 5. 85  See Case C-233/94 Germany v Parliament and Council [1997] ECR I-02405, para 22; joined cases C-154/04 and 155/04 Alliance for Natural Health and others [2005] ECR I-06451, paras 133–34. 86  See Martin Shapiro, ‘The Giving Reasons Requirement’ (1992) University of Chicago Legal Forum 179, 182, 198, 215; Young, ‘Protecting Member State Autonomy in the European Union’ (n 74) 1681.

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‘relevant’. In this regard there is an important connection between the procedural review test and the substantive understanding of subsidiarity. ‘Relevance’ implies that the reasoning must be related to the material subsidiarity criterion proposed above in section III. The Union legislator must therefore articulate in the legislative background documents what kind of market failure is at stake and explain the transnational character of the failure. Whether the proposed justification for EU action is ‘relevant’ depends on whether it is supported by the theoretically acceptable rationales for harmonisation as they have been expressed by the relevant literature and the Court’s case law.87 The test proposed in chapter three requires the EU legislator to show that at least one of the reasons proposed by the Commission is capable of, on the basis of the pertinent literature and the Court’s case law, independently constituting a justification for subsidiarity compliance.88 One example would be if the EU legislator used an argument based on the effet utile of EU law 89 to justify the need for EU harmonisation measures in the field of internal market harmonisation.90 Effe utile arguments are often used by the Court of Justice to further integration and to provide for an expansive interpretation of the scope of EU competences. Whilst the effectiveness of EU law may be relevant to deciding on whether the EU at all, pursuant to the principle of conferral in Article 5(2) TEU, can act, it is not pertinent in the assessment of whether the EU according to Article 5(3) TEU should act. As the EU legislator can only substantiate subsidiarity compliance with reference to the risk of a transnational market failure or transnational interest it is beyond the point to involve arguments for further EU integration.91 If the proposed justifications are ‘adequate’, the second limb of the test considers whether one of the stated reasons which was in itself sufficient to justify compliance with the substantive subsidiarity criteria, can be defended with sufficient and relevant evidence.92 By linking the evidence criterion to the material subsidiarity test suggested in section II above, it follows that the Union must show that there is transnational market failure or transnational interests necessitating regulation at EU level. This part of the test entails that the invoked evidence must be of a certain quantity and quality. First, the evidence needs to be of a reliable nature in order to pass the test. Here, the meaning of ‘qualitative’ and ‘quantitative’ indicators must be considered.93 Whilst quantitative evidence is factual evidence such as quantities 87 

See Kiiver (n 7) 75, 96. See ch 3 V D. 89  This is Kumm’s example of an irrelevant justification for EU action under the subsidiarity principle; see Kumm, ‘Constitutionalizing Subsidiarity in Integrated Markets’ (n 24) 520–21. 90  See Commission, ‘Proposal for a Regulation of the European Parliament and of the Council on roaming on public mobile networks within the Community and amending Directive 2002/21/EC on a common regulatory framework for electronic communications networks and services’, COM(2006) 382 final, 2, 4, 8, recital 9 and 15 for ‘effet utile’ arguments. 91  This argument is based on my substantive understanding of subsidiarity, see above s II B. 92  See above ch 3 V D for this test. 93  See Protocol No 2 (n 66), Art 5. 88 

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or amounts that rely on objective estimates, qualitative evidence is concerned with more subjective predictions such as the judgements of individuals or perceptions about a subject.94 Qualitative indicators for subsidiarity compliance may encompass policy studies or scientific articles which provide serious support for an argument. The EU legislator may also be required to substantiate EU legislation by means of ‘quantitative’ indicators if such are available. For example, if the proposed legislative measure concerns the internal market, quantitative indicators may involve trade statistics and market research.95 An assertion from the Union legislator that national divergences give rise to obstacles to trade or distortions to competition is thus not sufficient to guarantee ­compliance with subsidiarity, since such subjective judgements are not evidence of a transnational market failure. A statement of the effects of national disparities on the internal market must instead be supported by relevant quantitative studies or relevant scientific studies. Such sources could, for example, be national or comparative studies on legal diversity and risks of distortions to competition or complaints received by private parties96 about national obstacles to fundamental freedoms. The Environmental Crimes Directive97 is a good example of a piece of legislation in which the Union legislator relied on ‘relevant’ evidence to support subsidiarity compliance. The impact assessment to this directive referred to studies made by a consultancy firm which reported appreciable differences among the Member States in terms of the definition of the offences and in terms of the nature of sanctions imposed for committing offences against EU environmental rules. Such differences could be exploited by firms intending to reduce their business cost by not complying with environmental rules.98 Moreover, there was evidence in the background documents supporting the contention that environmental crimes have a cross-border dimension.99 Since the evidence invoked supported the contention that distortions to competition can arise because of differences in the Member States’ rules on sanctions and that this problem is of a transnational nature, the Commission’s proposal conformed to the ‘relevant’ and ‘sufficient’ evidence test.

94  See Cheyanne Church and Mark M Rogers, Designing for Results: Integrating Monitoring and Evaluation in Conflict Transformation Programs (Washington, Search for Common Ground/United States Institute of Peace 2006) 44, 50; ‘Impact Assessment Guidelines’, 15 January 2009, SEC (2009) 92, 38. 95  See Wyatt (n 19) 8. 96  See joined cases C-154/04 and C-155/04 Alliance for Natural Health and others (n 85), paras 36–37. 97  Directive 2008/99/EC of the European Parliament and of the Council of 19 November 2008 on the protection of the environment through criminal law [2008] OJ L 328/28. 98  See Study by The Law Firm HUGLO LEPAGE & Partners, ‘Study on environmental crime in the 27 Member States ‘For European Commission, Study JLS/D3/2006/05, Final Report and Annex—table per offence, Brussels, 5 April 2007’, 7; ec.europa.eu/environment/legal/crime/pdf/report_environmental_crime.pdf, http://ec.europa.eu/environment/legal/crime/pdf/crime_annex3.pdf. 99  See SEC (2007) 160 (n 50) 12–19, at n 29–38, 37–38 for references in the impact assessment to ‘relevant’ and ‘sufficient’ evidence.

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E. National Parliaments, Impact Assessments and Subsidiarity Review A legitimate criticism to the argument advanced here is that it is unrealistic that the Court of Justice would ever enforce subsidiarity with the rigour that is proposed. While the Court of Justice so far has been reluctant to enforce subsidiarity100 in the way suggested above, the evolution of EU law provides the Court with an incentive to engage in a more intense and evidence-based review after the L ­ isbon Treaty. First, such review is facilitated through the new subsidiarity mechanism, the early warning system (EWS) discussed in chapter seven,101 according to which national parliaments are invested with powers to ensure that any legislative measure proposed by the EU legislative institutions complies with subsidiarity.102 This new mechanism has arguably broadened the scope for subsidiarity review by potentially providing the Court of Justice with a wealth of material and subsidiarity arguments on which to adjudicate. This material encompasses the reasoned opinions submitted by the national parliaments detailing the substantive objections, and the reasoned decision of the Commission which refutes their objections.103 Because of this and because of the Court’s specific mandate to review EU legislation on the basis of subsidiarity,104 the Court will be in a better position to assess whether the EU institutions have fulfilled the requirements imposed by the subsidiarity principle. The Court of Justice will also be able to intensify subsidiarity review by requiring the EU political institutions to provide a more substantial record that reflects their engagement with subsidiarity concerns.105 The potential for enforcing subsidiarity before the Court of Justice has also been strengthened by the increased use of impact assessments as a basis for Union legislation. Such impact assessments include a specific section devoted to verification of the Union’s right of action in terms of subsidiarity106 and can therefore act as a benchmark for legality. If the Court of Justice were to use evidence in the impact assessments in establishing whether an action conforms to Article 5(3) TEU, this would alleviate the difficulty of enforcing the subsidiarity principle. A lack of an impact assessment or deviation from an impact assessment will give 100 

See above section III A. See Protocol No 2 (n 66); see Protocol (No 1) On the Role of National Parliaments in the European Union OJ [2010] C 83/203, Arts 1–4. 102  See Federico Fabbrini and Katarzyna Granat, ‘“Yellow card, but no foul”: The role of the national parliaments under the subsidiarity protocol and the Commission proposal for an EU regulation on the right to strike’ (2013) 50 Common Market Law Review 115, 117–25. 103  See Protocol No 2 (n 66), Art 6 and Art 7. 104  ibid, Art 8. 105  See Alan Dashwood, ‘The Relationship Between the Member States and the European Union/ European Community’ (2004) 41 Common Market Law Review 355, 369; Kumm, ‘Constitutionalizing Subsidiarity in Integrated Markets’ (n 24) 529–30. 106  The Commission is for example under an obligation to justify subsidiarity and proportionality in the impact assessment through a ‘Necessity’ and ‘Added Value’ test; see ‘Impact Assessment Guidelines’ (n 94) 21–22. 101 

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the Court reasons to view the adopted measure with suspicion. The Court of Justice may even annul the measure if there are no proper reasons given for why the final proposal deviates from the measure.107

F. The Proposed Review Standard’s Relationship to the Court’s Current Approach How then does the benchmark of ‘adequate reasoning’ and ‘relevant evidence’ fit into the Court of Justice’s existing jurisprudence? We already know from the discussion in chapter two that the Court’s current approach to judicial review of subsidiarity is inadequate. Instead of imposing serious informational demands the Court accepts simple, standardised and circular subsidiarity reasoning as sufficient for conformity with Article 5(3) TEU.108 The proposal advanced here entails a departure from the Court of Justice’s previous case law on the review of subsidiarity. It does not accept a mere reference in a preamble as justification for a legislative act nor does my suggested form of review accept inconsistent evidence for establishing compliance with subsidiarity. The Court must reverse its extreme light test for judicial intervention evidenced by previous case law109 and actually strike down legislation which contains assertions that are not justified in light of the individual facts of the case. The test for legality that is proposed imposes stricter evidential requirements than those that follow from the Court’s current approach. This is because the approach advanced not only requires that a justification is given for subsidiarity compliance,110 but that this justification is ‘adequate’ by addressing a transnational market failure or transnational interest and supported by ‘relevant’ and ‘sufficient’ evidence.111 For the Court, this implies that it must, in contrast to its previous case law,112 enforce the rule that the burden of proof for compliance with subsidiarity lies with the Union legislator.113

107 See Case C-310/04 Spain v Council [2006] ECR I-07285, paras 122–35; Alberto Alemanno, ‘Regulatory Impact Assessment and European Courts: When Ex Ante Evaluation Meets Ex Post Judicial Control’ (2011) 17 European Public Law 485, 492–02; Paul Craig, ‘The ECJ and Ultra vires action: a conceptual analysis’ (2011) 48 Common Market Law Review 395, 427. 108  See above ch 2 V A. 109 ibid. 110  See joined cases C-154/04 and C-155/04 Alliance for Natural Health and others (n 85), para 133. 111  See Case C-310/04 Spain v Council (n 107), paras 122–23; Case T-183/07 Poland v Commission [2009] ECR II-03395 paras 133–53. 112  See Case C-84/94 United Kingdom v Council [1996] ECR I-05755, paras 74–77, 81; Case C-233/94 Germany v Parliament and Council (n 85), paras 26–28. 113  See Protocol No 2 (n 66), Art 5: ‘The reasons for concluding that a Union objective can be ­better achieved at Union level shall be substantiated by qualitative and, wherever possible, quantitative indicators.’

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IV.  Case Study: The Market Abuse Crimes Directive The recently adopted Market Abuse Crimes Directive114 illustrates the limits imposed by the subsidiarity principle. This directive harmonises, as noted above, national criminal laws by defining three market abuse offences, ie insider dealing, unlawful disclosure of inside information and market manipulation, which, if committed intentionally, must be regarded by Member States as criminal offences and must be punishable by effective, proportionate and dissuasive criminal sanctions.115 This subsection examines whether the EU legislature, on the basis of the proposed test of legality,116 correctly exercised its competence in conformity with the subsidiarity principle when it adopted the Market Abuse Crimes Directive; that is, first, whether the Proposal to the Directive is adequately reasoned from a subsidiarity perspective and then whether there is ‘relevant’ evidence in the legislative background documents to sustain compliance with subsidiarity. When assessing the first part of the test, it seems that the EU legislature, when adopting the Market Abuse Crimes Directive, met the demands of ‘adequate reasoning’. This is because it has offered, in accordance with the proposed test of legality, one justification which can, consistent with the suggested substantive test (demanding the presence of a transnational market failure or transnational interest), demonstrate subsidiarity compliance.117 The Commission has identified one market failure, namely, potential distortions to competition, that justifies harmonised definitions of market abuse. The Commission’s logic is based on the fear of ‘safe havens’ and a ‘race to the bottom’. Unless there are common Union-wide definitions of the relevant offences and in the absence of a common criminalisation requirement throughout the Union, perpetrators of market abuse would choose to commit their violations in the jurisdiction that has the most lenient sanctioning regime. Legal diversity in sanctioning results in different costs for the undertakings engaged in financial services activities, leading to competitive disadvantages for undertakings from certain Member States.118 Furthermore, the Commission asserts that, unless harmonised criminal law measures for the enforcement of market abuse offences are adopted, Member States would compete with each other to attract 114  See above ch 4 III A iii and B ii for a previous discussion of this proposal within the framework of Art 83(2) TFEU. 115  See Market Abuse Crimes Directive (n 11) Arts 3–5, 7, 9. 116  See above s III D. 117  See above s II for an account of this test. 118  See Commission, ‘Commission Staff Working Paper, Impact Assessment, Accompanying the document Proposal for a Regulation of the European Parliament and of the Council on insider dealing market manipulation (market abuse) and the Proposal for a Directive of the European Parliament and of the Council on criminal sanctions for insider dealing and market manipulation’, SEC (2011) 1217, 53–54, 125, 166, 171; SEC (2010) 1496 final (n 50), 14–15, 22.

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undertakings in relation to the severity of the sanctioning regime, giving rise to a regulatory ‘race to the bottom’.119 Both these concerns are recognised by prominent scholars as acceptable reasons for harmonisation.120 The Commission has contended that the transnational dimension of market abuse justifies EU action rather than Member State action. Market abuse has a cross-border dimension, since the relevant conduct can occur in one or more Member States other than where the market concerned is localised and because the relevant actors might operate in different countries.121 The scholarship supports the assumption that the cross-border dimension of a problem is a valid reason for EU action and that market abuse, because of the increasingly integrated EU financial market, has an important transnational dimension.122 Has then the Commission submitted sufficient evidence to sustain that the Market Abuse Crimes Directive conformed to the subsidiarity principle? First, let us examine the Commission’s claim that harmonisation of the Member States’ criminal laws in relation to market abuse is necessary to avoid a market failure in the form of distortion of competition. The Commission endeavours to substantiate this claim by referring to the fact that there is divergence in the Member States’ definitions of market abuse offences and in terms of the nature of sanctions imposed for market abuse offences. The Commission specifically points to the report published by the Committee of European Securities Regulators (CESR) on the criminal sanctions available in the Member States under the market abuse directive (MAD).123 The CESR’s report shows the following. The report demonstrates that two out of 27 Member States do not impose imprisonment for infringements of Article 2 of the Market Abuse Directive 2003/6/EC (MAD)124 providing for insider dealing by a primary insider, whereas five Member States do not impose criminal sanctions for the offence of disclosure of inside information by a primary insider in Article 3(a). Moreover, it appears that only two Member States lack criminal

119  See Commission, ‘Proposal for a Directive of the European Parliament and of the Council on criminal sanctions for insider dealing and market manipulation’, COM (2011) 654, 3, 5; SEC (2010) 1496 (n 50) 15. 120  See Hanna G Sevenster, ‘Criminal Law and EC Law’ (1992) 29 Common Market Law Review 29, 53–56; Joachim Vogel, ‘Why is the Harmonisation of Penal Law Necessary? A Comment’ in André Klip and Harmen van der Wilt (eds), Harmonisation and Harmonising Measures in Criminal Law (Amsterdam, Royal Netherlands Academy of Science, 2002) 61, for ‘safe haven’ arguments. See also Cary (n 49), 668, 701–05; Simon Deakin, ‘Legal Diversity and Regulatory Competition: Which Model for Europe?’ (2006) Centre for Business Research, University of Cambridge Working Paper No 323, March 2006, 4–5 for ‘race to the bottom’ arguments. 121  See Market Abuse Crimes Proposal (n 119) 3, 5; SEC (2011) 1217 (n 118), 33. 122  See Van Zeben (n 27) 30; Guido A Ferrarini, ‘The European Market Abuse Directive’ (2004) 41 Common Market Law Review 711, 717–18. 123  Committee of European Securities Regulators, ‘Executive Summary to the Report on Administrative Measures and Sanctions as well as the Criminal Sanctions Available in Member States Under the Market Abuse Directive (MAD)’, CESR/08-099, 28 February 2008. The report was drafted based on the legal situation on 17 Oct 2007. 124  Directive 2003/6/EC of the European Parliament and of the Council of 28 January 2003 on insider dealing and market manipulation (market abuse) [2003] OJ L 96/16.

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sanctions for the offence of ‘tipping’ by primary insiders contained in Article 3b MAD, whilst four Member States do not provide for criminal sanctions for insider dealing by secondary insiders (Article 4 MAD). It also emerges that eight Member States lack criminal sanctions for improper disclosure of insider information by secondary insiders pursuant to Article 4 in MAD, whereas six Member States lack criminal sanctions for ‘tipping’ by secondary insiders (Article 4 MAD). Finally, it is clear that four Member States do not criminalise infringements of Article 5 of the MAD providing for market manipulation cases. The Commission argues that these divergences give rise to safe havens and a race to the bottom, thus creating a risk of distortions of competition.125 Despite having offered this evidence on the divergence in the Member States’ legislation on market abuse, it appears that the Commission has not been able to meet the test of ‘sufficient’ and ‘relevant evidence’. This is because the Commission’s only evidence, ie the CESR report, does not validate the far-reaching conclusion that these divergences will give rise to distortions of competition. Whilst the EU legislature can use Article 114 TFEU to avoid the emergence of future obstacles to trade resulting from the multifarious development of national laws in relation to the sanctioning of market abuse, there must be proof that such obstacles are ‘likely to emerge in the immediate future’. This means that there cannot be an abstract risk of distortions of competition.126 Whilst the report supports that the national divergences in the regulation of market abuse may in theory give rise to distortions of competition, it does not prove it to be likely that these potential distortions will become concrete.127 Subsidiarity compliance can, however, as contended above,128 only be justified if there is proof of an imminent risk of a ‘race to the bottom’. The ‘race to the bottom’ hypothesis is based on several theoretical assumptions which must be demonstrated. First, there must be conditions of economic interdependence in which a Member State unilaterally lowers regulatory standards in order to attract mobile factors of production (typically capital and highly skilled labour). Secondly, it is assumed that other Member States would lose revenue and human capital, and that they would therefore react by lowering their own standards. This would then trigger jurisdictional competition and a cycle of regulatory moves that concludes with all countries in a position that is worse than the one they could have secured by coordinating their policies.129

125 

See CESR Report (n 123) 264–63, 5; SEC (2011) 1217 (n 118) 124–25. See Case C-376/98 Tobacco Advertising (n 27) paras 84, 86, 106–07, 109. There is an abundance of economic literature contesting that the mere presence of divergences provides a reason for harmonisation, see Filomena Chirico and Pierre Larouche, ‘Convergence and Divergence, in Law and Economics and Comparative Law’, in Pierre Larouche and Péter Cserne (eds), National Legal Systems and Globalization (Berlin, Springer, 2012) 21–22, 28–29, with references to further literature. 128  See above s II B—C. 129  See Radaelli (n 51) 2; Enriques and Gatti (n 52) 966. 126 

127 

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The CESR report does not provide support for these assumptions. Although it can be assumed that there is economic interdependence in the EU financial ­market, the report does not show that divergences in the criminalisation of market abuse and criminal sanctions for such offences have caused any Member State to unilaterally lower its enforcement standards. Given the absence of evidence in the proposal and the impact assessments from 2010 and 2011 for the existence of safe haven states with lenient market abuse sanctioning regimes, the case for Union action is feeble. This lack of evidence is to be regretted. It would have been perfectly feasible for the Commission to refer to academic articles,130 national studies, company surveys or other sources to establish the risk of distortions of competition arising from different sanctioning regimes. The Commission has, however, failed to refer to even such general evidence. Given that the Commission has been unable to fulfil the requisite standard of ‘sufficient’ and ‘relevant’ evidence, it thus appears that the Market Abuse Crimes Directive cannot be considered consistent with the subsidiarity principle.

