The State of the European Community: Policies, Institutions, and Debates in the Transition Years 9781685853280

Citation preview

THE STATE OF THE

EUROPEAN COMMUNITY

A biennial project of the

European Community Studies Association

THE STATE OF THE

EUROPEAN COMMUNITY Policies, Institutions & Debates in the Transition Years

edited by

Leon Hurwitz Christian Lequesne

Lynne Rienner Publishers Longman

Published in the United States of America in 1991 by Lynne Rienner Publishers, Inc. 1800 30th Street, Boulder, Colorado 80301 Published in the United Kingdom in 1991 by Longman Group UK Limited Longman House, Burnt Mill, Harlow Essex CM20 2JE, England and Associated Companies throughout the world © 1991 by Lynne Rienner Publishers, Inc. All rights reserved Library of Congress Cataloging-in-Publication Data The State of the European community : policies, institutions, and debates in the transition years / edited by Leon Hurwitz and Christian Lequesne ; sponsored by the European Community Studies Association. Includes bibliographical references and index. ISBN 1-55587-249-2 1. European federation. 2. European Economic Community. 3. Europe—Economic integration. 4. Europe—Politics and government—19455. Europe—foreign relations—1945I. Hurwitz, Leon. n . Lequesne, Christian. III. European Community Studies Association. JN15.S76 1991 321 '.04'094—dc20 91-20009 CIP British Cataloguing in Publication Data A catalogue record of this book is available from the British Library. ISBN 0-582-08935-2 Printed and bound in the United States of America The paper used in this publication meets the requirements of the American National Standard for Permanence of Paper for Printed Library Materials Z39.48.

Contents

Preface A ckn owledgments

1

The State of the European Community: 1989-1990 Leon Hurwitz and Christian Lequesne

PART 1 INSTITUTIONAL ISSUES 2 3 4 5 6 7

The Institutional Strategies Toward Political Union Wolfgang Wessels The Council and the Commission After the Single European Act Helen Wallace The European Parliament as an Institutional Actor Otto Schmuck The European Court of Justice: Recent Developments Alain Van Hamme Budgetary Policy in Transition Michael Shackleton Beyond 1992: One Central Bank, One Currency Ralph J. Mehnert

PART 2 THE INTERNAL MARKET 8 9

The New Approach to Technical Harmonization and Standards Kristin Schreiber Financial Services and the Internal Market Peter Vipond

vi 10 11 12

Contents

Public Procurement Stephen Woolcock The General Systems Directive and the Libéral Professions Louis H. Orzack A Citizens' Europe: Personal, Political, and Cultural Rights Siegfried Magiera

127 137 153

PART 3 S E L E C T E D COMMUNITY POLICIES 13 14 15 16 17 18 19 20

New Trends in the Common Agricultural Policy Daniéle Charles-Le Bihan and Daniel Gadbin Progress Within the European Monetary System Hugo Kaufmann and Stephen Overturf Regional and Social Policy David Coombes and Nicholas Rees Social Protection Pedro Corona-Viron Research and Technology Policy Robin Gaster Environmental Policy Paul Hagland Education and Training Policy Glenda G. Rosenthal Toward a Maritime Policy Alan W. Cafruny

167 183 207 229 243 259 273 285

PART 4 E X T E R N A L RELATIONS 21 22 23 24 25 26 27

The EC and Central and Eastern Europe Françoise de La Serre The EC and German Unification Lily Gardner Feldman EC-EFTA Relations René Schwok From Lomé III to Lomé IV: EC-ACP Relations Catherine Flaesch-Mougin and Jean Raux The EC's Mediterranean Policy Birol Ali Yeçilada The EC, GATT, and the Uruguay Round Finn Laursen EC-US Political/Institutional Relations Roy H. Ginsberg

303 313 329 343 359 373 387

Contents

28 29

European Political Cooperation Desmond Dinan Defense and Security Policy Issues Werner J. Feld

Acronyms Selected Bibliography List of Contributors Index About the Book

VÜ

403 423 435 439 455 459 475

Preface

First in an envisaged biennial series on the European Community, this book is a sponsored project of the European Community Studies Association (ECSA). The ECSA exists to develop a community of persons interested in the European Community (EC) and to raise the level of knowledge about the EC. Although there are a number of associations and organizations in the United States that have Europe or individual European countries or groups of countries as their focal point, ECSA is the only organization devoted solely to the EC. It welcomes members from all academic disciplines, the business sector, and the public sector. The E C S A ' s objectives are to promote the study and awareness of the E C by facilitating research projects and oJier collaborative works among the association's members in order to increase the published literature on the EC; encourage links between the association and European counterpart associations and individuals for the purpose of transatlantic cooperation; publish an informational newsletter; hold conferences and workshops; organize panels on the EC at conferences and workshops sponsored by other organizations; seek and disburse funds to support the association's activities; draw upon the membership to speak publicly on EC issues; and undertake other programs, activities, and projects deemed appropriate. The association is fully committed to promoting links with interested individuals and organizations in other parts of the world, particularly in developing countries. Leon Hurwitz Christian Lequesne

ix

Acknowledgments

This book is a collaborative and cooperative effort. We have received aid and encouragement from a number of people and would like to acknowledge their help. For professional support, we would like to thank the members of the ECSA's executive committee: Desmond Dinan (George Mason University), Roy H. Ginsberg (Skidmore College), Pierre-Henri Laurent (Tufts University), Donald J. Puchala (University of South Carolina), and Glenda G. Rosenthal (Columbia University). In addition, the following people rendered specific assistance and encouragement: Hélène Arnaud (secretarygeneral, Centre d'Etudes et de Recherches Internationales, Fondation Nationale des Sciences Politiques, Paris); John Blank (director, Arts and Sciences Instructional Computing, Cleveland State University); Jean-Luc Domenach (director, Centre d'Etudes et de Recherches Internationales); Françoise de La Serre (senior research fellow, Centre d'Etudes et de Recherches Internationales); Georgia E. Lesh-Laurie (dean, College of Arts and Sciences, Cleveland State University); Martha Peacock (managing editor, Lynne Rienner Publishers); Steve Barr (senior project editor, Lynne Rienner Publishers); and Lynne Rienner. For most efficient secretarial and editorial support, we would like to thank Janine Lockhart (Office of the Dean, College of Arts and Sciences, Cleveland State University). For most generous financial support, we would like to thank The Ford Foundation (New York) and the Office of the Secretariat-General, Commission of the European Community (Brussels). For general support and encouragement, we thank Monique GrimaudLequesne and Fran Hurwitz. Finally, in this collaborative effort, whatever merit the reader may see in the book rightly belongs to our colleagues who wrote the essays; any shortcomings belong to the editors. L. H. C. L. xi

1 The State of the European Community: 1989-1990 Leon Hurwitz

& Christian

Lequesne

A New Community Dynamic and a Relaunching of the Academic Debate In the 1950s and 1960s, academics in the United States brought to bear important theoretical and conceptual approaches and contributions to the study and analysis of European integration. However, around the mid-1970s most of them abandoned the European Community (EC) as a field worthy of study. Operating in the context of the US federal system experience, many of these US scholars became disillusioned with what was perceived to be a slow pace toward a political union. Some of the reasons for this lack of interest can be found in the evolution of the Community itself. The domination of the decisionmaking process by the Council of Ministers; the difficulties of the European Parliament (EP) to obtain any real legislative power, even though the EP has been elected by direct universal suffrage since June 1979; the all-too-frequent examples of "power politics" among the member states over the seemingly intractable agro-budgetary dossier—these factors combined and gave the impression to many outsiders that, at the beginning of the 1980s, the EC had reached its integrative limit and would conform itself to a classical intergovernmental regime. In addition, the early 1980s brought what was considered more exciting and relevant areas of study. New centers of power such as Japan, the Pacific Rim, and the newly industrialized countries (NICs) appeared to cope with economic problems with greater efficiency than did the EC, and much attention in the United States—political, economic, and academic—was diverted from the Atlantic to the Pacific. However, it is always easier to see the obvious surface crises than the less visible signs of progress that are produced by the crises themselves.

1

2

The State of the EC,

1989-1990

There were many examples of real progress during this period, among them the creation of the European Monetary System (EMS) in 1979. Undoubtedly, the EC Commission's white paper on "Completing the Internal Market"—containing 280 concrete proposals for the completion of a single market by December 31, 1992—opened in June 1985 a new era. Brainchild of Jacques Delors, the French president of the Commission, this catalog of measures came when the enlargements (Greece in 1981; Portugal and Spain in 1986) had been exerting other pressures on the EC internal debate. The institutions and some traditional policies—most notably the common agricultural policy (CAP)—had to be reformed and new policies had to be emphasized on the political agenda. On June 28-29, 1985, at the European Council meeting in Milan, the Italian presidency achieved a remarkable political success—the Italians were able to convince a majority of the Heads of State and Government (European Council) to call for an intergovernmental conference that would consider the possible reform of the relevant Community treaties. This intergovernmental conference (IGC) met in Luxembourg from September to December 1985. From the outset, the reform of the treaties clearly took on the characteristics of a package, linking the creation of a single market with the development of new Community policies (economic and social cohesion, environment, and research and technology) and institutional changes (return to the qualified majority vote in the Council of Ministers for certain areas and expansion of the European Parliament's powers). Because of this "package deal" and the subsequent linkages, the proposed revisions had the advantage of offering positive benefits to all the member states, even those like Denmark, Greece, and the United Kingdom, who had been initially opposed to the concept of reform. Signed on February 17 and 28, 1986, the resulting Single European Act (SEA) thus enabled the transcription of the intergovernmental conference's decisions into a legal document that proved to be the first major revision of the Treaties of Rome since 1957. But to ensure the success of the SEA, it was still necessary to address the long-standing problem of Community financing, which, for more than a decade, had led to conflict between the "net contributor" member states (especially the United Kingdom) and the "net beneficiary" member states (most of them South-based). But, because of the adoption of what was termed the "Delors Package," a compromise was reached in February 1988 at the Brussels European Council. This compromise produced a linkage between a new system of Community "own resources," a strengthened financial discipline—in particular for the CAP— and a doubling, by December 31, 1992, of the Community's structural funds. The recurrent budgetary gaps were thus dealt with, and the Commission could concentrate on the necessary proposals for completing the internal market by December 31, 1992. At the same time that the Commission was proposing these concrete

The State of the EC,

1989-1990

3

measures to stimulate the EC's economy by the total abolition of all nontariff barriers among the member states, it also made from the date of December 31, 1992, which is not legally enforceable in the SEA, a political slogan. In retrospect, this "1992" slogan proved to be a remarkable tool of marketing. It addressed directly the concerns of both the EC's economicbusiness sector as well as the Community citizens themselves. It thus contributed greatly to the reexamination of the Community's agenda—and future—by the national political processes in the member states. The "1992" slogan not only created new hopes—it also created new myths and fears. Moreover, its impact could not be kept within the boundaries of the twelve member states. Third states, especially Japan and the United States, rapidly became concerned by the ongoing process. Beginning in early 1988, the US administration and leading corporations were asking themselves—and the Europeans—about the impact that the completion of the internal market would have on US commercial and economic relations with the Community. In abolishing its internal borders, was the EC moving toward strengthening its external barriers and thus becoming a "Fortress Europe"? It was inevitable that these questions would reawaken the academic sector. Once again, the European integrative process as an area worthy of study returned to the forefront. This renewed interest in the United States was reinforced when the Community announced that it wished to link the completion of the internal market, and especially the freedom of movement of capital, to the establishment of an economic and monetary union (EMU). On June 27-28, 1988, at the Hannover European Council, the Heads of State and Government charged a committee of experts, chaired by Jacques Delors, to prepare and submit a report on the EMU. Delors's report, proposing the establishment of the EMU in three stages, was duly submitted to the Madrid European Council on June 26-27, 1989. Subsequently, on December 8-9, 1989, the Strasbourg European Council decided that the first stage of the EMU would start on July 1, 1990. The main objective of this first stage is to strengthen the coordination of monetary and economic policies within the existing EMS. In this context, it is worth noting that on October 8, 1990, the United Kingdom submitted the pound to the EMS's exchange-rate mechanism. The Strasbourg European Council also decided that an intergovernmental conference would meet before the end of 1990, with the charge to define the institutional reforms required by the final stages of the EMU: the establishment of a European central bank and the transformation of the European currency unit (ECU) into a single currency. This mandate of the Strasbourg European Council was confirmed at the Dublin European Council on June 25-26, 1990. At the Rome European Council on October 28-29, 1990, eleven of the twelve member states—the United Kingdom opted to abstain—agreed more specifically on a set of objectives to orientate the work of the intergovernmental conference. Beginning its

4

The State of the EC,

1989-1990

deliberations on December 15, 1990, the intergovernmental conference on the EMU should reach decisions before the end of 1991. However, important differences in approach and timing still exist among the participants. The years 1989-1990 witnessed also the application of Austria to the EC and events that no one had really predicted—the unification of Germany and rapid political changes in most central and Eastern European countries. These external pressures revived within the EC the debate on deepening or widening "the family." Following a joint initiative of German chancellor Helmut Kohl and French president François Mitterrand, the Heads of State and Government seemed to choose the first option at the Dublin European Council on June 2 5 - 2 6 , 1990. They called for the convening of a second intergovernmental conference on political union charged with strengthening competencies and institutional mechanisms in the internal policy as well as foreign and security policy fields. This intergovernmental conference on political union also began its deliberations in Rome on December 15, 1990. Obviously, no one can say with any certainty what exact results it will reach at the end of 1991. For example, the Gulf Crisis showed how much work and progress the Twelve still have to make to define a real common foreign and security policy. But more importantly, a debate exists and is giving rise to a rethinking about the Community's future both within and outside it.

The Editing Process First in an envisaged biennial series, this volume is a sponsored project of the European Community Studies Association (ECSA). ECSA's executive committee appointed us as coeditors. The executive committee's responsibility does not extend beyond this appointment for we were given the complete latitude to develop the organization and content of the volume. A general call for chapter proposals was issued in late 1989 and approximately seventy-five were received. We spent time in Paris in March 1990, reviewing each proposal and determining its relationship to our concept of the entire manuscript. For certain topics that we had determined should be treated in the volume there were, unfortunately, no adequate proposals. In these few cases, we then directly solicited the contributions. But the majority (20 of the 28 essays) were not solicited and were included only after a thorough evaluation. In selecting the contributors, we adhered to one major criterion and then attempted to balance a series of secondary criteria. The major determining factor for inclusion in the book was that of intellectual quality. Once these questions of subject matter and quality were settled, the series of secondary criteria that required balancing then came into play. These included the need for a balance among various disciplines, between US and European contributors, and between the more established scholars in the various fields

The State of the EC,

1989-1990

5

and our younger colleagues who have not yet had equal experience and exposure in their respective disciplines. As a group, the contributors represent the disciplines of economics, history, international relations, law, medicine, political economy, political science, and sociology. Seven of the twelve EC nationalities are represented (Belgian, British, Danish, French, German, Irish, and Spanish), as well as two non-EC countries (Switzerland and the United States). The problems and challenges involved with a multidisciplinary and multinational collaborative research project need not be recited here. It will be sufficient to say that we are grateful to all the contributors for their professional cooperation and colleagueship in this transatlantic academic enterprise.

Organization of the Book This volume can be seen as a yearbook. Although it does not claim total coverage, the chapters do deal with the most important activities of the European Community for the years 1989-1990 and are obviously constrained by the time frame. Nevertheless, some of the authors go beyond this limited two-year period, because a first volume of this type often requires some background material that predates 1989. The book is organized into four general thematic parts: (1) institutions and community law; (2) the internal market; (3) selected community policies; and (4) external relations. It may be useful to present some discussion on the precise order of the chapters. The first part of the book deals with institutional issues. Chapter 2, by Wolfgang Wessels, analyzes the institutional strategies toward a political union. The next three chapters deal with the behavior of the four major institutions that participate in the decisionmaking process of the EC: the Council and the Commission by Helen Wallace (Chapter 3), the European Parliament by Otto Schmuck (Chapter 4), and the Court of Justice by Alain Van Hamme (Chapter 5). Chapter 6, written by Michael Shackleton, deals with the Community budget—a specific and relevant issue that confronts each year the member states and the Community institutions in a "power game." Chapter 7, written by Ralph J. Mehnert, is prospective in its analysis of the role of the future European central bank. Part 2 of the book presents five essays on the completion of the internal market. Kristin Schreiber (Chapter 8) writes on the Community's new approach to technical harmonization and standards. Peter Vipond (Chapter 9) and Stephen Woolcock (Chapter 10) discuss, respectively, the opening of financial services and of public procurement markets. Louis H. Orzack (Chapter 11) analyzes the consequences of the EC's new system of mutual recognition of diplomas and the free circulation of the liberal professions.

6

The State of the EC,

1989-1990

Siegfried Magiera (Chapter 12) presents a discussion on the personal rights of the Community citizen in the context of the internal market. Part 3 of the book presents essays on selected Community policies. Danièle Charles-Le Bihan and Daniel Gadbin (Chapter 13) and Hugo M. Kaufmann and Stephen Overturf (Chapter 14) analyze the two essential pillars of Community integration, which are, respectively, the common agricultural policy (CAP) and the European monetary system (EMS). The remaining chapters in Part 3 deal with some corollaries to the completion of the internal market: regional and social policy by David Coombes and Nicholas Rees (Chapter 15), social protection by Pedro Corona-Viron (Chapter 16), research and technology policy by Robin Gaster (Chapter 17), environmental policy by Paul Hagland (Chapter 18), and education and training policy by Glenda G. Rosenthal (Chapter 19). A more specific presentation by Alan W. Cafruny (Chapter 20) is devoted to the development of a maritime policy. Part 4 of the book presents the European Community as an actor in the international arena. The first three chapters are devoted to the EC in the wider European context: Françoise de La Serre (Chapter 21) analyzes the new relations between the EC and the central and Eastern European states; Lily Gardner Feldman (Chapter 22), writes on the EC and German unification; and René Schwok (Chapter 23) deals with the negotiations between the EC and the European Free Trade Association (EFTA). The next two essays are devoted to the EC's policies vis-à-vis NorthSouth issues. Catherine Flaesch-Mougin and Jean Raux (Chapter 24) discuss the evolution of EC-ACP relations from Lomé III to Lomé IV. Birol Ali Ye^ilada (Chapter 25) deals with the EC's policy toward the nonmember Mediterranean Basin countries. Then Finn Laursen (Chapter 26) analyzes the EC's positions in the recent Uruguay Round; and Roy Ginsberg (Chapter 27) discusses the political and institutional relations between the EC and the United States. In the last two chapters, Desmond Dinan (Chapter 28) presents the positions on foreign policy the Twelve have taken in the framework of European Political Cooperation (EPC), and Werner Feld (Chapter 29) discusses the issues for the EC in the defense and security areas. Finally, the major objective of this book is to link up the different authors' conceptual approaches with a solid factual background. Academics, researchers, and graduate students should find in the various sections relevant information for their own work. Others—including journalists, people in the public sector as well as in multinational corporations, lawyers, and consultants—should also find useful elements for their activities that touch upon the European Community.

PARTI INSTITUTIONAL ISSUES

7

2 The Institutional Strategies Toward Political Union Wolfgang Wessels

The Institutional Debate After the Single European Act and in Light of the East European Revolutions The institutional strategy of European integration was and is a basic topic of the political and academic debate on Europe. Since the resistance movement of World War II, questions about which direction and how the European political system should be developed have been raised again and again in certain waves.1 After the Heads of Government declared in the Paris summit of 1972 a European union as the overall goal to be achieved, major efforts were made to implement this concept. The latest climax of this debate was in the mid1980s, when the European Parliament presented in 1984 its draft treaty for European union and the Community member states ratified in 1986 the Single European Act (SEA), which was the first major revision of the EC Treaty that included new procedures for decisionmaking. At the turn of 1 9 8 5 - 1 9 8 6 , most adherents to more efficient and democratic integration were, however, quite disappointed. The changes in the Single European Act, especially as related to majority voting within the Council and the procedure of cooperation with the European Parliament in legislative matters, had not met the expectations that had been put forward by the European Parliament in its draft treaty. Some even argued that the new rules would not be properly applied and that some regulations for exceptions were a step backward. In the years between 1986 and 1989 the mood changed rapidly. The new procedures of the Single European Act were now seen as an opportunity and in early 1990 there was broad consensus that the procedures of the Single European Act were successful. 2 The possibility of majority voting was generally perceived, though not always used, as a strong whip for member states to adapt more flexible strategies early in the decisionmaking process, thus enabling a faster speed of decisionmaking. The new cooperation

9

10

Institutional

Issues

procedure giving the European Parliament a second reading was used quite sensitively and efficiently by the European Parliament, though the argument is not settled as to how far this procedure has really increased the influence of the European Parliament in central issues of EC decisions. Within this process was a certain reduction in the frequency and intensity of institutional debates. The attention shifted toward the establishment of economic and monetary union (EMU) and its institutional setup; especially forms and functions of an independent European central bank system, the EuroFed, were debated. Thus an intergovernmental conference for the creation of economic and monetary union was called for by the European Council in 1989 without any major reference to other institutional changes. This situation changed quite rapidly in late 1989 and early 1990. The major push toward a broader and more intensified institutional debate came from the process of German unification and the new responsibilities of the European Community toward the Eastern European countries. These revolutions in central and Eastern Europe were perceived as a challenge for creating a Europe that the citizens of the European Community always wanted to have. The German unification led to a renaissance of the Monnet strategy to solve the German question by developing a European institutional setup.

Major Steps in the 1990 Debate A

New

French/German

Initiative

It was not by accident that a new initiative was launched by a joint effort of Chancellor Kohl and President Mitterrand. After their considerable disputes about the procedure toward German unity, in April 1990 they issued a joint request to the European Council to convene a second intergovernmental conference on political union: In the light of far-reaching changes in Europe and in view of the completion of the Single Market and the realization of Economic and Monetary Union we consider it necessary to accelerate the political construction of the Europe of the Twelve in belief that it is time to transform relations as a whole among the Member-States into European Union and vest this Union with the necessary means of action as envisaged by the Single Act.

They proposed that "the European Council should initiate preparations for an intergovernmental conference on political union. In particular, the objective is to strengthen the democratic legitimation of the union, render its institution more efficient and ensure unity and coherence of the union's monetary and political action and define and implement a common foreign and security policy."

Institutional

Strategies

Toward

Political

The European Council Sessions in

Union

11

Dublin

Without too much debate, though with some hesitance by some member states, the European Council in Dublin of April 1990 confirmed its commitment to political union and decided on the following steps: 1. A detailed examination will be put in hand forthwith on the need of possible treaty changes with the aim of strengthening the democratic legitimacy of the union, enabling the Community and its institutions to respond efficiently and effectively to the demands of the new situation and assuring unity and coherence in the Community's international action. 2. The Foreign Ministers will undertake this examination and analysis and prepare proposals to be discussed at the European Council meeting in June. In the June meeting of the European Council—after an extensive exchange of items on the basis of the examination and analysis concluded by the foreign ministers and the ideas and proposals by member states and the Commission—"the President of the European Council noted the agreement to convene an Intergovernmental Conference on Political Union under Art. 236." Thus within three months a new intergovernmental conference of major importance was decided upon without major resistance, though with passivity from some member states like the United Kingdom. Some key notions from the documents need to be considered: 1. Instead of the concept of "European union," the term "political union" was put forward. In the official texts we do not have any clues for these changes of terms. With the word "political" the Heads of Government might have liked to stress their political commitment. Others argue that the European union is a later stage including political union as well as economic and monetary union. 2. For major principles of reform of the EC institutions, the Heads of Government stressed the question of democratic legitimacy, efficiency, and effectiveness—key issues of each reform debate in the history of European integration. 3. In the decision to hold an intergovernmental conference according to Article 236, a rather clear direction as for the legal form of the changes was indicated. The concept of the European Parliament and of others to adopt a new constitution besides the EC treaties have not been taken up by the Heads of Government. Instead they followed the procedure set up by the Single European Act to work via treaty reforms. Thus some of the experiences of the Single European Act will serve as guidance for this new initiative.

12

Institutional

Issues

4. The Heads of Government decided to have a common foreign and security policy. By this they enlarge quite considerably the scope of the actions that are supposed to be integrated in some kind of common or even Community framework. Positions

of the European

Parliament

With this plan for a European union, the debate in the European Community intensified enormously. The European Parliament contributed quite considerably to the debate by putting forward several reports by leading members. By the variety of these reports the coherence of concepts and action was, however, reduced. Former French president Valéry Giscard d'Estaing elaborated a report on subsidiarity, and former Italian foreign minister Emilio Colombo worked on European union, which was supposed to continue the draft treaty of the EP on European union. Of specific importance is the Martin Report, which in its final version was passed by the European Parliament on November 26. In this report the European Parliament tried to overcome some of its tactical deficiencies that were demonstrated during the intergovernmental conference of Luxembourg in 1985, which led to the Single European Act. The parliamentarians proposed concrete amendments to the existing EC treaties especially concerning the declaration and protection of fundamental rights and freedoms, the fight against racism and xenophobia, social and employment policies, cultural policy, foreign policy, and security. Regarding institutional provisions the European Parliament proposed the following changes, which reflected its longtime aspirations. 1. 2. 3.

4. 5.

6.

The Parliament may set up temporary committees of inquiry. Deliberations on Community legislation in the Council of Ministers shall be open to the public. "Except in the case of modification to the treaties, the accession of new Member-States and the expansion of the powers of the Community decisions in respect of which shall require unanimity the Council shall decide by majority of its members or in the cases where such is provided for in the treaty by qualified majority." There shall be a vote of confidence by the Parliament for the new Commission. "On a request by Parliament adopted by majority of its members the Commission shall submit a legislative proposal performing to that request." Most important, "Parliament and Council shall jointly constitute the legislative body of the Community." In a new legislative procedure, the Parliament shall install a conciliation committee composed of an equal number of members of the Parliament and of

Institutional

7.

8. 9.

10.

Strategies

Toward

Political

Union

13

the Council in case the Council rejects the text put forward by the Parliament or fails to deliver an opinion. "The document of this committee must obtain a simple majority in Parliament and a qualified majority in the Council. If it fails to do so the legislative procedure shall terminate." The Parliament shall set up a "committee of the regions and local authorities of the Community which shall be consulted by Council, Parliament or the Commission on proposals for measures that have an impact on regional matters or that fall within the terms of reference of the regions." An amended budgetary procedure shall also give the European Parliament powers equal with those of the Council. The European Parliament shall have more power regarding agreements of the Community with one or more states or an international organization. "Before concluding an agreement which modifies major provisions of the Community law or has a major impact on the budget the Commission must receive the authorization of Parliament and Council." As concerns the treaty revisions, "proposals for the amendment of the treaty adopted by the conference of the representatives of the Member-States governments shall be submitted to the European Parliament which shall adopt, amend or reject them by an absolute majority of its members within a period of three months." A conciliation committee shall be established in case of conflicting proposals for treaty amendments.

The Martin Report clearly indicates the core of the parliamentary strategy to increase its powers and extend the overall competencies and possibilities of the Community. The resolution itself is in many aspects as far-reaching as the Spinelli draft was, although put in different legal forms. The Parliament hopes that these concrete legal formulations will find easier access to the intergovernmental conference than would the presentation of a draft constitution outside the EC Treaty. The long-term goal of becoming a "real" parliament in the sense of a co-legislative and co-electing body was being reiterated by this new strategy. The saut qualitatif toward a new role is now supposed to take place within the legal framework of the treaties. The wideranging aspirations of the European Parliament have thus not been given up by the Martin Resolution but perhaps have been disguised in new clothes. Another element of the debate on legitimacy was the involvement of national parliaments in the Community's decisionmaking. For the first time, national and European deputies met in November in Rome for what they called, using a traditional French term, an assisse. This institution was first perceived by the EP as a rival institution, but the European parliamentarians were successful in convincing their national colleagues of

14

Institutional

Issues

their common interests. The resolution of this assisse supported the claims of the EP. With this event the debate about the involvement of national parliaments was not concluded, however; the mandate of the Rome European Council asked the intergovernmental conference to give considerations " t o arrangements allowing national parliaments to play their full role in the Community's development." Options

of the Personal

Representatives

Besides the EP, the personal representatives of the foreign ministers met regularly to prepare a paper for the European Council in December 1990. Their function was not to negotiate but to identify certain basic options that would help the European Council give the intergovernmental conference a clear mandate and thus enable the intergovernmental conference to come to a faster and earlier end. Their report in the version of November 3 0 indicates major issues of common concern; especially the extension of issues to be dealt with by the Communities on the European union was seen by a very large majority of its members as the basic issue for the intergovernmental conference. A major issue regarding the scope o f activities was the use of the principle o f "subsidiarity." This term, originally put into the Community debate by President Delors after having been invited by prime ministers of the German Länder, has different meanings for different people. For the German Länder and for some member governments such as the British, the term should become the instrument to limit the automatic spillover o f c o m p e t e n c i e s toward the Community. F o r Community institutions, subsidiarity indicates a way to use the E C level more efficiently, as this was already formulated in the Single European Act in relation with environmental policies (Article 130R). Both concepts do not necessarily conflict, even though the basic notions behind them are different. Democratic legitimacy was also discussed by the personal representatives. They agreed that the Parliament should participate in the appointment of the president and in the collective appointment o f the other members o f the Commission. They also were preferable in majority for extending the existing procedure o f cooperation to all decisions that are subject to qualified majority in the Council. A joint decisionmaking by the Council and the Parliament in legislative and constitutional areas also found some supporters, though this was only a minority. The proposal of a regional body was also discussed, though no basic consensus was achieved. Another major idea was to establish a European citizenship. In terms o f efficiency o f the Community institutions, major points o f debate were the following: 1. The role of the European Council, especially concerning how far this

Institutional

Strategies

Toward

Political

Union

15

"extra-treaty body" should be established as the center of the political power, 2. Widening the applications for voting with qualified majority in the Council (the vast majority of delegations supported this); and 3. The positions of the permanent representatives in terms of foreign and security policies. Some minor adaptations such as giving the Commission a greater role and a nonexclusive right of initiative were widely acceptable; the scope of common activities, especially in how far military questions should be dealt with, was controversial. The Position

of the

Commission

The Commission submitted its opinion on October 21 (COM 90/600 Final). It dealt with the question of a single and coherent approach of the Community in the international system and with the reinforcement of the democratic legitimacy and of the efficiency of the Community bodies. Concerning its role as an institution, it claimed more responsibilities for itself in foreign and security policy and defended its monopoly of initiative against claims by the EP. It also included suggestions on social issues, the infrastructure, questions of freedom of movement, environmental policy, taxes, energy, and culture. Overall, this position by the Commission has not been outstanding or progressive. Another

French/German

Initiative

Before the European Council meeting in Rome, President Mitterrand and Chancellor Kohl submitted another proposal, which had been anticipated by many member states. They took up major issues of the debate. 1. They argued for an extension of competencies of the union and the Community in the areas of environment, health, social policy, energy, research, technology, and protection of consumers. The union should also deal with questions of immigration, visa politics, and asylum rights. 2. In relation to democratic legitimacy, they proposed a European citizenship and co-decision power of the European Parliament for acts of a legislative nature. They also suggested that the nomination of the president of the Commission should be confirmed by the European Parliament by the majority of its members. National parliaments and regions should also be involved in the policymaking of the union. 3. For the efficiency of the union, they pleaded for enlarging the role of the European Council and the application of majority voting in the Council.

Institutional

16

Issues

4 . As for foreign and security policies, both suggested that these should extend to all areas and should include a security policy that might even lead to common defense. As for the decisionmaking structures in foreign and security policies, the General Affairs Council should deal with Community aspects as well as with the aspects of common foreign and security policies as defined by the European Council. In this area unanimity should be the rule o f decisionmaking, but in cases where the European Council has defined the basic principles and orientations, the Council might decide by qualified majority in concrete situations. This joint vision of Kohl and Mitterrand indicated already some possible compromises on institutional issues. On the one hand they proposed a strengthening of the European Council to go along with those advocating a stronger role for governments in the Community; on the other hand, their proposals for more majority voting and for a stronger role for the European Parliament were along the lines of those favoring a stronger "prefederal" Community. The Mandate

of the European

Council

At its meeting on December 14 and 15 in Rome, the European Council convoked two intergovernmental conferences. As to the political union, the European Council asked those at the conference to give particular attention to the following issues: 1. Democratic legitimacy, by extending and improving the existing participation rights of the EP, especially the cooperation procedure in legislative matters and the assent procedures for international agreements. Other reforms such as actual co-decision procedures at legislative acts were also given further consideration, though clearly with less political support than the marginal improvement of the status quo. 2. Common foreign and security policy, by addressing general objectives to be laid out in the Treaty and by developing the means of ensuring clear effective implementation. F o r the institutional framework in this area, the European Council asked the intergovernmental conference to base its woric on elements such as one decisionmaking center (the Council) and a two-tiered decisionmaking process with the possibility of recourse to qualified majority voting for the implementation of policies agreed upon by consensus. As to the scope o f common security, the gradual extension of the union's role should be considered, including the prospect of a role for the union in defense matters.

Institutional

Strategies

Toward

Political

Union

17

3. Civil, social, and economic rights of a European citizenship. 4. The extension and strengthening of Community action in relation to the social dimension, the health sector, major infrastructures, promoting cultural exchanges, education, and other areas; other intergovernmental activities such as key areas of home affairs and justice should also be considered for inclusion into the ambit of the union. 5. The effectiveness and efficiency of the union, mainly by strengthening the role of the European Council, extending majority voting in the Council, and strengthening the implementing powers of the Commission.

The Institutional Strategies Revisited The following are some preliminary conclusions on the state of the debate about institutional strategies at the end of 1990: 1. Fundamental changes in the political environment have pushed the member states to revisit their institutional strategies for European integration. With this debate and the mandate by the European Council, the "deepening" (strengthening existing powers) of the Community has been given priority to further "widening" (increasing membership). Enlargement of the Community by new members will thus be of a secondary importance. 2. The basic approach by the European Council and the EP is to work via legal amendments to the existing treaties; a new constitution is not on the agenda. 3. Within this legal approach the conceptual differences about the degree of changes, particularly in relation to the role of the European Parliament, are still quite considerable. Even after the mandate of the European Council, small cosmetic adaptations as well as fundamental reforms are possible. Though some potential compromises can already be identified at the end of 1990, the real negotiation period has only started. Member states have not yet progressed enough in identifying the crucial parts of their new "package deal," which is the basic ingredient to all progress in the history of the Community. For this mutual give-and-take, the central elements of the intergovernmental conference on the economic and monetary union will be linked to progress toward the common foreign and defense policy. New activities in other areas such as economic and social cohesion and institutional arrangements will be used as side payments and further motivations to agree to the results of the two conferences.

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Issues

This highly political process will not lead to optimal and perfect results. We can expect some real progress toward a political union but also inconsistencies and halfhearted measures. With the result of the conferences we will have to revisit the institutional strategies for the next phase of the integration process.

Notes l . S e e especially Roy Pryce, ed., The Dynamics of the European Union (London/New York/Sydney: A Study by the Trans European Policy Studies Association, 1987). 2. See Wolfgang Wessels and Christian Engel, eds., The Institutions of the European Community After the Single European Act: The New Procedures and the Capacity to Act (forthcoming 1991).

3 The Council and the Commission After the Single European Act Helen Wallace

As a new debate on constitutional reform begins to take shape, it is important to appraise the realities as well as the images of established practice in the European Community (EC). The intergovernmental conference (IGC) on political union, opened formally in December 1990, has a large and ambitious agenda, which includes a variety of proposals to reform the rules under which all of the EC institutions operate. In particular these imply significant alterations directly to the workings of the Council and the Commission and indirectly, too, if some of the proposed reinforcements of the powers of the European Parliament are accepted. The last such process of constitutional revision led to the Single European Act (SEA). At the time most commentators regarded the changes that were actually agreed upon as modest by comparison with the headier ambitions of the Draft Treaty on European Union, which had been adopted by the European Parliament in 1984. Since the disappointment was high, expectations as to the likely results were low. With the beguiling wisdom of hindsight the new consensus of the commentators is that a critical threshold was crossed with the negotiation and ratification of the S E A and that subsequently institutional behavior in the EC has been transformed. Both analyses have grains of truth, but both are fundamentally flawed. The hyperbole of ambition in the Parliament's Draft Treaty certainly masked the significance of the individual changes that were made to the institutional rules by the SEA. Perhaps more important, however, the link between policy dynamics and institutional behavior was seriously understated. What was also underappreciated was the extent to which institutional practice was already changing. Too many people have also rather curiously forgotten that what really kicked off the reforms was the prospect of Iberian enlargement grinding EC decisionmaking to a halt. All three factors therefore require further elucidation as a necessary preliminary to the analysis of the actual impact of the S E A on the Council and the Commission.

19

20

Institutional

Issues

First, then, the link between policy dynamics and institutional behavior—the most obvious institutional change made by the SEA—was to extend majority voting under Article 100 to the harmonization of national legislation relevant to the internal market and on the back of that to grant the European Parliament a kind of legislative role, albeit limited. At the time this appeared rather trivial by comparison with the bid to make majority voting the default rule across the range of EC policy competencies. What many of the institutional specialists had simply failed to realize was how important the internal maricet agenda was going to become and how much legislative space it would occupy. It was, after all, the same European Council in Milan in June 1985 that gave the green light to both projects, and many hardened observers were deeply skeptical as to the real force of the Cockfield White Paper—they had seen so many similar documents tabled and discarded and it was in some ways such a technical and tedious catalog that it was hard at the time to appreciate the momentum that it would release. Only in one member state, the United Kingdom, had there really been a round of serious political and policy debate about the economic importance of the completion of the internal market, and even this well-articulated debate had not had much public resonance. Those who kept their ears closer to the ground on the economic and industrial shifts that were taking place throughout Western Europe already had a clearer appreciation of what was at stake. What was, however, rapidly to emerge was a groundswell of political attention as well as economic and industrial pressures that were to combine to bring the single market to the top of the political agenda. Second, it was and to an extent remains the case that actual behavior inside the Council of Ministers is the least well studied or understood part of the activities of the EC. This is hardly surprising when the Council and its subordinate committees meet in private and are not easily amenable to systematic analysis. Yes, of course, the seasoned practitioners who attended Council sessions regularly and who traveled in and out of Brussels regularly (many of them weekly) knew what it was "really" like, but few of them imparted the fruits of their direct experience to a wider audience. Instead, the public record consisted, perhaps still does, of a mixture of instant commentary by journalists and statements for the record by national ministers to national constituencies. Quite reasonably the journalists concentrate on the big stories and the interesting clashes of view rather than the mundane daily business of the Council and the many subjects that could be agreed upon without ministerial debate. Understandably, ministers reporting at home on their "victories" or "defeats" in Brussels tend to give a rather one-sided view of what happens in the Council, and few national parliaments pay close attention to the day-to-day detail of EC lawmaking. So it was perhaps inevitable that the overall picture should be distorted. The reality was that even before the SEA was in place, recourse to majority voting, implicit and explicit, had increased considerably and that the output

The Council and the Commission After the SEA

21

o f Council lawmaking was already voluminous and achieved remarkably fast. Third, the propulsion o f enlargement was crucial to the S E A being negotiated. Part o f the concern was simply about numbers, that it would take too long to reach a consensus with twelve governments to be squared. There was, however, a cruder concern, namely to find a way o f dealing with " d e v i a n t " vetoes by individual m e m b e r states. In part, therefore, what governments were agreeing upon was that they needed the constitutional lever to outvote case by case the one or two member states that on any dossier were being troublesome. T h e net result o f these points is to suggest that the S E A provided a staging post and a useful one in the development o f institutional rules and behavior, but that it was not quite so dramatic a reform as some have since argued. On the contrary, the S E A marked a recognition o f institutional behavior that was already being established as typical, combined with an inclusion o f s o m e ratchets to extend that behavior to other areas o f negotiation and lawmaking. In addition, however, the S E A benefited from, but did not instigate, a turnaround in the constellation o f e c o n o m i c and industrial pressures bearing down on European negotiators and legislators. This is not the place to comment in detail on the debate about whether the 1992 process is a product more o f policy-led than o f market-led forces or vice versa. T h e truth is almost certainly that it was a mixture o f the two. T h e working assumption o f this chapter is that both were necessary conditions for the success o f the single-market program.

What Has Changed? Our central preoccupation must then be to establish what has really changed in the way that the Council and the Commission operate since the S E A and what difference, if any, there has been to the relationship between the two. T h e c o m m e n t s that follow start with an appraisal o f broad shifts in the negotiating environment and then move to points o f detail on the two institutions. T h e first and most obvious point is that the E C institutions, spearheaded by the Council and the Commission, have regained a sense o f purpose and an ability to focus on key issues reminiscent o f the early 1960s. It is easy to point to the obvious signs o f this in the evidence o f both rhetorical and practical transformations in the climate o f negotiations in Brussels. B o t h the C o m m i s s i o n and the C o u n c i l work from the shared assumption

that

p r o b l e m s can b e solved and that solutions c a n and must be found to differences o f view. T h e confidence and concentration o f political attention have been displayed preeminently in the pursuit o f the 1992 objective, where the S E A made two changes to the parameters in which the two institutions

22

Institutional

Issues

work. First, the SEA revalidated (but did not invent) the goal of completing the internal market and, second, it cut through one of the blockages by introducing majority voting for many of the relevant subjects. However, these S E A changes were crucially underpinned by two devices that have more to do with the underlying strategy and less to do with the constitutional rules. The gradual appreciation of the early 1980s that blanket harmonization was neither feasible nor desirable meant that the negotiators were given a much simpler task. The twin devices of "mutual recognition" for standards and "home country control" for financial services took away from the negotiators many of the obstacles with which they had previously been confronted.1 If the approach was to be permissive by making virtuous the continued coexistence of differing national regimes, subject to an agreed floor of common rules (minimum essential requirements, and so on), then the issue was to agree on the range of permissiveness that could be tolerated. Majority voting was thus linked to a relaxation of the degree of precision in the agreement. Competition among rules was legitimized. The Commission could avoid the unenviable task of being under pressure to produce in comprehensive detail drafts that would satisfy all concerned. Each member state was no longer required to assent to total replacement of the status quo ante in those cases where it had failed to sell its approach to the Commission. The Council and the Commission have also been helped by Article 100A.4 of the SEA, which allows member states in certain broadly defined circumstances to continue to apply national standards higher than the agreed Community floor. 2 Thus the extremes of the spectrum on many issues have been removed. Those member states that for whatever reason are not up to scratch compared with the Community average practice can either be outvoted or required only to introduce a limited improvement in their national regimes. On the other hand, those member states that had in earlier debates fought tenaciously to prevent erosion of their higher domestic requirements no longer need to fight so hard. So simultaneously the possibility of outvoting has been made institutionally valid and the need to veto has been reduced. The Commission and the Council were also able to reinvent successfully the timetable devices that had stood the EC in such good stead in creating the customs union. There was a long and difficult debate in the IGC that drafted the S E A over whether the 1992 date should be a target or a deadline. Those who argued for the latter sought to entrench January 1, 1993, as a legally enforceable date after which what had been stalled in negotiation would have to be accepted anyway as the default situation. They failed to convince, and the date was included only as a target. In spite of this, negotiators came to treat the target as a serious one, almost as if it were an unavoidable deadline. The explanation for this has little to do with the S E A itself; it had much more to do with the political reputations that had been put on the line and the

The Council

and the Commission

After

the

SEA

23

continuous hard pressure from the real economy bearing down on the negotiators. The 1992 target also displaced other dossiers on the table because they acquired a lower priority and thus in some ways became more easily resolved. The agreement on the "Delors package" of agricultural financing, budget revenue, and resource transfers in February 1988 was thus facilitated, removing from the active EC agenda for 1989 and most of 1990 some of the normally most contentious issues in EC bargaining. 3 Conversely the credibility of the 1992 program made it easier to be adventurous in other fields. The opening up of the debate on economic and monetary union (EMU) is a good illustration of an old and important dossier being resurrected and refocused by both the Commission and the Council. The other new factor was the overturning of the postwar division of Europe, in particular the unification of Germany. This change provided a unique political envelope in which subsequent negotiations in the Council and the Commission were located. Its results were twofold. First, the central decisionmaking leadership was put on the line to demonstrate that it could produce fast and concrete responses. Second, the shared compulsion to find the means to deliver Community endorsement of German unity within a strengthened Community framework both made the Commission and Council particularly purposive and reopened a debate on further institutional reforms. The Commission and the Council, along with the other institutions, thus found themselves swiftly absorbed in quite novel shared tasks. The decision by first the G7 and then the G24 to confide to the EC the task of the first aid package for central and Eastern Europe pushed the Commission, with firm backing from the Council, into a pell-mell rush to set up, fund, and coordinate with other partners a complex range of measures through what became known as the PHARE program (Poland-Hungary Assistance for Economic Restructuring) and later by establishing the European Bank for Reconstruction and Development. In order to expedite the establishment of the PHARE program the Commission and Council relaxed some of their long and stubbornly defended restrictions on trade with Eastern European countries. Then in the summer and autumn of 1990 the EC completed in four months flat what was in effect an enlargement negotiation to extend the boundaries of the EC to include the five new Länder of the enlarged Federal Republic of Germany. Both of these exercises revealed great agility on the part of the Commission and the Council, in both cases with active support from the European Parliament. In these instances at least the Community behaved like a government rather than a loose confederation. 4 The other new institutional factor was the stake acquired by the European Parliament in the legislative process. The clauses of the SEA that gave the Parliament a direct role in the modification and amending of EC legislation

24

Institutional

Issues

through the cooperation procedure had initially been viewed as only a modest step toward a real engagement by the Parliament in lawmaking. It turned out to provide a rather secure foothold for the members of the European Parliament (MEPs), because they had gained enough ground to demand serious attention from both the Commission and the Council. The reality has been that the Parliament has actually found many of its suggested changes to legislation gaining acceptance and that it has some leverage over both policy formulators and negotiators. A real rather than cosmetic distinction has been established between the common position of the Council and the final legal instrument, and the Commission has had to concede that its proposals may fall if they do not bend toward the majority view in the Parliament. The net effect has also been to expose legislation to more sustained public scrutiny, thus requiring the Commission and the Council to pay more attention to "marketing" their proposals.

Negotiations in the Council The accumulated evidence of several years points to real changes in the Council on both quantitative and qualitative criteria.5 Precise figures remain irritatingly elusive, but in 1989, for example, over a hundred sessions of the Council were held in the various different formations according to subject. Of these, a quarter were informal and the rest full negotiating and legislative sessions. This represents something like a doubling in activity over the past ten years or so. Some twenty-three different formations of the Council were convened, showing a steadily expanding reach of the Community over public policy. Predictably the most frequently convened were the General Affairs Council, Ecofin, the Agricultural Council, and the Internal Market Council. At the time of the SEA there was a move to limit the number of sessions of the European Council to one per presidency. This has not happened. Not only has the old pattern of at least three a year reemerged, but extraordinary sessions have been convened on relatively short notice in both 1989 and 1990. The level and density of interaction of senior ministers from member states in EC negotiations thus continue to expand. This represents therefore an impressive incursion into the time commitments of member governments and begins to make the Council of Ministers much more a part of the normal political business of Western Europe. And of course it follows that this scale of activity is reflected in the substructures of the Council through which officials from the Commission and the member states do much of the detailed negotiation of EC laws. As for the direct output of these negotiations, here detailed figures are not easily available. The most frequently cited statistic is that (at the time of this writing) about two-thirds of the 280 internal market measures were adopted. This should be seen in context. The statistical analysis of Council

The Council

and

the Commission

After

the

SEA

25

decisionmaking by Thomas Sloot and Piet Verschuren records that 617 proposals were tabled in 1986 and that of these, 539 were adopted within two years, compared with a total in 1975 of 329 and 246, respectively. 6 Thus even before the SEA came into effect the strike rate in terms of legislative decisions reached was considerable and indeed quite high in comparison with the volumes that might be expected from a single country. Recent years have seen a reinforcement of this trend rather than a change in the shape of the curve. What is perhaps more surprising is just how quickly so many proposals are agreed upon. The same study by Sloot and Verschuren reveals that in 1975 it took on average 149 days to move from Commission proposal to Council decision, already surprisingly swift and quite contrary to the prevailing public image. By 1986 the time lag was reduced to 99 days; i.e., only just over three months. Unfortunately, comparable figures are not available for more recent years. Of course these crude figures conceal huge variations between major items and relatively routine and technical legal instruments. Here the analysis becomes more complex. Up to 1986 regulations seemed to sail with a fairer wind than directives, irrespective of whether majority or unanimity decision rules applied. This may have changed since the more permissive approach to coexisting national regimes was accepted for standards directives. Up to 1986 the statistics also reveal predictably that brand new proposals took longer to agree upon than those modifying existing rules. Though subsequent statistics are not available, it may well be that this has remained the pattern since the SEA. After all, what the 1992 goal did was not to change the catalog of items on the legislative agenda but to reallocate priorities. A large proportion of the items on Lord Cockfield's list were proposals that had been kicked around by negotiators in the Council for a long time, in some instances a very long time. So it is less the novelty of the legislation that has been agreed upon since the SEA that is striking than the fact that well-matured proposals have increasingly met acceptance in the Council—for example, the merger control regulation was agreed upon in December 1989 after nearly two decades of debate. Tantalizingly inaccessible are any statistics of real robustness on which decisions have actually been taken by the Council on called majority votes as distinct from under Treaty articles, where majority voting is the relevant procedure. The Council has so far chosen not to reveal the figures of either when votes have been called or which member states have voted which way. The only evidence available is thus a mix of hearsay and press commentary. This suggests that votes are actually called relatively infrequently and when they are called have caused little pain to those outvoted. The British government is, for example, happily on the record as stating that it has been outvoted only a handful of times on internal market measures, none of them to any great discomfort. 7

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Issues

The important question is then whether some new law of anticipated reactions is beginning to make itself felt. The answer from the anecdotal evidence seems to suggest that the answer is almost certainly yes. In the first place, the perceived need to vote against legislation may have diminished, as has been argued previously. Second, member states that are in a minority of one now probably accept earlier than before that there is little point in sustaining root-and-branch objections to a proposal if it is already clear that it commands majority support. Instead they will look for accommodation of their problems through a softening of the relevant wording. Third, it is still the case that a large number of proposals are negotiated out at official level rather than by ministers. When a proposal passes technically to ministers it is widely supported and ministers may endorse it on the nod, unless one of them has a serious political difficulty or unless they judge that it would be preferable politically to announce at home that they had been outvoted rather than caved in. Fourth, it must be recalled that the threshold of support for a qualified majority is high and thus it is not all that difficult on a controversial issue to mobilize a blocking minority. These are then the cases where tough negotiations are joined, as on the merger control regulation, to narrow the area of controversy. The real impact of the option of majority voting thus seems to be more evident in the new climate of negotiations than in the roll call record. One slightly paradoxical element is that the most public cases of actual voting seem to occur in the European Council itself, where the British have registered dissenting votes on the Social Charter and on the convening of the IGCs, as they did in 1985—in neither case to any avail. What is less clear is whether this tells us more about the attitudes of other member states toward the British or about the implantation of majority voting at so senior a political level. Judgment should perhaps prudently be reserved on this point. Late in 1990 the Council of Ministers struggled with the demand from the US government that the EC make a large quantum cut in agricultural support. There is disputed evidence as to whether the problem was a solid blocking minority of twenty-three votes from France, Germany, and Ireland. What seems clear, however, is that it proved very difficult indeed for the Council collectively to contemplate outvoting France or Germany on an explicit roll call. The jury should therefore be regarded as still being out on exactly how far the EC has shifted to majority voting when it really hurts. An associated issue is the coordination of business between different compositions of the Council and the adjudication of intersectoral conflicts. The Council has tended to be productive when it has succeeded in building up a sustained and collective commitment within a particular policy area and stressed when faced with conflicting interests from different sectoral constituencies. The Internal Market Council now has, for example, an established identity, albeit not so sharply defined as the Agricultural Council. Cross-sectoral adjudication, however, continues to be difficult, as was

The Council

and the Commission

After

the

SEA

27

graphically revealed by the failure in December 1990 of trade ministers to persuade their agricultural colleagues to subordinate their interests to US demands in the Uruguay Round. Such fissiparous tendencies are to a degree offset by the Council presidency and the Council secretariat. The latter has an important but largely invisible role in helping to improve the coherence of Council business and is generally well regarded as a source of nonpartisan yet politically sensitive guidance and targeting in Council negotiations. Its enhanced reputation also owes much to the skill of its current secretary-general. These factors have made it quite conceivable now that the secretariat of European Political Cooperation could be absorbed by the Council secretariat. This was simply ruled out of court in the negotiation of the SEA but it has become a serious runner in the new IGC. Whether the presidency of the Council has gained importance in recent years is a more disputed point. Certainly the desire of each presidency to be activist is striking, and the lively agenda of the Council gives the presidency considerable scope for seeking the high ground. The collapse of the German Democratic Republic (GDR) as a state in late 1989 led the French presidency into an intense round of hyperactivity. The Italian presidency has similarly sought to exploit the period of prenegotiation for the two IGCs by bidding up the proposals for their agendas. It is, however, important not to confuse rhetoric with reality or national politics with EC-wide stewardship. German unification was bound to produce an excited response from the French, and the Italians are always at the more ambitious end of the spectrum on the issue of further integration.

The Commission's Impact At the beginning of 1989 a second Commission under the presidency of Jacques Delors took office. It drew strength from the impressive record of the first Delors Commission, which had so skillfully inserted itself at the center of the drive to complete the internal market and begun to claim a comparable position at the center of the new debate on EMU. The SEA had made very little formal difference to the role or powers of the Commission in strict institutional terms. However, the feasibility and credibility of the new legislative agenda had considerably enlarged the scope of activism available to the Commission and thus enlarged its potential influence. Yet prizes for success are not easily won in the EC; the political astuteness that the Commission has actually demonstrated could not have been taken for granted. One clear feature of both the first and the second Delors Commissions is precisely the strong personal influence widely attributed to Delors himself. Technically and constitutionally the Commission remains a college of equals, with one Commissioner in the chair. Yet the record shows the

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emergence of what some construe as a more presidential system, which rests on a mix of the personal impact of Delors and a reconfiguration of behavior and procedures within the Commission to strengthen the office of the presidency. In recognizing the considerable impact of Delors one should nonetheless be wary of drawing an ad hominem conclusion. Jacques Delors is firmly in the driver's seat in the Commission in the sense of defining strategic objectives and active involvement on all of the top priority issues. He has high recognition in the political debate within the member states as a force to be reckoned with and his standing has been recognized abroad, as is evident in the status accorded to the Commission by the Bush administration. It would, however, be premature to conclude that there is a real presidential system in the making in the Berlaymont. The existence of a planning unit that operates very closely to the presidency or the recent efforts to make the general secretariat a more effective coordinator could serve equally well a presidency that predominated or a cohesive college with collective leadership. To entrench a presidential system within the Commission that would serve equally deferentially a president with a less powerful personality would require a much more far-reaching transformation of the practices and bureaucratic culture of the Commission. The Commission retains many characteristics of diffuseness, in which individual Commissioners or directorates general (and other services) can still operate with a significant degree of autonomy; indeed some would argue that there are identifiable baronies, as indeed there are in the bureaucracies of the member states. The Commission also remains very pluralist in its culture, operating in different styles and with different practices depending on the tasks pursued and established traditions in different sectors of work. Perhaps a more important point is the manifest problem of overload. The Commission has certainly succeeded in recent years in establishing a vigorous political profile, as key dossiers have put both Commissioners and the services under test to deliver results. The pursuit of the 1992 goal, the Uruguay Round, and the challenge of Eastern Europe, among many other important goals, require from the Commission both political skills and practical execution under pressure. In the case of responses to Eastern Europe and the USSR, the Commission is having to invent policy and practice as it goes along, with, understandably, little by way of prior experience on which to build. In the case of the 1992 program, the Commission is having to think out often from first principles appropriate mechanisms for new forms of regulation over the Western European economy. This adds up to a considerable challenge to the human resources and administrative capabilities of the Commission. It is possible to discern a variety of responses to this, both practical and conceptual. One severe constraint is the ceiling on recruitment, given the continued reluctance of member governments to endorse increases in the staff complement. Yet both to deal with the internal market and to respond to Eastern Europe and the

The Council

and the Commission

After

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SEA

29

USSR, the Commission has had to expand staffing rapidly and in significant numbers. One welcome result has been to encourage greater mobility for individual officials between services, an objective for many years of both external critics and some of those within the Commission dealing with personnel issues. Since late 1989 "redeployment" has become easier, though curiously only by the mobile official moving with post from one service to another and thus leaving some acutely short staffed. A more rational review of how best to match staff to functions has yet to take place. Another device has been the much increased recruitment of national experts attached to the Commission from the member states outside the formal staff complement. The ad hoc character of this procedure makes it difficult to draw general conclusions as to its efficacy. Yet another response has been the startlingly changed attitude of the Commission to delegating work to external bodies. The normal pattern used to be for the Commission's services to seek, wherever possible, to manage directly functions within its own competence and to regard it as a defeat if the Council refused to let this happen. No longer so. Examples now abound of external agencies or national administrations doing work at the behest of the Commission as partner or subcontractor. In part this is simply a way of coping with limited internal staffing resources. But there is more to it than that. The preoccupation with considerations of subsidiarity derives only in part from political concerns about the balance of power and attribution of policy authority between EC institutions and institutions in the member states. 8 Just as important is the growing awareness that the Commission does not have the capability and perhaps should not have to execute Community policies directly in all cases. Thus we can see two kinds of openness to administrative subsidiarity. In some cases, e.g., the Language and Training Program (LINGUA) and the TransEuropean Mobility Scheme for University Students (TEMPUS), bids are invited from relevant specialized agencies for the administration of the policy. In other cases the concept of independent European bodies is beginning to gain popularity, whether for a central bank or to handle some of the regulation associated with internal market and competition rules. However, in some areas of work the Commission cannot avoid being overstretched, perhaps most obviously in dealing with those areas of external negotiation and representation. The foreign economic policy of the EC has become considerably more active in the past two years, as evidenced by Lomé, the General Agreement on Tariffs and Trade (GATT), the European Free Trade Association (EFTA), increased involvement with the US, Japan, the Mediterranean, Eastern Europe, and the USSR, and now a waiting list of applications for EC membership, plus the concern of many other third countries for closer relations. Directorate-General I has therefore become even busier, even without the burgeoning debate in the context of the IGC on

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extending the capabilities of the EC in foreign and security policies, where for the moment the general secretariat also plays an active role.

Conclusions Much has changed in the Council and the Commission since the SEA. Yet one should be wary of assigning too direct a causality. Many of the changes belong to a more long-run pattern of evolving negotiating behavior and operating methods, as experience matures and new tasks have been laid at the door of the Community. Some of the Treaty amendments in the SEA have helped to facilitate adjustments in behavior and practice that had already begun to take root. The transformation of the political context has, however, been just as important and the emergence of a new political economy is now impacting hard on the way that the two institutions operate. Where then do these developments leave the Council and the Commission as they are faced with an IGC that may produce a second SEA? Without prejudging the results of the IGC it is possible to make several observations. First, the SEA did not change in any fundamental way either the Council or the Commission or the relationship between them; rather it worked with the grain of both the original treaties and experience accumulated over time. A SEA-mark 2 might therefore be considered a prudent strategy, as some of those involved have already argued. Second, however, the proliferation of EC responsibilities and the political profile that the Council and the Commission have acquired have put both of them under severe pressure. This suggests that the consequences and possible remedies deserve serious attention. Third, perhaps too little thought has been given to the implications of the single-market program for the institutions, especially as regards the implementation of the relevant measures and their day-to-day enforcement. Fourth, the Council and the Commission have dealt remarkably smoothly with the consequences of the last enlargement. It should not, however, be assumed that any future enlargement, more likely to be of more than one or two members at a time, could be absorbed without a more radical reappraisal of its institutional consequences. But that may be the issue not for this IGC but the next.

Notes l . S e e S. Woolcock, ei al., Britain, Germany and 1992: The Limits of Deregulation, Chatham House Paper (London: Pinter, 1991). 2. See J. Orstr0m M0ller, "The Single European Act—a Danish View," The World Today 44, No. 11 (November 1988), pp. 195-199. 3. See M. Shackleton, Financing the European Community, Chatham House Paper, (London: Pinter, 1990).

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4 . " T h e E u r o p e a n C o m m u n i t y a n d G e r m a n U n i f i c a t i o n , " Bulletin of the European Communities, S u p p l e m e n t 4 / 9 0 , B r u s s e l s (1990). 5. S e e G . E d w a r d s a n d C . L o r d , " D e r Ministerrat," in W . W e i d e n f e l d a n d W . W e s s e l s et al., Jahrbuch der Europäischen Integration 1989190 ( B o n n : E u r o p a U n i o n V e r l a g , 1990). 6. S e e " D e c i s i o n - M a k i n g S p e e d in the E u r o p e a n C o m m u n i t y , " Journal of Common Market Studies 29, N o . 1 ( S e p t e m b e r 1990), pp. 7 5 - 8 5 . 7. S e e m e m o r a n d u m s u b m i t t e d by the F o r e i g n a n d C o m m o n w e a l t h O f f i c e , ' T h e O p e r a t i o n of the Single E u r o p e a n A c t , " Second Report of the Foreign Affairs Committee, H o u s e of C o m m o n s , Vol. 2 ( L o n d o n : H M S O , M a r c h 1990), pp. 102— 103. 8. S e e M . W i l k e and H. Wallace, Subsidiarity: Approaches to Power-Sharing in the European Community, R I I A D i s c u s s i o n P a p e r 27 ( L o n d o n : R o y a l Institute of I n t e r n a t i o n a l A f f a i r s . 1990).

4 The European Parliament as an Institutional Actor Otto Schmuck

The European Parliament in the 1990s In June 1989 the European Parliament (EP) was directly elected for the third time. With regard to this institution, members of Parliament and voters largely have been and still are oriented to the national parliamentary e x p e r i e n c e . 1 But in terms o f competencies and political influence the European Parliament is obviously different from national parliaments a n d — what is o f crucial importance in this context—the EC system cannot be compared with national political systems. There is no doubt that the European Parliament is the most advanced example o f a regional parliament. Directly elected since 1979, it has decisionmaking powers in certain fields and slowly but surely a political infrastructure is developing at the EC level. T o the outside world, the European Parliament is a model of strong representation o f the citizens. However, a closer look may reveal serious deficits and problems as well. The European Parliament does not have the full range of competencies attributed to a national parliament. Therefore, it is traditional to start an analysis o f the European Parliament in the structure o f governance o f the Community by underlining the existing democratic deficit in E C decisionmaking. According to this view, the directly elected European Parliament is the principal repository o f legitimacy and democracy in the Community structure. Therefore, there have been and are regular attempts to strengthen the Parliament's institutional position. The intergovernmental conference o f the E C member states, which started in December 1990 in Rome, will intensively discuss this problem. The E P is composed o f 5 1 8 members who represent—since the German unification in October 1 9 9 0 — 3 4 0 million citizens of the twelve member countries. The four largest countries (France, Germany, Italy, and the United Kingdom) have 81 seats each, the smallest (Luxembourg, with 4 0 0 , 0 0 0 inhabitants) has only 6 seats. Since the German unification in October 1990,

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the former G D R is represented by 18 observers. The members o f the European Parliament (MEPs) sit according to their party affiliation. T h e political composition of the European Parliament in its third electoral period ( 1 9 8 9 - 1 9 9 4 ) is as follows: 2 Socialist Group European People's Party (Christian Democratic Group) Liberal, Democratic and Reformist Group European Democratic Group The Green Group Group of the European Unitarian Left Group of the European Democratic Alliance Technical Group of the European Right Left Unity Rainbow Group Nonattached Total

180

122 49 34 29 28

22 17 14 14 9 518

In July 1989 the Spanish socialist Enrique Baron-Crespo was elected for two-and-a-half years as president of the European Parliament. The day-to-day work o f the Parliament is prepared by a bureau and by eighteen standing and some occasional committees. The European Parliament has three workplaces: the plenary sessions take place in Strasbourg, the committees and political groups meet in Brussels, and the secretariat-general is located in Luxembourg. No coherent and consistent minority and majority coalitions are established within the Parliament, although there is a slight majority for the center-left parties. Only on highly political issues is this majority decisive. Normally other cleavages (e.g., agricultural against nonagricultural) predominate. With regard to internal market questions, very often the socialists and the members o f the liberal and Christian Democratic groups vote together. Today the European Parliament's role may be described as that of an "institutional coplayer" with limited but real powers and functions. 3 Elements of such a concept could be a laboratory for new ideas, a "training c a m p " for politicians to gain international experience, an ombudsman for citizens' grievances, a monitoring body for regional activities, and a driving force for regional integration. Regarding the peculiarities of the institutional system of the E C and the expectations o f the voters, three parliamentary functions o f the European Parliament can be identified that include all of these elements in one form or other: 1. The policymaking function aims at all activities of the Parliament to

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shape policies within the given EC system such as taking initiatives, concluding binding decisions (including traditional functions such as legislative, elective, budgetary, and treaty-making powers), and controlling policy implementation. 2. The system-developing function deals with those activities undertaken in order to develop the EC system 4 such as enlarging the scope of activities of the EC system, shifting the division of competencies within the EC system, and reforming the institutional setup of the EC system to make it more efficient and democratic. 3. The function of interaction with the voters deals with activities of interaction with the constituencies 5 such as the articulation of concerns and expressions of grievances, the aggregation of interests of and information from the public, and the reflection of support for or opposition to particular measures. These three functions may help to describe the role of the European Parliament within the EC system and will serve therefore in the following as a framework for the analysis of the EP's activities in the period 19891990.

The Parliament's Influence in Policymaking Since the first direct European election in 1979, the Parliament showed a great deal of vitality in raising important issues facing West European society. To some extent, it functioned as a mirror, an amplifier of interest, an initiator, and a permanent commentator. Regarding the completion of the internal market the EP increased its influence since July 1987 by the introduction of a second reading in the legislative process.6 By using this new weapon, the MEPs often tried to combine technical single market questions with social and ecological aspects. As we can see from the examples of the rejection of the benzol directive in October 19887 or the clean car decision of the Council from June 1989,8 it was able to influence the decisionmaking process of the EC considerably. One field where the European Parliament has developed considerable powers is that of the Community budget. The annual budgetary procedure is an important guide to the political priorities of the EP. In the debate held in December of each year on the adoption of the budget for the following financial year, the general rapporteur sets out the EP's priorities in the financial sphere. In recent years, unemployment, social and regional policy, energy, and development (world hunger), and, since the late 1980s, the assistance for central and Eastern Europe have been featured regularly. Some observers criticized, especially in the beginning of the 1980s, the fact that the EP was too much concerned with world affairs, such as questions

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of human rights and development problems, thus neglecting work it needed to do in the field of legislation on traditional Community matters. This interest of MEPs in matters of high politics can be explained on the one hand by the media's readiness to report on those questions. On the other hand, it can be interpreted as a quite understandable reaction of politicians in concentrating on those fields of activity where they could influence the political process (or at least the media), leaving aside all the areas that were clearly dominated and occupied by the national governments. The EP devoted a major part of its working capacity to relatively new fields of the EC system, such as development and environmental policy or human rights. In old areas such as agricultural or trade policy, it gave its opinions and started new initiatives but with little impact on political decisions. There can be no mistaking the efforts made by members to convert their political aims into Community practice; the outcome, however, often turned out to be unsatisfactory. The analysis of the budgetary procedure shows that in fact it proved possible to achieve increases in expenditures in the areas classified as priorities—social, regional, and development policy. But in general it can be seen that the EP's successes in the budgetary field, although undeniable, have been relatively limited. Although the EP could increase the share of noncompulsory expenditures in the budget from 16 percent in 1979 to about 33 percent in 1990, the bulk of the Community expenditures were taken by the agricultural policy, a policy over which the EP has little influence. The right to ask questions has considerable significance as a political instrument for scrutiny and is being used increasingly often by the MEPs. This right serves two main purposes: first, it enables political scrutiny to be exercised on the bodies concerned, and, second, it is designed to draw their attention to important fields of activities and thus to spur them to take the initiative. The EP has also strengthened its cooperation with other control authorities, especially with the European Court of Auditors. The presence of individual members of the Commission in the plenary sessions and at Committee meetings is now a routine event. The most striking trend of the past few years has been the increased presence at committees of Council ministers from the country currently holding the presidency. Furthermore, the Head of Government of the country holding the presidency normally reports to the EP plenary on the results of the latest meeting of the European Council. Thus, although all political actors in the EC system are affected by the EP's controlling activities, the EP has differing opportunities to force others to abandon activities that have come under criticism. Specialization within the E P ' s committees has been enhanced, and special committees of inquiry have been established (e.g., on the disposal of agricultural stocks and on the transport of hazardous waste within the Community).

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System Developing: The European Parliament in the Community System At the beginning of the 1990s the EP's (legal) powers and (political) forms of influence can be expressed in three categories. 9 1. Decisional powers enable the Parliament to influence the outcome of a decisionmaking process by legal means. Three main decisional powers are at the disposal of the EP: (1) the power to force the Commission's resignation by passing a motion of censure; (2) the power to adopt or reject the budget (including its margin for maneuver to add expenditure and to allocate expenditure within the noncompulsory sector and to give discharge in respect of the audited accounts); and (3) the power to give its assent to, or refuse, treaties of association and accession. 2. Participatory powers guarantee on a legal base the involvement of the EP in decisionmaking procedures without giving it the possibility to dominate the outcome. This includes primarily the EP's consultation in the normal Community legislation. The E P ' s strengthened legislative power within the cooperation procedure according to Article 149 (2) should also be classified as participatory: the EP may influence the procedures, but in the end the Council will always have (by majority or by unanimity) the last word. According to Article 138 (3) of the EEC Treaty, the EP has the obligation to initiate proposals for a uniform European electoral procedure. Moreover, it has gained in practice the right to appeal the Court of Justice. 3. Political means of influence refer to those possibilities for the EP to influence decisions that are not based on the EC treaties, but on the representative/deliberate powers of the EP, the interinstitutional agreements, or the E P ' s internal rules of procedure and its contacts with national and EC actors ("corridor politics"). This includes the informal notification of the EP of the negotiation of trade and association-treaties by the Council and the Commission ("Luns-Westerterp procedure"), the conciliation procedure for important legal acts with major financial impact, the budgetary conciliation ("trilogue"), the right to put questions to the Council and to the foreign ministers, the right to set up committees of inquiries, the right to pass resolutions, and the right to send delegations and fact-finding missions to third countries. Decisional and participatory powers are limited to those matters that are legally based on the EC Treaties. Other fields of activity in the EC system, which are not or are only partly within the competence of the Community, can only be influenced by the EP's weak (political) means of influence. The patterns of interaction between the Community institutions are different according to treaty rules, policy sectors, and political constellations, but there are also some common features. At the formal beginning of each

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process, the Commission puts forward proposals for either Community legislative acts, for the Community budget, or for agreements and treaties with third countries. The process normally ends with a decision of the Council that—in most cases—has at least to consult the EP and the Economic and Social Committee. In the budgetary process, the European Parliament plays a crucial role because it is, together with the Council, the budgetary authority of the Community. 1 0 The Parliamentarians can, up to a certain limit, increase and alter the nonobligatory expenditures that are about a third of the EC budget, and they can block the whole budget. In legislative acts, the Commission's proposal is communicated to the Parliament, which gives its opinion, and to the Council, which in the end will take a decision—or will fail to do so. Since the passing of the Single European Act, which came into force on July 1, 1987, the Parliament has possessed new powers in the area of legislative acts. Within the new cooperation procedure, two readings are envisaged." After the Parliament has given its opinion, the Council decides on a common position if approving the Commission's position by qualified majority. This common position is sent back to the Parliament which, if it either agrees or takes no decision at all, allows the common position to be ratified by the Council. However, if the Parliament, by the absolute majority of its component members, amends the common position of the Council, the Commission will reexamine the proposal and can—on its own decision—submit a revised proposal within a month's time. The Council can then adopt the Commission's new proposal by a qualified majority and/or can amend it unanimously, including those amendments by the European Parliament that the Commission has not taken up. The European Parliament can also reject the Council's common position, again by an absolute majority of its component members, and in this case the Council can only pass the legislation by unanimous vote. If the Council does not decide within three months after the Parliament's rejection or amendments, the Commission proposal is classified as not being adopted; if the Commission wishes to pursue the policy in question, it has to start the whole process again. This strengthened role of the European Parliament has no equivalent in the area of concluding trade and cooperation agreements or treaties between the Community and third countries (except association agreements, as will be discussed) or other organizations; in policymaking for external relations, the European Parliament and its relevant committees are informed about the ongoing negotiation process. Although the Parliament may pursue direct contacts through its delegations to parliaments in many countries of the world, it does not play any constitutional role. However, the Single European Act has introduced two exceptions to the weak position of the European Parliament in this field: association

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agreements, like the Lomé Treaty between the EC and 69 developing countries, and treaties of accession now require the assent of the European Parliament by an absolute majority of its component members. 1 2 This applies also to any amendments to an association agreement and related financial protocols. 13 By assessing the changes of the institutional position of the EP, one has to bear in mind that in the three founding treaties of the European Communities from 1951 to 1957, the institutional position of the EP was limited to monitoring and advisory powers. During the years its position has been strengthened considerably. The EP itself has been one of the most important driving forces in this context. Since the first direct European election in 1979, system development became one of its major working fields. A committee on institutional affairs was established in 1981. The EP followed a double strategy: on the one hand it tried to revise the EC system within the existing structures by a series of reports. 14 On the other hand, it voted for the "Draft Treaty Establishing the European Union," 15 giving by this the voters a legitimated conception for the future of the Community. The aim of leading parliamentarians to mobilize the voters behind this "European constitution" in the second electoral campaign failed, however. Nevertheless, the Draft Treaty on European Union is significant in that it lays down a marker for the Parliament's targets as regards the future direction of European integration. In order to influence the two intergovernmental conferences that started in December 1990, the European Parliament adopted two reports of the MEPs Martin and Colombo. Both resolutions set out the Parliament's institutional aims for the 1990s. Three major objectives can be distinguished: (1) extending the competencies of the Community to new areas of responsibility; (2) increasing the efficiency of the Community's institutional system by increasing majority voting in the Council and strengthening the autonomous executive powers of the Commission; and (3) increasing democracy by strengthening the E P ' s powers, notably by providing for codecision on Community legislation and a vote of confidence on the appointment of the Commission. These objectives can also be found in many of the small-step institutional initiatives that have been launched—on occasion with success— by the European Parliament. Despite its limited direct impact, the Draft Treaty project from 1989 caused important pressure for institutional reforms and prepared the ground for the Single European Act, the first substantial reform of the EC treaties, including more competencies for the Parliament itself. The introduction of the Single European Act in July 1987 has proved that the EC system is open to limited institutional changes, but nevertheless, now as before, the institutional role of the EP remains unsatisfactory.

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The European Parliament and Its Voters It is commonplace that the relationship between members of Parliament and their voters is difficult: the public knowledge on the European Parliament is low and the European Parliament's media coverage remains, following a remarkable increase after 1979, at a limited level. 16 The voter turnout in European elections remains at the unsatisfactory level (for European standards) of about 60 percent and is slowly but steadily decreasing. In 1979 voters went to the polls at 62.4 percent, in 1984 the figure was 59.1 percent, and in June 1989 only 58.8 percent of all voters went to the polls. Opinion polls regularly demonstrate, however, that a majority of EC citizens (52 percent in March-April 1990) are willing to support a strengthened institutional position of the European Parliament. 17 Interaction between the parliamentarians and their voters is an important field of activity, as the development of the European Parliament will largely depend on its capacity to articulate the interests of voters and pressure groups, to aggregate different positions, and to mobilize political forces for the goals of the European Parliament. Of major interest in this field are the direct contacts between the MEPs and the voters, contacts between MEPs and lobbyists, the media coverage of the European Parliament, the development of party federations, and the relationship between the European Parliament and national parliaments. On the average, one MEP has to represent about 620,000 EC citizens. This fact demonstrates that it is almost impossible for European parliamentarians to maintain face-to-face contact with their voters on a regular basis. Although MEPs regularly attend meetings with voters, the Eurobarometer has found out that 65 percent of the EC population are of the opinion that EP members are too remote from their needs and problems. 18 This may be a result of the fact that MEPs are engaged too much in the "closed European circle," leaving insufficient time to be devoted to their electorate. We must bear in mind the technical problems of the MEPs three workplaces (Brussels, Strasbourg, and Luxembourg). This situation creates serious problems for the organization of their work and their time management. Nevertheless, more and more people have had some kind of direct contact with the Parliament. The number of visitors to the European Parliament, especially from Germany, is increasing constantly. The number of petitions of EC citizens to the European Parliament is also increasing. 19 Nevertheless, ten years after the first European elections in 1979, the low degree of public awareness of the European Parliament over time is alarming: the overall proportion of people having seen or heard something of the European Parliament in the media peaks at European election time (about 70 percent) before continuously dropping again afterward down to about 4 5 50 percent until the approach of the following elections. 20 The EC citizens' knowledge of the European Parliament, its working conditions, and its area

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of competence has never been tested seriously, but we can assume that it is rather limited. Even if the general public is not sufficiently informed about the work of ihc European Parliament, lobbyists are increasingly seeking contact with members of that institution. The MEPs (and also their staff) obtain an increasing amount of information from lobbyists. Brussels is becoming increasingly important for the various lobbyists based there, and some of the lobbyists are specialists in following the European Parliament, attending most or all of the Parliament's sessions in Strasbourg and also those committee meetings in Brussels that are open to the public (an increasing number of committees—including those on the environment and economics—have opened their doors). Because access to the Parliament is rather open, it is practically impossible to measure the increase in lobbying activity since 1979. Nevertheless, it is clear to all involved that it has increased greatly. During sessions, some 200 passes are issued every day to visitors other than members of the public in visitors' groups, staff of other institutions, members, and their assistants. Of these 200, it is estimated that some 150 per day are lobbyists. Missions of third countries to the EC often attend Strasbourg plenary sessions to present the point of view of their countries. In all the parliamentary work, media coverage is useful but not necessarily indispensable. Because the Parliament is so remote, it is difficult to cover for most local, regional, and even national newspapers, particulary because not even its plenary sessions are held in Brussels, where the European press corps is based. The European Parliament is clearly at a disadvantage in this respect. To an extent, it has tried to compensate by providing good facilities for journalists (e.g., equipment for television companies, written circulars, and staff members to brief journalists). This has reversed the trend of the first few years following the 1979 elections, which saw a decline in press coverage. Since 1982 there has been a greater presence of journalists and a steady rise in radio and, especially, television coverage. Inevitably, the bulk of press attention has come from the Brussels press corps, which specializes in European Community affairs. Attempts to supplement this (through the national information offices of the Parliament, through bringing out national and regional journalists to Strasbourg, for example) have met with limited success. Much more could be done in "marketing" the Parliament's general positions and its specific positions on matters of interest to regional or specialized media. The hope expressed on the eve of the first European election that the formation of European party federations would help to further the democratic process by linking the electorate with the European parliamentarians has not been fulfilled. 21 The party federations at the EC

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level remained weak and have had little influence on international discussions and on the development of the national parties. They have not yet developed into a direct political base for MEPs. The weakness of the transnational infrastructure has not helped the European Parliament's capacity to mobilize the voters. Nevertheless, these groupings have provided a forum for multilateral contacts between MEPs and national party leaders. This has permitted a certain degree of mobilization such as at the presummits in which national and European party leaders and other important politicians take part. They are organized by some groupings before certain important European Council meetings. They also, by virtue of negotiating common manifestos for the European elections, put pressure on national parties to develop their European policies. Despite the fact that national parliaments became more and more aware of the growing interdependence in the EC framework, the relationship between the European Parliament and national parliaments has not developed as expected. 22 There have been some improvements: European Parliament committees have met several times with committees of national parliaments. In Belgium, Germany, and, since 1986, the Netherlands, the national parliaments have installed new structures to ensure better cooperation with the European Parliament, and the administrations of nearly all Western European parliaments have cooperated intensively on a regular basis. In general, however, the links between traditional parliaments and the European Parliament started slowly: at first it was the European Parliament itself that was searching for contact, but national parliaments were slow to react. Owing to limited media coverage and other negative factors such as the complexity of the issues debated, little personalization in the European Parliament, and language problems, the European Parliament has not been successful in mobilizing the electorate. Obviously it was not able to exploit the potential for support that exists in the Community. Major progress has also been hindered because the European Parliament—especially in its first electoral term—has been too erratic in its activities instead of concentrating on a few selected issues. It has lacked clear policy strategies that would have been understandable to the public. In addition, the pressure of time within the European Parliament and the Community system, the need to travel between the three European cities and the electorate, and the multitude of national and European obligations could have given the impression that the European Parliament had become too much of a closed circle. Another important reason behind the difficult relationship between MEPs and citizens is the obviously misleading comparison often made by politicians and voters between the national legislatures and the European Parliament. Obviously there is a need for a new role concept for a regional representation of the people such as the European Parliament in contrast to the existing traditional parliamentary heritage.

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The Future of the European Parliament The analysis of the European Parliament's performance of its three functions in recent years shows that there are positive results in the policymaking function, especially in initiation and control of decisions, and in the system development function. The far-reaching reform of the EC Treaty (Single European Act) in 1987, which has stimulated the completion of the internal market by the end of 1992, was directly initiated by the European Parliament. Deficits exist, however, in the field of interaction between the MEPs and the voters. This may primarily be caused by the weak position of the European Parliament—at least from a legal point of view—in the decisionmaking process. Therefore a strengthening of the Parliament's legal position is absolutely necessary and may help the Parliament to perform its two other functions to a higher degree as well. The European Parliament, as an institutional latecomer, obviously has problems in finding a political role within the EC adequate to its direct legitimation. In the long run such an adequate role, however, is essential for this institution. Otherwise the most prominent and dynamic MEPs will lose their interest in the institution, and go back to national policy. Moreover, EC citizens will neither support their respective representatives nor take part in future European elections. The Parliament demonstrated regularly, in those cases where it had decisional powers, its ability to act in an efficient way and its responsiveness to the underlying problems. Its use of the budgetary procedures in particular revealed the EP's capacity for aggregating diverging interests. Until the end of 1992, the Community will be devoting itself primarily to completing the internal market, monetary integration, and to reforming the structural funds (the regional fund, the social fund, and integrated Mediterranean programs). After 1992, the time will be ripe for major institutional reforms, and the reinforcement of the EP's powers should be the central element in this drive for such reforms. Those questions are being negotiated in the intergovernmental conference that began in December 1990 in Rome. There is no reason to be too pessimistic with regard to possible reforms. The history of the European Parliament has shown that this institution over the years has been very successful in fighting for more influence in the decisionmaking process. A silent revolution—and regional integration is nothing else—needs time.

Notes 1. For the impacts of the introduction of European elections see Eberhard Grabitz et al„ Direktwahl und Demokratisierung—Eine Funktionenbilanz des Europäischen Parlaments nach der ersten Wahlperiode (Bonn, 1988); Juliet Lodge

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and Valentin Herman, Direct Elections to the European Parliament: A Community Perspective (London: Macmillan, 1982); Jean Paul Jacque et al., Le Parlement Européen (Paris, 1984); Karlheinz Reif and Hermann Schmitt, "Nine Second Order National Elections: A Conceptional Framework for the Analysis of European Elections Results," European Journal of Political Research, No. 1, pp. 3ff. 2. Source: European Parliament, List of Members, Luxembourg (February 12, 1990). 3. The following arguments are based on the summary report "The European Parliament Beyond Traditional Parliamentarism: From a 'Forum' to a 'Co-Player' in Decision Making," presented by a study group of the TransEuropean Policy Studies Association (of which the author was a member) at a symposium on the European Parliament in the Community system in November 1988 in Luxembourg. 4. Leon N. Lindberg and Stewart S. Scheingold, Europe's Would Be Polity: Patterns of Change in the European Community (Englewood Cliffs, NJ: PrenticeHall, 1970), pp. 64-116. 5. See Gabriel A. Almond and G. Bingham Powell, Jr., Comparative Politics: A Developmental Approach (Boston: Little, Brown, 1966). 6. See the reformed Article 149 of the EEC Treaty. 7. Resolution of the EP from October 12, 1988. 8. Decision of the Council from June 9, 1989. 9. For this categorization, see Grabitz et al., p. 75. 10. The budgetary powers of the EP are described in Daniel Strasser, Die Finanzen Europas, 2d ed. (Brussels, 1982). 11. See Article 149 (2) of the revised EEC Treaty. 12. Articles 237 and 238 of the EEC Treaty. 13. The EP used its new power in the March 1988 session, when it refused to give its assent for political reasons to three protocols to the association treaty with Israel. 14. The EP's resolutions on those reports were adapted in July 1981 and are documented in the Selection of Text of the EP's Committee on Institutional Affairs (Luxembourg, 1982) pp. 4 3 3 ^ 5 7 . 15. See Bulletin of the EC (February 1984). 16. In March/April 1990, 52 percent of the EC citizens answered positively to the question, "Have you recently seen or heard in the papers, or on the radio or TV, anything about the European Parliament?" See Commission of the EC, Eurobarometer 2, No. 33 (June 1990), p. 108. 17. Ibid., p. 133, Tableau B l l . 18. Eurobarometer, No. 20, Table 26. 19. The number of petitions went up from 13 in 1975 to 57 in 1979 and 229 in 1985. But it should be mentioned that the German Bundestag received in the period 1976-1980 48,846 petitions! 20. Eurobarometer 2, No. 33, p. 108. 21. See Norbert Gresch, Transnationale Parteienzusammenarbeit in der EG ( B a d e n - B a d e n : N o m o s Verlagsgesellschaft, 1978); Oskar N i e d e r m a y e r , Europäische Parteien? Zur grenzüberschreitenden Interaktion politischer Parteien im Rahmen der EG (Frankfurt: Nomos Verlagsgesellschaft, 1983). 22. Klaus Pohle, "Relations Between the European Parliament and National Parliaments" in R. Hrbek et al. (eds.), Parlement Européen: Bilan—Perspectives 1979-1984 (Bruges, 1984), pp. 508-517.