V. Conclusions This chapter considered the potential of subsidiarity as a limit on the exercise of Union powers. It examined three themes in more detail. The first theme concerned the construction of the subsidiarity principle and the rationales for EU harmonisation. It was observed that EU harmonisation is often justified on the basis of the EU’s commitment to protect the internal market and on the basis of the regulated problems’ cross-border nature and effect. It was, however, contended that the EU legislator’s justification for approximation on the basis of alleged market failures are often either exaggerated or not supported by the facts of the individual case. It was argued, on the basis of a cumulative reading of Article 5 TEU, the Court’s jurisprudence on the scope of Article 114 TFEU and the Edinburgh Guidelines that the subsidiarity principle demands that the EU legislator demonstrates the risk of a transnational market failure or transnational interest. The second theme of the chapter was judicial review of subsidiarity. It is not easy for the Court to decide on an appropriate standard of review when monitoring the exercise of EU competence. The choice becomes even more complicated when the Court must enforce a legally incomplete principle such as subsidiarity. Reasons based on institutional competence and legitimacy makes it difficult for the Court to move to more intense substantive review. The main proposal for responding to the institutional objections to stronger judicial enforcement of

130  See Anne Weyembergh,‘The Functions of Approximation of Penal Legislation Within the European Union’ (2005) 12 Maastricht Journal of European and Comparative Law 149, 164; Sevenster (n 120) 54–55.

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subsidiarity was to focus on stringent ‘procedural review’. It was suggested that the Court should apply the standard of ‘adequate reasoning’ and ‘relevant evidence’ along the lines proposed in chapter three to implement the subsidiarity principle. To do this, it was maintained that the Court should, consistent with the argument in chapter three, apply a test requiring the EU legislator to offer at least one reason, which is compelling enough to independently justify compliance with the subsidiarity principle and sustain this rationale with ‘sufficient’ and ‘relevant’ evidence. Whilst the test would depart from the Court’s current deferential approach, the evolution of EU law suggests that the time is ripe for the Court to move to more intense subsidiarity review. The third theme considered the application of subsidiarity by a close review of the Market Abuse Crimes Directive. Based on the standard of ‘adequate reasoning’ and ‘relevant evidence’ it was shown that the subsidiarity principle imposes serious limits on the exercise of EU competences. Whilst the Directive conformed to the requirement of ‘adequate reasoning’ by proposing transnational market failures in the form of distortions of competition as reasons for harmonisation, it failed to meet the ‘evidence’ requirement. On the basis of the premise that potential distortions are insufficient to demonstrate the likelihood of a market failure, it was observed that the invoked evidence, the CESR report and the impact assessment, was only able to show the existence of divergences in relation to sanctioning and criminalization of market abuse in Member States. These documents did not, however, give concrete evidence that those divergences was ‘likely’ to lead to ‘safe havens’ and a ‘race to the bottom’. Because the evidence submitted in the Proposal and the accompanying impact assessment was insufficient to justify the presence of transnational market failures (the proposed rationale for harmonisation), it appeared that the Directive failed to adhere to the subsidiarity principle.

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7 Political Control of EU Competences—National Parliaments in the Field of EU Criminal Law I. Introduction Building on the initial discussion in the book of the virtues and downsides of political control of EU competences,1 this chapter considers the potential of national parliaments in ensuring such control with a particular focus on EU ­criminal law. There is substantial literature that has examined the role of national ­parliaments in EU law and in particular their enhanced power under Protocol No 2.2 It is clear that the formal inclusion of the national parliament as a political actor within the EU decision-making process has been one of the most important innovations of the Lisbon Treaty.3 Their role, however, remains controversial. It is on the one hand disputed whether national parliaments enjoy sufficient powers to tame ‘competence creep’.4 On the other hand it is contested to what extent it is desirable that they should become involved as a legislative actor in the EU’s decision-making procedure.5

1 

See ch 1 II. for a small selection of recent literature on the EWS procedure: Federico Fabbrini and Katarzyna Granat, ‘Yellow card, but no foul: The role of the national parliaments under the subsidiarity protocol and the Commission proposal for an EU regulation on the right to strike’ (2013) 50 Common Market Law Review 115; Philip Kiiver, The early warning system for the principle of subsidiarity: Constitutional theory and empirical reality (Abingdon, Routledge, 2012); Ian Cooper, ‘The Watchdogs of Subsidiarity: National Parliaments and the Logic of Arguing in the EU’, 44 (2006) Journal of Common Market Studies 281. 3 See Michael Dougan, ‘The Treaty of Lisbon 2007: Winning Minds, Not Hearts’ (2008) 45 Common Market Law Review 617, 657–61; Ian Cooper, ‘A “virtual third chamber” for the European Union? National parliaments after the Treaty of Lisbon’ (2012) 35 West European Politics 441, 452–62. 4  See Cooper, ‘The Watchdogs of Subsidiarity’ (n 2) 300–03: Stephen Weatherill, ‘Competence creep and competence control’ (2004) 23 Yearbook of European Law 1, 40–42. 5 See Weaterhill’ Competence creep’ (n 4), 33–34; Robert Schütze, From Dual to Cooperative Federalism (Oxford, Oxford University Press, 2009) 257–61; Katarzyna Granat, National parliaments and the policing of the subsidiarity principle (DPhil, European University Institute, 2014). 2 See

160  Political Control of EU Competences—National Parliaments in the Field On the basis of these debates, this chapter examines to what extent national parliaments are able to contribute to the enforcement of the subsidiarity principle. The chapter first considers the scope of the early warning system (EWS) procedure. It examines the workings of the EWS and then, from a textual, teleological and functional perspective, the remit of the parliament’s powers under Protocol No 2. The second section considers in detail the parliament’s challenge to the recent proposal for a European Public Prosecutor. It accounts for the EPPO proposal and summarises the national parliaments’ objections to the proposal. Subsequently, there is a comprehensive evaluation, on the basis of the subsidiarity concept developed in chapter six, of the arguments of the national parliaments and the legitimacy of the challenge. The final section of the chapter analyses more broadly the national parliament’s track record in the field of EU criminal law and reflects on whether the parliaments have used their powers in an appropriate way.

II.  National Parliaments’ Remit under the EWS Procedure The enshrinement of the EWS within Protocol No 2 aims to establish a system for monitoring compliance with the subsidiarity principle and proportionality as these principles are established in Article 5(3)–(4) TEU.6 The EWS system works in the following way. In order to ensure that the national parliaments can fulfil their monitoring tasks all ‘draft legislative acts’7 sent to the Council and the Parliament shall be forward to national parliaments. Thereupon, the national parliaments have eight weeks from the date of transmission of a draft legislative act at its disposal to consider whether it wishes to issue a reasoned ­opinion to the EU legislator (the Parliament, the Council and the Commission) on why the draft in question does not comply with the principle of subsidiarity.8 The ­Commission9 must take into account the opinion issued by the national parliaments and reconsider such a draft legislative act proposed under the ­ordinary decision procedure10 if the national parliaments’ negative reasoned opinions on such an act amount to at least a simple majority of the votes allocated to

6  See Protocol (No 2) On the Application of the Principles of Subsidiarity and Proportionality OJ [2010] C 83/206 (‘Protocol No 2’), preamble. The thinking behind the EWS was largely taken from the discussions in the European Convention and Working Group No I: see CONV 286/02, ‘Conclusions of Working Group I on the Principle of Subsidiarity’, Brussels, 23 September 2002. 7  See Protocol No 2 (n 6) Art 3 and Protocol (No 1) On the Role of National Parliaments in the European Union OJ [2010] C 83/203 (‘Protocol No 1’), Art 3 for a definition of this concept. 8  See Protocol No 2 (n 6), Art 4. 9  Note, however, that this obligation lies on the relevant EU institution that drafted the act if the legislative proposal does not originate from the Commission: see Protocol No 2 (n 6), Art 7(2). 10  If the ordinary decision procedure is not applicable, the threshold for triggering the yellow card is at least one-third of all the votes allocated to the national parliaments, see Protocol No 2 (n 6), Art 7(2).

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the national parliaments (a ‘Yellow Card’).11 Each national parliament shall have two votes, shared out on the basis of the national parliamentary system.12 In the case of a bicameral parliamentary system, each of the two chambers have one vote.13 After reconsideration of a legislative proposal the Commission (or the institution having drafted the act) may then decide to maintain, amend or withdraw it. If it decides to maintain the draft, it should present a justification for this decision. This reasoned opinion together with the reasoned opinions of the national parliaments, is then forwarded to the EU legislature, which shall consider finally whether the legislative proposal is compatible with the principle of subsidiarity, taking particular account of the reasoned opinions by the national parliaments as well as the reasoned opinion of the Commission. A majority of 55 per cent of the votes in the Council or a majority of the votes cast in the European Parliament can ultimately stop the draft from being adopted.14 Having briefly explained the workings of the EWS, the remaining part of this section is devoted to examine the national mandate’s remit under Protocol No 2. The answer to this question is important as it decides to what extent national parliaments can provide a political check on the exercise of EU competences in the absence of other reliable political checks on countering ‘competence creep’.15 A literal, teleological and systemic construction of the Treaties and Protocol No 2 overwhelmingly suggests that national parliaments have been conferred with a limited mandate to only review the’ subsidiarity’ of a legislative proposal, but not its proportionality, legal basis or political merits.16 In textual terms, it appears from Articles 5(3) and 12 TEU and Article 69 TFEU that national parliaments is responsible to ensure that proposals and legislative initiatives complies with the ‘principle of subsidiarity’ in accordance with the procedure set out in Protocol No 2. Whereas Protocol No 2 is generally dedicated to the application of the principles of subsidiarity and proportionality,17 the EWS expressly refers only to the’ principle of subsidiarity’. In particular, while Article 1 in Protocol No 2 states that each institution shall ensure constant respect for the principles of subsidiarity and proportionality, Articles 6 and 7 specify that a national parliament’s reasoned opinion should only concern whether the draft in question complies with the ‘principle of subsidiarity’.18 The Commission’s obligation to respond in a reasoned opinion to the opinions of the national parliaments is equally restricted to addressing

11  This threshold shall be a quarter in the case of a draft legislative act relating to the fields of ‘judicial cooperation in criminal matters’ and ‘police cooperation’; Protocol No 2 (n 6), Art 7(2); Art 76 TFEU. 12  See Protocol No 2 (n 6), Art 7(2). 13  This opinion should be expressed by a majority and commit the whole of the assembly concerned in accordance with procedures which it will itself determine; see CONV 286/02 (n 6), 6. 14  See Protocol No 2 (n 6), Arts 6, 7(3). 15  See above ch1 II. 16  See Granat and Fabbrini (n 2), 120–25. 17  See Protocol No 2 (n 6), Title. 18  That the reasoned opinion only concerns ‘subsidiarity’ is reinforced by Protocol No 1 (n 7), Art 3.

162  Political Control of EU Competences—National Parliaments in the Field ‘subsidiarity’ concerns.19 It is furthermore prescribed that the EU ­legislator’s final decision under the EWS procedure as to whether a legislative initiative should be pursued only relates to whether the legislative proposal is compatible with the ‘principle of subsidiarity’.20 Secondly, it appears that the purpose of the EWS was indeed to restrain review to the principle of subsidiarity. Working Group IV on national parliaments suggested that the Lisbon Treaty should contain wording that acknowledged the importance of the active involvement of national parliaments in the activities of the Union by ensuring the scrutiny of governments’ action in the Council including the monitoring of the respect of the principles of ‘subsidiarity’ and ‘proportionality’.21 However, the report of Working Group I, which had taken on the assignment to consider ways of improving subsidiarity control, underlined that the EWS ensured that national parliaments would play an essential role in contributing to the work of the EU legislature in applying correctly the ‘principle of subsidiarity’ (particularly considering whether legislation is best adopted at national or European level). Although there were discussions in Working Group IV to extend the review to competences and proportionality (particularly noting the close link between the latter and subsidiarity), the preferences expressed ­particularly by Working Group I on subsidiarity were tough to shift. The final report of the two working groups concluded that review by national parliaments should relate ‘exclusively’ to the question of compliance with ‘subsidiarity’ and not to the legal basis, proportionality or substance of the proposal in question. For concerns pertaining to those matters national parliaments must rely on their ability to influence the debate in Council via their Member State representative.22 Thirdly, it appears that a structural interpretation supports the view that the role of national parliaments under Protocol No. 2 should be limited to a review of the ‘subsidiarity’ of an EU draft legislative act. It was recognised that the proposed early warning system for the first time in the history of the European construction ensured the involvement of national parliaments in the EU legislative process. The Lisbon Treaty did not, however, as recognised by Working Group I, entail a transformation of national parliaments into a third legislative chamber at the EU level, next to the European Parliament and Council. There was strong opposition against the proposal of granting a legislating role to national parliaments which would have added another level of decision-making, which would make the institutional architecture and the already cumbersome complex EU lawmaking system even more complicated. The rejection of a ‘red card’ procedure,

19 

See Protocol No 2 (n 6), Art 7(3)

20 ibid.

21  CONV 353/02, ‘Final report of Working Group IV on the role of national parliaments’, Brussels, 22 October 2002, 10–11. 22  See CONV 286/02 (n 6), 4–8; CONV 353/02 (n 21), 12; Stephen Weatherill, ‘Using national parliaments to improve scrutiny of the limits of EU action’ (2003) 28 European Law Review 909, 912.

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which would have vested national parliaments with powers to veto EU legislation, clearly reinforced the intent of the Treaty framers to grant national parliaments only a restricted position in the EU legislative process.23 Whilst the Protocol and the Treaties must be interpreted as confining the EWS procedure to subsidiarity review, it is argued that functional considerations ­supports a broader mandate which is extended to review of ‘proportionality’ and ‘competence’ concerns. A formal legal construction of the scope of the national parliaments’ mandate under Protocol No 2 suggests that the procedures may be ill-targeted. By including proportionality in the EWS procedure the close link between the two concepts would be recognised. As well as examining the objectives of the proposed action (subsidiarity), national parliaments would then also be examining the precise ­content and form of that action (proportionality). The inclusion of proportionality review within the principle of subsidiarity itself could also, for example, be justified by the fact that Protocol No 2 and Article 5 TEU address both principles together, and fact that if a yellow card is triggered, the Commission has to review its proposal. The inclusion in the review procedure of competence questions is also reasonable as this would allow national parliaments to confirm that each legislative proposal has an appropriate legal basis under the Treaties. Whether an act falls within EU competence at all may arguably be considered by national parliaments to be an even more fundamental matter than potential subsidiarity concerns. Failure to take this issue seriously is, as suggested in chapter two,24 considered a major problem in the current system, especially with regard to the functionally broad legal bases.25 Granat and Fabbrini have, however, argued that comparative institutional arguments oppose extending the national parliament’s mandate to review of proportionality and conferral. Whilst national parliaments appear more suitable than EU institutions in controlling the ‘subsidiarity’ of a legislative proposal, the other institutions participating in the EU law-making process are, according to them, better equipped than national parliaments in evaluating the merits of a legislative draft, its proportionality or the correctness of its legal basis. The EU political process, by involving multiple EU institutions (the Commission, the Council and the Parliament) ensures broad consideration of all the interests involved. National parliaments, on the contrary, because of their local focus, may reflect a ‘­minoritarian bias’,26 failing to take into account the comprehensive

23 

See CONV 286/02 (n 6), 6; CONV 353/02 (n 21), 2, 10. See above ch 2 III. See Diane Fromage, ‘The Second Yellow Card on the EPPO Proposal: An Encouraging Development for Member State Parliaments?’ (2015) Yearbook of European Law, doi: 10.1093/yel/yev0241, 14; Weaterhill ‘Competence creep’ (n 4), 41–42, 45–46; House of Lords’ European Union Committee, Role of National Parliaments in the European Union, 9th Report of Session 2013–14, HL Paper 151, London: The Stationery Office Limited, 26–29. 26 This concept is derived from Neil Komesar, ‘A Job for the Judges: The Judiciary and the ­Constitution in a Massive and Complex Society’ (1988) 86 Michigan Law Review 657, 671–77. 24 

25 

164  Political Control of EU Competences—National Parliaments in the Field problems at stake. Similarly, EU institutions seem more capable than national parliaments in considering the proportionality of a legal draft. Once again, because the EU political process gives voice to multiple interests it seems that the necessity of a specific piece of EU legislation and its suitability to achieve a desired goal can be better evaluated by the interaction among the EU institutions rather than by the singular assessment of separate national parliaments. Finally, it appears that EU institutions are better furnished than national parliaments in reviewing the legal basis of a legislative measure. Although the Council may not have a comparative institutional advantage over national parliaments in this area, the Court of Justice, with an explicit function to review the legality of EU legislative acts, appears better endowed with the technical expertise than the national parliaments.27 There is merit in Fabbrini and Granat’s argument. In terms of legitimacy and expertise it appears that the EU institutions are well-equipped to represent broader interests than national parliaments when controlling compliance with the ­principles in Article 5 TEU.28 It is, however, argued that national parliaments, due to their special position in the EU legislative procedure, may be better placed than the other EU institutions to police the exercise of EU competences. The other EU institutions’ track record in terms of competence control is not impressive. The Council, the Parliament and the Commission and the Court of Justice, have as argued above, performed poorly in taming competence creep. Whilst it would have seemed logical for the Council to monitor the exercise of EU competences the lessons of the past suggests that it has done nothing of the sort.29 Encroachments on the limits to EU competences are necessary to obtain the confidence needed to achieve a compromise between the Member States. The Parliament can neither be trusted to take responsibility seriously to engage in competence control. By making themselves the vigilant guardians of the constitutional principles in Article 5 TEU, the Parliament would be acting against their legitimate wish to extend their own powers. Control by the Court of Justice suffers from similar concerns. Whilst the Court, from a comparative institutional ­perspective, may have more expertise in applying the principles in Article 5 TEU, it seems from the Court’s past practice that the Court may not be up for the task of engaging in proper competence control.30 Weatherill, however, contests the idea that enhanced control by national ­parliaments over EU decision-making is the corrective to the legitimacy problem in the EU. He sustains that the exercise of EU competence is legitimated by its capacity to take seriously the context of transnational economic integration

27 

See Granat and Fabbrini (n 2), 124–25. See Komesar (n 26) for this general problem, 661–68. See Art 5(2)–(4) TEU. 30  See ch 1 II, ch 2. See further Stephen Weatherill, ‘Better Competence Monitoring’ (2005) 30 European Law Review 23, 26–28. 28  29 

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in which decisions today are increasingly made and felt. Within this context, a ­decision taken by one bloc of citizens may have serious negative consequences for another politically more remote bloc of citizens. The idea with EU integration is to correct those malfunctions. He questions particularly whether the national parliaments are properly placed to understand this transnational context. There is a risk that national parliaments may produce selfish Member State-centric outcomes likely to damage the EU’s capacity to effectively address malfunctions or collective action problems flowing from reliance on M ­ ember State-level political systems in an environment of transnational economic growth.31 Weatherill’s argument is compelling. It is clear that national parliaments may pursue national interests and contest EU legislation on grounds not relating to the pursuit of the ‘common good’ for the EU.32 It appears, however, that he fails to appreciate the distinctive position of national parliaments in controlling the exercise of EU competences. In the case where the EU political institutions have perverse incentives to further EU integration at any cost national parliaments may well be the only remaining alternative to provide a safeguard against illegitimate competence creep.33 The national parliaments have no apparent incentives to push EU integration further. Furthermore, they are only vested with powers under Protocol No 2 to issue reasoned opinions and no veto-powers or powers to amend EU legislation. The logic behind trusting the monitoring of EU competences to national parliaments is that they—not being EU institutions34—formally lie outside the EU legislative procedure.35 National parliaments may also be induced to ensure that the constitutional principles in Article 5 TEU are effectively respected in the long term.36 A broad mandate to national parliaments would finally reinforce the national parliament’s important role in ensuring the ‘the good functioning of the Union’.37 Although from a comparative institutional perspective national parliaments may be better positioned than the EU institutions to control the exercise

31 See Weatherill, ‘Competence creep’ (n 4), 33–34; Weatherill, ‘Using national parliaments’ (n 22), 911–12; CONV 178/02, Contribution from M Andrew Duff and M Alain Lamassoure, M Olivier Duhamel, M Karel De Gucht, Mme Sylvia Kaufmann, M Josef Zieleniec, members of the Convention, and Mme Pervenche Berès, alternate member, ‘Issues of competence and subsidiarity, and confusion arising therefrom’, Brussels, 9 July 2002, 3–5. 32  See below section III for an example of misdirected criticisms against the EPPO proposal. 33  See Fabbrini and Granat for the opposite argument (n 2), 121–23. 34  See Art 13 TEU. 35  See Arts 289, 294 TFEU. 36  See CONV 255/02, Contribution by Mr Haenel, Member of the Convention: ‘The complementary role played by the national and European parliaments’, Brussels, 10 September 2002, 4–5; ­Weatherill, ‘Better Competence Monitoring’ (n 30), 23–24; House of Lords’ European Union Committee on the Role of National Parliaments’ (n 25) 30, 52. 37  See Art 12 TEU.