5 The European Court of Justice: Recent Developments Alain Van Hamme

Ever since 1951, with the foundation of the European Coal and Steel Community, the specific role of the Court of Justice as one of the four institutions of the evolving Communities has remained unchanged despite successive Community enlargements and numerous amendments to the treaties, including the recent establishment, pursuant to the Single European Act, of the new Court of First Instance. By virtue of Article 164 of the EEC Treaty, it is the Court's task to ensure that the law is observed in the interpretation and application of the Treaty.1 Setting aside this aspect of continuity, it is true that during the 1960s and 1970s, the Court actively worked to establish the Community legal order as a new, autonomous legal order to be distinguished from the national legal orders but at the same time prevailing over them. Whenever possible, the Court has, moreover, always advocated the direct effect of Community law as a guarantee for its uniform application throughout the Community. Following this initial period of legal activism, the Court's emphasis then shifted toward the consolidation and refinement of the actual content of the different areas of Community law. More recently, the Court has concerned itself with securing the effectiveness of citizens' rights under Community law. A quantitative analysis of the Court's work shows that each year roughly 400 new cases are brought before the Court, whereas it renders approximately 250 judgments annually. This increasing workload together with the concomitant lengthening of proceedings constituted one of the underlying reasons for the establishment of the new Court of First Instance, which began its judicial activities on November 1, 1989. Apart from this major development, which has affected the structure of the Court, this survey will concentrate on new developments in the case law of the Court and, to a far lesser extent, of the Court of First Instance between January 1, 1989, and October 1, 1990. Because of their limited relevance, cases concerning the common agricultural policy and staff cases are not covered, although they do make up the bread and butter of the Court's work.

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It should be pointed out that this review does not attempt to be comprehensive; it should rather be looked upon as a selection of the most significant rulings.

The Establishment of a New Court of First Instance From 1974, numerous proposals were tabled by the Court of Justice itself, the Commission, and other bodies to set up an additional judicial body to alleviate the increasing workload of the Court of Justice. 2 Eventually, the idea of a new court was accepted during the negotiations for the Single European Act (SEA), although the Court of First Instance was not established by the SEA itself. Articles 4, 11, and 26 of the SEA have a more limited scope: with respect to each of the three founding treaties, they empower the Council to set up a new court at a later stage and, by the same token, they determine the essential points regarding its future composition, jurisdiction, and procedure. In accordance with these SEA provisions, the Court of First Instance was established by Council Decision 88/591 of October 24, 1988 (hereinafter referred to as the Decision), mainly on the basis of the formal proposals of the Court of Justice as amended during the legislative process. 3 The introduction to the Decision clearly shows that the establishment of a new Court should improve the judicial protection of individual interests especially with respect to actions requiring close examination of complex facts. As is clear from Article 1 of the Decision, the new Court is by no means a new Community institution but is attached to the Court of Justice in Luxembourg. This structural link is further emphasized by the fact that, apart from the registry and the personal staff of its individual members, the new Court does not dispose of a separate administration but can share the use of existing staff services with the Court of Justice. Composition The Court of First Instance consists of twelve members appointed for a term of six years by common accord of the governments of the member states. Membership shall be partially renewed every three years. Although not specified in the SEA or in the Decision, it is understood that each member state is entitled to propose the appointment of one member in the new court. Article 2 of the Decision entitles the members of the new Court to elect their president from among their number for a renewable term of three years. However, pursuant to Article 11 of the Decision, the first president of the new Court, José Luis da Cruz Vila?a, has been appointed by common accord of the governments. 4 Article 2(1) of the Decision refers to members without making a

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distinction between judges and advocates general. As far as advocates general are concerned, the Council has adopted a compromise between their total absence, as proposed by the Court of Justice, and their inclusion in addition to the judges, as suggested by the Parliament. 5 Article 2(3) of the Decision thus provides that in certain cases brought before the new Court, its members may be called upon to perform the task of an advocate general, which is then defined in the same way as in Article 166 of the EEC Treaty. The criteria for the selection of such cases, as well as the procedures for designating the advocates general, shall be laid down in the Rules of Procedure of the new Court. In contrast to the Court of Justice, which, as a rule, sits in the plenary session, the new Court sits in chambers of three or five judges and it is only in certain cases, again governed by the Rules of Procedure, that it may sit in the plenary session. Following its establishment, the new Court sets up two chambers of five judges and three chambers each composed of three judges whereby each member of the Court, except the president, sits both in a chamber of five and as one of three judges. jurisdiction

and

Appeals

Article 3 of the Decision sets out the types of proceedings in which the new Court has authority to exercise at First instance the jurisdiction initially conferred upon the Court of Justice. These are as follows: 1. 2. 3. 4.

Staff cases EEC competition cases Certain coal and steel cases Actions for the compensation of damage caused by a Community institution where such actions are linked with actions brought in the aforementioned areas

A further restriction arises from the fact that the new Court can only hear the aforementioned cases when a natural or legal person acts as plaintiff against an institution of the Communities. This means that the Court of Justice retains jurisdiction to hear cases in the same areas where the plaintiff is either a member state or a Community institution. Similarly, it should be noted that the new Court is not competent to decide upon applications for a preliminary ruling under Article 177 of the Treaty in any area whatsoever. Article 3(3) of the Decision provides that following the first two years of operation of the new Court, the Council may decide, "in the light of experience, including the development of jurisprudence," to give the new Court competence to exercise jurisdiction in antidumping and subsidy cases when they have been initiated by a natural or legal person against an institution of the Communities. As explained in the introductory part of the

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Decision, all of these matters have a common factor in that they require a close examination of complex facts. This limited scope of jurisdiction means that it is not correct to refer to the new Court as the first tier of a two-tier judicial system. 6 Articles 4, 11, and 26 of the SEA provide that the decisions of the Court of First Instance are "subject to a right of appeal to the Court of Justice on points of law only and in accordance with the conditions laid down in the Statute." The relevant articles of the statute of the Court of Justice annexed to each of the three Community treaties, which have been modified or introduced by Articles 7 to 10 of the Decision, state that such appeals on a point of law are available on grounds of lack of competence of the new Court, infringement of Community law by the new Court, or breach of procedure before it. According to the new Article 49 of the Statute, an appeal must be brought before the Court of Justice within two months of the notification of the decision appealed against. 7 It is interesting to note that, except in cases relating to disputes between the Community and its servants, an appeal may also be brought by member states and Community institutions even if they did not intervene in the proceedings before the Court of First Instance. The new Article 54 of the Statute provides that if the appeal is well founded, the Court of Justice shall quash the decision of the Court of First Instance. In that event, it may, itself, give final judgment in the matter where the state of proceedings so permits or refer the case back to the Court of First Instance for judgment. In the event of an appeal brought by a member state or a Community institution that has not intervened in the proceedings before the Court of First Instance, the Court of Justice may decide which of the effects of the decision of the Court of First Instance shall be considered as definitive insofar as the parties to the case are concerned. Procedure The SEA lays down the general principle that the new Court is entitled to establish its own Rules of Procedure in agreement with the Court of Justice and subject to the unanimous approval of the Council. Article 11 of the Decision further specifies that the new Court shall adopt its Rules of Procedure immediately upon its constitution. However, in order to avoid any delay in the commencement of the new Court's activities, the same Article adds that "until the entry into force of the new Rules of Procedure, the Rules of Procedure of the Court of Justice shall apply mutatis mutandis." It should be noted that the Decision has also added a new Title IV to the Protocol on the Statute of the Court of Justice, annexed to each of the three treaties. A cross-reference in this new Title IV is intended to make the existing Title III of the Statute dealing with procedural matters also

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applicable to the proceedings before the new Court. Obviously, the provisions of Title III regarding the procedure to be followed in case of an application for a preliminary ruling are not included in this reference. Acting swiftly, the new Court had already finalized draft Rules of Procedure in agreement with the Court of Justice by March 1990 and these draft Rules have been submitted to the Council for approval. Formal approval is expected by m id-1991. 8

State of

Activities

The new Court started its judicial activities in November 1989 when the Court of Justice transferred 153 pending cases for further proceedings and judgment. During its first judicial year, the new Court disposed of 44 cases, and 48 new cases were lodged. Staff cases represent almost half of the new Court's caseload. The new Court started its second judicial year with 160 cases pending.

Analysis of Recent Case Law, 1989-1990 Institutional Developments: Parliament's Right to Bring an Action for Annulment Before the Court of ]ustice Under the Single European Act, the Parliament's role in the Community's legislative progress has been upgraded, inter alia, through the introduction of the cooperation procedure.9 These innovations, brought about by the Single European Act, relate to the Parliament's political role: the Parliament's opinions are no longer purely advisory and hence nonbinding. But this increase in the Parliament's political importance had left unaffected the Parliament's legal position when it comes to proceedings before the Court. In particular, recent developments have focused on the Parliament's rights in case of judicial review of Community legislation under Article 173 of the EEC Treaty. Such judicial review is crucial for a Community based on the rule of law "in as much as neither its Member-States nor its Institutions can avoid a review of the question whether the measures adopted by them are in conformity with the basic constitutional charter, the Treaty." 10 The very wording of Article 173 of the EEC Treaty, however, seems to exclude the Parliament from any right to challenge the legality of acts adopted by the Commission or the Council. But then again, Article 173 was drafted at a time when the Parliament's opinions had no binding value whatsoever, which may have called for judicial protection. It is on this very point that the Court's case law has clearly supplemented the silence and the outdated character of the Treaty. The first step in this evolution occurred with the Court's judgments of October 29, 1980 (Cases 138 and 139/79, Roquette Frères v. Council and Maizena GmbH

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v. Council, respectively), where it held that the Parliament might intervene in annulment proceedings under Article 173 in spite of the Council's objection that it was seeking to use the intervention procedure to circumvent its apparent lack of direct access under that Article.11 A further stage was reached when the Court decided on May 22, 1985 (Case 13/83, Parliament v. Council), that the Parliament was entitled to bring actions under Article 175 of the EEC Treaty in instances where the Council or the Commission failed to act as required by the Treaty. 12 It is true that Article 175 differs from Article 173 of the Treaty in that its more openended wording allows for such actions to be brought by the Parliament; hence, the Court did not have to go beyond a literal application of this provision. With respect to Article 173, the Court took yet another step on April 23, 1986 (Case 294/83, Parti écologiste "Les Verts" v. European Parliament), when it ruled that acts adopted by the Parliament, insofar as they have legal effect vis-à-vis third parties, can be challenged before the Court, even though Parliament is not named as a possible defendant in Article 173.13 This last ruling called for a parallel evolution of the Parliament's right to act as plaintiff in annulment proceedings under Article 173. In its first judgment on this question dated September 27, 1988 (Case 302/87, Parliament v. Council), the Court dismissed the Parliament's claim. 14 Almost two years later, on May 22, 1990, the Court reversed its position in Case 70/88, Parliament v. Council. Setting aside a literal reading of Article 173, the Court referred to its overall task to maintain the institutional balance between the prerogatives of the Community institutions and, hence, to ensure that the Parliament could not be deprived of its own (increased) prerogatives without effective and readily available means of redress in Court. In accordance with this ruling, the Parliament is now entitled to act as plaintiff in annulment proceedings but only insofar as such proceedings are intended to secure its own interests or prerogatives and insofar as the grounds invoked for annulment pertain to an alleged breach thereof. General

Principles

Fundamental human rights. During 1989 and 1990 the Court again emphasized that the Convention for the Protection of Human Rights and Fundamental Freedoms dated November 4, 1950, is of particular importance in the protection of fundamental rights, which forms an integral part of the general principles of Community law. It is worth mentioning here that in its recent rulings in competition cases, the Court has confirmed that, in its application of Articles 85 and 86 of the EEC Treaty, the Commission must comply with these principles and, more specifically, with the rights of the defense, even if this might hamper

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the overall effectiveness of its administrative proceedings initiated against undertakings under investigation. Bundestreue. Article 5 of the Treaty requires that member states take all appropriate measures to ensure the fulfillment of their obligations arising out of the Treaty and to abstain from any measure that could jeopardize the attainment of the objectives of the Treaty. Until recently, this general principle, appearing at the beginning of the Treaty, was considered a statement of political obligation without further concrete implications for the member states. The latest case law of the Court has modified this perception. The Court has stressed that Article 5 of the Treaty obliges member states to go beyond the mere application of Community legislation by taking whatever national measures are necessary to ensure its effectiveness. In this regard, many scholars have noted that Article 5 expresses an indispensable element of federal commitment existing between the Community, its institutions, and the member states. For example, in its judgment of September 21, 1989 (Case 68/88, Commission v. Greece), the Court found Greece guilty of infringement under Article 169 of the EEC Treaty for failure to impose the Community levies on certain consignments of maize imported from Yugoslavia and for failure to pay these levies into the Community budget as required by the relevant regulation on the common organization of the market in cereals. However, pursuant to a submission from the Commission, the Court added that by failing to institute criminal or disciplinary proceedings against the persons who took part in the fraud, Greece had also failed to fulfill its obligations under Article 5. The prohibition of any discrimination based on grounds of nationality (Article 7 of the Treaty). In its judgment of February 2, 1989 (Case 186/87, Cowan v. Le Trésor public), the Court further expanded the scope of Article 7 of the Treaty. Article 7 prohibits any discrimination based on grounds of nationality between EC nationals.15 Ian W. Cowan, a British national, was mugged at the exit of a metro station in Paris, where he was on vacation. Under French criminal law, the victims of assault are entitled to claim, before a special commission linked to the judiciary, state compensation for damages incurred. In this instance it was held that the victim was not entitled to state compensation because he neither held a residence permit nor was he a national of a country with which France had concluded a reciprocity agreement. For his part. Cowan pleaded that this denial of compensation constituted an unjustified discrimination vis-à-vis nationals of a Community member state. The French commission then referred the matter to the Court of Justice for a preliminary ruling under Article 177.

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While discrimination on grounds of nationality was obvious, it was not clear how the subject matter of the French legislation at stake could be brought within the field of application, ratione materiae, of the Treaty that deals with economic integration and not with the civil compensation of criminal behavior. The Court's reasoning, however, focused on the fact that Cowan traveled to France as a tourist and was therefore a recipient of services that indeed fall within the scope of Article 59 of the Treaty. Hence, the Court held that, ratione personae, Cowan could invoke Article 7 of the Treaty to obtain compensation for the damage suffered on the basis that a French national injured in similar circumstances would have been so entitled under the said Article 7. As D. Curtin puts it, "The Court has highlighted in its Cowan Judgment the strength of the weapon Article 7 may potentially offer to victims of discrimination provided, of course, that their situation may be fitted ratione materiae or ratione personae within the scope of application of Community Law. Basically, since Cowan, anyone receiving a service thereby participates in an economic activity and can claim Community Law rights." 16 between community law and national law. T h e The relationship Court has established that individuals may rely directly upon Community law to set aside conflicting provisions of national law (direct effect). By the same token, the Court's case law has emphasized that Community law prevails over national law. Through the years, the Court has refined these basic principles of Community law with a view to achieving the widest possible application thereof. In a preliminary ruling of June 19, 1990 (Case 213/89, Regina v. Secretary of State for Transport, ex parte Factortame Limited and others), the Court answered a question referred by the House of Lords regarding the 1988 reform of the British Merchant Shipping Act, which dated back to 1894. In proceedings before British courts, a number of shipping companies had held that these reforms, clearly intended to tighten up registration requirements for British fishing vessels, infringed Articles 7, 52, and 221 of the Treaty. The Commission held the same position and had accordingly initiated proceedings against the United Kingdom under Article 169 of the Treaty. Awaiting the outcome of these infringement proceedings, British courts and finally the House of Lords were faced with the question of whether Community Law empowered national courts to order interim relief so as to suspend the application of the disputed national legislation, even if under national law such interim relief would certainly not be available. Under common law rules, it is indeed held that no interim measure may be granted against the Crown, that is to say, the government, to suspend the application of acts of parliament.

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Notwithstanding this rule, the Court's answer first emphasized that any provision of a national legal system and any l e g i s l a t i v e , administrative or judicial practice which might impair the effectiveness of Community law by withholding from the National Court the power to do everything necessary at the moment of its application to set aside national legislative provisions which might prevent, even temporarily, Community rules from having full force and effect are incompatible with those requirements, which are the very essence of Community law. 1 7

Referring to the House's very question, the Court then held that the effectiveness of the system established by Article 177 of the Treaty would be impaired "if a national court, having stayed proceedings pending the reply by the Court of Justice to the question referred to it for a preliminary ruling, were not able to grant interim relief until it delivered its judgment following the reply given by the Court of Justice." Hence, the Court replied that under such circumstances interim relief must be available. During the period under review, the Court has moreover rendered two judgments that encompass an interesting development with respect to the direct effect of directives. In a first judgment of June 22, 1989 (Case 103/88, Fratelli Costanzo v. City of Milan), the Court ruled that "when individuals are entitled to invoke the provisions of a Directive before a National Court this derives from the fact that all authorities of the Member-States are bound to abide by such provisions." Hence, the Court emphasized that the direct effect of directives cannot only be relied upon before national courts but also before all public authorities, provided, of course, that all requirements for such direct effect are available. Moreover, under the Treaty as construed by the Court, all public authorities are under an obligation to set aside—of their own motion—all national provisions that conflict with directives capable of direct effect. In a subsequent judgment of July 12, 1990 (Case 188/89, Foster e.a. v. British Gas p.I.e.), the Court made it clear that the directly applicable provisions of the Council directive of February 9, 1976, on the principle of equal treatment for men and women regarding access to employment, vocational training, promotion, and working conditions could "be relied upon in a claim for damages" against British Gas p.l.c. Although it is not at first sight obvious that the British Gas Company qualifies as a public authority, the Court emphasized that this last concept should be broadly construed so as to include "a body, whatever its legal form, which has been made responsible, pursuant to a measure adopted by the State, for providing a public service under the control of the State and has for that purpose special powers beyond those which result from the normal rules applicable in relations between individuals." The result is that through this extensive interpretation of the concept of

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public authority, the Court has broadened the grip of directly applicable directives and has greatly enhanced the effectiveness of the benefits that individuals may derive from such directives in case of conflicting national rules. The Free Movement

of

Workers

Article 48(2) of the Treaty provides that the free movement of workers entails the abolition of any discrimination based on nationality between workers of the member states as regards employment, remuneration, and other conditions of employment. In its judgment of May 30, 1989 (Case 33/88, Allue and Coonan v. Università degli studi di Venezia), the Court examined a claim brought by two lecturers in foreign languages employed by Italian universities. Their claim questioned the fact that, under Italian law, foreign language lecturers are hired by means of one-year employment contracts that can, indeed, be renewed but only up to a maximum period of five years. In principle, Italian law does not impose such limitations with respect to the term of employment of other workers. It should be pointed out that, although the said limitation applies irrespective of any nationality requirement with respect to foreign language lecturers, only 25 percent of these lecturers are actually Italian. With this last element in mind, the Court held that said limitation had the effect of a disguised form of discrimination based on nationality even if, at first sight, the distinction was made on apparently objective grounds. In its Preliminary Ruling of May 31, 1989 (Case 344/87, Bettray v. Staats-secretaris voor Justitie), the Court refined its interpretation of the term workers used in Article 48 of the Treaty. To summarize briefly, the Court excluded persons employed in Dutch sheltered work premises for former drug users from the scope of application ratione personae of Article 48 of the Treaty. The Court considered that such "employment" was primarily geared toward re-education or rehabilitation and that the persons concerned did not engage in real economic activities. It should be kept in mind, however, that the Court analyzed the actual situation resulting from the application of the Dutch social employment legislation with due care and detail; indirectly, it thus confirmed that the exceptions to Article 48 should be strictly construed. In this last respect, the Court's ruling of November 28, 1989 (Case 379/87, Groener v. The Minister for Education and the City of Dublin Vocational Education Committee), seems somehow surprising. In this judgment, the Court held that the Irish authorities were entitled "to impose proficiency in Irish as a requirement for employment in a permanent full-time post of lecturer in public vocational education institutes, provided that this requirement is imposed as part of a policy for the promotion of the national

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language . . . and provided that said requirement is applied in a proportionate and non-discriminatory way." T h e C o u r t ' s attitude may be explained by referring to the endangered situation o f the Irish language as the first official language in the Republic o f Ireland. T h e very restrictive wording o f the judgment shows that it would surely not be appropriate to extrapolate this ruling to other situations. Hence, this judgment appears, somehow, as a curiosity.

Freedom

to Provide

Services

T h e Court's judgment in the Cowan

case, previously discussed, has clearly

established that the prohibition on restricting the freedom to provide services applies not only to those offering services, but also to those traveling throughout the C o m m u n i t y

in order to benefit from these

services.

Obviously, this very welcome clarification expanded the scope o f application o f both Articles 7 and 5 9 o f the Treaty. A subsequent j u d g m e n t o f M a r c h 2 7 ,

Portuguesa

Limitada

1990 (Case

v. Office National d'Immigration

113/89,

Rush

[ONI]), sheds an

interesting light on both the scope but also on the limits to be complied with in the application o f Article 5 9 . Rush Portuguesa is an organization engaged in construction and public works established in Portugal. It subcontracted with a French organization to carry out works for the construction o f a railway line in western France. T o that effect, Rush wished to take its own Portuguese employees to France. According to French labor legislation, however, only the Office National de l ' l m m i g r a t i o n ( O N I ) was entitled to recruit nationals from n o n m e m b e r countries to work in France. Apart from the questions arising out o f Portugal's recent Community m e m b e r s h i p , in particular the derogations from the principle o f free m o v e m e n t for workers provided for in Articles 2 1 5 and 7 7 o f the Act o f A c c e s s i o n , the Court held that Articles 5 9 and 6 0 o f the Treaty preclude a m e m b e r state from prohibiting a provider o f services established in another m e m b e r state from freely traveling within its territory with the whole o f its staff, or from m a k i n g the movement o f the staff in question subject to restrictive c o n d i t i o n s such as a requirement to carry out on-the-spot recruitment or to obtain work permits. In fact, to impose such conditions on providers o f services o f other member states is to discriminate against them in relation to their competitors established in the host country, who can avail t h e m s e l v e s o f their own staff and thereby affect the visiting provider's capacity to provide the services. During the proceedings the French government quite rightly warned that one should take care that the unhampered freedom to provide services does not allow principals established in one member state to require subcontractors from another m e m b e r state to bring along their own staff in order to escape

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the application o f mandatory labor law and social security provisions that apply in the principal's member state (work-force shopping). In answer to these questions, the Court held that Community law did not preclude member states from extending their legislation or collective bargaining agreements concluded by labor and employers to any person carrying on salaried employment, even of a temporary nature, on their territory, whatever the country in which the employer is established. Community law does not prohibit member states from requiring observance of these rules by appropriate means. Social

Polio/:

The

Prohibition

of Sex

Discrimination

In a series o f recent cases the Court has had the opportunity to stress the overriding importance o f Article 119 of the Treaty, which provides for equal pay without discrimination based on sex. Within the meaning o f the second paragraph o f Article 199, the Court has adhered to a very broad interpretation of what "equal pay" entails. T h e Court's judgment o f July 13, 1989 (Case 171/88, Rinner Kuhn v. FWW Spezial-Gebaiidereinigung GmbH & Co. KG), condemned the national rules that enable employers to exclude part-time workers from the benefit of continuation of pay during illness. It held that such exclusion was contrary to Article 119 of the Treaty, as it affected a great number o f women, unless it could be shown that such provisions were based on objectively justified factors unrelated to any discrimination on grounds of sex. A second judgment in this area dated May 17, 1990 (Case 2 6 2 / 8 8 , Barber v. Guardian Royal Exchange Assurance Group), received wide coverage in the press, mainly because it dealt with a situation in which a man claimed the benefit of the direct effect of Article 119 of the Treaty because he alleged to have been discriminated against vis-à-vis women in a like situation. In particular, the late Douglas Barber—who died during the proceedings before the English courts—had pointed out that under his former employer's pension scheme, a woman of age fifty-two would be entitled to an immediate retirement pension if made compulsorily redundant whereas, in similar circumstances, a man o f the same age would be only entitled to a deferred pension, giving rise to a case o f unequal treatment. One may add that this difference results from the application of an age requirement that varies according to gender when setting the retirement age. Following a careful analysis o f the relevant pension schemes, redundancy pay arrangements, and social security benefits, the Court held that a pension paid under a contracted-out scheme constituted consideration paid by an employer to workers in respect o f their employment. Hence, the requirements o f Article 1 1 9 applied. T h e Court allowed, however, that such a far-reaching interpretation o f Article 119 o f the Treaty might call into question numerous

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well-established legal situations and might therefore upset retroactively many pension schemes. Further to observations made by the Commission, the Court agreed to limit the effects of its Barber judgment ratione temporis. Referring to its judgment of April 8, 1976, in the Defrenne case (Case 13/75, Gabrielle Defrenne v. Sabena, ECR [1976]), the Court ruled that the direct effect of Article 119 of the Treaty may not be relied upon in order to claim entitlement to a pension, effective from a date prior to that of the aforementioned judgment, except in the case of workers, or those claiming under them, who, prior to that date, had initiated legal proceedings or raised an equivalent claim under the applicable national law. 18 Free Movement

of Goods

The new Article 8A of the Treaty, introduced by the Single European Act, confirms that the free movement of goods is one of the cornerstones of the internal market. Under Articles 30 et seq. of the Treaty, free trade is based on the absence of quantitative restrictions (quotas) on imports or exports or of any measures having equivalent effect. Articles 30 et seq. apply both to goods originating in the member states and to goods previously imported from non-EC countries. Further to the Court's interpretation in the wellknown Dassonville-Cassis de Dijon judgment, a measure having an equivalent effect to a quantitative restriction means any measure, whether a law or regulation, administrative practice, or act of or attributable to a public authority that is capable of hindering, directly or indirectly, actually or potentially, intra-Community trade. 19 Such measures may discriminate between domestic and imported or exported products (open discrimination) or alternatively, they may apply to domestic and imported products alike (disguised discrimination). As to the first category of measures, member states are entitled to maintain in force or to introduce prohibitions or restrictions only in the following areas: imports, exports, or goods in transit; on grounds of public morality, public policy, or public security; the protection of the health and life of humans, animals, or plants; the protection of national treasures having artistic, historic, or archeological value; or the protection of industrial and commercial property, provided that the prohibitions or restrictions do not constitute a means of arbitrary discrimination or a disguised restriction on trade between member states (Article 36). The Court has consistently held that these restrictions to the free movement of goods should be construed very strictly. A s regards the second category of measures, equally applicable to domestic and imported products, the Court held that such exceptions to the free movement of goods can be justified only if they are shown to safeguard an essential requirement of public interest, such as consumer protection or

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the p r o t e c t i o n of the environment. Such m e a s u r e s m a y e n c o m p a s s regulations presenting technical requirements, quality standards, or testing and type-approval procedures that have to be satisfied by any product, domestic or imported, put on sale on the domestic market. However, the Court has always insisted on a restrictive interpretation with regard to this second exception to the free movement of goods. Such regulations are contrary to Article 30 if their trade-restricting effect is disproportionate to the essential requirement of the public interest that they are intended to safeguard. In its most recent judgments, the Court has, m o r e o v e r , examined whether the essential requirement of public interest at stake in the relevant national legislation can be reconciled with existing Community law principles. Hence, the Court recognized in its j u d g m e n t of N o v e m b e r 23, 1989 (Case 145/89, Torfaen Borough Council v. B & Q, pic), "that national rules regarding the opening hours of retail premises reflected certain political and economic choices which, in the present state of Community law, were a matter for the Member-States." The Court has, m o r e o v e r , consistently emphasized that, in general, m e m b e r states must recognize other member states' quality standards, composition rules, and national testing and certification procedures, among other things. It is along these lines that the Court of Justice has developed a consistent case law. In its white paper on the achievement of the internal market (1985), the C o m m i s s i o n expressly acknowledged the utmost importance of this case law where it justifies its new approach to the harmonization of technical rules. 20 Shifting away from its earlier attempts to achieve full harmonization of technical and other standards, the Commission now e m p h a s i z e s the principle of mutual recognition of goods lawfully manufactured and marketed in any member state provided that essential requirements, such as those discussed previously, are met in any member state. During the two years of review, the Court has confirmed and refined the key elements of its case law regarding Articles 30-36 of the Treaty in nearly thirty judgments. Within the limits of this contribution, it is not possible to go into detail with respect to the specific situation covered in each of these judgments. Taxation Without going into a detailed analysis of the judgments given in this area, it is worth pointing out that the Court has refined its interpretation of the value-added tax (VAT) directives so as to ensure that transborder transactions are not unduly hampered. It is obvious that the long-awaited V A T reform advocated by the Commission in its white paper will overhaul the existing system.

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Competition Together with the Common Agricultural Policy, competition policy is presently the only area in which the Commission is entrusted with first-hand responsibility for the implementation of the Treaty provisions, in particular Articles 85 and 86. Over the years, both the decisions of the Commission and the case law of the Court have shaped a consistent and detailed body of rules aimed at achieving a Community-wide system of undistorted competition, so as to serve the interests of the general public, consumers, and particular undertakings involved in intra-Community trade. As mentioned earlier, the new Court of First Instance has now been given jurisdiction to hear competition cases brought by natural or legal persons. One of its first judgments in competition matters—Case T-51/89, Tetra Pak v. Commission—will be discussed together with some of the major judgments rendered by the Court of Justice. Territorial application of Articles 85 and 86. Although the Court's judgment in the case on woodpulp was delivered on September 27, 1988, it needs to be included in this review because it has confirmed the territorial application of the Community competition rules. 21 In the woodpulp case a number of applicants, all established outside the Community, had allegedly entered into a series of agreements and concerted practices to determine prices to be charged to customers established within the Community for the resale of woodpulp. In their first submission before the Court they contended that it would be contrary to public international law if Community competition rules were to regulate anticompetitive conduct adopted outside the territory of the Community merely by reason of the economic repercussions that that conduct produces within the Community. Rejecting this argument, the Court held that where restrictive agreements or concerted practices have the effect of distorting competition within the Common Market, they should come within the competition rules of the Community, even where these restrictive arrangements are concluded outside the Community by organizations without branches, subsidiaries, or agents in the Community. Moreover, the Court held that this affects doctrine complied with the territoriality principle universally recognized in public international law. Effect on intra-Community trade. Anticompetitive behavior will only come within the scope of Articles 85 and 86 where it affects trade between member states. The Court has clarified that there is no requirement necessitating that anticompetitive arrangements involve enterprises from different member states; even anticompetitive arrangements that, for instance, organize the marketing of products within the entire territory of one member state may affect intra-Community trade and, hence, come within the ambit of Community antitrust rules.

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In its judgment of July 11, 1989 (Case 246/86, Belasco v. Commission), the Court has given a clear example of such a possibility. In this instance almost all Belgian producers of bitumen products had entered into an agreement that was purported to set prices within Belgium. At the same time, the arrangement contained measures for the protection of the Belgian market against imports from other member states. The Court took up this issue and pointed out that when a market is open to imports from other member states, any anticompetitive arrangement will necessarily encompass measures against imports, once the arrangement is designed to protect market share. The impact of fundamental human rights on EC antitrust. As has already been mentioned, the Court has included the protection of fundamental human rights as one of its tasks under Article 164 of the Treaty. During the period under review, the Court has taken on at least two opportunities to show that this protection may limit the Commission's powers of investigation in antitrust cases. In two judgments of October 18, 1989 (Cases 27/87 Solvay v. Commission and 374/87, Orkem v. Commission), the Court upheld the rights of organizations during the period when the Commission is in the process of investigating their conduct through questionnaires. Indeed, under Article 11 of Regulation 17/62, the Commission can address requests for information to organizations suspected of anticompetitive collusion. In these cases, the Court ruled that under EEC competition rules, organizations under investigation by the Commission have no right of silence; they have a duty to answer questions put to them by the Commission. The Court added, however, that it would be contrary to the rights of the defense to allow the Commission to oblige organizations to answer questions incriminating them of infringements that the Commission had yet to establish. Hence, the Court of Justice quashed that part of the Commission's questionnaire. In general, it is possible to say that the Court is willing to confirm the validity of questions aimed at the discovery of factual elements, but not of questions designed to establish the anticompetitive purpose of meetings or of other behavior. In a second series of judgments dated September 21 and October 17, 1989 (joined Cases 97, 98, and 99/87, Dow Chemical v. Commission-, joined Cases 46/87 and 227/88, Hoechst v. Commission, and Case 85/87, Dow Benelux), the Court focused on the limits imposed on the Commission during the inspection of premises of organizations under investigation. On the one hand, the Court admits that the efficiency of the Commission's task in ensuring workable competition throughout the

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Common Market may very often depend on information obtained during—the sometimes unannounced—inspections of the premises of organizations under scrutiny. Hence, the Court accepts that the Commission's powers to conduct inspections provided for in Article 14 of Regulation 17/62 should not be unduly restricted. The Court stresses, on the other hand, that all legal systems seem to protect the premises where physical or legal persons conduct their private activities against undue intervention by public authorities. Hence, such searches of premises must have a basis in law and cannot lead to arbitrary conduct or conduct that would be out of proportion with the objectives of the search. More precisely, the Court has asked that the Commission comply with the formal requirements provided for under national law before ordering any inspection of the premises of organizations under investigation against their will. It must be added, however, that the national authorities are not entitled to question the findings of the Commission; they can only impose compliance with prescriptions relating to the form of the inspection. Competition rules and air transport. In its judgment of April 11, 1989 (Case 66/86, Ahmed Saeed Flugreisen, Silver Line Reisebiiro GmbH Zenrraie zur Bekampfung unlauteren Wettbewerbs EV), the Court examined, once again, price-fixing arrangements entered into by airline companies under Articles 85 and 86. The facts of the case in this preliminary ruling were as follows: two German travel agencies bought airline tickets outside their country and resold these tickets in Germany at a price that was nearly 60 percent lower than the price approved by the German authorities. Such underpricing was contrary to German legislation, which imposes minimum prices approved by the German transport minister for air journeys with departure in Germany. In fact, the German ministry—as a rule—approved the prices agreed upon between airline companies. It should, moreover, be noted that it was only in 1987-1988 that the Council adopted adequate measures to implement Articles 85 and 86 in the field of air transport. Prior to that period, as the Court had pointed out in its so-called Asjes judgment of April 30, 1986, there was no basis for national courts to assess and/or condemn the legality of such pricing arrangements under EEC antitrust rules. 22 Given the existence of such implementing measures, the Court ruled in this instance that such tariff agreements between airlines, as far as intraCommunity flights are concerned, were void under Article 85(2). The Court accepted, however, that certain pricing arrangements may qualify for exemptions under Article 85(3), provided that the requirements set out in the implementing legislation are met. In this same judgment, the Court added that contrary to Article 85, Article 86 does not require any implementing legislation to prohibit any price-fixing arrangement that would merely reflect

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the d o m i n a n t position on the market at stake of one or more airline companies. Tetra Pak: The first judgment of the new court in competition matters. In its first judgment in competition matters, the new EC Court of First Instance has clarified the relationship between Articles 85 and 86 of the E E C Treaty. Tetra Pak, a Swiss-based company, held a dominant position in the Community for packaging ultra-high temperature (UHT) milk. In 1986 Tetra Pak acquired a US company called Liquipak and with it an exclusive license for a new technique of manufacturing and filling sterile cartons. Such exclusive license fell within the scope of application of the block exemption whereby certain exclusive licensing agreements are exempted from the application of the prohibition of anticompetitive agreements expressed in Article 85. In the decision, appealed before the new Court, the C o m m i s s i o n held that despite the existence of the block exemption, the acquisition of Liquipak by Tetra Pak amounted to an abuse of dominant position prohibited under Article 86 of the Treaty. In its judgment of July 10, 1990, the n e w Court confirmed the C o m m i s s i o n ' s decision and ruled that the existence of a block exemption does not preclude the application of Article 86. Looking at the specific behavior in question, the new Court noted that the mere acquisition of an exclusive license was not in itself an abuse for the purpose of Article 86. The decisive factor was Tetra P a k ' s position on the market coupled with the effect of its acquisition of the license, which, in a market characterized by high technical entry barriers, was to prevent or at least considerably delay the appearance of new competitors.

Conclusion In On the Road to European Union: A New Judicial Architecture, J.-P. Jacqu6 and J. Weiler have, quite correctly, pointed out that over the past decades no institution has played a more crucial role in the making of Europe than the European Court of Justice. 2 3 With the forthcoming intergovernmental c o n f e r e n c e s on monetary, economic, and political union, the Community has already entered into the post-SEA era. U p to now, however, a possible reform of the C o m m u n i t y ' s judicial architecture has not given rise to significant discussion or controversy. Yet, whatever may be the outcome of the conferences, it is crucial that the Court's role in directing the judicial evolution of Community law should be safeguarded and strengthened. This will be necessary to guarantee the balance between the different branches of the Community's institutional framework,

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which is bound to become even more complicated. But it is, moreover, essential to the Community's democratic appeal.

Notes The views expressed in this chapter are the author's own. 1. Unless otherwise stated, all references are to the E E C Treaty. 2. See the excellent contribution by T. Kennedy, "The Essential Minimum: T h e E s t a b l i s h m e n t of the Court of First Instance," E L R (1989), pp. 7 - 2 9 , for m o r e detailed information. 3. Official Journal of the European Community, No. L 319/1 of N o v e m b e r 25. 1988. 4. See Official Journal of the European Community, No. L 220/76 of July 29, 1989, for the appointment of the members and L 220/77 of the same date for the appointment of the president of the new court. 5. See K e n n e d y , op. cit., p. 23. 6. See statement by Judge D. Edward in R. Rice, "Europe Learns to Love Its C o u r t , " Financial Times (June 6, 1990). 7. References are, unless otherwise stated, to the EEC Statute. 8. T h e Draft Rules have been published in Official Journal of the European Community. 9. S e e A l a i n Van H a m m e , " T h e E u r o p e a n P a r l i a m e n t a n d the N e w Cooperation P r o c e d u r e , " Studia Diplomatica (1989), pp. 2 9 1 - 3 1 4 . 10. C a s e 294/83, Partie Ecologiste "Les Verts" v. European Parliament, E C R (1986), pp. 1 3 3 9 - 1 3 7 3 , esp. p. 1365. 11. C a s e s 138 and 139/79, respectively, Roquette Frères v. Council a n d Maizena GmbH v. Council, ECR (1980), pp. 3 3 3 3 - 3 3 9 1 and pp. 3 3 9 3 - 3 4 2 6 . 12. See E C R (1985), p. 1513. 13. See Case 294/83, Partie Ecologiste "Les Verts" v. European Parliament, E C R (1986), p. 1365. 14. See E C R (1988), p. 5606; see also opinion of Advocate General Darmon of M a y 26, 1988, E C R , p. 5627. 15. S e e D. Curtin, " S o m e R e f l e c t i o n s on E u r o p e a n C o m m u n i t y L a w in I r e l a n d , " Dublin University Law Journal (1989), pp. 2 2 4 - 2 2 5 , for a very clear analysis of the main points at stake in this decision. 16. Ibid., p. 225. 17. J u d g m e n t of M a r c h 9, 1970; C a s e 106/77, Administrazione delle Finanze dello Stato v. Simmenthal, SPA., E C R , 1970, pp. 6 2 9 - 6 5 7 . 18. J u d g m e n t of April 8, 1976, in Case 43/75, Defrenne v. Sabena, E C R (1976), p. 4 5 5 . 19. J u d g m e n t of the Court in Case 8/74, Procureur du Roi v. Dassonville, E C R (1974), pp. 8 3 7 - 8 6 5 . 20. C o m m i s s i o n of the E C , "Completing the Internal M a r k e t , " white paper f r o m the C o m m i s s i o n to the E u r o p e a n Council, Doc. N o . C B - 4 3 - 8 5 - 8 9 4 - E N - C ( L u x e m b o u r g : O f f i c e of Official Publications of the EC, June 1985), pp. 2 1 - 2 2 . 21. J u d g m e n t of the Court of September 27, 1988, in joined Cases 89, 104, 114, 116, 117, and 125 to 129/85, E C R (1988), pp. 5 1 9 3 - 5 2 4 7 . 22. J u d g m e n t of April 30, 1986, in joined Cases 209, 213/84, Asjes e.a., E C R (1986), p. 1457. 23. J.-P. J a c q u é and J. Weiler, On the Road to European Union—A New Judicial Architecture, p. 2.

ó Budgetary Policy in Transition Michael Shackleton

The budget o f the European Community has always been an important barometer of the direction in which the Community is moving, as well as o f the balance o f forces among the member states and among the Community institutions. 1 Throughout much o f the 1980s, constant quarrels over the budget reflected a wider and deeper disagreement over the goals of the EC. A measure of consensus as to the nature of those goals was reached when all the member states accepted the commitment to the creation of a single market by the end of 1992 and signed the Single European Act in February 1986. This opened the way to long but ultimately successful negotiations on the budgetary issue. At the extraordinary meeting of the European Council in Brussels in February 1 9 8 8 , the Heads o f State and Government accepted the main elements of the proposals for reform of the Community's finances presented by the Commission, known as the Delors package. 2 The transposition of the decisions taken at Brussels into Community law took some extra months of negotiation but by the summer of 1988 the process was complete. Strictly speaking, the process was not completed until all the member states had ratified the Council decision o f June 24 on the system of own resources in accordance with their respective constitutional requirements. This took until the end of the year. The expansion of the Community's resource base, the establishment o f a medium-term financial perspective on expenditure up to 1992, and the adoption of a series o f measures designed to improve the control and management o f Community expenditure, particularly in agriculture, together provided a new framework within which budgetary policy could be conducted. There was widespread agreement that the Brussels settlement marked a major turning point. The Commission, for example, argued that the recurrent crises o f the past were at an end: " T h e budgetary process has now been rationalized and the Community may calmly program its activities as 1992 a p p r o a c h e s . " 3 And there were good reasons for supposing that the

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Commission was right. Everyone had some reason to be satisfied with the outcome. Among the member states there was a trade-off between those who sought a substantial increase in expenditure, notably in the structural funds (which are to be doubled between 1987 and 1993), and those more concerned about reinforcing the mechanisms of budgetary discipline. Among the Community institutions a consensus on the way to manage the Brussels decisions was embodied in the interinstitutional agreement, with its accompanying financial perspective, which was signed by the Council, the Commission, and the Parliament in June 1988. 4 All appeared to accept and endorse the limits within which the budget could be expected to expand in the period up to the end of 1992 and the anticipated conclusion of the single market. It did not look as if the budget would be a major source of discussion again before the Commission presented its proposals for the reexamination of the system of own resources. The Commission is required to do this by the end of 1991. 5 However, the idea that the reopening of the debate on the shape of the budget could be held over until the end of 1991 proved ill founded. The unexpected collapse of communism in the autumn of 1989 served to begin a process that extended well beyond the issue of the level of budgetary provision for Eastern Europe. As the Community moved in the course of 1990 toward the convening of intergovernmental conferences on economic and monetary union and on political union, discussion on the budget spilled over into a wider arena covering not just other policy areas but also the balance of powers between the institutions. The interinstitutional agreement (IIA) in particular proved to be an arena for disputes rather than a mechanism for containing them. The ambiguity inherent in the agreement was recognized by some at an early stage. Already in 1988 the chairman of the budgets committee of the European Parliament, Jean-Pierre Cot, considered it to be based on a misunderstanding. 6 Within the space of seven months (December 1989 to June 1990) the agreement was revised twice, with a third revision completed before the end of 1990 to take account of German unification and the need to aid the countries most severely hit by the Gulf crisis. Thus the success of the Brussels settlement in integrating and limiting divergent conceptions of the role of the budget has turned out to be much more restricted in time than anyone had supposed.

The Sources of Conflict T h e origins of the renewed debate about the budget can be traced to the provisions of the interinstitutional agreement and the financial perspective attached to it. For the period 1988-1992, the perspective established a framework for Community spending, with the resources required rising each year to reach 1.2 percent of Community gross national product (GNP) in

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1992. It divided expenditure into six categories (agricultural guarantee spending, structural operations, policies with multiannual allocations, other policies, repayments and administration, and a monetary reserve for agriculture). For each category it laid down the maximum level of appropriations (expressed in 1988 prices) that could be entered in the course of the annual budgetary procedure. 7 To be more precise, the perspective established the level of commitment appropriations, i.e., amounts promised both for the current year and subsequent years. Payment appropriations, i.e., amounts to be found during the current year only, were not distinguished by category but set at a global level for each of the years covered by the perspective. Within this framework the budgetary authority of the Community (the Council and the Parliament together) could decide each year whether to set the budget at levels that reached the ceilings or not. As both sides committed themselves under Article 7 of the agreement to respect the annual ceilings for the period of the agreement, it looked as if the budgetary procedure would necessarily become a much less conflictual affair than it had been in the past, when there had been no serious medium-term planning of expenditure and an annual argument over the level of financing necessary for the Community. It was recognized at the outset that this framework would necessarily be subject to a certain degree of change. The fact that it was expressed in 1988 prices meant that the figures would have to be modified each year to account for inflation. For this reason Article 9 of the agreement gave the Commission the job of updating the perspective each year "ahead of the budgetary procedure for year t+1, making technical adjustments to the figures in line with movements in gross national product (GNP) and prices." The Commission was also given the task through Articles 10 and 11 of proposing adjustments where it proved difficult to implement appropriations in accordance with schedules laid down in the budget. Unused appropriations in year t could by this mechanism be "saved" and made available again in year t+2. Thus the agreement did provide for annual adjustment to take account of changing economic indicators in the Community and specific difficulties linked to the operation of Community spending itself. But what if the political priorities of the Community changed or unforeseen circumstances arose? Here too the agreement is not silent. It provides for the possibility of the Commission going beyond making adjustments and proposing a revision upon which the Council and the Parliament have to decide. Thus Article 12 of the agreement states: In addition to the regular technical adjustments and adjustments in line with the conditions for implementation, the financial perspective may be revised by a joint decision of the two arms of the budgetary authority, acting on a proposal from the C o m m i s s i o n . The joint decision will be taken in accordance with the majority rules specified in Article 2 0 3 ( 9 ) of the Treaty. The revision of the financial perspective may not raise the

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overall expenditure ceiling, as set by this perspective after the annual technical adjustment, above a margin for unforeseen expenditure of 0.03 percent of GNP. It must also respect the provisions of point 8 (relating to the balance between compulsory and non-compulsory expenditure) of this Inter-institutional Agreement.

The reason why this article became the center of debate in the second half of 1989 is that it leaves as much unsaid as it explicitly states. On the one hand, the procedure to be adopted for a revision of the financial perspective is reasonably clear. The Commission's task is to present a proposal and the job of the Council and the Parliament is to take a joint decision on that proposal. That decision has to be taken in accordance with the majority rules applicable in the normal budgetary procedure so that the Council decides by qualified majority and the Parliament with a vote of half its members, i.e., 260. The next article of the agreement makes it clear that if the two sides are unable to reach a joint decision, then the financial objectives already determined will remain applicable. In other words, both sides have a veto over unilateral action by the other. On the other hand, what the article does not do is to indicate when or under what circumstances the Commission should bring forward a proposal. This is in contrast to the two kinds of adjustments referred to previously. In both those cases the two arms of the budgetary authority are obliged to take decisions before May 1 of year t, in accordance with the same majority rules referred to previously. A proposal for revision is not subject to any deadline of this kind and hence assumes a very different character. The timing and content of such a proposal were to be central to the renewed quarrel between the two arms of the budgetary authority.

A First Revision of the Agreement In the first year following the signing of the agreement, the lack of precision did not pose a significant difficulty. The 1989 budget was agreed upon in December 1988 without fuss, and the technical adjustments to the financial perspective proposed by the Commission in the early part of 1989 were approved by the Council and the Parliament with minimal argument. This can be explained in part by the very short period of time that had elapsed since the agreement was signed, with all sides eager to underline their commitment to this innovation in Community practice. There is no doubt too that the approach of the third direct elections in June 1989 limited the attention that the Parliament could devote to the issue. However, the second half of 1989 opened up a fierce debate between the institutions as to when and under what circumstances the financial perspective could be revised. 8 This debate assumed the importance that it did because at the outset of the budgetary discussions for 1990 the Commission

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made it clear that it did not intend to present a proposal for revising the perspective in the course of the procedure, a position that was welcomed by the Council. 9 By itself this stance might have proved tenable but it became intertwined with decisions taken outside the budgetary arena. At the Western Economic Summit in Paris in July 1989, the Commission was invited to coordinate Western aid to Poland and Hungary. This was widely regarded as a major success for the Commission, which responded by establishing the socalled Poland and Hungary—Assistance for Economic Restructuring (PHARE) program. 10 But it inevitably raised the question of the contribution to be made out of the Community budget for the two countries concerned. At the end of September, the Commission responded to the calls that the budget should reflect its new responsibilities in relation to Poland and Hungary by presenting a letter of amendment to its preliminary draft. The Council accepted it as it stood, entering 200 million ECU in the general reserve, known as Chapter 100, for aid for the economic restructuring of Poland and Hungary. To do this it had recourse to a technical variety of deficit financing, designed to avoid increasing the overall level of expenditure: it compensated the 200 million ECU entry by a negative sum for the same amount in a newly created Chapter 103. The advantage of this mechanism for the Council and the Commission was that it held over until the 1990 budgetary year the elimination of the negative reserve and the revision of the financial perspective that would be necessary as a result. The Council for its part sought to allay the anticipated suspicions of the Parliament by underlining that the increase for Poland and Hungary would in no way prejudice the other areas of policy of interest to the Parliament in the fourth category of expenditure in the perspective, entitled "Other Policies.' This category contains all policies outside agriculture, the structural funds, and research and development and is therefore of major interest to the Parliament in its efforts to expand Community activity beyond these areas. The Parliament did not consider the response of the other two institutions adequate. It was observed that the financial regulation of the Community lays down that the negative reserve cannot exceed 200 million ECU. Hence the suspicion in the Parliament that the volume of aid was chosen to match the size of the reserve rather than perceived needs; hence also its own determination to go beyond 200 million ECU. At the first reading of the budget in late October, the Parliament rejected the use of a negative reserve, increased the level of aid to 300 million ECU, and invited the Commission to make the necessary proposal for a revision of the perspective. However, the objections of the Parliament went beyond the issue of aid to Eastern Europe. It adopted a much broader critique of the financial perspective and presented two particular arguments in favor of a revision. First, it took advantage of the fact that in Brussels in February 1988 it had been decided to link the size of the Community budget to the volume of

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Community GNP, with total expenditure permitted to rise to 1.2 percent of GNP in 1992. Thus it noted the growing gap between the level of own resources as a percentage of GNP envisaged for 1990 in the financial perspective (1.18 percent) and the level necessary to finance the budget as proposed by the Council (0.98 percent). In money terms this amounted to the not inconsiderable sum of 9 billion ECU. The reason for this gap was twofold: first, the European economy had expanded more quickly than anticipated; second, a combination of drought in the United States and a rise in the value of the dollar pushed the level of world prices up and thereby reduced dramatically the volume of appropriations necessary for agricultural guarantee expenditure. Under these favorable circumstances the Parliament argued that there was a good case not just for providing for aid for Eastern Europe but also for undertaking a more general revision of the perspective to strengthen other areas of policy. Second, it drew upon Article 16 of the Council decision on budgetary discipline," which makes a direct connection between the legislative and budgetary arenas. The article reads as follows: "The financial implementation of any Council Decision exceeding the budget appropriations available in the general budget or the appropriations provided for in the financial estimates may not take place until the budget and where appropriate, the financial estimates have been suitably amended according to the procedure laid down for each of these cases." The Parliament argued that in a number of areas the Council had indeed taken legislative decisions for which there was not adequate financial cover in the financial perspective and that therefore it was not only possible to revise the perspective but necessary in order to respect the Council's own decision on budgetary discipline. The Council for its part was not moved by these arguments. It considered that the GNP percentages were maxima that could be reached but did not need to be and that the decisions taken on new legislation could be accommodated within the perspective as it stood. Indeed the president in office of the Council went further and suggested that by introducing amendments at first reading that took the level of appropriations in category 4 of the perspective beyond the ceiling laid down, the Parliament was effectively breaking the interinstitutional agreement. 12 This claim did not serve to improve the atmosphere between the two institutions. In the weeks that followed, the positions of the two sides changed only marginally. At its second reading the Council did try to move toward the Parliament by promising that the revision of the perspective necessary for covering aid to Poland and Hungary would involve an increase of 300 million ECU rather than 200 million ECU. However, it continued to insist that the revision could take place only in February 1990 and not before the end of the budgetary procedure. The Commission also resisted calls for it to present an early proposal for revision. President Delors explained to members of the

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Committee on Budgets that at least in part this was because the Commission was concerned about avoiding the charge of budgetary laxity. At the same time, he did promise that the Commission would present a proposal for a midterm revision of the perspective for the years 1991 and 1992 at the beginning of 1990. 13 This proposal would include extra provision to allow for the development of internal policies as well as of external obligations outside Eastern Europe, thus acknowledging in part the validity of the Parliament's arguments. Nevertheless, the Parliament continued to insist that it would vote a second time for all the amendments that had been adopted at first reading, thereby effectively challenging the Council to take it to the Court of Justice. Only as the second reading of the Parliament approached did serious negotiations begin. On the Monday of the December plenary session the three sides met in Strasbourg and succeeded in reaching an agreement after some eight hours of negotiations. The result was particularly satisfactory for the Parliament: the negative reserve was eliminated and category 4 of the perspective was revised immediately by an amount of 300 million ECU to permit an increase in support for the economic restructuring of Poland and Hungary. The Council also expressed its willingness to take account of the priorities expressed by the Parliament in the course of the examination of the Commission's proposal for a broader revision in the first half of 1990. In return the Parliament agreed to reduce its amendments to bring them within the ceilings laid down in the perspective. To this end a small negative reserve of 38.4 million ECU was created that would have to be covered by equivalent reductions in expenditure before the end of the 1990 financial year. Thanks to the agreement that concluded the negotiations, the budgetary procedure was successfully brought to a close before the end of the year for the second time in succession. In some respects the success was more than a procedural one. A basic principle was established, namely that the Community should be involved through the budget in the process of economic restructuring in Eastern Europe. No one spoke up against this principle; the whole debate centered on the extent and nature of the Community's involvement. As a result the decision to entrust the Commission with the task of coordinating Western aid efforts in Eastern Europe can be seen to have led directly to the channeling of a substantial part of that aid through the Community budget rather than relying on bilateral links or other multilateral channels. This simple picture was to become more complicated in the months that followed with the involvement of the European Investment Bank (EIB) and the establishment of the new European Bank for Reconstruction and Development (EBRD), but the 1990 budgetary procedure had served to give direct financial expression to the Community's involvement in Eastern Europe. In so doing it set an important precedent for the debate of the following spring. Yet the procedure had also shown the limitations of the interinstitutional

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agreement. The agreement did not serve to eliminate disagreement between the Council and the Parliament; rather, it displaced it elsewhere. Instead of arguing directly about the size and shape of the budget, they found themselves in dispute over the shape of the framework within which the budget could be established. But the two sides remained committed to very different conceptions of the role of the Community budget and the way it should develop. And lest anyone suppose that these differences were somehow linked to particular personalities or other contingent circumstances, the events of the first half of 1990 served to underline their enduring nature.

The Second Revision In contrast with the debate that preceded the first revision of the financial perspective, all sides—the Commission, the Council, and the Parliament— were now agreed that the perspective had to be revised. Events in Eastern Europe were universally regarded as requiring a response that had to contain a budgetary component, based on the application of Article 12 of the IIA. This common perception was itself of major importance. It meant that all accepted the need to allow the budget to expand significantly in a new area—external relations—which had not hitherto enjoyed the kind of privileged status ascribed to agriculture (as compulsory expenditure) or the structural funds (subject to doubling between 1987 and 1993). However, the consensus among the institutions did not extend very far beyond the perceived need for a revision and hence its conversion into a joint decision of the budgetary authority proved both difficult and time-consuming. As promised, the Commission came forward with its proposal in February 1990 but it was not until early June that agreement was reached by the Council and the Parliament. This was in part because Article 12 of the IIA gives no guidance as to what should be done when the two arms of the budgetary authority have expressed divergent points of view, the situation that predictably came about. The Council took an initial position on the Commission proposal at its meeting of March 12 and the Parliament adopted a resolution embodying its stance on April 4. With little common ground between the two sides but with no formal deadline for a decision, the Irish presidency took up contact with the Parliament and, in particular, with the rapporteur of the Committee on Budgets, John Tomlinson, a British Labor member. A series of lengthy talks followed, which culminated in a meeting in Dublin at the beginning of May between Tomlinson and the Irish finance minister, Albert Reynolds. At this meeting the two sides reached an agreement ad referendum. The Irish presidency presented the proposal to the Council, which approved it by the necessary majority on May 21. On the Parliament side, the Committee on Budgets decided not to refer the agreement

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back to the plenary, so the way was cleared for the presidents of the two institutions to sign the revision into force on June 6. The length and difficulty of the discussions cannot be adequately explained by the differences that existed over the provision for Eastern Europe. It is true that the increase agreed upon did provoke some reticence, notably in the Iberian countries, over the balance between the needs of Eastern Europe and those of other third countries. However, at no stage did anyone argue for changing the figures originally proposed by the Commission for Eastern Europe. Spain and Portugal did, however, initially argue that the action be financed by the member states rather than the Community. 14 This was all the more remarkable given the lack of any clarity as to the uses to which the monies would or indeed could be put. All seemed to accept the political imperative of responding to a very particular situation, whatever the uncertainties. Rather, the protracted procedure needs to be understood in terms of the divergent objectives of the institutions involved. The Council's primary aim was to give financial expression to the broadening of the Community's commitment to the democratization process in Eastern Europe. This process constituted the main reason for taking advantage of Article 12 of the IIA and the 0.03 percent of GNP that it incorporates as a margin for unforeseen circumstances. It therefore wished to reduce to a minimum any increases not linked to Eastern Europe. For the Parliament it was a question of taking advantage of the favorable economic climate and the reduced needs for agricultural support to give a more broadly based impetus to the development of Community spending. It sought to use the opportunity to come as close as possible to the resource ceilings laid down in the decision on own resources, not considering that the revision had to be limited to 0.03 percent of Community GNP. For neither side was the outcome wholly satisfactory, but both sides could claim some success for their interpretation in the figures eventually incorporated in the decision on the revision. (A decision was also taken to make technical adjustments in accordance with Articles 10 and 11 of the IIA. It involved increases of 220 million ECU in 1991 and 1992 for commitments and of 466 million ECU in 1991 and 758 million ECU in 1992 for payments.) For the revision, the Council was obliged to accept increases in June that went well beyond what it had originally agreed in March. It could note, on the other hand, that the bulk of the increases was to be devoted to Central and Eastern Europe: 820 million ECU or 67 percent of the 1,225 million ECU agreed for 1991 and 970 million ECU or 66 percent of the 1,478 million ECU for 1992. Moreover, a declaration was annexed to the decision under which it was agreed that the amounts would not be used for other purposes without the agreement of both branches of the budgetary authority. In other words, although the increases for Eastern Europe were added to category 4 of the perspective, reserved for "Other Policies," and not

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put in a separate category (in its proposal the Commission had suggested the creation of a separate, new category to cover all the external policies of the Community but for different reasons neither the Council nor the Parliament were willing to accept this), the Parliament was not given the prospect of reallocating any of the increase for other purposes as it would normally be able to do under the provisions of Article 203 of the Treaty. For the Parliament the outcome did fall short of its ambitions. It consistently argued that the revision could have taken up all the room up to the own resource G N P ceiling but in the event, the revised figures fell 0.07 percent or some 4 billion ECU short in 1991 and 1992. It also failed to gain increases for other policies commensurate with those for Eastern Europe. However, the final outcome was also considerably better than what the Council had originally envisaged and allowed for significantly greater development in spending outside Eastern Europe. Whereas initially the Council proposed an additional 960 million ECU for category 4 with only 140 million ECU for activity outside Eastern Europe, the increase eventually agreed upon for this category was 1,175 million ECU, some 215 million ECU more than the first offer and all of it reserved for policies other than Eastern European reconstruction. To render the outcome more palatable to both sides, it proved necessary not to clarify every aspect of the agreement reached. This was notably true for the question of whether or not this revision used up the margin for unforeseen expenditure of 0.03 percent of G N P referred to in Article 12 of the IIA. The Council was adamant that the agreement only allowed for one revision of 0.03 percent (equivalent to about 1.5 billion ECU) and that therefore the revision had used up most of the space available. By this reasoning any subsequent changes that went beyond the margin would have to be agreed upon in accordance with a different procedure, involving notably the use of unanimity in the Council. The Parliament did not agree. It considered that within the resource ceilings agreed upon, the budgetary authority could revise the perspective as often as necessary and that there was therefore no question of this revision exhausting the 0.03 percent margin. As a result of this difference, which could not be negotiated away, it was agreed to restrict the wording of the joint decision to the various changes made to the categories of the perspective with no specific reference to the 0.03 percent. It should be stressed that the agreement was not restricted to Article 12 of the IIA. Considerable time was devoted to negotiating Article 9, which gives the Commission the task of adjusting the perspective every year to take account of movements in G N P and prices. Throughout the negotiations the Parliament argued that the Commission had failed to apply this article properly and that it did enjoy a measure of success, thanks to an effective alliance with certain members of the Council, including the Irish presidency. It was noted that in updating the perspective in the light of changing prices, the Commission based its figures on expected rather actual rates of inflation.

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These original figures proved to be underestimates, as inflation rose more quickly than expected. The Commission resisted pressure to change the method of calculation under Article 9, aware that it could have a similar effect in other areas of policy. However, this pressure was particularly strong in relation to the structural funds, where a failure to act could be portrayed as a willingness to put in jeopardy the doubling of the funds between 1987 and 1993, which was agreed at the European Council meeting in February 1988. Despite the reticence of some member states, it was agreed to overrule the Commission and to take account of the problem by effectively increasing category 2 of the perspective, "Structural Operations," by 2.50 million ECU, using Article 12. Without the same allies the Parliament had less success with the other part of Article 9. It noted that GNP had risen but that the Commission had only modified the perspective in consequence by expressing the expenditure ceilings in terms of a smaller percentage of GNP. In its view the Commission should have raised the ceilings to match the original level of GNP envisaged in the perspective for the year concerned. Although the Commission (and the Council) refused to accept the arguments of the Parliament, it became clear how far the original decision in 1988 to link Community expenditure to GNP had altered the nature of the budgetary argument and allowed the Parliament to claim that economic developments in Europe made its demands not just desirable but within the realm of the possible. What the argument over revision had shown was that the existence of a procedure as outlined in Article 12 of the IIA and the general perception of a specific problem that had to be addressed did not serve to eliminate fundamental differences over the purpose of the budget. The Parliament used the occasion of the second revision to gain the maximum concessions possible for its own vision of a larger budget, reflecting a broader range of Community activity, whereas the Council was equally determined to limit the amount of ground that it would concede and not to allow its dominant position in the legislative procedure to be undermined by the other arm of the budgetary authority. The situation was little different from the one that had prevailed before the Brussels settlement, except that the debate was displaced from the budgetary procedure to the prior act of revision of the perspective. As in the budget arguments of earlier years, there was a strong incentive on both sides to find an agreement at the end of the day: no agreement would mean that the existing perspective would continue to apply. However, the basic differences remained. This same logic applied to the third revision of the perspective provoked by the unification of Germany and events in the Gulf. The Commission estimated that the additional cost of the integration of the German Democratic Republic (GDR) into the Community would average 500 million ECU each year from 1991 to 1993. Additional expenditure from the budget averaging 2

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billion ECU per year (1 billion ECU for the structural funds, 800 to 900 million ECU for agriculture, and 150 million ECU for other policies) would be counterbalanced by anticipated annual revenue of 1.5 million ECU. In relation to the Gulf the Commission also envisaged increased expenditure, including an extra 600 million ECU in 1991. Such substantial increases could only be accommodated by a revision of the perspective. For example, the structural funds provided for in the perspective were already effectively allocated between the member states and could only cover Eastern Germany if those allocations were reduced. Once again, these were lengthy negotiations between Council and Parliament, which were completed in November 1990. The amounts agreed to were close to those proposed by the Commission except that the Parliament did have the satisfaction of gaining a further increase of 110 million ECU for category 4 ("Other Policies") in 1992.

A Broader Agenda Although the revisions of the perspective were the most time-consuming aspects of the budgetary debate during 1989 and 1990, two other issues arose that went beyond the question of the nature and extent of Community expenditure. The first concerned the guarantee provided by the Community budget for borrowing and lending and the second was related to the powers of the Parliament over revenue. Both assumed a particular significance given the agreement to hold intergovernmental conferences on economic and monetary union and political union, starting in December 1990. In addition to providing aid for the economic restructuring of Poland and Hungary out of the budget, the Community also agreed to support the two countries by means of borrowing and lending. The European Investment Bank was asked by the Council in the autumn of 1989 to extend loans to Poland and Hungary, and at the beginning of 1990 the Council decided to invite the Commission to manage a medium-term loan facility offered to Hungary. In both cases, in accordance with established practice for all borrowing and lending, it was necessary to incorporate in the budget a guarantee in the event of default. The provision of such a guarantee proved to be very contentious. In the Parliament, questions were raised concerning the extent of the risks involved. Up to now the guarantee has been a safeguard mechanism that has only been activated for one country, Lebanon, which by the end of 1989 had not repaid 8.3 billion ECU of the amount guaranteed. 15 Loans to Eastern Europe raised the possibility that such default might occur more frequently and that therefore the budget should include specific provision in the form of a reserve to cover it. This did not occur, but in the first supplementary and amending budget for 1990, specific reference was made in the remarks accompanying the inclusion of the guarantee to the precise volume of appropriations covered. Thus the maximum level for EIB

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loans was set at 1,000 million ECU and the borrowing program for Hungary was given a ceiling of 870 million ECU with a first tranche of 350 million ECU. 16 This discussion raised the question of how far the Community should take financial responsibility for the process of economic restructuring in Eastern Europe if that process were to run into difficulty. But what of the link between the budget and the economic policies of member states as the Community becomes more integrated? There seems little doubt that this issue will gain in salience as the debate on economic and monetary union advances. This became clear in the debates in the Council of Economic and Finance Ministers when they met at the beginning of April 1990. 1 7 Ministers discussed the question of budgetary deficits and agreed that excessive deficits would have to be eliminated in an economic and monetary union. However, leaving aside the question of what an "excessive" deficit is, it became clear that there was no consensus on whether or not such deficits should lead to some form of sanctions. It was suggested, for example, that certain transfers from the Community budget could be discontinued but the idea was rejected by a number of participants as excessively authoritarian. Nevertheless, the prospect of the Community budget becoming more closely linked with wider economic policymaking looked much more plausible than it had done hitherto. Another important issue arose in the course of the debate on the second supplementary and amending budget, which was signed into law in July 1990. The prime focus of this budget was to take account of the second revision of the perspective agreed upon in June and to incorporate the revised figures of the balance for the 1989 financial year. Thus on the expenditure side, extra appropriations were included to provide for economic restructuring in Eastern Europe outside of Poland and Hungary and to allow the Commission to recruit a number of supplementary personnel. However, the most significant development concerned the revenue side of the budget. In light of the agricultural expenditure that was lower than anticipated, the surplus for the previous year was higher than the amount included in the 1990 budget. To take account of this, the Commission proposed to modify the revenue side by increasing the amount of the 1990 budget financed from 1989's surplus and decreasing the level of the member states' contributions for 1990. However, it maintained that the extent of this rebalancing was limited by the own resource decision, which in its view set the value-added tax (VAT) contribution at 1.4 percent. The Council maintained that this percentage was a maximum that could be lower and that therefore the member states were entitled to make smaller contributions to the 1990 budget rather than waiting until 1991 before getting the money back as part of the 1990 surplus. This somewhat esoteric argument was picked up by the Parliament, which passed an amendment at its first reading supporting the Commission

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position. T h e Council reiterated its stand at second reading and pointed out that in its view. Article 203 of the Treaty does not permit the Parliament to adopt "amendments" to the revenue side. In the past the Parliament had often contradicted this view, claiming that Article 203 did not exclude such an eventuality, but it had not sought to exercise the right that it considered it possessed at the final stage of the budgetary procedure. This time at second reading it decided to reinstate the position of the Commission and challenged the Council to contest the legality of the budget in its finally voted form. When the vote took place, the Italian presidency expressed its concern over what the Parliament had done but did not threaten court action. However, at the end of July when discussion of the 1991 budget began, the Council did decide to invite the Court of Justice to examine the whole question o f whether or not the Parliament can adopt amendments to the revenue side. T h e outcome o f the Court decision—still pending at the time o f writing—is in some respects less important than the fact that this issue is coming to the fore on the eve of an intergovernmental conference, a goal o f which is to improve the democratic legitimacy of the Community and to reconsider the role of the Parliament. Are member states prepared to take the risk of allowing the Parliament to become involved in the process of revenue fixing or is this an area that they will insist on keeping under their own control? Will they be able to ignore the claim that the absence of the Parliament from this area allows it "the luxury of revenue irresponsibility" and that only by a change in this domain can the Parliament be seen as an equal partner with the Council in the budgetary procedure?

Conclusions The two issues raised here make it clear that the development o f budgetary policy will be influenced by much more than increases of expenditure. The broader context in which that expenditure takes place as well as the revenue needed to fund it will necessarily become part o f the budgetary argument. This is not to say that the pattern of expenditure will no longer figure in the catalog o f conflict between the Council and the Parliament. T h e two revisions o f the financial perspective discussed earlier showed that the differences between the two arms o f the budgetary authority remain very wide. However, the creation of the financial perspective has given a different shape to that argument and opened the prospect that it will take place from now on in a medium-term framework where more and more of the elements are accepted as essential elements of Community spending. If this proves to be so, then the transition effected in 1989 and 1990 will have been of longterm significance for the development of the Community. It will direct attention away from the overall size of the budget, an issue that was dominant when resources were scarce, to broader questions of who decides

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where the m o n e y is to c o m e from and who controls its use. The modified maxim of Community budgetary policy in the 1990s could become "Never mind the width, feel the quality."

Notes 1. Daniel Strasser, Les Finances de l'Europe (Paris: Librairie générale de droit et de jurisprudence, 1990), p. 11. 2. Michael Shackleton, Financing the European Community (New York: Council on Foreign Relations Press, 1990), pp. 9-22. 3. Commission of the European Communities, XXlIlrd General Report on the Activities of the European Communities 1989 (Luxembourg: Office for Official Publications of the European Communities, 1990), p. 11. 4. Official Journal of the European Communities, No. L 185 (July 15, 1988). 5. EC Council of Ministers Decision 88/376/EEC, Article 10. 6. See Jean-Pierre Cot, "De la procédure budgétaire communautaire considérée comme un des beaux-arts," L'événement européen 3-4 (1988), p. 214. 7. Shackleton, op. cit., pp. 96-97. 8. The account that follows is based primarily on the author's own involvement in and analysis of the events discussed but it can be compared with the material in Agence Europe and in the reports of the Parliament, in particular A3-57/89 (first reading 1990 budget), A3-96/89 (second reading 1990 budget), A3-79/90 (revision of the financial perspective in the first half of 1990), and A3184/90 (second supplementary and amending budget for 1990). 9. William Nicoll and Joseph Lentz, "Le Budget 1990, le déroulement de la procédure budgétaire: Ses incidentes el son aboutissement," Revue du Marché Commun 336 (1990), p. 272. 10. Claus-Dieter Ehlermann, "Aid for Poland and Hungary: First Assessment," European Affairs 4 (1989), p. 23. 11. Decision 88/377/EEC. 12. Nicoll and Lentz, op. cit., p. 279. 13. Ibid., p. 277. 14. Agence Europe (March 10. 1990), p. 6. 15. Commission of the EC, XXIIIrd General Report, p. 78. 16. Official Journal of the European Communities, No. L 62 (March 12, 1990). 17.Agence Europe (April 2-3, 1990).

7 Beyond 1992: One Central Bank, One Currency Ralph }.

Mehnert

The European Community changed significantly in 1989 and 1990. The state of the EC is well on the road beyond the single market of 1992 toward the "United States of Europe." Shadowed, but not dwarfed, by the historic events at its eastern border during these two years, the EC made landmark decisions not only with regard to the single market, but also especially in the strive toward political, economic, and monetary union. The European authorities have realized that an economy of the proportions of the single market cannot function with twelve or more currencies and varying national monetary policies. When the United States encountered the same problem earlier this century, it introduced the Federal Reserve System and the dollar to take advantage of the opportunities of its internal market. History has repeated itself. This time, it is the EC that is confronted with this problem and that must make the same decision. The EC, therefore, relaunched the very ambitious program for the establishment of the economic and monetary union (EMU) in the late 1980s. This chapter deals with the monetary portion of the EMU, namely, establishment of a European central bank with a single currency. These concepts, Utopian less than a decade ago, have now attained a degree of importance that equals that of the 1992 program and, indeed, the Treaties of Rome. They have developed from the mere brainchild of some into an essential requisite for the single market. But they also now stand for the path the EC has chosen: from total national sovereignty through economic and monetary union toward political union and the United States of Europe.

The Development Toward European Economic and Monetary Union In some form or another, the idea of monetary cooperation always has been present in the EC. Its definition, though, has changed significantly over the

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years. It developed from the initial concept of mere cooperation to the present plans for a currency and common central bank in the framework of the EMU. The Treaty of Rome of 1957 already provided for the creation of the Monetary Committee with the express purpose of promoting coordination in the monetary field. The Treaty of Rome also set up a very rudimentary monetary system. This system permitted a member state to take certain countermeasures if alterations in another member state's exchange rate would affect its own exchange rate. Apart from these basic provisions, however, the Treaty of Rome did not deal with monetary union. It definitely did not envision a central bank and a single currency. The European Council, the heads of the EC member states, first introduced the concept of a more tangible monetary union in 1969. This led to the preparation of the influential Werner Report in 1970, which advocated the creation of an economic and monetary union in certain stages. The report did not propose a common central bank per se. It advertised the establishment of the European Monetary Cooperation Fund (EMCF) as predecessor to a "Community system of central banks." Arguably, this system of central banks would have been very close in structure and functions to a common central bank. The member states agreed in late 1972 to establish the EMU and, for that purpose, founded the EMCF in 1973. The EMCF was to contribute to the finalization of the EMU by 1980, at which time it was to be integrated into the "Community organization of central banks." The EMCF still exists and although it possesses some powers similar to that of a central bank, it is not, and was not, intended to be a central bank. The developments in the mid-1970s, namely the collapse of the Bretton Woods monetary system and the reintroduction of floating exchange rates, impeded the creation of the EMU. Instead, in 1979 the member states established the European Monetary System (EMS) and the European currency unit (ECU). The main purpose of the EMS was to create a zone of monetary stability in Europe. The EC entrusted the administration of the new system to the EMCF. It also provided that the existing monetary institutions would be merged into the European Monetary Fund (EMF) within two years. Again, the EC fell short of actually calling the system a common central bank. Although it had been clear that the EMCF would not be such an institution, the EMF was regarded as an attempt to introduce a central bank without naming it such. The merger of the EMCF into the EMF never occurred because the EC failed to meet its own deadline. Since 1979, the EMS and the ECU, to the surprise of many, have worked extremely well and have provided monetary stability. No significant developments toward the EMU and the central bank occurred until the promulgation of the Single European Act (SEA) in 1986. The SEA amended the Treaty of Rome of 1957. It is the basis for the 1992

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program establishing the single market, which, in essence, will finalize the concepts of the Treaty of Rome. The SEA also added a new dimension. It expressly incorporated the concept of cooperation in economic and monetary policy, i.e., the EMU, the EMS, and the ECU, into the Treaty. The SEA spelled out the process for effecting the institutional changes necessary to institute the EMU. It did not establish the central bank and EC currency, however. The unexpected success of the EMS and the advent of the single market spurned a renewed interest in the monetary union. Although the need for a common central bank and currency must have been apparent to the creators of the 1992 program, the political realities probably made its incorporation into the SEA impossible. This changed dramatically in 1988 when forces emerged in European politics that realized that the Europeans could profit more from the single market if it included a common central bank and currency and that viewed the EMU as a path toward the grand design, a united Europe. In June 1988, the EC Heads of State decided in Hannover to examine the means of achieving the EMU in June 1989. They instituted the Committee for the Study of Economic and Monetary Union to study and propose concrete stages leading to the EMU. The Committee, chaired by EC Commission president Jacques Delors, analyzed the feasibility of the EMU. In April 1989. it issued its report on the EMU outlining the features and proposing a three-stage plan to establish the EMU. The Committee viewed the most important condition as being the irrevocable locking of the exchange rates of the EC currencies. The report also promoted the creation of a single currency. Most important, the Committee stated that a new common monetary institution would be needed. It proposed the autonomous European System of Central Banks (ESCB), which would organize all domestic and international monetary policymaking for the EC. To incorporate these policies and the necessary institutional changes, an amendment of the Treaty of Rome would become necessary. Immediately after the release of this very influential report, the political discussions centered around the feasibility of—and in the case of Great Britain, the interest in—such close monetary union. At that time, the British government practically refused its participation. The European Council met again in Madrid in June 1989. Great Britain found itself alone in opposing the EMU scheme. The summit, in its conclusions, restated its determination to the progressive achievement of the EMU as pronounced by the SEA in 1986 and the previous Hannover summit. It also accepted the findings of the report on the EMU. Most surprisingly, however, it set the beginning of the first of the three proposed stages for July 1, 1990. The Council requested the Commission and the Council of the EC, the Monetary Committee, and the Committee of Central Bank Governors to adopt the provisions necessary to successfully launch this stage. In addition, those entities prepared the intergovernmental conference

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required by the SEA to decide on the following stages of the EMU and amend the Treaty of Rome accordingly. Despite the objections of Britain, the Heads of State had agreed to quickly launch the EMU. Britain then changed its position of total opposition and advocated moderation in the strides toward the EMU. This slower-paced evolutionary approach is based solely on the market forces instead of the political decisionmaking process. On December 8 and 9, 1989, the European Council met in Strasbourg for an emergency session following the dramatic developments in Eastern Europe. The conclusion surprised even European optimists. The Heads of State strongly affirmed their support for the EMU and decided to convene an intergovernmental conference before the end of 1990. The Commission of the EC presented an initial report on the aspects of the EMU on March 21, 1990. This was its first formal opinion on the EMU. The report outlined a process to merge the twelve national currencies into the ECU and to create a single EC central bank—EuroFed—by 1996. It clearly rejected the British evolutionary approach. In its meeting on March 31, 1990, the Council of Ministers for Economic and Financial Affairs (ECOFIN) reviewed the report of the Commission. It supported, over the objections of the British minister, the creation of EuroFed. It also laid important groundwork for the intergovernmental conference. It did not, however, agree on the introduction of the ECU as the single currency. In its following two summits in Dublin in April and June 1990, the European Council reiterated its support for the EMU and advocated an increase in the use of the ECU. The Council set the opening date for the intergovernmental conference for December 15, 1990. The objective is ratification of the amendments concerning the final two stages of the EMU by the member states before the end of 1992. This deadline, of course, coincides with the creation of the single market, indicating that the EMU has become part of the 1992 program. On August 21, 1990, the Commission published its final report on the EMU. Again, it advocated the creation of EuroFed as the common central bank and the transformation of the ECU into the single currency for the EC. This latter proposal came somewhat as a surprise. The general tendency among the authorities had been to postpone the establishment of the ECU as a single currency. The British government, though still rejecting the single currency concept, had in the meantime proposed a scheme in which the EC would create the physical "hard ECU." This parallel currency would, in turn, slowly substitute the existing currencies. The underlying ideas of this proposal have received support from Spain, Greece, Ireland, France, and Portugal. This proposal and the entry of the British pound into the exchange rate mechanisms of the EMS in October 1990 indicates a softening of the British stance against the EMU.

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The EC Commission published its report "One Market, One Money" on October 19, 1990, as the first study on the costs and benefits of the EMU. The report concludes that the EMU and the single currency would eliminate exchange rate variability and all transaction costs for exchanging currencies, estimated at 13 to 19 billion ECU per year. In addition, "dynamic" gains in the form of higher economic growth would result in the EC. The independent European central bank, EuroFed, could be established with minimal costs. It would offer the advantage of efficient resource allocation. In the area of public finance, the individual member states would retain a degree of autonomy but also would maintain consistency between EC monetary policies and national fiscal policies. The ECU, as the single EC currency, would develop into a major international currency. It would lower transaction costs in international trade, increase the market for financial instruments in ECU, and decrease monetary reserves. The report clearly states that the EMU not only includes a single monetary policy but also a single currency, the ECU. Belgium, Germany, Denmark, France, Luxembourg, Ireland, and the Netherlands could immediately establish the EMU. Italy, Spain, and the United Kingdom, after some small adjustments, and Greece and Portugal, after more significant adjustments, could participate within a few years. The European Council took further steps toward the establishment of the common central bank and single currency at its summit in Rome on October 27 and 28, 1990. The member states, except Great Britain, agreed to the creation of a new monetary institution comprising the national central banks and a central organ, exercising full responsibility for monetary policy. This new institution will be established at the beginning of Stage II of the EMU, set for January 1, 1994, a year later than originally proposed. After Stage III of the EMU, the exchange rates would be irrevocably fixed and the EC would have a single currency, the "strong and stable ECU," as expression of identity and unity. Great Britain, while unable to accept this approach, agreed to the basic objectives of monetary policy and announced its readiness to move beyond Stage I through the creation of a new monetary institution and a common currency. Following the conclusions of the European Council, the governors of the EC central banks submitted their proposal for the statute and organization of the EC central bank in November 1990.

The Structure of the European Central Bank There essentially are four official proposals dealing with the structure of the European central bank: the report by the Committee on EMU, the initial and the final Commission proposals on the EMU, and the draft statute for the

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central bank by the EC central bank governors. A basic agreement seems to exist in the EC that the central bank would be very closely modeled after the German Bundesbank. This expressly pertains to the principles of independence from the governments and to the objective of maintaining price stability. The Committee for the Study of Economic and Monetary Union presented its report on economic and monetary union on April 12, 1989. The report advocated a three-stage approach leading to complete economic and monetary union in the EC. It left no question that such a union is feasible, necessary, and overdue. Under this proposal, the single most important condition for the monetary union is the irrevocable locking of the exchange rates of the EC currencies. The currencies would thereby become interchangeable and their interest rates would converge. The Committee also recommended the introduction of a single currency, the ECU. More important, the report stated that a new monetary institution would be needed to ensure that the single monetary policy would not be hindered by independent decisions and actions on the national level. The domestic and international monetary policymaking of the EC would be organized in the federal and autonomous European System of Central Banks. The ESCB ultimately would be responsible for formulating and implementing monetary policy. It would also manage the exchange rates of the EC toward third countries. The existing national central banks would implement the decisions of the ESCB on the national level. This proposal differs from the original proposals for the European Monetary Fund in that it actually envisions an independent federal institution. The report falls short of calling the institution the "European central bank." It is clear, however, that the ESCB, though lacking this title, undoubtedly would perform central bank functions. In addition, the report outlined basic principles for the ESCB. The ESCB would be committed to the objective of price stability while supporting the general economic policies of the EC. It would be responsible for the formulation and implementation of monetary policy, exchange rate, and reserve management, and the maintenance of a payment system. It would also participate in the coordination of banking supervisory policies on the national level. The statutory policy instruments of the ESCB would enable it to conduct central banking operations in financial and foreign exchange markets and to exercise regulatory powers. It would be prohibited, however, from lending to the public sector, i.e., governments. The report also discussed the basic principles for the structure and organization of the ESCB. The ESCB would be based on a federative structure, independent from national governments and the EC authorities. It would be accountable only to the European Parliament and the European Council. The ESCB council, consisting of the governors of the national central banks and the members of the ESCB board, would formulate and

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decide the monetary policies. The ESCB board would monitor monetary developments and oversee the implementation of the policies. The national central banks would execute operations in accordance with the policies set by the ESCB council. The ESCB would begin its operation during Stage II of the implementation of the EMU. It would absorb the existing institutional monetary arrangements, namely the EMCF, the Committee of Central Bank Governors, the subcommittees for monetary policy analysis, foreign exchange policy, and banking supervision, and the permanent secretariat. At this stage, the ESCB would alter the mere coordination of independent monetary policies from Stage I into the formulation, and at Stage III, implement the common monetary policies of the ESCB itself. The process would conclude in Stage III, resulting in the establishment of the ESCB as the sole central bank for the EC. This, of course, would mean that all responsibilities and powers for the implementation of monetary and intervention policies would be transferred to the ESCB, that official reserves would be pooled and managed by the ESCB, and that steps would be taken for the introduction of a single European currency. The report and its conclusions were well received in the EC. The European Council strongly supported the proposals and set the deadline for the implementation of Stage I for July 1, 1990. The essential features of the monetary union, namely the central bank, were then more closely defined in the first proposal on the EMU by the Commission of the EC. The Commission proposal of March 21, 1990, was the first official support by an EC institution for the creation of a single European central bank, EuroFed. The proposal defined the following essential features for the EMU. First, the EC would have to introduce a common monetary policy directed by EuroFed. EuroFed would be committed to a policy of price stability. The twelve national central banks would implement the policies promulgated by the council and the board of EuroFed. Second, EuroFed and the entities responsible for economic policy would maintain a regular dialogue to ensure the consistency between monetary, exchange rate, and economic policies. Third, the EC would introduce a single currency, the ECU, to exploit the full potential and benefits of the single market and the EMU. EuroFed, under the Commission proposal, would have a federal structure, comprising a council and a board. The council would consist of the governors of the EC central banks and would determine the monetary policies. The board would oversee the implementation of the policies. EuroFed would have at its disposal the whole range of traditional instruments and open market operations. It would have sole control over the issuance of the ECU and be responsible for the payment system. The proposal regards the ECU as the central feature of the system. Here it varies drastically from the earlier report on the EMU by the Committee for the Study of EMU: it

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combines the creation of EuroFed with the establishment of an EC currency, whereas the report advocated the currency as a preferred but not essential ingredient of the EMU. The proposal immediately spawned debates on the feasibility and necessity of the central bank with the single currency. Up to this point, the various proposals and reports had not envisioned the currency feature as essential to the EMU. Although businesses and citizens strongly support a single currency, politicians view this drastic proposal with much more caution. The meeting of the Council of Economic and Finance Ministers on April 2, 1990, reflected this cautious approach. The Council of Ministers clearly supported the creation of EuroFed following the terms outlined in the Commission proposal. It was unable to agree on the transformation of the ECU into the single currency for the EC, however. On August 21, 1990, the Commission submitted its final proposal on the EMU. It served as a guide for the intergovernmental conference on the EMU that began in Rome on December 15, 1990. In this Conference, the EC member states decided on amendments to the Treaty of Rome to include the EMU and to provide for the institutional changes necessary for its successful implementation, namely EuroFed and possibly the ECU. The proposal sets the beginning for the second stage of the EMU, as outlined in the report on the EMU, for July 1, 1993. The main characteristic of this stage is the establishment of EuroFed. The national central banks, and not EuroFed, still would retain the ultimate responsibility for monetary policies. This stage would serve as testing ground for the statistical, operational, regulatory, and logistical instruments of EuroFed. Through this testing process, EuroFed would increase its participation in the decisionmaking mechanisms. The creation of EuroFed and the single currency would necessitate important amendments to the Treaty of Rome. The proposal outlines the following provisions to be included in the Treaty. First, EuroFed would be subject to the objective of price stability and would support the economic policies of the EC. Second, EuroFed would be independent from national and EC authorities. Third, EuroFed would be accountable to the democratic institutions of the EC. Fourth, EuroFed would formulate and implement the common monetary policy and the issuance of the ECU. Fifth, EuroFed would be responsible for exchange rate and reserve management and would participate in international monetary cooperation. Sixth, EuroFed would take part in the coordination of banking supervision and be responsible for the payment system and the capital markets. In addition, the proposal calls for the inclusion of main provisions on the organization of EuroFed. These provisions, namely on management, ownership, institutional setup, and internal and external relations, however, could also be a part of the statute creating EuroFed.

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In addition to the proposals on EuroFed, the Commission advocated the ECU as the single currency for the EC. It clearly rejected the approach taken by the British government in which the ECU first would become a parallel currency. The proposal discussed a number of steps necessary to transform the ECU into the single currency while abolishing the existing national currencies. Surprisingly, the Commission did not cede on the latter point, although the discussions on the single currency following the initial proposal had shown disagreement on the feasibility of such a step. The continued insistence of the EC authorities indicates that there is very strong support for the introduction of the ECU. On November 27, 1990, the Committee of Governors of the Central Banks of the EC Member States presented its Draft Statute of the European System of Central Banks and the European Central Bank. It sets forth detailed provisions for the EC central bank, assuming that integration will proceed to stage III of the EMU with irrevocably locked exchange rates and a single EC currency. The European System of Central Banks (ESCB) would comprise the European Central Bank (ECB) and the national central banks. Its primary objective would be price stability while it should also support the general economic policies. The ESCB would have the usual central bank and several advisory functions and would be responsible for the monetary policies of the EC, formulated and implemented by its council and executive board. The council would be the supreme decisionmaking body. Its competency would include monetary policy decisions, such as intermediate monetary objectives, key interest rates and the supply of monetary reserves, and the establishment of the implementing guidelines. The daily management would be with the executive board. The centralized decisionmaking and the inclusion of the national central banks and their governors reflects the federal structure of the ESCB. In addition to operational functions, the national central banks would have individual responsibilities, namely the settlement of payments, national banking supervision, business with the national governments and institutions, and other transactions not interfering with the objectives and tasks of the ESCB. Most important, the central bank system would be independent from political authorities. This independence would be given practical effect by certain functional, operational, and financial conditions. The ESCB would be subject to democratic legitimacy and accountability. Legitimacy would result from its foundation in amendments to the Treaty of Rome, approved and ratified by the member states and their parliaments. In addition, the president and the vice-president of the executive board would be nominated by the European Council after consultation with the European Parliament. Accountability would be assured by reporting requirements to the

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European Council, the E C council, and the European Parliament. T h e president of the E C Council and a member of the E C Commission would be allowed to attend the meetings of the E C B council. Overdrafts or other credit facilities to public entities, other than access to credit in the framework of the normal banking operations, would not be permitted. The E C B would conduct foreign exchange operations and have the policy instruments to respond adequately to changed market conditions. Any E C or national legislation within its field of competence and international agreements in banking or finance would require prior consultation with the E C B . T h e E C B would collect necessary statistical information and would participate in the formulation, coordination, and execution of policies on banking supervision and the stability of the financial system. The E C B would be endowed with capital and foreign reserve assets. The transfer o f the latter would be based on objective indicators that also would determine the number of votes of each national governor for the limited cases of weighted voting. Any foreign reserve assets remaining with a national authority could be used only with approval of the E C B . Other important provisions grant the E C B Council exclusive rights regarding the issuance of the EC currency. The E C B and the central banks would then issue the only legal tender in the EC.

The European Central Bank and a Single Currency A European central bank is needed to coordinate the monetary policy in the E C and to avoid divergences among the national monetary policies. As discussed, the central bank is necessary to take advantage of the single market of 1992 and the future United States of Europe. The central bank alone, however, will not suffice. In fact, monetary union in the E C is defined as either the irrevocable locking of the EC currencies or the introduction of a single currency. Therefore, a single currency must be introduced in the E C to accomplish the E M U . This huge economic entity cannot function properly on the basis o f twelve or more national currencies. Even if those currencies had fixed exchange rates toward each other, the necessity of using different currencies would be tedious and uneconomical and would decrease the potential benefits of the single market. The costs resulting from this was estimated at 13 to 19 billion ECU per year. The recent proposals in this area, namely the Commission proposals on the EMU, clearly foresee the need for a single currency. This view is shared by European businesses. A recent poll o f E C business leaders showed that over three-quarters of those surveyed favored a single E C currency. The concept of a single currency has a rather long history in Europe. All through European history, attempts were made to standardize and decrease the various types of currencies. And since 1979, a quasi-EC currency has existed

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and established itself extremely well on the European and international markets: the ECU. The ECU initially was only the unit of account for the EMS. It is the single most important feature of the system. In 1979, it succeeded in functions and composition the earlier European unit of account (EUA) and a variety of other units of account. From its initial official use in the exchange rate and credit mechanisms of the EMS, the ECU has developed into one of the most used currencies in the world. The market in the ECU used for private applications, which is separate from the official ECU, is now estimated at far over 200 billion ECU (over $260 billion). The ECU is a basket currency. This means that certain amounts of each EC currency are included in a basket that, in turn, is named ECU. Currently, one ECU consists of the sum of 0.08784 0.1976 1.332 1.44 0.008552 151.8 0.2198 0.6242 3.301 0.13 6.885 1.393

British pound Danish krone French francs Greek drachma Irish punt Italian lira Dutch guilder German mark Belgian franc Luxembourg franc Spanish peseta Portuguese escudo

To obtain the value of one ECU in a third currency, these different amounts have to be converted into that third currency and then added together. The ECU has many advantages over national currencies. Its most significant benefits result from its basket composition, which ensures that the ECU is relatively stable toward other currencies, namely the dollar. To explain this feature, one must visualize the ECU basket as consisting of different percentages of each EC currency. These weights are determined daily according to a simple mathematical procedure. The German mark, for example, makes up approximately 30 percent of the ECU. This means that 30 percent of the value of one ECU is based on the mark. If the exchange rate of the mark appreciated by 10 percent toward the dollar, for example, US investors investing in Deutsche mark (DM) bonds would lose 10 percent of their investments upon re-exchange of the DM into dollar. The appreciation would decrease the amount of dollar the investor would receive when exchanging the DM for dollar. If the same investor had invested in the ECU, however, the loss would be only 30 percent of 10 percent (or 3 percent) because only 30 percent of the ECU is based on the DM. This presupposes, of course, that all other currencies had remained the

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same. If, on the other hand, the British pound and the French franc (with a total weight of some 32 percent of the basket) depreciated each by 10 percent toward the dollar, the resulting gain would compensate the loss due to the appreciation o f the DM. The E C currencies usually show differing exchange rate behavior toward third, non-EC currencies. Therefore, the E C U has a very stable exchange rate. T h e exchange rates toward and among the E C currencies, o f course, are practically fixed under the E M S mechanisms. This exchange rate stability toward E C and non-EC currencies significantly reduces exchange rate risks, the need for hedging transactions, and administrative costs. In addition to this stability, the ECU basket has a much more basic, political advantage. The mere fact that each o f the E C member states contributes a portion to the basket makes the ECU the logical contender for the position of the single European currency. Member states who might fear that a single currency would entail not only the loss of sovereignty but, even worse, the transfer o f that sovereignty to the currency of a single member state might be appeased by this "democratic" feature of the ECU. These advantages have led to a most amazing monetary development. The ECU initially served only as a unit of account for the E M S . This official role was enlarged to include its use in all budgets of the E C institutions and a variety o f other applications in the E C , the central banks of the member states, and monetary institutions in non-EC states. More significantly, however, the E C U has grown into a truly international private and commercial currency. In the early 1980s, a number of European banks realized the potential o f the E C U on the private financial markets and began offering ECU-denominated bonds and loans. T o date, over 7 0 0 banks worldwide offer ECU-denominated services. The ECU is viewed as one pillar in a triangle o f world currencies, sharing its role with the dollar and the yen. ECU-denominated services and instruments now include all types of bonds, loans, futures and options contracts, mortgages, insurance policies, private banking accounts, certificates of deposit, stocks, and foreign exchange contracts. Belgium already issues ECU coins as legal tender. The E C U is a means o f payment for VisaCard, Eurocard, and Eurocheques. An increasing number o f companies now use the E C U for commercial purposes, such as invoicing and accounting, in joint ventures with non-EC entities and in their financial statements. The application possibilities for the ECU on the international financial markets are practically unlimited. This almost unprecedented global acceptance o f this new currency has prompted a large number of countries to summarily accept the E C U as a foreign currency, despite its somewhat odd status as a basket o f currencies. It is necessary, however, to transform the E C U into the legal tender for the E C in order to establish it as a true currency. Negating many criticisms, the transformation of the E C U into the single

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currency for the E C is well on its way. The landmark decisions since December 1989 have changed the question from whether the ECU should become the single currency to when it will take that role. Essentially, the debate centers around two proposals. The first, advocated by the Commission of the EC and the majority of member states, such as France, Germany, and Italy, contemplates the introduction of the ECU as the single currency and the simultaneous abolishing of the national currencies before 1996. The second, less drastic approach favored by Great Britain and some smaller member states, namely Greece, Spain, Ireland, and Portugal, advocates a slower, more evolutionary approach that would introduce the ECU first as a parallel currency to the existing national currencies. These rather fundamental differences have resulted in a plan calling for a two-tiered approach toward the single currency that would allow each member state to proceed at its own pace. In the meantime, the ECU continues to operate as a full currency, untouched by the debates on its future, which, as the history of this amazing currency has shown, might actually only confirm what already has developed into a fact: that the ECU already is the single European currency.

Problems with the Central Bank and Single Currency Despite this progress, it would be foolish to assume that there will not be problems. Some of the debates have already shown the degree of disagreement and divergence among the member states. The progress, however, is encouraging and, most of all, virtually irreversible. One of the most complex issues to be solved is that of sovereignty. Following the success of the EMS and the ECU, which negated the criticism and the initially perceived technical problems, the establishment of monetary union now really is a political decision. The creation of an independent central bank and a single currency would require the national governments to cede their monetary powers to the supranational level. The power to issue money and regulate monetary affairs is one of the most basic powers of any nation. The reluctance of the British government to agree fully to the monetary union is, in large part, based on sovereignty concerns. It appears that the issue of sovereignty might be resolved in favor of the supranational EC. The EC itself and the more recent 1992 program are examples of areas in which the member states already have ceded powers to the EC. The matters involved in these areas, however, have not involved one of the basic sovereign powers. The monetary union would be a first concession of a traditional national power to the EC. Others include the powers to regulate foreign affairs, to issue passports, and to maintain a military. All of these, incidentally, are in the process of being relinquished by the member states. The sovereignty issue, the ability of the member

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states to create the monetary union, will be of great importance not only in the monetary field. If the member states are able to relinquish this basic power, they will also be able to go further. They could forsake national sovereignty and create the United States of Europe as a political and military union. The introduction of the single currency with the simultaneous abolishing of the national currencies might cause other related problems. Sovereignty concerns might prompt a government to refuse to give up its own currency. On a more practical level, the population of certain member states might resist if its currency were abolished without proper information and education. It is, therefore, of extreme importance that the proposed currency not be introduced in an unannounced overnight transaction. Other points of discussion relate to the structure and the location of the common central bank. There seems to be a general agreement as to the federative structure and independent status of EuroFed among the governments, the EC authorities, and the national central banks. This is not the case with regard to location. Past discussions have centered around London, Frankfurt (Main), and Berlin. Additional economic and monetary concerns relate to the reaction of the world financial markets to the possible abolishing of twelve currencies, which might make the "common currency" approach more favorable from a practical standpoint, and the effect of the creation of the ECU on the inflation rates in the EC. A detailed analysis of these areas, however, would be beyond the scope of this chapter.

Conclusions The European Community will be the single largest economic entity in the world by 1993. The single market, however, is not the end of the process. It merely accomplishes what the founding fathers had envisioned in 1957. The EC already has taken additional steps beyond the "Common Market" toward a military and political union: the United States of Europe. To accomplish and implement these goals, the EC must establish a common central bank and a single currency. Without either, the people of Europe will not be able to take advantage of all the benefits of their unity. The EC made important decisions in 1989 and 1990 to create the central bank, EuroFed, and to transform the ECU into its single currency. These decisions indicate that, although the opinions differ as to the means and timetable for accomplishing the task, the EC very likely will speak with one "monetary voice" through EuroFed, and its now 340 million citizens will pay in one currency before this century has come to a close.

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8 The New Approach to Technical Harmonization and Standards Kristin

Schreiber

It is no coincidence that the new approach to technical harmonization and standards was adopted 1 just one month before the endorsement by the European Council in June 1985 of the Commission's white paper on the completion of the internal market.2 It can, indeed, be considered one of the key elements, if not the very core, of the EC's 1992 program. By limiting legislative harmonization to health and safety considerations and by delegating the maximum possible competence for detailed technical specifications to voluntary standard-making, thus introducing a new division of labor between public legislators and private standard-makers, the new approach is also in line with the principles of subsidiarity and deregulation/ "de-bureaucratization," which have become of central importance for the completion of the internal market. Although in 1989-1990 the Community fell somewhat behind its selfimposed schedule for the abolition of both physical and fiscal barriers—two areas where a major breakthrough has, indeed, not yet taken place— the removal of technical barriers to trade whose scope, of course, goes beyond the new approach directives has turned out to be a success. Their abolition was promoted by industrialists as the top priority for the completion of the internal market; in the EC-wide survey carried out with 11,000 companies for the Cecchini report, the Costs of Non-Europe,3 diverging technical regulations and standards were referred to as the single most important obstacle in intra-EC trade by German, French, British, and Danish firms. It has to be stressed, nevertheless, that standards in particular have a dual character, on the one hand they may constitute a barrier to trade, but on the other hand they represent an efficient means of unifying a market.4 In its second progress report on the implementation of the 1992 program, 5 which, according to Article 8b of the EEC Treaty it had to publish five years after the adoption of the white paper, the Commission noted that by November 1990, two-thirds of the 282 internal market

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measures had been adopted, of which 70 percent fall under the heading "technical barriers." Of the forty-four technical barrier proposals still to be passed by the Council, the Commission considers only nineteen to be in "a critical state." 6 Between June 1987, when the pioneering new approach directive on simple pressure vessels was passed, and December 1990, eight additional directives could be adopted—on toy safety, construction products, electromagnetic compatibility, machinery safety, personal protective equipment, nonautomatic weighing instruments, active implantable electromedical devices, and gas appliances—as well as one common position on telecommunication terminal equipment. This means that, as far as the new approach is concerned, the target set in the white paper was met with even additional directives having been agreed upon. Whereas in 1987-1988 the paramount focus of attention had been the actual passing of the new approach legislation, in 1989-1990 the emphasis started to shift away from the mere adoption of the directives toward their implementation and, even more so, toward the working out of the European standards needed to fulfill the essential requirements set out in the legal texts. As is the case in other areas of the internal market program, the closer one comes to the magic date of 1992, the more attention has to be given to the implementation of, and compliance with, the internal market legislation. 7

Old and New In order to assess and fully appreciate the tremendous progress achieved over the past few years by the new approach to technical harmonization and standards, one has to contrast it with the old approach in this field. After the abolition of tariffs and quotas by 1968, the EC started to undertake its first efforts to tackle the issue of technical harmonization. At that time, the Commission already fully realized that diverging national technical regulations could represent a powerful nontariff barrier to trade. The EC's response to these technical barriers was twofold: on the one hand, a nonbinding gentleman's agreement 8 was concluded with the aim of keeping other member states informed about new national drafts for technical regulations. On the other hand, the old approach to technical harmonization was implemented on the basis of Article 100 of the EEC Treaty. Under this product-specific approach based on excessively comprehensive harmonization, a mere 270 directives—each full of technical details—were adopted between 1969 and 1985. The 1974 directive on tractor safety, which required thirty-six implementing directives, became one of the legendary pieces of legislation adopted under this old approach, not least because the German Bundestag refused to deliberate on the draft, which it considered too overloaded with technical details to be discussed by a parliament.

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Not only were negotiations of old approach directives very lengthy because of the amount of technical details to be discussed, but the unanimity requirement under Article 100 of the EEC Treaty furthermore allowed political blockages on reasons of principle to virtually paralyze the entire process of technical harmonization at the EC level. This meant that on many occasions old approach directives were already out of date once agreement on them could be reached. In any case, while the Council passed one technical harmonization directive, member states had adopted a much larger number of new, purely national, technical regulations; their regulatory capacities simply increased much more quickly than those of the Community. The new approach to technical harmonization and standards worked out in 1984—19859 in order to break this logjam on technical harmonization builds on both the 1973 "low voltage directive," which first introduced the principle of a general reference to standards at the EC level, 10 and on jurisprudence of the European Court of Justice on the Cassis de Dijon case of 1979, which provided the definition for essential safety requirements. Although Community jurisprudence had and has been successful in removing barriers based on arbitrary discrimination against products originating in other member states by invoking Article 30 (prohibition of measures having the same effect as a quota) and by advocating the principle of mutual recognition for German beer or Italian pasta, it cannot do away with barriers resulting from diverging health and safety provisions. These represent permissible exceptions according to Article 36 of the EEC Treaty and fall under the regulatory competence of member states so long as harmonization at the EC level has not yet taken place. The new approach aims at limiting the harmonization activity of EC legislation to the formulation of essential safety or other requirements in the public interest, i.e., to the genuine tasks of a public legislator, whereas competence for the working out of the detailed technical specifications that are to fill in these essential requirements is handed over to private European standard-making institutions. This implies that every new approach directive be built around the following core elements: 1. A definition of its scope, including the products it does not cover (e.g., in the case of the toys directive, sporting equipment is explicitly excluded, whereas the electromagnetic compatibility directive does not cover amateur radio equipment not commercially available). 2. The essential requirements relating to health and safety that are formulated as a general clause because the directive must by itself provide a judge with sufficient basis for jurisprudence (in the case of the machinery directive, for example, they relate to the materials used in construction, lighting, fire, noise, radiation, emission of dust, and so on).

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3. Methods of meeting these essential requirements. Compliance with the European standards to be worked out is not compulsory but is simply the easiest way to meet these requirements. If a manufacturer produces according to a European standard, the burden o f proof is reversed to the manufacturer's benefit; i.e., the enforcement authority has to presume conformity with the essential requirements. If the manufacturer does not produce to a European standard, then it is the manufacturer's own responsibility to provide proof of the safety of the product. 4 . Methods o f attesting conformity with the essential requirements and procedures for affixing the " C E mark," which attests conformity. T h e s e range from manufacturer declarations to third-party certification, including that of quality assurance systems. 5 . Safeguard procedures in the event of detection of unsafe products. 6. In some cases, transitional arrangements for the transitory use of national standards—approved by the Commssion—until the adoption of the relevant European standards. An essential complement to the legislative aspect of the new approach is the Mutual Information D i r e c t i v e " of 1983, which replaced the former inefficient gentleman's agreement and aims at preventing the appearance o f new technical barriers. The directive was amended in order to extend its scope o f application as from January 1989 to all industrial and agricultural products; up to then, food, animal feedstuffs, medicines, cosmetics, and agricultural products had not been covered. The Mutual Information Directive requires member states to notify all mandatory draft technical regulations to the Commission and the other members of the Community, giving them the opportunity during a three-month period to make comments or to intervene if they fear the emergence of a new technical barrier to trade. A three-month standstill applies to the adoption of the notified draft technical regulation and can be extended by three more months, and even up to a year, if the Commission decides that the notified matter will be the subject o f an E C directive. An unusual feature of the directive is that it furthermore requires member states to enforce a standstill on any voluntary private standard-making activity that their national standards institutions might be carrying out while work on a European standard in this field is being undertaken in the context o f a mandate given by the Commission to the European standards-making bodies European Committee for Standardization ( C E N ) and European Committee for Electrotechnical Standardization ( C E N E L E C ) . Failure to enforce such a standstill on private national standards-making activity may result—as would failure to notify a technical regulation—in enactment o f Article 169 o f the E E C Treaty infringement procedures against the member state concerned. Between September 1988 and November 1989, sixty-one

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such Treaty infringement procedures for non-notification were introduced against member states. Between January 1985, when the Mutual Information Directive entered into force, and June 1989, there were 768 drafts for technical regulations that were notified. Of these, 268—over a third—emanated from Germany, 150 from France, 77 from Denmark, and 69 from the U K . 1 2 In 1989 alone, the first year in which the scope of Directive 83/189 was enlarged, 318 notifications were received—86 (27 percent) from Germany, 50 (16 percent) from France, 40 (12.5 percent) from the UK, and 33 (10.5 percent) from Spain. Out of a total of 386 notifications made in 1990, 82 emanated from Germany, 80 from France, and 71 from the UK. Hence, one can observe a strong tendency toward equalization of the number of notifications received from the large countries, with particularly German notifications decreasing in relative terms, and British ones increasing. In 1989 food was the sector for which most notifications of national regulations were received (78 out of 318), followed by telecommunications (45) and transport (42). The number of notifications received for standards is much higher: 2,096 new purely national drafts were notified to CEN/CENELEC by standards institutions in the EC in 1989. 1 3 If one looks at both EC and EFTA notifications of draft national standards, France and Germany come first (22.3 percent each for AFNOR and DIN), followed by the UK (17.9 percent), Italy (12.8 percent), and Spain (10.1 percent). The seven other EC standards institutions are at the origin of merely 2.4 percent of notifications, whereas the remaining 12.1 percent of draft standards are notified by the EFTA countries. As is the case for technical regulations, the number of notifications of new draft standards received from Germany is tending to decrease; the figure for Britain tends to increase; and the number of French and Italian notifications remains fairly constant. A marked difference, however, between technical regulations and standards exists with regard to the consequences of notification: although notified national draft regulations were occasionally blocked (six in 1988, twenty-two in 1989) by the introduction o f a Community directive in this field, and though in roughly one-third of the cases the draft initially notified was subsequently changed after comments received from the Commission or member states, in only fifteen cases did the notification of a national draft standard lead other member states to ask to take part in the national standardization work notified and in only one case was the elaboration of a European standard asked for. After the conclusion of a bridging agreement in December 1989, the notification procedure has been extended, since July 1990, to the EFTA countries, which already fully participated in CEN/CENELEC standardmaking.

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European Standard-Making Although CEN and CENELEC have existed as private organizations under Belgian law since the beginning of the 1960s, they were not very active until the adoption of the new approach. By analogy with the international standards organizations of the International Electrotechnical Commission (IEC) and the International Organization for Standardization (ISO), CENELEC deals with standardization in the electrotechnical field, and CEN deals with all other sectors. There are a number of associated standardization bodies (ASBs) with which CEN/CENELEC closely cooperate (e.g., the European Committee on Iron and Steel Standardization [ECISS]) and whose role the EC Commission would like to see increased. 1 4 A similar framework exists for the telecommunications sector with CEPT (European Conference of Posts and Telecommunications) and, most of all, ETSI (European Telecommunications Standards Institute), which was created in March 1988. Whereas in CEN/CENELEC every country is represented by its national standards institute, through whose national technical committees all input is channeled, ETSI has 212 direct members from posts and telecommunications (PTT) administrations, public network operators, manufacturers, users, and others. In particular, trade unions and consumers have attempted to secure seats in CEN/CENELEC technical committees, but so far direct representation of European interests has not been accepted in these institutions and would probably not be workable at this stage. In CEN/CENELEC, both EC and EFTA institutions take part in the elaboration of European standards, which are generally drawn up on the basis of consensus. Hence, it is very common that only a couple of interested standard institutions take part in the actual drafting work within the technical committees. After circulation of the draft for comments, a qualified majority voting is carried out, the weighting of votes being the same as under the qualified majority rules for the Council under Article 148 of the EEC Treaty, with corresponding weighting for the EFTA members. They range from ten votes for the four big standards institutions, AFNOR (France), BSI (UK), DIN (Germany), and UNI (Italy), to three votes for Denmark, Ireland, Finland, Norway, and Austria and only one vote for the Icelandic standards institution; the votes total ninety-six, with seventy-six from EC members. For a European standard (EN) to be adopted, four specific requirements, which are stricter than those under Article 148 of the EEC Treaty, have to be met: 1 5 (1) a simple majority (without abstentions); (2) at least twenty-five weighted votes in favor, (3) no more than twenty-two weighted votes against; and (4) no more than three members against the proposal. If the proposed standard fails to be adopted, a second counting takes place, limited this time to EC members. This procedure is rarely used, but it did prove necessary, for instance, for the adoption of one standard needed for

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the toy safety directive. As under EC law, an adopted EN has to be implemented, since 1985, in full as a national standard by all EC standards institutions—regardless of the way in which the individual member voted— and any national standard that conflicts with the EN must be withdrawn. This obligation only applies to those EFTA countries that have voted in favor of a European standard. Infringements of this obligation to implement an EN are in practice far less numerous than Article 169 (EEC Treaty) procedures against member states for failure to implement an EC directive. When European standards are worked out in order to concretize the essential requirements of a new approach directive, the Commission gives a precise mandate to CEN or CENELEC that includes a deadline and financial provisions. Currently two-thirds of CEN's standardization activity and onehalf of CENELEC's is linked to work mandated from the EC and EFTA. So far, thirty often complex mandates have been given to CEN/CENELEC and nine to ETSI. EFTA gives a separate mandate and funds to CEN/CENELEC for those standards that its members wish to join. These include most standards linked to new approach directives. In CEN/CENELEC, there are currently 239 technical committees (TCs), their number having almost doubled since 1987. For each TC, a secretariat is provided by one of the national standards institutions; every standards body tries to hold as many TCs as possible. At the international level, within ISO, the EC and EFTA together provide 65 percent of the secretariats and 45 percent of the financing. Within CEN/CENELEC, DIN holds the secretariat for a third of the TCs, and AFNOR and BSI both provide approximately 18 percent. Very often it is actually the institute that submitted the initial proposal or that already provides the relevant ISO secretariat that is given the secretariat. Until 1982, only ninety-six European standards had been adopted by CEN, and thirty-seven standards plus 303 Harmonized Documents (which allow for certain national deviations) had been adopted by CENELEC. Today there are approximatively 1,250 European standards and roughly the same number of drafts. In comparison with national standard-making, however, and despite the time pressure exercised by the mandates, there are still far too few European standards being published by CEN/CENELEC per year: 150 in 1989—seven times more, at least, than in 1982—in contrast to 650 national standards published that year by Germany, 4 0 0 by the UK, and 350 by France. 16

Directives Adopted in 1989-1990 In 1990 the results of the implementation of two new approach directives were experienced: the pioneer new approach directive on simple pressure vessels adopted in June 1987 1 7 and the Toy Safety Directive of May

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1988, 18 which was the first application of the new approach to consumer goods. So far, these experiences have been mixed: by October 1990, when the Commission published its report on the implementation of the legal acts required to build the single market, four member states (Denmark, Italy, Luxembourg, and the Netherlands) had not implemented the toys directive, which had entered into force in January of that year. The Commission introduced infringement procedures against these states. The situation was even worse, however, for the simple pressure vessel directive, which, three months after its entry into force (July 1990), had only been implemented by two member states: France and Belgium. Moreover, agreement could not be reached on time within CEN on the three European standards needed to concretize the essential requirements of the directive and that were asked for in the mandate that the Commission gave to CEN. And for the toys directive in particular it has already frequently been necessary to make use of the safeguard procedure. There also does not seem to be a uniform understanding of how exactly the directive should be enforced by the competent authorities, who generally operate on a local level. This means that in the absence of exact guidelines, enforcement may vary from one part of a member state to another. As far as the adoption of new approach directives is concerned, by December 1990 the Council had passed seven directives in addition to those on toys and pressure vessels. The two most important directives, as far as the scope of products covered is concerned—the machinery and the construction products directive—deserve to be presented in some detail. The construction products directive adopted in December 1988,19 to enter into force "no later than 27 June 1991," represents a particular case insofar as the essential requirements (for mechanical resistance and stability, safety in case of fire, energy economy, heat retention, and so on) relate to the actual construction works and not—despite the name of the directive—to the construction products as such. Hence the directive stipulates that "interpretative documents" shall be drawn up in order to facilitate the elaboration of European standards for particular products. These documents should provide a definition of classes of products that allow for differences in geographic or climatic conditions as well as in way of life. In concrete terms, this means that requirements for the resistance to rain and wind may have to be stricter for products used in Scotland than for those to be used in Portugal. Also, the tolerance of noise tends to be greater in some countries over others. For all these reasons, the directive grants large—including regulatory— powers to a standing committee, which, among other tasks, has to work out these classes of requirements as well as the interpretative documents. Conformity assessment is based in most cases on a "European technical approval" that is issued by a certification body authorized by a member state. In addition to the tricky link to be established between the products and

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the buildings, a difficulty stems from the fact that, unlike the situation encountered when the Low Voltage Directive was adopted and when recourse could be made to a host of international standards in the electrotechnical field, hardly any international or European standards existed for construction products. Indeed, the task for standardization was considered so large that a programming committee (CEN Programming Committee No. 1) was set up as early as 1986. Standardization activity since then has been rapidly increasing, with the original German domination o f the works gradually becoming less prominent. In December 1987 there were only ten technical committees within CEN dealing with construction products, in half of which the German DIN held the secretariat. By December 1989, however, the figure had increased to thirty-one T C s and ninety-six working groups, with then only a fifth (26 out of 127) o f the secretariats provided by the DIN. 2 0 Satisfactory implementation o f the construction products directive is made difficult not only by lack o f standards but also by the fact that in countries with a decentralized/federal structure, competence for laws and regulations in this field usually lies with the regional level, although the directive is, o f course, negotiated at the central/federal level. This difficulty leads to divergences on how to implement the directive and are not conducive to uniform enforcement. When assessing the economic significance o f the construction products directive, one has to bear in mind that this is not a sector where intra-EC trade plays a very large role. Because o f the very nature of these products and because of high transport costs, there are many regional markets and it is estimated that only between 10 and 15 percent o f turnover in construction products is traded across the border within the E C . The potential economic impact of the Machinery Safety Directive—the most important piece o f new approach legislation, adopted on June 14, 1 9 8 9 2 1 — i s tremendous, however. It is expected to remove technical barriers for about half o f the whole E C market in engineering machinery, the turnover o f which is worth roughly 2 0 0 billion E C U per annum. Although, as already pointed out, thirty-six implementing directives were needed for the 1974 Tractor Safety Directive, which applies to only one specific type o f equipment, the Machinery Safety Directive covers—in seventeen p a g e s — roughly 4 , 0 0 0 types o f machines, ranging from a pair of pincers to a power plant. Hence, in line with the basic philosophy underlying the new approach, machinery is defined in very general terms as "an assembly of linked parts or components, at least one o f which moves, with the appropriate actuators, control and power circuits, etc. joined together for a specific application, in particular for the processing, treatment, moving or packaging of a material including complex installations." Lifting equipment and mobile machines, initially excluded from the directive's scope of application, were to be covered by separate directives. T h e Commission then decided that the directive should be amended also to include these types of machinery. A common position on this extension o f scope, including particular essential

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requirements for these machines, was reached at the Internal Market Council in December 1990. The large number of essential requirements laid down in the directive (relating to materials used in construction, design for handling purposes, hazards relating to moving parts, fire, noise, vibration, radiation, emission of dust, and so on) can be met either directly or through manufacturing to a European standard. The rule for conformity assessment and affixing of the CE mark is self-certification by the manufacturer. Only for machinery that is considered particularly dangerous (e.g., woodworking machines) is an ECtype examination required. Of course, a safeguard procedure exists that allows machinery to be withdrawn from the market when it is liable to endanger people's safety, even though it bears the CE mark. This directive, which is to enter into force by December 31, 1992, was adopted extremely quickly—within a year's time. Full use was made of the principle of majority voting, introduced by the Single European Act; the directive was passed despite a negative vote from Germany. Particularly, the German Ministry for Labor and Social Affairs had, indeed, expressed fears that provisions for the transitory period (when European standards are to be worked out) might not be strict enough to ensure an adequate protection of health and safety. The lack of European standards is, indeed, likely to create significant problems for the implementation of the directive once it enters into force because it will be extremely difficult to meet directly the essential requirements, which are formulated in very general terms and do require concretization through standards. Industry estimates that a minimum of 200300 European standards have to be adopted. Twenty-five technical committees are currently carrying out work on these standards within CEN. For construction products, a programming committee (CEN Programming Committee No. 2) was created that distinguishes between three levels of standards: (1) level A, which refers to general safety codes of practice; (2) level B, which relates to specific safety devices and ergonomic aspects (common to different groups of machines); and (3) level C, which refers to specific classes of machinery, calling up the appropriate standards from the first two levels. 22 The Electromagnetic Compatibility Directive, 23 which was adopted in May 1989 and is to enter into force by January 1992, can also be considered a big success of the new approach because it replaces a host of often only slightly diverging national interference requirements, which were an important cost factor for manufacturers. The essential protection requirements stipulate that apparatus (defined as all electrical and electronic appliances that are liable to cause electromagnetic disturbance or to be affected by such disturbance) has to be so constructed that the electromagnetic disturbance it generates does not exceed a level allowing radio and telecommunications equipment as well as other apparatus to operate as

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intended. It furthermore must have an adequate level of "intrinsic immunity" to electromagnetic disturbance. The essential requirements can, again, be met either through manufacturing in conformity wiih a European standard or by keeping a technical construction file; for most radio transmitters and for telecommunication terminal equipment that is covered by another EC directive (86/361/EEC), an EC-type examination by a notified body is required. The Personal Protective Equipment Directive, 24 which was adopted in December 1989 and is to enter into force by July 1992, applies to "any device or appliance designed to be worn or held by an individual for protection against one or more safety and health hazard." Essential requirements are divided up into three categories: basic requirements (e.g., materials used), requirements specific to particular risks (e.g., mechanical impact, noise, and heat); and requirements common to several types of personal protective equipment (e.g., equipment for the face and eyes). The methods of satisfying these essential requirements range from self-certified conformity to the requirements to manufacturing to a European standards and EC-type examination, the certification of a quality assurance system being required in many cases. Quality assurance also plays a large role with respect to the different routes for attestation of conformity with the essential requirements set out in the Active Implantable Electromedical Devices Directive, adopted in July 1990. It applies to "powered medical devices implanted long-term in the human body that are intended by the manufacturer for use in humans for the control of conception, for diagnosis, prevention, monitoring, treatment or alleviation of disease or injury." From an economic point of view, the directive will in particular have a significant impact on producers of pacemakers. The two remaining new approach directives adopted so far relate to gas appliances 25 and nonautomatic weighing instruments. 26 These directives do not present any particularities except that in both cases, highly specialized products/instruments not manufactured in series undergo a specific route of attestation—the EC verification procedure. Lastly, the common position reached in December 1990 on the new approach telecommunications terminal equipment directive has to be mentioned.

Does It Work? The adoption of the various directives mentioned is, of course, the first step to make the new approach to technical harmonization work. However, with the first directives entering into force, the question of conformity assessment is increasingly becoming an issue in its own right. First, as already pointed out, the essential requirements are often too general to

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allow manufacturers to prove that their products are in conformity with these requirements. Moreover, conformity assessment is made particularly difficult by the fact that the meaning o f the C E mark is not identical in the different new approach directives. Most o f the new approach directives stipulate that the C E mark attests—as it is consistent with the principles underlying

the

new

approach—conformity

with the e s s e n t i a l

legal

requirements. In the toys and pressure vessel directives, however, the C E mark m e a n s c o n f o r m i t y with the national standard implementing

the

European standard. Furthermore, the C E mark looks physically different from one directive to another and the responsibility for its application varies. In some cases responsibility lies with the manufacturer (even after third-party c e r t i f i c a t i o n has b e e n carried out); in others it lies with the notified certification body. Because conformity assessment has so far been treated separately in every directive, some logical inconsistencies can also be found between directives. Although the Personal Protective Equipment Directive relies on type approval, even f o r comparatively straightforward products, under the machinery directive such type approval is not required for products that are potentially more dangerous. Moreover, there may not always be a good reason for type approval systems to vary from one directive to another, which tends to create a situation in which the wheel is constantly being reinvented. Problems also arise when a product is covered by several directives for which conflicting requirements exist. This is true for many machines that fall not only under the scope o f the Machinery Safety Directive but also under that o f the L o w Voltage Directive; the latter does not require a C E mark. In order to remedy these obvious weaknesses in the application o f the new approach, the Commission has been working on two sets o f horizontal legislation. On the one hand, in January 1991 it proposed a directive on the significance and use o f the C E mark; on the other hand, it had already issued, in July 1 9 8 9 , a communication entitled " A Global Approach to Certification and T e s t i n g — Q u a l i t y Measures for Industrial Products" ( C O M [89] [ 2 0 9 ] ) and proposed a Council decision on the modules for the various phases o f the conformity

a s s e s s m e n t procedures intended to be used in

technical

harmonization directives. This global approach was accepted in principle in a Council resolution in December 1989; the different modules to be used in the harmonization directive were adopted at the Internal Market Council o f December 1990. Conformity assessment not only covers the issue o f certification, but it also refers to testing, quality assurance systems (i.e., the creation o f a system that ensures that production is organized in such a way as to keep the quality o f the final product constant), and accreditation (i.e., the quality assessment o f a certification body). European standards, based on international I S O standards, exist for quality assurance ( E N 2 9 0 0 0 series) as well as for accreditation o f certification bodies (EN 4 5 0 0 0 series).

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The modules set out in the global approach refer to both the design and the production phases of the goods covered by technical harmonization directives: module B (EC type examination) relates to the design phase only; modules C - F (EC declaration of conformity to type; EC declaration of conformity to type with production quality assurance; EC declaration of conformity with product quality assurance; and EC verification) relate to the production stage only and cannot usually be carried out alone; and modules A (EC declaration of conformity), G (EC unit verification), and H (EC declaration of conformity with full quality assurance) relate to both the design and the production stages. The range of possible choices to be given to the manufacturer in the directives depends on the type of product, the nature of risk involved, and the economic infrastructure of the sector concerned (e.g., the existence or nonexistence of third parties). The modules attach particular weight to quality assurance (included in modules D, E, and H), which has already been used extensively for a long time in the UK and which initially met with much criticism from Germany, which feared that extensive recourse to such systems as well as compulsory accreditation for certification bodies might lead to a certain amount of unnecessary reregulation.27 The decision on the global approach also clarifies the meaning of the CE mark. It signifies that the manufacturer and/or the product comply with the essential requirements (and not the standards). If a product falls under several directives, the affixing of the CE marie represents conformity with all directives involved. The Council decided that it should always be up to the manufacturer to affix the CE mark, including where a module involves the issuing of a certificate of conformity by a notified body. In fact, the major problem with the global modular approach lies in the fact that it came out too late: most of the new approach directives had already been drafted or even adopted. If it had been proposed earlier, it might have been possible to significantly reduce inconsistencies between directives. As far as the external dimension of European standardization is concerned, which had gained highly political overtones in 1989, particularly with respect to the United States, the stress has now been laid on practical issues. The relationship with the United States has been conflictual, even though cooperation with the EFTA countries has been very successful in an inconspicuous manner for a long time, culminating in April 1990 with the adoption of the Memorandum of Understanding between E F T A and CEN/CENELEC for the setting up of the European Organization for Testing and Certification (EOTC), which includes the creation of the European Committee for the Assessment and Certification of Quality Assurance Systems ( E Q S ) . Initially, the United States feared that European standardization, which actually draws whenever possible on existing international standards, would be undertaken at the expense of international

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work and that it might lead to a "Fortress Europe." In order to alleviate these fears a special agreement was concluded between the US standards institution of the American National Standards Institute (ANSI) and C E N / C E N E L E C to allow for an early e x c h a n g e of drafts. 2 8 Participation in C E N / C E N E L E C standardization work through the national channels has, of course, always been possible for subsidiaries of US or Japanese firms. Also, as pointed out, the E C mark does not mean " m a d e in E u r o p e " but rather c o n f o r m i t y with the relevant C o m m u n i t y legislation; hence it also facilitates market access for manufacturers from third countries. Japan has even gone so far as to simply adopt the European standards on accreditation for certification bodies (EN 45000 series) in order to ensure easy access for its products.

Conclusions M a n y of the new a p p r o a c h directives have been adopted. And c o m p l e x interactions have taken place between public agencies (responsible for the legislative aspect of technical harmonization), standards-making bodies (with a private status of having to "fill in" the essential safety requirements laid out in the d i r e c t i v e s ) , and c o m p a n i e s w h o s e p r o d u c t s h a v e to meet these requirements and have been "tried and tested." Thus the focus of attention has been shifting not only toward issues of implementation and enforcement: the C o m m i s s i o n h a s also issued, in O c t o b e r 1990, a g r e e n p a p e r o n the development of European standardization, in which it proposes the creation of a European standardization system that would allow for direct participation of various interested parties at the European level. It remains to be seen h o w national standards institutions will adapt to the setting u p of this system, as it m a y significantly reduce their role.

Notes 1. Council decision of May 7, 1985, published in Official Journal of the European Community, No. C 136 of June 4, 1985. 2. Commission of the EC, Completing the Internal Market. White paper of the Commission to the European Council, COM (85) 310 of June 14, 1985. 3. For details, see GEWIPLAN, "The 'Cost of Non-Europe': Some Case Studies on the Technical Barriers," pp. 43-223, and MAC GROUP, "Technical Barriers in the EC: An Illustration by Six Industries," pp. 7-37, in Commission of the EC (ed.), Research on the "Cost of Non-Europe," Vol. 6 (Luxembourg: Official Publications of the EC, 1988). 4. See, e.g., Hans Gunther Oberlack, Handelshemmnisse durch Produktstandards—Ökonomische Aspekte ihrer Beseitigung (Hamburg; 1989); or Joseph Farrell and Garth Saloner, "The Economics of Horses, Penguins and Lemmings," in H. Landis Gabel, ed.. Product Standardization and Competitive Strategy (Amsterdam: Elsevier, 1987).

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5. Commission of the EC, "Completing the Internal Market: An Area Without Internal Frontiers," Progress report required by Article 8b of the EEC Treaty, COM (90) 552 of November 23, 1990. 6. Ibid., p. 11. 7. See Commission of the EC, "Implementation of the Legal Acts Required to Build the Single Market," Communication from the Commission to the Council and the European Parliament, COM (90) 473 of October 5, 1990. 8. See Official Journal of the European Community, No. C 76 (June 17, 1969). 9. Council Resolution of July 16, 1984, and May 7, 1985. 10. Precedents in member states' legislation can be found, for example, in the German "Geratesicherheitsgesetz" (law on safety of all kinds of equipments) or in English building regulations that take into account the concept of "functional requirements." 11. Directive 83/189, published in Official Journal of the European Community, No. L 109 (April 26, 1983), amended by Directive 88/182. 12. Commission of the EC, "Communication by the Commission to the Council and the European Parliament About the Instruments for the Completion of the Internal Market," COM (89) 422 (September 7, 1989), Annex VI. 13. This corresponds to 39.2 percent of all standard-making activities notified that year, the remainder referring to European (33.9 percent), international (22.7 percent), and national standardization work linked to European or international standards (4.2 percent). 14. See recommendations made in EC Commission, "Commission Green Paper on the Development of European Standardization: Action for Faster Technological Integration in Europe," COM (90) 456 (October 8, 1990), p. 27. 15. A nonweighted voting procedure also exists at the international level: for an ISO standard to be adopted, three-quarters of the members must vote in its favor; in IEC a standard is adopted unless 20 percent of members vote against it. 16. EC Commission, "Commission Green Paper," p. 12. 17. It seems that the philosophy of the "new approach" was developed during work on the simple pressure vessel directive at the beginning of the 1980s, still under the old approach. 18. Directive 88/378 EEC, Official Journal of the European Community, No. L 187 (July 16, 1988). 19. Directive 89/106/EEC, Official Journal of the European Community, No. L 40 (February 11, 1989). 20. For further details, see Peter Kiehl, "EG-Bauproduktenrichtlinie und ihre Auswirkungen auf die Normungsarbeit," DIN-Mitteilungen, No. 5 (1990), pp. 250-256. 21. Directive 89/392 EC, Official Journal of the European Community, No. L 183 (June 29, 1989). 22. For details, see Wilhelm Dey, "CEN-Normung zur Maschinensicherheit. Strategie, Arbeitsweise und Stand der Arbeiten," DIN-Mitteilungen, No. 12 (1990), pp. 666-674. 23. Directive 89/336 EEC, Official Journal of the European Community, No. L 139 (May 23, 1989). 24. Directive 89/688 EEC, Official Journal of the European Community, No. L 399 (December 30, 1989). 25. Directive 90/396 EEC, Official Journal of the European Community, No. L 196 (July 26, 1990).

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26. Directive 90/384 EEC, Official Journal of the European Community, No. L 189 (July 20, 1990). 27. For these fears, see Hartwig Berghaus, "Europäische Aktivitäten im Bereich der Zertifizierung—Die Intentionen der Brüsseler EG-Kommission," D1NMitteilungen, No. 31989, pp. 128-131. 28. For further details on EC-US relations in the standards field, see Simon Downe and Helmut Reihlen, "Europäische Normung, Zertifizierung und die USA," DIN-Mitteilungen, No. 71990, pp. 333-336.

9 Financial Services and the Internai Market Peter Vipond

The financial services sector of the European Community's economy has had a significant impact on the internal market program. There are benefits for the retail consumer when a single market for financial products is created, and there are widespread potential gains for other industries that require financial services as part of the production process. Indeed, the European Commission's report on these gains, which was based on the Cecchini study, argues that more than 50 percent of the output of the financial services sector is for intermediate purposes, whereas only 20 percent is consumed directly by households.1 Given the importance of the financial services sector, it is not surprising that much effort has been put into turning the internal market proposals into substantive policy backed by directives (and a few regulations). This chapter reviews progress in this sector and explains why policies for creating the single financial market have taken a distinctive form. The chapter is divided into three sections. The first provides an overview of the issues, situating the financial services sector in the context of the internal market program and analyzing the approach to the reregulation of the financial services sector. The next section provides a sectoral review that deals with the particular directives designed to achieve a single market. Finally, the third section provides an assessment of how much progress has been made and what the key policy issues will be after the internal market has been created. The term "financial services" is relatively general and deserves clarification. However, it is worth noting that the generality of the term is highly appropriate in this context and adds to the significance of what is being attempted in the internal market program for financial services. Many of the traditional distinctions in the financial services industry have broken down in EC states, partly because of governmental initiatives to achieve deregulation but mainly because market forces have rendered them entirely obsolete. Given this situation, an EC approach that set out creating a new regulatory order based on traditional divisions (retail banking, investment 113

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banking, insurance, securities, and so on) would have been obsolete before it was implemented. Further, it would have imposed unwarranted constraints on the development of financial services companies. Worst of all, it would have prevented the emergence of competition in the financial sector by portioning off some financial products (e.g., insurance) as the preserve of only one type of financial services company. Although some specific regulations addressed to sectors of the industry have proved necessary, the EC approach is manifestly closer to regulation by overall capital adequacy than regulation through control over the range of financial products any one institution can provide. Financial services then includes all aspects of banking, insurance, and securities as well as a host of specific products such as foreign exchange dealing, investment management, credit reference services, and money brokering. In addition to the term "financial services," it is worth clarifying what is implied by the phrase "movement of capital." In principle, there could be freedom to supply financial services but no freedom to move capital assets across national frontiers. Companies would have to set up subsidiaries in all member states, with little cross-border cooperation and extensive rules on the repatriation of profits. In practice, to make the free movement of capital a reality (alongside the free movement of labor, goods, and services) the freedom to provide financial services has to be underpinned by the free movement of capital. A directive (88/361/EEC) has been introduced for this purpose and will be considered in this discussion. An effective capital movements directive must allow for the transfer of capital in its own right and not merely as a corollary of another transaction concerning goods and nonfmancial services. 2

Overview There are relatively few who would today stand by the figures in the Cecchini report as having a high degree of accuracy with regard to the financial services sector. Nevertheless they still provide the only general guide to the kind of benefits that could be obtained for the EC as a whole from the establishment of a single market in financial services. Even if they contain a significant margin of error, the gains from a single market in this sector will still be considerable. Further, much of the empirical economic research undertaken for the Cecchini Report confirms what was generally held to be true by banking specialists, suggesting that the research is not radically misguided. For example, much research focused on a series of standard financial products that were priced across the EC and put into a "basket" to give an overall figure on the level of price saving that could be expected within a single market. The products included such things as the cost of a consumer loan, term life insurance, and securities transactions for individuals and

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institutions. The UK, Dutch, and Luxembourg financial systems emerged as the most competitive, with expectations of an overall price cut of less than 10 percent, whereas Itaiy was twice the UK rate at 14 percent and Spain would benefit from price cuts in excess of 20 percent. The overall gain to the internal market for financial services at 21 billion ECU, measured in static cost terms, is considerable, particularly because a hypothesis of the research was to discount possible gains by 50 percent in general. 3 Although criticisms can be made of the methodology employed, the results reflect what is known about EC financial service markets from other sources. For example, the UK has particular strengths in life assurance and in the transaction costs for wholesale securities, whereas it is weaker in the cost at which consumer credit is provided. All this is confirmed by the empirical studies that were undertaken. The significant benefits of a single market outlined previously are, however, only part of the story. Arguments were developed about the dynamic effects of these price changes through improvements in the marginal efficiency of capital, among other factors. These dynamic effects, when evaluated at the macroeconomic level, using the Organization for Economic Cooperation and Development (OECD) Interlink model, produced striking results for the EC economy. Gross domestic product (GDP) in the EC would be between 0.8 and 2.1 percent higher over the medium term (six years), with a net gain of new jobs in the region of 230,000-570,000. These are major gains, and they are significantly greater than the gains associated with the abolition of frontier controls and the opening up of public procurement given in the same study. 4 The particular dynamic effects of a single market for capital are considerable, providing firm economic reasons for the policy of deregulation that is being pursued. In other words, the financial sector is an important area of industry in its own right but more important still for the effects it can have through increased competition and lower prices on the costs to every other sector. Whereas there may have been doubts about the quantitative assessment of the gains available among some member states and by some industry analysts, there has been general agreement among all major policymakers in this area that gains of a considerable order are available. More important, it has been widely accepted that the only way to realize these gains is by liberalizing the intra-EC trade in financial services and using competitive pressure to force down prices and bring about a restructuring of the industry. This process is often known as deregulation, but reregulation is a more appropriate term because the new regulatory environment that is emerging is, in many ways, more formal and complex than the previous one. The development of policy in this area through the reregulation of the financial services sector has proved to be as complex in the development of policies as it was simple to agree that substantive gains were readily available. Major factors affecting the design of policy include re-

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regulation and competition, the balance of regulatory power, and product innovation.

Reregulation

and

Competition

Although bankers and financiers generally have a strong belief in the benefits and disciplines of rigorous market-based competition, they have often believed that such competition cannot, for various unique reasons, be applied to their o w n industry. T h e y have been supported in this view by governments motivated by a number of concerns. Competition can bring company failure as well as success, and governments have been convinced this could create a contagion within the financial sector, i.e., systematic risks are present. Further controls over the price of financial products (especially credit) have proved an easy way of implementing monetary policy, whereas the allocation of credit has often been used as a means of targeting industrial investment. In this light, the degree to which E C member states have been prepared to accept a new regulatory order, including the free movement of capital, is the clearest indicator possible of the degree to which they have abandoned traditional interventionist industrial policy and also accepted the nonviability of independent national macroeconomic policymaking. Subject to the constraints of investor protection and the stability of the financial system, the aim has been to reregulate to promote competition. 5 These constraints can in practice be considerable, particularly when compounded by national interests that seek to defend traditional practices such as a centralized market for securities trading. Competition needs to be constructed and can take a variety of forms. The dimensions of competition and the degree of competition attained can and does vary. Generally where financial products are used by individuals (as opposed to corporate users), the E C has been less inclined to force through competitive reregulation. For example, life insurance products can be bought from companies based in other member states, but at present only by the consumers' o w n initiative in seeking them and not by such methods as direct advertising by companies based in other states.

The Balance

of Regulatory

Power

National regulators of financial services (for example, the Bank of England and the Securities and Investments Board in the U K ) have shown a determination to retain a major role. In any case, the E C Commission simply does not have enough staff to take over the comprehensive regulation of all financial services companies in the EC. Given the economic costs of attempting such a task and the political costs incurred through such a blatant breach of the subsidiarity principle, the E C has not even proposed such a role. T h e staff at Directorate-General (DG) X V who deal with these

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matters are few (less than 100) and already fully occupied. Therefore a complex regulatory situation has emerged where regulatory power is divided. The Commission's role has not been to set itself up as a second tier regulator, or to deal with specific cross-border issues. Rather, it has sought to establish and enforce a set of rules aimed at opening national markets, allowing cross-border financial transfers, and promoting uniform standards in a limited number of key areas such as capital adequacy, accounting, and the listing of stock exchange prospectuses. This is most commonly put in terms of the twin principles of harmonization in a few areas and mutual recognition of national regulation in others. From this position it is logical to argue that " h o m e " countries should authorize financial institutions, but that the "host" countries in which they operate (through representatives, subsidiaries, or by direct marketing) should have some power over the application of the rules under which the institution works within that national market. The complexity of this situation is enhanced by the international regulatory dimension, which requires a three-way balance of regulatory power involving international agencies in setting key standards. For example, the Bank for International Settlements has been central to the activity of setting capital adequacy standards that have been adopted (with minor changes) as part of the E C ' s own reregulation of credit institutions. There are then three levels of financial regulation at work, sometimes involved in zero-sum disputes about regulatory power, but often acting on separate issues or even in developing a complementary approach to similar regulatory issues. Product

Innovation

The design of policy has needed to take account of the emergence through competitive pressures both in retail and wholesale financial markets of institutions, which offer a wide range of products from insurance and securities dealing, to coiporate finance and investment management as well as credit. In this process there has been widespread product innovation, not only in areas such as financial futures and exchange rate risk management, but even in the humble retail credit account, where the move has been to offer interest and a variety of add-on products. Policy designed in this environment is liable to be reactive in some regards while attempting to be proactive at the same time in seeking to anticipate new products and new institutional structures. Although product innovation and conglomeration are not necessarily connected, this type of institution has advantages when it comes to providing a comprehensive product range for both retail and corporate customers. These issues have helped shape the policy environment in which the directives considered in the next section have been formulated.

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Sectoral Review At the outset of any sectoral review, the Capital Movements Directive (88/361/EEC) deserves comment. This directive basically abolishes all controls on the movement of capital, whether in the form of controls over short- or long-term instruments, between member states. There are only two classes of exemptions to this radical approach. The first class consists of derogations for small or new member states that have problems with regard to their balance of payments situation or economic adjustment. The second class consists of the problem of short-term capital movements that threaten monetary and exchange rate policy—an issue that in principle could face any m e m b e r state. In this case, Article 3 allows for the reimposition of exchange controls, but only after consultation with the E C ' s monetary committee and the governors of the central banks, and subject to "conditions and details. . . which the Commission shall determine" (88/361, Article 3). The first class merely gives time for vulnerable countries to adjust to the free movement of capital and does not provide permanent exemptions; the issues addressed in the second class would clearly be resolved with the advent of monetary union. In other words, the free movement of capital is realized to the (considerable) extent that it is practical at the present time, though the door to complete liberalization is not closed. The freedom to move capital in this way has profound implications that outweigh in importance many of the specific measures. It is now possible to move capital out of one country and invest it in a bank in another country with much greater ease. It is easier to direct-market some products across national frontiers by means of advertising. Corporations can now move capital and invest it at lower cost though there are still the exchange rate and transaction costs that follow from having twelve national currencies as opposed to one. 6 Finally, given that some member states such as Germany and the UK maintain no restrictions on capital movements to non-EC countries, it is increasingly easy to move capital from inside the EC to anywhere else in the world. Banking The most important directive in this field was finally agreed upon in December 1989 and is known as the "Second Council Directive on the coordination of laws, regulations and administrative provisions relating to the taking up and pursuit of the business of credit institutions and amending directive" (77/780/EEC). With a title like this it is not surprising that it is usually referred to as the Second Banking Directive (89/646/EEC). This directive allows the "home" country to authorize a bank and to take primary responsibility for supervising it throughout the EC. The various "host"

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countries in which that bank delivers financial services, either through subsidiaries, branches, or by direct cross-border selling, cannot attempt to authorize it again or impose controls on its operation that they do not impose on national banks. T h e y can impose controls for the purposes o f effecting monetary policy but these must not be discriminatory against nonnational institutions. There is at present a gray area over the issue o f whether a bank ought to be able to offer a financial product in a host country if it is allowed to provide that product in the home country and that product is covered by the list in the appendix to the directive. Variable-rate mortgages are c o m m o n in the U K , for example, but should British banks and building societies be able to o f f e r them in countries where they are not presently available and may indeed not be legal? This is the sort o f area where cases will have to be brought before the European Court o f Justice or where the Commission will have to issue fresh directives. It is an important matter because the Second Banking Directive covers, in the list o f activities subject to mutual recognition, a very wide range o f products consistent with a modern conglomerate institution. These include acceptance o f deposits and a full range o f credit facilities as well as foreign exchange dealing, financial futures dealing, dealing in transferable securities, money brokering, corporate advice, and other activities. T h e extensiveness o f this list e x p l a i n s why the principle o f mutual r e c o g n i t i o n has

such

significance in the single-market program for financial services, whereas the existence o f a gray area shows that policy implementation will be less clearcut than the design o f the directive. T h e second directive deals with a number o f other matters besides mutual recognition, such as the question o f reciprocity (Articles 8 and 9). T h e s e articles have been changed to give less power directly to the Commission and reduce the e f f e c t o f sanctions. However, in essence they still allow the Council, acting on a proposal from the Commission and voting by qualified majority, to prevent further authorization o f banks from any third country that does not give national treatment to all banks from E C m e m b e r states. As an instrument o f trade policy this may be rather too dependent on extended procedures but it still has considerable potential. In practice, these sanctions are far less likely to be used against Japanese and U S banks, most o f which are now established in the E C if they wish to be, than against some newly industrialized countries ( N I C s ) and even emerging Eastern European states that at present heavily curtail the openings available to E C banks. I f mutual recognition is to be acceptable, then it requires to be set in a context o f harmonization; this is provided in Titles II and I V o f the Second Banking Directive as well as in the Own Funds Directive ( 8 9 / 2 9 9 / E E C ) and the S o l v e n c y Ratio Directive ( 8 9 / 6 4 7 / E E C ) . Collectively these provisions determine what is to count as capital and how certain capital assets (such as gains on securities held by banks) are to be discounted f o r risk. T h e y determine the minimum level o f capital that credit institutions should have

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(usually 5 million ECU); above all they provide the framework within which capital adequacy can be calculated. It is because the same rules are used to assess capital adequacy and therefore the financial soundness of these institutions that member states have been willing to allow mutual recognition of national supervisory systems. The approach in principle promotes a level playing field in terms of competitive advantage. It also provides evidence of how national regulators have retained power and, with the support of member states, narrowly circumscribed the role of the European Commission. It would be fashionable to justify this situation with reference to subsidiarity arguments, but there is a real danger that in eviscerating the executive powers of the Commission, tacit anticompetitive practices will emerge between some national supervisors. Further, the integration of financial markets will be inhibited for want of "motor of integration" to sustain momentum in the process. To rely on market pressures, essential as they are, is to ignore the failures of the past when, even within a supposedly common market, market pressures on their own achieved very little. Securities

The situation regarding securities is less clear than for banking. This is partly because some securities services are covered by the Second Banking Directive (i.e., if they are carried out in credit institutions), and partly because it has not been possible to reach agreement on key aspects of how the industry should be supervised. Against this, however, there are a number of areas such as trading in collective transferable securities (unit trusts) and the contents of prospectuses for the listing of new securities where directives have been agreed upon and implemented. As with the area of banking, the aim has not been to work out common rules for all financial services in all member states but, rather, to allow mutual recognition of different national rules so long as agreed minimum conditions are met. In the case of unit trusts (also known as open-ended investment companies or contractual funds) the minimum (harmonized) rules include the spreading of risk, the nature of acceptable investments, and the separation of trustees and managers for the assets in question. The resultant directive still allows for national rules to govern the marketing of these products and still requires notification to the relevant national authorities that they are to be sold in a particular country ([85]/611/EEC, modified [88]/220/EEC). As a result, what is emerging in practice is something more complex and multifaceted than the apparently simple notion of a single market implies. National markets remain, reinforced by distinctive regulations (and no doubt by differing national tastes as well). However, the opportunities for market access in this area, as in many others, are enhanced and the costs for such entry are reduced by new regulations and the

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opportunity to develop a wholesale EC-wide product, even if it requires twelve different sets of national wrapping paper. There has yet to be a comprehensive breakthrough in terms of agreement on the proposed Investment Services Directive (COM [89]629 final) and the related capital adequacy directive. These will apply to investment firms that are not credit institutions and also in part to the securities operations of credit institutions. There is disagreement about what is to count as capital and how much capital is required for capital adequacy in the securities field. Generally, the Germans are pressing for higher levels of capital adequacy whereas the British are for significantly lower levels. This is partly a reflection of attitudes to risk, but it also reflects that securities trading in Germany is mostly undertaken by large banks, whereas the UK also has a class of firms with little capital that trade successfully and add liquidity to London's financial market. A more general disagreement concerns the nature and regulation of the financial market. Generally, Paris and Frankfurt support an approach that is less orientated to the freedom to supply services and more concerned with the need to have a centralized market structure through which all business is conducted in a transparent way. British interests are opposed to such transparency and to the compulsory use of a centralized marketplace. Rather than resolve the issue, the compromise directive may either fudge it or merely codify divergent national practices. Despite the problems at the core of the securities program, there have been considerable small successes, some already mentioned. New securities are subject to the same conditions with regard to the information prospectuses about them must contain (89/298/EEC). All EC companies with listed securities must publish a common set of information on a halfyearly basis, and shareholdings above a certain number of thresholds must entail public disclosure by the shareholder. Other directives have been agreed upon including the broadly written Insider Dealing Directive (89/592/EEC). This makes insider dealing illegal in all member states—something that was not the case before. Even if illegal, approaches to insider trading vary considerably, as can be seen by a recent strategic forecast of European capital markets by the management consultants Arthur Anderson. They found that in some EC countries, leading figures in the industry think "insider trading creates more efficient markets by providing a mechanism to move prices to their true level rapidly." 7 Even in Germany only just over 50 percent of respondents thought that legal restrictions on insider trading were necessary. 8 This serves as a good example of how creating a new regulatory order is undertaken in a specific cultural context that affects how regulations are interpreted and may be difficult to reform. Generally, there has been solid progress on promoting a common set of rules for what is to count as a security, how it is to be traded, and how companies are to be governed by rules in the securities industry. Investor protection in the retail market has been given high priority, as may be

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e x p e c t e d given its potential salience as a political issue for national governments. There has yet to be a real policy on what Europe's securities markets should look like by the m i d - 1 9 9 0 s as regards the operation o f national markets and the extent to which they should share a common trading system.

Insurance F o r many years prior to the establishment o f the single market program, insurance was an area that saw little progress. National regimes in retail insurance products were firmly established, yet areas such as reinsurance have been international in market structure for many years (for example, there is an E C reinsurance directive dated 1964). Many governments were wary o f a new E C set o f rules because insurance products often have to be provided over many years (e.g., life insurance) and the companies supplying insurance products need to maintain substantial reserves because o f the distinctive nature o f their business. T h i s position o f heavy reliance on the slow process o f harmonization has c o m e under attack through actions brought in the European Court o f J u s t i c e and a realization among policymakers o f the importance o f a competitive insurance market for reducing industrial costs. After years o f little activity there has suddenly been an outburst o f agreement, the extent o f which has taken some o f the parties involved by surprise. After the first directives in life and other kinds o f insurance were agreed upon in 1 9 7 9 and 1973, respectively, there was silence. During the past year, however, second directives in both areas have been agreed upon and proposals are now being formulated for third directives. B o t h o f the second directives make use o f home and host supervision rules but apply them in a very specific way, the aim o f which is to be far more liberal when dealing with corporate consumers or well-informed individuals than with the general public. As regards non-life insurance business dealing with large risks such as marine and aviation matters or fire insurance for m a j o r buildings, the regulation is applied on a liberal basis. T h e r e is no great difficulty in writing cross-border business, but since the regulation c a m e into force in July 1 9 9 0 there has been no great rush into cross-border selling. This is at least in part because o f the generally poor levels o f return presently available on such business. In other words, market conditions and regulatory ones need to be considered in relation to each other if we are to explain the development o f European financial markets. L i f e insurance sales across national frontiers remain subject to stricter c o n t r o l s , with the only possibility being i f customers take their own initiative in seeking out life insurance in another E C country. At present, c o m p a n i e s cannot advertise across national frontiers or merely set up marketing offices in other E C states. T o provide life insurance in another E C

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state, they need to set up a company there and comply with host country requirements on such matters as premium rates, policy terms, and the existence of local assets. These are usually so onerous as to make market entry uneconomical. In addition to these matters discussed, the EC has brought three directives forward on motor insurance and is actively looking into such areas as control over pension fund management with a view to creating a more integrated market. Insurance companies within the EC have often operated solely within national markets; where they have not, as with many UK companies, their orientation has been outside the EC toward the United States or the Commonwealth. This factor, plus generally high costs of market entry, continuing regulatory differences, and problems over accounting standards, has not produced a rapid restructuring of the industry within the EC. However, links between companies are developing and in addition some banks are looking to merge with insurance companies in order to gain the size necessary for self-protection in a more predatory market. Such mergers reinforce the trend to conglomeratization or "Allfinaz," as a broadly similar phenomenon is known on the continent. A recent example of this is the merger of National-Nederlanden and NMB Postbank, one of the Netherlands' largest insurance companies and largest banks, respectively, in November 1990. This merger created a large financial services company (with net assets of Dutch florin [Fl] 15.5 billion), able to defend a position in the competitive Dutch marketplace and with the capital to develop operations within Europe and internationally. From being a relatively low profile area, with negligible progress toward a common market in Europe, this sector has become one of considerable interest and importance. Regulatory change and the gradual emergence of European strategies by many companies mean the pace of change in this sector is rising, a trend reinforced by the long-term tendency toward higher marginal propensities to save in countries that have seen a remarkable growth in real income levels.

Assessment Any assessment of the internal market in financial services at this stage of its creation is obviously provisional. However, the principles underlying such a market are clear in the regulatory changes that have been examined here. Further, there is some preliminary evidence about how far the financial industry has sought to respond to these changes in a context where it is in any case moving toward a more conglomerate form of organization and where the reality of international capital markets is affecting the way in which all such companies do business. Whether the European financial area that is being created is called a

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single market or an internal market, the analysis provided here shows that it will not be a unitary market. Twelve sets of national rules for many financial services will continue to exist, though all will have been modified in order to facilitate ease of establishment in host states and to allow direct cross-border selling for some financial products. Even if all national regulations had been swept aside and replaced with one EC model, there would still be the problem of different tax and accounting systems requiring different product strategies, and usually giving advantage to national institutions over other EC ones. In addition, there are significant differences between national markets, some that reflect different national tastes (e.g., the strong UK demand for variable rate mortgages) and some that reflect the large differences in per capita wealth (compare the size of life insurance premiums as percentages of GDP in countries such as Greece with the UK or Germany). The aim of the single-market program in this light was always less than the achievement of a unitary market. Instead, it was to facilitate entry into markets by reducing or removing regulatory barriers and creating a generalized commitment in all member states to open and competitive financial systems. In the banking sector many companies have been inhibited by lack of capital at a time when international rules about capital adequacy are forcing them to strengthen balance sheets, and where the costs of international expansion have been high (and the rewards often low). There has been much talk of alliances and some signed agreements, often backed by share exchanges, such as the deal between Banco Santander and the Royal Bank of Scotland. There have been some takeovers in specialist areas such as the acquisition in 1990 of the German bank Merck Finck by Barclays of the UK or the acquisition of Mogan Grenfell, the UK merchant bank, by Deutsche Bank. Both these cases are instructive, however, in that the purchaser does not wish to absorb the purchased institution into the rest of the bank but instead retains its autonomy and identity, using these factors as key marketing advantages. Companies that have diversified abroad have often experienced losses as much as gains. Several French banks such as Credit Lyonnais have implemented an acquisitions strategy in Europe, despite the difficulties we have considered. The results are still not entirely clear, with a mixture of successful acquisitions and some failures such as the attempt to be a market maker in UK securities based in London. Empirical data are still fragmentary, but the move toward conglomerate structure and Europe-wide market presence has been slowed by the issues discussed, which include both regulatory and market factors. Although it has been slowed, it has not been stopped. The issue is really one of time scale and market conditions, for the single-market program covers five years only, and these are five years during a time when international factors such as capital restructuring, Third World debt, and declining margins have restricted the scope of action for many companies. In many ways, once the singlemarket program is out of the way, and the international environment is less

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o f a drain on resources, companies will be in a new situation. T h e r e will be more opportunity for market entry where oligopolistic market structures allow for supernormal profits, and there will be more opportunity for strategic alliances and mergers. There may even be scope f o r contested takeovers, though many restrictions will still exist on these in continental Europe and the price paid in such circumstances may be difficult to justify when measured against the net asset value o f the companies concerned. Given these factors, banks that are vulnerable on capital grounds and nonmutual c o m p o s i t e insurance c o m p a n i e s look the most likely to be involved in takeovers and mergers. A f t e r the present

round o f directives,

the C o m m i s s i o n

will

be

involved more in implementation than new legislation. T h i s m a y well take the same form as a recent decision o f the Commission in which an agreement to maintain uniform c o m m i s s i o n rates for several

banking

services by Dutch banks was stopped—an example o f how traditional competition policy and recent financial services policy can reinforce each o t h e r . 9 As argued, this implementation will ultimately require that the C o m m i s s i o n ' s executive powers o f investigation and executive action are strengthened, something that national regulators cannot be relied on to support. During the 1 9 9 0 s the relative balance o f new regulatory innovation and implementation will be argued as part o f the policy process. It will be argued, however, against an agreed commitment o f member states toward more open and integrated financial markets where the industrial structure o f the financial sector is determined more by competitive pressures and less by national barriers. T h e pace o f progress will be affected by many factors, not the least o f which will include moves toward economic and monetary union and the distributional effects o f the single-market program on the weaker (and usually smaller) states. In any event, given the very real successes so far, and the political c o m m i t m e n t that exists to extend them, would it really be churlish to argue that the E C may well have more integrated capital markets, and a better organized financial services industry, than the United States by the end o f this century?

Notes 1 . M . Emerson et al., The Economics of 1992: The EC Commission's Assessment of the Economic Effects of Completing the Internal Market (Oxford: Oxford University Press, 1988)', p. 98. 2. D. Servais, The Single Financial Market (Luxembourg: Official Publications of the European Community, 1988). 3. Emerson, op cit., p. 106. 4. Ibid., Tables B l , B2, and B3, pp. 262-263. 5. Organization for Economic Cooperation and Development, Competition in Banking (Paris: OECD Publications, 1989).

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6. Commission of the EC, One Market, One Money, European Economy, No. 44 (Luxembourg: Official Publications of the European Community, 1990). 7. Arthur Anderson and Co., European Capital Markets: A Strategic Forecast (London: Economist Publications, 1989), p. 37. 8. Ibid., p. 104. 9. Official Journal of the European Community, No. L 253, August 30, 1989.

10 Public Procurement Stephen

Woolcock

The opening of public procurement markets is one of the major aspects of the single European market program. Total public procurement in the EC accounts for about 15 percent of Community GDP. Only about half of this total, some 250-350 billion ECU in purchasing, is subject to contracts and thus potentially open to increased competition. Nevertheless, The Cost of Non-Europe Study concluded that there were potential savings of between 8 and 19 billion ECU from a liberalization of procurement markets. The task facing the Community was and remains twofold: to make effective the existing measures, introduced in the 1970s, that cover purchasing by central and local government, and to extend the coverage of effective Community provisions to the strategically important sectors of telecommunications, energy, transport, and services, which were excluded from the legislation of the 1970s because they were too difficult to deal with. In order to achieve these objectives, it will be necessary to develop legislation and procedures that are flexible enough to cover both public and private sectors but tough enough to ensure effective market opening. All this has to be done in a way that does not create a massively centralized system. The EC legislation will affect all economic activity involving thousands of contracts placed every day. The EC market has been relatively closed for some years. For example, in 1985 it was estimated that foreign suppliers accounted for public purchasing of only 4 percent in Germany, 0.3 percent in Italy, and 0.4 percent in Britain. The directives introduced in the 1970s1 failed to have any significant impact on the closed nature of these markets. The reasons for this were numerous: during the economic recessions of the 1970s, the pressure to ensure the survival of local suppliers was particularly strong; contracts were sometimes split up to ensure that they fell below the threshold for coverage of the directives; there were interpretive "tricks" to ensure that the EC legislation did not apply; and there was widespread use of exceptions. 2 Two of the major nonstatutory barriers to open procurement identified by 127

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the Commission are the use of national design standards and purchasing practices. Efficient purchasing has been seen as requiring close links between suppliers and purchasers. In some cases, new technologies have been developed jointly. This is, for example, generally the case with utilities where the switching technology for telecommunications or the transmission systems for energy are developed for the whole network. This symbiotic relationship between (national) suppliers and purchasers results in national design standards and closed markets. The effective liberalization of national procurement therefore requires the creation of genuine European or international standards. The established purchasing practice involves the use of perhaps four or five major suppliers, especially of specialized or high-technology equipment. In this way purchasers have sought to balance the commercial benefits of close cooperation with known suppliers and the desire to retain competition. The purchasers, both public and especially the private utilities, argue that merely obliging them to consider more potential suppliers will not be more efficient. The drawback with this approach is, of course, that it has tended to create national oligopolistic structures of supply and resulted in the fragmentation of the European market. For their part, suppliers have been reluctant to see the existing stable (national) oligopolies disrupted. This is particularly the case when contracts are large and complex. For example, contracts for power stations are uncommon, especially given the surplus generating capacity that existed in the EC during much of the 1970s, and the 1980s. The placing of a major contract could therefore mean the making or breaking of a national champion. In recent years the "supply side" of this oligopolistic structure has, however, begun to change rapidly as cross-border mergers and joint ventures have progressively eroded the national character of suppliers. One final problem is the absence of any consistency in the legal structures governing purchasing or remedies for aggrieved suppliers in the individual member states. Most continental member states include public purchasing in their administrative law and complaints are possible through administrative courts. This is not the case in Britain or Denmark, where a remedy must be sought through informal means, such as by complaining to an elected representative. In Germany and Spain, public purchasing is governed by private law of contract, and Germany argues that intervention in contract award procedures by public bodies is not possible under its Basic Law (constitution), even when it is to remedy noncompliance with EC directives. In theory all member states offer some form of remedy for discriminatory treatment of potential suppliers, but in practice these powers are seldom if ever used. Suppliers have also naturally been reluctant to bite the hand that feeds them. To many suppliers, initiating a case against a potential customer is a guarantee that they will not get further contracts. This absence of any common or effective remedy or compliance provision was the main reason

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for the ineffectiveness of the EC directives on supplies and works introduced in the 1970s.

The Commission's Program The Commission's program, when first drawn up in 1986, consisted of five directives. These were revised directives updating and improving the supplies and works directives covering purchasing by central and local government dating from the 1970s; a directive to strengthen compliance by providing remedies for aggrieved potential suppliers to central and local government; an excluded sectors directive (later called the utilities directive) extending coverage to the power, transport, water, and telecommunications utilities; and a directive extending coverage to the procurement of services, such as architectural or data processing services. 3 Two further directives were subsequently added to account for the special requirements in the utilities: a compliance or remedies directive for the utilities and a separate directive for services purchased by the utilities. Although the positions of the various member states and interest groups varied from sector to sector, the member state governments generally gave the Commission's program strong political backing, at least in principle. Again, very broadly speaking, the purchasers were either cautious or openly hostile to the proposals because they saw in them increased costs resulting from the need to comply with detailed EC directives. In many cases there had been little in the way of national legislation laying down purchasing procedures and where it existed it was not aggressively implemented. For purchasers, therefore, the EC directives represented new regulation. This was especially the case for private utilities. Although one might have expected suppliers to favor the opening of markets, this was tempered by a concern about the disruptive effect on national oligopolistic markets on the part of the large suppliers and a deep skepticism that the EC's program of legislation would change purchasing practices on the part of the smaller- or mediumsized suppliers. In contrast to many other parts of the internal market program, the Commission therefore had to contend with only halfhearted support or opposition from industry. The Commission first revised the two 1970s directives, starting with the supplies directive. The revisions tightened the contract award procedures that have to be followed when contracts are placed by central or local government. In particular, the use of single-tendering practices (the placing of a contract following negotiations with a single potential supplier) were circumscribed. Three forms of contract award procedure are now possible: negotiated contracts (with chosen suppliers), restricted (with a list of qualified suppliers), and open tendering. Hence there is still considerable flexibility. All contracts above the thresholds (130,000 ECU for supplies and 5 million

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ECU for works) are covered. The revised directives also seek to limit the exceptions from the use of European standards or national standards implementing them. A major difficulty here, which particularly affects the utilities, is the general lack of European standards. In order to rectify this position the Commission has sought to promote greater company involvement in standards-making and come forward with proposals for enhancing the European standards-making process.4 The objective of the directives is to ensure that contracts are placed according to commercial criteria. The one exception is with regard to social and regional policy objectives. Here the directives allow the member states to continue with national regional preference schemes in the placing of public contracts until 1992. 5 The Commission has, however, made it clear that it wishes to see national preferences phased out. The European Court of Justice in its Dupont de Nemours case has strengthened the Commission's position by challenging, under Article 30 (EEC), the Italian scheme, which sets aside 40 percent of all government purchasing for suppliers in the underdeveloped Mezzogiorno. These revisions caused little controversy. The member state governments had given the program their backing and were therefore prepared to accept the changes needed. Some purchasers, however, were mindful that the works and supplies directives would set precedents for the more controversial utilities and services directives that were to follow and lobbied against what they saw as a burden of compliance costs. For example, the British purchasers lobbied, unsuccessfully, against the obligatory use of European standards because they wished to retain technical sovereignty. The European Parliament, with the backing of trade unions, also sought to introduce stronger social measures that would enable procurement to be used to promote regional and employment objectives; it failed. 6

Comprehensive Coverage By far the most contentious directive was the utilities directive, which extended coverage to include all utilities in power, gas, water, transport, and telecommunications, whether privately or publicly owned. In order to cope with the problem of mixed (private and public) ownership, the Commission proposed that the criterion for coverage would be the existence of special and exclusive rights. Under this concept, any purchasers that benefited from such rights granted by the government would be covered because the granting of such rights provides the government with leverage it can use to influence who gets contracts. The classic example of the use of such indirect leverage has, in the mind of the Commission, been the British Offshore Supplies Office (OSO). By implicit links between the granting of licenses to explore and produce in the North Sea and placing contracts for equipment with

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companies based in the UK, the OSO was able to ensure that British suppliers took 50 percent of all offshore contracts. Although some recently privatized British utilities, especially British Gas, argued that because they were private they had to operate commercially and therefore should not be covered, the British government came down in favor of comprehensive coverage. In any member state in which the utilities remain predominantly in public ownership, such as in France and Italy, there is a strong interest in coverage of private companies. Otherwise their suppliers would not have equivalent access to the markets in member states where most have been privatized or where there is mixed ownership. France even sought more extensive coverage than the Commission by seeking to include, for example, the supply of power itself. This would enable higher utilization of French nuclear power by exporting to Germany, where the Jahrhundertvertrag obliges German power utilities to purchase power generated from German mined coal. Without this support virtually all the West German mines, let alone the brown coal produced in the five new Länder, would have to close. Germany emerged as the major opponent of the utilities directive. With the backing of its utilities and tacit support of the German suppliers, the federal government argued for the continued exemption of private German utilities. In the 1970s this had been successful and as a result all utilities, whether public or private, were excluded, but it failed in 1989 and 1990 because of the 1992 momentum. The German case was that all purchasers facing substitution competition should be exempt. This would have meant that as railways compete with road transport, and electricity competes with gas and other sources of heat, all these sectors should be excluded from the directive. Such an approach would have effectively destroyed the directive and was rejected by the Commission and the other member states. The directive was adopted by the Council in February 1990.7 One modification that was made to the directive was the introduction, in Article 3, of a provision allowing upstream oil and gas to be exempted from the contract award procedures set out in the directive on the condition that member states wishing to make use of this exemption when implementing the directive undertake to exert no influence on purchasing decisions and to ensure that contracts are awarded nondiscriminatorily. This provision was included because of the pressure from the major oil companies operating in the North Sea. But the British government, which sponsored the compromise in the Council working group, has not yet decided whether it will make use of it, because of interdepartmental differences and the fact that the costs of compliance could be as great as if the provisions in the directive were followed. As with government purchasing per se, there are difficulties resulting from the absence of European standards. This is particularly problematical in the utilities, where the existence of networks means that standards for

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interconnection can be a major factor in market access. It has been estimated that some 5,000 standards are needed to create European standards covering all the utilities, ranging from telecommunications through power transformers to rail systems. At present there are only about 1,000 European standards. The other major extension of the coverage involves services. Again there will be two directives, one covering public service contracts (i.e., purchasing by central or local government) and one covering the purchasing of services by the utilities. The proposed directive on public service contracts 8 groups services into three categories. First is priority services, which would be subject to a regime similar to that for supplies and works contracts. This category includes services such as maintenance, telecommunications and computer services, management consultancy, architectural planning property management, and refuse disposal. Second is residual services, which would be subject to less rigorous procedures but would also have to comply with basic transparency requirements. This category includes services such as educational and vocational training, cultural and sporting services, legal services, and some financial services. The third category would be services such as the provision of in-house services, which are reserved to particular professions in each member state and certain legal services. These will not be covered now but the Commission wishes to get them on the agenda of future liberalization. There will also be a separate directive for the purchasing of services by the utilities.

The Compliance or Remedies Directives The focus of the Commission's approach to compliance was not to create a centralized enforcement system but to require the member states to provide remedies for aggrieved suppliers. Such remedies would be open to all suppliers whether domestic or foreign, subject to the EC's third country provisions. The philosophy behind this approach is to help ensure market opening by creating an effective sanction against noncompliance. Because suppliers are interested in gaining access to new markets, they might be expected to have an interest in closely monitoring what is happening. Given the number of contracts placed, this would be impossible for any centralized body. The problem with this approach is that suppliers are likely to be reluctant about biting the hand that feeds them. The Commission, therefore, proposed greater powers for itself to suspend contract award procedures when they were not consistent with the directives. The idea of such an increase in EC power was, however, strongly opposed by the member states, which feared that it would set a dangerous precedent and argued that they should retain powers to ensure compliance, as well as by purchasers

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and suppliers, who were concerned about delays and costly uncertainties being introduced into purchasing procedures. As a result, the remedies provided in the case of central and local government purchasing are speedy interim measures, including suspension of contract award procedures at the discretion of the national authorities implementing the directive, not the Commission; powers to order the removal of discriminatory technical, economic, or financial specifications; and damages in the case of infringements. The member states' authorities may decide not to suspend a contract award procedure "when [the] negative consequences [in terms of increased costs for suppliers and the purchaser] outweigh the benefits." The Commission managed to retain a so-called corrective mechanism that enables it to notify a member state of "clear and manifest" infringement of EC directives. But if a member state fails to act on this notification, the only ultimate sanction available is the cumbersome Article 169 (EEC) route for general noncompliance by a member state. Under the remedies directive for supplies and works, adopted on December 22, 1989, 9 compliance will therefore largely depend on whether suppliers will be prepared to challenge decisions against which they feel they have been discriminated. Although there have been some signs that certain suppliers are prepared to do so, it is by no means clear that enough will. It was clear from an early stage that a separate remedies directive would be needed for the utilities in order to account for the fact that some of the companies were private. The Commission sought to stay as close as possible to the structure of the more general remedies directive for supplies and works but was obliged to accept other proposals, primarily because the private law governing contracts in the utilities field in Germany and Spain precluded any intervention. There was also strong pressure from the private utilities, led by the British utilities, for a system of auditing or attestation, which they felt was superior and less interventionist to the EC's original proposals. The Commission incorporated the British idea for attestation or audit of purchasing procedures into its revised draft directive. 10 It did so by offering attestation as a means of being exempted from contract suspension provisions. But in order to qualify for this exemption, the purchasing entity would have to comply with provisions governing the attestation of purchasing procedures that some purchasers feel are as onerous as those in the original directive. The decision on which entities, if any, should benefit from this exemption would be up to the member state government. The Commission's proposals also incorporated a German idea for an EC-level conciliation procedure that reflects national practice. Despite the efforts of the Italian presidency, it was not possible to reach agreement, as had been hoped, on remedies for the utilities before the end of 1990; an agreement can be expected during 1991, however.