166  Political Control of EU Competences—National Parliaments in the Field of EU competences, it is debateable whether granting such powers to national parliaments is desirable. Firstly, efficiency considerations counter against expanding the national parliament’s mandate. The purpose of the EWS was not to make decision-making within the institutions more cumbersome or create new bureaucracy. There is a risk that national parliaments with a wider mandate would not have time to act effectively and the issuing of broader reasoned opinions would slow down the legislative procedure system. An expansive approach under the EWS would furthermore replicate the role already played by the ‘Barroso initiative’ through the political dialogue and increase the total number of reasoned opinions. This would slow down the legislative procedure since the Commission would have to go through and respond to all possible arguments. It may prove to be inefficient as the gathering of national parliamentarians, suffering 25 or so different mandates, timetables and workloads, will have to cope with the large volume of complex draft EU legislative acts.38 The second concern is that broader powers vested in national parliaments may encroach on the delicate institutional balance established by the Treaties by conceding too much to Member State control.39 Conferring a more extensive mandate to national parliamentarians risks confusing the role of those and the function of the Parliament and the Council. The role of national parliaments is to control the executive through the Council, not to act as co-legislators with the other EU institutions. The Council, who represent the Member States and thus indirectly the collective interest of national parliaments, and the Parliament, representing the citizens of the Union, are the institution properly conferred with those tasks. Finally, the representative capability of the national parliamentarians could be contested. Whilst those from the stronger parliaments in the Union may struggle to articulate a coherent view those from weaker parliaments may struggle to form views independent of their governments. The assumption that national parliaments are close to citizens when it comes to EU affairs is particularly contested given the absence of an automatic link connection between democracy and local decision-making.40 Given this and the above, it appears that there is a slight preponderance of arguments in favour of maintaining the status quo as regards the national parliament’s narrow mandate under EU law to safeguard the observance of the principle of subsidiarity.

38  See CONV 353/02 (n 21), 10–12; Weatherill, ‘Competence creep’ (n 4), 33–34; Granat (n 5), 322–23, 325. 39  See Art 13(2) TEU. 40  See CONV 178/02 (n 31), 3–4; Weatherill, Competence creep’ (n 4), 33–34.

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III.  National Parliaments’ Pursuit of Competence Control in Practice—The Yellow Card Against the EPPO Proposal A.  Context and Rationales for the EPPO Proposal This section examines how the national parliament perceives its mandate under this protocol and whether the parliaments’ approach to subsidiarity control is ­consistent with the narrow understanding of their remit advanced in the previous section. It does so by reviewing the national parliament’s most recent yellow card issued against the EPPO proposal. The EPPO proposal is not only interesting from a legal point of view in terms of its compatibility with the subsidiarity principle. It is arguably one of the most important reforms ever in the history of EU criminal law. Given this, it has been subject to serious scholarly attention.41 The analysis here will contribute to this strand of literature by evaluating the national parliament’s reasoned opinions, and also reflect on whether the EWS against the EPPO can be seen as a broader trend towards more fierce competence control in the field of EU criminal law. Returning back to the historical context of the EPPO proposal, it appears that the seeds for the European Public Prosecutor were already envisaged in the mid-1990s with the work of Corpus Juris. The academics involved in the Corpus Juris project had suggested a scheme of measures to counter the non-enforcement of offences against the EU’s budget including suggestions of a single set of offences applicable throughout the Union, a common set of procedural rules for the investigation and the prosecution of such offences and the establishment of a European Public Prosecutor.42 The real impetus for the creation of a European Public Prosecutor is, however, derived from the successful negotiation of the new Article 86 TFEU to be enshrined in the Lisbon Treaty. This provision provides the Council with a

41  For a small selection of recent literature: Petter Asp (ed), The European Public Prosecutor’s Office— Legal and Criminal Policy Perspectives (Stockholm, Jure, 2015); Katalin Ligeti, Toward a Prosecutor for the European Union Volume 1 (Oxford, Hart Publishing, 2012); Leendert H Erkelens, Arjen WH Meij and Marta Pawlik, The European Public Prosecutor’s Office: An extended arm or a Two-Headed dragon? (Vienna, Springer, 2014); Katalin Ligeti and Michele Simonato, ‘The European Public Prosecutor’s Office: Towards a Truly European Prosecution Service?’ (2013) 4 New Journal of European Criminal Law 7; Marianne Wade, ‘A European public prosecutor: potential and pitfalls’, (2013) 59 Crime, Law and Social Change 439. 42  See Mireille Delmas Marty and John AE Vervaele, The Implementation of the Corpus Juris in the Member States—Penal Provisions for the Protection of European Finances (Antwerp/Oxford/­Groningen, Intersentia, 2001). See also Commission, ‘Green Paper on criminal-law protection of the financial interests of the Community and the establishment of a European Prosecutor’, COM (2001)715 final, for a preliminary discussion on the design of a European Public Prosecutor.

168  Political Control of EU Competences—National Parliaments in the Field competence to ‘establish a European Public Prosecutor’s Office from Eurojust … in order to combat crimes affecting the financial interests of the Union’. The EPPO shall ‘be responsible for investigating, prosecuting and bringing to judgment … the perpetrators of, and accomplices in, offences against the Union’s financial interests’. It shall also ‘exercise the functions of prosecutor in the competent courts of the Member States in relation to such offences’.43 This provision consequently constitutes the legal basis for the Commission’s legislative proposal.44 The rationales for establishing a European Public Prosecutor must be considered in conjunction with the Union’s overall policy to combat frauds and other irregularities against the EU’s financial interests. The EPPO proposal complements the PIF proposal, which determines the criminal offences and applicable sanctions for irregularities against the EU budget45 and the reform of the OLAF, which reinforce the administrative investigations of various forms of fraud. The strategic importance of protecting the EU budget should not be underestimated within this context. Given the current budgetary restraints against Member States and the Union, it is crucial for the legitimacy of the Union that it ensures that the limited financial resources of the Union are used in the best interests of EU citizens. The key justification for the proposal, however, lies in the Commission’s perception that the Member States’ current efforts to protect the EU budget and the EU’s financial interests are uneven, ineffective and insufficient, and that a European Public Prosecutor is capable of addressing these shortcomings.46 Since the Commission’s subsidiarity assessment is premised on these contentions we consider these arguments carefully in the following sub-section.

B.  The Commission’s Subsidiarity Justification The Commission offers a comprehensive subsidiarity justification for the EPPO proposal, which is premised both on the Member States’ capacity to reach the main objective of the proposal,47 ie ‘effectively protecting the Union’s financial interests’, and on the need for the Union to show added value in achieving this objective.48

43 

See Art 86 (1)–(2) TFEU. See Commission, ‘Proposal for a Council Regulation on the establishment of the European Public Prosecutor’s Office’, COM (2013) 534, 2, 4. 45  See ch 5 III for an extensive discussion of this proposal. 46  See EPPO proposal (n 44), 2–3; Commission, ‘Commission Staff Working Document, Impact Assessment, Accompanying the Proposal for a Council Regulation on the establishment of the European Public Prosecutor’s Office’, SWD(2013) 274, 7–8. 47  This test is commonly known as the ‘national insufficiency test’, see Schütze (n 5) 250. It is built into the first part of Art 5(3) TEU: ‘in so far as the objectives of the proposed action cannot be ­sufficiently achieved by the Member States’. 48  This is the ‘comparative efficiency test’ (see Schütze, n 47) built into the latter part of Art 5(3) TEU: ‘but can rather, by reason of the scale or effects of the proposed action, be better achieved at Union level’. 44 

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As the establishment of the EPPO seeks to enhance criminal enforcement r­ elating to illegal activities affecting the Union’s financial interests, it thus needs primarily to be demonstrated that national criminal enforcement cannot achieve the results expected from such a Union-level enforcement regime. Indeed, the Commission advances comprehensive arguments to sustain this part of the subsidiarity test. It commences to recall the extent of the problems of fraud and other offences affecting the EU budget which have reached disturbing levels in some areas. Recent analyses49 identify ‘suspected fraud’ averaging about EUR 500 ­million in each of the last three years. The Commission, however, argues that there are reasons to believe that the actual amount of fraud is significantly higher given that not all Member States have reported consistently ‘fraud’ and other ‘irregularities’ in relation to the EU budget.50 Despite the extent of the damage of offences against the Union’s financial interests and notwithstanding the Member States’ commitment under the Treaties to ‘counter illegal activities affecting the financial interests of the Union’ and ‘afford effective protection’ to such interests,51 there are clear indications that national criminal enforcement to protect those interests is inadequate. Such criminal enforcement is often hampered by divergent legislation and uneven enforcement efforts in the Member States.52 These shortcomings cannot, however, be addressed within the existing national structures since national law enforcement can only act within national boundaries. Furthermore, Member States may not have the proper incentives to fight fraud against the Union’s financial interests since priorities and resources at national level tend to focus on other types of criminality. The current EU framework does neither confer the Union with competence to intervene in cases of criminal misuse of the EU’s funds. These powers rest with the ­Member States. Whilst Union agencies such as Eurojust and Europol have Union-wide competences in terms of information exchange and coordination, and OLAF in turn enjoys powers to conduct administrative investigations into illegal activities affecting the Union’s financial interests,53 none of these bodies have been granted powers to conduct criminal enforcement in the Member States. Under the Treaty, such powers can only be given to a European Public Prosecutor.54 In relation to the ‘comparative efficiency test’, the Commission suggests that the proposed European Public Prosecutor corrects the above-mentioned deficiencies and ensures ‘equivalent’ and ‘effective’ protection for the EU’s financial

49  Commission, ‘Report from the Commission to the European Parliament and the Council—on the protection of the European Union’s financial interests—Fight against fraud Annual Report 2011’ COM(2012) 408. 50  See SWD (2013) 274 (n 46), 6–7. 51  See Art 325 (1)–(4) TFEU. 52  See COM (2012) 408 (n 49), 9–19. 53 See 1999/352/EC, ECSC, Euratom: Commission Decision of 28 April 1999 establishing the ­European Anti-fraud Office (OLAF) [1999] OJ L 136/20, 31.5.1999, Art 2. 54  See Art 86 TFEU.

170  Political Control of EU Competences—National Parliaments in the Field interests. There is a clear need for EU action since the foreseen proposal on the EPPO has an intrinsic Union dimension, particularly by providing for Unionlevel steering and coordination of criminal enforcement affecting ‘its own financial interests’. It is argued that the EU is best placed to protect those interests and therefore also best positioned to ensure the prosecution of offences against these interests. The Commission also suggests that national prosecution a­ uthorities often cannot, and lacks incentives to address the ‘transnational’ elements involved.55 Finally, the Commission refers to the fact that Article 325 TFEU not only confers competence to the Union to act but also obliges the Union to take action to counter fraud and other illegal activities affecting the Union’s financial interests.56 Given all this, it is clear that Union action to establish a European Public Prosecutor provides added value in relation to protecting the Union’s financial interests.57

C.  The Reasoned Opinions of the National Parliaments The national parliaments’ yellow card against the EPPO proposal was, although not unprecedented,58 striking in demonstrating the nature of serious political control of the exercise of EU competences.59 The national parliaments’ reactions are perhaps not surprising given the controversial character of the Commission’s proposal.60 A new European Public Prosecutor with powers to override national prosecutor’s mandate in relation to offences affecting the EU’s financial interests would be one of the most powerful EU institutions and set the Union on the course to a more ‘federal’ structure challenging the Member States’ claim to sovereignty.61 Turning to an analysis of the national parliaments’ review of the EPPO proposal, it should first be noted that their examination was not limited to s­ ubsidiarity in

55 

See above ch 6 II for a discussion of the’ transnational’ interest argument. See Art 325 (1) TFEU. 57  See EPPO Proposal (n 44), 2–3; SWD (2013) 274 (n 46), 6–9, 25–27; Commission, ‘Communication from the Commission to the European Parliament, the Council, The European Economic and Social Committee and the Committee of the Regions—Better protection of the Union’s financial interests: Setting up the European Public Prosecutor’s Office and reforming Eurojust’, COM(2013) 532 final, 3–4. 58  The yellow card procedure had been triggered two years earlier in relation to the Monti II regulation: Commission, ‘Proposal for a Council Regulation on the exercise of the right to take ­collective action within the context of the freedom of establishment and the freedom to provide services’, COM(2012) 130 final. 59  See Fromage (n 25), 22–23. 60  See Ligeti and Simonato (n 41) 8. 61 See Leonard Besselink, ‘Sovereignty, Criminal Law and the New European Context’ in Peter Alldridge and Christje Brants (eds), Personal Autonomy, the Private Sphere and Criminal Law: AC ­ omparative Study (Oxford, Hart Publishing, 2001). 56 

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its Treaty-based definition.62 Instead, many of the parliaments’ reasoned ­opinions included in their subsidiarity test the principle of conferral (Article 5(2) TEU) as well as proportionality considerations (Article 5(4) TEU). The proportionality-based challenges to the proposal are first considered. The Cyprus Parliament’s opinion is illustrative in this regard, stating that the ­second part of the subsidiarity test entails examining whether the EPPO proposal went beyond what was strictly necessary in order to achieve the objectives of the Union, as stated in Article 5(4) TEU.63 The examination thus consisted of analysing whether the EPPO proposal constituted the best possible option to counter illegal activities affecting the financial interests of the Union while respecting the (principles of subsidiarity) and ‘proportionality’. The Cyprus Parliament condemned in this respect the choice of a regulation for the proposal contending that proportionality entails that the form of an EU action should not be too restrictive and that a directive from this perspective would preferable compared to ­regulations.64 Another proportionality criticism was that there was another less intrusive measure than the EPPO that could achieve the objectives of protecting the EU’s financial interests. In particular, the EPPO proposal was criticised for adversely impacting upon the work of OLAF and Eurojust, highlighting a concern that the transfer of resources, capacity and expertise from these institutions to the EPPO would undermine the ability of OLAF and Eurojust to assist the Member States and effectively coordinate their work. There should be other less far-reaching models such as using further measures to prevent crimes against EU financial interests, ­additional resources to Member States and increased reporting obligations.65

62  See Art 5(3) TEU. Some national parliaments were, however, of the view advanced in section II above that the EWS procedure limits the parliament’s mandate strictly to subsidiarity: Statement of the Grand Committee 1/2013, Government report on the proposed Council regulation establishing a European Public Prosecutor’s Office (Summary in English), 1–2. 63  The French senate and the Swedish parliament endorsed a similar test: See Le Sénat, ‘Résolution Européene Portant Avis Motive sur la conformité au principe de subsidiarité de la proposition de règlement portant création du Parquet européen’ (COM (2013) 534) No 26 Sénat Session ­Ordinaire De 2013–2014, 28 October 2013; Statement by the Committee on Justice, ‘Reasoned Opinion of Swedish Parliament-‘Subsidiarity check on the proposal on the establishment of the European Public Prosecutor’s Office’, 2013/14:JuU13. Such a test of the best possible option entails a very stringent proportionality test which is inconsistent with the conventional understanding of proportionality by the Court of Justice: see ch 2 IV. 64  See House of Representatives of the Republic of Cyprus, ‘Reasoned Opinion submitted by the House of Representatives of the Republic of Cyprus with regard to the Commission’s proposal for a Council Regulation on the establishment of the European Public Prosecutor’s Office [COM (2013) 534]’ (executive summary in English), 2. 65  See Swedish Parliament (n 63) 1–2; Cyprus Opinion(n 64); Joint Committee on Justice, Defence and Equality (Ireland), ‘Reasoned Opinion of Joint Committee on Justice, Defence and Equality, COM(2013)534 Proposal for a Council Regulation on the establishment of the European Public Prosecutor’s Office’, October 2013, 2–3; Seimas of the Republic of Lithuania, Committee on ­European Affairs, ‘Opinion on the European Commission Proposal for a Council Regulation on the E ­ stablishment of the European Public Prosecutor’s Office’, 16 July 2014, No V-2014-4174L; Chamber of Deputies

172  Political Control of EU Competences—National Parliaments in the Field A competence-based proportionality argument from the national parliaments was that the EPPO’s exclusive competence to prosecute criminal offences against the Union’s financial interests66 and its thereto attached exclusive jurisdiction in relation to offences inextricably linked with offences against the EU’s financial interests67 would entail unnecessary intrusions into the legal systems of the Member States. The proposal would also introduce autonomous rules in respect of the admissibility of evidence which would introduce excessive additional difficulties in the operation of national criminal law systems.68 A particular proportionality challenge was addressed to the management of the envisaged European Public Prosecutor where several parliaments argued that the strongly centralised proposal seemed to go beyond what was necessary to achieve the objective of better management. A more collegiate mode of governance of the EPPO (as suggested by the Greek presidency) with rotation country by country of the overall managing role as Chief Prosecutor would meet more acceptance in the Member States.69 Other opinions included considerations of lack of sufficient competence and breach of Treaty rules. This included criticism of the far-reaching scope of the EPPO’s power with a particular focus on its exclusive competence in relation to offences affecting the EU’s financial interests in Article 12 and its thereto attached ancillary competence in Article 13 of the Proposal. It was questioned particularly whether the exercise of this competence exceeded the authorisation enshrined in Article 86 TFEU, since the latter does not provide for such exclusive competence. In this regard the national parliaments underlined the unclarity of the EPPO’s competence and the difficulty of establishing what offences affect only the Union’s ‘financial interests’, and what offences that clearly affect the Union’s financial interests affect also national legislation. This unclarity entails a risk that the actions of