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Third-Country Provisions The E C ' s program of directives requires that there be a comprehensive coverage of purchasing by central and local government and the utilities in supplies, works, and services. There will also be remedies or compliance measures in each field. This contrasts with the current multilateral provisions in the GATT (General Agreement on Tariffs and Trade) Government Purchasing Agreement (GPA), which covers only the purchasing of supplies by central government with no effective remedies or bid protest provisions. The EC was not prepared to accept unilateral market opening by offering non-EC suppliers unconditional access to the EC directives. It therefore included certain third-country provisions in the draft utilities and services directives. In the utilities directive there was provision that a purchasing entity may exclude a supplier from the contract award procedures if the products it is offering are of less than 50 percent EC origin. There is also a small 3 percent price preference for EC suppliers, so that an EC offer is to be taken as equivalent to a non-EC supplier if its price is no more than 3 percent higher than that of the non-EC competitor. These proposals were the source of controversy within and outside the EC. Differences between the Germans and the British, who did not want them, and the French and Italians, who wanted stronger measures, resulted in a failure to agree on a common position in the Council of Ministers in December 1989. In the end they were included, but with the proviso that they would be reviewed after the Uruguay Round of GATT negotiations and before the directive was implemented in January 1992. There were also third-country provisions in the draft services directives that were modeled essentially on the third-country provisions in the Second Banking Coordination Directive (2BCD). These provide for notification to the Commission of cases where a third country does not grant Community undertakings effective market access comparable to that granted by the Community to undertakings from that country and/or does not grant national treatment or the same competitive opportunities as available to national undertakings, and/or grants undertakings from other third countries more favorable treatment than Community undertakings. The Commission's draft proposals provide for the suspension of contract award procedures benefiting suppliers from third countries in the second two cases. This could mean that in the case, for example, of the United States, failure to remove federal or state "buy America" legislation or a bilateral agreement between the United States and Japan on opening Japanese construction markets would be followed by EC retaliation in keeping its market closed to US suppliers. Whether procurement becomes an issue of major trade friction in EC trade relations with its partners depends on how the GATT talks progress. In August 1990 the EC effectively proposed extending the EC regime to the multilateral level, with the exception of service for utilities. The US

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response was that neither private utilities nor state-level purchasing could or should be covered by the GATT regime. At the same time, the United States is seeking to include all utilities covered by the EC's directive, which would mean significantly greater coverage of EC purchasing than US purchasing. The prospects for agreement are linked to the progress of the Uruguay Round as a whole.

Conclusions The EC's program for "public" procurement will be comprehensive in its coverage. Despite the lack of unambiguous support from industry it has been possible to push through four of the seven directives by the end of 1990, and agreement on the other three can be expected by the end of 1992. This does not yet mean that a genuine single market will be created. The continued absence of European standards and the existence of close purchaser-supplier links means that effective market access will be affected by a range of nonstatutory barriers for some time to come. Nevertheless the EC regime makes significant progress and given enough support from suppliers initiating complaints and a change in attitude on the part of purchasers, a European market for procurement could very well emerge during the 1990s.

Notes 1. T h e s e t w o d i r e c t i v e s c o v e r t h e p u r c h a s e of s u p p l i e s (i.e., g o o d s ) , D i r e c t i v e 7 7 / 6 2 / E E C , Official Journal of the European Community, N o . L 13 ( J a n u a r y 15, 1 9 7 7 ) , a n d w o r k s (i.e., p u b l i c c o n s t r u c t i o n c o n t r a c t s ) , C o u n c i l D i r e c t i v e 7 1 / 3 0 5 / E E C , OJ N o . L 185, A u g u s t 16, 1971, b y c e n t r a l a n d local government. 2. F o r an a s s e s s m e n t of these as well as a g e n e r a l rational f o r t o u g h e r E C m e a s u r e s in o r d e r to c o p e with them, see An EC Program for Public Procurement in the Community, C O M (86) 375. 3. I b i d . 4 . F o r a h a n d y s u m m a r y of the p r o p o s a l s , s e e E u r o p e a n C o m m i s s i o n " G r e e n P a p e r o n t h e D e v e l o p m e n t of E u r o p e a n S t a n d a r d i z a t i o n , E x e c u t i v e S u m m a r y " ( B r u s s e l s , O c t o b e r 15, 1990). 5. O n t h e s o c i a l a n d r e g i o n a l issue, s e e C o m m i s s i o n of t h e E u r o p e a n C o m m u n i t i e s , Public Procurement Regional and Social Aspects, C O M (89) 4 0 0 final ( J u l y 2 7 , 1989). 6. O n e social provision was, however, carried over into the Action P r o g r a m i m p l e m e n t i n g t h e E u r o p e a n C h a r t e r of F u n d a m e n t a l S o c i a l R i g h t s (Social C h a r t e r ) . T h i s w a s a m e a s u r e a i m e d at p r e v e n t i n g " s o c i a l d u m p i n g " in the s h a p e of f o r e i g n c o n t r a c t o r s u n d e r m i n i n g l o c a l t e r m s of e m p l o y m e n t b y e m p l o y i n g w o r k e r s f r o m their h o m e c o u n t r i e s . 7. F o r t h e l a t e s t — a n d e f f e c t i v e l y f i n a l — v e r s i o n of the d i r e c t i v e , s e e " R e examined proposal for a Council directive on the procurement of entities o p e r a t i n g in t h e water, e n e r g y , transport a n d t e l e c o m m u n i c a t i o n s s e c t o r s , " C O M ( 9 0 ) 3 0 1 final ( B r u s s e l s , J u l y 12, 1990).

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8. For the d r a f t proposal, see "Proposal for a Council Directive relating to the coordination of procedures on the award of public service contracts," C O M (90) 372. 9. See Council directive "on the coordination of the laws, regulations and administrative provisions relating to the application of review procedures to the award of public supply and works contracts," 89/665/EEC L 395 (1989). 10. S e e the p r o p o s a l for a C o u n c i l directive c o o r d i n a t i n g the l a w s , r e g u l a t i o n s , a n d a d m i n i s t r a t i v e p r o v i s i o n s relating to the a p p l i c a t i o n of C o m m u n i t y rules on the procurement procedures of entities in the water, energy, transport, and telecommunications sectors, C O M (90) 297 (July 1990).

11 The General Systems Directive and the Libéral Professions Louis H.

Orzack

Dramatic efforts now under way in Western Europe will alter the significance and the operation of regulatory systems for professionals now existing in twelve countries of Western Europe. The General Systems Directive, enacted on December 21, 1988,' is a key step forward to 1992 and the single market. This far-reaching directive "stipulates that all higher education diplomas of three or more years' duration leading to a professional qualification are recognized as valid for the practice of that activity in other Member-States." 2 Each of the Community's member states will become obligated to facilitate issuance of licenses necessary for work to citizens of any other member state who have acquired educational qualifications as specialists and who desire to practice their professions. This will result in expansion of the geographic scope of market opportunities for Community nationals with competencies acquired within the Community. New and more distant career horizons will come within the reach of professionals, thus contributing to potentials for European integration. Engineers, optometrists, lawyers, accountants, and psychologists, in addition to a wide range of other kinds of qualified practitioners, can expect to move freely, locate practices, and offer services in either Marseilles, Edinburgh, Athens, or Copenhagen. If Dublin seems more appealing than Diisseldorf, Brussels more attractive than Naples, Luxembourg more rewarding than Rotterdam, Turin warmer than Toledo, or London less enticing than the Costa del Sol, a practitioner will be allowed to resituate his or her locus of work, either on a self-employed basis or in employment, to move without worrying much about the host country's licensing bureaucracy. This directive shifts the locus of authority in European higher education and alters the operation of nationally based regulatory arrangements for entry into professions. These actions by the Community challenge assumptions underlying national policies concerning education and professions similar in both Europe and the United States. This first formal action by the Council of 137

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Ministers in the area of higher education since a 1976 resolution 3 has recently been characterized as "a clear example of the Community acquiring a normative function in higher education." Such recasting of principles underlying development of higher education constitutes a direct implication of the directive, as expressed in the following: "Higher education is defined simply in terms of professional and vocational training. . . . In so doing, the traditional f u n c t i o n s higher education has p e r f o r m e d — o f selection, certification, and occupational insertion—become denationalized and are redefined as t r a n s n a t i o n a l . . . beyond the confines of the nation-state." 4 U n d e r terms of this directive, each EC m e m b e r state will allow establishment of practice and offering of services across national borders by professionals coming from any other member state, without imposing requirements such as additional education, further diplomas or other credentials, or examinations of competcncy. Market access on terms equivalent to those for the host country's specialists will be fundamental. Individuals with citizenship in a Community nation and with three years or more of appropriate education completed in any Community nation will have access to practice, seek employment, and offer services in any other EC nation on terms equivalent to those confronting local professionals. In contrast to requirements typical in the United States, the Community prohibits its member states from testing language competency as a criterion for issuance of a license to practice a profession. In one sweep, the C o m m u n i t y intends to open access to work opportunities throughout the Community for nationals of its member states who have completed specialized higher education of at least three years' duration within any of its member states. Licensing requirements established by public boards will no longer serve as bars to establishment and offering of services by persons coming from other EC nations. 5 Subsequent to evaluations of education and experience, qualified specialists coming from nations where statutory licensing has not existed will be able to practice readily in nations with licensing statutes. Covering what Community administrators estimate as 100 to 150 specialties, the General Systems Directive constitutes a vital component of the 1992 single market agenda. The broad approach of this far-reaching directive followed lengthy and usually protracted consideration of the previously approved sectoral directives for specific professions. Sectoral directives finally securing approval of the Council of Ministers cover medical doctors, dentists, architects, nurses, veterinarians, pharmacists, and midwives. Each proposal for sectoral directive entailed extensive negotiations a m o n g national professional bodies, ministries, regulatory bodies, and C o m m u n i t y institutions. Drafts and redrafts, opinions, proposals, and counterproposals flowed back and forth across the face of Europe with an almost endless supply of documents, reports, letters, and memoranda. These considered views required lengthy deliberations lasting in a n u m b e r of

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instances for more than a decade. 6 Nicholas Ridley, then United Kingdom secretary for trade and industry, trenchantly characterized this overall process as a logjam o f national barriers to the free market for professionals. 7 At its 1984 Fontainebleau meeting, the European Council asked the E C Council o f Ministers and m e m b e r states to move ahead without delay to prepare a study for a general system for the mutual recognition o f university degrees and diplomas. T h e Commission's September 24, 1 9 8 4 , communication, " A P e o p l e ' s E u r o p e , " linked this with freedom o f establishment and provision o f services and went on to state that "the system aimed for must be applicable to a large number o f sectors. T h e basic idea is the mutual recognition o f diplomas without any previous harmonization o f education and training." Meeting in Milan in June 1985, the European Council described freedom o f establishment o f professions as having high priority. T h e Commission white paper on completing the internal market went further to conclude that Community citizens should be free to engage in their professions throughout the Community without the obligation to adhere to formalities that in the final analysis could serve to discourage such movement. T h e Commission then put forth a draft Council directive on a general system for recognition o f higher education diplomas on July 4 , 1985. Avoidance o f extensive negotiations and the urgency o f commitment to move to a single market in 1993 justified preparation and finally passage o f the G e n e r a l

Systems

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Preparation

o f the text within

the

C o m m i s s i o n and approval by the Council o f Ministers aroused great apprehension within the Community's many professional bodies. 8 T h i s has continued during the current phase o f planning for implementation o f the directive's provisions. T h e appointment in spring 1 9 8 9 o f twelve national coordinators charged with responsibility for implementation o f the directive in each nation has not allayed these concerns.

Background In professions, aspiring individuals commonly must satisfy requirements set by groups assigned or granted responsibilities to control entry and maintain watch over behaviors o f those in practice. S u c h requirements generally include (1) setting educational qualifications; ( 2 ) identifying necessary practical work e x p e r i e n c e ; ( 3 ) establishing standards f o r examinations stressing practical skills or theoretical knowledge or some combination o f these; ( 4 ) giving such examinations either separately or in concert with educators or practitioner groups; and (5) monitoring activities by persons already awarded licenses or certifications. After entry to practice occurs, performance in rendering services may be monitored by public bodies with licensing authority that determine standards

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of practice, determine when violations of codes occur, and impose sanctions as appropriate. If no statutory body exists, then associations of practitioners may assume some of these functions. How well government boards or associations guard entry to professions depends on the particularities of each nation. National differences in the scope of authority and the manner of its implementation are common. Numerous groups are more than likely to express views, positive or negative and often disparate, about the responsibilities and the performance of such boards and associations: government ministers and legislators, political groups, associations of professionals, educational interests, unions of professionals, licensing boards, other public bodies, employers, specialist media, consumer organizations, and consumers. Board or association evaluations of practitioner preparation, quality of services, and ethics usually rest on nationally derived parameters. Whether instituted by legislative statute or by actions of practitioner groups, such boards or associations commonly rely on credentials awarded by domestic educational systems and render decisions in terms of criteria deemed acceptable under local guidelines. Cohorts of professionals generally come from locales circumscribed by national boundaries and work in markets for services under rules promulgated within those areas. The new General Systems Directive promises to allow for alteration of such patterns of domestic seclusion.

Features of the General Systems Directive Approved by the Council of Ministers in December 1988, the General Systems Directive is scheduled to be put into effect by national governments by January 1991, the anniversary of publication of the text. It applies to some 150 kinds of professionals, in addition to those already covered by sectoral directives previously approved. If individuals in these newly added specialties move to a country where licensing is required, the government licensing board or whatever association or agency is recognized by the government as the competent authority must accept the migrant's credentials, provided that the educational preparation leading to these credentials was a minimum of three years. Approval will then be essentially automatic. Critical complications can arise, particularly when a migrant's credentials are awarded after less than three years of education. An individual can be rejected under two possible conditions. One will occur when the applicant's length of education and training does not equal the period required in the country where he or she wishes to practice. Second, substantial deficiencies in the scope of activities that derive from the applicant's initial education and training in comparison with requirements of the host country will also result in rejection.

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Any person initially denied a license will have the right to seek a license through other means. In an effort to compensate for a shortfall in the length of education or training, those individuals can furnish details about professional experience that may be deemed acceptable. The host country can also require various additional periods of study, probationary practice, or professional experience to overcome study or practice insufficiencies. If the applicant's competencies are not substantially similar to those mandated in the host country, the directive calls upon the competent authority to offer the individual the following choice: an examination in the field of competency or, as an alternative, an "adaptation period" of supervised practice supplemented by further training not exceeding three years. At the end of this period an evaluation, but not an examination, will take place. The significant feature is that the candidate makes the choice, not the licensing board or any other government surrogate. After extensive controversy and numerous proposals by advocates for other fields, the one exception included in the directive is the field of law. Differences in national law were considered so extensive that a government board—not the applicant—would make the choice. Should someone licensed elsewhere in the Community move to a country where no public license is required, then only market factors will determine the duration of the person's work. Some professions are not licensed in every Community nation. If someone comes from such a country and moves to another where a license is required, then the competent authority of the host country must issue a license to the migrant after determining that the education is comparable and extended over a three-year period. Whether competency in the dominant language of the host country should be required as a condition for issuance of a license to practice a profession proved controversial. Persons educated abroad who wish to practice medicine in the United States are required to pass a language test, the Test of English as a Foreign Language (TOEFL), as a precondition to qualifying for board examinations. Comparable demands exist in other fields. Europeans operate on the premise that each citizen of one of the twelve member states of the European Community has rights that must be respected, including access to economic and social services furnished or authorized by governments of the other member states. For professionals needing a license to practice, a language test for migrants is considered discriminatory in favor of citizens of host countries and against migrants. Such a special arrangement for professionals wishing to migrate has been found by the European Court of Justice to violate the provisions of the Treaty of Rome, the basis for the Community. The result is that language testing, as a precondition for licensing, is simply forbidden, as is nationality. France, for example, cannot demand French citizenship as a condition for becoming a notary.

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In the General Systems Directive, the Council of Ministers recommends that migrants speak the language or languages of their host country but forbids any actual language testing for issuance of a license. This does not guarantee that clients or patients will tolerate a nonfluent psychologist, accountant, or engineer. Clients or patients can limit their choice of problem solvers to persons with whom they can readily communicate, thus limiting practice opportunities for many migrants. Nor does the directive forbid employers from interviewing applicants for professional positions and weeding out any with perceived language deficits. In contrast to most citizens of the United States, however, many Europeans, especially in border areas and in the Benelux countries, are polylingual or bilingual. Given Europe's history of boundary changes, wars, and migrations, many enclaves of persons speaking languages other than those locally dominant exist, certainly in border areas, thus providing pockets for professional practice by migrating specialists. Individuals with some language awkwardness or limitations can in any event choose to migrate and hope to find market niches under the terms of the General Systems Directive. The overall result is that Western Europe will allow all kinds of qualified professionals, licensed in any of the twelve member countries, to practice anywhere throughout the expanse of the Community. If educational credentials such as diplomas or certifications of supervised practical preparation are acceptable to competent authorities in one country, then designated competent authorities in any of the other eleven nations will be required to accept them at face value.

Prior Experience with Sectoral Directives Medical doctors, nurses, architects, midwives, pharmacists, veterinary surgeons, auditors, and dentists are already covered by specific legislation enacted by the Community's Council of Ministers. Directives previously approved called upon national governments to eliminate existing local legislation or procedures of professional associations that discriminate against qualified and licensed citizens of another Community country. For the fields mentioned, practitioners have for some years been allowed to relocate a practice to other Community countries, to offer services temporarily in another country if requested by clients or patients, and to expect recognition of diplomas should they migrate. Governments were expected by terms of each directive to change laws covering licensing boards and to seek removal of citizenship requirements often demanded by practitioner associations and accreditation bodies as condition for membership or for the right to practice. Governments were expected to remove stipulations that hinder or block practitioners already

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licensed in another Community country who wish to secure a license or practice temporarily. Directives for each of these specialties created separate administrative bodies to deal with national differences in education and licensing standards. An overall agency of senior officials selected from each of the national governments was established to monitor the workings of the directives. The Community found preparation of these directives specific to individual professions to be protracted and difficult. The sub-bureaucracies established by the various directives proved both cumbersome and costly. The Community's Commission and Council of Ministers, as well as its Parliament and Economic and Social Committee, labored long and hard to prepare drafts of directives in a number of fields. Each draft was extensively scrutinized within these Community bodies but even more intensive reviews occurred in the separate countries. Governments for each member state examined and passed drafts and then negotiated bilaterally with other governments and at Community meetings specified for such reviews. Professional associations in member states watched and waited. In some countries and for certain professions, governments sought out practitioner groups and educational bodies and solicited their views on these texts. Practitioner groups struck back, forming international liaison committees to exchange information and if possible to develop shared positions. Official personnel of the Community sometimes passed along drafts, often informally. Draft texts came under legal and professional microscopes. A great deal of lobbying occurred, both at national government levels and at the Community itself, as extensive delays characterized Community consideration of draft directives. Such matters are in fact complex. Differences in political, educational, cultural, and economic backgrounds have led to diversity in institutional contexts in each of the various countries. Examples of this diversity abound: university education for and licenses of Italian civil engineers cover the work of architects who are separately educated elsewhere in Europe; British midwives are educated to provide family planning, although Irish midwives are not, and Dutch midwives routinely serve as the only specialists present at births; British solicitors and barristers have no counterpart on the continent; dentistry in Italy is part of the practice of medicine and no license currently exists for persons qualified elsewhere as dentists; French opticians cannot examine eyes of children under fifteen years of age nor can they employ drugs; and notaries in France as well as chartered surveyors in Great Britain have no single counterpart specialists in other Community countries. Given these diversities, the Community's far-reaching proposals for widening the boundaries of markets not surprisingly encountered many obstacles. The first directives took years to enact and by this time the Community's leaders had learned enough about the slowness of its own legislative processes and administrative procedures to launch this new broad

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effort. A large array of draft versions of sectoral directives applicable to professions not covered by the previously approved directives threatened years of further negotiations by Community institutions, national governments, and professional associations. The General Systems Directive has rendered further effort superfluous. Engineers and physiotherapists still hope for Council approval of sectoral directives applicable to their fields.

Steps Toward the General Systems Directive The 1992 agenda embodied in the Single European Act approved by the Community in 1985 provides impetus for many changes in institutional arrangements, both internationally and nationally, in European nations. The Community's intention to establish a single market area by the end of 1992 covers many areas of its economy. This establishment encompasses freedom for citizens recognized in Europe as professionals to furnish their services to clients and patients, whether individuals or groups, throughout its twelve member states. The problem of credentials and mobility concerns the migrating professional, the person licensed in one nation who wishes for whatever reasons to practice in another nation. Apprehension about the foreign doctor or other professional who wishes to come to the United States with a nonUS or non-Canadian education and probably with foreign citizenship is widespread. In the United States and Canada, safeguards of the consuming public, particularly in medicine, have developed. These include language testing, reexaminations, practice reviews, additional formal education and training, and finally restrictions upon the nature of employment opportunities. The initiative for economic integration has led to many Community decisions intended to weaken barriers to trade among the European nations. Trade in goods and services, of capital, and of human beings who make goods and who provide services—all these have been aided by the acts of the Community. Contributors to gross national product in Western Europe include manufacturing, agriculture, tourism, transport, and communications. The Community's economic resources include provision of professional services by qualified individuals and accordingly the EC decided to enhance the possibilities for movement back and forth across national borders of professionals qualified and licensed in any of the countries. This entails specific measures such as the General Systems Directive. Community policy defines professional services and those providing them as vital and key contributors to economic integration. Heads of Government and political decisionmakers consider such services and those providing them as key elements in national economies and as key components of the economic integration process now under way in Western

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Europe. Initiative for this c a m e through arrangements negotiated at the highest level o f government. A positive as well as negative side exists to the attention accorded the professions. Although some consultation with professional bodies occurs both at national levels and with international liaison committees, many decisions about professions were and are made without direct involvement on the part o f bodies representing practitioners. In Europe, at least, neither professional associations, regulatory bodies, nor educators engaged in practitioner preparation instigated that initiative f o r change.

Although

professions and their services are considered important elements in national societies, their place has been defined by others.

Community Junctures of Professions and Public Authority In all fields implicated by the proposed sectoral directives, associations o f professionals, educational groups, government ministries, and licensing boards among others often recommended changes in Community proposals and raised o b j e c t i o n s to its actions. Targets at international l e v e l s — t h e Community itself, one or another Community institution, or subordinate components o f such institutions—have alternated with national governments in receipt o f both suggestions and criticisms from professional bodies. Although s o m e coordinated efforts by professional bodies did o c c u r , cooperation by others with specialties directly affected by directives undergoing consideration generally was sporadic and o f short duration. T h e general substance o f reactions from various quarters to the several drafts o f the General Systems Directive that circulated prior to its Council adoption emphasized two major, frequently reiterated points. First, representatives o f professional bodies repeatedly expressed great concern about the Community's failure to allow their participation during the earlier, initial stages o f preparation o f the text o f the General S y s t e m s Directive. T h e y believed themselves excluded from any role in formulating this vital, new Community policy. T h i s was a realistic complaint. K e y Community officials indicated in personal interviews that consultation with the Pandora's B o x o f professions, not covered by previous sectoral directives, would yield an impossible l o g j a m . T h e i r experience with the sharply delimited drafts o f each previously approved sectoral directive was negative. Y e a r s o f discussion, negotiation, review, and compromise had proved extremely tiresome. Laborious efforts had yielded only a half-dozen sectoral directives pertaining to specific liberal professions. T o avoid even greater delays, the Community took the position that a broad approach was essential if 1992 and the single market were ever to be fulfilled for the professions. Second, various professional bodies stated that the unique qualities o f the particular profession for which they claimed to speak would be ignored were

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their field placed in the grab bag of the General Systems Directive. The General Systems Directive, they argued, would allow willy-nilly the migration of persons whose qualifications could be considered suspect. The Community as an institution served as a target of criticism for leaders of professions. The major point touched the competency of the Community as an institution to deal with nuances of professional services in the member nations. How would the Community, they asked, deal with diverse patterns of trust and of the scope and depth of practitioners' roles in the panorama of its member states? A number of leaders continued to argue that each of their fields deserved its own special sectoral directive. Such a sectoral directive would, each contended, establish mechanisms such as advisory committees where representatives of national professions and of international liaison committees could influence, or at least be a legitimate voice that might influence, the preparation of rules and regulations about educational qualification processes and the reciprocal licensing of migrants. Only in that way would the special characteristics of their professions be fully respected. Three specialties whose leaders put forth such contentions were physiotherapists, engineers, and lawyers. National and international leaders of these professions reiterated that they had expected and had been led to expect the Community to enact sectoral directives applicable to their respective fields. Each group contended that application of the General Systems Directive to their particular field would overlook gross differences in national patterns and create unnecessary and undesirable problems. Physiotherapists The physiotherapists' board of the statutory Council for Professions Supplementary to Medicine in Great Britain noted that "for physiotherapists, the imposition of a general directive can only be regarded as a retrograde step, as only the length of training not the content is assured." It added that the Standing Liaison Committee of Physiotherapists (SLCP) within the EC agreed in 1984 on the content of proposed directives and recommended them to the Commission at that time. 9 The Chartered Society of Physiotherapists (CSP) added its voice to the complaints, on behalf of its members, when it expressed strong regret in 1987 about the then draft General Systems Directive, as follows: Should the proposed general directive apply to physiotherapists—and this appears to be a strong possibility—the CSP would have serious misgivings about the effect on the profession with regard to the recognition of the standards of professional practice. . . . Chartered physiotherapists have supported their professional body in pressing for a separate directive for the profession, based on the draft proposals prepared by the SLCP with encouragement from EEC Commissioners. 10

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These organized components of the physiotherapy specialty—the international liaison committee, a national government board, and a practitioners' association—thereby relied on a combination of educational issues, professional standards, and their belief in an implicit support for a specific sectoral directive in arguing against the General Systems Directive then in draft. Engineers Even more strongly expressed reservations were voiced by representatives of engineering, which, it was said, "covers the broadest spectrum of any profession in the United Kingdom." 1 1 The Fédération Européenne d'Associations Nationales d'Ingénieurs, identified generally as FEANI, which claimed to represent national associations of about one million engineers in some twenty countries, was especially disappointed with the Community's general directive. As early as 1969, the Commission adopted proposals for directives concerning engineers' rights of establishment and freedom to supply services and transmitted them to the Council of Ministers for appropriate action. The Council failed to approve such proposals. 12 FEANI's concerns were compounded by Council approval of directives for architects and the organization expressed the following in 1986: "After many years of intermittent negotiation, the European Commission finally reached agreement on a Directive for professional architects, and at the same time notified its intention of promulgating a similar Directive for engineers as a matter of urgency." 13 FEANI's British member organization, the British National Committee of International Engineering Affairs, added this point: A n y b o d y with a little k n o w l e d g e o f the varied and c o m p l e x profession of engineering will quickly appreciate that there are not only marked d i f f e r e n c e s in the s y s t e m s of training in the United K i n g d o m (which have to be coordinated by an elaborate accreditation machinery) but also b e t w e e n European countries. [For major professions,] countries with lower standards are bound to be more favored by a more diffuse general Directive. Furthermore, a general Directive will tend to induce an inertia that w i l l not e n c o u r a g e a regular e x a m i n a t i o n and up-dating of standards. 1 4

To deal with such concerns, FEANI created the Register Commission to initiate proposals for a European register of engineers and a monitoring system that it hoped the Community's Commission could use as the basis for a sectoral directive. In 1986, the Register Commission proposed a complex numeric formula that differentially weighted years required for three components of preparation for the profession. These were, first, two types of

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secondary education validated by recognized or official certificates; second, "approved engineering education"; and third, "technical engineering training." The formula reflected whether the "approved engineering education" was "supervised" by a "university or other recognized body at university level" or by a "technical school, college or similar body." 15 Application of the weights to an individual's education would result in award of the titles of Certificated FEANI Engineer Group I and Group II as well as inclusion in a proposed international FEANI register of qualified engineers. Group I title bearers could ultimately qualify for use of a title such as "European Engineer (FEANI)" or "European Engineer (EEC)." The engineers' efforts did not lead to approval of a sectoral directive and did not forestall the General Systems Directive. Lawyers In 1977, the Community approved a directive concerned with the right of lawyers to provide services on a temporary basis throughout the member states. Despite continuing and intensive efforts by the Commission and the Commission Consultative des Barreaux de la Communauté Européenne (CCBE) to prepare and approve sectoral directives for lawyers, no subsequent legislation was approved. Application of the General Systems Directive to the legal profession was considered quite distasteful. In 1987, the past president of CCBE, John D. Cooke, described it as a "sudden and unwelcome . . . shortcut . . . greeted with considerable skepticism and opposition from most of the Bars of the Community. The proposal has all of the hallmarks of a typical bureaucratic solution to a difficult problem." He referred to it as "an element of danger" and "harmonization at any price," and, going further, as a " b o g u s equivalence" based on the "great fallacy" of confusing "unity with uniformity." In specific terms, he emphasized contrasts between the common law system and the system of the continental countries. 16

Conclusions Nationally focused points that highlight the critical interconnection of education issues and the prerogatives claimed for professions were frequently raised by a number of parties expressing opposition to the generic approach of the directive. These included the following: 1. National Insularity—We have the highest standards in Europe. 2. Pure Nationalism—Foreigners cannot understand local standards of practice and cannot tell us how to prepare specialists. 3. Moral Protectionism—Outsiders should not be allowed to compete

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5. 6.

7. 8.

9.

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against local professionals, threatening economic rewards merited by lengthy education and extensive experience. Educational Imperialism—Persons who are craft-educated and practiceoriented specialists and who interact with graduates of universities and advanced education systems led by academics who stress scientific knowledge and theory can disrupt the host country's profession. Turf Protection—Persons with similar titles but different ranges and levels of skills should never be allowed to practice here. Demographic Dominance in Markets—Migrants will flood our country, consequently increasing competition, reducing quality of services, and lowering income. Ethical Considerations—Outsiders do not practice in accordance with local standards. Control of Profession and of Qualifications—Associations of practitioners dominate selection, educational preparation, testing, and practice in some countries, whereas elsewhere government bodies approve entrants for practice prepared in government-run educational institutions, thus creating conflicts over dispute resolution and the locus of ultimate authority concerning professional matters. Modes of Compensation—Practitioners with primary experience, whether in fee-for-service bases for income, in insurance schemes, or in public entitlement systems, will likely experience substantial difficulties in adjustment to other modes of service delivery and in payment for professional services.

The national focus of many of the listed criticisms challenge the thrust toward integration implied in the 1992 single-market agenda. Communitylevel responses to divisive and insular formulations and contentions such as those listed rested in the final analysis on acceptance of the principle of mutual recognition. This was embodied in the General Systems Directive, which calls for mechanisms to allow qualified professionals from a dozen countries to flow virtually at will across national borders. The new mechanisms of the directive do not require steps toward harmonization of curricula, of examination content, and of the scope of practice for all regulated professions throughout the range of countries. Who in any event would be capable of doing that? Who could be entrusted to determine comparability of skills, of educational qualifications, of licensing procedures, and of practice standards? Such an alternative would require superboards to cover all of Western Europe, capable from on high of seeking to determine standards of competency and of qualifications essential for professional practice anywhere in Europe. If created, such boards could very readily become new bureaucratic impediments to progress toward the single market. Another alternative might be a host of sectoral directives. Assuming that

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they could be finally if laboriously approved, new arrays of advisory bodies and administrative groups would come into existence, one set for each specialty. This would readily crush the already heavily burdened bureaucracy of the Commission. At national levels, specialists and experts in governmental ministries—usually dominated by lawyers, economists, and financial administrators—would soon become functionally confounded, perplexed, and overwhelmed by the tasks of reconciliation of subtleties of professions and diversities in qualities of higher education not their own. Their competencies would not be adequate for such undertakings. At no time were either of these considered, nor could they be. Europeans on guard for the autonomy of their respective nations join with professionals to abhor bureaucracy that controls their personal behavior and the actions of their institutions when they do not control the bureaucracy. At the 1985 Conference of Liberal Professions organized by the European Secretariat for Liberal, Independent and Social Professions (SEPLIS), Carlo Ripa di Meana, who was responsible in the Commission for the "Citizens' Europe," referred to the unjustified "resistance of a corporative nature" from the professions. Only small numbers, he said, would migrate in any event. Reciprocal confidence among member states in training levels and comparability of diplomas would assure the image of professions and the interests of migrants. 17

Notes 1. "Council Directive of December 21, 1988, on a General System for the R e c o g n i t i o n of Higher-Education D i p l o m a s Awarded on C o m p l e t i o n o f Professional Studies and Training of at Least Three Years' Duration," Official Journal (January 24, 1989). 2. Guy Neave, "On Preparing for Markets: Trends in Higher Education in Western Europe 1988-1990," European Journal of Education 25 (1990), p. 118. 3. EC Commission, Academic Recognition of Diplomas in the European Community: Present State and Prospects, by Edwin H. Cox, Commission, Education Series N o . 10, 1977 ( 1 9 7 9 ) ; Council of Europe, C o m i t é de l'Enseignement Supérieur et de la Recherche, Etude Sur Les Moyens d'Etablir des Equivalences, by Arthur Heamden, Strasbourg: CCC/ESR (76) 6. 4. Neave, op, cit., pp. 118ff. 5. Leon Hurwitz, The Free Circulation of Physicians Within the European Community (Aldershot: Avebury Gower, 1990). 6. Louis H. Orzack, "Educators, Practioners and Politicians in the European Common Market," Higher Education 9 (1980), pp. 307-323; "New Profession By Fiat: Italian Dentists and the European Common Market," Social Science and Medicine 15A (1981), pp. 8 0 7 - 8 1 6 ; "Architects, Engineers, and the European E c o n o m i c Community," Law and Human Behavior 1 (1983), pp. 2 5 1 - 2 6 4 ; "Engineers in Europe: 1992 and Beyond," Technology Studies 7 (Spring 1989), pp. 6 - 8 ; and "Midwives, Societal Variation, and Diplomatic Discourse in the European Community," in Helena Lopata, ed., Current Research on Occupations and Professions (Greenwich, Conn.: JAI Press, 1990).

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7. United Kingdom Department of Trade and Industry, "Single Market: Europe Open for Professions," Conference Transcript, October 4, 1989 (London, 1989), p. 1. 8. House of Lords Select Committee on the European Communities, Recognition of Higher Education Diplomas . . . with Evidence. HL Session 19851986, 22d Report (London: HMSO, HL 240). 9. Ibid., p. 418. 10. Chartered Society of Physiotherapists, Chartered Physiotherapists Source Book 1987 (London: Parke Sutton Publishing, 1987), p. 24. 11. House of Lords, op. cit., Evidence, p. 20. 12. Orzack, "Architects, Engineers" and "Engineers in Europe." 13. FEANI (Fédération Européenne d'Associations Nationales d'Ingénieurs), Consolidated Report of the Register Commission Working Group (Paris, 1986). 14. House of Lords, op cit., Evidence, pp. 21-22. 15. FEANI, op. cit. 16. John D. Cooke, "The Common Lawyers in the Common Market," presentation to Swedish Bar Association (May 16, 1987), Commission Consultative des Barreaux de la Communauté Européenne (CCBE) Information Service release. 17. Carlo Ripa di Meana, remarks January 1985 to Conference of the Liberal Professions, organized by European Secretariat for Liberal, Independent, and Social Professions (SEPLIS), Europe, No. 4016 (new series), January 28-29, 1985.

12 A Citizens7 Europe: Personal, Political, and Cultural Rights Siegfried Magiera

A Community of Citizens: The Essence of European Union Five hundred years after the Europeans discovered and began to form a "new world" in America, they set out to reorganize their "old world" at home. The magic year, 1992, has become the symbol of great expectations, but also of certain fears, in Europe and worldwide. Will the European Community develop into an ever closer union or even a "United States of Europe"? Will it transform or even overcome the traditional nation-state in Europe? Will it remain open to third states or become a "Fortress Europe"? Only the future will provide definite answers to these and other fundamental questions. Nevertheless, certain trends of further development can be inferred from the past and present state of the EC, its legal framework, organizational structure, and procedural practice. This chapter will focus on a limited though crucial aspect of Community development that may be called the human dimension. In contrast to other international organizations, the European Community is not only the creation and forum of its member states represented by their governments. One of its outstanding characteristics as a supranational organization is that it has direct relations with the individuals in these states as well. The nature and scope of these relations have progressed with the Community in general. In the beginning, they were limited almost exclusively to the economic sector; gradually they have expanded to other sectors including social, political, and cultural aspects.1 This development is in conformity with the legal framework of the Community. According to the constituting treaties, the European Community shall not only pursue economic objectives in the narrow sense, but it shall also promote closer relations between the member states in general (Article 2, EEC Treaty) and form the basis of a broader and

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deeper community, an ever closer union among the peoples of Europe (Preambles ECSC and EEC Treaty). The transeconomic dimension was reinforced by the Single European Act, according to which the Community, together with the European Political Cooperation process, shall contribute to making concrete progress toward European unity (Article 1). The member states are determined to work together to promote democracy and fundamental rights, to improve the economic and social situation, to pursue new objectives, and to ensure a smoother functioning of the Community (Preamble). In accordance with these basic provisions of Treaty law, since the end of the 1960s the member states and the Community institutions have, in practice, taken up the transeconomic dimension of the Community under the general term of a "Citizens' (People's) Europe" parallel to the plan for a European union. 2 An initial phase was concluded in 1975 with the Commission's report on a People's Europe and Leo Tindemans's report on European union, which led to the introduction of the direct election in 1979 of the European Parliament resulting from the reform of the electoral law in 1976. 3 A new phase began in the mid-1980s. Parallel to the efforts of the European Parliament for a Treaty establishing European union, a group of experts set up by the European Council submitted an extensive account of the requirements and possibilities of a Citizens' Europe in two reports of March and June 1984. Subsequently, a great number of initiatives have been developed, which the Commission summarized in a communication to the European Parliament in 1988. These efforts were strengthened by the Single European Act, which has charged the Community with the aim of progressively establishing the internal market by the end of 1992. This market shall comprise an area without internal frontiers in which the free movement not only of goods, services, and capital but also of persons is ensured (Article 8, EEC Treaty). With regard to the forthcoming intergovernmental conferences on political, economic, and monetary union, the European Council emphasized at its Dublin summit of June 1990 the importance of a Citizens' Europe that seeks to ensure and bring home, in a direct and practical way, the benefit of the Community to all its citizens. 4 It pointed out that a fundamental objective of European integration is the promotion of the rights, freedoms, and welfare of the individual citizen, which requires action in such fields as the free movement of persons within the Community, the protection of the environment, and the fight against drugs and organized crime. Within the framework of this chapter only a few of the various developments and initiatives toward a Citizens' Europe can be examined. The focus will be on three major aspects that have been of recent concern to the Community institutions and the member states: personal, political, and cultural rights in a Citizens' Europe.

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Personal Rights The personal rights in a Citizens' Europe refer to the free movement of persons in the Community. They involve the choice of residence throughout the Community and the abolition of border controls within the Community. Originally, freedom of movement, including the right of residence and establishment throughout the Community, was granted only to Community citizens engaged in an economic activity and their family members, i.e., to workers, to self-employed persons, and to persons providing or receiving services. 5 Community law and, accordingly, the practice of the European Court of Justice use the relevant terms in a broad sense. Thus, workers are also covered when they travel to another member stale in search of employment, or when they wish to stay in that state after termination of their employment. 6 Persons who require medical care or undertake educational and business trips, and tourists in general, are regarded as recipients of services. 7 Students enjoy mobility when they travel to another member state for vocational training. 8 Despite this broad understanding of existing Community law, freedom of movement was still lacking, or at least doubtful, for certain categories of Community citizens, especially for retired or non-gainfully employed persons. A directive proposed by the Commission in 1979, according to which the freedom of movement was to be extended to all Community citizens, was not accepted by the Council. The reason given was concern about the different social security schemes in the member states, which could favor a transfer of the place of residence to another member state solely because of the better welfare benefits there.9 The proposal was finally withdrawn and substituted in 1989 by three different proposals for the remaining categories of Community citizens. These proposals were adopted by the Council on June 28, 1990. The three directives that must be implemented by the member states by the end of June 1992 grant the right of residence, respectively, to retired persons, to students, and to all remaining Community citizens who are not covered by other provisions of the Community law, 1 0 including their family members provided that they and their family members have adequate health insurance and financial means above the minimum welfare level of the member state in which they plan to establish residence. Although the Commission had based the three proposals on Articles 7 (2) (for students), 49, and 54 (for former employed and self-employed persons), and 100 of the EEC Treaty (for the remaining persons), the Council decided to base all directives on the subsidiary competence provision of Article 235 of the EEC Treaty. The Commission, which felt that the change called into question the prerogatives of the European Parliament, reserved its right to use available legal recourse. The abolition of border controls within the Community poses intricate legal and practical problems because it requires concerted efforts to fight

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c r i m e s as well as a harmonization o f c o n t r o l s at the

C o m m u n i t y ' s external frontiers. Therefore, the "Group o f Coordinators" was set up by the European Council at its Rhodes summit in December 1 9 8 8 . 1 1 T h e document o f P a l m a de M a l l o r c a , a first report o f the group concerning the free movement o f persons across borders, was endorsed by the European Council at its Madrid summit in June 1989. As to the internal aspect, the group suggested concentrating on the fight against terrorism, drug trafficking, and other illegal practices; on the improvement o f police and other legal cooperation; and on controls o f items accompanying travelers, such as weapons, drugs, works o f art, endangered plants and animals, or taxable merchandise. As to the external aspect, the group suggested paying particular attention to the conditions for third-country nationals entering the Community

and to the right o f asylum and the status o f

refugees.

A d d i t i o n a l l y , the group recommended that the different measures

be

implemented by the end o f 1992. A progress report was presented to the European C o u n c i l at its Strasbourg summit in December 1989, in which the Group o f Coordinators noted the presentation o f four draft conventions to the member states (on the c r o s s i n g o f frontiers and visas, on determining the state responsible for asylum requests, on the transmission o f criminal proceedings, and on the recovery o f support payments due to minors). The draft convention on access to the Community territory defines common standards for controls at external borders, for the prevention o f clandestine immigration, and for the issuance o f visas. T h e draft c o n v e n t i o n on the right o f asylum is limited to the administrative rules according to which asylum can be requested and tries to prevent the successive presentation o f such requests in more than one m e m b e r state. As to the draft convention on the transmission o f criminal proceedings, the report noted a gap between the progress made in police, customs, and administrative cooperation on the one hand and the progress made in judicial cooperation on the other because o f the different traditions in the legal systems o f the member states. At its Dublin summit in June 1 9 9 0 , the European Council welcomed the conclusion and signature by eleven member states on June 15, 1 9 9 0 , o f the " C o n v e n t i o n

Determining

the State R e s p o n s i b l e

for

Examining

A p p l i c a t i o n s for Asylum L o d g e d in One o f the M e m b e r - S t a t e s o f the European Communities" as the first major instrument in the series necessary to ensure the free movement o f people. It further noted progress in the convention on the crossing o f external borders o f the Community and urged the competent institutions to speed up work on implementation o f the other measures contained in the Palma document, especially those for combating dnig abuse and organized crime. In addition to the efforts o f the Community and all o f its member states, five o f the original m e m b e r states (the Benelux countries, France, and the Federal Republic o f Germany) concluded the Schengen Agreement (named

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after the town in Luxembourg where it was signed) on the gradual abolition of controls at their common borders in 1985, which was supplemented by an Agreement of Implementation on June 19, 1990. This new agreement, which must still be ratified by the competent national bodies, is intended to end controls at the internal borders of the participating states, to coordinate controls at their external borders, and to provide for supplementary measures, especially as to a coordination of visa policies, of asylum procedures, and of police and other relevant administrative activities. The Schengen Agreement was generally greeted as a step forward toward a Citizens' Europe, but it also met with some reservations because it was negotiated outside the Community framework, especially without consultation of the European Parliament, and is limited to only a few of the member states. It must be noted, however, that the agreement is open for accession by the other member states of the Community and may become a catalyst for the development of free movement in the Community as a whole.

Political Rights The political aspects of a Citizens' Europe are related to the structure of the Community as well as to the rights of the citizens in the Community. Both aspects can be developed only on the basis and within the framework of the constitutional traditions of the member states, which are characterized by the principles of pluralistic democracy and guaranteed civil rights.12 The protection of these traditions becomes more important as more tasks and competencies pass from the member states to the Community and as the Community progresses to a political union. This recognition has been confirmed repeatedly by the Community institutions and the member states. Examples are the joint declaration of 1977 by the European Parliament, the Council, and the Commission on respecting fundamental rights, the statement of the European Council of 1978 on safeguarding democracy, and the determination of the member states in the Preamble of the Single European Act of 1986 to work together to promote democracy and fundamental rights. The protection of the democratic tradition has been included in the Community structure from the beginning by the institution of a European Parliament consisting "of representatives of the peoples of the States brought together in the Community." Subsequently, the competencies of the Parliament have been increased and its democratic legitimation has been strengthened by the introduction of the direct election of its representatives in 1979. Step by step, its position has been assimilated to that of the parliaments in the member states. In comparison to these, however, it still lacks essential powers, especially with regard to legislation and the

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appointment of the executive. Furthermore, its election and thus its representation are still determined by national rather than Community factors. The act introducing the direct election of the European Parliament leaves the determination of the requirements for participation in the elections to the member states. These generally limit participation to their own nationals, who, in addition, must reside in their territory. Thus, Community citizens who avail themselves of their right to free movement and to establish themselves in another member state are generally excluded from political participation in the election of the European Parliament. A certain remedy for this deprivation is provided by those member states that grant the right to vote to their nationals who reside in other member states. The further step, also favored by the European Parliament, of extending the right to vote to all Community citizens residing in their territory and thus introducing genuine European elections, has been taken by only a few member states. The protection of the democratic tradition will be further strengthened by the envisioned participation of Community citizens in local elections of their member state of residence. At the request of the European Parliament, the Commission presented a proposal for a Council directive in 1988 on the basis of the subsidiary competence provision of Article 235 of the EEC Treaty. 1 3 The purpose of the directive is to compensate for the loss of democratic participation that is regularly incurred when a Community citizen makes use of the right to freedom of movement and establishes residence in another member state. At present, more than four million people are affected by this loss. Contrary to the elections to the European Parliament or to the national parliaments, this loss cannot be prevented by continuing to vote in the member state of origin. Apart from existing legal obstacles, an effective exercise of the right to vote at the local—in contrast to the national or the European—level requires a close familiarity with the local circumstances, which, in the long run, is possible only for voters residing there. The protection of civil and other fundamental rights and freedoms within the Community framework is not yet secured by a specific catalog of these rights but depends mainly on the jurisdiction of the European Court of Justice, which has to ensure that the law is observed in the interpretation and application of the treaties. The observation of the law in general includes the observation of fundamental rights in particular, as recognized by the constitutions and by other norms binding the member states, especially by the European Convention for the Protection of Human Rights and Fundamental Freedoms. The present level of protection is generally considered to be sufficient. The German Federal Constitutional Court has finally given up its protection of fundamental rights concerning Community legislation in favor of the protection exercised by the European Court of Justice. However, the case-bycase development of the protection of fundamental rights may have been appropriate during the early stages of the Community. In a more advanced

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Community, there is a growing need for a consolidated compilation of the existing fundamental rights. Following earlier initiatives of the Community institutions that go back to the early 1970s, the European Parliament has started a new attempt with regard to the completion of the internal market by the end of 1992. On April 12, 1989, it adopted—"in the name of the peoples of Europe"—a resolution, the Declaration of Fundamental Rights and Freedoms, and invited the other Community institutions and the member states to associate themselves with this declaration. 14 Among the rights and freedoms listed in the declaration are the traditional human rights such as the inviolability of human dignity, the right to life, equality before the law, freedom of religion and expression, and freedom of movement, ownership, assembly, and association. It also includes far-reaching social rights, such as the right to just working conditions, to the best possible state of health, to education and vocational training, and to general safeguards in the areas of environmental and consumer protection, for example. As to the principle of democracy, the declaration stipulates that every public authority must be directly elected or answerable to a directly elected parliament and that European citizens shall have an equal right to vote and stand for election, especially the right to take part in the election of the European Parliament. The declaration of the European Parliament is of value insofar as it offers a comprehensive overview of the possible fundamental rights and freedoms in a Citizens' Europe. However, considerable efforts will have to be made to define their specific legal meanings and implications. Special attention will have to be given to the distinction between genuine rights, which can be claimed directly by individual citizens, and mere benefits, which are meant as guidelines for the competent public authorities.

Cultural Rights Even after their amendment by the Single European Act, the treaties establishing the Community do not contain provisions for a specific cultural dimension. However, the purposes and tasks of the Community mentioned previously, especially the creation of an ever closer union among the peoples of Europe, are formulated in such a broad manner that they do not exclude cultural rights in a Citizens' Europe. Nevertheless, initiatives to promote such rights within the framework of the Community are disputed as to their legal admissibility. In order to surmount these problems, the Community and the member states make use of a wide and flexible range of legal instruments including measures by Community institutions alone, by common action of the Community Council and the national ministers meeting within the Council, or by coordinated action of the member states. The selection of the specific measure seems to be determined more by

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political than by legal considerations and will not be further discussed here. Rather, the focus will be on the material aspects of cultural rights in a Citizens' Europe. Because the areas of science and education are treated in separate contributions to this book, this chapter will concentrate on one specific aspect that has been of recent controversy—the regulation of television broadcasting—and on the Community activities within the area of culture in general. Community provisions for television broadcasting became necessary after the European Court of Justice came to the conclusion that in the absence of express treaty provisions to the contrary, the transmission of television programs over the air and by cable must be considered a service within the meaning of Articles 59 et seq. of the EEC Treaty. In view of the particular nature of television broadcasting, the Court conceded that the member states could continue to impose upon providers of such a service specific requirements that were justified by the general interest. Different national requirements that can lead to restrictions of transnational television broadcasting exist, especially in the area of advertising. The Court held such restrictions to be in conformity with the treaty law in the absence of an approximation of national regulations, i.e., until their harmonization within the framework of Community legislation. From this interpretation of the treaty law follows the competence and the task of the Community institutions to remove the remaining restrictions by a coordination of national regulations as provided for in Articles 57 and 66 of the EEC Treaty. At the request of the European Parliament, the Commission submitted its green paper "Television Without Frontiers" on the establishment of the common market for broadcasting, especially by satellite and cable, in 1984 and a proposal for a Council directive in 1986. After a lengthy and controversial debate in the Community institutions and the member states, which included attempts to prevent a Community measure by concluding the European Convention on Transfrontier Television within the framework of the Strasbourg-based Council of Europe, the Council of the European Community finally adopted the directive on television broadcasting on October 3, 1989, by majority decision and against the vote of Belgium and Denmark. 15 In contrast to the Commission's proposal, the directive is limited to television programs, thus excluding sound broadcasting, and does not cover copyright law. Its most controversial provisions are contained in Chapter 3 according to which broadcasters shall, inter alia, reserve a majority proportion of their transmission time for "European works." This quota rule has nourished fears of a "Fortress Europe." It is neither in conformity with European tradition, which has always depended on and profited from cultural interaction with other parts of the world, nor in agreement with the requirements of the fundamental rights of freedom of expression and

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information that must be observed by Community legislation. Because the quota rule shall be ensured by the member states only "where practicable and by appropriate means," the provisions leave room for an interpretation in accordance with higher-ranking principles. This would mean that the quota rule cannot be enforced without the consent o f the individual broadcaster. The Community and its member states have also turned their attention to the area of culture in general, which has increasingly been recognized as the substrate o f t e c h n o l o g y and e c o n o m y . 1 6 Subsequent to two communications by the Commission in 1977 and 1982 concerning the Community action in the cultural sector, several specific actions have been taken since the mid-1980s. Among them are the resolutions of the ministers responsible for cultural affairs meeting within the Council on the annual designation o f a "European City of Culture," a European sculpture competition, special conditions o f admission for young people to museums and cultural events, the protection o f Europe's architectural heritage, and the conservation o f art and artifacts. Furthermore, they comprise resolutions of the Council and the ministers responsible for cultural affairs meeting within the Council on the European Cinema and Television Year (1988) and on the promotion of the translation of important works of European culture. At the end o f 1987, the Commission presented a further communication, "A Fresh Boost for Culture in the European Community," for the period of 1 9 8 8 - 1 9 9 2 . On the basis o f this communication, the Council and the ministers responsible for cultural affairs meeting within the Council determined, in 1988, four priorities for Community action in the cultural field: promotion o f the audiovisual sector, a policy on books, training in the cultural sector, and business sponsorship. In 1989, they adopted conclusions on books and reading, with a view to the completion of the internal market in 1992 and a resolution concerning the promotion of books and reading. In November 1989, the Commission submitted a communication on the protection of national treasures possessing artistic, historic, or archaeological value in connection with the abolition of internal frontiers in 1992. On the basis o f this communication, the Council and the ministers responsible for cultural affairs meeting within the Council adopted interim conclusions on May 18, 1990. In December 1989, the Committee o f Cultural Consultants set up by the Commission in 1988 submitted its final report, "Culture for the European Citizen o f the Y e a r 2 0 0 0 , " which will serve as a guideline for the Commission's cultural policy. It is obvious that these efforts are closely connected with the economic and social dimension o f the Community and therefore need coordination within its legal framework. This is especially true for measures beneficial to industry and individuals in the cultural sector who must adjust to the changing conditions brought about by an internal market without frontiers.

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Almost four million people are employed in the cultural sector of the Community; its share of the gross national product of the member states reaches between 3 and 6 percent. Nevertheless, as long as the Community is not provided with explicit competencies in the cultural field, there will always be doubts as to whether its measures keep within its constitutional limits. Conclusions and resolutions adopted simultaneously by the Council and the national ministers meeting within the Council may be a pragmatic compromise for a transitional period; in the long run, they are no adequate substitute for the necessary legal certainty.

Conclusions The present study has shown that, according to its founding treaties and its subsequent practice, the European Community is not limited to the economic integration of its member states and their peoples. Rather, it provides the basis for a comprehensive integration toward a Citizens' Europe that includes personal, political, and cultural rights. These additional aspects increase in importance as the Community progresses on its way to a European political union. The internal market, to be completed by the end of 1992 as stipulated by the Single European Act, will comprise an area without internal frontiers in which the free movement of goods, services, and capital but also of persons is ensured. This freedom of movement does not cover individuals only as actors on the economic stage, but in their complete—economic as well as social, political, and cultural—personality. Thus, it affects citizens who remain nationals of the member states but who will enjoy basically the same rights and duties throughout the Community.

Notes 1.For details, see Siegfried Magiera, The Emergence of a "Europe of Citizens" in a Community Without Frontiers, 1989, Speyerer Forschungsberichte 78 (Speyer: Hochschule für Verwaltungswissenschaften Speyer, 1989); M. Niedobitek, Pläne und Entwicklung eines Europas der Bürger—Zwischenbericht, 1989, Speyerer Forschungsberichte 81 (Speyer: Hochschule für Verwaltungswissenschaften, Speyer, 1989); Siegfried Magiera, ed., Das Europa der Bürger in einer Gemeinschaft ohne Binnengrenzen (Baden-Baden: Nomos Verlagsgesellschaft, 1990). 2. For details, see Siegfried Magiera, Die Einheitliche Europäische Akte und die Fortentwicklung der Europäischen Gemeinschaft zur Europäischen Union, in Gedächtnisschrift für W. K. Geck (Cologne: Carl Heymanns, 1989), pp. 5 0 7 530; see also Leon Hurwitz, Contemporary Perspectives on EC Integration:

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Attitudes, Nongovernmental Behavior and Collective Decision Making (Westport, CT: Greenwood Press, 1980), pp. 3-23. 3. Council decision and act concerning the election of the representatives of the European Parliament by direct universal suffrage of September 20, 1976, Official Journal of the European Community, No. L 278/1. 4. Conclusions of the European Council, Dublin, June 25-26, 1990; reproduced in Europe—Agence Internationale, Documents No. 1632/1633 of June 29, 1990. 5. See Art. 48 et seq. EEC Treaty; also J. C. Séché, A Guide to Working in a Europe Without Frontiers (Luxembourg: EC Commission, 1988); J. C. Séché, Freedom of Movement in the Community: Entry and Residence (Luxembourg: EC Commission, 1988); U. Battis, Freizügigkeit und Beschäftigung in der öffentlichen Verwaltung, in Magiera, Das Europa der Bürger, pp. 47-59. 6. Art. 48 (3) EEC Treaty; also Commission Regulation (EEC) No. 1251/70 of June 29, 1970. on the right of workers to remain in the territory of a member state after having been employed in that state, Official Journal of the European Community, No. L 142/24; Council Directive 75/34/EEC of December 17, 1974 (concerning the right to remain of self-employed persons), Official Journal of the European Community, No. L 14/10. 7. Court of Justice of the EC, decision of January 31, 1984 (Case 286/82 and 26/83 [Luisi and Carbone]), 1984 ECR 377. 8. Court of Justice of the EC, decision of February 13, 1985 (Case 293/83 [Gravier]), 1985 ECR 593; decision of May 30, 1989 (Case 242/87 [Commission/Council— "ERASMUS"]), 1989 ECR 1425. For details, see C. O. Lenz, Zuständigkeiten und Initiativen der EG im Bereich des Bildungswesens im Lichte der Rechtsprechung des Gerichtshofs (EuGH), in Magiera, Das Europa der Bürger, pp. 183-208. 9. See the first report of the Adonnino Committee, Bull. EC, Supp. 7/85, p. 15; A People's Europe, Bull. EC, Supp. 2/88, p. 19. For details, see H.-D. Steinmeyer, Freizügigkeit und soziale Rechte in einem Europa der Bürger, in Magiera, Das Europa der Bürger, pp. 63-80. 10. Council Directive 90/365/EEC on the right of residence for employees and self-employed persons who have ceased their occupational activity, Official Journal of the European Community, No. L 180/28; Council Directive 90/366/EEC on the right of residence for students, Official Journal of the European Community, No. L 180/30; and Council Directive 90/364/EEC on the right of residence, Official Journal of the European Community, No. L 180/26. 11. EC General Report 22/1988, point 284. For details of the following discussion see Leon Hurwitz, "The American FBI as a Model for a 'European Police Authority'?" in Magiera, Das Europe der Bürger, pp. 213-223; H. C. Taschner and T. R. Kökai, "Die Abschaffung der Personenkontrollen an den Binnengrenzen der EG und ihre Folgen," in Magiera, Das Europa der Bürger, pp. 229-235 and 2 3 7 249. 12. See Siegfried Magiera, Politische Rechte im Europa der Bürger, in Zeitschrift für Rechtspolitik (Munich: Verlag C. H. Beck, 1987), pp. 331-337. 13. Proposal for a Council directive on voting rights for Community nationals in local elections in their member state of residence, Official Journal of the European Community, No. C 246/3 (1988); Official Journal of the European Community, N o . C 290/4 (1989). For details, see Siegfried Magiera, "Kommunalwahlrecht in den EG-Mitgliedstaaten," in Europa-Archiv (Bonn: Verlag f ü r Internationale Politik, 1988), pp. 4 7 5 ^ 1 8 0 ; H.-J. Papier, "Kommunalwahlrecht f ü r Angehörige anderer Mitgliedstaaten der E G , " in Magiera, Das Europa der Bürger, pp. 27-40.

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Market

14. Official Journal of the European Community, No. C 120/51 (1989). For details, see D. Nickel, "Die Erklärung der Grundrechte und Grundfreiheiten des Europäischen Parlaments," in Magiera, Das Europa der Bürger, pp. 89-109. 15. Council Directive 89/552/EEC on the coordination of certain provisions laid down by law, regulation, or administrative action in member states concerning the pursuit of television broadcasting activities. Official Journal of the European Community, No. L 298/23. 16. EC General Report 21/1987, point 708. For details, see W. Fiedler, "Impulse der Europäischen Gemeinschaft im kulturellen Bereich: Rechtliche Grundlagen und politische Fortentwicklung," in Magiera, Das Europa der Bürger, pp. 147-177.

PART 3 SELECTED COMMUNITY POLICIES

165

13 New Trends in the Common Agricultural Policy Daniele Charles-Le Bihan & Daniel

Gadbin

The Adaptation of Agricultural Market Regulations According to the Commission, agriculture within the Community cannot remain dynamic and efficient if it develops outside surrounding market forces and socioeconomic evolution. This adaptation is primarily an internal one, the priority of which is a gradual lowering of production in surplus sectors and an alleviation of the resulting contribution for the European taxpayer. It is also an adaptation to the world market. Faced with surpluses and falling prices, the Community, under pressure from the United States and members of the Cairns group, has had to propose a reduction of agricultural subsidies as part of GATT negotiations in the Uruguay Round. Moreover, the reform that began before the publication of the "White Paper on the Completion of the Internal Market" and the signing of the Single European Act is an essential prerequisite for achieving the wider market. Conversely, the completion of the internal market should lift obstacles to free movement that hamper the trade of farm and agroalimentary products within an area of fair, reinforced, and renovated competition. The Necessary Reform of Common Market Organizations (CMOs) or the Adaptation to the Market The decisive evolution sanctioned by the Brussels European Council (February 11-13, 1988) tends toward a severe restriction of guarantees but with accompanying measures aimed to support the farms hardest hit by the crisis and by the reform under way. Although the policy of an agricultural price freeze continues, the 1983— 1984 campaign guarantee restrictions are effective only at certain times of the year. This is a mere safety net, the limited nature of which is reinforced by budgetary stabilizers. Financially, the global amount of the Guarantee 167

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Section of the European Agricultural Guidance and Guarantee Fund (EAGGF) is limited by a guideline as part of the budgetary discipline imposed on it since the Council's decision on June 14, 1988.1 The price freeze concerns prices set by the Community in ECUs and has even brought about a significant drop in some sectors. The price freeze does not, however, bear the same consequences for all member states because of inflation rate differences. The lower the inflation rate, the less prejudicial is the price freeze for producers. However, for producers in low-currency countries, the progressive dismantling of negative compensatory contributions has increased the national currency value of the prices set in frozen ECUs, even if the various coresponsibility taxes on milk and cereals and the differing guarantees on wine somewhat moderate this advantage. Although the total suppression of the Monetary Compensatory Amounts physical boundaries is called for by the January 1, 1993, deadline and despite some easing of tension since the last dismantling plan, 2 agromonetary discussions remain one of the stumbling blocks in annual negotiations on agricultural prices and connected measures. For the 1990-1991 campaign, agromonetary decisions revolve around two axes: 1. Complete suppression of existing real monetary discrepancies in France, Ireland, Italy, Portugal, the Netherlands, and Germany, except for cereals in Germany and the Netherlands and for sugar in Germany (new green rates from October 1, 1990) 2. Partial or complete suppression, according to products, of monetary discrepancies in the United Kingdom, Spain, and Greece Recent changes in CMOs put an end to the traditional distinction between the highly protective ones (cereals, rice, sugar, beef, milk), which offered producers unlimited outlets at a guaranteed price to producers; those with limited or optional guarantees (wine, fruit, and vegetables); and the rest, which amounted to production subsidies (green plants, hops, flax, hemp, and fibers).3 All CMOs are now submitted to a guarantee limit. Techniques that have now been tested for several years (coresponsibility taxes in the milk and cereals sectors, sugar and milk quotas, and reduction of the subsidies given to producers in the fishing industry and calculated in the wine sector according to the quantity of wine distilled) are maintained. In some sectors, intervention is limited to certain periods of the year or restricted to a maximum amount; it operates when average market prices drop to a level below a certain percentage of the intervention price. The adoption of budgetary stabilizers by the Council on April 25, 1988, was a decisive stage in the evolution of the CMOs. 4 It definitively suppresses automatic and unlimited intervention based on high-guarantee prices. The

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principle of budgetary stabilizers consists of determining maximum guaranteed quantities for nearly half the Community's agricultural production, levels of production beyond which the collective coresponsibility mechanisms intervene, thus limiting subsidies given to producers. The stabilizers, which are part of the general framework of budgetary discipline, concern a great number of vegetable and animal products. The budgetary stabilizers apply to cereals, oleaginous plants, sugar, wine, fruit, vegetables, tobacco, mutton, and goat meat. Overstepping them leads to global penalization of producers, which varies according to the type of CMO. For cereals, an extra coresponsibility tax—3 percent of the intervention price—is imposed on all producers; it is reinforced by an automatic 3 percent reduction of the intervention price for the next campaign. For oleaginous crops, in the event of an overstepping of the MCO, the amount of the aid to production is automatically reduced by a certain percentage for each overstepped margin of 1 percent compared with basic volumes. These stabilizers, which appear as extra measures directly linked to a "price policy adapted and controlled in its budgetary consequences," are especially aimed at limiting production and are part of a five-year budgetary discipline that is to be reexamined in 1991. Agricultural overspending (more than 7.5 percent each year), linked to the management of common market surpluses as well as to sharp price decreases on the world market, increasing the cost of export compensatory payments, has unsettled the Community's budget balance on several occasions. The European Council has had to revise the whole system of the Community's own resources and to submit the use of these resources to an efficient and legally coercive discipline. This budgetary discipline imposes on the guarantee section of the EAGGF an exchange increase rate that must not exceed 74 percent of the growth rate of the Community's gross national product.5 Through an agreement dated June 13, 1988, EC institutions have committed themselves to respect the agricultural guideline thereby defined, even if the Council, in a special session, can depart from it, when the Commission's price propositions seem insufficient. It is then up to the Commission, when it lays down its propositions, to use management means for each CMO to limit spending. In the case of a threatened overstepping of the agricultural guideline, the Commission may refer the problem to the Council, which would pass a rule within two months to remedy the situation. In addition, 1,000 million ECU will be set aside each year in the European Community's general budget as a deposit to face developments caused by significant and unforeseen fluctuations of the exchange rate on the market between the dollar and the ECU compared with the parity used in the budget. These credits are not included in the agricultural guideline. Beyond their budgetary aspect, such measures aim at encouraging

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producers to adapt themselves to the quantitative and qualitative pressures of the market instead of systematically turning to public subsidizing. However, because of the severity of some of them, compensations have been introduced to limit the loss in income of some producers or to encourage certain production. Breaking from the previous global system, the strict nature of price and market policies has been moderated. Agricultural diversity in some regions of the Community has been taken into account to the benefit of small producers or producers in difficulty. Coresponsibility mechanisms are being revised in producing sectors most affected by stabilizers. In the milk sector, the Council began to dismantle the coresponsibility tax in April 1989 by exempting producers in underprivileged areas. In other areas, it was fixed at 1 percent for those producing less than 60,000 kg and at 1.5 percent for those producing more than 60,000 kg. In November 1989, the Council agreed on a 1 percent increase of milk quotas to be redistributed to some milk producers as part of a series of measures in favor of rural development. It adopted that same day a measure to help small cotton producers. In the cereals sector, direct aid to production (hard wheat producers are generally small producers) was increased to compensate for the 6.8 percent drop in the intervention price for hard wheat. Furthermore, the Commission proposed a number of measures, including price and market policies for the economic development of rural regions through a modulation of agricultural stabilizers and special actions in favor of the weakest productions and of producers in mountain and underprivileged areas to conciliate "horizontality and modulation." With this end in mind, the Council considered the following four measures: 1. In the cereals sector, a subsidy per hectare for minor cereals (alpist, millet, buckwheat) is allocated to holders of a cultivation contract. Aid is restricted to a certain number of hectares. 2. In the major crop sector (cereals, colza, sunflower, soya, peas, broad beans, and field beans), the Commission suggested an aid of 50 ECU per hectare in underprivileged areas and of 30 ECU per hectare in other areas. Beneficiaries are main producers, with at least 30 hectares of farmland, whose principal source of agricultural income comes from major crops. This system is left to the discretion of member states, which can apply for it in 1990-1991. 3. In the milk sector, a premium for each milking cow (cows in herds fulfilling a double purpose) represents an aid to the small producer (60,000 kg of milk, a maximum number of ten cows). 4. In the ovine sector, a specific aid of 4 ECU is allocated for each ewe bred in mountain and underprivileged areas.

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The Adaptation of CMOs to the World Market: The Issues at Stake in GATT Negotiations Agricultural world markets are now characterized by problems of access, generalized programs to sustain prices and revenues by the states, massive overproduction, and stagnating demand in some parts of the world and unsatisfied demand in others. In order to face up to the discrepancies and uncertainty existing in world markets, all GATT members agreed to "reinforce discipline and improve foreseeability in the world trade of agricultural products by revising and anticipating restrictions and distortions, including those due to structural surpluses." 6 Contrary to its GATT partners (especially the United States and the Caims group) who regularly advocated rapid and total suppression of barriers concerning the trade of agricultural products (export subsidies, import barriers, and sanitary regulations), the Community always supported a general decrease of aid that should be symmetrical among partners. This decrease should concern all allocated aids, including compensatory payments that benefit US farmers in particular. Concerning the latest propositions for the reduction of agricultural subsidies of the United States and the Caims group, submitted on October 15, 1990, to the GATT secretariat, the Commission suggested a compromise with allowances on export restitutions and new counterbalancing of support and protection. This compromise has been part of EC policy since 1986. By suggesting for 1996 a 30 percent reduction of national aids to the principal products in a CMO, compared to the 1986 level, the Commission claims that half the work has already been done. What must be pursued, without bringing into question CAP principles, is the milk quota policy, the stabilizing mechanisms in major crops, and the restriction of intervention in the meat sector. In its proposal of November 8, 1990, the Commission specified that the 30 percent reduction of subsidies, calculated from 1986 on, corresponds to "a global subsidy measure," to fixing of tariff measures at the frontiers, to an accompanying reduction of the resulting stable element, and to the application of a correcting factor, tariffing being subjected to new balancing. Indeed, the Community considers that an adjustment of export restitutions would only be acceptable if it were possible to put right great discrepancies in aid and protection measures. The Commission therefore suggested introducing a tariff equivalent based on maize for oleaginous seeds, maize gluten, and other residues from the production of starch and fecula, and on barley for animal feed products other than cereals, as well as tariff packages calculated on import average during the period 1986-1988. This proposed reduction of subsidies and protection must lead to a diminution of export restitutions concerning both their global and individual amounts as long as prices on the world market remain stable. In such conditions, the Commission declared itself ready to quantify results

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corresponding to the reduction of national aids, of refunding, and of the actual application of the principle of market fair share as meant by Article XVI of GATT. Of course, the Community would maintain its proposal only if the main interested members made similar offers. It seems, however, that despite the failure of the negotiations of December 7, 1990, the European Council still agrees with the Commission's proposals, insisting that "only a general approach based on balanced concessions on each side, can lead to success." The Completion

of the Agricultural

Common

Market

Even if the agricultural clauses of the Treaty of Rome are not really affected by the Single European Act, one must not forget that the common market includes agriculture and the trade of farm products, whose functioning and development is accompanied by a common agricultural policy. Within this framework, the Internal Agro-Alimentary Market constitutes the basis of the CAP. 7 However, many nontariff barriers, such as health measures or technical impediments, often turned this common farm produce market into a mere juxtaposition of isolated markets. Furthermore, obstacles to the free circulation of agricultural and food products must be removed within an area of fair competition. At the time of the dismantling of traditional CMO mechanisms, what can be the role of interprofessional agricultural organizations and agreements in the new process of adaptation of common market agriculture? As for public national aids to agriculture, don't they constitute an important source of inequalities in the field of competition, implying further harmonization of national legislations and reinforced common control? The adoption of the "new approach," outlined in the Commission white paper and confirmed in the Commission publication entitled "How to Achieve the Single Act," has allowed the speeding up of the implementation of measures intended to bring down the physical and technical barriers impeding free circulation of farm produce. The white paper listed seventy-two harmonization measures to be effected in the phytosanitary and veterinary sectors in order to eliminate border controls. Inasmuch as these sectors involve health and consumer protection they will be dealt with under the harmonization process. But the Court has clearly stated that Article 43 constitutes the appropriate juridical basis for all rules concerning the production and consumption of farm produce, even if such a decision incorporates the harmonization of national measures in this sector. Article 43 therefore constitutes the single basis of common market policy as far as legislation harmonization is concerned in the agricultural sector. The farm produce sector and, more particularly that of veterinary and phytosanitary controls, is one of the areas in which the Council is most lagging behind in respect to the white paper timetable. The work pace had increased in 1989 (ten directives were adopted

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in the Common

Agricultural

Policy

173

compared to eight in 1988), even though a major directive like that concerning the reorganization of veterinary controls, including the suppression of internal controls at internal borders for most products of animal origin, will be applicable on December 31, 1991, except for meat and meat-based products, for which a customs control will be maintained until 1992. Furthermore, transposition or application delays are important and concern all m e m b e r states to various degrees. Nearly 30 percent of enforcement measures are still to be taken. National legislation on food products (product contents, production methods, description, labeling, and packaging) constitute so many technical stumbling blocks to free circulation of agricultural products (which are mainly food products) and agroalimentary products. From the early 1960s until the mid-1980s, the Community has succumbed to the temptation of vertical harmonization aiming to issue regulations for each product. An ambitious program of legislation harmonization was worked out in 1969 and updated in 1973, but the unwieldy process of unanimous decisionmaking based on Article 100 of the EEC Treaty and an excessive work load made impossible the completion of the first program and then the second. After an evaluation of the limits of a systematic vertical harmonization, the Commission, referring to the Cassis de Dijon decision, has made the principle of mutual recognition the reference point of its action concerning the lifting as well as the prevention of obstacles to exchanges. 8 In a communication of January 31, 1985, the Commission suggested a new approach to technical harmonization. The food sector is a privileged area of application of this principle, even if the Commission admits that some products must be defined and subjected to vertical guidelines and if the Commission accepts having to define the notions of "low-fat products" and "green products" (products from biological agriculture). Application of the "new approach" to the food sector. According to the "new approach," the intervention of the common market legislation must be limited to "essential requirements" for the protection of health: food additives, contamination risks, food preservation, and control of food, and labeling matters essential to consumer information. These harmonized rules, based on Article 100A, are of a horizontal nature, because they apply to all foods concerning technical specifications. They are referred to as international or European norms and, in their absence, as national norms following the technique called "reference to norms." In the absence of "European normalization"—or in the expectation of one—the principle of mutual recognition resulting from the Cassis de Dijon case implies the recognition of the diversity of regulations on the technical characteristics of products. A member state could not ban the sale on its territory of a product made according to technical or qualitative norms different from those imposed on its own products.

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Insofar as the product in question complies "satisfactorily and appropriately" with the legitimate aim of its regulation (safety, consumer protection, the environment), the importing member state could not claim, in order to justify the banning of the sale on its territory, that the means used to reach that objective were different from those imposed on national products. This strategy, based on the mutual trust between member states in each other's legislation, must contribute to eliminate the chief technical obstacles to food products exchanges. 9 It is accompanied by a procedure of prevention of new obstacles through the extension of Directive 83/189 to food and agroalimentary products. This text requires every member state to inform the Commission of any intended technical rules, which should encourage the openness of member states' regulation activity. The new approach applicable to all technical impediments to exchanges must nonetheless be accompanied in the agricultural sector by a promotion of high-quality products, an important asset in underprivileged or remote areas. Such preoccupation with protecting agricultural or food products, whose means of production or specific qualities can be identified, has led member states to create "origin labels" or "guaranteed origin denominations," but so many different national practices might constitute obstacles to trade, calling for a common approach. According to this aim, the Commission proposed two measures in December 1990. One proposal was on the declarations concerning the specific characteristics of food products and their protection, and the other concerned the protection of geographical indications of agricultural and food products. The need for an area of fair competition. In its regulation no. 26 of April 4, 1962, based on Article 42 of the Treaty of Rome, the Council had in fact reintroduced for the agricultural sector the general provisions of the Treaty concerning competition except for some possible dispensations as far as some agreements and national subsidies are concerned. In accordance with Article 85 of the Treaty, the general interdiction system applies to production as well as commercialization of farm products liable to affect trade between member states. Even though the Court gives an extensive interpretation of this rule and even though Regulation 26 exempts from interdiction associations grouping producers within a single member state (most producers' organizations, agricultural cooperatives, and their unions), the margin is narrow for organizations and interprofessional accords that the Commission wishes to encourage although they have already been condemned by the Court. In a recommendation to the Council, the Commission d e f i n e d interprofession in agriculture as the "interwoven relations between different professional categories concerned by the production, the commercialization and transformation of a given product or group of agricultural products."

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175

According to the Commission, the flexibility in institutional tools of market support that has been achieved should be accompanied by the development of a flexibility in some sectors. This flexibility should stimulate the setting up of new structures in the working out of which farmers and their professional organizations would be called to take a more active part. Interprofessional action must be integrated into the CAP instrumentation, abiding by certain principles: (1) professional organizations must be an open concertation and information exchange space in which each member state must have equal representation; and (2) they must find ways to increase market openness, organize sector relations (standard contracts, product approval, and control of conformity to common market norms), and promote the marketing of products and research. The working out of this action must be accompanied by the necessary guarantees in order not to interfere with the functioning of the CMO and to avoid competition distortions that would not be absolutely necessary to reach the objectives of the CAP as, for example, price fixing and quotas, and the elimination of competition for a substantial part of the concerned products. In respect of the Treaty provisions, the extension of interprofessional rales to nonmember operators is envisaged. Although the Commission appears to show a degree of tolerance regarding national subsidies considering provisions granted by the EEC Treaty, one can wonder whether the member states will not be tempted to multiply direct or indirect public aids to support their farmers. In that case, will the Commission make greater use of its powers of investigation, control and sanction—"useful measures" requiring member states to adapt their prevailing systems (93 [2]) and/or notification prior to their application (93 [3])? A recent change of attitude shows an obvious determination of the Commission to increase its control efficiency. Moreover, the new structural measures, which accompany agricultural stabilizers, are characterized in particular by common restriction systems of national subsidies, at times optional. An efficient control of these subsidies submitted to a precise common regimentation constitutes an important factor to prevent any renationalization of the CAP. There again, the actions of member states are liable to be under more and more common market scrutiny.

The Adaptation of Agricultural Structures and the Policy of Rural Development In spite of its relatively fragile legal basis in the Treaty of Rome, the Community policy on agricultural structures has developed, though somewhat belatedly. Although the Community principle of coordination of national policies was laid down as early as 1962, the Council of Ministers adopted only ten years later the three major sociostnictural

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directives whose main objective was the search for improved agricultural productivity. The unfavorable effects of these texts both on market stability and on harmonization of agricultural development between regions have since led the Community to adjust its policy according to these two main themes. This reorientation has been speeded up even more since 1980 with the permanent crisis in the agricultural markets and the adoption of the Single European Act, which aimed at concentrating the Community structural funds of the underprivileged regions. Moreover, structural policy must now take charge of social and environmental consequences linked to agricultural development and the reform of the CAP. Most of the measures taken since 1988 favor one or the other of the three categories of objectives mentioned, but are always based on an identical method of intervention founded on systems of incentive financial aid. Measures

Centered

on Market

Stability

Structural policy cannot be clearly dissociated from market policy and this has been proved correct for some time by numerous sector measures that are part of a logical structural adaptation of production to market needs but also in recent years by the reform of the sociostructural policy. Here it is a question of measures sometimes included within the rules themselves that deal with common market organization. The eighteenth financial report of the EAGGF lists sixteen cases. The renewal in 1988 until 1996 of subsidies for the permanent abandonment of vine-growing areas is the most recent example. It is very significant, because the difficulty in separating structural policy from market policy has led to a sharing of expenses between the EAGGF guarantee section and the EAGGF guidance section. The result is that the legal definition of structural measures cannot be based on the criterion of expense sharing or division between the two sections of the EAGGF. It cannot be excluded that owing to their economic effects and their legal technique (principle of voluntary membership of farmers), measures financed by the EAGGF guarantee section may belong to the category of structural measures such as subsidies for stopping milkproducing activities. 10 In practice, a Community system of structural aid, linked to market organization, benefits from aid from either section of the EAGGF because of factors that are not all technical. Certain member states more than others wish that the E A G G F guidance section be dissociated from market problems so that it can take greater charge of regional development. The difficulty in structural and market policy is also visible in certain of the most recent sociostructural Community measures. These measures, launched by the Brussels European Council (February 11-13, 1988), are

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organized around systems of set-asides of arable land and redeployment for uses other than food production; systems of extensification of production; and a system of ceasing agricultural activity. The set-aside of arable land aims at limiting the supply of surplus products by reducing cultivated surface. Optional for farmers, it is compulsory for member states, although regional exemptions are possible. Farmers who are interested in participating must set aside for a minimum five-year period (with possible termination after three years) at least 20 percent of the arable land from the area cultivated with products covered by a CMO and never less than 1 hectare (except in Greece). The land set aside is left fallow and may be planted with trees or used for nonagricultural purposes. Member states may also plan to use green fallow land (for extensive breeding) or yellow fallow land (for production of chick-peas, lentils, and vesces). In this'case, the aid that member states fix within a bracket of 100 to 700 ECU per hectare per year, taking into account real loss of income, is reduced by about 50 percent in comparison with sums granted for fallow land. Participation of the EAGGF is shared equally between the guidance section and the guarantee section. This action has not been as successful as expected. Only 434,000 hectares were set aside in 1988-1989—far less than 1 percent of the Community's arable surface (the primary objective, which the Commission had to abandon, was for 20 percent). The optional system of redeployment of arable land for uses other than food production (energy fallow) is for a maximum period of five years. Fifty percent maximum of the land set aside can benefit from subsidies fixed by member states within a limit of 70 percent of the aid granted to the setting aside of land, provided that it is used for cereals destined by contract for transformation to other than food products. An examination of the results of this system, which has just been implemented, show that it could be extended to products other than cereals. The system of aid to extensification, compulsory for member states but which can be tried out on a limited number of products (including beef and wine), enables producers who commit themselves to reducing production by at least 20 percent for a minimum of five years, to obtain subsidies fixed by member states quite freely. The maximum amounts of aid eligible to the EAGGF represent about 30 percent of the average income per hectare of the different products likely to be concerned; i.e., apart from beef and wine, sheep meat, cereals, oil-producing plants, tobacco, cotton, certain fruits and vegetables, and olive oil. A system of redeployment of production has been under discussion for some time, encouraging redeployment to alternative crops that do not have surpluses. The sectors under consideration, apart from oil-producing plants, concern what is generally qualified as small production (fruits in shells; small fruits; medicinal, cosmetic, and aromatic plants; frogs;

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Policies

snails; truffles; and honey). An agreement has not yet been reached by the Council of Ministers on the list of these products. On the other hand, measures favorable to diversification to activities other than agricultural ones on the farm result from the reform in Regulation 797/85 (December 1989)." The incentives for cessation of agricultural activity, optional for member states, is intended for farmers who are over fifty-five who give up permanently all agricultural activity and set aside their land for at least five years, and until normal retirement age. The employees and those who help in the homes of such farmers may also take advantage of this scheme. The farmers can benefit from an annual indemnity of 3,000 ECU and an annual bonus of 250 ECU per hectare. The employees can benefit from an annual indemnity of 2,000 ECU. These are maximum amounts eligible to the EAGGF, member states being free to fix higher amounts or to choose not to apply this scheme or to apply it partially. The system of incentives for cessation of agricultural activity included at first a restructuring option; that is, it could also be proposed to producers whose land would not necessarily be "frozen" but would be used to extend neighboring farms. This option, which has been excluded from the final scheme, can only be used regionally within the framework of programs of development linked to the reform of structural funds. Measures

Centered

on Regional

Agricultural

Development

The structural policy has gone through a dual movement of regionalization in recent years. This is the result of the recognition of the CAP's regional effects that have existed for some time. The eighteenth report of the guidance section of EAGGF lists about thirty actions and programs in favor of agricultural development in underprivileged areas. The best-known (integrated Mediterranean programs) are in the form of programs of integrated development. Taking into account the link between agricultural development and global regional development, they call on all structural funds and not only the EAGGF (guidance section). These actions and programs 12 are intended, since the reform of structural funds in 1988, to be integrated into its mechanisms and are included in the Community framework of support for programs of regional or rural development. It is generally admitted that in spite of the directive relative to agriculture in mountainous and underdeveloped regions, as well as some other actions, the C A P has not been sufficiently concerned with these regions. The Single European Act, attributing to the CAP objectives of economic and social cohesion, confirms the past orientation of the policy of agricultural structures in favor of regional development and demands that implementation be more rapid. That is why the sociostructural texts (so-

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Policy

179

called "horizontal" measures) have had to be adapted according to the objectives of economic and social cohesion: reinforcement of Community cofinancing in favor of zones covered by objective no. 1 of structural funds reforms; extension of the number of underprivileged zones according to Directive 75/268; and concentration of Community aid as far as these zones are concerned, on small- and medium-sized farms. The Single European Act puts at the service of social and economic cohesion the whole of the Community structural funds. The EAGGF (guidance section) must concentrate a larger part of its credits in the priority areas in regard to the general regional development of the Community and of certain rural areas located outside areas of objective no. 1; it must intervene in those areas in close coordination with the European Regional Development Fund and the European Social Fund (ESF). EAGGF (guidance section) interventions in those regions will therefore from now on be integrated into the projects elaborated by the member states and approved by the Commission in accordance with the general principles of the reform of struc- tural funds. The support framework that expresses both the Commission agreement and the financial engagement of the Community related to regional development programs (RDPs) were approved in October 1989 for the former and in June 1990 for the latter. The contribution of EAGGF (guidance section) amounts to 5,417 thousand million ECU for 1989-1993 in the first case and 168 thousand million ECU in the second. The first annual report of the Commission on the application of the reform of structural funds was published in October 1990. 13 Measures Aimed at Social and Environment Protection Objectives The Community has recently authorized the member states to grant transitory subsidies to agricultural income so as to allow farmers whose family income per working unit is inferior to a threshold determined by each member state to face a process of adaptation or diversification of activities outside agriculture. Those subsidies, necessarily incoiporated into a program of aids to agricultural income, are paid over a maximum period of five years and calculated in a digressive manner in relation for those concerned to the loss resulting from the CAP reform. They cannot exceed 2,500 ECU per year and working unit. A complete panorama of the agricultural structures policy cannot be drawn without underlining its increasing role in environmental protection matters. This situation, apparent as early as 1975 in the Directive on mountain agriculture and underprivileged areas, has become even more evident since 1985. The policy of extension offers an option of using less intensive

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Policies

production techniques. T h e policy o f reduction o f arable land imposes measures destined to maintain good agronomic conditions when the lands c e a s e being cultivated and are left lying in fallow. T h e early retirement system imposes to keep in good condition the abandoned land. The system o f material

improvement

plans o f f e r s grants for investments aimed

at

environmental protection, improvement o f hygiene conditions in cattle farms, and respect o f Community norms concerning the welfare o f animals (in the poultry and egg sector, these are actually the only investment grants allowed). In the grant system for mountain agricultural and underprivileged areas, the amount o f compensatory indemnity can be adapted in relation to the use o f agricultural practices in keeping with the imperatives o f environment protection. With the regulation system specific to sensitive zones, five-year contracts allow fanners in these zones to obtain yearly premiums in exchange for abiding by s p e c i f i e d agricultural practices. Several grant

systems

supporting afforestation and improvement, restoration, or restructuring o f woodlands were also created in 1989. T h e e c o l o g i c a l orientation o f the structural policy cannot, however, make one forget that the decline o f price support and agricultural stabilizers otherwise

entail

dangerous consequences

for e c o s y s t e m s

in

several

regions, the adaptation o f producers being achieved through a process o f elimination and concentration and therefore, depending on the type o f zone, resulting in e x c e s s i v e desiccation or intensification. T h e Community will therefore have to apply a more constraining policy for agriculture than simple aid systems with incentive character. A real environmental policy is needed.

Conclusions Structural policy cannot be limited any longer to a basic economic vision o f the restructuring o f agriculture mainly founded on the enlargement o f farms in a c o n t e x t o f continuous productivity increase. L a c k i n g that initial c o n f i d e n c e , it reacts today with the utmost sensitivity to the impulsions emanating

from

policies

other than the C A P — m a i n l y

regional

and

environmental p o l i c i e s . It must better apprehend the human factor in agricultural development. I f it has taken into account the aging population o f this sector by increasing the installation grants to young farmers, it has not yet managed to influence in a significant way the questions raised by training knowledge diffusion o f technical progress and innovations. It must finally pursue the action that has been under way for a long time in favor o f p r o f e s s i o n a l and interprofessional organization, which constitutes

the

infallible signal o f highly efficient agricultural systems when they function properly.

New Trends in the Common Agricultural

Policy

181

Notes 1. EC Council of Ministers Decision No. 88/377. Official Journal of the European Community, No. L 185 (July 15, 1988). In 1991, this " g u i d e l i n e " is fixed at 32.5 billion E C U . 2. E C Council of Ministers Regulations Nos. 1/889 a n d 1/890 of July 2, 1987. Official Journal of the European Community, No. L 182 (July 3, 1987). 3. S e e C . B l u m a n n , " C o m m o n A g r i c u l t u r a l Policy M a r k e t P o l i c i e s : Continuation of the E f f o r t Towards Guarantee Limitations," Revue Trimestrielle de Droit Européen 25 ( O c t o b e r - D e c e m b e r 1989), p. 725. 4 . Official Journal of the European Community, No. L 106 (April 24, 1988) and No. L 110 (April 27, 1988). 5. Council Decision 8 8 1 3 3 7 / E E C of June 24, 1988. Official Journal of the European Community, No. L 185 (July 15, 1988), p. 29. 6 . " M i n i s t e r i a l D e c l a r a t i o n on the U r u g u a y N e g o t i a t i o n s P r e s s C o m m u n i q u é , " Revue du Marché Commun, No. 336 (April 1990), p. 305. 7. A. Massot, "The C A P and the Internal Agro-Alimentary Market," Revue du Marché Commun, No. 336 (April 1990), p. 305. 8. A. Mattera, " T h e Suppression of Technical Barriers and the Working of Mutual R e c o g n i t i o n , " Revue du Marché Commun, No. 334 (February 1990), p. 80. 9. See Official Journal of the European Community, N o . C 271/3 (October 24, 1989). 10. Council Decision 1/183/90 (EEC) of May 7, 1990. Official Journal of the European Community, No. L 119, p. 27. 11. Official Journal of the European Community, No. L 371 (December 20, 1989). 12. S o m e recent decisions include a ten-year 700 million E C U program for Portugal; 4 2 0 million E C U for Spain; and 180 million ECU for Ireland. 13. C o m m i s s i o n of the E u r o p e a n C o m m u n i t y , C O M (90) 516 F I N A L (Official Publications of the EC, October 1990).

14 Progress Within the European Monetary System Hugo M. Kaufmann

& Stephen

Overturf

On March 13, 1991, the European Monetary System ( E M S ) celebrated its twelfth birthday with a sense that the system, originally launched by French president Valéry Giscard d'Estaing and West German chancellor Helmut Schmidt, had progressed much further toward accomplishing the e c o n o m i c and monetary union ( E M U ) goals established in the Werner Report of 1970 than any institutional development o f the previous decade. Indeed, the tumultuous economic events o f the 1 9 7 0 s saw the collapse of the Bretton Woods international monetary system and the transition to the (managed) floating exchange rate (non)system; the two oil crises, Organization of Petroleum Exporting Countries ( O P E C ) I and O P E C II; and bouts with extraordinary inflation in the United States and in many other industrial countries. In addition, most governments o f the European Community were not ready to effectively coordinate their economic policies and had left the attempt at narrowing the margins o f permissible exchange rate fluctuations through the European narrow margins arrangement (the " s n a k e " ) , which became a Deutsche mark ( D M ) zone with few stability-oriented members (Belgium-Luxembourg and the Netherlands). Although some may view the steps toward an E M U halting compared with the level of academic and professional intellectual energy spent on the creation o f a European monetary union, the conflicts and therefore the difficulty in negotiations among the practitioners in the E M S cannot be overestimated. It is therefore a small miracle that the various governments were able to agree on an intergovernmental conference for December 1 9 9 0 devoted to changing the E C Treaties for the purpose o f establishing an E M U . This progress toward an E M U could hardly have occurred without the successful convergence that took place beginning in the mid1980s.

183

184

Selected

Community

Policies

The European Monetary System and Its Exchange Rate Mechanism The original intent of the EMS was to establish a "zone of monetary stability" in Europe and thus to reduce the damage to intra-Community trade from exchange rate fluctuations of its member currencies. This was to be achieved through a system of fixed but adjustable exchange rates between the members of the Exchange Rate Mechanism (ERM) of the EMS. In addition, the system was to reduce the significant divergences in inflation rates of the European member states and encourage lower inflation overall. 1 A further goal of some initiators of the EMS was to render the balance of payments adjustment mechanism more symmetric so that the balance of payments adjustment burden would not fall entirely on the balance of payments deficit countries as had occurred during the reign of Brctton Woods. The center of the EMS was to be the European currency unit (ECU), successor to the European unit of account (EUA), rather than a national currency. The ECU was to serve not only as the currency for the EC's financial transactions, but also as the anchor of the system, and eventually to emerge as an international currency for use as central bank reserves and also for intervention purposes. It was defined as a weighted average, a market basket, of EMS member currencies. 2 The European Monetary Cooperation Fund (EMCF), where ECUs were created against rolling short-term swaps of 20 percent of member states' gold and dollar reserves, was to become—but did not—a European Monetary Fund (EMF) at the end of the second year of the EMS's operation. The intent was that the EMCF or EMF as an EC central bank would issue the ECU as the EC's common currency. The bilateral grid, as it existed under the "snake" system, was to be replaced by the ECU. With the bilateral grid, a currency at the top of the band of permissible exchange rate fluctuations would have at least one counterpart at the bottom, with the adjustment burden falling on the weak currency. The ECU, however, would work symmetrically, because one currency that is "out of line" would not necessarily have a counterpart. The Belgian compromise finally broke the deadlock between the "maximalists" (primarily the French) who wanted the new ECU at the center of the EMS and the "minimalists" (primarily the Germans) who insisted on preserving the bilateral grid as it existed in the snake. 3 Under this compromise, the bilateral grid provided for automatic central bank interventions, whereas the ECU would be used for determining the central rates and divergences from them. The ERM's bilateral grid was to provide for relatively fixed exchange rates, because there are bands of + / - 2.25 percent (an exception can be made where the band is + / - 6 percent around the central rate) within which rates may fluctuate without obligatory action by member governments. Italy, which had availed itself of the wider margin, entered the narrow band in January 1990, and Spain, which chose the wider margin upon joining the

Progress

Within

the European

Monetary

System

185

ERM in 1989, might follow Italy in the near future. The option of a wider band was initially reserved for the countries that did not belong to the European narrow margins arrangement. If the margins prove to be insufficient to correct imbalances, realignments might be required, but they do not have to be preceded by consultation between central banks. To make the adjustment mechanism symmetric, the ERM contains a divergence indicator intended to provide a "warning bell"; when a currency reached the threshold of 75 percent of the permissible fluctuation, there was the presumption that the divergent country was to engage in adjustment policies. 4 In the interest of symmetry, the divergent country, irrespective of the direction in which it was diverging, was expected to do the necessary adjusting; thus, a lower-than-average inflation country (say, Germany) would have had to engage in expansionary policies if its appreciating exchange rate reached the divergence indicator—unless it was willing to revalue its currency. Finally, the EMS expanded financing facilities, beyond those already available under the snake arrangement, to aid central banks in maintaining their exchange rate commitments through foreign exchange market interventions.

EMS Institutional Development The EMS today is a very different institution from that originally envisioned by its founders. In the ERM the bilateral parity grid has become the preeminent feature of the system, whereas the divergence indicator, relating to the ECU central rates, has virtually no relevance. Two technical elements with the divergence indicator caused problems, including the fact that EMS countries that had not undertaken exchange rate commitments under the ERM—prominently, the UK, until recently—nevertheless had their currencies included in the ECU determination. The second problem was an unanticipated arithmetic quirk in the calculation of the indicator whereby the upper or lower limits of the exchange rate band might actually be broken before reaching the divergence indicator. A more central problem was that the divergence indicator was related to the ECU, which as a weighted average of currencies could not provide the nominal anchor for lowering inflation rates. This effectively emasculated the divergence indicator, and substituted for it the DM as the central, nominal anchor. The DM is based upon the reputation of the Deutsche Bundesbank, a credible inflation-fighting institution for Germany and, indirectly, for the EMS. The DM had already served this function under the snake, when it had become a de facto DM area. The official ECU, stripped of a large part of its originally intended function, has been reduced to a minor role in the operation of the EMS and serves primarily as the numeraire for EC activities. The private ECU use has

186

Selected

Community

Policies

been much more extensive. The E M S ' s various short- and medium-term financing facilities have been little used. They were designed for intervention at the margins o f the exchange rate bands, whereas central banks have preferred to intervene in dollars before the exchange rates hit their upper or lower limits; interventions at the margins, however, had to be conducted in E M S currencies. An important technical innovation in the cooperation of E M S member states was the Basle-Nyborg agreement of 1987, which extended the very short-term financing facility to "intramarginal" interventions, improved the sharing of the intervention burden, increased community surveillance of the markets, and encouraged the use of more tools, including interest rate changes, in the management of exchange rates. The innovations seemed to work quite effectively in defusing the exchange rate crisis o f autumn 1987, when the established exchange rates could be preserved even under pressure in the exchange markets.

EMS Economic Results Most studies on the impact of the E M S on exchange rates agree that the system has produced reduced exchange rate variance—using almost any measure of variance—among countries participating in the E R M . This is so using either nominal or real measures, in comparing E R M with non-ERM countries, or with E R M countries before the establishment o f the E M S . In fact, the nominal and real variability of exchanges has decreased progressively over time, being halved from the pre-EMS period ( 1 9 7 5 - 1 9 7 9 ) to the first years o f the system ( 1 9 7 9 - 1 9 8 5 ) ; they were halved again in the most recent period ( 1 9 8 6 - 1 9 8 9 ) . 5 Thus, the system seems to have successfully contributed to the objective of creating a zone of monetary stability in Europe. Realignments, which were frequent in the first five years, have dropped both in size and frequency, especially since 1983, when France decided to commit itself to the system. Most devaluations have not completely compensated for intervening inflation differentials. Consequently, highinflation countries lost some international competitiveness through a "real" appreciation of their currencies. Reduced need to realign did not come at the expense o f an elimination or reduction o f capital or trade flows but was a consequence o f increased convergence o f macroeconomic policies and economic performance, especially concerning inflation rates. They have dropped among the E M S / E R M members by an even greater rate (22 percent from 1 9 7 4 - 1 9 7 8 to 1 9 7 9 - 1 9 8 6 ) than in non-EMS countries, including the United States. 6 Although this trend is fairly apparent, it is not clear how much the E M S has contributed to the result or how much has been a result o f what has

Progress

Within

the European

Monetary

System

187

appeared to be a global desire to disinflate in the 1980s. Some observers have, in fact, argued that price stability has occurred despite the original intent of the EMS, as embodied in the design of its institutional structure, and has come instead from the national objectives of its members, perhaps especially France. Although the French had been insisting on a symmetrically functioning EMS, in which the role of the Bundesbank and DM were to be reduced to the level of the other EMS member currencies, the French central bank finally acknowledged that lower inflation was advantageous to economic growth and welfare. It conceded in its 1988 annual report that inflation is not a solution for the unemployment problem, but rather a part of it. In this scenario the emergence of the DM as the nominal anchor of the EMS was unintentional; the more inflation-prone countries willingly tied their own hands in money creation in the name of exchange rate stability, and so added credibility to their own disinflation efforts. Perhaps reinforcing this view that the system itself has not been the engine for lower inflation but instead has been a tool reflecting national preferences is the fact that inflation rates in all EC countries have risen during the past two years. Although coordination of monetary policies among ERM members has progressed during the lifetime of the EMS, there has been little convergence of fiscal or tax and government expenditure policy so far. Evaluation of the system has shown that it generally works well. It has reduced exchange rate variance and allowed for—or forced—a level of policy coordination that countries have found useful, to an extent that was not apparent in the snake, a less formal arrangement than the EMS/ERM. A criticism, however, concerns the asymmetry inherent in the way the system developed, as opposed to its original design, which has had a negative impact on some states and has been a benefit to others. Jacques de Larosi6re 7 noted, probably too pointedly, that "countries whose currencies were near the top of the fluctuation band were practically exonerated from correction of their external imbalances, the adjustment burden placed on the deficit nations." Yet, in many instances, the strong currencies, primarily the DM and the Dutch guilder, were revalued at the time weak currencies were devalued. Before the March 1983 realignment, with the French franc in an untenable position at the bottom of the margin, France even threatened to leave the EMS if there were no multilateral realignment. The EMS has been faulted for having imparted a deflationary bias to the system by preserving the nominal anchor of the West German monetary policy. Specifically, the criticism is (1) that the adjustment burden is shifted to the weak currency countries and (2) that output in general may decline because of this. 8 In this way the Bundesbank was not only able to maintain, at least partially, its monetary independence, but it was also able to force the other countries into accepting its policies. The counterargument is that the weaker countries could have dropped

188

Selected Community

Policies

out, as they had during the snake, although the EMS is a more formal arrangement than was the snake. Alternatively, the weaker countries could have insisted upon a different form of development for the system than in fact came to pass. Yet, we know that they had tried to do so by insisting on symmetry. Instead, they increasingly had to appreciate the lack of any longterm output and employment benefits of inflation, and to acquiesce to Germany's anti-inflationary stance. They had to give up or at least substantially modify their own national priorities, including the ability to control domestic wage demands with a shrug that it was a necessary part of their participation in a greater Europe. Germany's competitiveness and balance of payments surpluses increased as the higher-inflation countries' exchange rate realignments did not fully offset inflation differentials; the higher-inflation countries, in turn, were able partially to countermand this by running surpluses vis-à-vis the United States. In 1990 the United States began to again run net surpluses with Europe; it will be important to watch events, to see if growing trade imbalances in the EMS may threaten the system. We shall later consider the shocks that emanated from Eastern Europe. A sanguine view is that to the extent that West Germany's surpluses may decrease substantially as it pays for rebuilding the infrastructure of the East after reunification, this could act to defuse a potential threat from balance of payments disequilibria to the EMS. The European

Single

Market

It would be difficult to talk meaningfully about progress within the monetary union without discussing the financial implications of the Single European Act (SEA) of 1987 that was to create a single European market (SEM) by January 1, 1993. As part of the movement toward the SEM, the SEA specified, reinforced by a June 24, 1988, directive, that capital flows were to be liberalized and that financial markets were to be fully integrated. Financial integration was a component of the four freedoms—freedom of movement of trade, capital, financial and other services, and labor—entailed in the SEA. Capital flows, especially outflows, had been subject to governmental controls in many European countries in order to lessen the negative impact of speculative pressures on the availability or costs of loanable funds. We shall later explore the meaning of capital liberalization and financial integration for monetary union, but it is important to establish here that these innovations have contributed in no small measure to altering the conditions under which monetary policy is enacted. The Delors Report. The Hannover summit of mid-1988, which set up a committee composed of central bankers and other respected professionals and academics under the chairmanship of EC Commission president Jacques Delors (the Delors Committee), demonstrated the critical nature of the

Progress Within the European Monetary System

189

movements toward an E M U . It is noteworthy that Delors kept the monetary portfolio for h i m s e l f in the autumn o f 1 9 8 8 , presumably to ensure that the momentum was maintained. Delors reputedly had E M U as his prime goal in the m i d - 1 9 8 0 s , but he sensed that it threatened m e m b e r sovereignty too directly and, therefore, opted for Lord Cockfield's S E M plan as an alternative, or rather precursor, to the push for full monetary union. T h e Delors Committee submitted its report in April 1 9 8 9 , and it was then discussed by the Heads o f Government in Madrid in June o f that year. T h e report was, and continues to be, important and controversial, as it did nothing less than establish a structure and a process for moving to full economic and monetary union. It established the basis o f E M U as twofold: first, the E M S has not achieved its full potential; not all E C countries are members in the E R M ; there has been little convergence in the area o f fiscal policy; and there has been no transition to the European Monetary Fund. Second, increased interdependence between E C members necessitates "more intensive and effective policy coordination." 9 In dealing with monetary union, the Delors Report, like the Werner Report o f 1 9 7 0 , stresses the free movement o f capital and a high degree o f financial

integration, leading ultimately to irrevocably fixed exchange rates.

T h i s reduces the m e m b e r s ' room for maneuvering, m a k e s independent monetary policies increasingly difficult to maintain, and requires more e f f e c t i v e coordination o f policies. It is a well-established fact that it is impossible to attain simultaneously fixed exchange rates, open capital markets, and independent monetary policies. T h e Delors Report does not specify a single currency as necessary for monetary union; it does, however, state that it would be a "natural and desirable further d e v e l o p m e n t . " 1 0 T h e report deals with e c o n o m i c union consisting o f ( 1 ) free movement o f capital, labor, goods, and services; ( 2 ) competition policy; ( 3 ) c o m m o n regional and structural policies; and ( 4 ) macroeconomic policy coordination, "including binding rules for budgetary p o l i c i e s . " 1 1 T h e first three categories deal with establishing the single internal market; the last proposition has raised no little controversy. Central banking in an E M U would have to be more closely centralized at the E C level through an autonomous Community institution, a European System o f Central B a n k s ( E S C B ) — m e a n w h i l e named the EuroFed, because it is to be patterned after the U S Federal Reserve System. Upon Bundesbank insistence, the mandate for the new central bank includes a commitment to price stability that " w a s thought necessary in order to assure a maximum o f continuity with the more successful features o f the E M S . " 1 2 T o assure price stability as monetary policy goal par excellence, the Deutsche Bundesbank demanded that the European central bank be independent o f national governments and E C authorities, although this independence would be b a l a n c e d by s o m e accountability to the European Parliament and the European Council.

190

Selected

Community

Policies

The Delors Report proposed a sequential approach to EMU incorporating three stages, with greater levels of coordinated decisionmaking at Community level at each stage. Stage I would entail closer coordination of economic policies; Stage II would see a "soft" form of union; and the last stage would result in a "hard" union. Although the report did not have a specific timetable in mind, it left little doubt that entering Stage I "should be a decision to embark on the entire process." 1 3 During Stage I, which started on July 1, 1990, and should last no longer than to the end of 1992 according to the April 28, 1990, decision by the European Council, all remaining capital controls were to be eliminated. This was intended primarily to apply to the two larger states within the ERM that had retained controls, France and Italy, and they complied to this directive ahead of time. Extensions were granted for Greece, Ireland, Portugal, and Spain until the end of 1992. Free access by residents to the financial system in all other Community countries would be achieved during Stage I. During this stage, all Community currencies were to join the ERM. Finally, stillsovereign monetary policies would be more closely coordinated. The second stage would be a period of transition, something of a training period for centralized action through the setting up of the ESCB, although the final responsibility for policies would still rest with the national governments during this stage. Exchange rate changes would be made only in exceptional circumstances. Some have criticized the "neither fish nor fowl" nature of this phase of the plan, for it lacks a clear definition of responsibility. It seems to them awkward to have decisions of such import actually made within an institution that does not have to bear the burden of accountability for those decisions, even in a transitional stage. In the final stage, the E S C B would take on all monetary policy responsibilities, and exchange rates between the member currencies would be irrevocably locked. Although the report does not find the introduction of a single currency indispensable, it envisages Stage III as the one in which the "change-over to the single currency would take place." 14 The process by which the Delors plan, or something very similar to it, would be adopted included an intergovernmental conference commencing on December 15, 1990, and leading to further discussions and negotiations well into 1991. T h e conference was considered necessary since the Delors Report did not really address the issue of the benefits of monetary union; that is, it was not a proper cost-benefit analysis. Likewise, the report is a means to an end, and its controversial nature opens the question of whether or not this is the best approach to the end of EMU. 1 5 Finally, the E C Treaty will have to be changed before Stage III, or even Stage II, is legally feasible. It seems that the smaller E R M countries have little conceptual difficulty with the legal ramifications of subordinating their monetary policies to another authority. They have already been doing that by

Progress Within the European Monetary System

191

following the nominal anchor o f the Bundesbank's policies, including using the exchange rate rather than a monetary aggregate as policy target. S o m e larger countries, however, feel constrained to not sacrifice their sovereignty without first seeking national legislation and Treaty alteration. In the case o f France and the U K , for example, the central banks share authority over monetary policy with the government; that would have to be changed. Only in Germany and the Netherlands—among Community countries—does the central bank enjoy considerable legal independence, which would also be ceded to the E C . Working

document.

In response to the expressed need to provide a more

extensive rationale for the concept o f E M U at the European level, and to respond to suggested alternative approaches, the Commission presented a working document in March 1 9 9 0 entitled " E c o n o m i c and Monetary Union: T h e E c o n o m i c Rationale and Design o f the S y s t e m . " The document was to serve as background for the D e c e m b e r intergovernmental conference. Its perhaps most intriguing aspect is that it strongly reinforces not only the basic notion but also the explicit recommendations o f the 1 9 8 9 Delors Report. T h e framing o f the Delors Report, and the manner in which it was presented to the very central bankers it would affect, had indeed become the agenda for economic and monetary union rather than a series o f ideas open to farther consideration and revisions. T h e 1 9 9 0 working paper identifies the benefits and costs o f E M U under the headings o f ( 1 ) price stability; ( 2 ) e c o n o m i c growth; (3) impacts on public finance; ( 4 ) regional balance; and ( 5 ) impacts on the international e c o n o m i c and monetary system. It draws the conclusion that, though " l e s s susceptible to an aggregate quantitative estimate [than the results o f the single market], overall the potential impact o f E M U is probably no less important than that o f 1 9 9 2 . " 1 6 It then addresses the question o f alternatives and finds that none o f the different approaches gives a convincing alternative to the Delors Report. It defines that conception as a single Community monetary policy carried on within a new institutional structure, while considerably fewer centralized powers are needed to deal with other e c o n o m i c , specifically budgetary, policies. T h e y do call for some parallelism in the development o f economic union along with monetary union. T h i s is very similar to the previous report, although the concept o f binding constraints on budgetary policies has b e e n obviously, and significantly, tempered here. In particular, the paper backs the three-stage approach o f the Delors Report. Alternatives explored, and rejected, to the Delors approach included monetary union with a centralized e c o n o m i c union, meaning that most d e c i s i o n s for government expenditures and taxes are to be made at the Community level. T h i s would relinquish too much state power to the E C and would not reflect the guiding principle o f subsidiarity, which

finds

192

Selected

Community

Policies

efficiency in allowing for economic solutions at the lowest level of bureaucratic application. However, monetary union without any economic union would, according to the report, lead to an excessive burdening of monetary policy and make the Community central bank overly dominant in its role, thus, implicitly, threatening its independence. Finally, monetary union with competing monetary policies, in apparent response to views expressed by the UK Treasury, would expose the EMS to instability and potential breakup in the face of exchange rate shocks. In addition, the paper finds no historical evidence that such a scheme could work. In sum, the Delors approach is found here to be best. Lastly, the document reinforces the need, emphasized in the Delors Report, of committing monetary policy at the Community level to price stability as well as ensuring that the system maintains a large degree of independence from both national authorities and Community groups. German

Monetary

Union

On July 1, 1990, accidentally coinciding with the start of Stage I of EMU, the monetary system of the German Democratic Republic (GDR) was merged into West Germany's as the ostmark (OM) ceased to exist upon its conversion into the DM—three months ahead of the G D R ' s political absorption into the Federal Republic of Germany (FRG) on October 3, 1990. The merger of the two Germanics does not raise the same problems for the EC and the EMS as does the evolution in the rest of the erstwhile COMECON countries and their eventual affiliation with the EC. 1 7 The GDR was not a third country for the FRG, nor for the other members of the EC: the FRG did not record inter-German trade as foreign trade, 18 which was in accordance with a protocol annexed to the EEC Treaty. Moreover, GDR citizens had German nationality—a formula that made the legal and economic integration of the GDR into the Community easier for the other member states. 19 Before the currency union took place, the DM fluctuated in the foreign exchange markets in conjunction with the changing forecasts as to the impact the unification would have on the German economy and the demand for the DM. The most important variables in this connection were the estimates as to the inflationary impact a currency union might have, especially if the ostmark overhang were to be exchanged into the DM on a one-to-one ratio and as the pent-up demand from East Germany would spill over as effective demand into the West German economy, which was already working near capacity level. Fear of the inflationary impact of the favorable exchange rate for East Germany later gave way to the realization that some of the new demand will be for goods that Germany imports from abroad, and second, that East Germans, unsure of their future on the one hand, and having

193

Progress Within the European Monetary System

a currency with reliable domestic and international purchasing power on the other hand, would be willing to put their new D M s into savings and investments. T h e other m a j o r unknown was the magnitude o f the inevitable cost o f unification and its financing. Initially, the cost was gravely underestimated and with it the difficulty o f financing the rebuilding o f the eastern sector. Furthermore, because one estimated that the stimulus from Eastern Europe would benefit economic activity in Germany and prolong its healthy growth rate, one concluded that the additional cost would be covered by the additional revenue from the continuation o f increased economic activity. As a generalization one can say that the choice o f the exchange rate o f unity c r e a t e d — a s predicted—greater problems for the eastern than for the western part o f Germany, particularly as unemployment drastically increased after the German economic and monetary union ( G E M U ) ; the two Germanies did not constitute an optimum currency area ( O C A ) . According to most academic conjectures an exchange rate o f 3 O M to 1 D M would have been about right.20 This is also the exchange rate that the Deutsche Bundesbank president Karl Otto Pohl had envisioned. Economic analysis took, however, second place to political tinkering. UK Entry

into the

ERM

During the summer o f 1 9 9 0 the speculation and debate on the merits o f British entry into the E R M o f the E M S was much more intense than at earlier junctions. Britain finally joined the E R M in October 1990. Margaret Thatcher, during her tenure as Britain's prime minister, had been on record that B r i t a i n would j o i n the E R M

"when

the time was r i g h t . "

The

preconditions included a lower inflation rate in the U K , liberalization o f capital movements in the Community, and "real progress" toward completion o f the single market. 2 1 Many critics to her stance had viewed, correctly, the " r i g h t - t i m e " argument as a delaying tactic, especially because propitious m o m e n t s for B r i t a i n ' s entry had been missed several times. T h e British pound's exchange rate movements seemed to depend almost daily upon the market's shifting assessment o f the chances for or against entry. Britain's goslow approach found another expression—in the "hard E C U " proposal: the E C U was first to be introduced as a parallel currency to the other E M S currencies, producing currency competition until sufficient c o n v e r g e n c e would guarantee the absence o f excessive adjustment burden connected with fixed exchange rates. Although Thatcher ultimately was forced to resign over her negative attitude toward Europe, her successor, John Major, also favors a "hard E C U " as an interim solution. But Germany's lack o f enthusiasm for this proposal does not forebode well for the " h a r d - E C U " approach. Quite to the contrary, Germany, which at one time might have favored a slower progression toward

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EMU, seems lately to have condoned the French stance of accelerating the integration process. Impetus

Toward

Monetary

Union

During 1989 and 1990, the E C ' s movement toward an EMU gained a momentum that would have seemed all but impossible in the formative years of the E M S in the early 1980s. In addition to the strength of personality of Delors himself, three forces seem to have been instrumental in this development: (1) the generally positive experience with the EMS itself; (2) the clear need to take full advantage of the promise and implications of a single financial market; and (3) the stresses inherent in the further development of the economic structure.

EMS Experience Most observers would agree that the experience with the EMS has been positive. This explains the willingness to continue and to consider moving on to higher levels of monetary union. As noted previously, exchange rate variability within the ERM has been progressively reduced. This reduction has been coincidental with movement out of low growth and high unemployment into a higher pace of intra-EC trade, production, and employment. Few people speak of "Eurosclerosis" or "Europessimism" any longer. It is, however, theoretically and empirically difficult to draw a direct link between lower exchange rate variance and higher trade and growth. Only recently has any empirical work been able even tentatively to establish any negative impact of exchange rate floating on trade and growth. The jury is still out in this line of academic research. Theoretically, reduced volatility reduces the uncertainty and risks of engaging in international trade, which, according to the theory of comparative advantage (still accepted as valid albeit with some recently developed conceptual caveats), should improve income and growth and, thus, welfare. Because exchange rate volatility might not be a major deterrent to trade, Niels Thygesen, 2 2 for example, suggests that the "contribution that a reduction in the short term variability of exchange rates can make to the creation of trade among the participants [in the EMS] is probably in itself modest." More important is the avoidance of long-term "misalignments" of exchange rates. John Williamson and others have argued that floating, far from establishing equilibrium in the exchange markets, has resulted in rates that diverge for very long periods from the fundamental equilibrium exchange rate. One measure of the latter is purchasing power parity, or the concept that in order to ensure competitiveness on the international market the exchange

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rate needs to change, at least in the medium to long run, to reflect the relative rates of inflation between countries. Although it was first thought that floating would ensure purchasing power parity, it is now clear with nearly two decades of experience that this has not been the case. One way in which the EMS may have helped is in avoiding misallocations of capital between sectors of the economy when rates are misaligned in this way. The real depreciation of the DM within the system, coincidental with very large German surpluses, has raised concern about the ability of the EMS to deal with such a problem. The sense is that monetary union can take the perceived gains of the EMS onto a higher plane. The March 1990 working document suggests that there continues to be a high level of exchange rate uncertainty—more damaging than exchange rate volatility—as evidenced by the exchange risk premiums implicit in European interest rate differences. Only monetary union, or "credibly fixed" rates can solve this. In addition, the report makes a case that exchange rate transactions charges can be significant and are inversely related to the size of the transaction. The rates amount to 0.1 percent for very large transactions but increase to 0.4 percent for 100,000 ECU bank transfers, to 1.5 percent for 10,000 ECU transfers, and to 12 percent for 100 ECU. 23 A common currency would eliminate these charges, as well as render price comparisons transparent, and thus reduce the information costs that can lead to price discrimination for the same product in different countries. In addition, the elimination of exchange rate uncertainty on intercountry investment decisions could be of large dynamic import for future EC growth. The benefits already enjoyed by the development of the EMS applies as well to the reduction in inflation rates and differentials between the members. The theory behind this has to do with a recognition, in Europe and elsewhere, that there is no Phillips Curve inflation-unemployment trade-off in the long run. There is, consequently, no positive benefit, except perhaps in the short run, provided a shock effect of unanticipated inflation is possible, and if one welcomes ever higher inflation rates. The improved record of the EMS in the second half of its life was no coincidence: most central bankers now recognize the existence of a capacity level of output that could not be permanently reduced without running accelerating inflation—hence the desire to keep employment at the rather awkwardly termed "nonaccelerating rate of inflation" level. Additionally, the system lent credibility to the bankers' proclaimed intention to disinflate. 24 The perception remains of association, and a case can still be made that unless the EMS moves on to monetary union, the markets might assume that the freedom to change exchange rates will be used, and that the markets "will tend to settle down to a more rapid rate of increase of prices and wages than if the exchange rate were definitively removed as an instrument." 25 This presupposes that central bankers are mandated uncompromisingly to pursue

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price stability and to abstain of their power to increase the money supply in order to achieve temporary employment effects.

Single Market Advances Another reason for the relatively rapid conceptual acceptance of the concept of E M U is the need to allow for the full benefits of the financial innovations inherent in movement to a single market. Increased financial integration coupled with capital liberalization implies not only greater interdependence and facile transmission of monetary disturbances, but it also promises greater competition as well as increased economies of scale in the financial sector, leading both to lower financing costs and higher returns to savers. Overall financial resources should be better allocated, leading to more and better investments and hence to higher growth rates for the Community as a whole. It is difficult to imagine such an overarching thrust o f financial deregulation without questioning the need to maintain separate monetary policies, and, therefore, potential exchange rate flexibility between member currencies. It makes little sense to allow for such a dramatic strengthening o f economic integration in the financial sphere through deregulation without also understanding the effects on investment of implicit exchange risk, even in a relatively stable, but nevertheless adjustable, system such as the E M S . At the very least, the need for firms to tie up significant resources in currency management calls into question the benefits of not moving on to true monetary union. The EC and the Optimum

Currency

Area

Argument

A theory germane to this discussion is what Robert Mundell called "optimum currency areas." 2 6 This theory assumes that the adoption of a single currency as a means of payment or, alternatively, immutably fixed exchange rates, provides great benefits to members through economies o f scale and the elimination of exchange rate risk, assisting the growth of international trade and investment. On the cost side, however, fixed exchange rates eliminate domestic policy autonomy and the exchange rate policy instrument, which can be used in an adjustment process. The inability to change exchange rates may place an undue adjustment burden on certain regions by aggravating their unemployment problem. The theory o f optimum currency areas emerged from the realization that political and economic borders do not necessarily coincide and addresses the suitability o f an irrevocably fixed exchange rate arrangement (or a single currency) for a particular group of nations for which the benefits o f fixed exchange rates exceed their costs. Although writers on the subject have different views regarding what

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constitutes an optimum currency area, five points emerge as important: first, for a region to constitute an optimum currency area, it must be "open"— openness of an economy being defined as one in which a large percentage of gross national product is traded, or as an economy with a high ratio of tradables to nontradables in its output mix. The more open the areas toward each other, the more interdependent they are, and the slighter will be the loss of autonomy resulting from monetary integration. Second, factors must be very mobile within the area, though there might be little factor mobility between the area and the outside. In that case economic imbalances or tensions within the region can be corrected relatively easily through factor movement from areas of high employment to areas of low unemployment, tending to equalize factor costs within the region. Third, others posit a similar economic structure and similar product mix within a region as necessary preconditions for maximizing the benefits of an optimum currency area. Fourth, moving from the real sector to the monetary sector, the existing degree of monetary and financial integration in the area is an important aspect in the cost-benefit examination of an optimum currency area. Last, but certainly not least important for the success of an optimum currency area, is the degree of similarity in economic policy priorities and convergence of economic performance among the countries—especially their ability to agree on major macroeconomic goals, such as price stability, and their level of coordination of fiscal and monetary policies. Based on these considerations, can one classify the EMS an optimum currency area? Although there is no simple answer, recent developments within the Community demonstrate that the European Community has been making great strides in this direction. We have been witnessing increasing levels of intra-EC trade flows; in the first fifteen years, intra-Community trade by the original six members increased ninefold as against a threefold increase in world trade; about 60 percent of member countries' exports constitutes intra-Community trade; the mobility of goods, services, and factors of production in conjunction with "Europe 1992" will further increase; and there has been an unprecedented willingness to coordinate policies around similar macroeconomic preferences, especially lower inflation. This all suggests that the members of the EMS, and especially those belonging to its Exchange Rate Mechanism, are getting closer to constituting an optimal currency area. 27 There is, finally, one other way that stresses inherent in the working of the system may be bringing on greater pressure for monetary union. Very recent developments in the functioning of the EMS led to the conclusion that the system has lost the DM as its nominal anchor, and with it some of the price stability that has characterized it in the past. This has come to pass along with the unwillingness of France, Italy, and Spain to allow for an alteration of their exchange rates with that of West Germany. Because these

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are higher-inflation countries that generally have higher interest rates, the reduced threat of devaluation within the EMS has meant large inflows of capital into them, as opposed to the outflows from the weaker currencies that characterized the system before. These outflows were previously only partially sterilized by the authorities, meaning a disinflationary bias to the system as a whole. Now most of the inflows are sterilized too, but there is not the same degree of constraint on price increases as before. In Germany, with the Bundesbank unable to revalue the DM, and thus a real depreciation of its currency, exports are in great demand, the balance of trade is in surplus (the largest in the world and equal to 4 percent of German GDP), and prices and wages are rising. The system has become more symmetrical in its operation. One conclusion, recently expressed by Patrick Minford, is that the system will have to reset exchange rates and once again allow for greater flexibility through periodic realignments. An alternative view is that this experience proves that the present EMS is too weak in its present configuration to be able to withstand such pressures, speaking again to the need to move to a much higher level of coordination and unification.

Threats to Monetary Union The arguments concerning the benefits of monetary union do not imply that there have not been threats to the rapid adoption of monetary union in the near future. These threats include the coincidental loss of sovereignty of member states, the loss of seigniorage, a loss of control over fiscal policy, regional decline, and real shocks to the system. Sovereignty

Loss

Possibly the greatest level of concern has been over the loss of monetary policy autonomy by the separate states. Our previous discussion suggests, however, that the issue may have become academic, given the constraints implicit within a single market. Monetary policy is already sacrificed in such a setting, as long as fixed exchange rates are considered desirable and capital is free to move from one country to another. In fact, many of the smaller countries of Western Europe seem already resigned to such a loss in their power to independently control their monetary policies. Of the larger countries, Germany, after having been at the center of the E M S since its foundation, has become positive on monetary union— provided the necessary anti-inflationary safeguards for the system remain in place. The E M S has worked reasonably well toward satisfying most of G e r m a n y ' s wishes in that it has helped foster an anti-inflation mode in Europe; it has certainly kept inflation low in West Germany itself (though

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probably higher than if it had not been tied to the ERM), and it has kept output growth strong through a strong export sector encouraged by increased competitiveness when other member countries' devaluations have not matched their domestic inflation rates. On the other hand, it appears as if this asymmetric functioning of the system is now coming to an end; the DM may have lost a good deal of its role as nominal anchor, and inflation is again picking up in Europe. France has pushed for monetary union all along, and its experience with the EMS has been good since March 1983; the EMS allowed France eff '-'ely and credibly to disinflate; monetary union could lower French interest rates further without serious threat to the franc's exchange rate. In addition, monetary union is one more step toward political union, or a way in which to dissipate the power of a unified Germany throughout an integrated Western Europe. Italy, similarly, has used the EMS—not entirely successfully, though— to discipline wage and price trends and the government budget. Italy may be characterized as welcoming the tying of one's hands through a common monetary policy, especially since joining the narrow exchange rate band of the ERM in January 1990, and accepting some constraints on budgetary policy addressed in the Delors Report. Of all countries, the UK was most concerned with the loss of sovereignty necessarily involved with monetary union. The argument has been made that there are cases in which a loss of short-run monetary and exchange rate policy could be a major disadvantage of British incorporation into EMU. Changes in the exchange rate, according to this view, remain useful, even for countries otherwise committed to low inflation rates, in order to restore competitiveness or to avoid high interest rates when they are inconsistent with domestic priorities. The idea is that EC inflation rates will become a bargaining point, which will introduce an upward bias to those rates from representatives of the weaker-currency countries—a strange argument in light of Britain's poor price stability record and the Treasury's influence on monetary policy. Another scenario, allowing for other countries unwilling or meanwhile unable to accept a monetary union strongly committed to price stability, might be a "Europe at two speeds," if necessary. 28 Loss

of

Seigniorage

Seigniorage is the gain in real resources that governments capture by issuing non-interest-bearing base money and spending the proceeds. It is an "inflation tax" because the resources are freed from those who hold money, which loses some of its value as prices rise in response to the overissue. This is important for the European situation because southern European governments tend to finance more of their expenditures this way than do

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northern European countries, probably because of the existence of considerable black markets (which by their very nature are not easily taxable) in the southern countries. Southern European countries, then, give up considerably more than northern European countries do by lowering their inflation rates, because they sacrifice the ability to employ seigniorage. They must reduce their government budgets, either by increasing taxes or by reducing government expenditures, neither one of which is politically palatable. This makes it difficult for the two groups to merge into an EMU and suggests an alternative criterion for an optimum currency area based on the propensity to employ the inflation tax. Although the conclusions in this line of reasoning are hardly positive for European monetary union, others have responded that "the convergence of inflation rates among E M S countries during the 1980s has already considerably narrowed the discrepancies in the shares of GDP that fiscal authorities command through seigniorage," and that "by 1987 seigniorage revenues generally amounted to less than 1 percent of GDP." 2 9 Moreover, there is the interesting notion that any seigniorage loss may be more than counterbalanced by the reduction (with greater price convergence) or elimination (with full monetary union) of the risk premium necessary to attract capital to the generally weaker-currency countries. Markets demand interest rate premiums to counteract expected inflation, which would reduce the real interest return of international lending. The elimination of the premiums should lead not only to greater growth rates in the country through greater and cheaper international investment, but it should lower government debt service requirements and budget improvement as well. If, nevertheless, the loss in seigniorage is too large a cost to bear for these countries, this reinforces the arguments of those who will willingly accept a Europe at two speeds, or "geometrie variable." Loss of Control

over Fiscal

Policy

A controversial aspect of the discussion of monetary union is to what extent controls are necessary at the center over the individual fiscal policies of countries. The Delors Report called for "binding" rules, rationalizing that the EC has too small of a budget itself to have any macroeconomic impact, that one state could excessively command scarce EC savings for itself, and that deficit financing could put undue strain on any common monetary policy. This position has been strongly criticized, with the suggestion that this part of the report is "unnecessary and undesirable." There has been general agreement over the desirability of reducing deficit financing, but this has more to do with monetary policy than fiscal policy. Running deficits in an increasingly integrated Europe will be less productive, as the benefits of fiscal expansion would spill over to the other members of the union through increasing imports, and the costs in terms of a deteriorating balance of

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payments in a fixed rate system could be large; but that does not necessarily make them bad. In fact, deficits could be useful in generating savings to those countries willing to finance them. Interest rates would be lower with free capital movements and, unhindered by exchange risk, the only interest rate differentials that should occur between countries would be based on the creditworthiness o f the states. The monetary union of Canada demonstrates that provinces may differ widely in their debts and deficits with very little difference in interest rates. It might even be considered an advantage of monetary union that it allows for independent fiscal policies to be more effective in reflecting the wishes of the respective countries and by being able to gather funds internationally to these purposes. The Commission's working paper ( 1 9 9 0 ) seemed to concede many of these points after the rash of discussion ensuing on the Delors Report. Although it found some consensus around the need not to allow for monetary financing of deficits, or on the E C ' s bailing out countries with excessive budget deficits, it found it "difficult to justify" recommending "specific binding rules" on national budgets as opposed to more "qualitative criteria." In this language, some of it very similar to a UK Treasury report critical of the Delors Report, is a clear softening of tone on the fiscal policy issue. Regional

Decline

Another level of cost involved with movement toward E M U , and therefore a potential threat to that development, is the possibility that monetary union will lead to regional decline. The sense o f it is that this greater level of integration will further exacerbate the "regional problem," where the benefits of greater economies tend to favor development in the center areas as opposed to the periphery, where the infrastructure may be inadequate. In addition, monetary union eliminates a potential tool that a government of a state containing such a disadvantaged region may use to address the situation. It is for this reason that regional aid is usually connected with discussions o f E M U . The proposals, including that contained in the March 1990 Working Paper, are frequently quite frank in pointing to the political, rather than the economic efficiency, objective of regional aid as a method o f sharing the benefits of integration more equally throughout the Community. At this juncture the discussion often turns to the broader question of the value o f regional assistance, and whether or not government intervention into market results actually helps or hinders development and growth in these areas, including whether or not such aid could be adequate to the task. These discussions are beyond the scope of this chapter, except to note the link with E M U , and the use of this connection for arguing for a significant increase in the regional and structural aid component of the E C budget, much o f it to go to Portugal and Ireland. One interesting theoretical insight regarding E M U and optimal currency

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areas arises from the perceived need for regional aid: if the E C were truly an optimum currency area, there would be no need for such aid, because factor, especially labor, mobility would ensure that the negative effects o f differential growth would not be felt in high unemployment and low wages in disadvantaged, periphery areas—or better, that such negative effects would, if they occurred at all, be of a very short-run nature. The laws are in place to assure complete mobility o f the factors of production, including labor; however, because "linguistic and cultural barriers" will remain an impediment to the free flow of labor, the E C may be closer to being an optimal currency area than in the past. But the E C has not yet arrived at that point, and so, the argument goes, it needs to consider aid for backward areas. Real

Shocks

Much o f the concern over the gains from greater coordination of monetary policies deals with the monetary, rather than the real, aspects. Inflation, especially differential inflation rates, are the focus of much of the discussion about the gains from monetary union. Real changes to economies arising from shifts in demand or supply shocks do not figure as much in the examination of monetary and exchange rate policies, but some observers are persuaded that such changes can affect countries differently, and are so large as to require changes in real exchange rates in order to readjust the level o f competitiveness o f the country or countries affected. If nominal exchange rates cannot change, either through irrevocably fixed rates or a common currency, then price levels must. If, in addition, price levels are inflexible downward, then unemployment and reduction in output will result. Others argue similarly when considering the impact of the single internal market on conditions within countries. The greater level of competition within the E C will lead necessarily to structural, that is, real changes, which will require changes in real exchange rates to allow some countries to continue to compete within the Community and with the outside world. In this view price changes can occur within economies, but they must affect the entire economy, rather than just the tradable sector, and will be difficult to absorb without negative implications on employment and output. It would be much more efficient to allow for nominal exchange rate changes, at least while the structural changes necessary effectively to forge a single market are taking place. The implication is to slow down the speed toward monetary union. In a related way, Richard Sweeney recently suggested that the positive and negative economic shocks that have occurred and undoubtedly will emerge from the events in Eastern Europe will have similar differential real shocks on E C countries. Germany, in his opinion, is more exposed to such real shocks than Portugal would be. The differential nature of real c h a n g e s — changes in demand and supply conditions not really related to monetary

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emission—will put pressure on countries to change their exchange rates. The strains such tensions will put on a monetary union with fixed exchange rates might be too great to bear; thus, there could be a breach in the commitment, ending the EMU. This may be a strong case for providing the increased credibility of a common currency. In this case real shocks are used as justification for accelerating the speed toward the completion of a monetary union with a common currency. As persuasive as these points might be, others have reinforced the notion of the EC becoming more and more like an optimal currency area in the sense that differential shocks of large magnitude are becoming much rarer, at least those that affect countries as a whole rather than industries. As competition produces a more common EC-wide economic structure and product mix, and, as has been occurring, intra-EC trade becomcs more and more intra-industry in nature, shocks will tend to be spread much more evenly over the Community. In such a region price levels do not need to adjust so dramatically, exchange rate changes are less needed as a way to adjust a loss of competitiveness at the country level, and the costs of monetary union are much lower.

Conclusions During 1989 and 1990, the EC has achieved an unparalleled degree of progress toward monetary union in the EC. The institutional developments were crystallized in the Delors Report, a document that in terms of prior movement in this area is astonishing for the force with which it has set the agenda for proposing what must be considered the most significant transfer of national sovereignty to the Community in the postwar history of Europe. This chapter suggests that the conceptual and institutional movement inherent in the Delors Report, leading to the intergovernmental conference on economic and monetary union of mid-December 1990, did not occur without precedent but had its roots in the way the European Monetary System has worked, in the need to realize the full potential of the single market, and in tensions that are arising in the further economic development and integration of the Community. There are, however, several threats to an immediate and general embracing of monetary union, including the noted reduction of sovereignty of member states, the loss of seigniorage, a loss of control over fiscal policy, a possible regional decline, and the effect of real shocks to the system. In a broader context, one has to take into account the impact of European EMU on the world monetary system, the implications for the dollar and the yen in particular. When on December 5, 1990, the Wall Street Journal asked former French finance minister Edouard Balladur whether the quest for a single European currency furthered or impeded the effort to establish a new

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international monetary system, his Delphic pronouncement was that "in Europe we have already done what we had to do to protect ourselves from monetary fluctuations. But this is not enough because world trade and world financial balances depend on the relationship among the dollar, the yen and the European currencies."

Notes 1. N i e l s T h y g e s e n , " I n t r o d u c t i o n , " in F r a n c e s c o G i a v a z z i , S t e f a n o M i c o s s i , a n d M a r c u s Miller, eds., The European Monetary System ( N e w Y o r k : C a m b r i d g e U n i v e r s i t y P r e s s , 1988), p. 1. 2. A curiosity: e v e n c u r r e n c i e s that did not participate in the E R M c o u l d be part of t h e c u r r e n c y basket, i n f l u e n c i n g other countries' e x c h a n g e rates. 3. H u g o M . K a u f m a n n , Germany's International Monetary Policy and the European Monetary System ( N e w York: Brooklyn College Press, 1985), p. 64. 4 . T h e d i v e r g e n t c o u n t r y w a s f r e e to c h o o s e the p a r t i c u l a r a d j u s t m e n t p o l i c y or p o l i c i e s . 5. C o m m i s s i o n of the E C , " E c o n o m i c and M o n e t a r y Union: T h e E c o n o m i c R a t i o n a l e a n d D e s i g n of the S y s t e m , " w o r k i n g d o c u m e n t presented to the f i n a n c e m i n i s t e r s , A s h f o r d C o u n c i l ( M a r c h 1990), A n n e x , p. 2. 6. S u s a n C o l l i n s , " I n f l a t i o n and the E M S , " in G i a v a z z i , op. cit., pp. 1 1 2 136. 7. J a c q u e s d e Larosifere, " M o n e t a r y Policy in the C o m m u n i t y , " European Economic Review 34 (June 1990), p. 722. 8. F o r the a r g u m e n t s , see D a v i d F o l k e r t s - L a n d a u and D o n a l d M a t h i e s o n , The European Monetary System in the Context of the Integration of European Financial Markets, O c c a s i o n a l P a p e r No. 6 6 ( W a s h i n g t o n , D C : I n t e r n a t i o n a l M o n e t a r y F u n d , 1989). 9 . C o m m i t t e e f o r t h e S t u d y of E c o n o m i c and M o n e t a r y U n i o n in the E u r o p e a n C o m m u n i t y , " R e p o r t on E c o n o m i c and M o n e t a r y Union in the E u r o p e a n C o m m u n i t y " ( L u x e m b o u r g : O f f i c e f o r O f f i c i a l P u b l i c a t i o n of the E u r o p e a n C o m m u n i t i e s , 1989), p. 15. 10. I b i d . , p . 19. 11. I b i d . , p . 2 0 . 12. N i e l s T h y g e s e n , " T h e D e l o r s R e p o r t a n d E u r o p e a n E c o n o m i c a n d M o n e t a r y U n i o n , " International Affairs (1989), p. 6 4 1 . 13. C o m m i t t e e f o r the S t u d y of E c o n o m i c a n d M o n e t a r y U n i o n in the E u r o p e a n C o m m u n i t y , op. cit., p. 3 1 . 14. I b i d . , p . 4 0 . 15. T h e s e q u e s t i o n s w e r e a d d r e s s e d in a s e p a r a t e d o c u m e n t in w h i c h , h o w e v e r , t h e ideas w e r e " p u t f o r w a r d by the m e m b e r s of the C o m m i t t e e in their p e r s o n a l c a p a c i t y . " Ibid. 16. C o m m i s s i o n of the E C , o p . cit., p. 4. 17. T h i s q u e s t i o n w a s d e b a t e d u n d e r the c o d e w o r d s of " w i d e n i n g " v e r s u s " d e e p e n i n g " of t h e C o m m u n i t y . T h e f o r m e r concept referred to an e n l a r g e m e n t of t h e C o m m u n i t y , w h e r e a s the latter c o n c e r n e d itself with an e v e n f a s t e r a n d m o r e i n t e n s i v e i n t e g r a t i o n of the T w e l v e , to i n c l u d e E M U and political i n t e g r a t i o n . T h e g e n e r a l t e n d e n c y of the T w e l v e is not to c o n s i d e r p e n d i n g a p p l i c a t i o n s by o t h e r c o u n t r i e s ( A u s t r i a , S w e d e n , a n d o t h e r countries that might be interested in j o i n i n g the E C ) b e f o r e the c o m p l e t i o n of the internal market.

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18. T h e G D R , on the o t h e r h a n d , r e c o r d e d as f o r e i g n t r a d e its e c o n o m i c t r a n s a c t i o n s with the F R G . 19. C o m m u n i t y l a w a p p l i e s in p r i n c i p l e , with s o m e t r a n s i t o r y e x c e p t i o n s , also to the f o r m e r G D R . 20. P e t e r B o f i n g e r , " T h e G e r m a n M o n e t a r y U n i f i c a t i o n ( G M U ) : C o n v e r t i n g M a r k s to D - M a r k s , " F e d e r a l R e s e r v e B a n k of St. L o u i s Review (July-August 1990), p p . 1 7 - 3 6 . 21. U n i t e d K i n g d o m Treasury, " E c o n o m i c and M o n e t a r y U n i o n : A n E v o l u t i o n a r y A p p r o a c h , " Economic Progress Report ( D e c e m b e r 1989), p. 9. 22. T h y g e s e n , " I n t r o d u c t i o n , " o p . cit., p. 12. 23. C o m m i s s i o n of the E C , o p . cit., p. 2. 24. F r a n c e s c o G i a v a z z i and M a r c o P a g a n o , " T h e A d v a n t a g e of T y i n g O n e ' s H a n d : E M S Discipline and C e n t r a l Bank Credibility," European Economic Review 3 2 ( J u n e 1988), p. 1055. 2 5 . D a n i e l G r o s a n d N i e l s T h y g e s e n , " T h e I n s t i t u t i o n a l A p p r o a c h to M o n e t a r y U n i o n in E u r o p e , " Economic Journal (1990), p. 7. 26. R o b e r t A. M u n d e l l , " A T h e o r y of O p t i m u m C u r r e n c y A r e a s , " American Economic Review 51 ( S e p t e m b e r 1961), pp. 7 2 1 - 7 2 3 . 2 7 . O n e m u s t not o v e r l o o k the f a c t that e v e n w i t h i n c o u n t r i e s — t h a t is, g e o g r a p h i c a r e a s that f o r m e d a political, e c o n o m i c , and m o n e t a r y u n i o n — g r e a t d i f f e r e n c e s in e c o n o m i c w e l f a r e still e x i s t . I t a l y ' s M e z z o g i o r n o to this d a y b e l o n g s to the E C ' s poorest r e g i o n s (with an u n e m p l o y m e n t rate e x c e e d i n g three times that of northern Italy), as d o large areas of Spain, Portugal, and G r e e c e . T h e latest i n d i c a t i o n s f r o m the i n t e r g o v e r n m e n t a l c o n f e r e n c e are that the p u s h t o w a r d u n i t y a n d the r e s u l t a n t d e m a n d to s h r i n k g o v e r n m e n t d e f i c i t s m i g h t h a r m t h e p o o r e r r e g i o n s of the E C , thus increasing the d i v e r g e n c e a n d with it the d i s t a n c e to an O C A that would require c o n v e r g e n c e . 2 8 . K a r l O t t o P o e h l , " M a p p i n g E M U , " as r e p o r t e d Economic Insights 1 ( J u l y - A u g u s t 1990), p. 7. 29. F o l k e r t s - L a n d a u and M a t h i e s o n , op. cit., pp. 8 - 9 .

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15 Regional and Social Policy David Coombes & Nicholas Rees

Legal Foundations, Economic Principles, and Political Influences The regional policy and the social policy of the European Community each embody particular objectives that reflect political decisions, but their resemblance to public programs at a national level or to the more developed common policies of the Community ends there. They do not embody, as does the common agricultural policy (CAP) and to a lesser extent the common commercial policy (CCP), the regular exercise of functions of public management transferred from a national to a Community level. In this sense neither policy had in 1989 and 1990 advanced significantly beyond the original EEC Treaty created over thirty years before. Nevertheless, the Single European Act (SEA) of 1986 gave a new impetus to both these previously marginal aspects of integration by establishing the general principle of "economic and social cohesion" as an essential counterpart to the economic freedom of movement highlighted by the 1992 program. The effects of this new commitment were much in evidence during 1989 and 1990. Furthermore, the chief statements and reports dealing with economic and monetary union (EMU), which became a central issue in European affairs during that period, all referred (though obliquely) to "economic and social cohesion" as a principle of EMU as well.1 The objective of "cohesion," as defined in the new Title V of the EEC Treaty (added by Article 23 of the SEA), is the reduction of spatial disparities in economic performance. The new Article 130A of the EEC Treaty states that objective in terms identical to those used in the Preamble to the original EEC Treaty of 1957: "to strengthen the unity of their economies and to ensure their harmonious development by reducing the differences existing between the various regions and the backwardness of the less-favored regions" (italics added). "Harmonious development" is also mentioned in Article 2 of the same treaty as one of the Community's general objectives, which,

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according to Articles 5 and 6, should govern the actions of member states' own public authorities and require them to coordinate their economic policies appropriately. Until the SEA, however, the only other substantive treaty provisions for realizing "harmonious development" were those establishing three separate financial instruments: the European Social Fund (ESF) (Articles 123-128), the guidance section of the European Agricultural Guidance and Guarantee Fund (EAGGF) (paragraph 4 of Article 40), and the European Investment Bank (EIB) (Articles 129-130). 2 The SEA is, in fact, not much more elaborate than the original EEC Treaty on "harmonious development," though this is now prescribed as a common objective of the "structural instruments," which are redefined as the financial instruments mentioned previously. This is supplemented by the European Regional Development Fund (ERDF), initially established by means of a Council regulation in 1975 and subsequently renewed and enlarged at regular intervals, and the so-called New Community Instrument (NCI), introduced in 1979 mainly to provide loans to support energy-saving and infrastructure projects in the poorer member states (out of money-market operations by the Commission). The SEA thus went further than any previous legal measure toward endowing the Community with its own regional development policy, backed by specific financial means paid out of the Community's own annual budget. Article 130B of the amended EEC Treaty also confirms at least two much wider applications of economic and social cohesion. First, the member states are explicitly obliged to "conduct" and "coordinate" their economic policies in such a way as to attain the objectives associated with this principle. Second, the implementation of the Community's other common policies and of the internal market program are required to contribute to economic and social cohesion. However, no further legal guidance is given in the SEA as to how the member states or the Community's institutions should take into account or promote either economic and social cohesion or the related objective of harmonious development. Indeed, neither of these terms expresses a scientific principle and neither conveys on its own a clear guide to administrative practice or to the formulation and application of particular measures. Different interpretations seem to be possible and there are no ready-made legal or economic criteria for deciding which is the right one in any given case. "Economic cohesion" verges on nonsense; some sense can obviously be made of "social cohesion," but not as an easily definable outcome of actions by public authorities. "Cohesion" might be understood in economic terms as a poor substitute for "convergence," though it is now employed in the context of EMU as a means of achieving "convergence" rather than as part of the end itself (a flagrant case of the fallacy of begging the question). 3 Cohesion is more familiar as a concept in political discourse and might well be taken thus to imply a diluted form of integration: the parts stick

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together—show solidarity—but do not actually merge into a new single entity. The prevailing current interpretation seems, indeed, to be that: in the light especially of 1992, the member states need to demonstrate more solidarity and greater harmony, especially to support the weaker elements in society and those groups likely to face greatest difficulty in adapting to the conditions of a more liberalized common market. It is in this political sense that economic and social cohesion had by the period under review served to strengthen both the legal competence and the political resolve of the Community's Commission in pursuing more active measures in the spheres both of regional economic development and of social affairs. Unlike regional policy, of course, social policy was supported by a whole title of substantive provisions in the original EEC Treaty (Title III), to which the SEA separately added two new articles. These additions have not, however, altered the fact that public policy in education, employment, health, housing, and social security is primarily and overwhelmingly a responsibility of the member states themselves. Mainly following an initiative of the Danish representatives in the negotiations leading to the SEA, Article 118A supplements the meager legislative powers of the Community in social affairs by extending them into the sphere of health and safety at work. Following a similar initiative of the French representatives, Article 118B gives formal Treaty recognition to functions the Commission had already assumed for conducting a regular "social dialogue" with representatives of employers and labor at a Community level. The restricted legal foundations of common action in both regional policy and social policy still, therefore, reflect the emphasis on economic liberalization in the original treaties. The evolution of both policies in 1989 and 1990, however, probably owed most, as it had in previous years, to the influence of political factors. First, member states have always been reluctant to endow the Community with financial or legislative powers in spheres such as industrial development, the protection and regulation of employment, and social security, which might either substantially alter their own relationship with major organized economic interests (especially employers and labor) or further restrict their capacity to pursue independent national economic policies by means of fiscal and monetary instruments. On the other hand, as a corollary to this constraining factor, it had become evident by the mid1980s that the typical actions of member states' public authorities in pursuit of regional and social policies tended to be a major nontariff barrier to genuine interstate economic freedom of movement. In fact, it is now more readily admitted that the achievement of a genuine internal market must depend on the sufficient coordination or limitation of instruments available to national authorities in these and other spheres. The Community's so-called regional policy had, indeed, emerged mainly as a consequence of Articles 9 2 94 of the EEC Treaty, which prohibit economic aids granted by states and

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empower the Community's Commission to approve specified exemptions from this prohibition, including aids for regional development. Similarly, there has been a steady growth in legislative activity at a Community level in social affairs by recourse not only to the same treaty's Article 118 (on social policy) but also to Article 100 (on the approximation of laws) as well as the provisions for free movement of labor and services. In these respects, the commitment to economic and social cohesion is a recognition of the need to compensate member states for further concessions of autonomy in the use of legal and financial instruments to influence economic activity. Second, the evolution of the Community's regional and social policies has also been affected by the general unwillingness of member states to transfer powers without the promise of net gains to themselves. Those gains may be assessed as accruing either directly from the transfer of power itself or indirectly as a compensation for some other concession. In fact, this legitimate assertion of national interest has, especially since the 1973 enlargement of membership, favored the expanded use of structural instruments, especially the ESF and the ERDF, chiefly in order to correct spatial economic disparities. In this respect, economic and social cohesion is now interpreted as justifying the use of structural instruments to compensate certain member states as a kind of "side payment," increased expenditure by means of the ESF and the ERDF being intended for one or both of two largely political ends: 1. To remedy the severe imbalance in expenditure from the Community's budget in favor of the guarantee section of the EAGGF, which has been used chiefly to support the incomes of certain categories of agricultural producer unevenly distributed among the member states as a proportion of the economically active population; and 2. To make financial transfers by means of the Community's budget in favor of those states that are considered less likely to derive net gains from the increased economic freedom of movement. The influence of this political factor tended to shift the emphasis of structural intervention (including that by means of the ESF) to concerns of regional policy rather than of social policy. During 1989 and 1990, however, there were signs that this long-term shift of emphasis was beginning to be redressed. Indeed, a third factor is more obviously political in that it reflects the relative influence of party political tendencies at both national and European levels. Although the economic principles on which the Community is founded are intended to be economically neutral, they have previously favored nonintervention by public authorities, and the more recent emphasis on deregulation in many states during the 1980s reinforced this trend (as in the

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1992 program itself)- But the preponderance of conservative influences (and those of large-scale agriculture and big business) has proved to be relative not absolute, fluctuating not consistent. In fact, particularly in the face of high levels of unemployment—which have been critical in all states at some time over the past fifteen years—some forms of common remedial action at a Community level have been favored by conservative governments and employers' organizations as an alternative or a substitute for inadequate national programs. During 1989 and 1990, moreover, there was increasing evidence, not least in the way the members of the European Parliament were using that institution's newly extended powers, that the principle of economic and social cohesion appeals strongly to political forces across a wide spectrum, including not only socialists but also Christian Democrats and many liberals. Economic freedom is, therefore, by no means the overriding value it might once have been assumed to be. Shifts in the balance of political forces within the member states are clearly relevant in this respect. However, the relative weakness of popular representation and parliamentary power at a Community level continues to restrict the influence of this kind of factor. It may be one reason why there has not been more effective protest up to now about the extreme economic and social inequalities that seem to have accompanied European integration.

The Implementation of New Powers and Procedures for Regional Policy The activities of the Community's institutions in 1989 and 1990 with respect to regional policy were for the most part an unfolding of the results of major decisions taken in the preceding two years and especially during 1988. It will, therefore, be necessary to devote this section in part to an explanation of the enactments and agreements made by those decisions and of what they were intended to achieve. As already explained in the previous section, the Community's capacity to employ measures of structural intervention had already been increasing over the longer term, largely for political reasons, while the emphasis had also been shifting to measures intended to remedy spatial economic disparities rather than other possible symptoms of economic and social inequality in the common market. At the same time there had been growing concern about the efficiency of financial means of intervention and this was inextricably connected with the wider, often politically charged, issues arising from the methods of financing, and the comparative returns to member states from the Community's budget. Both the question of spatial disparity and the budgetary issues came to a head in the mid-1980s; both were central to the general crisis in which the Community then found itself and that instigated the effort at major reforms,

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with the treaty amendments of the SEA as one major result. Three crucial sets of decisions following the SEA (but not all directly derived from its provisions) were to set the pattern of Community actions in regional policy (and to a large extent in social policy as well) at least up to the end of 1992. The period under review here represents the first two years of activity in conformity to this pattern. The crucial decisions were the following: 1. The settlement of the persistent budgetary crisis by means of the agreements reached by the European Council during the second half of 1987 and on February 11-12, 1988, and by means of the first interinstitutional agreement fixing long-term guidelines for allocations of expenditure from the budget, including a substantial increase in the proportion of expenditure from the structural funds. 2. The adoption in 1988 by the Community's Council of two substantial legislative acts, in implementation of the SEA and constituting a major reform of the structural funds. 3. The adoption, also during 1988, of an extensive program for rural development, indicating a reduced emphasis within the common agricultural policy on market-based interventions in favor of structural intervention with a regional bias. The experience of the first two years of the real implementation of these sets of decisions tends to confirm that the new pattern is set to last at least up to 1993, when the current budgetary settlement will have to be renegotiated. It also suggests, however, that the extent to which the intended reforms will be applied in practice depends still on political factors, which might account for continued resistance to a genuine transfer of competence to the Community in regional policy. That resistance has been evident in the negotiations and bargaining processes entailed during the initial implementation of the new measures and agreements. To understand the causes and the nature of that resistance, it is necessary to retrace somewhat the steps leading to the decisions concerned. At its meeting in February 1988, the European Council had agreed on a package of proposals considered necessary to implement the internal market and the future functioning of the Community. A broad package of proposals included a substantial increase in the Community's own financial resources and a new own-resource ceiling, improved budgetary management and discipline (especially with regard to agriculture), and a new interinstitutional agreement between the Council, the Commission, and the Parliament. This far-reaching budgetary settlement was designed to resolve long-standing political differences between the member states. It also provided the necessary framework for the reform of the structural funds envisaged by the SEA. The decisions on the structural funds represented a diplomatic success for the

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geographically peripheral states over the UK, Germany, and the Netherlands, which had opposed increases in Community expenditure for the purpose of structural intervention. In accordance with the new Article 130D of the EEC Treaty, the Commission had, prior to the meeting in February 1988, proposed in August 1987 a number of reforms to the structural funds. These included (1) the doubling of the structural funds by 1993; (2) concentrating resources on five specified objectives; (3) providing the Commission with a more active role in the design and implementation of these policies; (4) the increasing use of integrated operations at national and regional levels; and (5) more coordination through partnerships of local, regional, national, and EC actors. Despite the opposition of some states' governments, general agreement was reached on all of these points and the European Council agreed that the structural funds should be doubled over a five-year period and henceforth concentrated on five main priority objectives: promoting the development and structural adjustment of the less developed regions (objective 1); converting the regions, border regions, or parts of regions seriously affected by industrial decline (objective 2); combating long-term unemployment (objective 3); facilitating the occupational integration of young people (objective 4); and, with a view to reform of the common agricultural policy, speeding up the adjustment of agricultural structures and promoting the development of rural areas (objective 5). In general, therefore, the structural instruments were to be concentrated on the most economically backward regions, defined as those with a per capita gross domestic product (GDP) lower than 75 percent of the Community average. This reflected the Commission's objective of focusing its resources on particular types of regional problems rather than simply redistributing the financial resources among the member states. The Commission is, therefore, now in a much stronger position to impose conditions on the member states should they wish to avail of Community financial assistance. The Commission's proposals with respect to the structural funds were adopted in two phases. First, the Council adopted on June 24, 1988, a new regulation governing the tasks of the structural funds. 4 This new regulation concentrates assistance on a select number of regions detailed in the annex to the regulation and at the same time seeks to consolidate and coordinate the interventions of the different funds through the use of operational programs at national and regional levels. Second, a more difficult task was that of agreeing to "horizontal" and "vertical" implementing regulations for the structural funds. These measures were enacted during autumn 1988 by means of the cooperation procedure introduced by the SEA, thereby involving the European Parliament more actively than before. The horizontal implementing regulation is primarily concerned with the overall management and coordination of the structural funds. 5 One intention

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of this regulation is to decentralize the management of the funds and to create a series of partnerships between local, regional, national, and Community actors by means of integrated operations. In this context, its most innovative feature is to provide a specific schedule for implementing the new approach outlined in the reformed structural funds. In accordance with the new regulation, national development plans had to be formulated and presented by the member states, outlining each state's priorities and intentions with regard to the use of the funds; the Commission had to consider those plans and respond by means of a Community support framework outlining the priorities selected for funding. Following agreement on the Community support framework, the member states had then to submit operational programs to the Commission for approval. The regulation also requires follow-up studies and assessments to verify the results of the new approach. The "vertical" regulations are specifically concerned with the specific operations of each of the structural funds. These include the following: the ERDF, which is focused on objectives 1, 2, and 5b of the SEA; 6 the ESF, which is focused on objective 3, measures to combat long-term unemployment, and objective 4, jobs for young people, but also on the other three objectives in conjunction with the other funds; 7 and the EAGGF guidance scction, which is focused on objectives 1, 5a, and 5b, the promotion and development of rural areas under objectives 1 and 5b.8 One of the most important innovations of these regulations is continuous dialogue between the Commission and the national, regional, and local actors involved. The principle of partnership and the use of operational programs have drawn the Commission into a much closer relationship with national, regional, and local actors. This has probably been more successful in cases where there already exists a regional tier of government and some commitment to regional development (for example, in France and Italy). In countries such as Ireland, the lack of regional structures and the reluctance of the national government have worked against the development of successful partnerships. A second and equally important development is the requirement that all operational programs be monitored. In each case, specific monitoring committees have been created composed of Community, national, regional, and local actors who are responsible for monitoring and assessing the effectiveness of programs. As yet there is little evidence as to whether these committees are working in practice. In view of the number of programs, the diverse range of problems being treated, and the relatively small Commission staff available to participate in this process, there must be some cause for doubt as to how effective it can really be, especially in countries where governments have obstructed the Commission's attempt to create partnerships with local and regional actors. A number of additional issues were left to be decided during 1989. At the Community level there were decisions to be taken regarding the all-important

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allocation of the funds by objective and by member state. Initial discussions were undertaken in January, when the commissioner responsible for regional policy, Bruce Millan, proposed the following indicative allocation of funds under the ERDF for objectives 1, 2, and 5b. The majority of the funds (some 85 percent) were to be concentrated on objective 1 regions. The allocation was as follows: Spain, 32.6 percent; Italy, 24.5 percent; Portugal, 17.5 percent; Greece, 16.2 percent; Ireland, 5.4 percent; France, 2.1 percent; UK, 1.7 percent. The Italians opposed this proposed allocation, arguing that it should not be based on the GNP of the country concerned but only on the per capita GNP of specific regions because the Community constituted a single European area. This arrangement would, of course, have increased the Mezzogiorno's share of the money available. Similar negotiations also proceeded throughout the early part of the year on each of the other objectives. For example, in March 1989, after two months of negotiations with the member states, the Commission announced the regions to be covered under objective 2. In this case it faced the problem of having to reduce the number of regions covered from 17 to 15 percent of the Community's population. This figure was reduced by intensive bilateral discussions between the Commission and the member states. 9 At a national level, the member states were engaged in formulating national development plans, which they were obliged to submit to the Commission by March 31, 1989. A series of bilateral exchanges occurred between the European Commission and the different national administrations involving regular meetings between national ministers and top Commission officials and at a lower level between officials of the Commission's services and national civil servants. All member states to varying degrees sought Commission assistance in helping to formulate their national development plans. There then followed further negotiations between the Commission and the member states' governments over what items the Commission would fund in the Community support frameworks. One of the principal concerns of the Commission was to ensure that the priorities in the national development plans were in line with the Community's priorities and, in particular, with the Commission's desire to support productive investments that would lead to the creation of more employment. There has, however, been continuing tension between the member states and the Commission as to the location of responsibility for regional development policy and its implementation. In September, the Commission approved within the prescribed time limit the allocation of money to be used for objective 1 regions in the fiveyear period of 1989-1993. Spain received 9,779 miUion ECU; Italy, 7,443; Portugal, 6,958; Greece, 6,667; Ireland, 3,672; France, 888; and the United Kingdom, 793. As Bruce Millan commented,

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This share-out aroused a degree of disenchantment for most o f the countries in question. France asked the C o m m i s s i o n that the share granted to the Overseas Departments ( D O M ) be increased; the British feel that the funds for Northern Ireland are insufficient; Italy feels that its p e r c e n t a g e w a s c a l c u l a t e d in a reductive manner and that the d i f f e r e n c e as compared to Spain is e x c e s s i v e . Moreover, concerning Ireland, there are s o m e administrative problems. 1 0

Throughout the remainder of 1989 and during most of 1990, the Community and the member states engaged in agreeing upon and implementing the specific integrated operations and projects outlined in the Community support frameworks. For example, at the end of July, the Commission adopted seven Greek programs included in the Community support framework, implemented an operational program in the Valle d'Aosta (Italy), and provided financial support to promote the development of tourism in Northern Ireland. This was a time-consuming and administratively complex task, which has fully extended Commission officials and national civil servants to their limits. Moreover, the slow pace with which programs have been initiated suggests that the member states have problems in formulating operational programs. In particular, the Greek government had already encountered problems in implementing the operations approved under the integrated Mediterranean programs' regulation (IMPs). There was, however, another problem that the Greek government experienced, which will undoubtedly reoccur elsewhere—lack of sufficient public finance to match Community funds. Such fundamental problems suggest that although the Community's regional policy may be inspired by a desire to meet local problems at their source, the practice is far from satisfactory, even under the newly revised structural funds. The reality is that the diversity of problems and regional structures tend to make any European-level attempt to tackle local/regional development problems haphazard and problematic. Although the Community has undoubtedly instituted a more rational planning process with regard to regional policy, the real underlying issues seem not to have been tackled. Whether this new planning process with an increased emphasis on operational programs and partnerships will be successful is questionable. This is partly because regional policy is still seen primarily as a means of relocating financial resources between member states rather than as meeting local needs, especially with regard to economic development. The Community has continued to fund a number of additional initiatives such as the IMPs, introduced in 1986 and now in their second phase, and a number of rural development programs. 11 In particular, in the latter case the Commission's approach to rural development is guided by the principle of economic and social cohesion to which it has committed itself. In practice, the Commission has built on and developed the concept of integrated rural development programs, which were first tested in the form of pilot projects

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in the western isles of Scotland, southeast Belgium, and Lozère in France (integrated development operations). The Community has also extended economic and social cohesion to a number of other programs to meet specific geographical and industrial development needs not covered under the existing structural funds. These include assistance for areas undergoing steel conversion, coal-mining areas, shipbuilding, frontier regions, and ultra-peripheral regions. In this context, the Commission has broadened and deepened economic and social cohesion to include areas not previously considered integral to the achievement of greater cohesion in the European Community.

The Revival and Enlarged Scope of Social Policy The central issue of the Community's social policy in 1989 and 1990 was the Community Charter of Basic Social Rights for Workers, known as the "Social Charter." This was adopted by the European Council meeting in Strasbourg on December 9, 1989, in the form of a declaration and constitutes a diluted version of the draft "Community Charter on Basic Social Rights," previously adopted by the Commission on September 27, 1989, following extensive consultations with national authorities, European organizations representing employers and labor, and the Community's Economic and Social Committee and European Parliament. The Commission also adopted on its own responsibility, on November 29, 1989, the comprehensive Action Programme, 12 specifying a whole series of legislative and other measures that it would like to see implemented by the end of 1992 in conformity with the Social Charter. None of these three official documents carries legal force as it stands. However, the Social Charter and the Action Programme were major issues of political discussion at a European level in both years. Criticism has come from opposite points of view: from those who say the Social Charter and the Action Programme go too far in restricting the freedom of member states to regulate or to abstain from regulating the conditions of employment, and from those who say they do not go far enough in establishing general rules applicable throughout the internal market for the protection of workers and disadvantaged groups or for the improvement of living and working conditions. The Social Charter, as adopted by the European Council, is really no more than a statement of principles, though it does call for implementing action by the member states' own authorities and the Community's institutions, including relevant proposals by the Commission. Significantly, however, it was adopted by a majority decision, the representative of the United Kingdom (Prime Minister Thatcher) making a minority of one. The UK conservative government's representatives have continued to block many

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o f the measures proposed in accordance with the Social Charter. An official of the U K ' s department o f employment has been especially assigned to perform this function at the level of Council working groups and the Committee of Permanent Representatives (COREPER). The governments of Belgium, Denmark, Greece, Spain, France, Ireland, and Italy have been strongly supportive o f the Social Charter. Each of them held the presidency of the Community's Council during the three years preceding the Charter's adoption and the nine months following. All but one of these governments at the time was led or was supported by socialist political groupings. With the backing o f a large majority of its members (made up substantially but not exclusively of the socialist group), the European Parliament has called vociferously not only for the speedy adoption of the measures envisaged in the Action Programme but also for the latter's reinforcement and extension, eventually adopting its own alternative action program on September 13, 1990. One cause o f disputation is the legal basis o f the Charter and of the means o f implementing it. In fact, the UK government has skillfully employed legal arguments, based partly on limiting provisions it had itself engineered in the S E A (such as the exclusion of the free movement of persons and the rights and interests of employed workers from the scope of the new Article 100A o f the EEC, which provides for majority voting in the Council). The legal basis of many of the measures now envisaged has also been questioned, presumably without political motive, by the Commission's own legal service. The momentum behind the Social Charter and its implementation owe much, however, to the personal support of President Delors o f the Commission, whose public commitment to " a revival of the social p o l i c y " by such a method (in May 1988) reflects the idea o f a "European social area" first propounded by President Mitterrand of France in 1981. O f the political factors that normally determine the rate of development of Community policy, therefore, in the case of social affairs the relative influence o f political forces at both national and European levels seems to be currently the most decisive. However, the expectations o f net gains by individual national governments are also relevant to the recent—and the likely future—outcome of the Social Charter. To the extent that a substantial majority o f states—virtually all those on the mainland—are accustomed to a high degree o f public regulation of the conditions of employment, most national governments, regardless of their political composition, probably see little or nothing to lose from increased uniformity in rules and standards at a European level. On the contrary, so long as the common legal framework does not exceed minimum prevailing requirements at the national level, the large majority o f states should welcome measures designed to discourage individual states from adopting exceptionally weak standards in the hope of gaining artificial economic advantages. For the U K , and possibly some other

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states with less regulated systems, these prospective losses and gains are, of course, reversed. On the other hand, it is difficult to see how a genuinely competitive internal market can be effectively realized without a basic uniformity of employment conditions, including nonwage labor costs. Nevertheless, neither the Social Charter nor the Commission's Action Programme add to the founding Treaties or the SEA in terms of a transfer of powers to the Community. The Community's powers in social affairs remain as always largely confined to matters affecting employment, and they are designed primarily to help ensure the free movement of labor and services or to remedy spatial disparities. The Community continues to develop, though still in measures that are essentially marginal to national public programs, interventions affecting wider social concerns: for example, the action program to combat poverty; the protection of women, youth, the elderly, and the handicapped; specific programs for educational and cultural integration (in particular, the Community Program for Education and Training in Technology [COMETT] and the European Community Action Scheme for the Mobility of University Students [ERASMUS] for exchange of third-level students and teachers); and international problems of public health (actions to discourage smoking in public places and to combat AIDS and drug abuse). Many of these initiatives have been taken with reference to earlier declarations by the European Council and to those appended to the SEA under the broad heading of "A People's Europe." However, the major social problem for public authorities throughout the Community continues to be that of unemployment (running at 9 percent in 1989). The political reactions to this problem have, indeed, so far been the main cause of increased activity at a European level in the sphere of social affairs. Those reactions continue to diverge between member states, with the result that considerable uncertainty has remained about the desirability or practicability of specific forms of intervention by the Community. There is also a divergence of approach among the Commission's own directoratesgeneral reflecting different interpretations of the economic causes of persistent unemployment and suggesting correspondingly different remedies. The emphasis in the Community's overall approach continues to reflect the orthodox economic doctrine implied by the founding Treaties, namely that unemployment, like other undesirable social conditions, can be best treated by public authorities when the latter abstain from imposing artificial impediments to free economic intercourse and act so as to promote competitive market behavior in conditions of monetary stability. As we have explained, however, this orthodoxy is now generally qualified by the admission that the beneficial effects of market integration and monetary union cannot be expected to reach all parts of the Community equally, while spatial disparities must be treated additionally by direct intervention by public authorities designed to modify economic structures. This recognition of the need for common action directed at the problems

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of particular regions is justifiable in economic terms to the extent that rates of unemployment do vary significantly both between member states and between regions within states. However, the most recent of the first two annual reports on employment published by the Commission's DirectorateGeneral V (employment, industrial relations, and social affairs) indicates that neither the successful realization of an internal market nor the compensatory measures of regional policy are likely to be enough on their own to deal satisfactorily with the problem of unemployment. 13 The 1990 report suggests that anticipation of the beneficial effects of market integration partly accounts for the favorable economic trends (in growth, job creation, and low inflation) that have produced, at the end of the 1980s, a "substantial increase in employment," from which only a few member states are excepted. These trends are expected to continue up to 1992. (though no account could be taken of the possible effects of the Gulf crisis, which has now threatened a major world recession, nor of those of the integration within a united Germany of the German Democratic Republic). Even so, increased employment arising from the internal process of liberalization is not expected to be sufficient, partly for demographic reasons. In fact, new jobs have been filled so far, not so much by the unemployed, but by people (mainly young people and women) entering the labor market for the first time, whereas the labor force is expected to grow (as a result partly of higher activity rates and partly of a growth in the working population) by more than 2 million in 1990 and 1991. At 60 percent, the proportion of the Community's working-age population in employment in 1989 was well below the levels for the United States (74 percent), Japan (71 percent) and non-EC Europe (71 percent). In addition, the Commission's report refers to the need for adaptation and conversion of the existing labor force if the internal market is to realize potential gains from increased labor productivity; particular industrial sectors are likely to contribute to unemployment in this respect (in the more northern states, especially those protected up to now by public procurement policies and in the more southern states, those that have been exceptionally labor intensive). The priority for DG V is, therefore, that of reducing long-term unemployment. As much as 5 percent of the Community's total labor force (or over 7 million people) had been out of work for more than one year in 1988, and there has been an increase since 1983 in all states except Denmark in the average duration of unemployment. The problem of long-term unemployment is especially severe in the less-favored regions and part of the remedy is certainly seen as concentrating structural assistance by public authorities in those regions. However, DG V warns that spatial disparities do not account entirely for the problem, though regional policy cannot provide a sufficient solution. The costs to the individuals directly affected (in poor living conditions), to national governments (in financial costs, especially of transfer payments), and to the economy as a whole (in terms of lost output

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and income) are widely spread throughout the Community. If public policy is to respond adequately, therefore, it must include appropriate public regulation and management of the Community's labor markets. The Community's own institutions have extremely limited means of pursuing these ends of public policy, as they do in the whole sphere of social affairs. There is, first, restricted scope for the enactment of new directly effective and overriding Community law in this sphere beyond the Treaty provisions for the free movement of labor and services. Experience has shown that the mobility of labor between member states does not make a significant impact on the reduction of unemployment, though legislative measures to remove remaining impediments to professional mobility, as in the mutual recognition of qualifications and standards, are expected to contribute indirectly to increased economic efficiency in the internal market. Over the past fifteen years the Commission had increasingly resorted to Articles 100 and 235 of the EEC Treaty to propose general legislation intended mainly to protect the interests of those already employed and indirectly to discourage employers from organizing work so as to obviate the need to provide normal full-time employment, in particular, measures dealing with collective redundancies; fixed-term contracts; part-time, temporary, and seasonal work; early retirement; and the duration and organization of working hours. However, initiatives of this kind continue to be highly controversial, not least in the extent to which they seek to extend public regulation in matters subject to collective bargaining, and they still tend to founder on the requirement of unanimity among national governments' representatives in the Council. Most notably, the labor organizations' previous insistence on the generalized reduction of working hours by legislative means seems to have moderated. The Social Charter refers to all these particular aspects of employment policy as means of realizing a necessary "approximation" and improvement of living and working conditions, whereas the Commission's related Action Programme prescribes four new specific legislative initiatives (on the adaptation of working time, collective redundancies, and two on contract employment). The Social Charter's focus, however, is on the freedom of movement to seek work and on the rights and interests of those already in employment. Only just over half of the forty-six measures specified in the Action Programme involve the use of legislative powers by the Community's institutions; nine of these make use of the new powers conferred by the SEA (Article 118A EEC) with respect to health and safety at work, four with the freedom of movement, and three with the protection of special groups (pregnant women, youth in their first employment, and the physically handicapped). The legal instrument normally employed in these and other aspects of employment is the directive, so some legislative responsibility still rests with the member states' own public authorities. Even so, it might well be

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asked in general terms whether this emphasis on the protection of the employed with arguable consequences for nonwage labor costs, albeit in pursuit of ideals of social justice, is wholly compatible with a priority to remedy long-term unemployment. Public regulation may, in any event, not be the most promising means of treating this problem. The Community is also equipped with some financial means, above all the European Social Fund, through which 3.5 billion ECU were available in 1989 for expenditure on increasing employment opportunities. The steady growth of the resources available through the ESF has reflected—as it also doubtless has influenced—the emphasis in the Community's employment policy on subsidized vocational training as a positive measure for increasing employment, especially among targeted groups such as young people under twenty-five. However, as we have seen, those resources have been and will continue to be concentrated on the overall priority of the Community's structural instruments for correcting regional imbalances: only just over 12 percent of the structural funds is currently devoted exclusively to objectives 3 and 4 of, respectively, combating long-term unemployment and helping young people into employment, though, when actions taken under the first objective are added (aid to the least developed regions), this proportion rises to almost 20 percent. Given the methods of operating the structural funds, moreover, the access of the Community to growing financial resources for this purpose does not alter its continuing dependence on national authorities for ensuring that vocational training and other forms of labor market management are adequately and appropriately provided. Indeed, the Community's powers with respect to social policy as a whole are still largely confined to methods, broadly speaking, of "concertation." Most of the Commission's actions in the social field still derive from Article 118 of the EEC, which gives it the task of promoting close cooperation between member states and specifies such measures as "making studies, delivering opinions, and arranging consultations." Additionally, under Article 155 the Commission performs this task by participating in meetings of ministers of social affairs and employment in the Council and by exercising administrative functions delegated to it by Council decisions. Concertation is not, therefore, confined to purely intergovernmental procedures and includes two related kinds of activity: regular and formalized consultations at a European level involving representatives of the "social partners" (mainly employers and trade unions) as well as national ministers and the Commission—in particular, the twiceyearly meetings of the Standing Committee on Employment; and an expanding series of programs, financed through the Community's own budget and administered by the Commission's DG V, designed to facilitate the exchange of information, personnel, and experience, the direct cooperation of public and private agents, and the development of expertise across national boundaries such as the program on the long-term unemployed and the

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program on local development. To a significant extent, however, both the C o m m i s s i o n ' s increasingly forthright policy statements on the problem of u n e m p l o y m e n t and the Social Charter with the measures proposed to implement it rely overwhelmingly on the willingness and capacity of member states' own public authorities to take appropriate action.