(Romania), ‘ Reasoned opinion finding the lack of conformity of the Proposal for a Council Regulation on the establishment of the European Public Prosecutor’s Office with the principle of subsidiarity’ COM(2013)534 (courtesy translation); House of Commons, ‘Reasoned Opinion of the House of Commons concerning a Draft Regulation of the Council on the establishment of the European Public Prosecutor’s Office (EPPO)’; House of Lords, ‘Reasoned opinion by the United Kingdom House of Lords on Proposal for a Council Regulation on the establishment of the European Public Prosecutor’s Office, COM(2013) 534 final’, 12558/13, 28 October 2013, 5–6; House of Lords’ European Union Committee, EU police and criminal justice measures: The UK’s 2014 opt-out decision, 13th Report, Session 2012–13, HL Paper 159 (London, The Stationery Office Limited) para 245; House of Lords’ European Union Committee, The Fight Against Fraud on the EU’s Finances (12th Report, Session 2012–13, HL Paper 158 (London, The Stationery Office Limited), chs 5–7, 13–18, 22–23. 66 

See EPPO proposal (n 44), Art 11(4). See EPPO proposal (n 44), Art 13(1). 68  See Senate of the Republic of Poland, ‘Opinion of the European Union Affairs Committee of the Senate of the Republic of Poland on the proposal for a Council regulation on the establishment of the European Public Prosecutor’s Office’ COM(2013)534, adopted at the meeting of 9 October 2013 (courtesy translation); Swedish Parliament (n 63). 69  See the French Opinion (n 63), Polish Opinion (n 67); Lithuanian Opinion (n 65). 67 

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the EPPO exceed the remit of Article 86 TFEU along with the risk of overlapping the powers of national prosecutor’s office and the EPPO.70 The next issue to consider is the national parliaments’ understanding of the Treaty formulation of subsidiarity. Several parliaments proposed that subsidiarity also entails an assessment of whether the proposed EU legislation entails an unnecessary restriction on Member State competence.71 These parliaments were particularly critical of the EPPO’s broad competence to not only prosecute crimes against the EU’s financial interests72 but also prosecute ancillary crimes73 which would entail such a restriction on Member States’ competence to take action in the field of criminal law.74 Several parliaments suggested that it considered criminal law to be primarily a national competence therefore proposing that the criminal enforcement of offences against the financial interests of the EU should be a power of national authorities. They also argued that, as fraud generally is committed at national level, fighting appropriately against such fraud depends mainly on taking a firm line at this level.75 The test of national ‘insufficiency’, consistent with the wording of Article 5(3) TEU, was also applied by several national parliaments. They criticised the Commission for not having examined whether optimising current or alternative EU coordination mechanisms and action by the Member States within the existing framework for cooperation would be sufficient for the protection of financial interests of the Union. It was contended that the Commission should wait for the implementation of the PIF proposal, the reform of OLAF (reinforcing the administrative enforcement of illegal activities against the EU budget) and the reform of Eurojust before drawing the conclusion that the objectives of the planned measures cannot be achieved sufficiently well by the Member States. Strengthening the existing framework would address the issue of the fragmentation of national

70  See Lithuanian Opinion (n 65); Hungarian National Assembly, ‘Summary of the reasoned ­opinion adopted by the Hungarian National Assembly on 21 October 2013 concerning the Proposal for a Council regulation on the establishment of the European Public Prosecutor’s Office [COM(2013)534]’; 2013/0255(APP); Irish Opinion (n 65); Romanian Opinion (n 65); Dutch Senate of the States General, ‘Reasoned opinion (breach of subsidiarity) on the proposal for a Council regulation on the establishment of the European Public Prosecutor’s Office (DOC(2013)534)’, 17 October 2013, 153768.01 U; House of Lords’ Opinion (n 65), 5–7. 71  Such a test is similar to the one of ‘federal proportionality’ proposed by Schütze (n 5), 265–66. 72  See Art 86(1) and 86(3) TFEU. 73  See EPPO Proposal (n 44), Art 13 providing that ‘Where the offences referred to in Article 12 are inextricably linked with criminal offences other than those referred to in Article 12 and their joint investigation and prosecution are in the interest of a good administration of justice the European Public Prosecutor’s Office shall also be competent for those other criminal offences, under the conditions that the offences referred to in Article 12 are preponderant and the other criminal offences are based on identical facts’. 74  See Hungarian National Assembly (n 70), 1; Cyprus Opinion (n 64), 2–5. 75  See Romanian Opinion (n 65), 2–3; Dutch Senate (n 70); Irish Opinion (n 65), 2–3; Lithuanian Opinion (n 65); Cyprus Opinion (n 64).

174  Political Control of EU Competences—National Parliaments in the Field prosecutions without creating extra fragmentation between separate frameworks for investigating and prosecuting EU fraud in each Member State.76 Consistent with the ideas developed in the work of Working Group No I on subsidiarity77 the national parliaments contended that substantive subsidiarity is not sufficient but that the Commission’s proposal must, in order to adhere to Article 5(3) TEU, conform to the procedural form of subsidiarity.78 The Cyprus House of Representative contended that subsidiarity entails a presumption for action at Member State action which must be disproven by the EU legislator with convincing evidence. It recognised that the Commission itself, in its cost—benefit analysis (CBA), admitted that the CBA was pushing the limits of what is possible within a CBA, due to the fact that the data available was known to be seriously incomplete (the decision of the location of the EPPO had not yet been taken and there was no comprehensive analysis of the performance of the Member States’ judicial systems) and subject to all sort of biases.79 The Commission nevertheless concluded on the basis of questionable assumptions that a higher degree of performance of prosecution will be achieved through the EPPO proposal failing to substantiate the necessity for action at the EU level by qualitative and quantitative indicators as required by Article 5 of Protocol No 2.80 The Hungarian National Assembly furthermore argued that the real added value of Union action was not sufficiently justified by the proposal. It particularly criticised the absence of an analysis of the difficulties concerning the implementation of the rules in the proposal on ancillary competence, the right to reallocate cases, the determination of jurisdiction, or the admissibility of evidence.81 The Romanian Parliament equally contended that the added value of carrying out this new competence of EU in the field of prosecuting offences was insufficiently substantiated by the Commission. The Commission had also failed to take into account the option of maximising the benefits of the existing framework for enforcement of EU fraud (such as the 2008 decision on Eurojust), particularly as there had not been time to evaluate measures to improve that framework.82 The Swedish Parliament contended that

76 

See the reasoned opinions referenced in n 65. See CONV 286/02 (n 6), 2. 78  See Fromage (n 25), 13; Philip Kiiver, ‘The Conduct of Subsidiarity Checks of EU Legislative Proposals by National Parliaments: Analysis, Observations and Practical Recommendations’ (2012) 12 ERA Forum 535. 79  See SWD (2013) 274 (n 46), 16–17. 80  See Cyprus Opinion (n 64) 2–3. 81  See Hungarian National Assembly (n 70) 1. 82  See Romanian Opinion (n 65), 2–3; Irish Opinion (n 65); Croatian Parliament, ‘Opinion of the European Affairs Committee on the Proposal for a Regulation on the establishment of the European Public Prosecutor’s Office’, Zagreb, 1 April 2014 (courtesy translation), 2–3, Dutch House of Representatives of the States General, ‘Reasoned opinion (breach of subsidiarity) on the proposal for a Council regulation on the establishment of the European Public Prosecutor’s Office (DOC(2013)534’, The Hague, 10 October 2013 (courtesy translation); House of Lords’ Opinion (n 65); underlining the procedural obligations in Art 5 of Protocol No 2 (n 6) and the Commission’s failure to show added value of EU action. 77 

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the ­Commission had not been able to show that the aim of this proposal, ie to efficiently combat crimes against the financial interests of the EU, could not be sufficiently achieved via measures at national level. The Commission had neither shown that the objectives of the proposed measure could be better achieved via further measures at EU level instead of at national level.83 Both the House of Commons and the House of Lords underlined that the onus is on the Commission to provide a convincing justification of why it considers that a proposal complies with the principles of subsidiarity. In the absence of such a justification, it is appropriate to come to the conclusion that it has not been proven that a proposal complies with this principle. The House of Lords observed that Commission did not adequately explore alternatives to criminal law enforcement, such as simplification of the rules that govern the different sectors of the EU budget in order to make fraud more difficult and requiring Member States to improve their control systems. The House of Commons did in its turn reach the conclusion that the Commission had failed to provide sufficient qualitative and quantitative substantiation of the necessity for action at EU level thus breaching Article 5 of Protocol (No 2).84 Some national parliaments also applied the ‘comparative efficiency’ test in Article 5(3) TEU when reviewing the EPPO proposal, holding that subsidiarity entails a test of showing by cogent evidence that action at the EU level, rather than at Member State level provides for added value.85 The House of Lords’ and the House of Commons’ opinions questioned the advantages of the Proposal arguing that the Commission’s estimate of the costs and benefit—that is, the qualitative and quantitative indicators used—lacked credibility. The Commission estimated start-up costs chargeable against the EU budget at EUR 2.5 million and annual running costs of EUR 6.1 million, which appeared too low for an organisation which is expected to be responsible for a caseload of 2,500 complex fraud cases per year. The benefits were also based on questionable assumptions, including an increase rate of convictions of almost 25 per cent, and a rate of recovery of the sums defrauded of 15 per cent. Both these assumptions appeared too high given that the EPPO’s powers largely replicate those already available to national authorities. They finally rejected that any ‘intrinsic Union dimension’ obviates the need for the proposal to be properly justified in terms of subsidiarity, nor that there must be Union level steering and coordination of criminal enforcement simply because they affect the financial interests of the Union.86

83 

See Swedish Parliament (n 63), 2–3. See House of Commons’ Opinion (n 65), 3–4; House of Lords’ Opinion (n 65) 7. 85  See Cyprus Opinion (n 64), 2; The Parliament of the Czech Republic Senate, ‘On the Proposal for a Council Regulation on the establishment of the European Public Prosecutor’s Office’, 9th Term Committee on EU Affairs, 180th resolution delivered on the 18th meeting held on 8 October 2013, Senate Press no N 082/09, 2–3. 86  See House of Lords’ Opinion (n 65), 4–8; House of Commons’ Opinion (n 65), 6–8; Irish Opinion (n 65). 84 

176  Political Control of EU Competences—National Parliaments in the Field

D.  The Response of the Commission Eleven national parliaments,87 including 14 chambers, issued reasoned opinions, including both chambers in the United Kingdom (House of Lords and House of Commons) and the Netherlands, Dutch Senate and Dutch House of Representatives. The national parliaments’ total reasoned opinions amounted to 22 votes.88 Since this constituted more than one-third of the total amount of votes (56) ­allocated to the parliaments, the Commission announced that the subsidiarity control mechanism (yellow card procedure)89 was triggered on 6 November 2013.90 The Commission did, however, not, as in the Monti II regulation, withdraw its original proposal but proceeded to forward it to the Council and the E ­ uropean Parliament.91 It defended fiercely its proposal by addressing all the criticisms raised by the national parliaments. The Commission did, consistent with the argument above,92 discard arguments not connected to subsidiarity, eg considerations relating to ‘proportionality’ and ‘lack of competence’.93 It underlined the connection between the’ national insufficiency’ test and the ‘comparative efficiency’ test referring to the Court of Justice’s case law to support the contention that the insufficiency of Member State action often entails that Union action will better achieve the proposed policy objective.94 It held that the EPPO proposal contained sufficient reasoning and quantitative and qualitative indicators thus conforming to the procedural requirements of the Treaties.95 The Commission was unconvinced by the national parliaments’ argument and contended that the proposal both satisfied the Member States insufficiency test and the ‘comparative efficiency’ test. The Member States’ feeble track record in prosecuting crimes against the EU’s financial interests, the Member States perverse incentives in investigating and prosecuting such offences and the intrinsic ‘Union dimension’ of the measure were key arguments in its conclusion to not withdraw the proposal.96

87  Holland, Cyprus, Czech Republic, France, Hungary, Ireland, Malta, Romania and Slovenia and Sweden. 88  See Protocol No 2 (n 6), Art 7. 89  See Art 7, Protocol No 2 (n 6). 90  See Communication from the Commission to the European Parliament, the Council and the National Parliaments on the review of the proposal for a Council Regulation on the establishment of the European Public Prosecutor’s Office with regard to the principle of subsidiarity, in accordance with Protocol No 2: COM (2013) 851 final, 3. 91  See Fromage (n 25), 16–17. 19; Jean Paul Jacqué, ‘Editorial: National parliaments: a review of the implementation of the protocol on subsidiarity and proportionality’, TEPSA newsletter, 28 August 2013. www.tepsa.eu. 92  See above s III. 93  See Commission Communication (n 90), 4–5. 94  Case C-58/08 Vodafone [2010] ECR I-4999, para 72; Case C-377/98 Netherlands v Parliament and Council [2001] ECR I-7079, para 32. 95  See Protocol No 2 (n 6), Art 5; Art 296 TFEU. 96  See Commission Communication (n 90), 6–12.

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The European Parliament later agreed to the Commission’s general approach. Although the proposal has been substantially revised through discussions in the Council and the debate continues on relevant aspects, a partial approach has been agreed by the Council.97 With regard to the exclusive competence of the EPPO, it was, however, proposed by the Greek presidency that it be exchanged for a concurrent competence, which means that both the EPPO and national prosecution authorities are competent to enforce crimes against the EU budget.98 Thus it does not seem that the national parliament’s yellow card has had the effect, to the disappointment of some parliaments,99 as in the Monti II regulation, of impeding the EPPO proposal from moving forward to legislation.

E. Evaluating the Merits of the National Parliament’s Objections This section considers whether the national parliaments, on the basis of the discussion of subsidiarity in chapter six, were right to criticise the EPPO p ­ roposal in terms of subsidiarity. Above a strict substantive subsidiarity standard was proposed requiring the EU legislator to demonstrate the risk or the existence of a transnational ‘market failure’ or the protection of transnational interests in order to exercise its harmonization powers.100 The concrete procedural test entails an examination of whether the Commission conformed to the requirement of ‘adequate’ reasoning and ‘relevant’ evidence when proposing this piece of legislation.101 In order to follow the wording of Article 5(3) TEU, the test of ‘national ­insufficiency’ is first considered. A review of the EPPO proposal and the impact assessment suggests that the Commission both with ‘adequate reasoning’ and ‘relevant evidence’ showed that the action of the Member States is insufficient

97  See Council, ‘From: Presidency To: Council Subject: Proposal for a Regulation on the establishment of the European Public Prosecutor’s Office—Partial general approach; Brussels, 30 November 2015, No prev doc: 14280/15 Council, ‘Presidency To Delegations Subject: Proposal for a Council Regulation on the establishment of the European Public Prosecutor’s Office—Report on the State of Play; Brussels, 22 December 2015, No prev doc: 9372/1/15 REV 1, 12621/15, 14718/15. 98  If, however, the EPPO decides to exercise its competence, national authorities may not exercise theirs: Council, ‘From Presidency to the Council, Council of the European Union, Proposal for a Regulation on the establishment of the European Public Prosecutor’s Office’, State of Play/Orientation debate, 9834/1/14, Brussels, 21 May 2014, 3. 99 Some national parliaments were critical of the Commission’s response condemning the ­Commission’s absence of a comprehensive justification for rejecting the national parliaments’ arguments in their reasoned opinion holding this to be a breach of Article 7(2) of Protocol No 2 (n 6); Croatian Opinion (n 81); see also House of Lords’ European Union Committee, The impact of the European Public Prosecutor’s Office on the United Kingdom, 4th Report of Session 2014–15, HL Paper 53 (London: The Stationery Office Limited), 6–7. 100  See ch 6 II for an elaboration of this test. 101  See above ch 3 V and ch 6 III for an account of and justification for this test.

178  Political Control of EU Competences—National Parliaments in the Field with regard to the policy objective of effectively enforcing offences against the EU’s financial interests. Contrary to the allegations of the House of Commons, the Commission also actually explained in detail why it considered that Member State current and future action would be insufficient in achieving the objective of fighting fraud effectively. The Commission also conformed to the requirement of ‘adequate reasoning’ by submitting reasons that were connected to the substantive understanding of subsidiarity embraced by the Court of Justice.102 The key argument, which appears convincing, is that the Member States’ track record in enforcing offences against the EU’s financial interest was feeble and not expected to improve substantially in the future. This argument is well recognised by the EU Treaties as an argument for EU harmonisation and thus adequate for substantiating subsidiarity compliance.103 The Commission was also able to provide for ‘relevant’ evidence by submitting both quantitative and qualitative indicators (in particular the OLAF reports) to sustain the contention that the Member States’ current activities were insufficient to achieve the objective of an effective protection of the EU’s financial interests. The analysis of OLAF’s annual statistics indicated that national criminal proceedings were not effective (showing that no judicial decisions had been taken in 54.3 per cent of the actions in the period between 2006 and 2011)104 and that more than half of actions transferred by OLAF105 to the judicial authorities of the Member States in the same period were dismissed before trial and the average conviction rate remained low (42.3 per cent).106 The Commission also put forward ‘adequate’ reasoning and ‘relevant’ e­ vidence to support the ‘comparative efficiency’ of EU action in achieving the policy ­objective of enforcing offences against the EU’s financial interests (consistent with the subsidiarity concept advanced in chapter six).107 The basic premise of the Commission’s proposal is that the EPPO’s competence is limited to ‘criminal offences affecting the financial interests of the Union’.108 As already argued in this

102  See, however, differently Fromage (n 25), 9–10, 17, arguing that the Commission’s reasoning was insufficient. Her argument nevertheless appears premised on the basis that the Commission could only conform to its obligation to provide reasoning by giving subsidiarity arguments in the explanatory memorandum. This view, although plausible, is contradicted by the argument proposed in ch 6 III and the Court of Justice’s case law in Case C-58/08 Vodafone, which suggests that the EU legislator can conform to reasoning requirements by employing also other preparatory documents such as the impact assessment. 103  See Art 5(3) TEU. 104  Percentage of actions transferred in the period from 2006 to 2011 by OLAF to Member States without reported judicial decisions; see OLAF, ‘The OLAF report 2011’ (Luxembourg, Publications Office of the European Union, 2012) table 6, 20. 105  51.2% of the actions transferred in the period from 2006 to 2011 by OLAF to Member States with reported judicial decisions that were dismissed before trial, OLAF report 2011 (n 104), table 6, 20. 106  See Commission Communication (n 90), 3–4. 107  See ch 6 II. 108  See EPPO Proposal (n 44), Art 12.

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book, it is important to have special protection for the interests of the Union, where those interests, because of ‘protectionist’ and ‘pecuniary’ interests, are not likely to be protected by the Member States. This is such a case. It is clear that national public authorities, although many national parliaments contended it to be otherwise, does not have the same incentives as an impartial European Public Prosecutor to defend the financial interests of the EU. It is thus the transnational interest of protecting the Union’s financial interests which makes the EU a more legitimate body than Member States to act on a matter.109 For the same reasons, the national parliament’s criticism of the annex competence in Article 13 of the EPPO regulation, which is not restricted to offences against the EU’s financial interests, appears convincing. The Commission contended that the key reason for dealing with ancillary competence is that crimes affecting the financial interests of the Union are often linked to other crimes that do not affect those interests. In those cases a joined prosecution is in the interest of the effective administration of justice and respects the principle of ne bis in idem. Without this rule there would be a risk for parallel enforcement concerning inextricably connected crimes which would undermine the efficiency of anti-fraud activities.110 Although the reasoning of the Commission is understandable, it appears to be incompatible with the subsidiarity principle. As argued above, it is proposed that EU action is required only in cross-border situations where the democratic process within the Member States is likely to lead to a failure to protect such interests.111 The situation with regard to ancillary offences, not being directly addressed to the Union’s financial interests, does not, however, concern transnational interests. In such a situation Member States have no perverse incentives to not prosecute such offences as compared to the case of offences against the EU’s financial interests. It is rather likely that Member States given their expertise and understanding of the local situation will be better placed to achieve the objective of prosecuting such offences than the EU. This ancillary competence thus goes clearly beyond the EU’s key interests to prosecute offences against its financial interests.112 Another subsidiarity concern with the EPPO proposal was whether it would be necessary for the EPPO to also have competence over cases affecting the Union’s financial interests but were lacking cross-border implications. It is arguable that the Commission ‘adequately’ explained why this competence would be n ­ ecessary.

109 

See ch 6 II for this argument. See Commission Communication (n 90), 4–12. 111  See Richard Lang, ‘The EU’s New Victims’ Rights Directive: Can Minimum Harmonization Work for a Concept like vulnerability?’ (2013) 22 Nottingham Law Journal 90, 94; House of Lords’ European Union Committee, The European Union’s Policy on Criminal Procedure, EU Sub-Committee E (Justice and Institutions), EU Criminal Procedure Policy, Bar Council of England and Wales—Written Evidence, 30th Report of Session 2010–12, HL Paper 228 (London: The Stationery Office Limited) 13. 112  See nn 68 and 70 for national parliaments’ criticism of the annex competence. 110 

180  Political Control of EU Competences—National Parliaments in the Field The Commission’s main argument for including all cases in the EPPO’s competence is that this is the most effective way of ensuring an effective and consistent prosecution policy across the Union. This is an intricate issue since the EPPO’s competence, if a strict understanding of the subsidiarity principle is adhered to, should be limited to pure cross-border cases, where either a victim or a suspect is involved in a trial in another State than the state in which they are citizens.113 A more sensible option which restrains the exercise of the competence in Article 86 TFEU in a reasonable way without hampering the pursuit of an effective enforcement of offences against the Union’s financial interests is that this competence is not only limited to ‘pure’ cross-border cases but also covers cases which although having only national victims and defendants have a strong transnational dimension. This could be the case where the defendant is from the same Member State but where the criminal act has taken place in another Member State or where the act is committed against the EU’s financial interests. The constraint to the exercise of the competence in Article 86 TFEU is thus that indirect or abstract transnational implications cannot be used as justifications for the EPPO to act on the matter.114 Although a case of EU fraud can be committed by an offender in one Member State and only have local implications there are strong reasons why the EU should be able to regulate such matters. Where the offence is directly against the EU’s interests the Union should be able to protect its budget and act on the matter. This is again because Member States, as proposed above and recognised by some national parliaments,115 are unlikely to give priority to protecting such interests. The need to confer the EPPO this wider competence arises, as suggested by the Commission, out of the nature of the crimes in question, which by affecting the Union’s own financial interests has an intrinsic Union dimension.116 From this perspective it appears clear that the limitation of the EPPO’s competence to ‘criminal offences affecting the financial interests of the Union’117 is reasonable and substantiated by plausible qualitative indicators (‘relevant evidence’) as required by the subsidiarity principle. In terms of the national parliaments’ argument that existing EU structures were sufficient, the Commission legitimately contended that those structures would not be sufficient to achieve the objective of fighting fraud effectively.

113  See above ch 6 II B for this argument. See furthermore Kimmo Nuotio ‘Harmonization of Criminal Sanctions in the European Union—Criminal Law Science Fiction’ in Asbjørn Strandbakken and Erling Johannes Husabø (eds), Harmonization of Criminal Law in Europe (Antwerpen, Intersentia, 2005) 465–66, 470. 114  See Case C-376/98 Germany v Parliament and Council (Tobacco Advertising) [2000] ECR I-08419, paras 83–84. 115  See Lithuanian Opinion (n 65); Summary of the reasoned opinion adopted by the Hungarian National Assembly (n 70); Irish Opinion (n 65); Romanian Opinion (n 65); Dutch Senate of the States General (n 70); Dutch House of Representatives (n 82), 1–2; House of Lords’ Opinion (n 65), 5–7. 116  See EPPO Proposal (n 44), 4; Commission Communication (n 90), 11–12. 117  See EPPO Proposal (n 44), Art 14 for the precise contours of the EPPO’s jurisdiction.

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Whilst reforms of OLAF and Eurojust had been proposed, those reforms would not lead to any substantial improvements since those structures by their very nature cannot address the insufficient level of enforcement in the Member States. The ­Commission rightly pointed out that the powers of OLAF are confined to administrative investigations and that it cannot involve itself or request national authorities to carry out criminal proceedings.118 Eurojust’s powers are equally limited as it cannot conduct proceedings by themselves nor be given such powers under the ­Treaties.119 ­Furthermore, although the Commission has put forward the PIF proposal h ­ armonising offences against the EU’s financial interests and the accompanying sanctions, this will not, as contended by the Commission, produce satisfactory results without being accompanied by effective enforcement measures.120 The criticism of the House of Lords and the House of Common that the system might not bring the added value in the fight against Union fraud argued by the Commission is, however, partly endorsed. In this respect it is unconvincing to argue, as the Commission does, that divergences between the different Member States on how Union fraud is enforced constitute in itself support for Union action. It is equally implausible to contend that an absence of action will lead to forum shopping by perpetrators since there is little empirical evidence that fraudsters take into account the contended higher plausibility of prosecution argued to be happening by the EPPO regulation.121 The Commission is nevertheless right to argue that the EPPO might bring an added value by possibly discovering crossborder links which might not be noticed in purely national investigations. It would also be capable of more effectively direct investigations, by pooling expertise and know-how in the EPPO, and since the EPPO would have an overview of all the available information, and thus be able to determine where the investigation can most effectively be pursued. Another element which arguably brings added value is the proposed way of handling evidence which would entail that evidence collected in accordance with the law of one Member State should be admitted in the trial even if the national law of the Member State where the trial court is located provides for different rules on such evidence. Given all this, it appears that the Commission’s argument on the EPPO’s added value is fairly convincing and substantiated.122 In sum, the EPPO proposal conforms in principle to the standard of ‘adequate’ reasoning and ‘relevant’ evidence.

118 

See OLAF Decision (n 53), Art 2. See Art 85 TFEU. 120  See Subsidiarity Communication (n 90), 7–8. 121  See for this general argument Thomas Elholm, ‘Does EU Criminal Cooperation Necessarily Mean Increased Repression?’, European Journal of Crime, Criminal Law and Criminal Justice, 17 (2009) 191, 221; Sakari Melander, ‘Ultima Ratio in European Criminal Law’, European Criminal Law Review, 3 (2013) 56–59. 122  See Commission Communication (n 90), 9–10. 119 

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IV. Conclusions This chapter considered the nature of political control of EU competences by means of national parliaments. Three themes were subject to closer scrutiny. First, the scope of the national parliament’s remit under Protocol No 2 was examined. It was argued that the national parliaments’ role is confined to subsidiarity according to the definition in the Treaties.123 A close reading of the Treaties and the Protocols and a comprehensive examination of the pre-Lisbon discussions in Working Group No 1 and Working Group No 2 unequivocally send the message that the national parliaments’ powers are, and were, intended by the Treaty drafters to be restricted to ‘subsidiarity’ review.124 There is admittedly a tension in this limitation as an extension of this mandate to proportionality and ‘lack of competence’ would entail a more effective curtailing of ’ competence creep’. The national parliaments’ unique position in the EU decision-making procedure furthermore entails that they are better placed than the other EU institutions to police the adherence to proportionality and conferral. This limitation (to subsidiarity) was, however, argued to be reasonable given the fact that a more extensive mandate would possibly upset the institutional balance and entail an increase in reasoned opinions and yellow cards which would adversely affect the efficiency of the EU decision-making procedure. The second theme related to the national parliaments’ use of their powers under Protocol No 2. The analysis of the national parliaments’ reasoned opinions against the EPPO proposal showed that a majority of those parliaments advanced a broad conception of their remit which stood in stark contrast to the view promoted in this chapter (that subsidiarity review should be a narrowly tailored mechanism).125 In particular, many parliaments argued that lack of legal basis and proportionality was a part of the subsidiarity enquiry. This seems questionable given the fact that subsidiarity is confined to an analysis of whether a proposed EU objective could be better achieved by Member States or the EU.126 The examination furthermore suggested that the Commission’s proposal largely conformed to the subsidiarity principle as it was substantiated with ‘adequate’ reasoning and ‘relevant’ qualitative and quantitative indicators. The Commission’s key justifications; that the EU legislator has a special transnational interest to enforce offences against the EU budget and that Member States in the past has performed this task poorly, were particularly compelling.127 The review of the EPPO proposal turns us to the third theme of the chapter which is to reflect on whether national parliaments have used their powers under

123 

See Art 5(3) TEU. See above section II. See above section III. 126  See Art 5(3) TEU. 127  See above section III E. 124  125 

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Protocol No 2 in a legitimate way. It is suggested that the national parliaments’ very expansive review of the EPPO proposal may be a part of a broader trend of the national parliaments’ ‘misunderstanding’ of their role under Protocol No 2. The customs infringement proposal, which was another EU criminal law initiative, substantiates the argument.128 The Commission had proposed this measure since Member States imposes very diverse sanctions in nature and severity for such infringements and since those divergences has had a negative impact on the establishment of the internal market.129 Again, it is clear that the national parliaments’ reasoned opinions again exceeded the narrow subsidiarity review which they are entitled to perform according to Protocol No 2.130 Their objections against the proposal focussed primarily on the choice of the legal basis and the proportionality of the measure. The Swedish Parliament and the Lithuanian Parliament criticized the proposal for containing features (proposed level of sanctions, provision for the application of strict liability and definitions of the proposed liability infringements) that are in fact of a ‘criminal law character’ going beyond the scope of the proposed legal basis, Article 33 TFEU.131 The Danish Parliament and the Swedish Parliament also made a proportionality argument contending that the proposal expressed a more far-reaching harmonization of the rules for breaching the EU’s customs regulation and those sanctions than what is necessary to achieve strengthened customs cooperation.132 Granat and Fabbrini’s analysis of the first yellow card against the Monti II proposal follows the same line of argument. In their analysis this proposal obtained a yellow card without having committed a ‘foul’. It was observed by them that national parliaments were unable to identify any fault in the Commission proposal relating to subsidiarity and rather reacted to an issue of political saliency. Whilst the proposal raised a number of concerns regarding its content and legal basis, it could not be attacked on grounds of subsidiarity concerns since it addressed an

128  See Commission, ‘Proposal for a Directive to the European Parliament and of the Council on the Union legal framework for customs infringements and sanctions’, COM (2013) 884. 129  See Commission, Commission Staff Working Document, Impact Assessment (Part 1), Accompanying the document Proposal for a Directive of the European Parliament and of the Council on the Union legal framework for customs infringements and sanctions, SWD (2013) 514 final, Annex IB— Report from the Project Group on Customs Penalties; COM (2013) 884 (n 128), 2–3, 7; Commission, Commission Staff Working Document, Impact Assessment (Part 1), Accompanying the document Proposal for a Directive of the European Parliament and of the Council on the Union legal framework for customs infringements and sanctions, SWD (2013) 514 final, 31–32. 130  See above section II. 131 See Seimas of the Republic of Lithuania Committee on European Affairs on possible noncompliance with the principle of subsidiarity of the Proposal of the European Commission for a Directive of the European Parliament and of the Council on the Union legal framework for customs infringements and sanctions, COM(2013) 884 Document, No ES-14-51, 9 July 2014 No 100-P-71. 132  See Statement by the Committee on Taxation—Reasoned opinion of the Swedish Parliament, 2013/14:SkU35 Appendix 2; Folketingets Europaudvalg Begrundet udtalelse om forslag om toldovertrædelse, KOM (2013) 884, Reasoned opinion KOM (2013) 0884—Danish (1).

184  Political Control of EU Competences—National Parliaments in the Field issue—transnational labour disputes—that intrinsically falls outside the remit of individual Member States.133 Conversely, however, it appears that national parliaments frequently have missed out on the opportunity of objecting to EU criminal law proposals that should have been criticised on subsidiarity grounds. The Victim Rights Directive and the Presumption of Innocence Directive are cases in point. The Victim Rights Directive was based on the premise that such harmonisation, whether victims are involved in cross-border or domestic proceedings, was needed to promote the free movement of persons and enable the mutual recognition of judgments.134 However, in cases where victimisation has no cross-implications, the logic for harmonisation of local victim rights on the basis of free movement concerns and mutual recognition rationale fails. Local victim rights are simply not needed for a mutual recognition regime to work or for the functioning of the fundamental freedoms.135 The Presumption of Innocence Directive ought also to have been subject to serious criticism due to its sweeping scope, covering all defendants, whether they would be in a cross-border proceeding or not.136 It is very difficult to see why the Union should have a special interest in regulating local rights for defendants in criminal trials given that such a situation have no obvious transnational implications.137 The Commission had clearly not substantiated how the diverse local regulation of rights for defendants in criminal trials would have any impact on the free movement or the mutual recognition of judgments (such as the number of times mutual recognitions of judgments were accepted or rejected for

133 

Granat and Fabbrini (n 2), 116, 135–43. Commission, ‘Commission Staff Working Paper, Impact Assessment, Accompanying the document; Communication from the Commission to the European Parliament, the Council, the European economic and social Committee and the Committee of the Regions; Proposal for a Directive of the European Parliament and of the Council establishing minimum standards on the rights, support and protection of victims of crime, Proposal for a Regulation of the European Parliament and of the Council on mutual recognition of protection measures in civil matters’, SEC(2011) 580 final, 5, 18–20, 47; Commission, ‘Proposal for a Directive of the European Parliament and of the Council establishing minimum standards on the rights, support and protection of victims of crime’, COM(2011) 275 final, 2–3, 6. 135  See House of Lords’ European Union Committee, The European Union’s Policy on Criminal Procedure (n 111), Valsamis Mitsilegas, Supplementary Written Evidence, 111–12, 114; SEC (2011) 580 (n 134), 17–19; House of Lords’ European Union Committee, The European Union’s Policy on Criminal Procedure (n 111), 15–16. The APAV report referred to by the Commission did not show that the respondents in the consultations considered that harmonisation of victims’ rights would be necessary to facilitate mutual recognition; see SEC (2011) 580 (n 134), 48–71. 136  See Directive (EU) 2016/343 of the European Parliament and of the Council of 9 March 2016 on the strengthening of certain aspects of the presumption of innocence and of the right to be present at the trial in criminal proceedings [2016] OJ L 65/1, Arts 1 and 2. Commission, ‘Commission Staff Working Document, Impact Assessment, Accompanying the document Proposal for measures on the strengthening of certain aspects of the presumption of innocence and of the right to be present at trial in criminal proceedings’, SWD (2013) 478 final, 29–30. 137  See n 114 for reference to the Court’s statement. See also House of Lords’ European Union Committee, 1st Report of Session 2004–05, Procedural Rights in Criminal Proceedings, Report with Evidence, 7 February 2005, London: The Stationery Office Limited, HL Paper 28, 15–17. 134 

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reasons of procedural law).138 In both these instances it appears that the national parliaments, with the sole exception of the UK House of Commons,139 directed no subsidiarity criticism against the proposals.140 This brings us to the final theme of the chapter which is to evaluate the national parliaments’ role in countering competence creep. Admittedly, it is clear from the above that the national parliaments do not yet fully appreciate their role under Protocol No 2. They have thus, for possibly political reasons, so far failed to address serious subsidiarity concerns appertaining to some recent pieces of EU criminal law legislation.141 The national parliaments have also issued reasoned opinions against proposals on the basis of lack of competence and proportionality and substance whilst the proposals themselves did not merit criticism on subsidiarity grounds. This suggests that national parliaments still seem to struggle with accepting that their mandate is limited to ‘subsidiarity’ objections under Protocol No 2. This is regrettable as it is argued that the national parliaments have a legitimate role in policing the exercise of EU criminal law competences. The ultimate judgement as to the appropriateness of national parliaments as a political safeguard of federalism will be returned to in chapter eight.

138  See Italian Chamber of Deputies, The Committee on EU Policies, Re: Proposal for a directive of the European Parliament and of the Council on the strengthening of certain aspects of the presumption of innocence and of the right to be present at trial in criminal proceedings, COM (2013) 821 final. 139  The House of Commons’ understanding of subsidiarity, as shown by this opinion, is theoretically coherent (and consistent with the view of subsidiarity advanced in this book). It constructed subsidiarity, with reference to Protocol No 2 and the Treaties, primarily in terms of a presumption of action on Member State level. This presumption can only be rebutted if the EU legislator demonstrates with a compelling justification and sufficient evidence the need for EU action. Subsidiarity entails, according to the House of Commons, a right for Member States to diverge in legal and cultural terms (see Arts 4(2) and 67 TFEU). Given this understanding of subsidiarity, the House of Commons reached the conclusion that the Presumption of Innocence Directive was insufficiently substantiated with regard to subsidiarity. This conclusion was primarily based on the absence of evidence showing that EU legislation on the presumption of innocence was necessary to ‘overcome obstacles to facilitate mutual recognition’ (see Art 82 TFEU) and the questionable assumption that clear EU prescriptions would overcome cultural differences among Member States. See House of Commons, ‘Reasoned Opinion of the House of Commons Submitted to the Presidents of the European Parliament, the Council and the Commission, pursuant to Article 6 of Protocol (No 2) on the Application of the Principles of Subsidiarity and Proportionality concerning a Draft Directive on the strengthening of certain aspects of the presumption of innocence and of the right to be present at trial in criminal proceedings. 140 See in relation to the Presumption of Innocence Directive Document COM 2011/275/FIN. www.ipex.eu/IPEXL-WEB/dossier/document.do?code=COM&year=2011&number=275&extension= FIN. Accessed 18 December 2016. See for the Victim Rights Directive Document COM/2013/0821, www.ipex.eu/IPEXL-WEB/dossier/document.do?code=COM&year=2013&number=821&extension= null. Accessed 18 December 2016. 141  See also ch 6 IV and the analysis of the Market Abuse Directive showing the weak subsidiarity justification of this proposal.

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8 Conclusion This book set out to answer the question of how limits upon the exercise of Union competences can be constructed. This chapter seeks to give a final response to this question. The first part of the chapter examines the general question of the study: how competence control can be enhanced. The second part discusses the substantive and procedural limits to the exercise of EU competences, while the final part indicates directions for future research.