Assessment and Conclusions The two years under review belong to a phase of unusually heightened activity in the Community's regional and social policies. In particular: 1. A large number of specific decisions have been taken to approve financial intervention by the Community's reformed and expanded structural funds in accordance with important new procedures most notably involving long-term support frameworks for individual states; operational programs of regional development combining use of different Community funding sources; and regular, intensified consultation and control by the Commission and national, regional, and local agents. 2. A Social Charter has been adopted, defining basic rights for people in e m p l o y m e n t throughout the C o m m u n i t y , and a n u m b e r of contentious proposals for new legislation in this sphere have been renewed or initiated, partly in accordance with the new Action Programme adopted by the Commission. In general, the increased activity reflects a new legal and political e m p h a s i s on economic and social cohesion as a counterpart to the liberalization of economic forces entailed by the 1992 internal market program. This principle of cohesion not only has a firm constitutional f o u n d a t i o n in the SEA of 1986 but also has particular appeal f o r contemporary governments of various political complexions in a large majority of member states and for an overwhelming majority of the members of the European Parliament. There are, in addition, well-founded practical reasons for pursuing active regional and social policies at the European level in anticipation of 1992 and in light of new initiatives for economic and monetary union. Neither extreme spatial disparities nor high levels of unemployment, both of which indicate divergent living and working conditions, are compatible with the basic principles and objectives of the Community. Neither are likely to be compatible, moreover, with realization of a genuine internal market and with acceptable monetary integration. Present and future governments of the states m o s t s e v e r e l y a f f e c t e d by u n b a l a n c e d d e v e l o p m e n t and by high unemployment cannot be expected to surrender control of the structural,

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legal, fiscal, and monetary instruments typically used to treat such problems at a national level. But control of those instruments must be surrendered to a far more significant degree if both market integration and monetary union are to be realistic objectives. In fact, political pressures for increased common action in pursuit of economic and social cohesion have been especially evident in the period under review and will probably be sustained. During this period the institutional developments following the SEA have helped to increase political commitment to Community action in both regional and social policy. The long-term interinstitutional agreement on the Community budget reached in 1988 has clearly served to avoid the budgetary disputes of previous years; in particular, it provides a workable guarantee that undertakings to increase expenditure on the structural funds are not vitiated as before by unpredictable increases in spending on the CAP. For the most economically backward states the financial interventions of the Community's structural funds are in the process of becoming a highly significant element in national budgetary policy and public administration. The Community's Commission is increasingly able to use the leverage so acquired to deal with spatial inequalities by measures that are becoming more genuinely structural in form and intent as well as more selective with clearer guidelines for purposes of evaluation. A development of particular importance and with potentially farreaching long-term implications is the emergence of a more direct relationship between regional and local authorities within the state, on the one hand, and the Commission and the European Parliament on the other. That relationship is still mainly consultative, while central authorities at a national level continue to hold ultimate responsibility for the formulation and implementation of development programs. It is still obstructed in those states with highly centralized political and administrative systems, which also tend to be those with the greater problems of economically backward regions. However, during the period under review, the role of European-level associations representing regional and local authorities has been strengthened, while regional interests, including separatist political organizations, within a number of member states increasingly view European integration as advancing their own claims against centralized national authorities. The introduction, following the SEA, of qualified majority voting in the Council, together with a second consultation of the Parliament, for legislative proposals in the sphere of social policy seems to have strengthened the influence of political forces favorable to common action in this sphere too. With support from a large majority of the Parliament's members, from a sufficient majority of states' governments, and from the Commission itself, the use of legislative enactment and financial inducement has expanded notably and can be expected to expand further. Both legislative and financial intervention by the Community remain marginal in terms of overall public programs in the wider sphere of social policy. But the

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increased pressure for harmonized regulation and standards with respect to conditions o f employment presages major adjustments in those states with traditionally less regulation and in those with lower standards. Parallel to the increased support among subnational territorially based interests is a new enthusiasm for European integration among representatives of organized labor and the socialist political parties with which they are often associated. Nevertheless, both the aims and the means of the Community's regional and social policies continue to be subject to exceptional constraints. The formulation and implementation of these policies depend to a greater extent than in other spheres on the prior willingness and capacity of member states' own public authorities. It is very much open to question whether the instruments available to the Community are either adequate or appropriate to deal with those problems of spatial and social inequality that persist in spite o f the economic gains expected from market integration. The Community's regional and social policies are still possibly most significant for what they expressly do not attempt to treat as a common responsibility and for the kinds of instrument they expressly do not employ. Although the management of the Community's structural instruments is being progressively improved, these still take the form mainly of financial subsidies to public works and services over which central authorities within the states retain essential political, financial, and administrative control. The recipient national authorities are still very much inclined to treat such Community subventions as if they were windfall gains for the purposes of fiscal management. The fact is that the economically weaker member states, for which the funds are chiefly intended, face exceptionally difficult macroeconomic constraints. Those constraints restrict both the structural adaptations necessary for sustained economic growth and the scope of public intervention necessary to treat unacceptable inequalities in living and working conditions. The causes lie not only in inadequate domestic fiscal and monetary management but also in demographic and geographical factors. In particular, critical levels of long-term unemployment with predominantly structural causes reduce the potential yield in public revenue, adding to costs o f social policies that already for demographic reasons impose a proportionately excessive burden on the public finances. One possible solution in the context of an integrated European market might be to transfer more of those costs directly to a Community level in the form o f general-purpose mechanisms o f redistribution. Although this solution has been proposed unofficially in the past (for example, by means of comprehensive Community programs for unemployment benefit or for education and training), such proposals are not currently on the agenda of official policymakers at a European level. Another approach, that o f an automatic mechanism for correcting fiscal imbalances between member states ("fiscal federalism"), is also neglected in official circles. Both types of approach, however, may well eventually prove to be necessary subjects of

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discussion in forthcoming intergovernmental conferences on E M U and political union. Subsidization through the Community's structural funds is unlikely to prove a satisfactory expedient—either in financial or in managerial terms—beyond the end of current arrangements in 1993. There is no immediate prospect, however, of significant transfers of responsibility to a Community level in those fields of social policy that account for the highest allocation of public expenditure in the states: public education and health, social security, and housing. Even with respect to the public regulation of employment and the management of labor markets, there remains substantial opposition to a greater Community involvement in industrial relations, especially in those states and among those interest groups that favor free collective bargaining. The new Social Charter and the C o m m i s s i o n ' s related Action Programme notably make no reference to proposals intended to provide comprehensively for a minimum wage and for maximum working hours throughout the Community, for fixed procedures of transnational collective bargaining, or for minimum standards for social security and housing. All these proposals are contained in the European Parliament's alternative action program. Significant differences between the m e m b e r states' governments remain, however, while the scope of the provisions of the new EEC Treaty's Article 118A is currently a matter for both legal and political dispute. A large majority in the Parliament has campaigned strongly for extending majority voting in the Council to all matters covered by the Social Charter, and it has complained about the Parliament's own exclusion from the procedure employed for the Charter's adoption. These institutional issues will also undoubtedly arise in the course of the intergovernmental conferences over the next twelve months. The fact is that the economic and political advantages of integration by means of market liberalization have never been sufficient on their own to realize the principles and objectives on which the Community is founded. There is in Europe as a whole a strong long-standing and pervasive political commitment to manage economic activity so as to avoid extreme spatial and social inequalities. That commitment is still too firmly embedded to permit the kind of withdrawal of public authority entailed by the narrower view of integration implied by the internal market. So long as national governments continue to be capable, in the absence of acceptable alternatives, of asserting public authority for these reasons, market liberalization itself must remain an uncertain outcome, even when reinforced by more effective economic and monetary coordination. Indeed, recent experience demonstrates that as the pressures for a fully integrated market and monetary system have increased, so the countervailing demands for compensatory measures to remedy spatial and social disparities have also grown. The question is, however, whether regional and social programs at the Community level can make an adequate contribution on their own, especially when they are confined, as they still tend to be, to measures of financial

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subsidy and legal harmonization. There are reasons forjudging them in some respects counterproductive for international competitiveness and economic growth, while it has been increasingly acknowledged by public administrators themselves that structural determinants of economic change—such as the location o f economic activity, technological innovation, management of labor markets, and industrial relations—are necessarily complex and variable, and subject often to spontaneous and discrete actions that evade centralized control. The overriding issue of regional and social policy, as well as of economic integration in general, remains, therefore, how and for whose interests public authorities manage the fiscal and monetary instruments in their power. It is for this reason that an economic and monetary union is an unrealistic goal in the absence of suitably developed political institutions.

Notes 1. Jacques Deiors, Report on Economic and Monetary Union in the European Community, Report lo the European Council, chaired by J. Deiors (1989). 2. Certain lending and subsidizing facilities available under the 1951 Treaty establishing the European Coal and Steel Community already provided some means to much the same purpose. 3. Commission of the European Communities, "The Economics of 1992," European Economy, No. 35 (1988). 4. Council Regulation (EEC) No. 2052/88 of June 1988 on the tasks of the structural funds and their effectiveness and on coordination of their activities between themselves and with the operations of the European Investment Bank and the other existing financial instruments. Official Journal of the European Community, Vol. 31, No. L 185 (July 15, 1988). 5. Council Regulation (EEC) No. 4253/88, laying down provisions for implementing Regulation (EEC) No. 2052/88 as regards the coordination of the activities of the different structural funds between themselves and within the operation of the European Investment Bank of the other existing financial instruments. Official Journal of the European Community, Vol. 31, No. L 374 (December 31, 1988). 6. Council Regulation (EEC) No. 4254/88 laying down provisions for implementing Regulation (EEC) No. 2052/88 as regards the European Regional Development Fund. Official Journal of the European Community, Vol. 31, No. L 374 (December 31, 1988). 7. Council Regulation (EEC) No. 4255/88 laying down provisions for implementing Regulation (EEC) 2052/88 as regards the European Social Fund. Official Journal of the European Community, Vol. 31, No. L 374 (December 31, 1988). 8. Council Regulation (EEC) 4256/88 laying down provisions for implementing Regulation (EEC) No. 2052/88 as regards the EAGGF Guidance Section. Official Journal of the European Community, Vol. 31, No. L 374 (December 31, 1988). 9. European Commission Information Memo, Spokesman's Service (Brussels: March 8, 1989), p. 2. 10. Agence Europe, No. 5098 (September 27, 1989), p. 12.

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11. Commission of the European Communities, "The Future of Rural Society," COM (88) 501 FINAL (September 23, 1988). 12. Commission of the European Communities, "Communication from the Commission Concerning Its Action Programme Relating to the Implementation of the Community Charter of Basic Social Rights for Workers," COM (89) 568 FINAL (November 29, 1989). 13. Commission of the European Communities, "Employment in Europe 1989," COM (89) 399 FINAL and "Employment in Europe 1990," COM (90) 290 FINAL.

16 Social Protection Pedro Corona- Viron

As 1993 approaches, a number of fears about the European Community's social policy have been voiced. The most important of these is the possible retrogression in the social public policy area arising from a combination of factors: the actual process of harmonization of the various social protection systems, the continuation of unfair business practices, and the redistribution of resources from those E C member states that have undertaken the provision of high social levels to those member states that have allocated a much lower level of funding. The harmonization of policies in the social domain by the E C cannot be achieved by fixing the level of allocations at the lowest c o m m o n denominator existing within the Community but, rather, only by respecting the national-local standards already in place and by the process of upgrading common interests. The opening of the E C ' s internal borders, scheduled for January 1, 1 9 9 3 , will obligate the member states to establish a clearly defined social policy. This obligation implies a new way o f thinking and a new dynamic in the social policy area.

Creation of a European Social Space T h e e c o n o m i c , industrial, technological, and monetary conceptions underlying the establishment of the E C have led to developments that were largely unforeseen in 1957. These developments have resulted in the need to reconcile vastly different national interests and ideologies, and compromises have been necessary to attain an acceptable level o f agreement among the member states, especially considering the different national decisionmaking processes. In general, the Community countries' social objectives have included the following: an even economic expansion, the maintenance of full employment, an increased standard o f living, and a more rational and equitable production-distribution system. The maintenance o f employment

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levels and the avoidance of economic shocks within the member states have always been on the agenda of the various conferences, committees, and expert working groups charged with social affairs policy. The founders of the European Community envisaged a European-wide approach to social problems. Article 2 of the Treaty of Rome reads: The aim of the C o m m u n i t y is, by establishing a C o m m o n Market and p r o g r e s s i v e l y approximating the e c o n o m i c policies of the MemberS t a t e s , to p r o m o t e t h r o u g h o u t the C o m m u n i t y a h a r m o n i o u s d e v e l o p m e n t o f e c o n o m i c a c t i v i t i e s , a c o n t i n u o u s and b a l a n c e d expansion, an increased stability, an accelerated raising of the standard of living, and closer relations between its Member-States.

The Treaty also contains articles particularly relevant to this chapter. Articles 49 and 51 read: The free m o v e m e n t of workers shall be ensured within the Community . . . i n v o l v i n g the abolition of any discrimination based on nationality b e t w e e n workers o f the M e m b e r - S t a t e s as regards e m p l o y m e n t , remuneration and other working conditions. . . . In the field of social security, the Council shall introduce . . . a system which permits an assurance to the given migrant workers that . . . all periods taken into c o n s i d e r a t i o n by the r e s p e c t i v e municipal law o f the c o u n t r i e s concerned shall be added together.

Article 119 of the Treaty of Rome reads that each member state shall "maintain the application of the principle of equal pay for men and women," and Articles 123-127 establish the European Social Fund. Finally, Article 118 of the Treaty of Rome calls for the "close collaboration between Member-States in the social field, particularly in matters relating to employment, labor legislation and working conditions, occupational training, social security, protection against occupational accidents and diseases, industrial hygiene." In reality, only the agreements concerning the free circulation of salaried employees relative to the completion of the internal market have resulted in firm directives since the end of the 1960s. These regulations have, of course, been revised in light of actual experience, but a real ambiguity still exists in the Treaty of Rome as to the locus of decisionmaking: is it at the EC level itself or is it left to the various national processes that may—or may not— result in a harmonized policy? The completion of the full customs union and the granting of free circulation to manual-unskilled workers (July 1, 1968) have not been in themselves sufficient to create a real Community-wide integrated economic system; such a system can never be achieved without the presence of a Community-wide social cohesion. The term "social and economic cohesion" appears in the title of the 1986 Single European Act (SEA). But in order to

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achieve this social and economic cohesion, a more equitable distribution of resources, a restructuring of certain institutional mechanisms, and a more even level of economic growth are necessary. Since 1968—but even more so recently with the approach of the 1992 single internal market—the necessity of replacing the existing national policies in the social area by Communitywide policies and the requirement of transforming the European geographical space into a rationally organized European society with well-thought-out economic and social programs have become all too obvious. Unfortunately, there are many existing barriers to the creation of this European social space. Among these are the constant fluctuations in exchange rates among the member states' currencies and the frequent policy reversals in the funding of the EC's common agricultural policy (CAP). These long-standing problems hinder the maintenance of full-employment policies and impede the development of a rational and equitable economic growth across the Community. The various national socioeconomic policies of the member states, given the logic of their internal structural characteristics, still remain uncoordinated and are held hostage to differing— and often conflicting—national objectives. Price and wage policies are also uncoordinated across the member states; this is another factor that calls for the "Europeanization" of social policy. Given the determining influence of those decisions reached by the various EC and national groups concerned with social policy, it is crucial that these groups be consulted before implementing any Communitywide policy. This consultative process must be systematic and institutionalized in order to avoid any excessive policy divergences. If successful, a coordinated social policy would permit an economic and monetary union, which, in turn, might very well serve as the jumping-off point for the creation of a real political union. Unfortunately, a high level of conflict and divergence of views between management and labor exists on this issue. At the EC level, management has shown a strong hostility to what it considers bothersome collective conventions, and this hostility transcends the national borders. Management fears that the development of a harmonized social policy—especially one achieved by upgrading common interests—will have a negative impact on their ability to compete both within and outside the Community. At a June 25, 1987, meeting, the EC's Employers' Liaison Committee noted that flexibility is a key element in maintaining a competitive position. The Employers' Liaison Committee argued that legislation should take into account its impact on enterprises' competitive position and that a flexible working environment be respected. This adaptability or flexibility, moreover, should be achieved through a decentralized decisionmaking process. The Employers' Liaison Committee saw no utility in harmonizing minimum levels of social protection at the Community level. According to the Employers' Liaison Committee, the

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differences in working conditions should be encouraged rather than be subjected to overregulation. The European Trade Union Confederation argues the opposing point of view. The Confederation is convinced of the necessity of improving working conditions across the board but also recognizes that some flexibility is needed to maintain a desired competitive position. This flexibility, however, should not be achieved at the expense of protecting workers' rights. The relevant legal texts and Community treaties demonstrate a global societal approach to the issue. The European Parliament has been able to attain some legislative powers in the social area but they are relevant only in certain limited areas that touch upon the actual workplace environment and health and safety concerns (SEA, Article 118A). On June 12, 1989, the Economic and Social Committee adopted a policy concerning the minimum obligations of employers (public and private) dealing with hazardous working conditions (occupational safety) and worker training programs. These regulations will become effective at the end of 1992. In addition, the SEA encourages a "social dialogue." It clearly states the objective of developing social and economic cohesion, especially the goal of narrowing the gap between the rich and poor areas of the Community (Article 130A). To achieve this, the SEA envisages the use of the EC's structural funds, funds from the European Investment Bank (EIB), and various other already existing financial instruments. Article 130D of the SEA envisages the coordination of these funds and financial instruments as well as the eventual adoption of the necessary enabling legislation. Several of these enabling acts were adopted between June and December 1988. Seen in this light, an organized restructuring at the Community level could result in a readjustment of the European social "space." An application of policies in the area of competitive practices, especially in relation to national aid to businesses (such aid reached an amount approximately two and one-half times larger than the total 1987 EC budget), could lead toward a total rationalization of social and economic policies. This would be a very important step toward the eventual creation of a European social space. A system for the prevention of unemployment, social maladjustment, poverty, deculturation, and material misery in all its forms has slowly been implemented since the 1970s. The construction of a European social space must, however, go beyond this usual rhetoric to create a real consensus, a consensus that must prevent the continuing weakening of the EC's less developed areas and less affluent social groups. If the less developed areas and less affluent social groups cannot improve their relative positions, social tensions will surely be exacerbated and may very well lead to economic paralysis and resistance from national and corporate entities. But if a solid consensus can be attained, this will in turn entail some fundamental restructuring.

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The presence of strong competitors to the EC—Japan, the United States, the newly industrialized countries (NICs)—only underscores this urgent need for restructuring. Labor costs (and the concomitant social protection levels) are at the heart of the matter: the rich countries and areas fear competition from companies employing cheaper labor but, at the same time, the poorer countries/areas fear a lowering of investment and less employment if the demands for improvements in social protection levels are met.

Social Protection in the European Community The social dimensions of the internal market relate essentially to the question of social protection. The Single European Act and the EC Commission's 1985 white paper "Completing the Internal Market" are, however, basically economic documents. These follow the same conceptions that were present in 1957 with the Treaty of Rome: the social follows the economic (economic progress will give rise to social progress). The European Council (Heads of State and Government), at its June 26, 1989, meeting in Madrid, reaffirmed this view that the completion of the internal economic market is the most efficient way to create social progress (maintenance of employment levels and a decent standard of living for all Community citizens). The Treaty of Rome, in Articles 51 and 117, called for the coordination and harmonization of the differing national social security systems for obvious economic and social reasons. The 1989 Madrid meeting of the European Council "invited" the member states to accelerate the institution of a full free circulation, establishment, and practice policy for the professions, which, again, underlines this economic approach to social questions. According to the Madrid European Council, problems within the social area should not under any circumstances act as a brake or hindrance to economic growth, especially in relation to the free circulation of goods, people, services, and capital. The consequences of this economic approach to social issues are many and certain problems can be seen. The low level of social protection in a member state or in certain geographic regions could very well dissuade people from moving to that area; this, in turn, could retard economic development. On the other hand, the presence of high levels of social protection in a specific region could dissuade additional investment and lead to the diversion of the available investment funds to areas where labor costs are lower (but also where labor would presumably be less qualified). For the future, it is largely assumed that most labor migration will be of skilled workers who are used to a high level of social protection policies. If this assumption holds, the employers of this class of workers in the host country will be obligated to maintain a level of social protection at least equal to that existing in the country of the workers' origin. This situation will militate

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against the migratory movements necessary to spur economic and industrial growth. Seen in this light, the construction of the Community is not only an economic experiment but a social one as well. A mechanism for the coordination of the various social systems has been in place since January 1, 1959, and, subsequently, subject to EC regulations 1408/71 and 754/72. These regulations defined the applicability of the various social security systems in relation to migrant workers and members of their families within the EC. A major difference among the member states relates to allocations for various social aid programs (EC regulation 1612/68). These allocations apply to workers within the EC and the general operating principle is one of equal treatment: all workers within a member state, whether migrants or host country nationals, are to receive identical benefits. The level of benefits existing in the migrant worker's country of origin—whether higher or lower than what exists in the host country—cannot be exported. The Treaty of Rome (Articles 100, 117, and 118) envisages the harmonization of these allocation levels, but this has yet to be achieved. In order to safeguard economic equilibrium across the Community, these national differences (or distortions) are necessary. This may very well result in a decrease of such allocations where they are the highest but also in the increase of such levels in the less developed member states. In any case, the differing national traditions, principles, objectives, and organizational structures of the member states have to be respected. A model that calls for one overriding single standardized social security policy is not necessarily the best approach. EC regulation 1612/68, concerning the free circulation of persons, defines the rights of residence for students, retired people, and other economically inactive groups. This was presented to the Madrid meeting (June 26, 1989) of the European Council, but, though the right of residence was specified, the problem of coordinating the differing social protection policies to these groups (students, retirees, and other economically inactive persons) was not definitely agreed upon. Students The draft project would give to EC nationals the right to care on the condition that they are duly enrolled in a recognized educational institution. The right of participation in the host country's national health insurance scheme under the same conditions as host country nationals is also recognized. The E C ' s Administrative Commission for Social Security wants to extend this protection to all migrants, not just to students. The definition of the term "student" is one of the major objections to the draft project. The agreement foresees the maintenance of coverage levels at least at the level of the country of origin within the context of the several EC educational programs (e.g., ERASMUS). Students from EC member states who are not

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enrolled through an EC program receive health insurance coverage upon documenting that they are (or were) covered in the country of origin. Retired

People

The June 26, 1989, draft project calls for the granting of the right of residence to pensioners, the disabled, and people not working because of industrial accidents or occupational-related illness. No minimum level of resources available to these categories of people is specified before claiming the right to residence. Some draft directives call for the extension of EC regulation 1612/68 to these people as well as to students (i.e., equal treatment in social protection allocations). This might lead to some problems for those member states that are at the high end of the scale of allocations. EC nationals having only a most minimal or "symbolic" pension from the country of origin may very well claim this right of residence in the more affluent member states and thus be eligible for higher levels of support. The draft project appears to give the right of access to the host country's national health insurance system to these people. EC regulation 1408/71 calls for the coordination of these health insurance payments but only in relation to recipients of pensions. Thus, other retired people who in the country of origin have access to health insurance do not as yet have the unqualified right to such protection in another member state. This situation is currently undergoing review and it appears that the review will enlarge the definition of "family member" within the EC. This idea was contained in EC regulation 1612/68 and would allow for a clearer view of family groupings, which at present is left to the discretion of each member state. Economically

Inactive

People

The draft project also calls for granting the right of residence to any other category of people not included in the aforementioned two groupings (students or pensioners). The majority of people in this third category are those retired people who do not receive a pension as such but, rather, have their own independent financial resources. The draft project would require that these people have sufficient resources, including health insurance, so that they would not become a financial burden for the host country. If these draft directives are adopted, regulation 1408/71 will then have to evolve to permit the coordination of the various social protection systems. Public

Sector

Employees

Article 48 of the Treaty of Rome does not currently apply to the public sector. Administrative positions (distinguished from executive-level or

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policymaking positions) and those positions not central to the fonction publique (e.g., health care) should be open to nationals of other member states. The Administrative Commission for Social Security has attempted to eliminate the barriers to employment in the public sector that are linked to nationality.

Social Protection of the Family The number of comparative studies on family protection policies in the European Community is not large. The protection of the family has several important linkages with other very complex issues such as wage rates, type and amount of activity of the chief wage earner, level of education, and national taxation policies as well as the social, cultural, and political traditions of the specific member state. The different traditions existing in each of the member states present some thorny definitional problems. The simple definition of a "social allocation" is a very important definitional and methodological problem because, depending upon the specific country involved, the same allocation may derive from specific social aid policies or from the national social security system or from freestanding social action programs. The aid given to single parents is an excellent example of this problem. In the United Kingdom, such aid comes from the various social assistance programs, but in France, the identical program is seen to be a separate category ("family allocations"). In addition to these definitional problems, there are differences in the financing mechanisms (the state, local municipalities, and social aid cooperatives). The definition eventually adopted could very well be that of the E C ' s Bureau of Statistics (EUROSTAT), which considers as social protection expenditures all funds expended directly (or indirectly) to intervene in the family environment in order to create a more favorable family situation. This definition takes into account the amount of funds expended for family protection in relation to the total amount of funds expended for all social protection programs. There is, however, a large difference among the EC member states' spending in this area. Excluding maternity care and housing, the majority of the twelve allocate approximately 7 percent of the total social protection funds to family programs, though there are some member states that fall above or below this 7 percent figure. Taken as a whole, the Twelve show a lower amount of expenditures as a percentage of total social expenditures in the late 1980s and early 1990s compared to the 1960s and 1970s. These differences are linked to the type of funding mechanism employed (e.g., cost sharing by the population in France and Belgium, government financing in Denmark and the Federal Republic of Geimany). Demographic variables also play a role in the amount and type of aid

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available in the different countries: (1) some countries do not apply any demographic criterion (the United Kingdom, Portugal, Ireland, Denmark, Spain, ana Italy); ( 2 ) others vary social aid according to social status (Luxembourg, the Netherlands, Belgium, Germany, and G r e e c e ) ; and ( 3 ) some increase the amount o f aid after a certain number o f children (e.g., France). T h e amount and type o f aid also varies quite markedly in certain countries depending on the nature o f the chief wage earner's employment. Although there exist, as shown previously, great differences among the E C countries, there also exist several areas o f c o m m o n practices and some general observations can be made. The expenditure o f social protection funds is greater than the amounts realized by individual c o s t - s h a r i n g

and

contributory schemes. This has led to greater and greater bureaucratic fiscal control over the expenditure o f funds. A second variable c o m m o n across the E C is the decrease in birthrates and, in certain m e m b e r states, the decrease is such that it is now below the level necessary to sustain even a zero population growth. T h e changes in family structure—people getting married at a later age, a decrease in the number o f marriages, an increase in the divorce rate—also is a c o m m o n variable across the Community. T h e percentage o f women in the work force has increased in all the member states but there still exist some important differences from country to country. These differences result from the specific economic

environment

and different

cultural

traditions

across

the

Community. F o r example, in Spain and Ireland, one must realize that the rather high level o f unemployment militates against and limits the access o f young women into the work force. Although these countries have instituted programs to deal with this problem, it appears that they will have no impact in providing access for young women, at least in the near future. Another common variable

is the start-up o f programs that attempt to

make

employment compatible with child-rearing (e.g., flextime, day-care centers, two people sharing one full-time position). There is a new concept o f poverty across the European Community that arose from the p r o c e s s o f e c o n o m i c development, and situations

or

environments that might have been accepted in the 1960s are no longer seen as supportable. However, the vast increase in single-parent families has given rise to greater e c o n o m i c marginalization and social e x c l u s i o n in many countries: too many European children owe their health, safety, and welfare to the various social protection programs. T h e E C m e m b e r states react differently to these problems. T h e y react according to national traditions, to the specific demographics o f the country, and to the actual family situations themselves. It appears that the harmonization or standardization o f the levels o f support between the affluent E C member states in the north and the poorer countries in the south will not be achieved—if it can be achieved at a l l — f o r quite s o m e time. T h e recognition and admission o f these differences are

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absolutely necessary before one can fully comprehend the true nature of EC social policies; the refusal to recognize these differences can only exacerbate the barriers in the construction of the Community.

Health Protection Policies The problems in the health area (e.g., cancer, drugs, AIDS, alcoholism) have now become problems of society and are constantly part of the political dialogue. But, curiously, the whole health area seems to have been marginalized by the Community—health is almost totally absent from the relevant treaties. Although this is an unfortunate situation, it is not difficult to explain: the underlying philosophy of the Community was essentially economic and it was simply assumed that social progress, including health, would naturally follow economic progress. This has not yet been the case in the European Community. The liberalization of the free movement of people and the greater reliance on technology across the Community underscore the necessity of a common approach to the health area. It is hoped that the economic dynamic that is moving the Community toward the internal market will spill over into the health field. In the sections of the Treaty of Rome concerning social policy (Article 117 et seq.), it is noted that close collaboration among the member states is expected but there is no explicit mention of the health area. This general situation was not changed by the Single European Act, but in the area of occupational health and safety, by virtue of Article 118A, there were some modifications that called for greater harmonization. This limited objective was to be achieved by EC directives establishing minimal levels and adopted by qualified majority voting in the Council of Ministers. The Single European Act, especially its Article 100A, which substituted the qualified majority vote for the traditional unanimity in the Council of Ministers, is playing a vital role in the completion of the unified internal market. The evolution of a European health community has progressed rapidly since 1975. There have been several directives that gave "European status"— the right of free movement, establishment, and practice—to various health professions: physicians (75/362 and 75/363 of June 16, 1975), nurses (77/452 and 77/453 of June 17, 1977), dentists (78/686 and 78/687 of July 25, 1978), midwives (80/154 and 80/155 of January 21, 1980), and pharmacists (85/432 and 85/433 of September 16, 1985). Pharmaceuticals have also been the subject of specific legislation but this is due less to the health connection and moreso because pharmaceuticals are considered products and thus are covered by the free circulation of goods objective in the internal market. Several regulations have been promulgated to progressively eliminate the technical barriers to the free trade in pharmaceuticals.

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Several regulations and directives have been adopted concerning technical progress in the area of pharmaceutical products. This process is very important, especially in the authorization and approval process for new drugs. Some of these texts are as follows: entry into the market of "hightechnology" drugs (87/22 of December 22, 1986); modification of directive 75/318 concerning the testing of pharmaceutical products (87/19 of December 22, 1986); modification of directive 65/65 concerning special products (87/21 of December 22, 1986); pharmaceutical pricing policies and social security reimbursement (89/105 of December 21, 1988); modification of directives 65/65 and 75/319 relative to drugs derived from human blood or plasma, and immunological and radioactive products; and several texts dealing with medical materials and equipment (84/414 and 84/539). Part of this newfound interest and concern in the health field is that each Community politician's conscience can no longer avoid problems that have an impact on every citizen (e.g., the environment, health). Occupational health and safety has also received attention: directive 80/1107 deals with worker exposure to chemical or biological agents. All this activity is evidence that a greater sensitivity to health problems and an increasingly collective approach to their resolution is emerging in the European Community. Although there is still some opposition—particularly in the United Kingdom—many research programs (e.g., cancer, AIDS) are now being organized and conducted through a Community collective action. But the real difference after the Single European Act is that the intergovernmental cooperative programs that do exist have no real power of independent decisionmaking; now the European Community can impose its collective will on the individual member states. These decisions obviously are conceived in a spirit of cooperation and have as their objective a win-win situation for each member state. It may be true that a harmonized system of health and social protection is premature because of the numerous historical, cultural, economic, and social traditions but the opening of the Community's internal borders and the free circulation of people will most assuredly move the Community to such a harmonized policy.

Immigration One of the most striking demographic characteristics of the European Community is the presence of large numbers of non-Community nationals in several member states (e.g., the Federal Republic of Germany, France, and the United Kingdom all contain sizable numbers of non-Community nationals). For Community citizens, there are many regulations that organize and facilitate the free circulation of workers and their families within the

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Community (especially regulation 1612/68 and directive 360/68). Moreover, the mutual recognition of diplomas and qualifications (adopted at the end of 1988 and published in the Official Journal on January 19, 1989) encourages this intra-Community movement. But the unified internal market and the movement of non-Community nationals within the EC are presenting some problems. It must be noted that the norms and regulations applicable to Community nationals are not the same for immigrants from non-member states, especially the policies regarding the mutual recognition of diplomas, access to employment in the public sector, and the right of residence for economically inactive people. Each member state has the right to conclude bilateral agreements with the countries of origin of these people concerning these areas but such agreements are not automatically valid in the other member states: these people may receive the right of residence in a specific member state but this right does not also include the right of free circulation within the Community nor the right to seek employment in another member state. Non-Community nationals residing in one member state do not have the right to move to another member state without the express authorization of the new host country. These restrictions are presenting some problems for certain member states that have a large number of non-Community nationals within their territory. Family

Members

of Non-Community

Nationals

The rights of family members of workers from outside the Community are wholly dependent on the status of the individual worker. Article 10 of regulation 1612/68 states that such family members—spouse, children under twenty-one, or other people dependent on the worker—have the right, regardless of their own nationality, to reside with the worker. But the regulation does not give to the family members the right of free circulation to other member states. If the non-Community national ceases to be lawfully employed (the reason for the worker's presence in the Community), the right of continued residence for the worker and family also ceases. Refugees

Although persons having refugee status are not the subject of any specific Community regulations, the Council of Ministers (in its decision 64/305 of March 25, 1964) gave to each member state the ability to allow refugees access to both the national and Community work force. This decision was based on the requirements of the Geneva convention. Even if a specific member state refuses refugees the right of free circulation across the Community to seek employment, they nonetheless are still eligible for social security allocations (regulation 1408/71).

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Asylum

Protection

241

Seekers

"Asylum seekers" are those people who are within the Community but are waiting for a decision on their request for refugee status. People in this category have no international protection and the Community does not accord them any rights. The majority of the member states have not given this category of people the right of employment. Free

Circulation

From the previous discussion it is obvious that the Community did not foresee the problems involved with non-Community nationals. Each individual member state continues to apply its traditional policies in this area as well as its own requirements regarding the granting of citizenship. The problem in the future concerns the way that the Community can control the movement of millions of non-Community nationals but at the same time give totally free circulation to EC citizens. With the completion of the internal market and the eventual abolition of controls at the intra-EC borders, the EC will have to find less obtrusive methods regarding the free circulation of non-Community nationals.

17 Research and Technology Policy Robin Gaster

Two main programs support research and development (R&D) at the European level: the Framework Programs, run by the Commission of the European Community, and EUREKA, a much less coordinated research program for industrial R&D with eighteen member countries plus the EC. 1 The two programs differ organizationally, financially, and politically, in ways that will be discussed later. But they also share some important similarities: they are both specifically aimed at helping to improve European R&D\ they are collaborative, demanding participants from at least two countries; and they are precompetitive. These Europrograms 2 have grown partly because Europe's economy suffers from obvious weaknesses. Technologically, European firms trail the United States and now Japanese competitors in many industries. Structurally, firms are too national-oriented to become international players. European programs might try to address both problems. And the programs may get even more important as other methods of supporting European industry are curtailed by the completion of the single market. It seems likely that many tools of national industrial policy—subsidies, directed public procurement, cheap loans, and trade policies, for example—will no longer be available. So technology policy becomes relatively more important. Begun in 1985 (the Framework Programs) and 1987 (EUREKA), the Europrograms have grown fast. They now provide about $3.5 billion annually in government support for R&D, matched by around $3 billion in corporate spending on Europrojects. That is, in gross amounts, a lot of money for R&D. Still, there are doubts about the results. Critics note that collaborative research is sometimes inefficient; firms often refuse to collaborate on "core" technologies or to use their best researchers on collaborative projects. There can be bigger problems: collaboration may undermine competition between firms and hence make them less competitive. Government support can become government direction—and governments have poor records in picking winners and losers. 3

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The European programs address some of these problems effectively and others not at all. So the Europrograms should be seen as an experiment, albeit one of critical importance to the Europeans. In this chapter the Europrograms are placed in the context of European R&D and then the Framework Programs and EUREKA are analyzed in some detail, stressing recent developments. It concludes with a tentative evaluation.

How Important Are the Europrograms? Size is a good indicator of importance, but spending levels are hard to identify precisely. Framework Program commitments have grown about 10 percent annually since 1985 and now reach about 2 billion ECU annually. 4 Most EC funds are matched 1:1 by industry, so total R&D spending through the Program is around 3.5 billion ECU annually. More than $7 billion has also been committed through EUREKA, about 0.5-1.0 billion ECU annually. That is a substantial sum. In comparison, the US government probably spends no more than $1 billion on similar projects (excluding defense R&D). Yet 4.5 billion ECU is small potatoes in the R&D world. The Framework Programs amount to less than 3 percent of the EC's total budget, and only about 4 percent of all public sector spending on R&D in EC countries. Overall, European collaborative research probably accounts for less than 7 percent of all R&D spending in Europe. Money does not tell the whole story, however. The Europrograms have been designed to magnify the bang for the bucks that they offer. Specific industrial sectors are targeted, and the Europrograms now probably account for around one-third of national government spending on these sectors (38.9 percent of Third Framework Program funds are spent on information technology [IT] and telecommunications, as is 42 percent of EUREKA commitments). Spending is also strictly limited to civilian R&D, whereas much national government spending in Europe is military. And European spending focuses on precompetitive research, 5 while national governments spend more both on basic research and projects closer to the marketplace. Europrograms also offer relatively long-term funding (three to five years is standard), which encourages firms by reducing the uncertainty involved, especially in big projects, and mitigates some of the risk as well. The programs address the traditionally weak European links between research universities and private industry, and they encourage small- and medium-sized enterprises (SMEs) to do R&D. Finally, the Europrograms are not only about technology and R&D. European firms traditionally operated nationally or internationally (through ties to US firms, for example), but they regarded other European firms primarily as competitors. European collaboration helps to build new linkages

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245

between these competitors, and that can lead to further, more commercial linkages, and eventually to the restructuring of an industry. Qualitatively then, the Europrograms may be more important than their relatively small size indicates. But in the end, their significance will lie in how they operate and whether they succeed. We now turn to their organization and structure.

The Framework Programs The Framework Programs started in 1985, after the first European Strategic Program in Information Technology (ESPRIT) program was successfully introduced. The Second Framework Program ran from 1987 to 1991 and the Third is scheduled for 1990-1994. The Framework Programs run on EC money, matched by the private sector. The overall level of EC funding is determined by the Council of Ministers, who must approve the Framework Program that will divide the pot between major programs. These decisions must be taken unanimously. The Ministers then adopt precise budgets for specific programs, by qualified majority. The Third Framework Program was agreed upon in 1990, after acrimonious discussion between ministers from countries that wished to see a tighter rein on program spending (e.g., Britain, the Netherlands) and others that sought faster expansion of the EC programs (France, Italy). Once the overall budget has been adopted and roughly parceled out, the programs take over. For example, ESPRIT chooses the work areas to support in IT, and an annual work program. Program officials go through elaborate consultations with experts, firms, and other interested parties. The program then issues a call for proposals on a specific technical area, and these proposals are then evaluated by Commission officials and technical experts. The call is widely publicized and usually brings a big response: during the First and Second Framework Programs only one of five proposals was funded. In practice, the technical review identifies some excellent proposals and some poor ones, along with a marginal band of possible projects. Preference now goes to projects that link universities and the private sector, involve smaller firms (SMEs), bring in partners from the poorer countries, and encourage competitors to work together. Past track records count as well. And though there have been some complaints from those whose proposals were rejected, the Commission has clearly tried to make the procedure fair. After selections are made, contract details are negotiated between the partners and the Commission, and the project receives multiyear funding (usually four to five years). One firm acts as the managing contractor and coordinates the project among firms and with the Commission. This role is

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of varying importance. Once under way, projects are monitored by the Commission, although the Commission believes that in practice participants monitor each other effectively. Still, poor projects are rarely halted, and the British in particular claim that project objectives are not specified tightly enough and that the oversight process is, partly in consequence, too weak.

The Three Industrial Framework Programs: ESPRIT, BRITE, and RACE The Third Framework Program covers the whole gamut of science and technology, from fusion to biological engineering. However, the enabling technologies program is the most important politically and industrially, and its outcome will determine the success of the whole experiment. The programs have promised to help close the technology gap. If they don't, they will vanish. So the Framework Program as a whole is tied to the success of three key subprograms: RACE, BRITE, and ESPRIT. (Although the names of the subprograms have been changed under the new Framework, most observers have retained the old subprogram names; that practice is followed here). ESPRIT ESPRIT is the oldest Framework Program, the largest, and the flagship. Total EC funding from 1984-1992 is 2.35 billion ECU, peaking at 0.465 billion ECU in 1989. This is matched 1:1 by private sector funding. ESPRIT began under the aegis of the Big 12 European IT firms,6 and they still take the lion's share of funding, although their share has fallen recently and may now be around 30 percent of the total. In 1988, ESPRIT supported 226 projects involving 526 organizations (199 universities and research institutes, 181 large companies, and 148 SMEs). The new Third Framework Program offers some change of emphasis for ESPRIT. It now stresses support for research to underpin standards and basic research, in addition to the main precompetitive R&D activities supported under ESPRIT II. The new program breaks IT into four areas: microelectronics, information processing systems and software, advanced office technology systems and peripherals, and computer-integrated manufacturing (CIM) and industrial engineering. Each area is further divided into detailed research areas. CIM, for example, has five of these, each with a working group of experts and interested parties. 7 In response to earlier criticisms, the new program strongly stresses applications and the involvement of users and SMEs. ESPRIT officials often use the Supemode project as an example of a

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successful project, and it does provide some insight into how ESPRIT projects work. This Anglo-French project aimed to produce a European parallel-processing computer using a transputer—a 32-bit microprocessor with on-chip memory and communications linkages. On the UK side, the project involved Inmos, Thom-EMI, the Royal Signals and Radar Establishment (RSRE) military lab, and the University of Southampton. French participants were two small firms—Apsis and Telmat—and the University of Grenoble. The original idea came from UK physicists at Southampton, who wanted a cheap version of the Cray supercomputer. Inmos already had the transputer. One physicist acted as a catalyst to the project by finding some other participants. And the British government encouraged Thom-EMI to join, to provide a British firm capable of commercial exploitation. French participants were initially sought simply to attract EC funds. The University of Grenoble's computer science reputation brought the first connection, and it suggested that Apsis and Telmat be included. RSRE became prime contractor and manager, and the firms were delighted to see that burden taken by a noncommercial participant. The project was funded at around 10 million ECU over three years, half of the funding coming from ESPRIT Currently, Parsys and Telmat (two small firms) are marketing Supemode computers, mainly to research establishments. The Supernode is very flexible, as processing power can be added almost indefinitely, so the unit ranges in cost from about $50,000 to several million dollars. Parsys and Telemat have sold a couple of hundred systems so far, and another British company, Meiko, has sold about the same. However, only one system even approaches supercomputer complexity (at Edinburgh University) and it is strictly experimental so far. Lots of work is now being done on parallel-processing architecture, and the latter may perhaps be a key technology over the next decade. If so, Supernode may be a basis for further commercial successes. For Supernode, ESPRIT provided funds that made the project possible. Some technological advances were made, and European firms may have gained a useful commercial edge. The project also brought together international participants who had not worked together before, and it included SMEs and universities. This is the official view of how ESPRIT should and does work. There is another view, which sees Supemode in a somewhat different light, which is discussed later.

RACE R&D in Advanced Communications Technologies for Europe (RACE) is by far the most strategic of the Framework Programs. It identifies a future path

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for the telecommunications industry in Europe, and it attempts to support the various mechanisms, projects, and tasks that must be introduced or accomplished for that vision to become a reality. Historically, European PTTs 8 have monopolized all manner of telecommunications services—in Germany, for example, it was illegal for anyone other than the PTT to join two private buildings with coaxial cable, even on private land. Technical standards were set nationally, so only national suppliers had a realistic chance to supply the PTT. Hence the creation of joint European standards would be a huge step for European telecoms. At the same time, the Commission is pushing hard for deregulation in the field.9 Together, these projects will break the cozy links between monopolist PTTs and national suppliers—so the European equipment industry faces a massive shakeout. RACE has tried to attract the PTTs to its joint standards projects partly by ensuring that some joint standard will emerge, and that those who do not participate will be shut out. It also offers a powerful positive vision of Europe linked door to door by high-capacity fiber-optic cables capable of handling services like video telephones, high-definition television (HDTV), on-line video libraries, and services for working at home—which the PTTs might be able to supply. The services will come through an integrated broadband network (IBC). IBC would boost competition in European telecommunications, and it would also provide better service for users. Skeptics, however, suggest that the demand for these advanced services may be much more limited than the Commission believes. Also, getting to IBC is very tricky technically, which lets PTTs and equipment manufacturers prevaricate. RACE is budgeted at 550 million ECU over 1987-1991, with an additional 489 million ECU over 1990-1994. The first goal is to specify the IBC network itself and identify ways to begin to set it up. RACE will then try to develop low-cost equipment and services for the IBC network in order to make IBC attractive. This accounts for most of the collaborative R&D done under RACE and absorbs 70 percent of RACE funding. Research is under way in five main technical areas: networks and switching; optical communications; advanced information processing techniques for managing traffic flows, keeping usage records, and detecting faults; customer systems and integration; and engineering aimed at making the system as user-friendly as possible. Finally, RACE aims to create tools for testing the IBC network's performance during development and in operation. This includes application pilot projects. RACE is unique. It has a defined client base, much of which is still hostile to its goals. It has an ambitious and specific technical program. And it is in principle self-extinguishing; it will wind down as the day of the IBC network finally dawns in Europe.

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Policy

BRITE/EURAM BRITE (Basic Research in Industrial Technologies for Europe) and EURAM (European Advanced Materials Program) have been amalgamated under Framework III. with a four-year budget of 748 million ECU. This is a program for advanced materials and basic industrial technology, usually in more traditional industries. The idea behind it seems sensible—to find ways of introducing cutting-edge technology into traditional or even declining industries: a form of technology transfer, designed to improve competitiveness. There are four research areas: advanced materials technologies; design methodology and quality assurance; technology for manufacturing applications; and new manufacturing techniques. Altogether, these now support 449 research projects. In 1989, 163 new projects were selected from 643 proposals, and these involve 1,021 organizations (56 percent of which are industrial). About a third of participating firms are SMEs. Most projects are relatively small, around 1.6 million ECU over 1985-1988, and most had at least six members (and at least one university). Flexibility

and

Changing

Priorities

Elaborate consultation results in projects being slow to be approved and slow to start, although participants themselves are also often to blame for that. It has also been hard to switch funding to new needs: it took a year to integrate high-temperature superconductivity into the Framework Program, for example. The Third Framework Program reflects a response to some of these criticisms. Fifteen percent of funding can be switched between broad areas without prior approval from the Council of Ministers. The number of broad areas has also shrunk from fifteen to six, so the funding covered by a single area is much greater, and funding switches within an area fall entirely within the control of the Commission. Hence Commission discretion has expanded considerably. The new program will also commit up to 10 percent of its funds to basic research—a big increase that may take time to implement. Results are also an issue. The Commission has become more sensitive to charges that the programs are driven by the interests of technologists ("technology push") rather than the demands of the marketplace ("market pull"). This difficulty may be unavoidable, as the programs are supposedly precompetitive only and hence located some distance upstream from the market. Still, the new program specifically aims to include users and SMEs in projects, and to integrate EC projects better with corporate R & D strategies.

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A n Alternative Approach: EUREKA EUREKA was launched in 1985, in response to the US Star Wars program. Closer to the market than the Framework Programs, its projects can reach prototype and even preliminary production (e.g., 10-15 units when the potential market is 1,000 units). EUREKA stresses a much less rigid approach that begins from the bottom up—participants generate projects spontaneously rather than being driven partly by Commission objectives (as are the Framework Programs). There are no calls for proposals on specific research areas, and EUREKA's secretariat is very small—seven bureaucrats in Brussels and a few more connected officials in the member countries. In fact, the EUREKA secretariat does little beyond matching participants through free access to EUREKA's data bases and the wide circulation of project proposals. It has none of the management role taken by the Commission officials under the Framework Program. Funding comes mainly from the participating firms themselves. Government funding ranges from 100 percent in some projects to zero in others: of the seventeen new projects announced in March 1987, nine had no government funding at all. National governments can contribute up to 50 percent of project costs incurred in that country—no government money crosses national borders. Governments themselves have very different levels of funding available for EUREKA. In 1989, West Germany provided the equivalent of 380 million ECU, France 220 million ECU, Britain 23 million ECU, and the Netherlands 11 million ECU. Public funding accounts for about 35 percent of total project costs in France and about 20 percent in West Germany. The criteria that EUREKA projects must meet are broad. Participants must be from at least two member states, and projects must fall within the broad EUREKA objectives: projects must offer some clear rationale for pan-European collaboration; involve the use of leading-edge technologies; and aim to achieve a significant technical advance for products, processes, or services. Most project work has to be performed within EUREKA countries, and the results should be exploited to the benefit of those countries. In sharp contrast to the Framework Programs, EUREKA consortia follow no set form, and all arrangements are negotiated between the partners. There are no rules governing the distribution of benefits from the project or contributions to it. The agreement itself remains confidential and EUREKA provides no project oversight: participants are responsible for policing the work and making any demands on government—about standards or funding, for example. Because the lengths of EUREKA projects also vary substantially, it is hard to estimate annual spending levels. EUREKA supports R&D projects close to the market, which raises the issue of government subsidies for industry. However, that is really a question

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for the national governments, and there are few signs so far that European governments see this aspect of EUREKA as a real problem. If anything, they have become more enthusiastic about the program in recent years. E U R E K A also claims to address wider problems beyond the marketplace—like medicinc and the environment. All in all, Europeans spend little time worrying that EUREKA is getting too close to the market. The HDTV project has recently attracted new key supporters. The Nokia group from Finland is now on board, while the E C ' s Council of Ministers will seek worldwide adoption of the project's HDTV standard. Still, the largest and most important E U R E K A project is JESSI (the Joint European Submicron Silicon Initiative). Currently budgeted at 3.8 billion ECU over eight years, it is E u r o p e ' s main attempt to get back into c o m m o d i t y semiconductors. JESSI grew out of the Megaproject between Siemens and Philips (already a huge project involving cross-national cooperation) and Megaproject II between SGS and Thomson. It became a full E U R E K A project in September 1986 and was approved by the E U R E K A Council of Ministers in Vienna in June 1989. JESSI offers a four-pronged approach over eight years. Forty-one percent of the total budget is committed to the technology subprogram, primarily aimed at p r o d u c i n g 64 megabytes dynamic random access m e m o r y (DRAMs). 1 0 The biggest European IT firms will lead the technology effort: Siemens will work on DRAMs, Thomson-SGS on erasable programmable m e m o r y ( E P R O M s ) , and Philips was to work on static random access memory (SRAMs) but has since dropped out. Thirteen percent of the budget will be spent on equipment for producing semiconductors. Thirty-two percent will go to applications, notably building on E u r o p e ' s existing strong position in application-specific microchips. JESSI also aims to develop tools for making "on-chip systems." And pilot programs will link J E S S I ' s new technology with potential users, in autos or consumer electronics for example, and with universities and specialist institutes. The remaining 14 percent of the budget will go to basic research, with a close eye to the increasingly tight links between basic research, development, and production in semiconductors. JESSI operates out of a small secretariat in Munich. It has no separate production and research facilities, as all its work is done at participants' labs. Recently, JESSI has begun to develop links with its US counterpart, Sematech, and after some years of pressure, IBM has finally been invited to participate. It seems that JESSI is tilting more directly against Japanese dominance of semiconductors. JESSI is one area of close cooperation between E U R E K A and the F r a m e w o r k Programs. After the June 1989 E U R E K A meetings, the E C agreed to p r o v i d e around 25 percent of the f u n d i n g f o r the first implementation stage of JESSI, through the ESPRIT II program, partly because of strong West German pressure. However, the EC has been slow to

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find the money, and it may be some years before the 25 percent share is reached. Recent

EUREKA

Developments

The June 1989 Ministerial Conference laid out a medium-term plan for EUREKA, covering 1989-1992. Three main reforms aimed to make it easier to launch EUREKA projects, improve the implementation of projects once under way, and strengthen synergies with national and other European R&D programs (however, little seems to have happened in practice, as yet). The June 1990 round of project announcements (totaling 950 million ECU) showed sharp increases for the environment (26.6 percent of new funding), robotics (27.8 percent), and transport (20.1 percent). EUREKA

and the Framework

Programs

Despite past competition, relations between the programs have eased recently even aside from the JESSI link. For example, P R O M E T H E U S is a EUREKA project, but there is also a Framework Program project to produce the maps needed for computer-assisted driving. Thirty-one of the EUREKA projects announced in June 1986 have some specific connection to a Framework project. However, this could simply mean that there is some overlap. Aside from their different relations to the marketplace, the two programs offer distinctly different approaches to intellectual property rights. Private sector firms have suggested that they prefer EUREKA's less rigid approach. And unlike the Framework Programs, EUREKA seems to be making little attempt to attract SMEs. They account for only about 20 percent of participants, although there are no data on SME shares of EUREKA funding. Overall, no coherent and institutionalized link has developed between the Europrograms, and none seems imminent.

Evaluating the Europrograms For several reasons, any evaluation now must be tentative. Precompetitive research takes time to filter through to commercial products. The programs have been running for only six years at best; as they usually support four- to five-year research projects, only a few have been completed. Nor can we know which projects firms would have paid for anyway, so the impact of government support is unclear. The evaluations themselves have also been poor. Above all, as we noted earlier, these are not simply technology programs. True, a primary focus is to close the technology gap. But aside

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from the new stress on the creation of European standards, they are also designed to help participants gain economies of scale in R&D, and to make the connections within Europe that will be the backbone of the new European economy. This cohesion effect is extremely important to the Commission—if it exists. Despite these caveats, some very tentative conclusions can still be drawn from the available data. The programs clearly help to produce new technical standards. That alone can have powerful effects on competitiveness—in telecommunications, for instance. However, claims about the technological output of the programs, their strategic character, and the "cohesion effect" need to be looked at more closely. Strategic

Programs?

The Europrograms are direct responses to perceived weaknesses in European R&D, and they seek to address these weaknesses. To that extent, they are strategic. At the sectoral level, however, a strategic program would identify sectoral R&D needs and encourage firms to meet them. In that sense, BRITE and EUREKA are not strategic at all. They make little attempt to identify specific problems or needs. Instead, they provide support for industry-led projects in a wide array of fields. RACE is highly strategic .sectorally. It represents a coherent vision of the future of European telecoms, and of the barriers blocking the implementation of an IBC network. ESPRIT falls between RACE and BRITE. It is a strategic attempt to reverse the relative decline of the European IT industry. Sectorally, though, the extent to which there is any real guidance is unclear, and the small amount of Commission funding in relation to corporate R&D spending indicates limited possibilities. Clearly, neither the Framework Programs nor EUREKA are dirigiste in the sense of much postwar European industrial policy. Commission and EUREKA officials have only carrots (funding) to offer the private sector, and dirigisme always involves some use of the stick. Nor is there any plan like those produced in France. Technological

Benefits?

The official view from DG XII and DG XIII has continued to be strongly positive. Various review boards of notables have blessed the Framework Programs and claim that economies of scale and widespread transfer of new technology have indeed resulted from them. The evidence is less definitive. The reports on BRITE I and ESPRIT I did survey participants, and French and Dutch reports have surveyed national participants on the effects of the Framework Programs (there are no surveys on EUREKA). Unfortunately, the methodology of the surveys has been

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weak, but the surveys do provide the best broad view available of participants' attitudes, and those attitudes are quite similar across surveys. The surveys show that at least among respondents, most believe that new products and applications will come out of their work within the next five years. Most respondents from the industrial sectors indicate that work in the programs has helped to improve their technology or competitive position or both. Other interviews suggest that this is probably an accurate picture. Small firms were much more positive than large ones. In many cases, European projects account for all of the R&D done by a small firm, which might not have done any R&D at all without support from the government and the ties to larger partners. In contrast, the motives of very large firms are somewhat more obscure. Siemens pointed out that it employs 20,000 researchers, of whom 75 are paid for by ESPRIT. Philips offered much the same story. For them, it seemed that the need to find a concerted response to the challenge from Japan and the United States was at least as important as the actual resources involved— although they too saw benefits in big annual subsidies for R&D. And large firms seem more often to have found that the state would support research that the firms would have paid for anyway. Sometimes it was technologists within the large firms who found the programs most helpful as a way of pursuing their own pet projects in the face of opposition from commercial managers. Evidence from the projects themselves is extremely skimpy. Supemode does have undeniable characteristics of a success: it has solved some significant technical problems; the outcome was commercially exploitable; and it has been taken up by commercial firms. It has even spawned a start-up company. Yet it may never provide a cheap supercomputer. There are still severe programming difficulties, and the start-up shows signs of commercial strain: a second round of financing fell short of the already low £ 13 million target. Other approaches to massively parallel computing may be more successful. And only one of the 400-odd machines sold so far could reasonably be called a supercomputer. That was sold to the University of Edinburgh, and one could charitably say that the jury is still out as to whether that was a sensible purchase. Other ESPRIT projects have generated commercially exploited technologies or applications too. For example, the Portable Common Tools Environment is a crucial software standard that now seems likely to be adopted worldwide. But ESPRIT officials themselves continually cite Supemode as the best example of a successful project. Technically, it seems possible to conclude that the Framework Programs helped smaller firms to do sometimes significant R&D that would not otherwise have been done, and that they have sometimes helped larger firms to agree on technical approaches to joint problems. But commercial results

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have been limited and the payoff for the large sums involved seems less than overwhelming. EUREKA's technical impact is even harder to gauge. The three big projects (JESSI, PROMETHEUS, and HDTV) are potentially very significant, but not even HDTV—the most advanced—has yet reached production. Despite recent advances, recent changes in the satellite broadcasting industry have reduced the likelihood that satellites will use HDMAC. And experts also argue that Japanese manufacturers are so good that they will be able to dominate the market even if HD-MAC does become the European or US standard. However, even if HD-MAC eventually fails to fend off Japanese competitors, the EUREKA project has made the European group a major player in HDTV in only four years, and it has at least blocked the immediate adoption of the Japanese standard worldwide. JESSI will play a key role if European firms get back to the cutting edge of advanced microelectronics. Whether they will do so is not yet known. So far, few JESSI projects have even gotten off the ground, although a number have now been approved by the JESSI board and have the appropriate funding. JESSI has been criticized for spending too much time and money on planning and not enough on action, and some commentators have suggested that JESSI is already too late to meet its objectives. Philips' recent pullout from the SRAM project is certainly a blow, partly because Philips now seems to believe that it can survive in consumer electronics without its own sources of semiconductors. That throws into question the whole strategic point of JESSI. Aside from the big three projects, EUREKA does not seem especially important. It covers relatively few projects, and fewer still with major funding. They are not strategically targeted, and they seem partly to be just another mechanism whereby national governments channel funds into selected projects—but with a fashionable European twist. EUREKA's selection procedures are clearly much weaker than those of Framework projects, and in countries with a pot of EUREKA money available (notably France), there is some tokenism—such as the signing of phantom collaborators. EUREKA's bottom-up approach may lead to vague proposals and a lack of strategic direction. That there are varied levels and types of government funding also means that the benefits of stable long-term funding found in Framework Program projects were often not available for EUREKA. Technology

Transfer

Programs?

The Framework Programs do try to support technology transfer, especially from universities to the private sector, and from large firms to small ones. The Agrain Report" stated that the programs must "fertilize the scientific humus" in Europe. BRITE probably has the most significant technology

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transfer component, as its mission is to introduce new technology into traditional industries. There is a separate EC Framework Program for technology transfer but it sees its role mainly as an information broker. T r a n s f e r occurs in several ways. Information transfers freely among consortium members, and consortia do link otherwise unlinked actors by including partners f r o m other countries or other spheres—especially academia. Intellectual property required for the project must come freely from the participants into the consortium, and results are shared equally freely. However, the E C has insisted that nonparticipants should have some right to license the results. So firms sometimes refuse to participate precisely because they would be forced to hand over critical technology. Technology transfer in E U R E K A is limited between partners and is almost nonexistent with outsiders. No single intellectual property right agreement governs all E U R E K A projects: participants each make their own deals. So E U R E K A will not produce technology transfer other than that occurring u n d e r normal commercial conditions. However, the lack of c o m p u l s o r y technology transfer is one primary reason why E U R E K A programs are more popular with the business community. The

Cohesion

Effect?

Commission officials constantly stress that the Framework Programs are an i m p o r t a n t part of E u r o p e a n integration. Interviews with n u m e r o u s participants also suggest that perhaps the programs' greatest success lies not in their technology but in the links that they have helped to build between European firms, and between firms and universities. As the ESPRIT I Report notes, "The most striking result of ESPRIT is that it has influenced several thousand scientists and engineers in information technology fields to think European." 1 2 Surveys provide similar conclusions. Although most projects involve firms that already have some sort of relationship, some new partners are found, and links to existing contacts are strengthened. About three-quarters of respondents agreed that ties to universities and research institutes helped a great deal. Still, firms found that the programs' original idea of fostering cooperation between competitors did not work very well (perhaps for obvious reasons), although cooperation with suppliers or customers was apparently more effective. Small firms seem to have more commercial motives for participating. In short, although the cohesion effect takes various forms, and m a y work in s o m e cases, the overall impact of the p r o g r a m s is unmistakable. Anecdotal evidence supports this view. Sir Geoffrey Allen of Unilever comments that C E O s from firms that were "implacable enemies" ten years ago have learned that there are advantages to limited forms of cooperation, and that in general intra-European cooperation is booming. That of course

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applies far beyond R&D as European industries restructure in their move toward 1992. But all the participants interviewed made similar points, regardless of whether or not they believed that there were great technological benefits to be had from the Europrograms.

Criticisms There has been little serious criticism of the mechanisms through which the programs are implemented, although the British, German, and Dutch governments do still have some important reservations about the choice of objectives and about the oversight. Most participants seem to view the programs as fair and reasonably efficient, although they complain about the length of time needed before a project starts. The core criticism has been that the Framework Programs are insufficiently market-driven. This thread runs through both official evaluations and unofficial comments. Yet at the same time, there are powerful political forces—located in both the British government and DG III—that insist that the Europrograms (and the Framework Programs in particular) must not go beyond precompetitive research. That makes it hard to establish better links to the market. Similarly, while critics have suggested that ESPRIT and BRITE suffer from a lack of strategic vision, the Commission faces an uncomfortable dilemma: a clearer vision would bring the programs closer to industrial policy, against which the same forces are dead set It is much too soon for any definitive judgment. So far, the Europrograms have few spectacular technical successes to show for substantial amounts of money, and they have not yet had any great impact on Europe's high-tech industries. If there have been strong positive effects, these lie in the creation of new standards, and in the stimulation of linkages within the European economy. These effects are important, but they may not justify the huge amounts of money expended. There may, however, be few alternatives. The Europrograms address problems that the United States is only now beginning to confront. European and US firms alike have faced shortening product cycles in high-tech fields at the same time that the cost of producing each generation of new products has increased to massive levels. Collaboration now seems almost unavoidable, as the recent upswing in strategic alliances suggests. Even the technical giant itself, IBM, is looking for partners to share the cost of research. Collaboration is also deeply seductive. It promises a bigger bang for the buck, and the two European governments with the strongest free-market credentials—Germany and Britain—have now firmly adopted collaborative research as a fundamental strategy. The British have since 1988 funded only collaborative civilian research; the German government spends more than

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6 0 percent of its market-oriented technology spending on collaborative research. In short, the future demands collaboration, and the Europrograms are the most advanced effort outside Japan to build a system of collaborative research. If they fail, it seems likely that governments in both Europe and the United States will have to turn to other, more interventionist industrial policies if they are to respond effectively to the Japanese challenge.

Notes 1. The current members of EUREKA are: Austria, Belgium, Denmark, the Federal Republic of Germany, Finland, France, Greece, Iceland, Ireland, Italy, Luxembourg, the Netherlands, Norway, Portugal, Spain, Sweden, Switzerland, the United Kingdom, Turkey, and the European Communities, represented by the Commission of the EC. 2. To make this discussion clearer, the Framework Programs and EUREKA will collectively be called the Europrograms. 3. For a particularly forceful exposition of these arguments, in the context of Project 1992, see Michael Porter, "European Companies After 1992: Don't Collaborate, Compete," The Economist (June 9, 1990), pp. 17-19. 4. 1 ECU = $1.4, as of February 6, 1991. 5. EC Commission officials primarily define precompetitive research as research that competitors will agree to do jointly. US observers with a stronger antitrust tradition tend to prefer cooperation that is further upstream from the market. 6. Bull, Thomson, CGE (France); Siemens, Nixdorf, AEG (Germany); GEC, ICL, Plessey (UK); Olivetti, SGS, STET (Italy); Philips (Netherlands). Only Siemens, Thomson, Bull, AEG, GEC, Olivetti, and Philips are left as independent operators. 7. CIM's detailed research areas are architecture and communication protocols; systems design and implementation, including factory layout and ergonomics; CAD/CAE (computer-aided engineering) including design for manufacturability; realtime controls; and robotics and shop-floor systems. 8. Europe's primary telecommunications operators take various forms; some are part of national postal services, others are independent public sector entities. In Britain, British Telecom is a private sector body. For convenience, the primary network operator is called a PTT. 9. The Commission of the EC has attempted to take matters directly into its own hands, implementing its "Green Paper on the Development of the Common Market for Telecommunications Services and Equipment" (COM[1987]) without Council of Ministers approval, using Article 85 of the Treaty of Rome. Its actions have been challenged by national governments in the European Court of Justice. 10. The current generation of DRAMs is 1 megabit (holding 1 million bits of information); 4M DRAMs are now coming on stream. SRAM: static random access memory. EPROM: erasable programmable memory. 11. The Agrain Report evaluated the Second Framework Program. It has not been published. 12. ESPRIT I Report, p. 20.

18 Environmental Policy Paul Hagland

The period 1 9 8 9 - 1 9 9 0 represents a time of significant development in the area of environmental policy within the European Community. Although institutional development and consolidation of environmental policy as a distinct policy arena showed marked progress, questions about the efficacy of EC policy in this area continued to be raised. In general, it will be argued that the evolution of E C environmental policy reveals the beginning of a gradual transformation of the institutional and political contcxt in which such policy is made. But if EC environmental policy has developed considerably in the past two years, it remains weak relative to other EC policies as well as in comparison with the environmental policies of its "greener" member states. A number of factors that have contributed to the recent enhancement of EC environmental policy include the increasingly high profile of ecological issues on the political agenda of the member states, the emergence of Green parties and the growing strength of environmental organizations at the national and (more recently) Community levels, and the increasing legal and political basis for environmental policy within E C institutions. Correspondingly, factors inhibiting policy development in this area include the great divergence of approach taken by the member states to environmental policy at the national and Community levels, and the considerable interdependence o f environmental policy with other policies at both levels.

Developments in the Physical Ecology of the EC's Environmental Policy The Physical

Ecology

of the EC

Certainly, the continued degradation of the European ecology provided much of the impetus for the development of policy in this area. Acid rain, for

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example, has had an enormous impact on the viability of life and human endeavor in Europe. Acid rain has damaged 77,000 square miles of European forestland (an area roughly equivalent to the United Kingdom in size) and is responsible for $1 billion in damage to crops each year in the EC, and $0.5 billion in corrosion of buildings. 1 And, as a result of the "greenhouse effect," temperatures in Paris are projected to increase by as much as two degrees Celsius in the summer and five in the winter and, for Edinburgh, four degrees in the summer and eight in the winter. 2 Yet, even with stricter emissions standards and a projected decline in total emissions of atmospheric pollutants from most member states, the EC countries continue to produce over six million tons of municipal and industrial waste every day, 90 percent of which is landfilled, which in tum produces additional groundwater pollution. The ultimate impact of all this degradation on the environment and human health is not known and has hardly even begun to be estimated. Even the exact cost of pollution and other forms of ecological degradation to the EC member states cannot be calculated precisely. Besides direct expenditure on pollution abatement, cleanup, and so on, environmental regulation represents an additional cost, which in the EC currently is estimated at anywhere from 50 to 100 billion ECU annually. 3 But even these figures may be deceptively low. A recent study suggests that current accounting procedures utilized by government and business may significantly underestimate the actual cost of environmental damage. Traditional accounting systems and indicators (such as GNP) make "no distinction between autonomous (real) and defensive (compensatory) expenditure," so "economic growth registered by the accounts in part is nothing but a compensation for damage done to the environment." 4 Public Opinion

and Green

Politics

Of course, it is not merely ecological degradation itself that has prompted action at the national and Community levels but, rather, a growing awareness of the environmental situation. Eurobarometer found recently that 72 percent of EC citizens polled said that pollution was an "urgent and immediate" problem. And a recent survey of public opinion in the UK—not usually thought of as one of the "greener" member states—revealed that 81 percent believed that "government should give a much higher priority to protecting the environment"; even among Conservative party supporters, 77 percent agreed with that position. 5 In tum, this "greening" of public opinion has begun to produce a transformation of the political arena. In the June 1989 elections to the European Parliament (EP), Green parties doubled their contingent, increasing their percentage of the popular vote over the 1984 European election in every

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Policy

member state in which they ran a separate list of candidates. In the Federal Republic of Germany (FRG), Die Grünen increased their vote modestly from 8.2 to 8.4 percent. In France, Les Verts surged from 3.4 to 10.6 percent. And in the UK, where the Greens were virtually unknown previously, they went from 0.5 to 14.5 percent, the highest percentage of any Green party in any nationwide election in Europe. However, the lack of proportional representation in the UK meant that the British Greens obtained not a single seat in the European Parliament. Although Green members of the European Parliament (MEPs) have not yet had a discernible impact on EC environmental policy, the slight increase in the EP's powers under the Single European Act (SEA) suggests that this influence may increase in the future. A more direct contribution to the "greening" of Community institutions has been made by environmental organizations, which recently have begun lobbying Community institutions in a more aggressive and effective manner. Much lobbying takes place under the umbrella of the European Environment Bureau (EEB), which represents 120 environmental groups with a combined membership of 20 million EC citizens. Intensive lobbying by Greenpeace International, one of the EEB's largest and most influential member organizations, was partly responsible for the adoption of a Council directive, approved in July 1990 after much acrimony, that details mandatory auto exhaust emissions. Significantly, as reported in the Financial Times, "The tougher regime represents a triumph for the environmental lobby, and was the first occasion on which the European Parliament was able to have a crucial impact on future European legislation." 6 Although this development represents only one such event in which environmental organizations, in alliance with a sympathetic EP, have determined an important political outcome, it provides some evidence for the hypothesis of a gradual transformation of the political context in which EC environmental policy is made. Environmental

Policy as a Distinct

Policy

Arena

Environmental policy might seem especially amenable to action at the Community level, as air and water pollution and other ecological phenomena by their very nature are "transboundary phenomena." But the genesis of the Community as a customs union cum single market, and the corresponding emphasis on more purely economic development, has severely disadvantaged environmental policy as a distinct policy arena within the framework of Community institutions. 7 In addition, the initially narrow focus on reactive treatment of the effects of industrial pollution has hampered the development of a more holistic Community policy. The original 1957 Treaty of Rome makes no explicit reference to environmental policy whatsoever. Even after the 1972 Paris summit of EC Heads of State and Government, which

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initiated the EC's First Action Programme on the Environment, legal opinion was still divided on Community competence in this area. 8 Only with the SEA did the EC finally obtain an explicit legal basis for environmental policymaking. Even then, the EP lambasted the environmental provisions of the SEA as being relatively weak, and EC environmental policy itself as poorly defined. And while the Parliament's preliminary draft act on European union had explicitly named environmental protection as one of the goals of European union, the Council excised this passage from the final text, causing one observer to wonder whether environmental policy would "continue to be treated as the poor relation" of the Community's economic policies. 9

The Evolution of EC Environmental Policy Despite the controversy surrounding the issue of legal competence, policy has developed considerably over the past two decades and has produced over 160 legislative texts since the Paris summit of 1972. Much of that legislation has been developed in the context of goals articulated in four different Environmental Action Programs (EAPs). However, as a number of analysts have noted, the EC must rely on the member states to implement policy, and the Commission has minimal enforcement powers. Each of the EAPs has a somewhat different emphasis, and the Fourth (1987-1992), approved in the Council resolution (87/C 328/01) of October 19, 1987 (OJ C 70), emphasizes different conceptual approaches to pollution control and prevention (e.g., multimedia, substance-directed, pollution source-directed) as well as control and practical implementation of EC directives. Some analysts have seen the Fourth EAP as more substantive and more holistic in approach, with a greater emphasis on environmental management as opposed to pollution control. 10 Unfortunately, as with its predecessors, the Fourth EAP has spawned a welter of legislation that is hardly more coherent and only slightly more of a program in any meaningful sense. The same lack of focus, depth, and comprehensiveness for which previous EAPs have been criticized seems to characterize the present one, and there seems only some advance since 1987, when EC environmental policy was described as "no more than a kind of regulatory patchwork covering at most a fifth of the relevant problem areas." Environmentalists also argue that it is its ultimate efficacy by which EC environmental policy should be judged: "Despite all these European legal texts, the degradation of the environment and the disappearance of species of plants and animals in Europe continues at an ever faster pace. . . . These questions have to do with the [lack of] efficacy of European environment policy in the past, and thus with its credibility in the future." 11

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263

Folicy

Competing Policy Goals at Community

Level

O n e o f the m a i n obstacles to the development o f a m o r e

effective

environmental policy is competition among policy goals at the Community level, and within the Commission itself. On the one hand, the S E A ' s proposal for the integration o f environmental policy with other E C policies (e.g., agricultural, economic, industrial, and transportation) has been endorsed by C o m m i s s i o n president Jacques Delors, who termed it a fundamental feature o f European integration. 1 2 In a May 1989 address to a European Environmental Entente colloquium, Delors argued that environmental policy constituted an integral part o f the completion o f the internal market and a force for integration in its own right. On the other hand, the proposal by Ripa di M e a n a for intensified procedures for environmental policy implementation by the m e m b e r states apparently encountered opposition from Delors, who has begun to question the need for extremely detailed legislation and is concerned about a possible backlash by the m e m b e r states. D e l o r s ' s paramount concern, European monetary union, has made him cautious about other policy developments that might complicate attainment o f this objective. 1 3 T h e continuing dominance o f the common agricultural policy ( C A P ) in the calculation o f E C policymakers has complicated matters further. 1 4 D e s p i t e the e v i d e n c e o f the contribution

o f C A P to

environmental

degradation, and protest from the E E B and other environmental organizations, the extraordinary importance o f the C A P to E C institutions and the member states makes any challenge along environmental lines politically difficult. 1 5

The Member

States

In addition to sectoral competition, E C environmental policy has been inhibited by intense disagreement among m e m b e r states over its scope, content, and direction as well as the degree o f harmonization necessary among the E C and its m e m b e r states. This lack o f accord in tum is rooted at least partly in the great variance among member states in the extent and quality o f their national environmental policies, which raises the possibility o f the emergence o f a " t w o - or three-tier Community" with regard to environmental legislation. In part, this variance is based on a clear differentiation along national lines in their attitudes to the environment. As one environmental p s y c h o l o g i s t has found, " W h e r e a s G e r m a n [survey respondents] were primarily irritated by . . . air, water, and noise pollution—the Italian[s] and G r e e k [ s ] were worried by . . . land-use problems, such as landscape protection, loss o f good farmland and insufficient access to open s p a c e . " 1 6 Implementation o f E C environmental policy is further complicated by the extraordinary complexity o f environmental p o l i c y m a k i n g in many m e m b e r states, and the considerable differences across m e m b e r states in institutional structure, style o f policy implementation, and substance and

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scope of policy. For example, in the F R G , environmental policy is one domain in which the federal government and the Länder share competence, and the necessity o f compromise between and among these parties has been reinforced by the presence of Länder observers at Council meetings and Land offices in Brussels since 1985. 1 7 In the summer o f 1990, the F R G began implementing a program requiring industry responsibility for a "cradle-to-grave" approach to packaging material (and one for plastic waste), an initiative that forestalled Commission proceedings against the F R G ' s bottle system, which it argued was an unfair barrier to trade. One respect in which F R G policy has pioneered the way for developments at the Community level is in the West German environmental labeling scheme. From 1978 to 1988, the F R G environment minister awarded " B l u e Angel" labels to over 3 , 1 0 0 products in fifty-six product categories. 1 8 The E C is now using the West German scheme as a model for future action; a possible Community system was outlined in a proposal by the Commission in mid-1990. The F R G generally has been one of the strongest supporters of new E C environmental legislation among the member states; its efforts are now being complicated by the reunification of the two German states, however. The ecological disaster in what was East Germany has prompted an enormous aid program by the F R G (including DM 300 billion [$180 billion] alone for air pollution abatement equipment) 1 9 and E C consideration o f a large-scale package of " g r e e n " aid. All this undoubtedly will have an impact on financing of E C environmental policy generally. In France, meanwhile, the complex pyramidal structure headed by the environment ministry is being completely overhauled by Brice Lalonde (former head of the Ecology party and, since 1989, environment minister). The ministry's budget of French francs (FF) 803 million ( $ 1 4 9 million) for 1991 represents an increase of 15 percent over 1990, and the French government's overall fiscal commitment to the environment constitutes an increase of F F 1.2 billion, or 4 0 percent. The proportion of gross domestic product (GDP) devoted to environmental policy is projected to increase from 1.3 percent of G D P in 1990 to 1.9 percent by 2 0 0 0 . 2 0 The institutional reforms and budget increases are part of a medium-term national "Green Plan," the aim of which is to overhaul and modernize French environmental policy. 2 1 Y e t France's conversion to "greenery" has not been without temporary reversals. For example, a compromise E C agreement on new emissions limits for small cars was nearly scuttled when in June 1989 the French government withdrew support following lobbying from Peugeot. Only in November 1989, after intense pressure from other member states, did France revert to its previous position. T w o o f the most certifiably "green" member states, Denmark and the Netherlands, offer hints about the future direction of E C environmental pol-

Environmental

Policy

265

icy. Denmark's Ministry of the Environment has not one but five specialized national agencies to administer national environmental policy. And Denmark, at the European Council meeting in Strasbourg in December 1989, pushed for increased powers for E C institutions in the area of environmental policy. However, even clean, "green" Denmark has been caught red-handed on occasion. Following publicity by Greenpeace in summer 1989, Denmark agreed, in order "to protect Denmark's international reputation," to take back 4 3 0 tons of toxic waste that it had planned to dump in Brazil. The Dutch government's new National Environmental Plan (NEP), adopted in the fall of 1989, represents possibly the most rigorous program of environmental protection in any member state. The Dutch plan requires a 7 0 percent reduction in all forms of pollution by 2 0 1 0 and a 75 percent reduction in certain emissions by industry, as well as the closing of over 7 , 0 0 0 toxic waste sites. Scheduled for complete implementation by 1994, the NEP is estimated at a cost of F1 15 billion per year, and the impact is expected to be greatest on the chemical industry, oil refineries, and electric utilities. The total cost by the year 2 0 1 0 could come to 3 - 3 . 5 percent of GNP. 2 2 Even so, some environmental groups have questioned whether the plan will be able to attain its goals; these questions were reinforced by the fall o f the Dutch government over the issue of financing. With the extraordinary divergence among member states over environmental policy at the national and Community levels, it is perhaps not surprising that the record of compliance with E C environmental legislation also shows considerable variance. What is startling, however, is the fact that, despite 160 directives currently in force, the Commission is unable to cite a single directive that has been applied by all member states. The Commission's first annual report on member state compliance with E C environmental legislation, released in February 1990, is sobering reading for any policymaker sanguine about the record of implementation by the member states. Instances of non-notification, partial compliance, or incorrect application total 3 6 2 for all member states. 2 3 One may not be especially surprised that the worst offenders include Spain (a total of 51 infringements), Italy (40), and Greece (45), or that the UK (31) is in the same generally high range, but the relatively high rate of noncompliance by France (41), the F R G (29), and especially Belgium (47) is rather startling. Only Denmark (5) has a good record among the Twelve. The pattern o f legal proceedings by the C o m m i s s i o n against the m e m b e r states c l o s e l y parallels that o f infringements. The howls o f protest from member state governments, who felt the report was misleading, demonstrates clearly their growing sensitivity to environmental issues. As a result of the high rate of noncompliance by member states, Ripa di Meana has called for new structures to ensure faster compliance and an environmental fund, similar to the Social and Regional Funds, to help member states defray the costs involved with compliance.