I.  Competence Control of the Exercise of EU Competences The book’s initial premise was that the central question in the debate on EU competence for a long time has been how the EU exercises its competences not whether it should have powers at all.1 The key concern, among citizens, politicians and academics both prior2 and post-Lisbon is that that the EU legislator, with the support of the Court of Justice, interprets the existing EU competences in an illegitimate way (‘competence creep’). It was argued that the mechanisms introduced by the Lisbon Treaty to divide powers between the Member States and the EU, such as the competence catalogue and the description of the nature of EU powers, has not been successful in limiting the expansion of EU powers under the functional powers in Articles 114 and 352 TFEU. What determines the power relationship between the Member States and the Union in a specific policy field is thus how the EU interprets its existing powers.3 The importance of this question was substantiated by numerous examples showing that the limits to the exercise of EU competences seem to matter more than limits to the existence of EU ­powers.4 The book indicated the presence of a number of procedural and substantive limits to the exercise of EU powers. These included the subsidiarity principle, which limits harmonisation of national laws to where it is necessary to remedy a market 1 

See Art 5 TEU for the distinction between the ‘existence’ and the ‘exercise’ of EU competences. See, however, ch 1 I for the argument that this problem has been accentuated after Lisbon. See ch 1 I. 4  See Loïc Azoulai, ‘Introduction: the Question of Competence’ in Loïc Azoulai (ed), The Question of Competence in the European Union (Oxford, Oxford University Press 2014) 14. 2  3 

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f­ailure, the requirement to act on the right legal basis, and the requirement to show that criminal law is essential for the enforcement of a specific EU policy when exercising its criminal law competences.5 The study contained two strands of arguments that ran throughout the book. First, by examining the scope of the EU’s power under the legal bases of the ­Treaties to impose criminal sanctions and the scope of the subsidiarity principle in setting limits to the exercise of EU competences, the book illustrated the constraints faced by the EU legislator when exercising its legislative powers. It was suggested that the main way to establish limits is to reconstruct the existing limits in the T ­ reaties with appropriate criteria and provide the Court with clearer legal standards to assess the legality of EU legislation. Part II of the book was dedicated to this task. Secondly, observing that a reconsideration of the limits of the Treaties also must address the institutional challenges of judicial review, the book developed an argument for a more intense judicial review. It proposed a procedural standard of legality which requires the EU legislator to show that it has adequately reasoned its decisions and has taken into account relevant evidence. The second line of ­argument will first be considered. Part I of the book considered the problems of the judicial review of the exercise of EU competences. Chapter two examined the constitutional principles in Article 5 TEU; subsidiarity, proportionality and conferral and their impact before the Court of Justice. It was clearly shown that judicial enforcement of all these principles is inadequate and that the theoretical limits to EU competences do not coincide with practice. The explanations for this deferential approach are well known. The principles in Article 5 TEU lacks clear legal constraints, which impels the Court to engage in complex empirical and political questions arguably beyond the judicial remit. This concern is exacerbated by the overarching telos of further European integration which makes it difficult for the Court to engage in a strict review of EU competences.6 Whilst recognising the Court’s structural constraints in engaging in judicial review of EU legislation, it was proposed that the evolution of EU law gives the Court incentives to take a more serious stance in competence litigation. The increased emphasis on the limitation of competences in the Lisbon Treaty, the recent conflicts on jurisdictional boundaries and the concern that the Court is not an objective arbiter in competence disputes, gives the Court reasons to move to a more intense form of judicial review in order to maintain its credibility.7 However, in order for the Court to engage in this task of more stringent competence review, the institutional challenges of judicial review must be addressed. Chapter three considered this issue in depth and observed that the Court’s ­deficits in terms of legitimacy and expertise (in conjunction with the mentioned s­ tructural and conceptual concerns) have made it difficult for the Court to engage in serious

5 

See above chs 4–6. See above ch 2 ss III–V. 7  See above ch 2 III. 6 

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competence review. How then should the Court respond to those challenges? There are different options for the EU Courts. The Court could engage in more intense substantive review or develop new heads of review.8 For reasons of legitimacy and competence it would be difficult for the Court to employ a more intense substantive review.9 The main proposal for improving judicial enforcement of the limits in Article 5 TEU was therefore to use a procedural type of review, requiring the Court to examine the EU legislator’s reasoning and evidence for a legislative measure. It was argued that a procedural review is less controversial in terms of institutional competence and legitimacy than substantive review and that such a review would thereto enhance the legitimacy of the EU decision-making procedure. Another difficult choice for the Court is to choose a proper standard of review. While institutional concerns have traditionally favoured a deferential standard of ‘manifestly inappropriate’ in relation to proportionality review and a high threshold for judicial intervention in relation to review of subsidiarity and conferral, it seems that this approach has fallen short of achieving judicial enforcement of the principles in Article 5 TEU. Given these concerns, this chapter developed, on the basis of the Court’s judgment in Spain v Council, a specific standard of review for all broad EU policy measures and suggested that the EU legislator must offer ‘adequate reasoning’ and ‘relevant evidence’ for a proposed legislative measure in order for it to conform to the limits of the Treaties. But what test should be chosen to control the legality of EU legislation? There are intricate considerations involved in choosing such a test. A high threshold for legality will give leeway to the EU institutions in its effort to pursue further EU integration. A more demanding test will, ­however, push the EU legislator to prepare more evidence-based legislation and arguably reinforce the Court in its role as a neutral arbiter in competence disputes. The latter considerations were deemed more important and the chapter therefore suggested, on the basis of the Court’s ruling in Kadi II, an intrusive test to control whether the proposed standard of ‘adequate reasoning’ and ‘relevant evidence’ has been met. The EU legislator must, according to this test, articulate at least one justification, which in theory—ie in light of the relevant literature and the Court’s case law—is sufficient as a basis for exercising the competence and then substantiate this rationale by ‘sufficient’ and ‘relevant’ evidence.10 What then are the implications of this argument for the general debate on EU law? The proposed model may be conceived as an argument which has bearings for the foundations of EU constitutional law: the relationship between the EU and its Member States. It is envisaged that the suggested test will be employed in litigation concerning contested challenges to EU legislation on the basis of proportionality, subsidiarity and lack of competence/incorrect legal basis. The Court’s test for legality in relation to review of these principles has constitutional implications for 8 

See Paul Craig, EU Administrative Law (Oxford, Oxford University Press, 2012) 439–40. See Ittai Bar-Siman-Tov, ‘Semiprocedural Judicial Review’ (2012) 6 Legisprudence 271, 287–88. 10  See ch 3 III–V. 9 

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the Union legal order by shaping the distribution of competences and by d ­ efining the standards for testing the legality of a Union act.11 Critics of the process-based test may argue that it will negatively affect the process of EU integration by imposing cumbersome limits on the discretion of the EU legislator. They may also contend that the test will force the Court of Justice to become involved in deeply political and constitutional choices on the future of EU integration and that the Courts lacks the democratic credentials to make those choices.12 There is force in this point as the proposed test may push the Court to the limits of its legitimacy and authority. However, counterintuitively, legitimacy may be the best argument for the Court to enforce the principles in Article 5 TEU. Infusing judicial review of EU legislation with greater force is, as argued above, not only a way of enhancing the accountability of the EU legislative procedure but also the legitimacy of the Court of Justice. The Court of Justice was created with the aim of providing an arbitrator to mediate between the interests of the EU and the Member States on the assumption that the Court could be trusted to take on this responsibility in an unbiased way. The Court’s current approach is, however, inadequate in this respect.13 If the Court continues with low-level intensity review of the exercise of EU competences it will face legitimate criticism that it is failing in its task to ensure that the law of the Treaties are observed.14 To do this it must change its current deferential approach and review the exercise of EU powers with more vigour than it currently does. Finally, even if the strict procedural review advanced here ultimately imposes substantive limits on the exercise of Union competences, there are good reasons for the Court to enforce those limits. The Court has indeed an important role as guarantor of the values of conferral, subsidiarity and proportionality in cases where the Union legislator fails to adhere to such values. If the Court were to announce that the issue of competence is entirely subject to the whims of politics, the Union political branches would not take these values seriously in their own deliberations.15 While genuinely engaging in competence review is a difficult constitutional choice and implies that the Court must develop a stricter standard of review and become involved in fundamental political and social questions, it is

11 

See Case C-370/07 Commission v Council [2009] ECR I-8917, paras 46–49. Azoulai (n 4), 2, 5–6; Stephen Weatherill, ‘The limits of legislative harmonisation ten years after Tobacco Advertising: how the Court’s case law has become a “drafting guide”’ (2011) 12 German Law Journal 827, 863. 13 See Roman Herzog and Lüder Gerken, ‘Stoppt den Europäischen Gerichtshof ’, Frankfurter ­Allgemeine Zeitung, 8 September 2008; Gunnar Beck, ‘The Court of Justice, legal reasoning, and the Pringle case: Law as continuation of politics by other means’ (2014) 39 European Law Review 236, 238, 244. 14  See Dorota Leczykiewicz, ‘“Constitutional Justice” and Judicial Review of EU Legislative Acts’ (2013) Oxford Legal Studies Research Paper No 95/2013, 2–4, 8, 12–13. ssrn.com/abstract=2355961. Accessed 24 October 2016. 15  See Ernest A Young, ‘Two Cheers for Process Federalism’ (2001) 46 Villanova Law Review 1349, 1391. 12  See

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argued that such a review is both necessary and legitimate to maintain the division of powers between the EU and its Member States.16

II.  Reconstructing the Limits of the Treaties This section summarises and reflects on the main findings of Part II of the book, which used the EU’s competence to impose criminal sanctions as an example of how limits can be constructed to the EU’s competences on the basis of the procedural review framework developed in chapter three. A general reflection from the review of selected pieces of EU criminal law ­legislation in chapters four to six is that the EU legislator (and, as suggested above, the Court) ought to move towards a more evidence-based test of legality of EU legislation. The outcome of the examination was that few pieces of EU legislation seem to hold up to the standard of legality proposed of ‘adequate reasoning’ and ‘relevant evidence’. However, whilst the EU legislator at times appears to give inadequate reasoning,17 the real concern seems to be with the requirement to give ‘relevant’ and ‘sufficient’ evidence. While the EU legislator is surely able to invoke some evidence to justify its actions, the evidence presented is not generally18 of such quality and quantity to match the EU legislator’s broad claims of compliance with the relevant legal basis.19 It is equally true that the analysis of ‘relevant’ evidence is what appears to be lacking in the Court’s jurisprudence. It seems that the Court’s current test only requires that reasoning is provided for compliance with the principles in Article 5 TEU, not that the reasoning is substantiated with evidence. This test appears to be inadequate for an effective competence review and has indirectly worked as a ‘drafting guide’ for the EU legislator when designing EU legislation.20 The outcome of the examination of concrete examples of EU legislation in chapters 4 and 6 suggests that the current way of drafting EU legislation, which is supported and confirmed by the Court of Justice, is based on unproven assumptions regarding the existence of certain problems and the predicted positive consequences of EU action. However, if the EU legislator wishes to improve its legitimacy and if the Court wishes to become a credible arbiter between Member States and the EU in competence disputes, it may not be sufficient for the Court

16  See Robert Schütze, From Dual to Cooperative Federalism (Oxford, Oxford University Press, 2009) 261–62, 266. 17  See, eg, the analysis of the Victim Rights Directive and Presumption of Innocence Directive in ch 7 IV for examples of ‘inadequate’ reasoning. 18  The exception is the subsidiarity review of the Environmental Crimes Directive; see ch 6 III D. 19  See ch 4 II C and III A c; ch 6 IV. 20  See Weatherill, ‘The limits of legislative harmonisation’ (n 12) 844.

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to control the EU legislator’s reasoning. It can be legitimately argued that the EU legislator needs to provide better support for its actions and that the Court must enforce these ‘evidentiary’ obligations to ascertain whether the EU legislator has exercised its discretion correctly.21 Having made these broad remarks, it is appropriate to reflect on the concrete limits developed in chapters four to six. Chapter four examined the scope of the EU’s implied and express criminal law competence. It was argued in this chapter that one the central limits to the exercise of these competences is the need to establish the ‘essentiality’ of criminal law for the effective implementation of EU policies. The importance of this limit appears not to have been highly praised in the literature, where it has been queried whether this condition at all is capable of working as a check on to the exercise of EU competences.22 In contrast, it was argued in the book that the ‘essentiality’ condition requirement can act as check on the exercise of the EU’s criminal law competences by imposing an obligation on the EU legislator to substantiate the exercise of EU criminal law competence with criminological evidence. It was also proposed that the Court of Justice, which previously in the Environmental Crimes judgment has imposed a lax standard for review of the ‘essentiality’ condition, has an important role in enforcing this condition. The case study of EU criminal law placed the nature of the issues that shape judicial review in sharp relief. It was contended that respect for fundamental rights and principles of judicial protection should sharpen judicial review of EU criminal law legislation and the book proposed a strict test of judicial review under Article 83(2) TFEU. It is the fact that the EU potentially has a power to impose imprisonment sanctions and thereby powers to impose hardship and a severe curtailment of the freedom of individuals which ultimately gives a reason for more intense judicial review of the exercise of this power.23 The perhaps underestimated potential of the ‘essentiality’ condition was ­illustrated by its application to the Market Abuse Crimes Directive and to the ­Environmental Crimes Directive on the basis of the proposed standard of ‘adequate reasoning’ and ‘relevant evidence’. The review suggested that the Commission had arguably failed in both these instances to offer such evidence to sustain criminalisation. The examination of these instances of legislation furthermore indicates that the EU legislator seem to employ its criminal law competence without a clear idea of why criminal sanctions are necessary.24 This approach from the EU legislator can be criticised. If the conditions for ­exercising the EU’s express and implied criminal law competence had been different, and only required that criminal laws be suitable for the ‘effective enforcement’ of 21 

See Case C-310/04 Spain v Council [2006] ECR I-07285, paras 122–35. Ester Herlin Karnell, The Constitutional Dimension of European Criminal Law (Oxford, Hart Publishing, 2012) 57–60, 65; Michael Dougan, ‘From the Velvet Glove to the Iron Fist: Criminal Sanctions for the Enforcement of Union Law’ in Marise Cremona (ed), Compliance and the ­Enforcement of EU Law (Oxford, Oxford University Press, 2012) 102. 23  See ch 4 III A ii. 24  See ch 4 II C and III A iii. 22 See

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EU policies, the Environmental Crimes Directive and the Market Abuse Crimes Directive would surely have passed the suggested legality standard. However, the EU legislator intended that criminal laws should only be used in exceptional ­situations when other non-criminal measures were shown to be deficient for the effective implementation of a specific Union policy.25 These examples thus suggests that the EU legislator, despite the Commission’s assurance that it will use criminal law as a ‘last resort’,26 cannot yet be trusted as a conscientious legislator observing the limits of its legislative powers in the field of criminal law. It is appropriate here to take a step back and reflect on the rationales for pursuing these initiatives. It appears from the enquiry of discrete pieces of EU criminal law legislation that the EU has decided to take a stand against certain conduct in the field of environmental law and insider dealing, even if the evidence to support these legislative initiatives was insufficient to sustain the claim that criminal law is essential for the enforcement of these policies. The EU’s action in such cases could potentially be explained with reference to the Union’s need to reaffirm its core ­values and to strengthen its political identity. This is the expressive dimension of EU criminal law.27 The expressive/symbolic dimension includes ideas of communicating a common sense of justice and to express that ‘certain forms of conduct are unacceptable’.28 Nevertheless, the current Treaties provide no clear authorisation for harmonising criminal law on expressive grounds. It is argued that the EU will endanger its legitimacy if it keeps enforcing its policies through criminal sanctions on such grounds. The EU should thus adopt a conservative approach and refrain from harmonising criminal laws in the absence of a real practical need and firm legal basis for harmonisation.29 Chapter four also analysed the procedural conditions of Article 83(2) TFEU. It was contended that one of the central limits for exercise of competence under this provision is that the EU legislator must have ‘harmonisation measures’ in place before it can adopt criminal law measures. This condition requires harmonisation by a specific procedure, that is, legislation adopted through a legal basis that prescribes the ‘ordinary’ or ‘special’ legislative procedures. It also requires ­harmonisation by means of a specific quality, that is, ‘substantive’ ­harmonisation of the relevant prohibited conducts and conditions for non-criminal liability. 25  See CONV 426/02, ‘Final report of Working Group X “Freedom, Security and Justice”’, Brussels, 2 December 2002, 10; CONV 727/03, ‘Draft sections of Part Three with comments’, Brussels, 27 May 2003, 32. 26 See Commission, ‘Communication from the Commission to the European Parliament, the ­Council, the European Economic and Social Committee and the Committee of the Regions- Towards an EU Criminal Policy: Ensuring the effective implementation of EU policies through criminal law’, COM 2011 (573) final, 7–8. 27  See Jenia Iontcheva Turner, ‘The Expressive Dimension of EU Criminal Law’, (2012) 60 A ­ merican Journal of Comparative Law 555, 557, 564–74; Thomas Elholm, ‘Does EU Criminal Cooperation ­Necessarily Mean Increased Repression?’ (2009) 17 European Journal of Crime, Criminal Law and Criminal Justice 191, 224–25. 28  See Commission, ‘Proposal for a Directive of the European Parliament and of the Council on criminal sanctions for insider dealing and market manipulation’, COM (2011) 654, recital 7. 29  See Turner (n 27) 558, 579.

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The application of this requirement was illustrated by considering the field of EU market abuse law. It was argued that the Market Abuse Crimes Directive was properly based on a previous ‘harmonisation measure’, the Market Abuse Regulation (MAR), within the meaning of Article 83(2) TFEU. This is because the MAR intends to remove obstacles to trade and distortions of competence by harmonising national rules on market abuse and by laying down the material prohibitions against insider dealing and market manipulation, which are then reflected in the description of the offences in the Market Abuse Crimes Directive. The discussion in the chapter illustrated why it is ‘essential’ that EU adopts harmonisation measures before it resorts to criminalisation. Unless the EU has rules in place in a specific area, there is no logical necessity to have criminal rules. If criminal law is to be the last resort, non-criminal harmonisation measures should first be examined. Only if such harmonisation proves insufficient to achieve compliance with the underlying EU rules, is there a need to adopt criminal sanctions.30 Having examined the scope of criminalisation under two legal bases of the Treaties (Articles 83(2) and 192 TFEU in chapter four), chapter five endeavoured to analyse how a choice on legal basis for criminal law harmonisation should be made. It was proposed that the Lisbon Treaty, despite the Member States’ attempt to limit criminal law cooperation to Article 83 TFEU, has not been able to eliminate contestation as to the appropriate legal basis for EU criminal legislation. This was because EU criminal law measures in the form of ‘regulations’ which both criminalise and ‘decriminalise’ certain behaviours fall outside the scope of the power contained in Article 83(2) TFEU. Furthermore, the Court’s case law on legal basis and the centre of gravity test could potentially open up for criminalisation outside Title V. If the criminal law component and aims of a proposed measure would be minor in relation to the other policy component, there would be a plausible case for arguing that measures containing criminal law elements could be pursued on a non-AFSJ legal basis. The case study on the Fourth Anti-Money Laundering Directive illustrated this proposition. Whilst this directive contained rules that were of a criminal law character, the strict limitation in Article 83(2) TFEU to definition of ‘criminal offences’ and ‘criminal sanctions’ made it inappropriate to adopt the Fourth AMLD on this legal basis. The choice of Article 114 TFEU for the Fourth AMLD was more appropriate since the different requirements on individuals and firms in relation and money laundering obligations could give rise to obstacles to the fundamental freedoms.31 This means that EU criminal law ‘regulations’ and measures ‘decriminalising’ certain behaviours can still be adopted subsequent to the Lisbon Treaty under other legal bases than Article 83(2) TFEU (such as ­Article 192 or 114 TFEU) depending on the content of the measure.32

30  See Petter Asp, The Substantive Criminal Law Competence of the EU—Towards an Area of Freedom, Security & Justice—Part 1 (Stockholm, Jure, 2013) 133–35; Dougan (n 22), 109–11. 31  See ch 5 II. 32  See chs 4–5.

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The central proposition of chapter five was, however, that Article 83 TFEU has, given the specific institutional setting of the AFSJ and the telos of Title V, assumed the role of lex specialis for measures whose primary objective and content is of a criminal law nature. This reading of the scope of EU criminal law competence does not only reinforce the legitimacy of the EU legislator’s criminal policy but it also respects the principle that criminal law should be used as a last resort (and only under the strict conditions prescribed in Article 83(2) TFEU). The discussion of the PIF proposal, concerned with a choice between Articles 83(2) and 325 TFEU, illustrated the lex specialis argument. Whilst the contested proposal had a strong connection to Article 325 TFEU being concerned with the fight against fraud, the arguments for using Article 83(2) TFEU for the PIF proposal were more compelling. There were already ‘harmonisation’ measures in the field of fraud and proper reasoning by the Commission to why it believed the criminal law response was ‘essential’ for the enforcement of the underlying EU policy. The PIF proposal also contained extensive rules providing for the ‘definition’ of ‘criminal offences’ and requirements to impose ‘criminal sanctions’. It thus appeared that the predominant aim and content of the proposal was the ‘criminal law’ enforcement of fraud making Article 83(2) TFEU a more appropriate choice.33 The lex specialis argument evidenced by this discussion of the PIF proposal furthermore seems to be consistent with post-Lisbon legislative practice which appears to insist on discrete AFSJ measures and discrete criminal and non-criminal packages in order to ensure that the peculiarities of the AFSJ are taken into account.34 The EU institutions thus relies on a’ dual approach’:35 measures containing clear criminal law obligations is legislated under Article 83 TFEU whilst the accompanying non-criminal law obligations and sanctions is proposed be using legal bases outside Title V.36 This practice could be perceived in relation to market abuse behaviours which were, from the beginning, split into a Regulation under Article 114 TFEU and a directive which was adopted on the basis of Article 83(2) TFEU.37 The fight against money laundering follows the same trend. The non-criminal provisions of money laundering and the administrative

33 

See above ch 5 III. ACTA Agreement is a case in point. This agreement, which contain clear criminal law ­obligations in Article 23, has been negotiated on the premise that the Union will not encroach on the Union’s internal competence under Article 83(2) TFEU to potentially harmonise EU legislation as regards criminal enforcement of intellectual property rights; see furthermore Commission, ‘Proposal for a Council Decision on the conclusion of the Anti-Counterfeiting Trade Agreement between the European Union and its Member States, Australia, Canada, Japan, the Republic of Korea, the United Mexican States, the Kingdom of Morocco, New Zealand, the Republic of Singapore, the Swiss Confederation and the United States of America’, COM(2011)380 final, 2. 35  See Ester-Herlin Karnell, ‘Is administrative law still relevant? How the battle of sanctions has shaped EU criminal law’, Jean Monnet Working Paper 25/14, (2014), 11–15, 21. 36  See Samuli Miettinen, The Europeanization of Criminal Law: Competence and its Control in the Lisbon Era, (DPhil, University of Helsinki, 2015) 371–72, 435–36, 483, 487–91, 499–503, observing critically this practice. 37  See ch 4 III for a comprehensive discussion of the EU’s market abuse package. 34 The

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s­anctions attached hereto was implemented through the Fourth Anti-Money Laundering Directive which was adopted on the basis of Article 114 TFEU. The Commission then intends to employ Article 83(1) TFEU for a separate criminal law proposal to strengthen the Fourth AMLD.38 This practice is, as argued above, a legitimate one. Not only does it respect the will of the Member States to retain the safeguards of Title V in terms of criminal law measures, but it is also largely consonant with the Treaty framework.39 The proposal to adopt legislative acts that particularly address the criminal enforcement of an EU policy under Article 83 TFEU seems the cleanest solution given the explicit wording of this provision referring specifically to ‘criminal law’ measures. The EU legislator’s current legislative policy with regard to sanctioning appears to be, all things considered, an appropriate way for the EU legislature to avoid ‘competence creep’ in the field of criminal law. It is, however, clear that the EU legislator could choose an alternative and more ‘centralised’ approach to criminalisation by using its ‘dormant’ criminal law competence along the lines described above.40 One may, nevertheless, hope that the EU will legislator refrains from such a practice as this would seriously compromise the idea behind the special framework in Title V and make Article 83(2) TFEU superfluous. The discussion of legal basis underpins a well-known lesson from EU law that the EU system of competences is not yet coherent. It appears that the Lisbon Treaty, by enshrining reserved powers to the Member States and by describing the nature of EU powers in certain fields, was not able to construct a sharp dividing line between the powers of the EU and the Member States.41 The Treaties have created a complex system of specific and general legal powers, which is inconsistent in many ways. Since the system of competences is founded on the EU’s objectives, given the fact that not all the EU’s competences are specifically designated for one specific policy and because there are no clear demarcation criteria between the different competences there is plenty of space for disputes over the right legal basis for a potential EU measure.42 If the Member States wish to draw a clearer demarcation line between the different Treaty competences and between the EU’s ­powers and their own, one would have to redraft the Treaties differently. If one really wished to exclude criminal law competence there would have to be an additional provision in for example Title V of the TFEU to the effect that EU criminal law harmonisation can only be pursued under Article 83 TFEU.43 Chapter six then examined the subsidiarity principle as a limit to the exercise of EU competences. Given that the aim of subsidiarity is to protect the Member States’ 38 

See ch 5 II for a discussion of this legislative package. See, however, Miettinen (n 36), 499–500, for a different line of argument. 40  See above the text to nn 31–32. 41  See above ch 1 I. 42 See Stephen Weatherill, ‘Competence creep and competence control’ (2004) 23 Yearbook of ­European Law 1, 4–5; Schütze (n 16) 150–51; European Convention, CONV 375/1/02, ‘Final Report of Working Group V on Complementary Competencies’, Brussels, 4 November 2002, 4–5, 9. 43  See Weatherill, ‘The limits of legislative harmonisation’ (n 12) 855–56; Miettinen (n 36), 502–03. 39 

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prerogative to be diverse and ensure that decisions are taken as closely as possible to the citizens, the chapter argued for a strict reading of subsidiarity. On the basis of a discussion of the legitimate justifications for EU action and the ­Edinburgh Guidelines, it was suggested that the subsidiarity principle demands that the EU legislator must show the likelihood of or presence of transnational market failures or transnational interests to justify harmonisation. This approach to subsidiarity was not only supported by comprehensive research on regulatory policies and economic arguments, but supported by the Court’s judgment in Tobacco Advertising. Whilst EU harmonisation is often defended on the basis that divergent national laws may give rise to obstacles to trade or distortions to competition, an evidencebased understanding of subsidiarity limits the use of this justification. EU criminal law illustrated the argument. It was suggested that that the EU ­legislator’s general theoretical assumption that national divergences in relation to the definition of offences or between Member States’ sanctioning regimes laws leads to distortions of competition in the form of safe havens and a race to the bottom is misplaced. As there is no self-evident relationship between divergences of laws and distortions of competition, the existence of such divergences cannot in themselves justify a broad harmonisation of national criminal laws. The empirical research instead suggests that differences in criminalisation have very little impact on the choice of location for firms or on the tendency of Member States to engage in regulatory races.44 A detailed case study of the Market Abuse Crimes ­Directive substantiated this proposition. On the basis of the test developed in chapter three that at least one compelling justification for compliance must be submitted for compliance with the subsidiarity principle and that this rationale must be substantiated with sufficient and relevant evidence, it appeared that the Directive failed to conform to the proposed limits to harmonisation. This was particularly so since the claimed benefits of the Directive in removing ‘distortions of competition’ and the alleged ‘cross-border’ nature of market abuse were unsubstantiated by any evidence in the legislative background documents.45 If concerns for distortions of competition are exaggerated or not supported by the facts of the individual case, what are then the real justifications for EU action? It is cautiously suggested that the objective of the EU legislator seems to be harmonisation as such. Harmonisation of national criminal laws cannot, however, be a goal in itself but must meet the precepts of the Treaties and only be triggered if there is a legitimate justification for approximation. It must, if pursued to reinforce existing EU policies and strengthen the internal market, be prompted by an actual demonstrated need to solve concrete problems in the form of correcting transnational market failures or address ­transnational interests.46 44 

See ch 6 II. See ch 6 IV. 46  See Joachim Vogel ‘Why is the harmonisation of penal law necessary? A comment’ in André Klip and Harmen van der Wilt (eds), Harmonisation and Harmonising Measures in Criminal Law ­(Amsterdam, Royal Netherlands Academy of Science, 2002) 56; Sakari Melander, ‘Ultima Ratio in European Criminal Law’ (2013) 3 European Criminal Law Review 45, 56–57. 45 

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Chapter seven subsequently explored political control as an alternative to j­ udicial control of EU competences by scrutinising the role of national ­parliaments under Protocol No 2. A textual and teleological interpretation suggested that the wording of the Treaties and Protocol No 2 as well as the Treaty drafters’ intention was to confine the national parliaments’ review to subsidiarity concerns. Whilst functional reasons favoured an extension of this mandate to ‘proportionality’ and ‘legal basis’ review it was apparent that such a broad mandate would come at a high cost in terms of efficiency and possibly upset the institutional balance in the Treaties. This demonstrated a tension between the idea of taming ‘competence creep’ by means of an ‘external’ political actor and the limited possibilities of this actor to perform this task.47 This tension was illuminated by a close examination of the yellow card against the EPPO proposal. This analysis suggests that national parliaments’ review of this proposal went well beyond the narrow mandate in Protocol No 2 and covered issues such as lack of competence, proportionality and the substance of the proposal. Although the proposal was controversial, it is arguably not the role of national parliaments within their review powers under Protocol No 2 to object to EU legislation on such grounds. As the EPPO’s competence was limited to offences ‘against the Union’s financial interest’ it was clear that the transnational dimension of the regulated issue and the strong Union interests involved (the protection of the EU budget) made the EU a better regulator of the issue in subsidiarity terms. The reasoned opinions against the customs infringement proposal and the yellow card against the Monti II proposal followed the same trend of ‘broad’ review by national parliaments. Although these proposals could be criticised on the lack of a proper legal basis or on substantive matters, national parliaments should have addressed those issues within the framework of the political dialogue rather than through the yellow card procedure.48 In contrast, it appears that national parliaments have failed to object to EU criminal law proposals that deserved subsidiarity criticism. Both the EU Victim Rights Directive and the Presumption of Innocence Directive proceeded from the premise that all victims and all defendants should be covered by the protection of these legislative initiatives. Although a morally defendable approach, it seems that it flies in the face of the subsidiarity principle. As victims’ rights and rights for defendants in local proceedings do not address transnational interests and have no impact on the fundamental freedoms, the case for action on EU level for regulating those issues was feeble. The absence of c­ riticism by national parliaments49 to these legislative pieces substantiates the observation that national parliaments see their remit under Protocol No 2 ­primarily as ­political rather than as an actor entrusted with ensuring the observance of the principle of subsidiarity.50 47 

See ch 7 II. See ch 7 III–IV. With the laudable exception of the House of Commons’ reasoned opinion against the ­Presumption of Innocence Directive. 50  See ch 7 III–IV. 48  49 

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This brings us to finally evaluate the national parliaments’ role in countering competence creep. It has been observed above that the current practice of the national parliaments does not seem to be consistent with the narrow mandate under Protocol No 2. National parliaments have, possibly for political reasons, failed to address serious subsidiarity concerns appertaining to some recent instances of EU criminal law legislation and also issued reasoned opinions against proposals on the basis of ‘lack of competence’ and proportionality whilst the proposals themselves did not merit criticism on subsidiarity grounds.51 This being so, the general assessment of national parliaments’ role in countering ‘competence creep’ must be positive. One of their contributions is that they can alert the EU legislator that the issue at stake can be also sufficiently achieved at the national level.52 This function is very useful as the EU legislator and the Court of Justice, if there is subsequently an action for annulment, becomes aware of potential subsidiarity concerns with EU legislation at an early stage. National parliaments are also well placed to control whether competences illegitimately are exercised on EU level where they could have better been exercised on national level.53 Furthermore, the fact that a yellow card has adverse consequences in political terms gives the Commission proper incentives to avoid national parliaments’ disapproval and thoroughly justify its legislative initiatives in subsidiarity terms. The yellow card procedure against the EPPO proposal illustrates this idea. Not only was the EPPO proposal reasonably justified in subsidiarity terms, but the Commission also made a committed effort to address the national parliaments’ subsidiarity arguments in their reasoned response. In this sense it appears that there was a proper subsidiarity discourse between the Commission and the national parliaments.54 All this suggests that national parliaments could be seen as a promising avenue for legitimate political control of the exercise of EU competences.

III.  Epilogue: Future Prospects EU law on competences is a vast topic which has been subject to countless examinations. The ambition of this book was not to cover the whole subject matter. Its ambition was more modest. It endeavoured to contribute to the debate by providing an understanding of how limits to the exercise of Union competences can be constructed. 51  See also ch 6 IV and the analysis of the Market Abuse Directive showing the weak subsidiarity justification of this directive. 52  See Katarzyna Granat, National parliaments and the policing of the subsidiarity principle (DPhil, European University Institute, 2014) 322–23. 53  See above ch 7 II; Art 5(3) TEU. 54 See Diane Fromage, ‘The Second Yellow Card on the EPPO Proposal: An Encouraging ­Development for Member State Parliaments?’ (2015) Yearbook of European Law, doi: 10.1093/yel/ yev0241, 21–23; Granat (n 52) 324–28; ch 7 III.

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The book made important choices by restricting the scope of the examination. For one thing, the enquiry was restricted to the EU’s regulatory criminal law competence and the legal bases which could be potentially be employed for criminalisation in this field (Articles 83(2), 192 and 114 TFEU and Article 325 TFEU).55 Whilst this field made an appropriate case study to illustrate problem of ‘competence creep’, there are other EU policy areas that would further help to understand the limits to EU competences.56 Another limitation to the study related to the principles apt to be judicially enforced by the Court of Justice. The book focused on subsidiarity and the principle of conferral with reference to their constitutional nature (whilst proportionality review was rejected).57 It is arguable that other principles such as fundamental rights58 and the obligation to respect national identities59 can act as checks on the exercise of EU legislative powers.60 An important direction for future research is therefore to consider which of the other Treaty limits61 can be used as ground on which the exercise of EU powers can be challenged. While this book set out to examine the rationale for and the nature of judicial review in EU law, this is still an emerging research area.62 This can be demonstrated with a comparison to the US where the debate on judicial review has been at the forefront of constitutional debate for centuries.63 There is ample opportunity for more research on the relevance and legitimacy of procedural review for other fields of EU law. This book provided a narrow example of how constitutional review of EU legislation in a procedural fashion can be defended on principled grounds.64 There is thus scope for doing more general research on how 55  See for more general analyses of other legal bases of the Treaties; Schütze (n 16), ch 3 and chs 4–6; Loïc Azoulai (ed), The Question of Competence in the European Union (Oxford, Oxford University Press, 2014), chs 3–6. 56  See for more general accounts of EU competences: Theodore Konstadinides, Division of Powers in European Union Law: The Delimitation of Internal Competence between the EU and the Member States (Alphen aan den Rijn, Kluwer Law International, 2009); Schütze, (n 16). 57  See above ch 2 IV B. 58  See Case C-293/12 Digital Rights Ireland and Seitlinger and Others (Court of Justice, 8 April 2014) where Directive 2006/24/EC of the European Parliament and of the Council of 15 March 2006 on the retention of data generated or processed in connection with the provision of publicly available electronic communications services or of public communications networks and amending Directive 2002/58/EC [2006] OJ L 105/54, was found in breach of Arts 7 and 8 of the Charter of Fundamental Rights. 59  See François-Xavier Millet ‘The Respect for Constitutional Identity in the European Legal Space: An Approach to Federalism as Constitutionalism’ in Loïc Azoulai (ed), The Question of Competence in the European Union (Oxford, Oxford University Press, 2014). 60  See Paul Craig, EU Administrative Law (Oxford, Oxford University Press, 2012) 591–615. 61  See Thomas Horsley, ‘Reflections on the Role of the Court of Justice as the Motor of European Integration: Legal Limits to Judicial Lawmaking’ (2013) 50 Common Market Law Review 931, 949–50. 62  Key works in this emergent field are: Craig, EU Administrative Law (n 60); Alexander Türk, ­Judicial Review in EU Law (Cheltenham, Edward Elgar Publishing, 2009). 63 See Marbury v. Madison 5 US 137 (1803). See particularly the debate between Dworkin and ­Waldron: Ronald Dworkin, Freedom’s law—The Moral Reading of the American Constitution ­(Cambridge, Harvard University Press, 1996); Jeremy Waldron, ‘The Core of the Case against Judicial Review’ (2006) Yale Law Journal 1346. 64  See above ch 3 III.

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different factors, such as the nature of democracy in the Union, the workload of the Court, its resources, political climate, and institutional factors65 influence the scope of judicial review.66 In terms of the substantive areas of law, one should bear in mind that EU criminal law is still a young field of EU law and rapidly developing. The initiatives in this field are comprehensive and complex and give rise to new problems, which must be tackled by EU scholarship.67 It is probable that whilst some matters addressed in this book may continue to have relevance for the general field of EU law, they will not be particularly topical in, say, 20 to 30 years’ time.68 What is certain, however, is that the EU legislator will have to address many of the issues raised in this book in the coming years. This is particularly related to the interpretation of Article 83(2) TFEU, the choice of legal basis and the question of subsidiarity. It is apparent that the EU legislator is already struggling with how it should use its competence and under what legal basis it should act.69 As we recall from the introduction, the book set out to examine how limits can be constructed to the exercise of EU competences particularly with reference to EU criminal law. This problem is arguably not only central for EU law but also for the legitimacy of the Union legal order, which today is subject to some pressing challenges. One of these challenges is based on the assumption that the EU ­political institutions use their powers in illegitimate ways thereby usurping national powers.70 Considered in conjunction with recent turmoil for the Union such as Brexit (and its potential adversarial consequences for the Union’s general legitimacy), it is perhaps now more important than ever to ensure that EU legislation is confined within the limits of the founding EU Treaties. Whilst Brexit71 and the general opt-outs of Ireland and Denmark has the consequence that EU criminal law cooperation cannot develop in the coherent way envisaged by the Commission, this turn of events may indicate alternative (and perhaps attractive) directions for future EU criminal policy. The acceptance of legal diversity in the Member States and the respect for the constitutional identities of the Member States by the EU legislator will arguably entail a more healthy approach to EU criminalisation.72 This approach would only seek EU involvement in matters where Member States, because of their perverse

65  See Neil Komesar, ‘A Job for the Judges: The Judiciary and the Constitution in a Massive and Complex Society’ (1988) 86 Michigan Law Review 657. 66  See Joanne Scott and Susan Sturm ‘Courts as Catalysts: Rethinking the Judicial Role in New ­Governance’ (2007) 13 Columbia Journal of European Law 565. 67 See Cristopher Harding and Joanna Banach-Gutierrez, ‘The emergent EU criminal policy: ­identifying the species’, (2012) 37 European Law Review 758; Steve Peers, ‘Mission Accomplished? EU Justice and Home Affairs Law After the Treaty of Lisbon’ (2011) 48 Common Market Law Review 661. 68  See Valsamis Mitsilegas, ‘The third wave of third pillar law: which direction for EU criminal ­justice?’ (2009) 34 European Law Review 523, 560. 69  The debate on legal basis in ch 5 illustrates the controversies. 70  See ch 1 nn 33–35, for the relevant literature. 71  See in particular Panos Koutrakos (ed) (2016) 40 European Law Review 4 on the Brexit discourse. 72  See Art 4(2) TEU; Art 67 TFEU.

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incentives or lacking capabilities, cannot address the problems of cross-border criminality and where other less stringent measures appear ineffective.73 Such a ‘restrictive’ direction to EU criminal policy connects to the main premise of the book; that is, the limited nature of the Union’s legislative competences. There are, as contended in the book, limitations that act as checks on the exercise of the EU’s competences, such as the need to act on correct legal basis, the ‘harmonisation’ requirement and ‘essentiality’ condition in Article 83(2) TFEU and the requirement under Article 5(3) TEU to substantiate that EU harmonisation addresses transnational market failures and protect transnational interests. As argued in this study it is essential that these limits—in order to act as checks on the exercise of EU competences—are made operational before the Court. By implementing judicial mechanisms such as procedural review, the Court will be able to move from a light touch enquiry to a more demanding judicial review without impinging on the discretion of the EU legislator. Because this review is materialised through a test that requires the EU legislator to offer at least one compelling rationale which is defended by ‘sufficient’ and ‘relevant’ evidence to defend the exercise of its competences, the Court’s capacity to enforce the limits of the Treaties will became substantively enhanced. The last section of this concluding chapter set out to provide us with insights as to the future challenges with regard to competence control. If we wish for more legitimate workings of the EU legal order, it is argued that competence monitoring must be taken more seriously by the EU political institutions. The argument of the book particularly encourages the EU legislator and the Court to move to a more evidence-based test for examining the legality of EU legislation.74 The aspiration of the author is that this will not remain simply a hope, but a principle that the said institutions will build on and implement in practice.