266

Selected

Community

Policies

EC Environmental Action in 1989-1990 Perhaps the single most important development during 1989-1990 was the establishment of the European Environmental Agency (EEA), under the Council regulation (EEC/1210/90) of May 7, 1990 (OJ No. L 120/1, May 11, 1990). The establishment of the EEA deserves special prominence, not for what it has already achieved, but for what it potentially might become. It is significant that the EEA is not intended to become a kind of European equivalent of the US Environmental Protection Agency (EPA), and it has been given no enforcement mechanisms. The E E A ' s main function is intended to be informational, with the EEA at the center of a planned network including equivalent institutions in the member states. But even from its inception, the EEA has been a source of considerable rancor. Spain has moved aggressively to try to limit the E E A to d a t a - g a t h e r i n g functions. T h e E C environment ministers have been divided not only on the question of the E E A ' s role, but also on its location, for which all of the member states (except Luxembourg) have been vying; as a result, they have been unable even to designate a site for the EEA. More generally, however, at its June 1990 meeting in Dublin the European Council urged the intergovernmental conference on political union to consider extension of majority voting to environmental issues. And the environment ministers of the Twelve (the "Environment Council"), meeting with the E C commissioner for the environment at the Dublin summit, reached agreement on a number of important new additions to the corpus of EC legislative action. The total body of EC action (directives, decisions, and regulations, Commission initiatives, proposals, and communications) in the period 1989-1990 is quite considerable compared to that of any previous twoyear period, and it includes the following: 1.

2.

3.

The Council regulation (428/89/EEC) of February 20, 1989 (OJ No. L 050, February 22, 1989, p. 1), concerning the export of certain chemical products. T h e Commission recommendation (89/349/EEC) of April 13, 1989. The Commission recommended to aerosol manufacturers in the Community that they seek to limit the use of chlorofluorocarbons ( C F C s ) in aerosols; that they reduce the use of fully halogenated CFCs for the filling of aerosols by at least 90 percent compared with 1976 levels; and that, by no later than M a y 27, 1990, they label aerosol cans containing CFCs as, for example, "Contains CFC 15, which damages ozone." There were additional r e c o m m e n d a t i o n s f o r the Federation of European Aerosol Associations. The Council decision (89/367/EEC) of May 29, 1989, setting up a

Environmental

267

Policy

standing forestry committee. This was the first attempt by the E C to directly address issues o f forestry policy. 4.

T h e Council Directive ( 8 9 / 3 6 9 / E E C ) o f June 8, 1 9 8 9 ( O J No. L 163, June 14, 1 9 8 9 , pp. 3 2 - 3 6 ) , on the prevention o f air pollution from new municipal waste incineration plants. T h e directive set new emission limit values for such plants and required m e m b e r state compliance with the directive before December 1, 1990.

5.

The

C o u n c i l directive ( 8 9 / 5 6 9 / E E C )

o f June 21,

1989,

on

procedures for harmonizing the programs for the reduction and eventual elimination o f pollution caused by waste from the titanium dioxide industry. 6.

T h e Council decision o f June 2 3 , 1989 ( O J No. C 155/11, June 23,

1989),

adopting

a specific

research

and

technological

development program in the field o f marine science and technology (MAST). 7.

T h e Commission decision ( 8 9 / 4 1 9 / E E C ) o f July 1, 1 9 8 9 ( O J No. L 1 9 2 / 3 7 - 3 8 , July 7, 1989). T h e decision allocated import quotas for chlorofluorocarbons for the period July 1, 1 9 8 9 , to June 3 0 , 1990.

8.

T h e Council directive ( 8 9 / 4 2 9 / E E C ) o f June 2 1 , 1 9 8 9 , on the reduction

of

air pollution

from

existing

municipal

waste

incineration plants ( O J No. L 2 0 3 / 5 0 - 5 4 , July 15, 1989). Among other things, this directive set new emission limit values on existing municipal waste incineration plants as o f D e c e m b e r 1, 1995. 9.

T h e Commission communication on a Community strategy for the c o n s e r v a t i o n o f tropical forests (Information M e m o , July 2 7 , 1989). F o r the first time, the E C began consideration o f possible Community action on the preservation o f tropical forests, in the form o f an extensive report by the Commission on the problem.

10.

T h e Commission regulation ( 2 4 9 6 / 8 9 / E E C ) o f August 2, 1 9 8 9 , on a prohibition on importing raw and worked ivory derived from the African elephant into the Community.

11.

A C o m m i s s i o n adoption o f a proposal on waste management ( I n f o r m a t i o n M e m o , S e p t e m b e r 13, 1 9 8 9 ) . T h e

Commission

adopted a communication to the Council and the Parliament on a Community strategy for waste management. 12.

A C o m m i s s i o n adoption o f a proposal on municipal waste water treatment

(Information

Memo,

October

31,

1989).

The

C o m m i s s i o n adopted a proposal for a directive that would set minimum requirements for the treatment o f municipal waste water, which includes secondary (biological) treatment as a requirement as a minimum level o f treatment and also specifies fequirements for national programs for its implementation.

268

Selected

13.

Community

Policies

A Commission initiative on EC regional policy (Information Memo, November 22, 1989). The Commission adopted indicative financial packages for an initial series of Community regional policy initiatives, including one to promote conversion to alternative industries in coal-mining areas (RECHAR); one to support the disposal and treatment of urban sewage, focusing on Mediterranean coastal areas; one to finance research centers and university laboratories and to promote direct links between research establishments and businesses (STRIDE); one to finance various cooperation projects between frontier regions involving infrastructure, energy supplies, and environmental protection (cross-frontier cooperation); and one to improve the facilities of peripheral regions and their ability to deal with natural disasters. Funding for the period 1989— 1993 was set at 2,100 million ECU (MECU). 14. A Commission decision on radioactivity (Information Memo, December 20, 1989). The Commission decided unilaterally, after more than twenty years since their suspension, to resume inspections of facilities for the monitoring of radioactivity. This prerogative, explicitly granted to the Commission under Article 35 of the Euratom Treaty, will be exercised in order to improve radiation protection techniques and thus help reduce exposure. 15. The Council decision of June 7, 1990, on a hazardous waste disposal plan. 24 EC environment ministers agreed to accept the principle that member states should dispose of all their own hazardous waste and avoid export to other member states and third countries, but they did not set a date for member state selfsufficiency in this area. The compromise commits member states to "take steps" to make the EC as a whole and individual countries self-sufficient. In addition, agreement was made in principle to measures to make batteries safer and establish rules for their safe disposal, with implementation set for 1993. Ministers also agreed on the establishment of a special fund to help developing countries eliminate CFCs. 16. A Council directive on auto exhaust emissions. 25 The directive introduced mandatory standards for exhaust emissions, requiring sophisticated, regulated, three-way catalysts on all new models from July 1992 and on all new autos from January 1993. In addition, the directive allowed member states to introduce tax incentives for up to 85 percent of the cost of additional pollutioncontrol equipment. Based on an improved test cycle that represents typical and more realistic driving conditions in Community countries, the legislation essentially brought EC standards into conformity with tougher US standards (which themselves are expected to be raised in 1993).

Environmental

17.

Policy

269

Finally, the Commission produced a green paper on the urban environment, noting that 80 percent of EC citizens live in urban areas. 26 Ripa di Meana admitted, though, that the brief "contains no operational measures," but promised that these would be forthcoming following consultations.

EC Involvement in International Cooperation on the Environment During 1989-1990, the EC also participated in numerous ventures in international cooperation on the environment: 1. An agreement by the EC and the FRG with the Republic of Austria (OJ No. C 98.11) on cooperation on the management of water resources in the Danube Basin. 2. A decision by the Environment Council on March 2, 1989, to ban production and use of CFCs in the Community until the year 2000, leading to the EC's participation in renegotiation of the Montreal Protocol (originally signed on September 16, 1987).27 3. EC participation in the Action for a Common Future conference in Bergen, Norway, May 8-16. The thirty-four-nation Bergen conference accepted the principle of "sustainable development" as part of a joint Agenda for Action. 4. EC participation, through the European Investment Bank (EIB), in a joint Environment Program for the Mediterranean with the World Bank. The new phase of the program includes a multiyear Mediterranean Environmental Technical Assistance Program (METAP). 5. EC participation in the Intergovernmental Panel on Climate Change, meeting in Geneva under the auspices of the United Nations. 28 6. EC agreement in principle to ban all toxic waste exports to the sixtysix African, Caribbean, and Pacific (ACP) nations. ACP countries expressed some satisfaction with the tentative agreement that was reached in talks in July 1989 preceding the negotiations over the next Lomé Convention between the EC and ACP countries. 7. The Council decision (89/557/EEC) of October 10, 1989, in which the EC concluded a cooperation agreement with Norway on environmental research and development. 8. A Commission request to the European Institute for Water to organize an intensive training course for water purification plant managers from the Arab Mediterranean states (held in Egypt in November 1989). 9. Participation of EC environment ministers in a conference on North Sea pollution, held in the Hague in March 1990.

270

Selected

Community

Policies

It may be worthwhile to mention a few salient features of the three most important items in this category. First, the fifty-nation conference on climate change in June 1990 opened the way for negotiations on an international global warming convention at a meeting in Geneva in November 1990. But the failure of EC environment ministers in June to agree to action on curbing global w a r m i n g , including a single date for stabilizing e m i s s i o n s , d i s a p p o i n t e d E C C o m m i s s i o n r e p r e s e n t a t i v e s and e n v i r o n m e n t a l organizations and was said to have weakened the EC position in November. 2 9 With reference to the Montreal Protocol, one observer cited it as " a n example of an international agreement fixing conservative standards of environmental protection which are obsolete before or shortly after their adoption" and attributed this to economic interests within the member states and their ability to weaken the Commission's negotiating position. And with regard to the North Sea conference, that ministers were able to cobble together a limited package of measures, according to one observer, they "avoided the more difficult issue of implementing and monitoring the reductions." 3 0 An environmental group called Save Our Seas (SOS) described the final declaration as "very disappointing," while some participants speculated that stinging criticism of the UK simply deflected attention from the activities of G e r m a n , French, Dutch, and Belgian c o m p a n i e s in contributing to the pollution of the North Sea.

Conclusions: The Future of EC Environmental Policy A number of important trends have been noted here, particularly the rise of environmental policy to the top of the political agendas of the member states and the gradual "greening" of Community institutions. But even though environmental policy has become more high profile recently, the dominant color in the EC palette still looks less like a robust forest green than a rather pale chartreuse. In rendering a verdict on EC environmental policy to date, one cannot help but think of the comments of Michael Scoullos, EEB president, on the conclusion to the October 1989 conference on the E C ' s Mediterranean Action Plan: despite good intentions, there was, he observed, "an immense g a p " between declarations and results, which had induced widespread skepticism. It is difficult to say at this point what the ultimate impact of the larger integrative project of the Community will be on EC environmental policy and its "integration" into the core policy framework of EC institutions. What is not in doubt is that ecological degradation will continue, and likely accelerate; that continued divergence of member states' policies will reinforce the fundamental weakness and incoherence of EC environmental policy at the

Environmental

Policy

271

Community level; and finally and most definitely, that the political context in which EC environmental policy is made will become more complex.

Notes 1.John Elkington, Tom Burke, and Julia Hailes, Green Pages: The Business of Saving the World (London: Routledge, 1988), p. 191. 2. David Kemp, Global Environmental Issues (London: Routledge, 1990). 3. Leigh Bruce, "How Green is Your Company?" International Management (January 1989), p. 25. 4. Christian Leipert and Udo Ernst Simonis, "Environmental Damage— Environmental Expenditures," International Journal of Social Economics 15 (1988), pp. 37-52. 5. "How They Voted," The Economist (June 24, 1989), p. 46. 6. Financial Times (July 27, 1990), p. II-2. 7. Juliet Lodge, "Environment: Towards a Clean Blue-Green EC?" in Juliet Lodge, ed., The European Community and the Challenge of the Future (London: Pinter, 1990). 8. Ludwig Kraemer, "Enforcement of Community Legislation on the Environment," RSA Journal (March 1989), pp. 243-248. See also Eberhard Grabitz and Christian Zacker, "Scope for Action by the EC Member States," Common Market Law Review 26 (1989), pp. 423-447. 9. Pascale Kromarek, "The SEA and the Environment," European Environment Review 1 (October 1986), pp. 10-12. 10. Leigh Hancher, "Energy and the Environment: Striking a Balance?" Common Market Law Review 26 (1989), pp. 475-512. 11. Emst Klatte, "The Past and Future of European Environmental Policy," European Environment Review 1 (October 1986), p. 32. 12. EIU European Trends No. 3 (1989), pp. 30, 33. 13. "Slower Progress Toward a Greener Europe," Business Europe (February 23, 1990), pp. 4 - 5 . 14. W. R. Sheate and R. B. Macrory, "Agriculture and the EC Environmental Assessment Directive," Journal of Common Market Studies 28 (September 1989), pp. 68-81. 15. "EEB Outlines Changes to CAP," European Environment Review 1 (October 1986). 16. Nicholas J. Watts, "Environmental Complaint and Concern in the European Community," in Environmental Policy, Assessment and Communication, David Canter et al., eds., (London: Gower, 1988) pp. 55-74, esp. p. 68. 17. Simon Bulmer and William Paterson, The FRG and the European Community (London: Allen & Unwin, 1987). 18. "Europe's Eco-Labeling Initiatives," Business Europe (May 11, 1990), p. 2. 19. "Germany Heads for Green Union," Business Europe (May 11, 1990), pp. 1-2. 20. EIU European Trends No. 1 (1990), pp. 35-36. 21. "France Plans New Green Initiative," Business Europe (March 30, 1990), pp. 1-2. 22. EIU European Trends No. 4 (1989), pp. 31-32. 23. "Monitoring the Implementation of Community Law on the Environment," Information Memo (February 8, 1990), pp. 1-4.

272

Selected

24. Financial Times (June 8, 1990), p. 7. 25. Ibid. (July 27, 1990), p. II-2. 26. "Greening the Urban Environment," Business

Community

Policies

Europe (June 15, 1990),

p. 4. 27. Markus Jachtenfuchs, "The European Community and the Protection of the Ozone Layer," Journal of Common Market Studies 28 (March 1990), pp. 261277. 28. Financial Times (June 9, 1990), p. 3. 29. Ibid. 30. "North Sea Conference: Rhetoric or Reality?" Business Europe (March 16, 1990), pp. 1 - 2 .

19 Education and Training Policy Glenda G. Rosenthal

National education and training policies affect almost every European household. Yet EC-wide policies in these areas have been introduced only recently and have been fraught with difficulties. In particular, budgetary constraints and concern about loss of national sovereignty for many years put the brakes on joint action. It was only the launching of the 1992 initiative to create a single internal market with its attendant concerns to establish a " P e o p l e ' s Europe" that prompted a sustained effort, starting in 1985, to implement a European education and professional training policy. Measures in the fields o f student exchange, scientific and vocational training, and language instruction all now form part of the endeavor to create a "European cultural area" corresponding to the "European economic space" proposed for Western Europe. T o meet the challenge o f preparing for a p o s t - 1 9 9 2 Europe in which technological and e c o n o m i c progress intensify the interplay between culture and the economy, the European Commission drew up a set o f guidelines for education for the period 1 9 8 9 - 1 9 9 2 that were approved by the Community's education ministers at their October 6, 1989, meeting. T h e s e guidelines were designed, as the ministers emphasized, to promote a multicultural Europe characterized by mobility and training for a l l — a community of skills open to the world. Such a community would be brought about by increased contact and cooperation while maintaining respect for the diversity o f educational traditions in the member countries. This chapter focuses on four specific areas o f the C o m m u n i t y ' s education and training program that saw significant development in 1 9 8 9 - 1 9 9 0 : E R A S M U S , the European Community Action S c h e m e for the Mobility o f University Students; C O M E T T , the Community Program for Education and Training in Technology; " Y e s (Youth Exchange Scheme) for Europe"; and L I N G U A , the Language and Training Program.

273

274

Selected

Community

Policies

ERASMUS The ERASMUS program, adopted on June 15, 1987, after long and, at times, bitter negotiations, is a four-pronged action designed to encourage student mobility through (1) financial support to universities for interuniversity cooperation programs (ICPs); (2) mobility grants to students; (3) grants to staff in higher education for study and teaching visits; and (4) complementary grants for higher education cooperation activities. With over six million students and 3,600 establishments of higher education in the twelve member countries of the Community, it is not surprising that one of the corollaries of the 1992 initiative to establish a single internal market has been an intensification of interest in the Community's youth. In an increasingly interdependent Community, it was pointed out, there is an urgent need for persons capable of communicating and cooperating with partners in other countries in order to promote better understanding of the economic and social structures of their neighbors. The program's advocates claimed that to acknowledge the need for greater cooperation between European partners in an increasingly competitive world would be one of the best ways of ensuring that future generations of decisionmakers would regard joint ventures with other Community countries as a "natural and positive line of action rather than a potential source of risks and dangers." 1 For such an ambitious goal, the ERASMUS program was endowed with only a very small budget of 85 million ECU for the first three years (July 1987 to June 1990)—appreciably smaller than the 175 million originally proposed by the EC Commission. Ten million ECU were allocated for the first year, 30 million for the second, and 45 million for the third, paltry sums indeed to increase student mobility from well below 1 percent to the 10 percent targeted by the program by 1992. It also explains why, with an actual budget of 52.5 million ECU (an additional 7.5 million ECU was made available by the European Parliament), only 43 percent of the total of the sums requested by successful applicants was awarded in academic year 19891990. Preceding a breakdown of the 1989-1990 results for the ERASMUS program is the following brief survey of the range of support provided: 1. Funds have been made available to the inter-university cooperation programs (ICPs) to develop a European university cooperation network in which participating institutions obtain financial assistance for planning, preparation, implementation, and monitoring of programs providing for student and teacher exchanges, joint teaching arrangements, and joint curriculum development. 2. Student mobility grants are awarded for at least one term of study in another EC member state. The grants are intended to cover the supplementary costs entailed such as travel, linguistic preparation,

Education

and Training

Policy

275

and possible higher living costs in the host country. To be eligible for these grants, students must receive academic recognition from their home university. 3. ERASMUS visit grants are awarded to teachers and administrators in higher education establishments on an individual basis to go on short study or teaching visits in other countries of the European Community. 4. ERASMUS also supports a cluster of other higher education cooperation activities within the EC. These include the European Community Course Credit Transfer System (ECTS), an experimental pilot scheme for the multilateral transfer of course credits; the NARIC (National Academic Recognition Information Centers) network, which provides information in each member state about the academic recognition of diplomas and periods of study; grants to university associations and consortia operating on a European basis; and financing of publications. The EC Commission annual report of the ERASMUS program for 1989 provides us with the bulk of the information that follows. 2 Instead of emphasis being placed on the mass of statistical data presented in the report, particular emphasis is placed on those aspects that have broad implications for the future development of the European Community. Foremost among these is the growing incorporation of inter-university cooperation at the European level into the medium- and long-term development strategies of the higher education sector. ERASMUS, the report indicates, "is acting as an important catalyst of academic change to meet the new aspirations of European youth entering higher education." The objectives of the program are being "expressed increasingly in structural forms, through transformed curricula, and innovative modes of assessment, validation and recognition." In the area of student mobility, there were marked increases over the previous year: from 12,000 students in 1988-1989 to an estimated 28,000 for the academic year 1989-1990, while the number of inter-university cooperation programs rose from 1,091 to 1,507 in the same period. But even with this ample testimony to the success of ERASMUS, the overall level of mobility was still less than 2 percent of the total EC student population and still far off course from the Commission's stated objective of 10 percent by 1992. The geographic distribution of beneficiaries of both ICP and student mobility grants showed some significant changes during the period under consideration. Within the ICP framework, British, French, and German institutions continued to be heavily involved in ERASMUS. However, there was a significant increase in the number and percentage of Italian involvements and also, though to a somewhat lesser extent, in Danish interest. The ERASMUS report brings out very clearly that, in a short space of time, "considerable progress has been made toward achieving one of the

276

Selected

Community

Policies

main goals of the ERASMUS Programme, namely a balanced participation of all Member-States in student mobility and inter-university cooperation activities." Overall, a trend appears to be emerging toward change in established center-periphery patterns of student mobility. In the three years ERASMUS has been in operation, the percentage of students moving solely between France, the United Kingdom, and the Federal Republic has fallen appreciably. At the same time, student movements between these three countries and the other nine member states and between the nine have increased correspondingly. Notwithstanding all the numerous positive developments and what the Commission terms a confirmation of "the commitment of the academic world to quantitative and qualitative extension of inter-university cooperation" and greater mobility of students and faculty, many of the positive effects of ERASMUS have been diluted. This has occurred because of a marked increase in the number of applications for support and a correspondingly large increase in the total amount of money requested. As a result, the ratio of supply to demand did not improve much; two out of three projects had to be rejected even though most of the rejected applications were of high quality. An important part of ERASMUS activity during the period under consideration was directed toward paving the way for Phase II to start in academic year 1990-1991. This included consolidating the organization and consultative infrastructure of the program and launching the pilot phase of the European Community Course Credit Transfer System (ECTS). The ECTS is designated to occupy an important place in underpinning Community schemes for ever-increasing student mobility in the 1990s. After a preparatory year in 1988-1989, the ECTS began its six-year pilot phase in 1989-1990. Eighty-one higher education institutions and three consortia were selected to participate in five subject areas: history, medicine, chemistry, business administration, and mechanical engineering. The goal of the ECTS is to develop credit transfer as an effective "currency" of academic recognition and make it possible for students who have studied at an ECTS partner institution to return to graduate with full credit at their home institution, to continue study at another institution within the same subject area group, or remain to graduate at the host institution. In this first year of operation of the pilot scheme, 569 students participated, admittedly a very small number but nonetheless a start in providing some extremely valuable experience for future policy formation. Another aspect of the preparation for ERASMUS II was the efforts in 1989 toward monitoring and evaluation, both internally and externally, in accordance with Article 7 of the 1987 Council decision establishing the ERASMUS program. In December 1989, the Commission duly published its report to the Council and the European Parliament entitled "Experience Acquired in the Application of the ERASMUS Programme 1987-89." The

Education

and Training

Potici/

277

report's most interesting sections are those that deal with particular key problems identified by the external experts brought in by the Commission. These include the factors that constitute obstacles to recognition of periods of study in another member state; obstacles to participation in ERASMUS of subject areas underrepresented until now such as fine arts, music, and drama, teacher education, and medicine; an investigation of the means of improving flows of information on ERASMUS to the four southern European member states (Greece, Italy, Spain, and Portugal); and a series of case studies of the most promising arrangements introduced thus far within ICPs for the linguistic and cultural preparation of students. Given the generally very positive results of ERASMUS 1, it was no surprise that the December 14, 1989, Education Council adopted the second phase of ERASMUS by consensus. The program was granted an overall budget of 192 million ECU for the 1990-1992 period (58 million for 1990, 64 million for 1991, and 70 million for 1992). The broad lines of the program remained the same; the only changes introduced were largely tactical. These changes include multi-annual financing for inter-university cooperation programs so as to permit institutions to make longer-term commitments; extension of the minimum period of funded study abroad to six months; introduction of subsidies for language instruction prior to departure; and creation of a small reserve fund (5 percent of the total) for making up geographic and subject imbalances. The smooth passage of the second stage of ERASMUS sheds a great deal of light on changed attitudes in the European Community during the second half of the 1980s. Battles were still being fought over national prerogatives in the highly sensitive area of education in 1989, but these were only a shadow of the bitter disputes that had occurred prior to the launching of ERASMUS in 1985-1987. Important proposals were also placed on the agenda of the December 14, 1989, Education Council meeting concerning the European Community's relations with its neighbors in the realm of education. At the same time as the ERASMUS Phase II proposals were adopted, a commitment was also made to examine in the course of 1990 the possibility of the participation of the European Free Trade Association (EFTA) countries in ERASMUS. Implementation of this commitment was viewed as a major priority for 1990. In addition, the ministers discussed relations with central and Eastern European countries in the fields of education and training. The Education Council endorsed the conclusions of the Strasbourg summit, which had "expressed the will for strengthened cooperation with Eastern European countries which intend to develop democracy, pluralism, and a state of law, and which recognize the importance of education and training in this regard." The ministers' debate centered on the advisability of opening up existing Community programs to Eastern European countries in a way similar to that proposed for the EFTA countries, or developing a special program for these countries. The subject also came up at meetings of the Group of 24 held in

278

Selected

Community

Policies

Brussels in early 1990. These discussions have led to the introduction of proposals within the Poland and Hungary—Assistance for Economic Restructuring (PHARE) initiative for a European Training Foundation and a Trans-European Mobility Scheme for University Studies (TEMPUS) with central and Eastern European countries in which any of the twenty-four countries that so wished could become involved. Thus TEMPUS, which was officially adopted in a Council decision in May 1990, is not a formal extension of existing Community programs but rather a specific new program to meet the needs of the countries concerned. All of the numerous endeavors associated with ERASMUS mark a truly extraordinary shift in Community attitudes and policies for education over a period of less than five years. Education policy, long viewed as an exclusive national prerogative, is now regarded as a vital instrument for creating a united Europe. In order to achieve this goal, education policy must do the following: contribute to creating the internal market by eliminating barriers to the free movement of persons and encouraging entrepreneurial capacity on all levels; reinforce the integration of education into economic life and make the necessary changes in this area as the European market emerges; contribute to reducing regional disparities and increasing social cohesion in the Community by integrating education and training with economic development policies in order to find solutions to the specific problems of least-favored areas. This is clearly a very broad area and one in which it will be difficult for the relatively small sums allocated to make an impact. However, in the field of higher education at least, even among policymakers from those member states least prone to transfer power from the national to the European level, there appears to be a growing awareness that the Community has a critical role to play.

COMETT COMETT, the Community Action Program for Education and Training in Technology, represents an important part of the EC Commission's overall program for education and training. 3 Its purpose is to encourage cooperation between universities and industry at the European level. Although the Community has long recognized the importance of improving Europe's technological base, it has only relatively recently become aware that Europe will not be able to remain competitive unless it can provide the highly trained engineers and technicians required by the new technologies and the firms that use them. Following a preparatory year in 1986, COMETT's first operational phase covered the period 1987-1989 and was endowed with an initial budget of 45 million ECU. According to the Council decision of July 1986, the aims of COMETT I were to promote a European identity through student placements in firms located in other member states; encourage

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synergy between the academic world and the world of industry; enccurage economies of scale through the joint organization of new training programs; improve the initial training of students and the continued training of skilled personnel and executive staff; develop the level of training in response to technological and social change; strengthen and diversify possibilities for training at local, regional, and national levels; and exploit the opportunities offered by the new information and communication technologies. COMETT I centered on five interrelated fields of activity known as "strands": (1) creation of a network of university-industry training partnerships; (2) financing of student placements to allow students to work in firms located in member states other than their own, and of grants to encourage transnational exchanges of personnel between universities and industry; (3) transnational projects for continuing training carried out jointly by universities and industry; (4) multilateral initiatives for the development of multimedia training systems; and (5) exchange of information and experience and dissemination of the most innovatory practices. In quantitative terms, the results of COMETT I have been impressive. Over 6,000 enterprises, 1,500 universities, and 1,000 other types of organizations participated directly in COMETT I projects. These projects included training courses for over 15,000 participants and development of 600 hours of teaching materials as well as the compilation of data bases, the publication of newsletters, and the conducting of major studies. The EC Commission was justifiably encouraged by the findings of the external evaluation of COMETT I conducted during the first months of 1989. "COMETT," it concluded, "has had a powerful impact in encouraging transnational cooperation and has exercised considerable influence in alerting the educational sector and, to a lesser extent, industry to the benefits of training in a European Community and cooperative framework." 4 The evaluation gave ample recognition to the fact that many projects had come about that would not otherwise have been undertaken. It also indicated that COMETT projects had done much to help break down insular attitudes. On the negative side, however, there was concern that most of the COMETT initiatives were too strongly university driven and that awareness and understanding of COMETT was not as good as it might be. There was need, the evaluation asserted, for the creation of a clearer rationale and image as well as an information program to put that image across. In line with these findings, COMETT II endeavors to broaden and deepen COMETT I, not just provide a simple continuation of the existing program. The EC Commission published its proposal for COMETT II in July 1988 and a decision was taken on it by the Social Affairs Council in December 1988. It was hoped that by providing an early decision on COMETT II, a smooth transition between the two programs could be effected and that adequate time would be allowed for the planning and launch of COMETT II. A budget of 200 million ECU for the period 1990-1994 was allocated as

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against the original proposal o f 2 5 0 million E C U . The new C O M E T T program contains some noteworthy changes to correspond with the Commission's intention that C O M E T T II should be more proactive than C O M E T T I. Among the main changes written into C O M E T T II are the introduction o f training partnerships with three-year contracts for as much as 1 8 0 , 0 0 0 E C U ; provision of new types o f fellowships permitting longer periods o f stay for highly skilled personnel; and provision o f support for major new training and education initiatives with funding up to 5 0 0 , 0 0 0 ECU. The Community's actions under C O M E T T , in a way similar to those under E R A S M U S , aroused considerable interest among neighboring countries outside the Community. In response to these expressions of interest, the E C Commission proposed that C O M E T T II be opened up for the participation of organizations from E F T A countries. During 1989, on the basis of a Council decision adopted in May, the Commission undertook negotiations to establish the terms under which the E F T A countries could be brought in to C O M E T T . As a result, a draft agreement between the Community and each of the six E F T A countries (Austria, Finland, Iceland, Norway, Sweden, and Switzerland) was signed in December 1989 and submitted for ratification to the national authorities and Community institutions. The Community also engaged in similar negotiations with Liechtenstein, which expressed an interest in participating in C O M E T T . In summary, therefore, in 1 9 8 9 - 1 9 9 0 C O M E T T devoted its principal efforts to bringing to a successful conclusion the projects begun under Phase I o f the program and engaged in intensive preparation and planning for the launch o f C O M E T T II. It is generally recognized that the continued development of transnational linkages through European-level cooperation is turning out to be an important asset. The infrastructure put in place has contributed greatly to encouraging transnational cooperative developments in training. As the external evaluation pointed out, C O M E T T ' s initiatives "seem to have increased awareness of the need for mutually recognised, common qualifications and the free movement of qualified people in order to exploit fully the potential o f 1 9 9 2 . " But, it warned, "the Community network and the transnational cooperative spirit that have been created are both fragile." T h e Community will, therefore, have to engage in an intensified effort in the coming years to make C O M E T T into a meaningful and sustainable program.

"Yes for Europe" C O M E T T and E R A S M U S address the needs of students in higher education. " Y e s (Youth Exchange Scheme) for Europe" is a travel and training program open to all young people in the Community between the ages o f fifteen and

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twenty-five. 5 Building on the foundations of small national programs and a Community program providing for exchanges of young workers begun in the early 1960s, the Community began discussion in 1988 of a much expanded youth exchange program in the context of its wide-ranging efforts to develop what it called European "awareness" and to create a "People's Europe." Adopted by the Council in June 1988 and scheduled initially as a three-year program (1988-1990), "Yes for Europe" has been allocated a budget of 30 million ECU to permit up to 80,000 young people to spend at least one week in another Community member country. Provision must also be made to give the visitors an appropriate briefing on economic, social, and cultural issues before they leave. As a complement to other measures taken in the areas of education and training, " Y e s for Europe" has a number of clearly designated priorities. These include bringing together young people from different social, economic, and cultural backgrounds; paying special attention to Community regions in which youth exchanges are not well developed; making young people more aware of what is labeled the "European dimension"; encouraging multilateral contacts intended to prepare or carry out projects of Community interest; and eliminating legal and administrative obstacles to exchanges. The program also seeks to encourage the establishment of European youth organizations that aim to develop youth exchange programs.

LINGUA LINGUA, a Community action program to promote foreign language training and skills, was approved by the Council in May 1988 and adopted officially in June 1989 with a budget of 200 million ECU for its first five years of operation (1990-1994). Work in 1989 and 1990 was therefore devoted almost exclusively to launching the program. As a first measure, the EC Commission appointed a committee of senior officials and experts from the member states to assist it in the implementation of the program. The committee met for the first time in November 1989. In addition, the Commission set up a technical assistance team to deal with the technical preparation of the program and to disseminate information about it. LINGUA will encourage language instruction and skills by providing funds for the initial and ongoing training of foreign language teachers; increasing the knowledge of foreign languages used in work relations and economic life; promoting exchanges of young people following programs of professional, vocational, and technical education; and other measures designed to help coordinate and implement the program. B y setting in motion the LINGUA program, the European Community put one of the final building blocks in place in its medium-term education and training action. Expanded opportunities for language training had long

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been a pressing need. As the Commission underscored, lack of foreign language skills was the Achilles' heel in the Community-wide effort to make the free movement of persons and ideas a practical reality. The year 1992 and the urgent timetable for the completion of the internal market put the spotlight steadily on the need for many more people capable of working through at least two Community languages and thus eliminating one of the handicaps to increasing business and training connections within the Community. Far from minimizing efforts by the member states, the Community has stressed that it views its Europe-wide language initiative as both a stimulus and a complement to these national efforts and as a means of extending the cross-frontier cooperation necessary to underpin actions by member states. 6

Conclusions Through programs like ERASMUS, COMETT, LINGUA, and "Yes for Europe," the European Community is looking ahead to 1993 and to a Europe in which education and training play an increasingly pivotal role in the overall development strategy of the Community. As the EC Commission stated unequivocally in its 1989 medium-term guidelines on education and training in the Community, it has decided "to place education and training at the forefront of its priorities to spearhead a new Community-wide commitment to invest in people, in their skills, their creativity and their versatility. . . . This emphasis on human resources provides an essential bridge between economic and social policies, and is also a key factor in promoting the free movement and exchange of ideas in addition to the four freedoms (goods, services, capital, and persons) provided for in the Treaty of Rome." 7 The Community's agenda is very broad and has wide-ranging implications. The Community has defined its role as going well beyond the development of a coherent structure of qualifications and certification to that of support for measures to prepare young people for their futures as European citizens and the continuing intensification of European awareness in the minds of policymakers and practitioners at all levels. The practical steps taken to date suggest that this will be a fairly slow process and that it will be resisted strongly at times by national interests. Certainly the monetary allocations have been woefully inadequate. However, aside from the broad philosophical issues at stake, there is a growing awareness of the practical necessity of integrating education and economic life and identifying the changes that are being brought about in education and training with the creation of the single internal market. It is by adopting this approach that the Community has met with the greatest success in the past two years and it appears to offer the most fruitful field for further progress.

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Notes 1. " F o r Young People: COMETT, E R A S M U S , 'Yes for E u r o p e . ' " Commission of the European Communities, European File, 7/88 (April 1988). 2. Commission of the European Communities, document COM (90) 128 FINAL, Brussels (April 5, 1990). 3. Materials in this section are derived largely from "Education and Training in the Approach to 1992," Commission of the European Communities, European File, 5/90 (April 1990); "For Young People: COMETT, ERASMUS, 'Yes for Europe,'" Commission of the European Communities, European File, 7/88 (April 1988); and "COMETT Program: Report of 1989 Activities," Commission of the European Communities, document COM (90) 119 FINAL, Brussels (April 11, 1990). 4. External evaluation commissioned by the EC Commission from Coopers and Lybrand and the Science Policy Research Unit of the University of Sussex. The evaluation was launched at the beginning of December 1988 and a final report was received at the end of April 1989. The full report was published as an official publication by the EC Commission in November 1989. 5. " F o r Young People: COMETT, E R A S M U S , 'Yes for E u r o p e , ' " Commission of the European Communities, European File, 7/88 (April 1988), and "EURYDICE Info" No. 8 (December 1989), EURYDICE European Unit for the Commission of the European Communities. 6. "Proposal for a Council Decision Establishing the LINGUA Program to Promote Training in Foreign Languages in the European C o m m u n i t y , " Commission of the European Communities, document COM (88) 841 FINAL. Brussels (January 6, 1989). 7. "Education and Training in the European Community: Guidelines for the Medium Term: 1989-1992," Communication from the Commission to the Council. Commission of the European Communities, document COM (89) 236 FINAL, Brussels (June 2, 1989).

20 Toward a Maritime Policy Alan W. Cafruny

International maritime policy has great strategic, economic, and symbolic importance for the European Community. Although the nations of Western Europe historically dominated world shipping, during the past two decades their maritime industries have been devastated by global recession, legal challenges to the postwar international shipping regime, competition from Japan and other Asian countries, and changes in the composition and nature of world trade. The E C ' s once-proud shipyards have fallen into disarray, and its merchant fleet has shrunk to less than half the size of just ten years ago. Prior to the 1980s, E C maritime policy developed incoherently and sporadically, largely in reaction to external commercial and political challenges. However, in 1986 the Community launched the first phase of a comprehensive policy designed to arrest the decline of European shipping and establish a single market for transportation. In 1989 the Commission issued new proposals, including a bold and controversial plan for the establishment of a European maritime flag, or E U R O S . This chapter provides an account of the evolution o f E C maritime policy since 1 9 8 6 , focusing particularly on developments during 1 9 8 9 - 1 9 9 0 . Following a brief historical review, it surveys recent policies and proposals o f the Council and Commission and assesses their impact on the member states, the Community, and the political economy of international shipping. A central issue in E C studies is the extent to which policy expresses a logic o f integration and the transfer of power from nation-states to Community institutions. This analysis shows that the Commission has been partially successful in imposing its own objectives on states and thereby playing an independent role in Community affairs, and that a single market for transportation is gradually developing. Nevertheless, a comprehensive explanation for E C maritime policy must also include traditional forces, including intergovernmental bargains and divergent national interests o f the member states.

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The Scope and Significance of EC Maritime Transport T h e E C market—comprising 324 million consumers—is the world's largest trading area, and shipping is economically and militarily vital for the member states. In 1986, E C exports accounted for approximately 21 percent of world trade (345 billion E C U ) as against 13 percent for the United States and 12 percent for Japan. Ninety percent of E C foreign trade is seaborne; in addition, approximately one-third of intra-EC trade is seaborne, with the rest carried by inland waterway ( 3 0 percent), road (27 percent), and rail (11 percent). Shipping offers a number o f advantages over competing modes o f transportation, including less pollution, danger, and disturbance; superior efficiency; and a greater capacity to serve Europe's peripheral areas. 1 Moreover, shipping makes a significant contribution to the balance of payments o f many member states. The possession of a strong merchant fleet enables states to project military power and to influence international freight markets and patterns of world trade. The

Development

of EC Maritime

Policy

After World War II, Western European nations regained their traditional positions o f dominance in liner shipping (the sector that transports manufactured goods and some agricultural commodities on the basis of scheduled services) and managed to hold their own in the bulk sector (the sector that transports raw materials, including oil). The liner sector was dominated by liner conferences or cartels that European shipowners had established at the end of the nineteenth century and rebuilt during the 1950s and 1960s. During the 1970s, these conferences provoked a great deal of opposition from Third World nations and shippers (including EC shippers), who believed they prevented the developing countries from establishing merchant fleets and set freight rates that served the interests of European traders. 2 This opposition culminated in the drafting of an U N C T A D (United Nations Committee for Trade and Development) Code of Conduct for Liner Conferences in 1972, a protectionist code designed to reserve cargo for the vessels of the trading nations and thereby stimulate Third World maritime expansion, and its passage in 1974 as a result of support from France and West Germany. 3 T h e U N C T A D Code provoked a great deal of opposition from most European shipowners. The Treaty of Rome (1957) had explicitly provided for the elimination of obstacles to free trade in the transport sector. In 1961, the Commission proposed specific measures designed to establish a free market for transportation. At this time, however, shipping was believed to be exempt from these principles and measures, and shipowners strongly resisted the C o u n c i l ' s intervention in maritime affairs. However, U N C T A D ' s activities encouraged shipowners to consider E C policy as a means o f

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asserting their interests as the global shipping regime became more overtly politicized. After considerable debate, the European Court of Justice declared in 1973 that shipping was included under the Treaty of Rome, and that the Council had the authority to make provisions for it. This decision enabled EC nations to establish a system of consultation concerning their relations with third countries, and to engage in negotiations regarding a common response to the Code of Conduct. In 1979, the member states agreed to ratify the code on the basis of the "Brussels Package." This agreement treated the EC as a single trading area; it preserved the monopolistic features of the conference system while satisfying the demands of Third World nations by reserving 40 percent of cargoes to vessels from nations trading with the Community. At the same time, the Commission negotiated agreements with the African, Caribbean, and Pacific (ACP) nations under Lomé III designed to preserve access for European ships on a competitive basis. The Brussels Package represented a compromise between those member states that enjoyed a comparative advantage in shipping and engaged in significant cross-trading between third countries (such as Britain, the Netherlands, Denmark, and Greece) and the more protectionist nations (such as France), which might have gained from application of the original UNCTAD Code to European trades by virtue of their large cargo base. 4 The Brussels Package was the most visible legal expression of Europe's response to the growing political turbulence in international shipping during the 1970s and 1980s. But the protectionist challenge from the Third World was accompanied by two additional threats: that emanating from low-cost Soviet-bloc shipping, seeking to penetrate into trade routes dominated by European shipowners by undercutting conference rates, and attempts by the United States to limit the freedom of liner conferences to establish freight rates by enforcing antitrust legislation on the industry. These challenges brought the Commission into negotiations with both superpowers but did not lead to the elaboration of policies or enhance the power of the EC vis-àvis the member nations. Toward

a Single

European

Market

The Brussels Package reflected the recognition on the part of the member states that EC maritime policy was essential to preserve their status in the context of growing conflict over international shipping. However, the Brussels Package and other Community initiatives—EC negotiations with the United States, and monitoring the actions of Soviet-bloc merchant shipping—left the Community well short of a comprehensive maritime policy, much less a single market for transportation. The development of a common policy was limited by the conflicting interests of member states. For example, while the merchant fleets of Britain, Denmark, and the Netherlands were heavily engaged in cross-trading (trading between third

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countries), and their domestic markets were largely open to international competition, French shipping was traditionally protectionist and dependent on government support. Many states, including otherwise liberal Greece, reserved their coastal trades (cabotage) for national shipping firms. At the same time, Community shippers began to seek to limit the monopolistic practices of liner conferences. EC Maritime

Policy: Phase 1

In 1985 the European Commission submitted memoranda to the Council relating to land, air, and sea transport. Believing that maritime transport should conform to the more general objective of a single market, the Commission advanced the following general principles: 5 1. The EC should promote free and fair competition in world shipping. 2. EC shipowners should receive equal treatment. 3. The EC should strive to reach international agreements rather than implement unilateral policies. 4. The EC should improve the competitiveness of the shipping on the basis of free markets. On the basis of these principles, in December 1986, the Council of Ministers adopted four regulations designed to establish a single market for transportation: 6 1. Regulation 4055 applies the principle of freedom to provide services between member states and between member states and third countries. 2. Regulation 4056 (the competition rules) sets out detailed provisions for the application of the competition articles of the Treaty of Rome. This regulation is a matter of great importance to Community shipowners because it provides a block exemption for liner conferences, thereby safeguarding monopolistic features that have provoked opposition and allowing them to adhere to the traditional European practice of self-regulation. 3. Regulation 4057 provides for common EC action against non-EC shipowners engaging in unfair pricing practices. Since 1987 EC shipowners have brought complaints to the Council concerning unfair pricing practices. 4. Regulation 4058 seeks to counter protectionist trends by providing for Community action against third countries imposing various forms of discrimination against EC shipowners. To date, these regulations have been only partially effective, and the

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Community has not been able to enforce them in all cases. Nevertheless, the principles and regulations accepted in 1986, though by no means fully implemented, have established the basic framework by which the Community seeks to promote European shipping. In the context of declining comparative advantage, the EC has ruled out nationalistic policies for supporting the maritime industries such as cargo protection, subsidies, and bilateral agreements as inconsistent with the objective of a single European market. Given the depth of the crisis for European shipping and shipbuilding, the decision by the Commission and the Council to chart out a liberal course is indeed momentous. As the Commission acknowledges, T h e s h i p p i n g industry is, like certain other i n d u s t r i e s o f the C o m m u n i t y , f a c i n g strong c o m p e t i t i o n from third countries. But shipping is more vulnerable than textiles, steel or agriculture since it has to face international competition without any help from external C o m m u n i t y customs borders or other measures of foreign trade policy. In short, there is no internal Community shipping market as distinct from the world market . . . even sea transport between Member-States of the Community is open to anybody from the rest of the world. 7

Thus the acceptance of liberal principles and proposals constitutes a major new departure for the Community and for Europe's maritime industries, and it corresponds to the more general trend toward privatization and deregulation.

The State of European Shipping and EC Policy, 1989-1990 During the 1980s the shipping industries of the EC experienced significant losses of capacity and employment. With the exception of Belgium, Denmark, and the Irish Republic, all fleets declined in terms of tonnage, employment, and number of ships. Between 1980 and 1989 the tonnage registered in the eleven maritime member states declined from 117 million tons to 59 million tons. As a share of the world fleet, EC-registered tonnage declined from 29.7 percent to 15.4 percent. During this period world shipping capacity declined by 8 percent, while EC-owned capacity dropped by 28 percent. Absolute or relative decline was evident in all sectors, including oil tankers (decline of 40 percent), the dry bulk sector (decline of 13 percent), and container ships (decline from 36 percent to 28 percent of world fleet). Between 1980 and 1988 the number of seafarers on EC ships declined from 307,000 to 169,000. At the same time, the age of the Community fleet relative to the rest of the world increased, suggesting a slower rate of modernization. 8 The decline of shipping paralleled the demise of European shipbuilding, of which the share of world tonnage declined from 62 percent in 1957 to less than 14 percent in 1982.9

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These figures indicate the depth of the crisis facing European shipping. However, they must be used with caution because they do not take into account the increasing use of open registries by Community shipowners. Open registries or "flags of convenience" refer to the registry of ships in countries in which regulation is minimal or nonexistent. Since World War II, shipowners from many nations, especially the United States, have registered vessels under the Liberian, Panamanian, and other flags of convenience. Use of these flags allows shipowners, for a small registration fee, to hire nonunion seafarers, avoid safety and pollution legislation, and enjoy freedom from taxation. 10 Through these flags Western shipowners have maintained their comparative advantage and undoubtedly cheapened the cost of international trade, although perhaps by less than their advocates claim. 11 The use of such flags has always been a means of blunting the power of maritime labor, and it has depended on the ability of shipowners to control or circumvent the state. If governments are unwilling or unable legally to prohibit shipowners from using open registries, then they are compelled either to accept the decline of the national-flag fleet or to make the regulatory environment under the national flag as attractive to shipowners as open registries. Hence, the availability of open registries becomes a powerful weapon in the hands of shipowners, with implications not only for labor, but also for safety and pollution. After World War II, the traditional maritime nations of Western Europe resisted use of such flags, identifying them as means by which the United States could circumvent its higher labor costs (lack of comparative advantage), avoid taxation and regulation, and thereby compete favorably in trade routes historically controlled by European shipowners. During the 1970s, Third World nations unsuccessfully attempted to phase out open registries. As the crisis of European shipping deepened and maritime unions grew correspondingly weaker during the 1980s, European shipowners greatly expanded their use of open registries. By 1989, roughly 50 percent of the Greek-owned fleet, 22 percent of the UK-owned fleet, and 50 percent of the West German fleet was registered in open registries. At the same time, a number of EC and European nations, including Britain, Germany, and Denmark, followed the example of Norway in establishing "international registers" offering fiscal and regulatory conditions similar to open registries but enabling shipowners to retain the national flag. In 1990, British-owned vessels sailed under forty-four different flags. 12 Thus the decline of beneficially owned EC shipping is not as precipitous as the decline in EC-flag shipping, although it is still significant. Nevertheless, the adoption of open registries represents a serious loss to the nations of the EC and, in particular, to European seafarers. It makes it more difficult for states (or the EC) to regulate safety, pollution, and conditions of labor aboard ship, and it reduces foreign exchange earnings. In effect, adoption of these registries can be considered a form of competitive national

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shipping policy (comparable to generous tax breaks, subsidies, or depreciation allowances), largely at the expense of seafarers. EC Maritime

Policy:

Phase

2

In 1989, the Commission introduced new proposals designed to aid EC shipping.13 The Commission recognized the continuing loss of EC shipping, the flight to open or "international" registries, and the attempts of individual governments to aid national fleets: "In a situation where the Community is completing its internal market for goods and services in general it cannot allow a fading away of its presence on the world shipping market and a drifting apart of Member-States' own national policies of assistance to their fleets, with the consequent danger of increasing disparities inside the Community and distortion of Competition between Community shipowners."14 The Commission endorsed financial aid and fiscal relief, increased support for research and development, and issued additional proposals to accelerate the development of the single transport market. At the same time, the EC proposed to include shipping within the scope of the General Agreement on Tariffs and Trade (GATT) services framework. The centerpiece of the Commission's maritime strategy during 19891990 was EUROS, or an EC flag of registry. The proposal to establish a European flag is of considerable importance not only because of its potential impact on shipping, but also for its symbolic value, which appears to be a major consideration of the Commission. The idea of a European flag was floated initially by Lord Stanley Clinton Davis, then Commissioner for Transport and formerly Labor Minister of Shipping for the UK, in 1987. According to the proposals of Commissioner Karel van Miert, EUROS would be a voluntary EC register, under which ships would fly the Community flag in addition to national flags. Although vessels would remain under the control and jurisdiction of their member states, they would be subject to less stringent requirements for conditions of nationality of seafarers and, hence, wages and working conditions. Registration in EUROS would confer a number of specific advantages, both symbolic and economic, on Community shipowners and seafarers. According to the Commission, "The European flag flying on Community vessels throughout the world would be a powerful reminder of the Community's presence in global trade, and a symbol of the Community as a single trading entity." 15 In addition, the EUROS flag would facilitate Community measures to achieve greater technical harmonization, transfer of ships among Community owners, and the lifting of cabotage, the reservation of coastal trades for national-flag vessels. However, the key economic advantages of EUROS for shipowners

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undoubtedly derive from the provisions concerning employee labor. The Commission envisions EUROS as representing a compromise between open registries and national registries; as such it would be an attractive option for both shipowners and unions, which fear the continuing loss of jobs. Owners of EC-flag ships would be entitled to recruit up to 50 percent of crew from non-member states at wage levels of the International Labor Organization (ILO) but not necessarily at European wage levels. Finally, the EUROS registry would provide a focus for discussions to achieve greater cohesion in future EC shipping policy. EUROS has elicited a great deal of hostility from both shipowners and unions. Shipowners contend that EUROS will not reverse the continuing loss of European-flag tonnage because it would harmonize national policies at a relatively high-cost level. Although they acknowledge that EUROS makes an important symbolic contribution to European union, they fear that it could eventually establish a basis for harmonization of policies on a Community-wide scale that would restrict their global freedom of action deriving from open and "international" registries. Therefore, they prefer a system of EC sectoral support in the form of reduced taxation for seafarers, greater depreciation allowances, and freedom to export and import ships. 16 The EC's maritime unions have been no less vocal in their opposition to EUROS. They argue that EUROS represents the attempt by the Commission to institutionalize at the Community level the deregulation of labor markets caused by the widespread movement toward open registries. As the French Branche Maritime protests, "Hiring some crew members from outside the Community, paid at the rates applying in their home countries, is an outrage, which no economic grounds can justify in a Europe based on genuine democracy." 17 Unions contend that the decline of the EC fleet is only partially a function of relative crew costs, and that the more important factors have to do with the existence of open registries, US and Third World protectionism, and insufficient national or EC aid to shipping. Thus EUROS is a generalist legislative device designed to foster the illusion that the Commission is doing something about the Community's declining shipping industry. 18 Like the shipowners, the unions favor sectoral aid to shipping, including tax exemptions for seafarers. In addition, they propose subsidies, orderly cargosharing agreements, and action against open registries. If introduced, EUROS should restrict the hiring of non-European crews, thereby providing jobs for European seafarers. However, the constitutionality of protectionist measures or sectoral-specific benefits for the maritime industries under the terms of the Single European Act would probably be successfully challenged by the Competition Directorate (DG 4). At the present time, the seafarer's unions are very weak. The existing system is already highly favorable to shipowners, who have no interest in establishing the principle of a EUROS, which might provide a basis for greater regulation in the future.

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Policy

The EC and the United

States

During 1989-1990 the EC also undertook new initiatives in relation to the United States. Western Europe and the United States have significantly different maritime traditions and philosophies. Since World War II, transatlantic conflicts have erupted over flags of convenience (1950s), the US's antitrust stance toward conferences, and its greater reliance on subsidies and protectionism. 19 During the 1970s, UNCTAD's Code of Conduct was acceptable to Europe because it left conferences largely "self-regulated;" for this reason the United States failed to ratify it. Since the early 1980s the EC and the United States have consulted regularly over shipping policy. In 1986 the nations of the GATT commenced negotiations on the Uruguay Round of trade negotiations, focusing on the liberalization of agriculture and services. A key issue is the proposed inclusion of international shipping in a free trade agreement for services. Historically, the exemption of shipping from the GATT except at the most general level has reflected the desires of protectionist US shipowners, but it has also accorded with the views of some European nations wishing to maintain their own protectionist policies and avoid opening up the question of conference practices. However, in July 1989, the EC proposed the General Agreement on Trade in Services (GATS), which included the identification of all sectors covered and a commitment not to increase restrictions in any of them. In April 1990, the EC's Trade Policy Committee proposed to include maritime transport within the agreement, fearing that if it were excluded, existing restrictions and measures that European nations dispute would be effectively legalized. The EC proposed the complete liberalization of shipping, including most-favored-nation status, which would provide for free access to coastal trades, and elimination of direct and indirect protectionist measures. EC proposals have provoked a great deal of conflict with the United States. The Jones Act (1920) reserves the coastal trades (including, for example, the Alaskan oil trade) to US-flag vessels, and it is unlikely, given the political power of the maritime lobby, that the United States could accept binding commitments to phase this out. Following inconclusive talks, the EC and the United States issued a vague joint declaration stating that "consideration of shipping in the GATT's Group of Negotiations in Services should fully reflect the long history of the international treatment of maritime problems and guard against any endorsement of existing restrictive practices." 20 At the same time, a number of European countries, including France, Greece, and Germany, are also opposed to the inclusion of shipping in the services negotiations because a free trade agreement would imply an abrupt phasing out of cabotage. The transatlantic rift over shipping has served to exacerbate existing conflicts over services, but it is likely to be resolved without a definite commitment for generalized liberalization.

294

Selected Community

Policies

Interpretations As this chapter has indicated, during the late 1980s, the E C made substantial progress toward a European maritime policy. In 1 9 8 9 - 1 9 9 0 , it sought through Community-wide and international action to give expression to the free market principles set out in 1986, to enforce existing regulations, and to consolidate the movement toward a single maritime market. O f particular importance was the proposal for E U R O S , which would have the effect o f eliminating national discrimination in the form o f cabotage, and providing a basis for harmonization o f state aids. At the same time, the Community sought, through Uruguay Round negotiations, to extend these principles into the international regime. Despite these steps, however, the E C was unable either to gain universal agreement on a unified policy or to arrest the decline o f ships and tonnage. Opposition to E U R O S was strong, and countries continued to resist the practical application o f a single market in the form of free access to all trades. T h e problems o f shipping were particularly acute from the point o f view o f trade unions, which experienced significant losses o f employment and m e m b e r s . At the end o f 1 9 9 0 , the E C still had not found a means o f stemming the tide toward open or international registries. D o e s the making o f European maritime policy provide a means o f evaluating various analytical approaches to European integration? Evidence from shipping suggests that shipping policy can be understood with reference to the i n t e r a c t i o n

o f three e x p l a n a t o r y

frameworks:

( 1 ) realism

or

intergovernmentalism; ( 2 ) institutionalism; and (3) the liberalization o f capital and trade. E a c h o f these frameworks contributes to a comprehensive explanation for E C maritime policy. Realism

or

Intergovernmentalism

Despite the considerable movement toward supranationalism inherent in the d e v e l o p m e n t o f maritime policy, this analysis suggests the continuing relevance o f an approach that views progress toward integration in terms o f bargains

among

sovereign

states.21

National

interests

provide

an

indispensable guide to the formulation—or l a c k — o f policy. Clearly, the initial impetus for policy in the 1 9 7 0 s arose from the desire o f E C nations collectively to respond to external threats, particularly the U N C T A D Code o f Conduct. T h e Brussels Package itself reflected a compromise among the m e m b e r states, favoring the most powerful shipping nations but not fundamentally damaging the interests o f other member states. It represented not integration as such, but rather the forging o f a common stance by a coalition o f states. M o r e recent developments suggest that the Commission has b e c o m e more independent and assertive. Yet the influence o f the Commission depends

Toward a Maritime

Policy

295

on the internal balance of power and interest; the chronic problem of moving from statements of principle to rule-making reflects different national traditions and interests. As the European Shipowners Association notes, "The divergences of current practices and philosophies in member states vis-à-vis fiscal and financial measures, second registers, state aids, and cabotage, make the task of coming to a common, constructive position within the industry a formidable one." 22 The liberal shipping nations have favored movement toward free trade, expressed in the 1985 principles as well as the decision to seek to incorporate shipping into the Uruguay Round, but thus far steps to consolidate the single market have been blocked by nations such as Greece and France, which remain interested in protecting their domestic trades. EC policy has proved most successful where it has enhanced the power of the member states in the international arena. Institutionalism To emphasize the national interests and intergovernmental bargains that have played a role in maritime policy is not, however, to advance a reductionist argument that EC policies and institutions can be understood simply as reflections of these factors. As Robert Keohane and Standley Hoffmann write with reference to the Single European Act (SEA), "A 'statist* or 'realist' perspective . . . remains a valid 'first cut' at the issue of why the Single European Act was signed and ratified. But even such a government-centered view of the integration process needs to be more attuned to institutional nuance than is often the case."23 The analysis of shipping suggests that EC institutions have become more important in determining policy. Despite competing national interests, the Commission has clearly staked out an interest in maritime liberalization, linking shipping policy to the more general objective of a single European transport market, a vision that it has sought to impose both in Europe and in the international system. Moreover, this vision has been linked to the desire of the Commission to use economic policy to further political integration and to increase its own power. In promoting EUROS, the Commission appears to be motivated by symbolism as much as economics. Of course, neither shipowners, trade unions, nor governments have been willing to endorse symbolic expressions of Europe's identity that conflict with their own interests. Liberalization A number of observers have viewed the Single European Act as a means by which capital as a whole—and particularly multinational corporations—have sought an expanded market; they view the absence of government regulation in part as a means of competing with the United States. In expressing the

296

Selected

Community

Policies

triumph of transnational capital, the SEA represents a one-sided and limited form of supranationalism, and one that contradicts the original vision of the founding fathers. Cutler et al., for example, distinguish between the "liberal collectivism" of the founders and the "liberal market" orientation of the Community that prevailed in the 1980s: The authors of the Treaty of R o m e intended to create a liberal market institution b e c a u s e the removal of trade barriers such as tariffs and quotas was a defining feature of the Community. But free trade was not sacrosanct. . . . Article 104 of the Treaty of Rome states that "economic policy should ensure full employment." At every point of choice, liberal market principles have been applied. The 1985 White Paper [in the writing of the S E A ] consolidates these tactical victories by proposing a strategy from w h i c h all traces of liberal c o l l e c t i v i s m have been effectively expunged.24

The Community's experience with maritime policy provides a case study of the victory of, in the words of the Branche Maritime, a "free trade bias." 25 The Council's statement of principles and proposals for a single maritime market corresponded to the liberal market objectives of the SEA. In 1989— 1990 it sought, through EUROS, to establish institutions in which maritime labor was formally deregulated, a policy that would have the effect of legitimating practices of open registries. It has also sought to internationalize this vision by establishing a GATT services regime in which free trade is sacrosanct. As such, it has been strongly resisted by trade unions, whose collectivist alternative policies have, nonetheless, been decisively rejected.

Problems and Prospects in the 1990s This chapter provides ample evidence of the limitations of EC maritime policy. However, the continuing importance of national interests in the determination of maritime policies should not obscure the substantial institutional and ideological momentum achieved by the Commission. Although many of the particulars of EC maritime policy have not been consolidated, the general vision of a single maritime market has prevailed and, at the present time, provides the only acceptable basis for the resolution of the crisis. Moreover, the free trade orientation that provides the intellectual basis for debate over shipping policy has been broadly in accord with national governments and the shipowners whom they have traditionally represented, EC shippers, who have become better organized and more vocal, and also the Commission itself, which views policy as a means of enhancing its own role. During the 1990s, it appears likely that progress toward EC maritime policy will continue. The EC Commission and the member states will

Toward

a Maritime

Policy

297

encounter three basic problems, each of which will become more acute as international competition intensifies and domestic autonomy is further undermined. These problems can be grouped under the headings of external pressures, internal harmony, and diminishing comparative advantage. Externally, the EC will continue to confront problems in its relations with the Third World and the United States. As their role in world trade expands. Third World nations can be expected to intensify their drive for fleet expansion and protection. At the same time, the practical and philosophical differences over the issues of liner conferences and protectionism will continue to divide the United States and Europe after the conclusion of the Uruguay Round. The persistence of these conflicts will provide the EC nations with strong incentives to develop common policies, thereby taking advantage of Europe's strong presence in world trade. The attempt to include shipping in the GATT is one indication of the Community's growing selfconfidence. Internally, the Commission will continue to confront divergent maritime traditions and interests, which are often obscured by agreements in principle. Two conflicts in particular will divide member states: the competition rules of the Treaty of Rome, and cabotage. As noted previously, Regulation 4056 granted EC shipowners anti-trust exemption. However, recently European shippers have challenged the constitutionality of this exemption, and the Competition Directorate (DG 4), charged with enforcing competition rules, has begun to consider specific cases. As a result, the administration of maritime policy in Europe has begun to tilt toward the interests of shippers as opposed to shipowners, with important implications for the traditional maritime powers such as Greece, Britain, and Denmark. Regulation 4058 provides for free access to ships and cargoes. As mentioned previously, member states such as France and Greece have been reluctant for a variety of social and commercial reasons to surrender control of their coastal trades; for this reason they have objected to the proposed inclusion of shipping in the Uruguay Round negotiations. It is likely that liberalization will gradually occur, but not without resistance and rearguard battles. Finally, the drift toward open or international registries will continue to exacerbate the problem of unemployment and the conditions of labor in shipping, while it reduces the ability of the Commission to implement policies that conflict with the interests of shipowners. EUROS failed to secure the approval of shipowners and governments because it did not offer advantages over the highly liberal environment that emerged over the course of the 1980s. The development of a single maritime policy and a single transport market would undoubtedly benefit Europe and the world economy from the point of view of efficiency. It is ironic, however, that in the 1990s Europe's traditional dominance of shipping will face its most serious challenges, even as Europe seeks to reassert its preeminence in international trade.

298

Selected

Community

Policies

Notes 1 . E u r o p e a n S t u d y S e r v i c e , " E E C T r a n s p o r t P o l i c y W i t h i n the C o n t e x t of t h e S i n g l e M a r k e t " ( B r u s s e l s , 1988); C o m m i t t e e of S h i p o w n e r s A s s o c i a t i o n s of the E u r o p e a n C o m m u n i t i e s ( C A A C E ) , and " E u r o p e : T h e I m p o r t a n c e of the Short S e a t r a d e " ( B r u s s e l s , 1990). 2. S e e e s p e c i a l l y L . M . S. R a j w a r et al., Shipping and Developing Countries ( N e w Y o r k : C a r n e g i e E n d o w m e n t for International Peace, 1971). 3. S e e A l a n W . C a f r u n y , Ruling the Waves: The Political Economy of International Shipping ( B e r k e l e y a n d L o s A n g e l e s : U n i v e r s i t y of C a l i f o r n i a Press, 1987), C h a p t e r 7. 4 . A n n a B r e d i m a s a n d J o h n G . T z o a n n i s , " I n S e a r c h of a C o m m o n S h i p p i n g P o l i c y for the E C , " Journal of Common Market Studies 20 ( D e c e m b e r 1981); C a f r u n y , op. cit., C h a p t e r 9. 5. E C C o m m i s s i o n , " P r o g r e s s T o w a r d s a C o m m o n T r a n s p o r t P o l i c y ( M a r i t i m e T r a n s p o r t ) , Bulletin of the European Communities, S u p p l . 5/85, 5 6 3 5 / 8 5 , C O M ( 8 5 ) 90. 6 . Official Journal of the European Communities. L 378 ( B r u s s e l s , D e c e m b e r 31, 1986). 7. C o m m i s s i o n of the E u r o p e a n C o m m u n i t i e s , A Future for the Community Shipping Industry: Measures to Improve the Operating Conditions of Community Shipping, C O M (89) 2 6 6 (Brussels, A u g u s t 1989), p. 13. 8. Ibid., pp. 5 - 8 ; The Magazine of Lloyds Register 1 (1990). 9. B o S t r a t h , The Politics of De-Industrialization: The Contraction of the West European Shipbuilding Industry ( L o n d o n : C r o o m H e l m , 1987), p. 8. 10. C a f r u n y , o p . c i t . , C h a p t e r s 4, 10; E u r o p e a n P a r l i a m e n t , A d H o c M e r c h a n t S h i p p i n g C o m m i t t e e , EEC Shipping Policy—Flags of Convenience ( B r u s s e l s , 1979); a n d S t a n l e y G . S t u r m e y , The Open Registry Controversy and the Development Issue ( B r e m e n : Institute of S h i p p i n g E c o n o m i c s and L o g i s t i c s , 1983). 11. U N C T A D , Action on the Question of Open Registries. TD/B/C.4/220 ( G e n e v a : U n i t e d N a t i o n s , 1981). 12. " E C O w n e r s Fall B e h i n d o n Fleet M o d e r n i z a t i o n , " Lloyds List ( M a y 29, International Ship 1990), p. 3. S e e a l s o R o b e r t K a p p e l , The Norwegian Register—A New Approach of a Traditional Shipping Nation ( B r e m e n : Institute of S h i p p i n g E c o n o m i c s and L o g i s t i c s , 1988). 13. C o m m i s s i o n of the E u r o p e a n C o m m u n i t i e s , A Future for the Community Shipping Industry. 14. I b i d . , p . 12; E C C o m m i s s i o n , Financial and Fiscal Measures Concerning Shipping Operations with Ships Registered in the Community, SEC (89) 9 2 1 F I N A L ( A u g u s t 3, 1989). 15. C o m m i s s i o n of the E u r o p e a n C o m m u n i t i e s , A Future for the Community Shipping Industry, p. 16. 16. C A A C E , Annual Report 1989 (Brussels, 1989). 17. E c o n o m i c a n d S o c i a l C o m m i t t e e , " P o s i t i v e M e a s u r e s to S a v e E C S h i p p i n g , " in Positive Measures for Maritime Transport ( A n n e x ) , C O M ( 8 9 ) 2 6 6 F I N A L ( F e b r u a r y 1990). 18. N a t i o n a l U n i o n of S e a m e n , Submission to the Select Committee on the European Communities ( L o n d o n , M a r c h 1990), p. 14. F o r additional c o m m e n t a r y o n E U R O S see E u r o p e a n P a r l i a m e n t , C o m m i t t e e o n T r a n s p o r t and T o u r i s m , D r a f t R e p o r t o n " A F u t u r e f o r the C o m m u n i t y Shipping I n d u s t r y , " rapporteur, P. Sarlis, D O C E N / P R / 8 5 8 5 2 ( A p r i l 27, 1990).

Toward

a Maritime

Policy

299

19. A l a n W . C a f r u n y , " T h e Political E c o n o m y of I n t e r n a t i o n a l S h i p p i n g : E u r o p e vs. A m e r i c a , " International Organization 39 ( W i n t e r 1985). 20. U . S . / C o n s u l t a t i v e Shipping G r o u p / E C Press Statement, April 1990; C o m m i s s i o n of t h e E C , EC Tables Services Agreement in Geneva ( B r u s s e l s , J u n e 18, 1 9 9 0 ) . 21. P a u l T a y l o r , The Limits of European Integration (London: Croom Helm, 1983), C h a p t e r 2; a n d W a y n e S a n d h o l z a n d J o h n Z y s m a n , " 1 9 9 2 : R e c a s t i n g the E u r o p e a n B a r g a i n , " World Politics 4 2 (October 1989). 2 2 . M i c h e l e L a c a l a m i t a , " F o r e w o r d b y the P r e s i d e n t , " C A A C E , Annual Report ( B r u s s e l s , 1989), p. 1. 23. Robert Keohane and Stanley Hoffmann, "European Integration and N e o f u n c t i o n a l T h e o r y : C o m m u n i t y Politics and Institutional C h a n g e , " W o r k s h o p o n the D y n a m i c s of E u r o p e a n Integration, F l o r e n c e ( S e p t e m b e r 1989), p. 18. S e e a l s o D a v i d R . C a m e r o n , " S o v e r e i g n S t a t e s in a S i n g l e M a r k e t : I n t e g r a t i o n , I n s t i t u t i o n - B u i l d i n g , a n d I n t e r g o v e r n m e n t a l i s m in t h e E C , " u n p u b l i s h e d manuscript (1990). 2 4 . T. C u t l e r , C . H a s l a m , C. W i l l i a m s , and J. Williams, 1992—The Struggle for Europe: A Critical Evaluation of the EC ( N e w Y o r k : Berg, 1989), p. 53; a n d J o h n G r a h l a n d Paul T e a g u e , " T h e Cost of Neo-Liberal E u r o p e , " New Left Review 174 ( M a r c h - A p r i l , 1989). 2 5 . E c o n o m i c a n d S o c i a l C o m m i t t e e , " P o s i t i v e M e a s u r e s to S a v e E C S h i p p i n g , " p. 5.

PART 4 EXTERNAL RELATIONS

301

21 The EC and Central and Eastern Europe Françoise de La Serre

In less than eighteen months, the relationships of the European Community with Central and East European countries have been radically modified. The state of nonrecognition, illustrated by the lack of contractual relationships between the two halves of the European continent, had, in fact, come to an end on June 25, 1988, when the "EC-COMECON Joint Declaration on the Setting Up of Official Relationships" was issued. This déclaration represents the outcome of a whole series of contacts and negotiations, often interrupted, in the course of fifteen years. Until 1986, the COMECON (Council for Mutual Economic Assistance) had aimed at concluding with the Community a framework agreement, including commercial clauses, but it had met with the EC's position to conclude such an agreement only with each state of the COMECON taken separately. Brussels was, in fact, arguing that in the absence of any symmetry between these two regional organizations (in particular as far as commercial competencies were concerned), it could not conclude a global agreement that would reinforce the weight of the USSR in relation to its partners within the Eastern bloc. With Gorbachev's coming to power, in the general context of a new détente between East and West, and because of economic imperatives asking for some opening up, the COMECON has gradually dropped its requirements. It has accepted, instead of the framework agreement it wanted, a "parallel normalization" between the two organizations, which implies that both talks between the EC and the COMECON and bilateral negotiations between the Community and each of the concerned countries will take place. Thus, a new era has started concerning the relationships of the Community with the East that should result in the gradual setting up of a commercial and cooperation policy adjusted to the situation of each country. But in order to cope with the events in the East, and particularly in the GDR after the fall of the Berlin Wall, a constant adjustment has been necessary in the ostpolitik of the Twelve.

303

304

External Relations

The Ostpolitik of the Twelve: Development and Perspectives Since 1989, three different stages in the Community policy toward the East can be outlined. In the first stage, Brussels set up a contractual policy in terms of agreements related to various questions and concluded it with the different countries. In addition to that strictly Community dimension, the Commission played a leading part in the organization of international aid aimed at restructuring Polish and Hungarian economies (PHARE). In the second stage, the fall of the East German regime and the domino effect that development had on the other "tough actors" in the socialist camp resulted in an extension and an adjustment of European policy in the field of cooperation as well as restructuring. In the third stage, which corresponds to the policy the Community has recently engaged in, the major concern is to help reconstruct the European landscape by proposing to Central and East European countries a new association formula. Trade

and/or

Cooperation

The E C - C O M E C O N normalization process, which was launched by the declaration issued on June 25, 1988, rapidly resulted in the opening of negotiations between the Community and Eastern countries, including the USSR. In that first stage, the agreements that were concluded demonstrated the will of the Community to pay attention to the progress made by these countries toward political and economic liberalization and, at the same time, indicated the preferences expressed by the countries concerned. The outcome has been a patchwork of bilateral agreements either including some purely commercial arrangements or setting up a larger commercial and economic cooperation. It is interesting to note, for example, that the GDR, a "sleeping partner" of the Community, thanks to the arrangements appended to the Treaty of Rome concerning intra-German trade, declared that it wished to conclude only a commercial agreement consolidating its already acquired advantages. Conversely, the Community refused, in the agreement signed with Czechoslovakia on December 11, 1988, to go beyond the terms of a minimal commercial agreement concluded on the basis of Article 113 of the Treaty of Rome. This text, which had an evident political meaning, dealt with the organization of a gradual liberalization of industrial exchanges and represented, in the minds of the Brussels negotiators, a precedent that could be applied to other states that, at that time, did not care much about democracy or a market economy (GDR, Bulgaria, and Romania). On the other hand, the agreements signed on September 26, 1988, with Hungary and on September 18, 1989, with Poland took into account the fact

The EC and Central and Eastern

Europe

305

that both countries had engaged in a process of political and economic reforms, and the agreements indicate that the Twelve are ready to help. Founded upon a double legal basis (Articles 113 and 235 of the Treaty of Rome), they include a commercial facet as well as arrangements allowing the development of a many-sided cooperation. That "variable geometry" model set up by the EC that was supposed to last for a while was totally disrupted by the November events in the GDR and the wave of liberalization in Eastern Europe. The policy that the EC had started implementing with Hungary and Poland was extended to other partners, thus becoming somehow standardized. Actually, five more commercial and cooperation agreements have been negotiated and signed since the fall of the Berlin Wall, with the USSR, Czechoslovakia, the GDR, Bulgaria, and Romania. Meanwhile, it is clear that the agreement signed with the GDR has been somehow a stillborn agreement—because of German reunification, it is no longer applicable. As for the agreement signed with Romania, in October 1990, its implementation depends upon the actual progress that country makes toward democratization. Having in common the same legal foundation (Articles 113 and 235 of the Treaty of Rome) and all being nonpreferential, these agreements provide for the implementation, according to some details adjusted to each country in particular, of a standard model instituting better access to the Community market and defining several cooperation frameworks. Concerning trade, both sides benefit from the most-favored-nation clause. But the most interesting provision is related to the gradual abolition, by the Community, of quantitative restrictions imposed upon exports coming from the East (which represent about 5 percent of their total exports). These restrictions will be totally abolished by December 31, 1994, on exports from countries that are members of GATT (Hungary, Poland, Romania, Czechoslovakia) and by December 31, 1995, on export, from the nonmember countries (USSR and Bulgaria). All these agreements provide, in case of major difficulties, safeguard measures. Moreover, in order for the Community to avoid the consequences of dumping, a price clause guarantees that exchanges will take place at market prices. Finally, each agreement includes an article providing for the development of exchanges on the basis of nondiscrimination and reciprocity, which ought to facilitate the penetration of Eastern markets by Western European products. But that mutual agreement might go unheeded as long as the legal framework remains unchanged in the East. As regards cooperation, the arrangements that have been made constitute a framework as well as a catalog of possibilities more than mutual commitments implying compulsory results. They consist, essentially, in the listing of principles giving the Community the opportunity to support the development of a certain number of sectors (statistics, agriculture, energy, environment, and transport). But no financing has been provided for this cooperation, which represents a major difference

306

External

Relations

compared to other cooperation agreements (Lomé or Mediterranean). Therefore, the arrangement known in the Brussels vocabulary as the "Canada Clause" is essential for the concerned countries. That clause 1 recognizes that the Community policy is entirely compatible with bilateral cooperation agreements signed by member states, including financial aid that can be, sometimes, very important. 2 At the institutional level, a joint commission composed of representatives of both the Community and the country concerned will guarantee the implementation o f the agreement and provide a framework in which its possible development can be considered. Restructuring

of the Economies:

The Organization

of Aid

Community policy toward Eastern European countries regarding aid for the restructuring of their economies has developed from an initiative decided by the "industrialized countries summit" in Paris in July 1989. The Seven actually asked the Commission of the European Community to take the lead in action aimed at supporting the reform process in Poland and Hungary. Other O E C D members rapidly joined that undertaking, followed by several international organizations ( E I B , O E C D , the International Monetary Fund [IMF], the World Bank), as observers. Thus the Group of 24 3 was created to coordinate the aid aimed at restructuring the Polish and Hungarian economies. The Commission has presented the Group of 24 with a joint aid program— the P H A R E program—which it has accepted. Because o f the upheavals taking place in Eastern Europe, strong pressure has been exerted since late 1989 to extend that action to more countries. After having defined in December 1989 the criteria for benefiting from that program (introduction of a multiparty system, organization of free elections, steps being taken toward a market economy), the Group of 24 decided, on July 1990, to have Bulgaria, Czechoslovakia, the G D R , and Yugoslavia benefit from that program. However, it has postponed the extension of that program to Romania until the present regime gives more evidence o f its progress toward democracy. Within the framework of that program, the Community has favored some main intervention lines, the beneficiaries o f which have been essentially Poland and Hungary. A first series of measures ought to facilitate the access to the Community market for Eastern European products by going far beyond what has been provided for by the agreements signed in 1988 and 1989; thus, some o f the arrangements made have become obsolete. On January 1, 1 9 9 0 , the Community unilaterally abolished the specific quantitative restrictions previously to be abolished in 1995 and postponed the nonspecific restrictions for one year, the latter arrangement being renewable. The E C has also decided to extend the system of generalized preferences (normally reserved to developing countries) to Central and Eastern European

The EC and Central and Eastern

307

Europe

countries, which also means that, in that framework, the Twelve will make some concessions regarding agriculture. A second set of measures aims at improving the situation of the agricultural sector by delivering some products (the income from the sale of these products will go to a special fund to help small farmers) and by providing some production means (fertilizers, cattle feed, and pesticides). A third type of measure concerns training aid, which the European Community considers particularly important because it has created especially for that purpose the European Foundation for Training and the Tempus program, which opens up some of the Community programs (ERASMUS, COMETT, LINGUA) to Eastern European countries. Finally, special attention has been paid to the promotion of investments—especially within the framework of joint ventures—and to aid for various privatization processes. This ambitious program has led the Community to adopt the necessary budgetary measures in order to find a multi-annual financing, which needs to gradually move from 500 million ECU in 1990 to 1 billion ECU in 1992. Added to that amount are the loans granted by the EIB, in particular for the setting up of joint ventures or the financing of projects having priority (telecommunications and transport). In the future, EBRD interventions are likely to be equally significant. This new organization (10 billion ECU capital) was created on the initiative of France on May 29, 1990, and with the support of the European Council of December 1989 and is composed of forty-two shareholders. The European Community and its member states hold 51 percent of its capital and eleven of the twenty-three seats on the board of directors. That organization's task is to mobilize funds on capital markets in order to accelerate economic restructuring, to help countries move from a planned economy to a market economy, and to promote private enterprises and entrepreneurship. Toward a New Type of Association

Agreement

Trade and cooperation agreements known as "first generation" agreements have constituted, along with the enlarged PHARE program, the main axes of a policy that has tried to adjust to the accelerated development of Eastern Europe. But from now on, that policy must aim for a more structured relationship, better adjusted for the organization of a continent that is no longer under the influence of the Cold War. In that perspective, the Community has started considering which sort of association policy founded upon Article 238 of the Treaty of Rome would be best suited to the mutual interests of the engaged partners. When presenting its plan for "European agreement," the Commission wished to materialize the specificity of a relationship based upon "geographical proximity, common values, and growing interdependence." In that context, it is evident

308

External

Relations

that involvement toward democracy and adhesion to the market economy system are the sine qua non conditions for such an agreement to be concluded and that, if necessary, that agreement could be either postponed or frozen in case democratic principles and human rights would not be respected. The disparity in political and economic conditions in Central and Eastern Europe and the unequal progress toward a rule-of-law state militate in favor of association formulas bilaterally linking the various states to the Community. But this does not mean that a standard agreement that would be organized around some fundamental concerns should not be set up. Given the present stage of thought, the Community has a double objective. On the one hand, the gradual installment of a free trade area along with a reinforced cooperation in numerous fields stresses the cultural dimension. On the other hand, the implementation of a political dialogue is notably important at a time when a "new European architecture" is on the way. An appropriate institutional framework—an association council or a joint parliamentary commission—should help manage the agreement. Which

Place

for

the

USSR?

When finalizing that flexible and evolutionist cooperation with its Eastern neighbors, the problem of which relationships were going to be set up with the Soviet Union has proved delicate from the beginning and still is today. Actually, structural considerations (the USSR has the status of being both European and Asian in its military and strategic power) as well as questions about the actual impact of perestroika and about the chances of consolidation of the starting reform process are involved. After some initial divergences, in particular the answers given to the proposals made by Gorbachev for a "Common European House," the Community's policy vis-à-vis the USSR must be cautious but, at the same time, constructive. It combines effective support to Gorbachev's line of action with the installment of an evolutive cooperation framework. The cooperation agreement, signed in December 1989, represents, in that respect, a framework more than a real contract. Accompanied by political dialogue, it indicates that the Community is ready to establish a real cooperation with the USSR; its intensity will nevertheless depend upon the internal evolution of that country. If the Community, because of the reasons already mentioned, does not plan to include the USSR in the association system that the European agreements are going to constitute, it does not want, however, to marginalize it. The decisions taken by the European Council in Rome, in December 1990, prove it: in 1991, a 750 million ECU emergency aid (food aid), accompanied by a 400 million ECU technical aid program, will be granted to Moscow.

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Main Axes of the Twelve's Ostpolitik One can witness, therefore, the gradual emergence of main axes in the Community's policy toward Eastern and Central Europe, which, far from being rigid, is constantly presenting new projects and initiatives in relation to an ever-changing situation. There are a few landmarks in that evolution. All the steps taken by the Twelve demonstrate their global approach. As the European Council in Rhodes in December 1988 had wished. Community policy insists upon the political consequences of envisaged actions and upon the global nature of a venture aimed at integrating, in the general framework of relationships with Eastern countries, all political, economic, and cooperation aspects. Thus, it is not surprising that the steps taken by the Twelve indicate a real progress toward more coherence (according to the meaning given to that term by Article 30, paragraph 5, of the Single European Act) between the two pillars of European integration, which until then had been kept more or less separated: political cooperation on the one hand and Community policies on the other. In this respect, it is remarkable that the necessity for a real ostpolitik encouraged a global approach in both actors and procedures. For instance, as regards the European Council in Madrid (June 1988), the working document used by the Heads of State and Government had been jointly prepared by the presidency, the Commission, and the Secretariat of Political Cooperation. Moreover, the Commission has been granted an ever-growing role as far as "high politics"—until then a reserved sector—is concerned. Formally, that development has materialized in the more and more frequent use of the following formula: "the Community and its member states." Because of this global approach and the search for coherence, parallelism between economic negotiation and political dialogue has been reinforced. Those two dimensions are found in the relationships established with each country, including the USSR. Basically, this dialogue concerns all questions related to the CSCE process and to the elaboration of a new European order. But, at the same time, this dialogue gives the various concerned interlocutors a broad opportunity to exchange views on the main international problems of the day. The logical consequence of the Community's approach is the setting up of a differentiated policy for each country. After having rejected the eventuality of a policy that would have created an unfounded parallelism between the EC and COMECON, the Twelve chose to establish bilateral relationships with each of the Eastern countries. But they did so while taking into account the progress made toward political democratization and market economy. The relationships created by the EC with those countries have, therefore, taken into consideration their internal situation and accompanied the progress realized in the field of political and economic liberalization. For

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example, the limited commercial agreement concluded in 1988 with Czechoslovakia was transformed into a cooperation agreement after the 1990 election. The case of Romania is a contrasting illustration of that differentiated policy: an agreement was finally signed, in October 1990, between Brussels and Bucharest, but the Community made it clear that it will come into effect only if the Romanian regime shows concrete signs of democratization. Also, one finds the same conditionally in the association formula set up by the planned European agreements. The transition from cooperation to association will be, in those agreements, clearly subordinated to the consolidation of democracy and the establishment of a market economy. The Community's ostpolitik has played a great role in the Community asserting itself as an important actor in the international game. The strong attraction exercised upon Central and Eastern European countries by the political and economic success of European integration has been amplified by the major assets provided by the existence of a dynamic external relations policy. In order to fulfill the demands of the East, the EC has drawn greatly on the possibilities offered by the Treaty of Rome. For example, the trade policy (Article 113) and the opportunities for cooperation built upon Article 235 have provided a legal basis for the measures taken by Brussels. In the same way. Article 238, which indicates the rules to be followed for an association with the Community, is going to be the founding framework of the European agreements yet to come. More than anything else, the experience the EC has accumulated in terms of trade and cooperation policy with third countries or in the field of operations (food aid, for example) has allowed it to become the privileged interlocutor for Eastern Europe. The decision taken in July 1989 by the "industrialized countries summit" to entrust the Commission with the task of coordinating the operation PHARE meant that it recognized the expertise of the EC in the field of aid policy, thus giving it the direction of the operation Group of 24.

Conclusions Much still needs to be done to define and implement a real common ostpolitik. All the steps taken until now in that direction appear in fact to be secondary compared to the cooperation set at a bilateral level by some member states, and financial aid granted by the Community budget is obviously small compared to the credits granted through bilateral agreements. But it is also obvious that the two superpowers nowadays confer to the Community a political and economic legitimacy that they had, until then, either refused to recognize or tried to bargain over. In the context of the intergovernmental conference on political union, the Twelve will have to consolidate the beginnings of a European foreign policy engendered by the

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upheavals in the East. The ostpolitik of the Twelve—and, in particular, the European agreements to come—represent, along with the policy followed by the Twelve in the CSCE framework, important contributions to the new European architecture. At a time when divisions caused by the former order no longer exist and when certain countries (Hungary and Czechoslovakia) do not try to hide the fact that they want to join the EC, the Twelve face a delicate situation. In order to prevent the European union they are setting up from being a new obstacle to unification of the continent, they are forced to invent a model capable of overcoming the dilemma of broadening versus deepening of the Community. The proposal to establish a coherent and structured association policy is the first step toward a reorganization of the European space around the EC. This proximity policy—a policy that Delors cares very much about—would lead to the constitution of these famous "concentric circles" aimed at organizing different levels of cooperation and at postponing too hasty adhesions to the EC, which would not profit any of the concerned parties. Even though this project is intellectually satisfying, it is, nevertheless, difficult to translate into terms of legal and institutional substance. In particular, it has to solve the question related to the substance of each circle, the problem of how to move from one to the other, and of the cooperation one could establish among the three circles. As the relationship proposed to Central and Eastern European countries is taking shape, some uncertainties still exist regarding the part that EFTA (the interests of its members being very divergent) is willing to play in an intermediate circle constituted by a "European economic space." Some questions still remain about the place that the USSR ought to occupy in that construction, given the fact that its present internal situation currently excludes it from a possible association, even if the Community does not wish to marginalize it. Because it cares about contributing to the reshaping of the European space, the Community has also played an important part in the CSCE process, thus answering, in particular, the proposals for a " C o m m o n European House" made by Gorbachev. Traditionally very active in the various stages of that process, thanks to the European Political Cooperation, the Twelve have quickly let the USSR know that the CSCE represented, from their viewpoint, the appropriate framework for a pan-European cooperation. This is what they have confirmed by accepting, in January 1990, that a summit of the thirty-five states of the CSCE be organized, but at the same time, they imposed a certain number of conditions clearly defined at the time of the European Council in Dublin in April 1990. First, the considered new European order should not lead to the erasing or the short-circuiting of the Community by transforming it, like other regional organizations, into a mere instrument of a larger European cooperation.