73 

See chs 4 and 6 for this argument. See Stephen Weatherill, ‘Better Competence Monitoring’ (2005) 30 European Law Review 23, 28; European Council, ‘Laeken Declaration on the future of the European Union’, 14–15 December 2001, 3–5. 74 

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INDEX

agriculture, 34–6, 61 airport charges, 35–6 anti-money laundering: criminal sanctions, 116–17 internal market and, 115, 118 legal basis of 4th Directive, 10, 14, 129, 195–6 Article 83(2) TFEU, 114–19, 194 Article 114 TFEU, 114, 118–19, 194 Lisbon Treaty, 116 objectives, 114, 115 approximation of laws see harmonisation Area of Freedom, Security and Justice (AFSJ): anti-money laundering and, 114–19 criminal law competence, 105–6, 129–30, 195 opt-outs, 106, 111, 121, 127, 130–1, 201 scope, 111–12 Asp, Petter, 110–11, 122 Barroso initiative, 166 Bermann, George, 146, 147, 148 Brexit, 201 Bryant, Cristopher, 51 citizenship, 136–7 Cole, Margaret, 93–4, 96 Committee of European Securities Regulators (CESR), 154–6 common commercial policy, 110 company law, 141–2 comparative advantage, 142 comparative efficiency test, 169–70, 175 competence control see also competence limits enhancing, 187–91 EWS see early warning system issues, 1–3 judicial review see competence review limits see competence limits national parliaments, 7–8, 151, 167–85, 198–9 prospects, 199–202 competence creep, 3, 5–7, 44, 136, 159, 161, 164, 165, 182, 185, 187, 196, 198, 199, 200 competence limits: arguments, 8–10 Article 5 TEU, 188 enforcement by national parliaments, 165 text, 20 conferral see conferral principle criminal law see criminal law competence

essentiality condition, 9, 14, 65, 66, 81–4, 85, 86–96, 123, 192–3, 202 EU institutions and, 164 evidence base, 8, 31, 54, 59, 66–71, 84, 89, 93–6, 149–50, 154–6, 157, 189, 191–2, 202 existing problems, 3–8 judicial enforcement, 8, 13 monitoring, 5, 7–8, 20–1 political limits, 5–6 post-Lisbon, 1–3 principles, 13, 19–44, 187–8 procedural limits, 9–10 proportionality see proportionality reconstructing, 191–9 subsidiarity see subsidiarity theory and practice, 4–5 competence review: CJEU capacity, 45–6, 188–9 inadequacy, 190 institutional and conceptual factors, 46–9 track record, 164 critique, 45 principles, 19–44, 188 conferral see conferral proportionality see proportionality subsidiarity see subsidiarity procedural review, 8 adequate reasoning, 8, 31, 43–4, 49–50, 54, 64–7, 93, 146, 148–9, 152, 153–4, 157, 189, 191–2 Afton Chemical, 57–9 case for, 46, 49–54, 189, 202 CJEU track record, 54–61 EPPO proposal, 174–5 Germany v Parliament and Council, 59–61, 70 impact assessments, 55–9, 70, 95–6, 147, 151–2 information requirements, 60 manifest error, 57–8, 63, 67–9, 71, 89, 148 meaning, 49 proposed test, 189–91 relevant evidence, 8, 31, 54, 59, 66–71, 84, 89, 96, 149–50, 154–6, 157, 189, 191–2, 202 scope, 60–1 Spain v Council, 56, 57, 58, 60, 61–5, 69, 71, 189

216 

Index

Standard, 61–70 subsidiarity, 134, 145–52, 157 transparency, 52–3 Vodafone, 55–7, 60, 70 standard test CJEU practice and, 69–70 issues, 67–9 setting, 61–70 Spain v Council, 61–5, 69, 71 subsidiarity see subsidiarity substantive review, 49 competition: distortion of competition and subsidiarity, 140, 141–2, 143, 150, 197 fines, 12 manifest error, 68 regulatory competition, 138, 140–2, 143, 153, 155, 197 conferral principle: Alliance for Natural Health, 25–6, 28–9, 70 Article 5 TEU, 20 BAT, 24, 26, 28–9 CJEU jurisprudence, 22–32 intervention threshold, 189 teleological interpretation, 30 EWS and, 163 EPPO proposal, 171, 172–3, 176 Kadi, 26–7, 28–9, 189 limit to EU powers, 3–4, 21–32 effectiveness, 30–2, 44 Opinion 2/94, 22–3, 24, 28, 29, 31, 44 practice, 4 proposed test, 189–91 structural constraints, 5 Swedish Match, 25, 26, 28–9 theory, 21–2 Tobacco Advertising I, 22, 23–4, 26, 28–9, 31, 44, 69, 129 Tobacco Advertising II, 27–8, 108 consumer protection, 55, 57, 110 Corpus Juris, 167 cotton support schemes, 34–5, 60, 61–5 counter-terrorism, 26, 114, 115 Court of Justice of the European Union: competence review see competence review criminal law sanctions, 75–6 effet utile and, 149 institutional disadvantage, 8, 14, 46, 145, 146 legitimacy, 146, 188–9 mandate, 31 subsidiarity and see subsidiarity teleological interpretations, 30 Craig, Paul, 37 criminal law competence: AFSJ, 105–6, 129–30, 195, 201 outside AFSJ, 111–13, 195 alternative sanctions, 95–6

anti-fraud measures, 119–29, 130–1 anti-money laundering see anti-money laundering Article 83(2) TFEU, 85–102, 193–6, 201 anti-money laundering and, 114–19, 194 Article 114 TFEU and, 14, 106–19 Article 325 TFEU and, 119–29, 195 effectiveness criterion, 85–6, 92–6, 97, 98, 112–13 essentiality condition, 85, 86–96, 123 meaning of harmonisation measures, 97–100 procedural limitations, 97–102 scope, 112 text, 85 Article 114 TFEU, 110–11 anti-money laundering, 114, 118–19, 194 case study, 10–13 communicative function, 92, 93 competence creep, 6 criminal sanctions: definition, 12–13 deterrence argument, 13, 82, 84, 86, 91, 92–3, 94–5, 96, 121, 124–5 effectiveness criterion Article 83(2) TFEU, 85–6, 97, 98, 112–13 evidence, 93–6 market abuse, 92–6 pre-Lisbon Treaty, 84 employer sanctions, 12 environmental crimes see environmental crimes EPPO proposal see EPPO proposal essentiality criterion, 14, 65, 66, 192–3, 202 Article 83(2) TFEU, 85, 86–96, 123 evidence, 93–6 market abuse, 89–96, 192–3 pre-Lisbon Treaty, 81–4 evidence base, 93–6, 191–2 fraud, 173 legal basis choice, 14, 105–31, 201 legitimacy, 130 limits, 14, 75–103 reconstructing, 191–9 Lisbon Treaty, 75, 76, 85–102, 128 market abuse see market abuse national competence, 173 national parliaments and see national parliaments PIF proposal, 119–29 pre-Lisbon Treaty, 77–84 regulatory criminal law, 10–13 social stigma argument, 84, 92, 93 state sovereignty and, 75 cross-border interests, 135, 137, 138, 139, 142–3, 154, 178–9, 197, 202 customs infringement proposal, 183 Cyprus: EPPO proposal and, 171, 174

Index Dashwood, Alan, 22, 24 Davies, Gareth, 1, 36–7, 41–2, 138, 139 De Búrca, Gráinne, 147–8 democracy: CJEU and, 48, 146, 190 EWS and, 7 legitimacy and, 46–7 localism and, 146, 148, 166 procedural review and, 52, 53 protectionism and, 142–3 subsidiarity and, 39, 144–5, 179 Denmark: customs infringement proposal and, 183 opt-outs, 106, 127, 201 Deposit Guarantee Directive, 59–61 deterrence, 13, 82, 84, 86, 91, 92–3, 94–5, 96, 121, 124–5 early warning system: competence control, 7–8, 151 conferral and, 163, 176 criminal law competence and, 15 efficiency and, 166 EPPO proposal see EPPO proposal legal basis of legislation and, 161, 162 limited mandate, 160–6 Lisbon Treaty, 4 Monti II proposal, 7, 183–4, 198 national parliaments’ record, 182–5 national parliaments’ remit, 160–6 proportionality and, 161, 162, 163–4, 176, 198 Protocol No 2, 159–61 subsidiarity, 7–8, 151, 159–85 substantive merits and, 161, 162 threshold, 127, 129, 130–1, 161 yellow card procedure, 7, 129, 130, 161, 176, 183–4, 199 Edinburgh Guidelines, 39–40, 135–6, 137, 143, 144, 145, 156, 197 effet utile, 149 employer sanctions, 12 Enriques, Luca, 141–2 environmental crimes: CJEU judgment, 76, 77–80, 87 Directive, 11–12, 14 relevant evidence for, 150 scope, 80–1 validity, 80–4, 192–3 effectiveness criterion, 84 essentiality criterion, 81–4, 87 pre-Lisbon Treaty competence, 77–80 proportionality, 36 ship-source pollution, 11–12, 75, 77–80 environmental protection: crimes see environmental crimes harmonisation, 143, 144 internal market and, 110 Waste Directive, 107–8

 217

EPPO proposal: adequacy of reasoning, 177–81 alternatives, 175 Commission justification, 168–70 Commission response to national parliaments, 176–7 comparative efficiency test, 169–70, 175 conferral principle and, 171, 172–3 context, 167–8 cost-benefit analysis, 174 costs, 175 national insufficiency test, 172–3, 176, 177–8, 180–1 national parliaments’ opinions, 170–5 assessment, 177–81, 182–5, 198 origins, 167 PIF proposal and, 168, 173, 181 powers, 178–80 proportionality and, 171–2 relevant evidence, 177–81 restrictions on member state competence, 173 subsidiarity and, 9, 168–81 yellow card procedure, 7, 167–81, 199 Eurojust, 169, 171, 173, 174, 181 European Anti-Fraud Office (OLAF), 168, 169, 171, 173, 178, 181 European Commission: competence creep and, 164 EPPO proposal, 167–81 response to national parliaments, 176–7 subsidiarity justification, 168–70 PIF proposal, 121–2 Presumption of Innocence Directive and, 184–5 European Convention, 7 European Convention on Human Rights: EU accession, 22–3 European Council: competence control and, 164 European Parliament: competence control and, 164 EPPO proposal and, 177 European Public Prosecutor Office see EPPO proposal European Union: citizenship, 136 competences see competence limits; competence review criminal law see criminal law competence fraud statistics, 169 integration, 5, 165 legitimacy, 4–5, 52–4, 71, 130, 164, 193, 201 objectives, 43–4 political process, 163–4 transparency, 52 values, 39 Europol, 169

218  Fabbrini, Frederico, 164, 183–4 Financial Action Task Force (FATF), 115 flanking policies, 5–6 food aid, 5 food supplements, 25 fraud: Article 325 TFEU Article 83(2) and, 119–29 text, 119–20 corporate fraud, 94–5 EU statistics, 169 fight against fraud, 119–29, 130–1 see also EPPO proposal; PIF proposal meaning, 121 national criminal competence, 173 OLAF see OLAF free movement: proportionality and, 38 workers, 140 fundamental rights: competence control and, 200 competition decisions and, 68 Kadi, 67–8, 69 manifest errors and, 67–8 procedural review, 67–8, 69 Gatti, Matteo, 141–2 Germany: Deposit Guarantee Directive and, 59–61 Lisbon judgment, 32, 76 Tobacco Advertising, 23, 27 Granat, Katarzyna, 164, 183–4 Greece: cotton support scheme and, 34 EPPO proposal and, 172, 177 harmonisation see also subsidiarity anti-fraud measures, 119–29, 130–1 anti-money laundering see anti-money laundering Article 83(2), 85, 193–6 Article 114 TFEU and, 14, 106–19 Article 325 TFEU and, 119–29, 195 meaning, 97–100 Article 114 TFEU, 187 Article 83(2) and, 114, 106–19 criminal law competence, 110–11, 194 internal market link, 107–11, 136–45 lex specialis limitation, 107 scope, 106–11 Titanium Oxide, 107–8, 110 Tobacco Advertising II, 108–9 Article 325 TFEU, 119–29, 195 company law, 141–2 competition distortion and, 140, 141–2, 143, 150

Index criminal law, 14, 105–31 criteria, 135, 156 clear benefits, 135, 138, 143, 144 cross-border criterion, 135, 137, 138, 139, 142–3, 154, 170, 178–9, 197, 202 evidence, 146–7 need for Union action, 135 customs infringement proposal, 183 efficiency, 141 environment see environmental crimes market abuse see market abuse Monti II proposal, 7, 176, 177, 183–4, 198 Presumption of Innocence Directive, 184–5, 198 regulatory competition and, 138, 140–2, 143, 153, 155, 197 subsidiarity and see subsidiarity treaty definitions, 99 Victim Rights Directive, 184, 198 health protection, 3, 27–9, 33, 36, 41–2, 58, 110 Herlin-Karnell, Ester, 98, 108, 110, 115–17 Huglo-Lepage & Associés, 84 human rights see fundamental rights Hungary: EPPO proposal and, 174 impact assessments, 55–9, 70, 95–6, 147, 151–2 indirect taxation, 109–10 insider dealing, 89, 90, 93, 100, 101, 103 integration clauses, 80 intellectual property crimes, 12 internal market: justification for harmonisation, 107–11, 115, 118, 136–43 Ireland: opt-outs, 106, 127, 201 Joerges, Christian, 142–3 Kumm, Mattias, 36–7 Laeken Declaration (2001), 2 Lenaerts, Koen, 55–6, 135–6, 143–4 Levi, Michael, 94–5, 96 Lisbon Treaty: anti-money laundering, 116 CJEU mandate, 31 competence issues, 1–3, 187, 196 criminal law competence, 75, 76, 85–102, 128 national parliaments and, 159 proportionality, 7 Protocol No 2, 159–66 subsidiarity, 7 Lithuania: customs infringement proposal and, 183 litispendens, 86–7 Lööf, Robin, 6 loyalty principle, 117 Luxembourg: airport charges, 35–6

Index market abuse: cross-border nature, 197 harmonisation, 100–2, 153–6 legal basis, 108, 194 Market Abuse Crimes Directive adequate reasoning, 153–4, 192–3 alternative sanctions, 95–6 contents, 89–90 effectiveness, 92–5 essentiality, 77, 89–96, 192–3, 194 MAR and, 90–1, 101–2 regulatory competition, 197 regulatory criminal measure, 12 relevant evidence, 154–6, 192–3 scope, 89–91 subsidiarity and, 9, 153–6, 197 Market Abuse Directive (MAD), 90–1, 100, 154–5 Market Abuse Regulation (MAR), 90–1, 100–2, 194 market manipulation, 89, 90, 100, 101, 103, 153, 155 Miettinen, Samuli, 112 migration, 111–12 Mitsilegas, Valsamis, 6 mobile telephones, 55–7 Monti II Regulation, 7, 170n58, 176, 177, 183–4, 198 national identities, 39, 136, 200 national parliaments: collective action and, 165 competence control and, 7–8, 151, 164–6, 182–5, 198–9 EPPO proposal and, 167–81 reasoned opinions, 170–5 EWS see early warning system Lisbon Treaty and, 159 role, 166 ne bis in idem, 179 Netherlands: EPPO Proposal and, 176 Neyer, Jürgen, 142–3 Office of Fair Trading, 94, 96 OLAF (European Anti-Fraud Office), 168, 169, 171, 173, 178, 181 Peers, Steve, 97 petrol specification, 57–9 PIF proposal: context, 120–1 EPPO proposal and, 168, 173, 181 legal basis, 119–29, 130–1, 195 CLS view, 122–3 Commission view, 121–2 debate, 121–9 dual legal basis, 125–7

 219

Parliament view, 122–3 predominant purpose test, 123–5 objectives, 121, 127–8 rejection, 12 Portugal: cotton support scheme and, 34 Presumption of Innocence Directive, 184–5, 198 procedural review see competence review proportionality: Article 5 TEU, 20 CJEU case law, 33–8 Afton Chemical, 57–9 cautious approach, 47–8 manifestly inappropriate, 33, 35–6, 48, 61, 63, 70, 87–9, 189 Vodafone, 55–7, 60, 70 competence creep, 6 criminal law competence and, 199 customs infringement proposal and, 183 EWS and, 161, 162, 163–4, 198 EPPO proposal, 171–2, 176 limits to EU powers, 7, 32–8 effectiveness, 36–8, 44 Lisbon Treaty, 7 Luxembourg v Parliament and Council, 35–6 monitoring, 5 practice, 4 procedural proportionality, 38, 57–9 procedural review Afton Chemical, 57–9 Vodafone, 55–7, 60, 70 proposed test, 189–91 Roaming Regulation, 55–7 Spain v Council, 34–5, 37, 38, 44, 56, 57, 58, 60, 61–5, 69, 189 special review procedure, 4 subsidiarity and, 133–4 Swedish Match, 33–4 theory, 32 public health see health protection race to the bottom, 141–2, 143, 153–5, 157, 197 red card procedure, 162–3 regulatory competition, 138, 140–2, 143, 153–5, 197 res judicata, 86–7 Roaming Regulation, 55–7 Romania: EPPO proposal and, 174 safe havens, 138, 140, 141, 153, 155, 156, 157, 197 Schütze, Robert, 5–6 shaming, 94–5 Shapiro, Martin, 50, 51 ship-source pollution: CJEU judgment, 76, 77–80, 81 effectiveness criterion, 86 essentiality condition, 87 Directive, 11–12

220 

Index

Simeone, Timothy, 51 Snuff Directive, 25, 33–4 social policy: proportionality, 36 social stigma, 84, 92, 93 Spain: cotton support scheme, 34–5, 61–5 state sovereignty, 2, 75, 76, 78, 130, 170 subsidiarity: Amsterdam Protocol, 135n13, 136 Article 5 TEU, 20, 39, 41 CJEU case law, 39–40, 44 cautious approach, 47–8, 189 critique, 133 Germany v Parliament and Council, 59–61, 70 problems, 145–6 reluctance to enforce, 151, 152 Tobacco Advertising, 44, 69, 115, 129, 139, 197 competence creep and, 6 conceptual confusion, 133–4 contested issue, 133–4 criminal law competence and, 199 customs infringement proposal and, 183 decentralisation, 143–5 democracy, 39, 144–5 Deposit Guarantee Directive, 59–61 distortion of competition and, 140, 141–2 early warning system see early warning system Edinburgh Guidelines, 39–40, 135–6, 137, 143, 144, 145, 156, 197 EPPO proposal, 9, 167–81 evidence base, 144, 149–50, 154–6, 157 EWS see early warning system harmonisation criteria, 135 internal market justification and, 136–43 legal basis, 41 limit to EU powers, 14–15, 187–8 effectiveness, 40–3, 44, 141 principle, 39–43, 133–57 Lisbon Treaty, 4, 7 market abuse, 9, 153–6, 197 meaning, 135–45 monitoring, 5 Monti II proposal and, 183–4, 198 national parliaments and, 7–8, 151 objective, 196–7 political issue, 40–1, 145 practice, 4 Presumption of Innocence Directive and, 184–5, 198

procedural review, 134, 157 adequate reasoning, 146, 148–9, 152, 153–4, 157 benefits, 146–7 EPPO proposal, 174–5 Germany v Parliament and Council, 59–61, 70 impact assessments, 147, 151–2 intensity, 147–8 manifest error, 148 objections, 146–7 problems, 145–6 relevant evidence, 149–50, 154–6, 157 proportionality and, 133–4 proposed test, 189–91 theory, 39 thresholds, 127 Victim Rights Directive and, 184, 198 Vodafone, 42 Sweden: customs infringement proposal and, 183 EPPO Proposal and, 174–5 terrorist financing, 114, 115 TRAFFIC Europe, 84 transport: proportionality, 36 United Kingdom: Brexit, 201 EPPO Proposal and, 175, 176, 181 opt-outs, 106, 127 Presumption of Innocence Directive and, 185 Victim Rights Directive and, 185 United Nations: UNSC sanctions, 67–8 United States: competence review, 50, 51, 200 regulatory competition, 142 unlawful disclosure of inside information, 89, 90, 101, 153, 154–5 Victim Rights Directive, 184, 198 Vogel, David, 142 Waste Directive, 107–8 Weatherill, Stephen, 164–5 Weiler, Joseph, 5 Wyatt, Derrick, 144 yellow card procedure see early warning system Young, Ernest, 146