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Therefore, the envisaged process cannot be, at any rate, either an alternative to or a substitute for Western European integration. Second, the Twelve have stated again their deep and permanent interest in a well-balanced development of the CSCE process, which implies that the enlargement of the security dimension (confidence-building measures and disarmament) be accompanied by parallel progress in related problems to the third basket (the human dimension), the necessary advance of the rule-of-law state, and the protection of national minorities. Finally, as far as the institutionalization of the process started in 1973 is concerned, the Twelve have wished to find a more political than bureaucratic formula as well as a flexible institutionalization founded upon regular meetings of Heads of State and foreign affairs ministers.

Notes 1. All trade and cooperation agreements include a specific clause known as the "Canada Clause" w h i c h explicitly gives to member states the possibility to c o n c l u d e bilateral agreements with central and Eastern European countries. That clause has been named "Clause Canada" because it was used for the first time in 1976 at the time of the EC/Canada agreement. 2. For example, France has granted 4 billion francs of aid to Poland for three years and the FRG has granted 3 billion DM. 3. The m e m b e r s of the Group of 24 are the T w e l v e of the EC, the Six of E F T A , the United States, Canada, Japan, Turkey, N e w Zealand, and Australia. The IMF, the O E C D , and the Paris Club participate as observers.

22 The EC and German Unification Lily Gardner Feldman

Revolution and reform in central and Eastern Europe have served as both challenge and catalyst for the EC's progress and purpose. Nowhere was this more true in 1989-1990 than on the issue of German unification, deemed by the Commission "the most important immediate effect of the liberalization of Central and Eastern Europe." 1 The process of forging one Germany has tested significant aspects of the EC's self-definition: institutional robustness, administrative flexibility, technical sophistication, political vision, and fundamental values. So far, the EC has passed the test by crafting quickly and imaginatively comprehensive responses to the four central questions German unification has posed for the Twelve: (1) how to incorporate 16 million people and an ailing economy, (2) how to achieve balance between Germany's traditional Western commitment and its new Eastern orientation, (3) how to maintain German engagement in the Community's pursuit of political union, and (4) how to encourage German leadership in the EC without German dominance. In the formative period of German unification, EC approaches have evolved through three broad stages, chiefly defined by the pace and nature of German integration. The first stage (from the breaching of the Berlin Wall in early November 1989 until after the first free election in East Germany in mid-March 1990) was one of initial assessment and gradual EC adjustment, resting on the assumption that the GDR would or should exist, at least temporarily. The second stage (from the Dublin summit at the end of April 1990 until after the signing of the election treaty in early August) was one of genuine acceptance of unification, recognizing the form it would take (economic, monetary, and social union; accession of the new Länder to the Federal Republic) and planning for its measured implementation. The third stage (from the signing of the unification treaty at the end of August until after the first all-German election in early December) was one of final action, resulting from the quickened pace of formal unification. The Community's moves frequently have been reactive, inspired by the 313

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content and speed of the unification process. Yet for the sake of its own internal agenda and its external profile, the EC has been reluctant to relinquish initiative entirely to the Germans or those legally mandated to finalize the process of unification (the "Big Four"). Therefore, the Community also has attempted to shape the environment in which structural unification was born and actual unification will mature. Progress toward political, as well as economic and monetary, union (Chapters 2 and 14), and evolution of a structural relationship to Central and Eastern Europe (Chapter 21) provide, then, the larger context for analyzing the Community's response to the dramatic events in Germany during 1989 and 1990. Although the process of EC adjustment to a new Germany has been successful, nonetheless it has revealed division among EC institutions and differences among member states. This chapter examines the nature of the German challenge from the EC's perspective and the multileveled response in the Commission, the Parliament, and the Council to both the short-term task of integrating the former German Democratic Republic (GDR) and the longterm challenge of anchoring the new Germany in a united Europe. The analysis here focuses, then, on the Community's response to German unification, and not on Germany's perception of the relationship between German unification and Western European integration. It is clear that, despite some episodes of hesitation in principle and in practice, Germany's consistent reaffirmation of its Western European identity during the past year has smoothed the EC's adaptation to the reality of one Germany. Chancellor Kohl articulated the dominant view in both the governing coalition and the opposition when he proclaimed the following in his inaugural to the first allGerman parliament: "Germany is our fatherland, Europe our future. The nucleus and basis for Europe's integration are to us the European Community, which we aim to develop into a European union." 2

The Opening of the Wall: Celebration and Concern The

Commission

The bifurcated tone of the Commission's approach in this initial period— concern coupled with optimism—was set in the days surrounding the opening of the Berlin Wall. Vice-President Martin Bangemann's visit to the GDR at the beginning of November 1989 aroused contradictory concerns within the Commission, particularly on the part of Vice-President Frans Andriessen, that the Federal Republic's preoccupation with the GDR might divert energy from "1992" and other integrative programs and that the Federal Republic's agenda for East Germany might dominate the EC's assessment of upheaval in the East. Right after the Wall opened on November 9, President Delors expressed solidarity with the East German people for their pursuit of self-determination,

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and optimism toward the West German government for its irreversible commitment to political union. He repeated these themes in his January 1990 address to the European Parliament in which a dualistic approach informed the Commission president's image of the GDR in the East European constellation. The GDR was a special case, already linked to the EC by the Treaty of Rome (particularly in the protocol on internal German trade that permitted East German goods to enter West Germany duty-free), leading to the conclusion that "there is a place for East Germany in the Community should it so wish." 3 However, initiatives toward East Germany should not eclipse cooperation with the other central and Eastern European countries (or the rest of Europe). Delors felt "history pressing [the EC] to respond" with immediate action at two levels: externally, through practical and multifaceted aid for economic and political restructuring in the East, and internally, through institutional and political acceleration of the process of integration. Dualism of approach should be accompanied, in Delors's view, by mutual reciprocity of process. Progress toward integration represented for Eastern Europe ana East Germany both stimulus for change (the 1992 program) and a model for the future (pluralism, democracy, and prosperity). Similarly, German self-determination served as both an impulse for union in the EC (economic and monetary union, political community) and as an exemplar of speedy change (the rapid reopening of the Brandenburg Gate). On a practical level, the Commission moved on two fronts. Under a mandate from the Council of Ministers, it began negotiating a trade and cooperation agreement with the GDR. The Commission also instituted in February weekly meetings of a special group of commissioners, chaired by Vice-President Bangemann, to analyze the implications of German unification for Community policies. The inclusion of a representative from the West German interministerial working group on German unity reinforced structurally Delors's sense of a continued symbiosis between German unification and EC integration. The special group identified three urgent tasks: (1) stemming the human tide from East to West Germany, (2) assessing the effects of proposals for German economic and monetary integration on the EC, and (3) familiarizing East Germans with the EC. On an institutional level, in this initial stage the process of German selfdetermination led to reinvigoration of the Commission's proposals for economic and monetary union (for example, in its March 1990 paper "Economic and Monetary Union: the Economic Rationale and Design of the System"), rededication to the 1992 program (for example, in its March 1990 paper "Fifth Report Concerning the Implementation of the White Paper on the Completion of the Internal Market"), and renewal of initiatives in European Political Cooperation (for example, its active participation in the March-April CSCE meeting on economic cooperation). Initial concerns about unification had not dissipated entirely by the end

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of March, but the Commission was by now well positioned in terms of organizational structure and overall goals to take on the challenge. The Council and European

Council

The combination of concern and hope also marked the attitude of member states both individually and collectively (in the European Council and the Council of Ministers). Most member states had concerns about German unification either for psychological or political reasons of history and status or for fear of the economic and practical consequences. Yet, broadly speaking, they chose two different routes for confronting German unification: containment or opposition. After initial hesitation, President Mitterrand, together with Spain and Italy, represented the realists for whom a united Germany was an inevitability (not necessarily immediate) to be bound (preferably in advance) through "deepening" the Community. Prime Minister Thatcher shouted the whispers of the Netherlands and Belgium that unification would upset the political and economic balance in the Community and should be avoided. Thatcher's notion of "widening" through Eastern European membership and of dilution would constrain a united Germany's potential for expansion and concentration of power within the EC. The realists' fatalism and the opponents' caution were merged in the final declaration of the December 1989 Strasbourg European Council meeting. In a carefully drafted section, Germany's fellow members approved the goal of a united Germany, but under certain conditions to maintain stability, balance, and progress for Western European integration and allEuropean unity: "We seek the strengthening of the state of peace in Europe in which the German people will regain its unity through free selfdetermination. This process should take place peacefully and democratically, in full respect of all the principles defined by the Helsinki Final Act, in a context of dialogue and East-West cooperation. It also has to be placed in the perspective of European integration." 4 The nexus between German unity and Western European integration was demonstrated concretely by the agreement of the Council, excluding Thatcher, for the intergovernmental conference on economic and monetary union before the end of 1990 (Kohl had vacillated previously) and for the Social Charter. With the proposal for German economic and monetary union on the table and the framework for the "two plus four" talks in place, by the February meeting of the EC foreign ministers in Dublin, the Council began the transition to a more active support of German unity. Foreign Minister Genscher's pledge of full consultation in the process of creating a "European Germany" launched a regular interaction between Germany and the Council, similar to the procedure with the Commission. Doubts about Germany's commitment to the EC appeared to weaken in

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EC Council fora during the winter. Yet throughout this period, outside the EC framework the member states continued to build their own concepts and structures for a new European architecture as competitors or complements to the German design: President Mitterrand's all-European confederation; Foreign Minister de Michelis's regional pentagonal initiative (Italy, Hungary, Austria, Yugoslavia, and Czechoslovakia); and Thatcher's revived NATO. And within the EC framework, there were still profound apprehensions about the practical implications of absorbing the GDR, leading to Foreign Minister Douglas Hurd's call for a Commission study in time for the special April European Council meeting on German unification. The

Parliament

The Parliament's most comprehensive resolution on German unification came at the end of this period (April 4, 1990), although it had debated separate aspects of the question from the beginning—for example, its November 23, 1989, resolution calling for reaffirmation of the GermanPolish border. As with the Commission and the Council, German unification evoked mixed responses in the Parliament. The triumph of self-determination was a source of satisfaction, as was the Federal Republic's recommitment to the larger principles of the EC. However, the Parliament shared its fellow institutions' concerns about process (the need for an acceleration of political union to keep up with the tempo of German unification); power (the necessity for transparency of German intentions); problems (the political, economic, and social consequences for the EC, and the internal and external implications); and participation (the call for the East German Volkskammer's collaboration with the European Parliament on all aspects of German unification and European integration). The Parliament also sharpened the issues and expanded them. It emphasized the opportunity to strengthen the principles of democracy, human rights, and the rule of law. It recognized German unification as a catalyst for a new European security system and urged a clearer connection between the EC political union (particularly European Political Cooperation) and Helsinki processes. It upheld the notion of equality of representation regardless of a member state's power. It warned against widening the democratic deficit and argued for Parliament's full participation in negotiating the G D R ' s incorporation. It elevated certain problems in the EC, such as German unification's implications for the environment, the budget, the Third World, and Eastern Europe. And, finally, it offered a proposal for a preadhesion Community aid package. In this period of assessment, the Parliament, like the Commission and the Council, set up a mechanism, in March 1990, for evaluating the impact of unification. Echoing the other institutions' desire for consultation with

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Germany, the Temporary Committee involved members of the Volkskammer as observers. Its work, like that of the Commission, took off after the Dublin European Council meeting in pursuit of German unification that was to be kept on the European track.

The Prospect of German Unification: Problems and Solutions The Council

arid the European

Council

The outcome of the first free elections in the GDR (March 18) and Prime Minister de Maizi£re's commitment to German unity (April 19) moved German unification into a more definitive stage and Council reactions into a more assertive phase. By now, President Mitterrand had reverted to his preunification strategy of meeting the German challenge through bilateral partnership, not competition. Prime Minister Thatcher had returned to her earlier pragmatism of confronting the European challenge through obduracy, not opposition. The Franco-German joint initiative on political union revived the dyad as motor for EC progress and soon won majority approval (with the exception of the United Kingdom and Denmark) at the April foreign ministers' meeting in advance of the Dublin European Council. There was less agreement on the security dimension of political union, but it was clear that the new German and European environments rendered the topic unavoidable. All accepted that the GDR would be integrated into the Community as quickly as unification permitted. Doubts remained, however, about the potential for expanded power in the EC (Luxembourg opposed the idea of granting Germany more seats in the European Parliament) and for reduced financial commitments (Ireland, Greece, and Portugal called for an automatic stabilization fund). Uncertainty in some member states about aspects of German unification did not prevent the European Council from warmly welcoming the overall process. At the end of April, just one week before the initial round of the "two plus four" talks, the European Council went beyond its Strasbourg declaration by heralding unification's "positive and fruitful contribution," internally to economic growth and the Community's political ideals, externally to peace and security in Europe. The Strasbourg linkage among the three levels of European unity— German unification, Western European integration, and all-European cooperation—was reiterated in the Dublin Council's general approval for the institutionalization of the CSCE, specific support for Gorbachev's proposal for a fall CSCE summit, and detailed plans for EC involvement in the process. The importance of CSCE—as reinforcer of the EC's values, as stage for EC leadership, as competitor in the new definition of European security— resurfaced in the European Council's subsequent meeting in Dublin at the end

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of June. A coordinated and purposeful EC position toward CSCE was also a way to embed Germany's growing initiatives for a formalization of the Helsinki process. The same logic applied to central and Eastern Europe: a coherent and comprehensive EC approach would promote synergy, rather than competition, between Germany's Western and Eastern European orientations. Institutionalization was by now also the preferred mechanism for anchoring Germany internally in the EC; just seven months after Chancellor Kohl raised the prospect of unity in his "Ten-Point Program for Overcoming the Division of Germany and Europe," the Twelve agreed unanimously at the end of June on the dates for the intergovernmental conferences on economic and monetary union and political union. And they welcomed the first formal step toward one Germany: the inter-German state treaty was signed in May and ratified in June. The

Parliament

As in the first stage, the Parliament's most extensive reaction to German unification came toward the end of this period in the interim report of the Temporary Committee (also known as the "Donnelly Report," after the committee's rapporteur, Alan Donnelly) and subsequent resolution. In May, the Parliament had expressed a short opinion critical of the European Council for overzealous acceptance of West Germany's interpretation that the GDR's incorporation into the EC required no amendment of the treaties, and of the Council's rejection of Parliament's proposal for a special GDR aid package. Now, in July, the Parliament eschewed the "classic parliamentary pattern of a final report" and issued an interim report, in advance of the Commission's specific proposals for GDR integration, for two reasons: the rapidity of German unification (the state treaty on economic, monetary, and social union went into effect on July 1), and the slowness of the Parliament's past response (unlike the Commission, it remained "completely uninvolved" in the state treaty negotiations). Overall, the report sustained the Parliament's earlier sense of ambivalence: it viewed the German unification process as "highly uncertain, but nevertheless manageable," bringing short-term problems but long-term promise. The July 12 resolution concluded that German unification would strengthen the Community politically and economically, but only if derogations and transitional measures were not permitted to weaken central Community objectives, namely the internal market and economic and monetary union. Despite difficulties in collection and interpretation of data, the report was able to evaluate comprehensively the nature of the East German economy and its implications for the EC. The report emphasized four aspects of the issue: (1) unique character, (2) practical effects, (3) institutional implications, and (4) budgetary consequences.

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Unique character. Unique features were viewed both positively and negatively by the Parliament. The uncertainty of the process—conversion of a centrally planned economy into a market system—was manageable because of the GDR's standing as the most developed economy in Eastern Europe and the Federal Republic's status as the largest and most powerful economy in the EC. Other unique features were more problematic. Previous territorial increase of the Community was predicated on formal accession and lengthy negotiations, neither of which would occur here. As a result, the process would be highly dependent on goodwill and informality, perhaps depriving the Parliament of formal involvement, and certainly involving delegation of powers to the Commission. Practical effects. Practically, in the Parliament's view, German unification would have advantages for the EC politically (the extension of freedom and democracy, the model of union); economically (the provision of new markets for EC goods and services, the stimulus to economic growth, the supply of scientists for research and technology); and socially (the GDR example for women's rights and child care). At the same time, there was the potential for major practical problems, including inflation and higher interest rates. The report identified specific problems in five separate areas: the internal market, community policies, economic and social cohesion, the environment, and external policy. The poor quality of East German products could challenge both principles of the internal market: mutual recognition of standards and essential requirements. Aids and subsidies necessary for industrial restructuring and modernization might threaten competition policy. East German agriculture would pose many problems, including size, form, and productivity, rendering its conversion to a market system and adaptation to the CAP very difficult. Fisheries would be no less problematic, given their magnitude and reliance on international agreements unmatched in the EC. Transportation raised issues of investment, cabotage, and air traffic. The East German energy system would have to be weaned from brown coal and nuclear energy. East German economic renovation and social upheaval would have a severe impact on the Community's structural funds, particularly the regional fund, requiring an EC commitment, in the view of the Parliament, to foreswear transfers from existing disadvantaged regions. The GDR's environmental nightmare—air and water pollution, acid rain, and health hazards—posed the most dramatic threat to EC policies and would require major financial assistance and some derogations from Community standards. Environmental policy toward the GDR should be framed, according to the report, in terms of Eastern and Central Europe as a whole. This larger framework was relevant in other areas too. The Parliament was concerned that

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an abrupt redirection of East German trade away from Eastern Europe and the Soviet Union would have disastrous consequences for those economies. In the EC's pursuit of a coherent policy toward central and Eastern Europe, the GDR's contacts and experience would cede it a special place as economic and political bridge to the East. Similarly, the Parliament welcomed German unification's catalytic function in engendering new pan-European security structures, particularly in the CSCE framework. Institutional implications. In addition to focusing on the Parliament's role in integrating the GDR, particularly its relationship with the Commission, the report focused on the issue of increased German membership in the European Parliament. The existing balance between equality of representation and proportionality would be strained by the addition of 16 million East Germans. Any change in the number of German members should be accompanied by the final adoption of a uniform electoral law, according to the Parliament. Budget consequences. Uncertainty—in terms of statistics, the source and degree of financial help, and the effect of EC derogations—complicated the calculation of German unification's cost to the EC. Nonetheless, balancing out new revenues and expenditure, the Parliament concluded there would be a "considerable but not overwhelming new burden" and that it must derive from new sources. The Parliament thought long and hard about the problems and opportunities associated with German unification; its extensive treatment of the issue was paralleled by a vast Commission study. The

Commission

In its communication (April 19) for the Dublin European Council, the Commission reached three firm conclusions regarding unification: (1) conditions existed for a dynamic and smooth process, (2) it should occur in an EC framework, and (3) it would reinforce and accelerate the process of EC integration. After the European Council special meeting, in a major technical undertaking similar to an accession procedure and in close consultation with the German authorities, the Commission evaluated the mechanisms for harmonious integration of the GDR in three phases: interim adjustment stage (from German economic, monetary, and social union to unification); transition stage (derogations and transitional measures after unification); and definitive stage (full integration). The Commission's memoranda covered much of the same terrain as the Parliament's report, but, consistent with institutional obligations, they emphasized the issue of German unification's compatibility with Community law as well as specific proposals for the adjustment of secondary

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legislation. The comprehensive cost-benefit analysis took into account new realities, such as the draft unification treaty; underscored positive effects of unification, such as the anticipated .5 percent growth in Community GDP during the first two years; and downplayed fears, such as the effect on investment patterns elsewhere in the Community. Compatibility. Two factors led the Commission to concur with the Parliament's assessment of compatibility between the EC and the state treaty on economic and monetary union and the EC: (1) the state treaty's provision for gradual alignment of GDR law with Community law and (2) the Community's June and July legal adjustment of external trade arrangements to gradually incorporate the GDR into the Federal Republic's customs system and Community law before unification. As a result of its direct involvement in the negotiations for the second treaty (political unification), the Commission sustained its optimism but anticipated some practical problems, for example in areas of Lander competence. Adjustment of secondary legislation. In the Commission's view, the bulk of Community legislation would apply immediately on unification. Adjustments would fall into two broad categories: technical adjustments based on the GDR's economic and legal circumstances, and transitional arrangements lasting, for the most part, until December 31, 1992. Concerning the internal market, the Commission's findings with respect to implementation of EC law at the time of unification can be classified into three categories: (1) derogations, transitional measures, and adjustments (technical rules, public procurement, recognition of diplomas, consumer protection, and statistics); (2) substantial application (competition and state aids, with a resolve for constructive application of the rules, and exceptions in the steel and shipbuilding industries); and (3) full application (customs union, industrial and intellectual property, free movement of persons, financial services, and company law and taxation). Full application of law would also obtain for the ECSC Treaty. However, in the common policies arena, the Commission deemed some derogations and transitional measures necessary in agriculture, fisheries, transportation, and energy but insisted they should be limited in scope, number, and duration. The transition would be considerably longer for the environment—up to four years—except for nuclear safety, where there would be no transitional measures. For the social cohesion complex, exceptions would apply only in health and safety and education and training. Budget consequences. The Commission recognized the importance of the E C ' s structural funds to buffer social dislocation and ameliorate economic, environmental, and administrative problems and agreed to derogations permitting flexible and fast procedures. However, as proposed by

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the Parliament, financial intervention should derive from additional resources to avoid weakening of prior commitments to existing Community regions. The Commission also estimated the general financial impact of the Community's physical expansion (population and agricultural area by 5 percent, GNP by 2 percent) and programmatic growth resulting from unification. With the caveat of uncertainty due to a poor statistical base and fluid political events, the Commission concluded that GDR integration would cost the EC aproximately .5 billion ECU per annum through 1993 (some 2 billion ECU a year for expenditures, mainly for structural funds and agriculture, offset by revenues of 1.5 billion ECU). Institutional implications. The Commission report addressed the institutional issues of delegation, consultation, and decisionmaking flagged by the Parliament's report. The Commission's proposed "flexibility clause" involved a general delegation of powers to the Commission to fashion further adjustments and transitional measures on the basis of new information. And a specific delegation, to the German authorities, was suggested by the derogation mechanism for the internal market. The Commission recognized that procedural changes of this nature heightened the need for consultation with the Parliament. The Commission also envisaged a new decisionmaking procedure to permit its application of provisional measures in the event that formal German unification preceded final adoption by the Parliament and the Council. External aspects. From the time of Delors's initial response to German unification, the Commission was keenly aware of the new Germany's implications for the E C ' s external relations, particularly in central and Eastern Europe. After a lengthy review of the GDR's extensive inventory of international treaties, the Commission reached three conclusions: (1) most Community treaties would apply on unification to the GDR territory; (2) the Community should exercise flexibility in assuming GDR treaty obligations, depending on content and competence; and (3) trade arrangements with the European CMEA members should be maintained for products with final destination in the GDR at least until the end of 1991. Although the Commission's report did not detail unification's effect on the building of a larger Europe, it did recognize a "substantial contribution." The Community's capacity for international economic and political leadership was frequently linked by both President Delors and External Affairs Commissioner Andriessen to its internal dynamism, a continuing priority for the Commission (as evidenced in the introduction of its August proposal on economic and monetary union for the intergovernmental conference). In the memorandum on German unification, the Commission once again viewed German unification as a force of propulsion for internal progress.

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By the end of the summer, the three Community institutions had been reconciled to German unification. But as formal unification approached, doubts about its impact on the EC resurfaced.

The Reality of German Unification: Anxiety and Action The

Parliament

The Parliament welcomed the reality of German unification on October 3 and its contribution to union in the EC and harmony across Europe, but its reservations did not disappear. In the reports of the Temporary Committee and the resolutions responding to the Commission's August package, the Parliament repeated both institutional and substantive concerns. On the institutional side, the Parliament focused on the issue of democratic accountability with both frustration and hope. On the one hand, it regretted the large and "highly unorthodox" delegation of powers to the Commission and German authorities when unification preceded pronouncement by the Parliament and the Council on the Commission's package proposals and forced the adoption of emergency measures. On the other hand, it lauded the subsequent cooperation procedure developed among institutions in the adoption, implementation, and supervision of the emergency measures and hoped it would be a model for institutional interaction elsewhere. While recognizing the need for derogations, the Parliament argued for vigilant implementation, cautious prolongation, and democratic control during the transitional period. The Parliament was concerned about its lack of democratic representation for the 16 million East Germans but saw the intergovernmental conference on political union as an opportunity to confront the issue in the broader framework of a uniform electoral law. Substantively, the Parliament stressed the severity of social and economic problems in the five new Länder; the gravity of conditions in agriculture, energy, and the environment; and the danger of discrimination against non-German investors. On the positive side, a democratically united Germany was cast as an essential step in the process of European union and as the critical link between Western Europe and Eastern Europe. The

Commission

Compared to the Parliament, the Commission tended to downplay the magnitude of the effect of German unification on the EC. However, the Commission's basically positive assessment did not prevent President Delors from questioning, in late September, Germany's commitment to economic

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and monetary union and political cooperation in light of contradictions within the Bonn coalition. Moreover, he deemed unambiguous German support for European integration the quid pro quo for EC endorsement of unification. By the time of unification, optimism had returned, giving way to the Commission's "jubilation." And President Delors revisited in a wide-ranging interview with Le Monde the themes of a year earlier: concern and hope, dualism and mutuality. He recognized that German economic expansionism could harm the EC, but he saw it as advantageous if accompanied by a Community rededication to integration. He acknowledged that Germany operated internationally on both multilateral (EC) and bilateral planes, but he saw this as normal member state behavior that would decrease with the Community's qualitative leap forward to political union. He conceded that the process of German unification had raised political fears, but he could not imagine how the EC could have opposed it. He understood the psychological difficulties in achieving genuine integration between the two Germanies, but he valued the moral weight of self-determination. Moreover, without unification a relaunching of the Community would have been impossible, for a divided Germany would have come to see integration as an obstacle to identity, not an opportunity. The simultaneity of the processes enhanced the chance of success all around.5 The Council

and the European

Council

Both the Parliament and the Commission had identified German unification as a building block for a solid Community structure. The test of the member states' capacity to cement the connection was provided by the two intergovernmental conferences. Preparatory activities, such as the October Rome European Council and the joint Franco-German initiative on political union, and the launching session assembled the five elements of the German-European coupling: (1) Germany's firm commitment to the goal of political, economic, and monetary union; (2) acknowledgment of Germany's willingness and ability to play a leadership role in the creation of a new EC; (3) the staunch resolve of Germany's fellow member states, particularly France, Italy, and the United Kingdom, that responsibility for the design of European union must be shared; (4) recognition of Germany as a bridge between East and West; and (5) acceptance of CSCE as the structure to embrace Geimany's pan-European interests. By the time the intergovernmental conferences got under way, it was clear that the process of German unification, both internally and in its impact on the Community, had foreshadowed already the thorny issues the two conferences would have to resolve: unity, identity, democracy, and subsidiarity.

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Conclusion The process of German unification raised four central questions. The Community's response revealed its institutions' strength of purpose and capacity for adaptation. The reaction to the first, immediate question of integrating the GDR demonstrated the technical sophistication and administrative flexibility of both the Commission and the Parliament as they sought to decipher the legal, political, and economic complexities of a moving target. The Commission and the Parliament were keenly aware that successful physical incorporation would hinge on attitudinal change in East Germany. The Commission's extensive information programs in East Germany and the Parliament's efforts for East German legislators' participation were designed to involve the East German people in the affairs of the Community. Transformation of East German parochialism into enthusiasm for the Community addressed the second question of balancing West Germany's increasing orientation toward the Soviet Union and Central and Eastern Europe. The EC's comprehensive structuring of relations with the other half of Europe would further guard against excessive and unilateral German concentration on its Eastern role. The Community shared Germany's recognition that equilibrium between East and West should give way to active cooperation and harmony within a pan-European framework. Support for CSCE satisfied German priorities for a new European peace order and Foreign Minister Genscher's penchant for a "politics of responsibility." At the same time, CSCE fortified European Political Cooperation in practice and in principle (as a model for CSCE institutionalization). The Community's external activities to embrace German interests built on an internal agenda that was now shaped by the third question of maintaining Germany's commitment. Progress toward union was a double insurance: it channeled current German energies for European unity while providing an institutional barrier against their future dissipation. The renewal of Germany's traditional commitment to integration on the basis of equality, together with its constant attention to the daily problems of unification, assigns the fourth question of actual German dominance in the EC to the longer term. Yet the nature of the new Europe's design obviously will affect the structure's future operation. EC member states, therefore, have sought to harness, complement, or oppose German plans for reconstruction. Despite complex problems, institutional differences, and a frantic pace, the EC survived the first phase of German unification with its political vision renewed and its fundamental values intact. As a structurally united Germany attempts genuine integration of its two halves and as a semiintegrated Community seeks full union, German unification will continue to test the EC's progress and purpose.

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Notes 1. C o m m i s s i o n of the European Communities, The European Community in the 1990s: Towards Economic and Monetary Union. Annual Economic Report 1990191 (Brussels: C o m m i s s i o n of the E u r o p e a n C o m m u n i t i e s , N o v e m b e r 30, 1990). 2. "Policy Statement by Helmut Kohl, Chancellor of the Federal Republic of G e r m a n y in the G e r m a n B u n d e s t a g on J a n u a r y 30, 1991," Statements and Speeches 14 (New York: G e r m a n Information Center, January 31, 1991), p. 2. 3. C o m m i s s i o n of the European Communities, "Address by President Delors to the E u r o p e a n Parliament presenting the C o m m i s s i o n ' s p r o g r a m for 1990" (Brussels: Commission of the European Communities, January 17, 1990). 4 . F o r the text of the S t r a s b o u r g d e c l a r a t i o n , see Europe. Agence Internationale d'Information pour la Presse, No. 5 1 5 0 (December 10, 1989). 5. See Le Monde (October 12, 1990).

23 EC-EFTA Relations Rene Schwok

In 1989-1990, the whole agenda of European Community-European Free Trade Association (EFTA) negotiations has been influenced by a unique question: how to create a European Economic Area (EEA), i.e., how to extend the Project 1992 domestic market to the EFTA countries. 1 The EEA should comprise all the EC and EFTA states as well as Liechtenstein: nineteen countries with a total population of close to 370 million inhabitants, accounting for more than 40 percent of world trade. The EEA agreement should be based on the relevant "Community acquis," that is, existing EC legislation with regard to the "four freedoms" (free movement of goods, services, capital, and persons) as well as most flanking and horizontal policies. The expression "European Economic Area" dates back to 1984. It was mentioned for the first time by the joint EFTA-EC ministerial meeting of that year in Luxembourg. The event that triggered the new development of the EEA was the speech of January 17, 1989, by Jacques Delors to the European Parliament in which he proposed to EFTA "a new form of association, with common decisionmaking and administrative institutions." At that time, Jacques Delors reactivated the EEA in order to avoid the EC's historic mission—a political union—being endangered by neutral members. In January 1989, before the end of communism in Europe, Jacques Delors was especially unenthusiastic about attempts by Austria, a neutral country, to apply for EC membership. EFTA has supported the EEA's scheme because it saw it as a good way to accelerate its integration in the Project 1992 domestic market without having to be a full member of the EC. The EFTA Heads of Government formally accepted Delors's proposals at their Oslo summit in March. Afterward, the EFTA countries and the EC Commission began informal factfinding talks in the framework of a High-Level Steering Group (HLSG). On December 19, 1989, a joint EFTA-EC ministerial meeting in Brussels decided that formal negotiations could commence. Exploratory HLSG talks

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took place from January to March 1990. At a meeting in Geneva on April 3, the EFTA ministers declared themselves ready to start formal negotiations with the EC. On May 8, the EC Commission adopted a draft mandate for negotiations.

Motives of an EC-EFTA Rapprochement EFTA as a bloc is the EC's largest trading partner. In 1989, exports to the EFTA countries constituted some 26 percent (against only 19 percent to the United States) of the EC's exports to third countries. On the import side, EFTA accounted for 23 percent of EC imports, whereas only 18 percent originated from the United States. Moreover, the EC ran a trade surplus of more than $4.5 billion with EFTA in 1989. The importance of EFTA for the EC must also be analyzed in a regional perspective. For instance, one should note the importance of the incomes brought by cross-border workers (people who live in France and work in Switzerland) because it represents nearly 50 percent of the income in French areas near the Swiss border. In terms of communications also, because they are in the EC's geographical core, Switzerland and Austria hold the keys of EC north-south exchange development. The EC's rapprochement with EFTA was also motivated by political and ideological dimensions. It is, for example, in Denmark's vital political interest to avoid any schism with its traditional partners in the Nordic Council. One should not forget another element: the EC is a big power for its closest neighbors. Moreover, the Community is the self-proclaimed guardian of the European idea. Therefore, almost instinctively, the EC aims at returning the EFTA countries to the "European fold." If the EFTA countries stay outside the Community, the idea of a united Europe as promoted by the EC would have failed. There cannot be a truly unified Europe without Vienna and Geneva.

EFTA For the EFTA countries, the first incentive for rapprochement was economic—a fear of being left outside of the EC internal market. EFTA is very dependent on the Community: in 1989-1990, around 61 percent of EFTA imports came from the EC and 55 percent of its exports went to the EC. Most EFTA economies are indeed more integrated with the EC than those of the newer EC members, such as Spain or Greece. The rationale of EFTA was the following: if the EC internal market is not extended to the EFTA states, exporters from those countries will continue to pay at EC borders for administrative charges and bureaucratic

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delays. For example, without special agreement, mutual recognition of test and certifications would not be extended to non-EC countries. The nonopening of EC public procurement in the "excluded sectors" could also constitute an important loss of sales for some EFTA firms. Moreover, if they were left out of the internal market, EFTA firms would not obtain the benefits of economies of scale or the effects of competition. EFTA countries would become less attractive investment areas. There are also political problems for the EFTA countries that increased their feeling of being left outside the EC internal market. Four developments in particular have touched citizens of EFTA countries: (1) the Schengen Agreement between six EC countries, which enclaves Switzerland and Austria; (2) the creation of a European passport; (3) the classification of EFTA citizens as aliens in EC airports, forcing them to stand in longer customs and immigration lines; and (4) nonparticipation in ERASMUS, the EC program for student exchange.

Internal Developments in EFTA Countries Austria In July 1989, Austria applied for EC membership. This move was supported by all major political parties and professional unions. The majority of public opinion was also in favor of membership. 2 Only the Greens and the tiny Communist Party refused to support Austrian membership. Austria's economy is closely linked to the EC, especially to Germany. In 1989-1990, around 64 percent of its exports went to the Community. The relative lack of Austria's international competitiveness also reinforced the will to join the EC. Austria does not have as many multinational corporations as Switzerland and also does not benefit from a large capital reserve. But the slogan of "unavoidable membership" also had something to do with domestic considerations. Some business circles used the pretext of membership to promote internal privatization, lowering of taxation, and reduction of bureaucratic interference. To be sure, economic motives were a factor in Austria's drive for membership but they should not be overestimated. Austria's move to join the EC actually preceded any economic analysis. The presence of Gorbachev is an important element in explaining Austrian timing of its move toward membership. In 1989, Austrian leaders were convinced that they should not miss the historical opportunity provoked by Gorbachev. At that time, Gorbachev's authority was seen as fragile and, therefore, Austrian leaders hurried to apply for membership, hoping to get rid definitively of Soviet tutelage. In 1987-1988, both the Soviet Union and the EC were not enthusiastic about Austrian application and expressed publicly their reservations.

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However, after the events of 1989 in Central and Eastern Europe, the USSR and the Community changed their positions and became more favorable to this perspective. At the same time, Austria changed its interpretation of neutrality and declared itself ready to fully participate in European Political Cooperation (EPC) and even to deal with security matters at a European level, staying short of accepting participation in a European army. 3 Norway After Austria, Norway was generally considered to be the next candidate for EC membership because this country is not neutral. Already, the Norwegian government and the economic elite wanted to join the EC as early as 1972. But in a national referendum, 53.5 percent of the people refused membership. The 1972 debate caused major trauma in Norway. Since then, therefore, Norwegian governments have been very careful not to open old wounds. In 1989-1990, the same old trends reappeared: opinion polls continued to reflect the divided national mood over the issue.** Both the leftist and the rightist minority governments were split between the different coalition partners. In the leftist government (until October 1989), the Labor party was itself divided and dependent on anti-EC elements such as the Left Socialist party. The rightist minority government was also split between, on the one hand, the pro-membership conservatives and Christian People's party and, on the other hand, the anti-membership agrarian Center party. The most significant event in spring 1990 has been the conversion of the radical right Progress party to EC membership. This party was not a member of the rightist coalition but held the balance of power in the Norwegian parliament. Sweden Neutrality was Sweden's main reason for not joining the EC. Neutrality was cherished because it is traditionally linked with Sweden's history, independence, prosperity, and identity. Neutrality was also a functional device for the social-democrat government to avoid the liberalization of the economy. It was a means of preserving the specificity of its social-economic model. The supporters of the EC have generally been recruited from the large industrialists and the Conservative party. The opponents were the ruling Socialist party, the Center party (farmers), the Communist party, and the Greens. The Liberal party was officially undecided although informally promembership. Quite suddenly, in September 1990, the socialist minority government

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made a turnaround of almost 180 degrees and declared to support a Swedish E C membership provided that a new security system would emerge in Europe. This new position has also been endorsed by the powerful Trade Union Confederation, the Federation of Swedish Farmers, and the opposition Liberal Party. This position was in line with most opinion polls. 5 This shift of opinion was the result of both domestic economic factors and change in the international landscape. Economically, the years 1 9 8 9 - 1 9 9 0 have been characterized by high inflation, sluggish productivity, and rising wages. In 1989, for the first time, Swedish firms invested more capital abroad than at home. At the international level, the end of communism in Europe contributed to smooth the Swedish interpretation of its neutrality. Sweden did not have to see itself as playing a stabilizing role in the crucial area of northern Europe and as a kind of protector of neutralized Finland. Iceland In Iceland, no political party championed membership. Prime Minister Steingrimur Hermannsson declared that "membership would be one of the worst things that could happen to Iceland." 6 The population, however, seemed to be less opposed to membership. According to a poll, 4 0 percent wanted Iceland to join the EC and this figure rose to 64 percent if other Nordic countries were in favor of applying for membership. 7 Theoretically, Iceland could easily join the EC because it is a NATO country and is not hindered by the neutrality obstacle. But Iceland did not want to be an EC member for both economic and political reasons. Fish is Iceland's main product: in 1989, it represented around 75 percent of Iceland's exports. Fishermen fear that EC ships will compete with them in their national waters and plunder Iceland's main resource. Regions in which fishing is the main economic activity hold around 55 percent of the seats in the Icelandic parliament although they represent only 38 percent o f the population. Historically and politically, Iceland has a tradition of staying outside the mainstream of international relations. Iceland is a very new independent state, created in 1918 and established as an independent republic in 1944. This recentness has created nationalistic feeling and resistance to the idea of "being governed by foreigners." Switzerland Until 1990, Switzerland's membership in the EC was not on the agenda. The Swiss government, as well as most political parties and professional organizations, felt that Switzerland could not join the EC because of political reasons. The Swiss used to stress especially five obstacles:

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1. The specter of a dissolution of the confederation has been raised. Globally, the argument was as follows: in a Europe of regions, Switzerland would lose its raison d'etre. The French-speaking Swiss would join France, the Italian-speaking Swiss would integrate with Italy, and the Swiss Germans would stay alone. 2. Direct democracy is also a strong characteristic of the Swiss. The ability to launch popular initiatives on almost any issue constitutes one of the main characteristics of the Swiss political system. The government can be blackmailed at any time by the prospect of a referendum. Therefore, the government tries to anticipate possible opposition by consulting the vested organizations and political parties at a very early stage of the decisionmaking process in order to get the largest possible approval. Here one finds two well-known features of the Swiss political system: consensualism and consociationalism. 3. Politics toward foreigners constitutes another important reason for Swiss defiance of the EC. In the 1970s, a series of xenophobic popular initiatives paralyzed the federal council on immigration. In the 1990s, the Swiss feared that their land would be sold off to foreign investors. A drastic law (lex Furgler/Friedrich) strongly limits any sale of real estate to non-Swiss. 4. Agriculture is also one of the main motives for not joining the Community. Switzerland is one of the most protectionist and subsidized agricultural systems in the world. EC membership was seen as an open door to EC agricultural products, lower subsidies, sale of fields to foreigners, and more competition. 5. Neutrality is an important motive behind the Swiss refusal to join the Community. The majority of the Swiss population has a deeply emotional attitude toward neutrality. It is therefore not rare that the EC was compared to other attempts to jeopardize Swiss sovereignty. Even in 1990, the EC was still sometimes compared to the Hapsburg's Austria, Napoleon's France, and Nazi Germany. Since mid-1990, however, the Swiss government declared that there would not be incompatibility between Swiss neutrality and EC membership if the Community does not evolve to a politically and securityoriented institution. 8 But the Swiss population was still reluctant, especially in the German-speaking part of Switzerland. 9 Moreover, the Swiss authorities were fully aware that their margin of maneuver was limited. According to the Swiss constitution, any application to EC membership necessitates the majority of not only the whole population but also of the cantons. With this system, 10 percent of the population, well concentrated in some agrarian and backward cantons, could veto a Swiss move toward EC membership.

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Finland In Finland, membership was not an issue until mid-1990. There was an overall consensus to disregard any movement for membership. Neutrality seemed to constitute a permanent obstacle, precluding any application. This consensus was mainly because of Finland's proximity to the Soviet Union. This explains why Finland waited until 1986 to become a full m e m b e r of E F T A and until May 1989 to fully j o i n the Council o f Europe. However, in summer 1990, leaders o f the Conservative party and of some multinational companies dared to mention the question o f membership. The chairman of the Conservative party and minister of trade and industry, Ilkka Suominen, declared that Finland would apply for E C membership in the 1990s if the direction o f political developments in Europe and the goals of deepening of European integration did not change dramatically. Finland's foreign minister, Pertti Paasio, confirmed officially that neutrality was no longer the same barrier for Finnish membership in the E C as earlier. He even affirmed that the end of communism in Europe made all Europe neutral. 10 At the same time, the number of Finns in favor o f membership grew enormously. In May 1990, 6 0 percent of Finns said they favored E C entry. 11

The European Economic Area In 1 9 8 9 - 1 9 9 0 , the Community and E F T A were bargaining over a so-called European Economic Area. E F T A countries were interested in this solution because in E E A they could get most of the advantages of the Community without joining the E C , i.e., without giving up their sovereignty and their neutrality. The E E A also gives the E F T A countries the possibility o f not having to assume the very contested E C ' s common agriculture policy. The Community supported this scheme because it feared that the absorption of neutral E F T A countries could jeopardize its future evolution toward a genuine political and security union. Moreover, Brussels was anxious about a possible future decisionmaking mechanism involving twenty countries or more. T h e Community also needed a model to anchor former communist countries in the E C without granting them the full rights o f a Community member. One should nevertheless be careful to avoid any anachronistic interpretation. T h e E C did not invent the E E A to create a model o f integration for the Eastern European countries. T h e Community first launched the idea o f a structured E E A in January 1989, and it was only after the crumbling in Eastern Europe in the second half of 1989 that the E C decided to introduce the E E A as a possible solution for a future integration of the former communist countries.

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The Scope of the EEA T o get into the Project 1992 internal market, the EFTA countries should adopt the Community legislation (acquis communautaire) relevant to the four freedoms: around 11,000 pages of legislation or 1,220 acquis (800 for goods, 200 for services and capital, 120 for persons, and 100 for the flanking measures). EFTA, however, asked for temporary derogations as well as for permanent exemptions. EFTA was especially reluctant to take some E C legislations in the following areas: 1. Free circulation of goods. EFTA refused to take the "old approach" of harmonization, because it was obsolete for some technical reasons, and was questioning some essential requirements contained in some "new approach" directives. For instance, all EFTA countries considered their level of protection of health, safety, and environment to be broadly better than the average EC legislation. Therefore, they appeared determined to ban products that did not fit their legislations. 2. Free circulation of persons. This means that any EC citizen could settle, get a job, and buy a house in any EFTA country. All EFTA countries have large xenophobic sectors in their population. Moreover, small countries with a narrow economic base, such as Iceland and Liechtenstein, fear a sudden influx of foreigners. Others, such as Switzerland, already have a large foreign population. Therefore, EFTA proposed a system that will allow free circulation only of key personnel. 3. Free circulation of capital. According to this principle, EC capital can be freely invested in EFTA companies, land, and real estate. But EFTA countries feared that foreigners would control their economies. In Switzerland, a strict legislation bans, with only a few exceptions, sale of land, houses, and apartments to foreigners. In Nordic countries, there are limitations on the free flow of capital and on bank acquisitions. 4. Free circulation of services. For TV and radio, the EFTA countries wanted to act on the convention of the Council of Europe, not on the restrictive convention of the EC. One issue concerned advertisements for tobacco and alcohol. For banking, Switzerland demanded permanent exceptions in the principle of administrative assistance, which could give other countries' authorities the right to look into sensitive taxation policies. For transport, this sector is of particular concern for Austria and Switzerland: these two Alpine countries suffer from the pollution caused by the heavy trucks going between Germany and Italy and asked for exceptions to limit heavy transport on their roads. They have imposed a bundle of norms to restrict

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trucks by banning traffic during night hours and holidays, and by restricting vehicles over forty tons. The Commission was quoted as refusing categorically any permanent derogation to the acquis and wanted to limit strictly the possible periods of transition. 1 2 For the Community, the different elements of the acquis cannot be dissociated—they are part of an integrated concept. The Commission argued that there would be major difficulties if some EFTA countries maintained import restrictions of goods under the pretext that they have stricter norms. On environmental standards, while waiting for Community legislation to reach a similar level, the Commission asked the EFTA countries to let into their territories EC goods meeting current Community standards. For the Community, the question of the rules of competition is fundamental. It is a prerequisite condition that the EFTA countries create collective structures that are able to guarantee the application and the control of the Community acquis in the policy of competition. It means that the EFTA countries should ban their cartels, closed corporations, state aids, and so on. The EC did not want to make concessions in those areas. On the free circulation of persons, the Commission said that some transitory measures are possible but did not envisage the free establishment of only key personnel. A special status for small countries such as Iceland and Liechtenstein seemed to be acceptable. And even Switzerland could be granted the right to keep its foreign population lower than 20 percent. But the principle of the free circulation of persons cannot be dissociated from the other three freedoms of movement. On the free circulation of capital, the Community was not inclined at all to grant exceptions, especially because the EFTA countries are generally richer and should be more liberal. Other

EC

Conditions

The Community also wanted to look at the question of a common regime toward third countries. Brussels argued that there is a dialectical link between the concept of free circulation and the regime applicable to third countries. The Community insisted particularly on the sector of financial services. The reduction of social and economic disparities was also considered an important objective of negotiations. The Commission considers it of prime importance to narrow the discrepancies between the different regions of Europe. But the Commission was never very precise in its demands because, on the one hand, it wanted financial support from EFTA at the level of the E C structural funds but, on the other hand, it feared the automatic interference of the donor. Therefore, the Commission limited practically its ambition to the objective of getting a better access to agriculture products from southern E C countries on E F T A markets. Finally, both participants agreed to

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establish a political dialogue at a ministerial level. But it was not clear what the two parties meant by that. It seems that the Community wanted to avoid having EFTA countries follow international policies that could be too divergent from EC policy. The EFTA countries were also interested in being informed at an early stage of the decisions taken at the level of European Political Cooperation because they realized more and more that they will have to take a position vis-à-vis those decisions. But the scope of the constitutions, the conditions, and the limits of such dialogue were far from being clear. Legal

Questions

There has been much discussion on the issue of the direct applicability and effect of EEA rules. The question was: How will it be possible to invoke the EEA rules before the national and regional courts and authorities in Geneva or Paris? Will they have the competence to recognize and enforce the EEA rules? The EFTA countries were reluctant to accept the principle that they would have to make the EEA rules part of their national legal systems so that national courts and authorities could directly apply them. This is especially a problem for the Nordic countries, which follow a dualistic tradition. There were also discussions about the question of a surveillance mechanism, i.e., a body competent to act upon its own initiative when there are alleged violations of EEA rules. The EC Commission exercises those powers in certain sectors, such as competition, state aid, and public procurement. Will the exercise of corresponding competencies in the EEA be the same? Or will it be preferable for certain aspects to use existing national surveillance mechanisms? Another question that was looked into further was how to practically arrange this surveillance. Is it better to establish one joint EC-EFTA body, add an EFTA participation to the Commission machinery, or set up an E F T A surveillance mechanism as a bridge between such an E F T A mechanism and the EC Commission? With regard to the mechanisms for securing a uniform interpretation of EEA rules between the contracting parties, the solution envisaged by EFTA was that an EEA court should consist of judges from the EC Court of Justice and from the EFTA states. But the EC seemed to prefer a court of justice based on the E C court and to add, when necessary, judges from the EFTA countries. A Common

Decisionmaking

Mechanism

First, it is important to recall that the question of the decisionmaking process in the EEA concerns the stage after 1992, i.e., after EFTA has adopted the

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Community acquis. In other words, there will not be a common decisionmaking mechanism during the first step, in the phase of adoption of the 1,220 EC directives. Nevertheless, the question of the decisionmaking mechanism was crucial for EFTA. Leaders of this organization swore publicly that they would never endorse the Community acquis without full participation in the decisionmaking process.13 EFTA has demanded a role in the shaping of the Community decisions that influence the further development of the EEA. As the EC decisionmaking process is rather slow, delayed by considerable amendments to the initial proposals of the Commission, EFTA argued that the more it will be involved in the shaping of the decisions, the better will be the collaboration in the EEA. Evidently, for EFTA, in a balanced relationship it should also have the right to launch initiatives. Therefore, there should be time frames that allow EFrA propositions to be delivered at different stages of the EC decisionmaking process. Regarding the preparation of initiatives and proposals within each party, EFTA wanted each party to seek the advice of experts of the other party prior to the formal launching of any EC or joint EFTA initiatives and proposals. The system would ensure that the views of the other side would be taken into account before any final decisions on matters relevant to the EEA were taken on either side, thus ensuring that neither side is presented with a fait accompli. A common body for EFTA parliamentarians and representatives of the European Parliament was also foreseen. Regarding the crucial stage of the adoption of the final decisions, EFTA demanded that the EEA Council be a decisionmaking body where the EC and the EFTA would be represented on an equal footing and where decisions were taken by consensus. The Community has refused to accept any institutional formula that could affect its autonomy of decision. For instance, the Community insisted on getting a kind of clause of disconnection in case of disagreement on the future rule of the EEA. Nevertheless, Brussels accepted the idea of an osmosis between the EC and the EFTA pillar. Brussels was ready to consult its EFTA partner at almost every stage but wanted to avoid direct interference from EFTA and keep its full autonomy. Therefore, the EC proposed a common ministerial conference that would establish the general political direction of the EEA. It would have meetings twice a year. On the EC side both the Council and the Commission would be represented, on the EFTA side, the ministers. Second, the Community envisaged a mixed committee made of highranking officials (which could exceptionally be called at a political level). The Community was confused about this committee because in one part of its mandate it said that this will be a body of "decision and administration" and in another part it said that this Committee would control only the implementation and the functioning of the agreement.

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Conclusions EEA is a very difficult matter. It is a historically unique process of integration. The EEA is much more complicated and difficult than membership in the EC. Therefore a dramatic negotiation started on the nature, scope, conditions, exceptions, legal dimension, and decisionmaking of the EEA. In 1989-1990, the public debate in EFT A countries dealt essentially with the question of a risk of "satellization," i.e., to lose more independence by staying outside the Community than by joining it. The arguments were the following: first, a genuine EEA questions EFTA claims of neutrality. As a matter of fact, in the EEA, countries of the EFTA would be obliged to speak with one voice. Second, they would have to build common bodies in order to control the enforcement of the competition rules and to establish a kind of court of justice. Moreover, the Community wanted to impose the following on EFTA: a common regime toward third countries, a customs union, a common tariff, better access to its agriculture products, and regular political dialogue. But the neutral EFTA countries did not join the EC precisely because they wanted to preserve their independence and their margin of maneuver through an autonomous treaty-making power, a semiautarkic agriculture, and an absence of too many political commitments in foreign affairs. One should also imagine the practical shape of a genuine EC-EFTA area. After the removal of most of the frontiers between the EC and EFTA, how would it be possible to uphold a credible policy of neutrality? This explains why many sectors in neutral EFTA countries considered adapting their interpretation of neutrality in order to fit to the reality of a genuine EEA. The change of the international order also played an important role both in EFTA and in the EC. An important new definition of neutrality has been noticed in all neutral EFTA countries. And in the EC, the events of 19891990—especially East Germany's absorption into the Community—have eased its former opposition to membership of neutral states.

Notes 1. Until summer 1990, both EFTA and the EC used the expression "European Economic Space" (EES). But for mainly linguistic reasons—on the advice of the U K — b o t h sides decided to replace the word "Space" with "Area." This change has not been motivated by any political reason but merely by a kind of superstition: fear that a "space" could be empty. Actually, the expression EEA is not precise because the European Economic Area does not deal exclusively with e c o n o m i c matters (education, environment, terrorism) and does not cover the whole of Europe. 2. "Relative Mehrheit der Österreicher für EG-Beitritt," Die Presse (January 24, 1990). In this poll, 4 3 percent of the Austrians who answered the question

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said they support EC membership for their country. Irene Miller, "Umfrage zu EGBeitritt. Ein 'Ja' zur Gemeinschaft," Die Presse (July 26, 1990). In this poll, the pro-EC position received 48 percent of the preferences. 3. Fritz Dittlbacher and Peter Pelinka, '"Neutralität kein P r o b l e m , ' " Arbeiter Zeitung (May 19, 1990). "Der neue Integrationsbericht Österreichs im Wortlaut: 'Europas Sicherheit ist auch die unsere,'" Die Presse (September 12, 1990). 4. "Ikke bare boller (Not Only the Raisins)," Adresseavisen (October 23, 1989). This poll showed a clear majority against membership (47 percent against 42 percent). Robert Taylor, "Space May Be the Route," Financial Times (May 21, 1990). This article mentions an opinion poll made by the leading newspaper Aftenposten that showed a smaller opposition to the EC: 38 percent against 37.5 percent. 5. "Varannan svensk vill att Sverige gar med i EG (Every Second Swede Wants Sweden to Join the EC)," Arbeiet (May 27, 1990). 6. "Adild ad EB kemur ekki til greina," Morgunbladid (August 19, 1990). 7. "Erum vid Europuh/Ef?" Morgunbladid (July 1, 1990). 8. Martin Gollmer, "Koller: 'Neutralität anpassen,'" Tages Anzeiger (June 15, 1990). ATS, "Felber: l'adhésion est possible," Tribune de Genève (October 4, 1990). 9. Guy Mettan and Pascal Sciarini, "L'écrasant oui romand," Bilan (September 1990). According to this poll, 53 percent supported EC membership and 47 percent opposed it. In the French-speaking part of Switzerland, 76 percent were in favor of this move, but in the more important German-speaking part. 56 percent were against joining the EC. 10. "Paasio omprövar: Heia Europa snart neutralt (All Europe Soon Neutral)," Hufvudstadsbladet (August 24, 1990). 11. " S u o m a l a i s e t kannattavat EY-jäsenyyttä (Finns Favor EC Membership)," Kauppalehti (May 23, 1990). 12. Commission des communautés européennes, Communication de la Commission au Conseil portant recommandation de décision du Conseil visant à autoriser la Commission à négocier un accord avec les pays AELE portant sur la création de l'Espace économique européen (Brussels, May 10, 1990), 699 FINAL (not published). 13. "Meeting of the EFTA Council at Ministerial Level," Geneva, December 11-12, 1989, EFTA Information, point 6, p. 2.

24 From Lomé III to Lomé IV: EC-ACP Relations Catherine Flaesch-Mougin

& Jean

Raux

The Lomé IV Convention, signed on December 15, 1989, in the capital of Togo by the EC and its member states, as well as sixty-eight African, Caribbean, and Pacific (ACP) states, 1 draws its inspiration for the association of countries and overseas territories from Part IV of the EEC Treaty (Arts. 131-136). Its legal foundation stems from Article 238 of the Treaty, which refers to the association of independent states or union of states. The Lomé IV Convention constitutes the updated version of a genuine international cooperation charter with a view to economic and social development of ACP states. It is a continuation of three consecutive conventions signed in Lomé. Lomé I outlined a new policy on February 26, 1975, 2 following the first admission of new member states to the EC. It was in compliance with the "Big Nine's" wish, formulated at the Paris summit in October 1972, to extend its economic cooperation endeavors, up to then confined to French-speaking Africa and Madagascar, to a worldwide scale by virtue of the convention known as Yaoundé I (July 20, 1963) and Yaoundé II (July 29, 1969). Lomé II, signed on October 31, 1979, 3 consolidated achievements and progress made, whereas Lomé III, signed on December 8, 1984,4 was an innovative approach featuring unprecedented future prospects. The Lomé IV Convention is a symbol of continuity, renovation, and innovation. It is characterized by (1) a renovated, formal framework, (2) an unprecedented state of mind propitious to an effective and decentralized cooperation, (3) a consolidation of the achievements made through international cooperation, and (4) innovations withstanding the downturn in the worldwide economy and financial situation of ACP states.

A Renovated Formal Structure The Lomé IV Convention was signed in the wake of a bitter, fourteen-month negotiation process brought on by disagreement about financial resources.

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access to the EC market, commodities, and the ACP states' debt. Apart from the debt issue, these disagreements were hardly new and cropped up regularly during all Lomé Convention negotiations, but the context itself was in this instance quite different and less hopeful than ever for the ACP countries. First of all, their economic situation had declined even further. Besides being shouldered with tremendous debt, their growth rate was below that of 1970. Second, changes in the Community were a source of worry for the ACP partners. The Community was rapidly heading toward a huge domestic market, the impact of which could put into jeopardy their own economies. Moreover, the single market was bound to extend to the European Free Trade Association (EFTA) countries in an effort to create a future European Economic Space. But above all, the EC countries had riveted their attention to the transformation of Eastern Europe, and the ACP states were fearful that the economic restructuring process would harm their interests. The French EC Presidency in the second half of 1989 had to deploy considerable diplomacy and Financial means to reach an acceptable compromise in this context. The new Lomé IV Convention is indeed unique with unprecedented provisions for duration and partnership, but it conveys in its structure a subtle balance of continuity and innovation. A Ten-Year Agreement Binding the EC, Its Member States, and ACP Countries Parties to the agreement. The EC party comprises the Community itself and its member states. The Lomé IV Convention, though based upon Article 238 of the EEC Treaty, remains a mixed agreement because of its method of subsidization: the European Regional Development Fund (ERDF) does not operate on an itemized basis in the Community budget, despite repeated requests by the European Parliament. It is financed through specific grants from member states. The EC party attended Lomé IV with two new member states, Spain and Portugal. These two southern members had not been party to the previous conventions. They contributed to the widening intra-EC split over financial aid to ACP countries. Two concepts are in conflict: substantial trade concessions and limited financial aid are considered to be more effective for northern states, especially Great Britain, Germany, the Netherlands; on the contrary, southern states that feared more competition from products coming from ACP states are desirous of maintaining a certain profile for their developing partners. Concerning African, Caribbean, and Pacific states, the number of partners has also risen, from sixty-six to sixty-eight (now sixty-nine with Namibia). Haiti and the Dominican Republic have been admitted to the "Lomé circle" despite initial hesitation, especially about the political regime

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of the latter and the competition its production represents. However, the Dominican Republic agreed to renounce its participation in the sugar protocol. Moreover, it is only because they are Caribbean countries that they have been included in the convention. This cannot, as stated in Joint Declaration I annexed to the Final Act, constitute a precedent for Latin American states. Despite their close ties with Spain and Portugal, Latin American states are not covered by the Lomé Convention, and their relations with the Community are confined to commercial and cooperative agreements. Namibia, recently proclaimed independent (March 29, 1990), has joined in December 1990 the sixty-eight other members of the ACP group. Article 364 of the Lomé IV Convention had provided a possibility of a signature until the date of entry into force of the convention. Namibia, as an undeveloped state, will be granted full rights to services including concessions for its exports of beef (an additional 10,500 tons for 1991 and 1992 and afterward 13,000 tons in addition to the 39,500 tons provided by the beef protocol). The recent membership in the ACP Convention of these three new states illustrates the heterogeneous nature of the group, which was formed solely for the needs of the convention. There are geographical disparities: the small island states of the Caribbean zone (thirteen states + Haiti and the Dominican Republic) and the Pacific zone (eight states) are combined with the 46 states of the African continent (with the exception of the northern Mediterranean African states and South Africa). There are also economic divisions: besides opposition between less developed countries (forty-six out of sixty-nine) and those with substantially better situations, important differences can be seen with regard to factors such as foreign debt or natural resources. The EC attempts to take these differences into consideration by adopting a specific policy that includes not only least developed states, but also countries that are handicapped by their geographical position (landlocked or islands). Nevertheless, the ACP states' heterogeneous nature makes it difficult for parties to come to an agreement during negotiations and explains why ACP countries, unable to propose to the EC a real alternative, want above all improvements of the existing system. Length of the agreement. The Lomé IV Convention, as opposed to the previous ones, covers a period of ten years and thus expires on March 1, 2000. It is supposed to enter into force retroactively on March 1, 1990, after being approved by the twelve member states of the Community, two-thirds of the ACP states, and the European Parliament. During the period between the expiration of the Lomé III Convention (February 28, 1990) and the coming into effect of Lomé IV, transitional measures will be taken to authorize the maintenance of the principal dispositions stipulated in the previous convention. 5 Problems of delay (modifications and negotiations) and the necessity to

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program developmental activities on a long-term basis explain why Lomé IV is conceived for a ten-year period. However, a midterm revision of the convention (Article 366) and the preservation of the five-year period for financial dispositions are provided. Isolated now in an annexed protocol, they should be renegotiated during the year 1994. A recomposed structural convention. The Lomé IV Convention retains features of the relatively complex structure of previous conventions. After a short introduction, it includes five extensive chapters (369 articles instead of 294), ten additional protocols, a final act accompanied by seventy-eight declarations as well as eight other declarations annexed to the minutes of the signing. If the editorial form and organization as well as numerous measures of Lomé III have been maintained, recomposition can be observed with the addition or rewriting of certain passages. Starting with the preamble, two new paragraphs have been included concerning the respect of human rights. Taken from the preceding convention, they were completed with small but significant modifications: adherence to fundamental human rights "in all aspects of human dignity and in the worth of the human person as the central agent and beneficiary of development" and reference to cultural rights and development. The first part is devoted to the general provisions of the EC-ACP cooperation. It comprises the new elements of the preamble, and many of the prevailing elements of Lomé III are to be found there as well. The first chapter is specifically dedicated to the objectives and principles of cooperation. It underlines the importance of "promoting and expediting the economic, cultural, and social development of ACP states" in respecting their independence, as well as strengthening and diversifying the EC-ACP relations. A new Article 5, concerning the respect of human rights and its role in the cooperation process, introduces into the convention itself elements that had been previously found in the annex: resistance against apartheid and discrimination of migrant workers, foreign students, and other foreign nationals. It also invites the parties to uphold their international engagements in this respect. The other chapters deal with the areas, instruments, and institutions of the cooperation process. They express the philosophy of Lomé IV while incorporating new elements to the former structure. Therefore, in conjunction with traditional references to agricultural, energy, and mining cooperation, the importance of the environmental dimension is emphasized. The member parties also insist on the central role of industrial development in complementing rural and agricultural development. A new chapter deals with decentralized cooperation and expounds the importance of nonstate organizations' activities in favor of development. The second part is devoted to the areas of EC-ACP cooperation. Reorganized into twelve titles instead of eight, it establishes the importance

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of cooperation on environmental questions, agricultural activities, and on enterprise development. Otherwise, other domains of cooperation target a new type of presentation. For instance, energy development is separated from the development of mining, and trade development is dissociated from the development of services. Finally, there is no longer a title dealing with transportation and communication, whereas titles traditionally dedicated to agricultural cooperation, food supply and rural development, fishing industry, industrial development, and regional cooperation do remain. The third part deals with the instruments of EC-ACP cooperation. It concerns trade cooperation—with a new chapter on services—cooperation in the field of commodities, and development finance. It concludes with a title summarizing special measures concerning less developed, landlocked, or insular ACP states. Particular attention must be given to Title III, which deals with financial instruments. It identifies the instruments of financial aid offered to ACP states. These instruments should create the necessary conditions for the ACP's development in order to avoid further debt and to bring aid to the unavoidable process of structural adaptation. The fourth part deals with institutions. It recapitulates the previous decisionmaking structure composed of the EC-ACP Council of Ministers, the EC-ACP Committee of Ambassadors, and the EC-ACP Joint Assembly. The fifth and last part deals with general and conclusive measures (the process of accession, length, and entry into force) and is modeled after Lomé III, with the exception of motions concerning Namibia and the revision of the convention. The convention itself is followed by ten protocols, which form an integral part thereof (Art. 368) and have the same legal value. It means that the parties have the obligation, in accordance with Article 10 of the convention, to use all the measures at their disposal in order to allow its implementation. Any failure of an EC member state to respect this obligation could lead to penalties, because the EC Court of Justice considers that certain measures in the Lomé Convention could be called up by independent parties before a national court of justice. Moreover, because the convention brings together institutions and member states (Art. 228 EC), an appeal against a member state on grounds that it made an infringement is possible. Among the ten protocols, there are the "traditional" ones. Although they have sometimes been modified, they concern the definition of the concept of originated product and the methods of administrative cooperation; the operating expenditure of the joint institutions, privileges, and immunities; and bananas, rum, sugar, and ECSC products. There are three new protocols: one dealing with safeguard measures, one concerning beef and veal (39,500 tons are coming from Botswana, Kenya, Madagascar, Swaziland, and Zimbabwe with a levy reduction of 90 percent), and the financial provisions. This financial protocol limits to 12,000 million ECU (10,800 from the EDF

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and 1,200 from the EIB) the total package of aid awarded to ACP states and plans its assessment commensurate to the importance of projects. This amount, even if it remains short of the hopes of ACP states, represents a rise of 42 percent in current French francs compared to Lomé III. The final declarations in the annex often serve to clarify certain points of the convention. Many of them do not appear in the convention because of a lack of consensus (rules concerning the origin of fishing products, products not included in the Commodity Export Earnings Stabilization Scheme [STABEX], and invalidation of the Community's debt to ACP countries). However, nothing prevents any of these points from being subject to debate during Lomé IV's period of validity or from being incorporated into the Lomé V Convention in the year 2000.

An Unprecedented State of Mind Propitious to an Effective and Decentralized Cooperation International cooperation may be considered feasible inasmuch as it takes into account the member nations' priorities and cultural identity. Lomé IV is all the more meritorious because the agreement highlights individual member nations, their diversity, and the dignity of their citizens regardless of sex. It provides a more meaningful definition of individual responsibilities. This new state of mind is most certainly propitious to a decentralized cooperation. Key Players in the Cooperation

Process

The EC negotiators, led by Commissioner Edgard Pisani, were unable to dictate the terms for talks on policies during the Lomé III Convention but went so far as to agree to economic cooperation with respect to national strategies. The EC representatives were, as a result, all the more inclined to self-centered development with the participation of all citizens, especially in the field of rural development. It was a guarantee that economic assistance would not be misappropriated and would be channeled to the right beneficiaries. Cooperation with ACP states meant not losing sight of the basic objective of "economic, cultural and social development [Art. 1] . . . centered on the human being and anchored to the culture of all peoples [Art. 10, Lomé III]." This basic objective is reiterated and expanded in the Lomé IV Convention to hitherto unequaled proportions. Beyond the "economic, cultural and social progression" of the ACP states, the signatories assert their genuine concern for the "well-being of their populations through the satisfaction of their basic needs, the recognition of the role of women, and the enhancement of people's capacities with respect for their dignity." There can be no development without "a sustainable balance between

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economic objectives, rational management of the environment, and the enhancement of natural and human resources" (Art. 4). This statement affords a clearer understanding as to why the intangible aspect of cultural cooperation (henceforth dealt with first) and social cooperation (encompassing teaching and education, technical and scientific cooperation, health, nutrition, and population growth) has been given increased emphasis. The human being has become a "main protagonist and main beneficiary." The observance of human rights is "recognized as a basic factor of real development" (Art. 5, par. 1). Such a message may be seen as subversive in countries devoid of democracy. Indeed, basic human, civil, and political rights are no longer a luxury enjoyed by wealthy nations and exported solely to Eastern European countries. They are a natural and indispensable feature for successful development. No provisional conditionality principles were put forward, although from now on certain extra-economic conditions may necessarily give rise to collaborative endeavors. There is some evidence that a boomerang effect could occur because all men and women who immigrate to a foreign land are entitled to personal dignity and legal protection and commitments under international law. Therefore, apartheid tolerates no collusion within its mechanism (Art. 5, par. 2). A person freed of his or her bonds is led to be more creative and participative: this message applies broadly to men and women alike. The rights of women along with their entitlement to equal treatment are mentioned frequently throughout Lomé IV, namely in relation to rural development (Art. 42, pars. 5 and 6) and cultural and social cooperation (Arts. 143, 144, 150). The convention even provides for a real status for women (Art. 153). This agreement is not intended to be a gratuitous refocusing attempt, as the finalized cooperation approach for the common citizenry must encourage the key initiators of policy to act and to work toward collaborative progress. The agreement paves the way to decentralized cooperation, a dimension of which was underestimated by analysts who first commented on it. EC Backing

for Decentralized

Cooperation

Cooperation must be organized "with due respect to roles and prerogatives" and in strict compliance with the priorities, guidelines, and methods laid down by ACP nations. Local governments, labor unions, education and research centers, nongovernmental organizations (NGOs), cooperatives, and various associations will be able to cooperate with their European counterparts under EC trusteeship and with EC financial support. The EC and its member states will no doubt see therein an excellent means to induce effective discussion starting at the most basic stratum and specifically suited to appropriate technology transfer at a low cost. Democratic development needs this procedure, which is achievable to the extent that the Europeans

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involved will be able to suggest the structures and courses for action subject to joint approval and implementation. On this basis, citizens should rally to the course of decentralized cooperation in northern and southern nations. It is conceivable that the actors would be more motivated if they are granted financial subsidies commensurate to their undertaking. Thus, the limited experience, which was obtained through the microprojects under the Lomé III Convention and carried on in the same spirit under Lomé IV, will have cleared the way for new types of relationships to be included in forthcoming conventions. Analysts of Lomé V will also be able to point out how it accordingly consolidates the progress in cooperational development made under Lomé IV.

Consolidation of the Achievements Made Through Cooperation International cooperation is moved forward by dominant concepts and acquired experience. Having emphasized development resulting from the outside influence of increased trade, the signatories felt compelled to encourage selfcentered development. Both types of development prove nonetheless indispensable if implemented in a balanced and coherent manner. Lomé IV sets out to be a synthesis combining both concepts and experience. Consolidation of Trade Between the Community and the ACP States The foundations for trade cooperation inaugurated under the Yaoundé Conventions, and subsequently given form by Lomé I and Lomé II, were improved by Lomé III and are now consolidated by Lomé IV. This consolidation process targets accessibility to the EC market, a definition of trade strategy, and a stabilization of export incomes. Access to the EC market. The single market prospect in 1993 is a subject of worry for the ACP states. They were able to obtain improved access provisions from a preferential trade partnership standpoint (duty-free exports and quotas) not requiring trade reciprocity. Overall, what is worth noting is the establishment of an information system to avoid abusive safeguard measures. An innovative protocol agreement (Number 4), finalized under Article 178, calls for a statistical surveillance mechanism and a follow-up procedure. The EC can only adopt the appropriate course of action if there is no possible arrangement. Attention must be called to the protocol covering the definition of native products and administrative cooperation methods. In fact, the guidelines were clarified and simplified—e.g., a single list for exceptions (Art. 3, par. 3 in

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the protocol) replaces negative and positive lists in effect under Lomé III. They were made more flexible, especially regarding manufacturing material (ACP products may contain up to 10 percent in foreign components versus 5 percent under Lomé III). Export restrictions were reduced on agricultural products that were not formerly exportable under duty-free conditions—e.g., sorghum, millet, tomatoes, and processed agricultural products. On a case-by-case basis, the EC consented to a total dismantling of custom taxes or import levies whenever quantities exceed the ACP countries' export capacities. Furthermore, special protocol agreements were finalized to accommodate more beef imports (39,100 tons instead of 30,000 tons, with a 90 percent levy reduction and export tax suppression), rum imports (with a gradual lessening of the quota tax, to be definitely suppressed in 1995), and banana imports (with a statement to continue benefiting traditional suppliers when the single market is eventually formed). Defini7ig a trade strategy. The Lomé IV Convention goes beyond broadening access to the EC market. It strives to set up a trade strategy for the development of product packaging, marketing, distribution, and transportation. It also seeks to make basic products manufactured by ACP countries more competitive in world markets (Art. 70). The agreement admits the growth of the service sector in international trade (Art. 114) and includes additional provisions for multilateral negotiation already under way within the GATT (Art. 185). The signatories stated their belief that better use should be made of the considerably elaborate provisions relating to trade and services under Title IX (Appendix XX). They stressed that ACP nations have increasingly participated in maritime shipping (Appendixes XVIII and XIX enforcing Arts. 126, par. 2; 127; and 128) tourism (Art. 121), communications (Art. 123), and above all exporting initiatives, i.e., promotion at trade shows as long as it is done in the context of trade development programs (Art. 136), with underdeveloped countries' expenses possibly being subsidized by the EC (Appendix XXI, Art. 136, par. 3). Stabilization of export earnings. Generally considered major changes to previous agreements, the STABEX and the Mineral Accident Insurance System (SYSMIN) were, respectively, overhauled and redefined. The STABEX system broadens risk coverage. With the inclusion of three more produce items (cocoa derivatives, essential oil products, and squid), the list of insured commodities grew to forty-nine items (Art. 187). The dependency threshold determining STABEX implementation was lowered. The system will in the future apply to covered items if they make up 5 percent of an ACP country's export range, or 1 percent in the case of less developed countries, as opposed to 6 percent and 1.5 percent under Lomé III (Art. 196). A modified reference period was agreed upon: it will retroact six years prior to

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the year of enforcement, without taking into account the two years showing extreme fluctuations (Art. 197, par. 2). Henceforth, export values in cost, insurance, and freight (CIF) and not freight on board (FOB) terms will be the basis for payment transfer computations within the STABEX system, thereby facilitating subsidy fund outlays and supplying the Commission with EC import statistics. The STABEX is likely to function more efficiently because the funds are 62 percent higher than the endowment provided by Lomé III. The resulting transfers will now be carried out in the form of nonrefunded subsidies. Heretofore, only the least-developed, enclaved, and insular countries were the beneficiaries of the preceding measure. In the future, all ACP countries will be shouldered with a lightened debt. The STABEX mechanism is likewise simplified for the sake of ACP countries. The fluctuation thresholds will theoretically give way to duty exemptions meant to compute transfer payments. The 4.5 percent duty exemption is now down to 1 percent for less developed countries (Art. 197, par. 3, 4, 5). As a result of a derogation clause, the system is applicable to ACP products that are automatically exportable to other ACP states, sometimes under certain conditions (Art. 189). For the sake of expeditive effectiveness, the fund transfers will be treated in a transfer agreement binding the concerned country and the EC Commission, and subject to careful scrutiny (Art. 205). A protocol agreement will also lay down mutual obligations and specify the guidelines for using the transferred funds (Art. 210). The SYSMIN system under Lomé III was aimed solely at enduring the economic viability of mining concerns in the ACP countries. The special loans earmarked through the system were nonetheless linked to export income, either at a minimal 15 percent ratio for the first category of extracted minerals (copper and cobalt, manganese, bauxite and aluminum, tin, iron ore), or at a 20 percent ratio for the second category, which encompasses all other minerals except for precious metals (namely gold), petroleum, and natural gas, as opposed to either 10 percent or 12 percent if the most underdeveloped countries are involved. Lomé IV now allows ACP members to take fuller advantage of the SYSMIN system in terms of both uranium extraction under category 1, and gold extraction under category 2 (Art. 215, par. 1). Most importantly, whenever exports of a specific mineral decline sharply over a two-year period, provided that the product comprises at least 10 percent of total exports during the year preceding the application (Art. 215, par. 2b), an ACP member may apply for special financing. The member may apply even if the industry and its economic viability remain resilient and profitable enough to finance repairs and renew capital investment without outside help. Therefore, the SYSMIN becomes partly comparable to the STABEX. This assertion is further supported by the very nature of EC aid. ACP members will no longer

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be granted special loans (Lomé III); rather, they will receive subsidies up to 489 million ECU to lighten their debt liabilities. However, in contrast to STABEX financial aid, SYSMIN grants may be retroceded by the ACP states to a final borrower under different terms and possibly in the form of a loan (Art. 219, par. 5). Consolidating Overall, Self-Reliant, and Self-Sustaining Development Cooperation intended for overall, self-reliant, and self-sustained development was one of Lomé Ill's innovative devices, because of its sheer scale and systematizing effect. It came as a contrast to trade cooperation, which had long been the rule and corrected the factor of dependency on the EC. The Lomé IV Convention supported this general orientation. The signatories reasserted their attachment to a "comprehensive, self-reliant and self-sustained development" (Art. 4), mentioning their determination to "promote rural development, food security for the people" (Art. 6, par. 1). More specifically and officially, they recognized that "priority must be given to environmental protection and the conservation of natural resources, which are essential conditions for sustainable and balanced development from both the economic and human viewpoints" (Art. 6, par. 2). Indeed, rapid deterioration of the environment represents a threat to any undertaking, namely as concerns "the priority objectives of food self-sufficiency and food security" (Art. 34). The parties to the agreement also underscored the potential of the private sector and gave encouragement to small- and mediumsized firms by guaranteeing their investment. Moreover, the parties cogently decided to attach "special importance and high priority to regional cooperation and integration" (Art. 7). The achievements of Lomé III will thereby flourish under the new agreement. Agricultural cooperation, food security, and rural development. The above trilogy has become the very basis of cooperation, ranking first among the signatories' concerns. They had come to the conclusion that "continuous and systematic" cooperation in this particular area was a prerequisite for "viable and sustainable development" (Art. 42). Three major guidelines, formulated under Lomé III, were carried over into Lomé IV but were adapted to implementation at a regional scale (Art. 42, par. 4; Art. 51g; Art. 53b; Art. 56, par. 5) and made more amenable to the concerns for women's rights (Art. 42). A rational development process should favor production and be ensured by a combination of three factors: income support (Art. 42, par. 5; Art. 44, par. 2), provided that income is not based on produce from outside sources (Art. 51 ); upgrading productivity through technology transfer and enhanced production means (Art. 42, par. 9 and Art. 44); and agricultural research and

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development (Art. 47 and Art. 53). Integrated development seeks to incorporate both rural folk into the economic fabric and living standards enjoyed by urban areas (Art. 46) and agricultural produce into existing trade and marketing networks (Art. 45). Harmonious development should seek to preserve the natural environment; this should involve action in favor of ecosystem protection and preservation, solutions to persistent drought, desert encroachment, and deforestation (Art. 42). In this light, effective cooperation requires appropriate means of implementation, e.g., technical and financial cooperation. Priority status must be granted to this form of cooperation in the areas of agricultural and rural development (Art. 48). Accordingly, certain eligible projects and programs are specified so as to favor development aimed at self-sufficiency and food security, microprojects on a case-by-case pace (Arts. 252 and 253), or thematic action (Art. 229). Protecting and enhancing the environment and natural resources. Protecting the environment and natural resources is a premise for adequate living standards and for survival of future generations (Art. 33). The objective was formalized under an initial title page clarifying all areas of cooperation that will be assessed systematically in this respect (Art. 38). Because of a lateral, overall, and preventive approach, EC and ACP efforts will be joined everlastingly and coherently (Art. 35). Accordingly, the means of implementation will be jointly defined and natural resource inventories will be drawn up. All large-scale projects posing a potential ecological threat are to be subjected to an impact study (Art. 37). The key decisionmakers and citizens affected by the projects will be educated and informed about their ramifications (Art. 36). The signatories' will to remedy its negative effects is shown by their commitment to implement and control the international shipping of dangerous and radioactive waste. Finally, the EC and the ACP member states agreed to prohibit exporting or importing waste (Art. 39). Industrial cooperation serving companies and investment initiatives. Lomé II brought up the necessity to establish private investment incentives. Lomé III went a step further by fostering a good investment climate. However, these measures do no more than provide exhortations and legal potentialities. Lomé IV is an unprecedented framework that breaks from the two previous conventions. Its framers dared to opine that the private sector should be given a greater role and made more dynamic. Small- and medium-sized firms will now be considered the most suited to ACP economic characteristics (Art. 110, par. 1, IV). The convention allows for investments, promotion, and protection. Promotion (Arts. I l l , 258, 267) will be based on technical assistance, legal and fiscal advice, support from the chambers of commerce, and training. Venture capital (Art. 268) and European Investment Bank capital may be funneled toward ACP institutions to back

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private investments. Investment protection could, in the future, conceivably be accomplished through a standard protection agreement, which would be nondiscriminatory toward foreign investors. It will come into effect in case of compulsory release of ownership or nationalization to facilitate capital and profit transfer. Cooperation and regional integration. Self-development and selfsufficiency can be illusions for the smallest members, the enclaved countries, or countries formed with no regard for ethnic, economic, or geographic realities. Consequently, the most plausible solution lay in regional cooperation. Toward that end, 1,250 million ECU are provided for regional projects and programs in ACP states (Art. 3, Financial Protocol). But success can only be achieved with the guarantee of an immediate programming of the cooperation mechanism and with the real participation by ACP states attributing individual subsidies to regions, either through national government channels or through an empowered regional organization (Arts. 160 and 161).

Innovations Withstanding the Downturn in the ACP Economic and Financial Situations Two main innovations in the Lomé IV Convention deal with the evolution of the ACP debt and the aid expected to be offered by the EC for structural adjustment. Measures

in Favor of Attenuating

the ACP States'

Debt

The partners of the EC considered the insertion of four articles devoted to the ACP's debt a major element in Lomé IV, even if these solutions were not always on a par with their expectations. In fact, the Community has avoided facing this problem until now, making more general commitments (i.e., in Lomé III, "the Community agrees to give its technical assistance in order to study concrete solutions to their problems of debt, the debt service, and the balance of payment"). The considerable growth of ACP debt during the 1980s (from 56 billion dollars in 1980 to 130 in 1988) has forced the EC to change its attitude. The A C P ' s external debt situation has become a "critical problem." The heavy debt-servicing obligations—greater than the aid awarded—compromise their growth and development because of the negative effects they have on the level of investments and import capacity (Art. 239). The provisions of the convention have the principal aim of avoiding deeper debt and of offering technical assistance to indebted ACP countries in order to improve their management. The Community offers the greater part of its aid in the form of grants (92 percent of EDF credits instead of 75

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percent in Lomé III). Although they are very attractive (maximal duration fifty years with 1 percent interest), loans with special conditions disappear. The only loans that survive are risk capital (825 million ECU at low rates) and EIB loans (1.2 billion ECU) reserved for profitable operations. These loans benefit from interest rate subsidies (3 to 6 percent for the borrower as compared to 5 to 8 percent in Lomé III) and from partial insurance against the risk of loss in exchange operations. The A C P country that asks for technical assistance should obtain training in external debt management and in international financial negotiations. It should also find assistance to develop instruments to deal with unanticipated interest rate and exchange rate variations. The Community commits itself to playing an active role in sparking the financial flow for countries that have growing difficulties in obtaining funds due to their deficit. The Community also agrees to stimulate the mobilization of the internal and external capital resources ready to invest in productive sectors (capital repatriation, development of a national savings fund, and constitution of subregional financial markets). Despite this cautious attitude, due mainly to the opposition of certain member states (particularly Great Britain and Germany), the Commission presented at the end of October 1990 an action plan to revoke the A CP's debt toward the Community (550 million ECU) and to transform loans on risk capital in currencies. However, the Commission has avoided raising the question of ACP debt vis-à-vis the member states, which remains in their competencies and unfortunately constitutes a much greater amount. Community

Support

for Structural

Adjustment

The Community has for the first time accepted, in Lomé IV, to aid heavily indebted ACP states with their structural adjustment. In Lomé III (Art. 188), it was only stated that financial cooperation could have been accorded for sectoral import programs. If the Community had already backed a special project in favor of the most indebted sub-Saharan African countries, their efforts have remained moderate toward its partners who, one after the other, have proceeded with a painful program of rehabilitation of their economies. In any case, if the Community upholds the principle of structural adjustment in Lomé IV, it has also a specific approach to the matter: adaptation should be not only "economically viable," but also "socially and politically bearable" (Art. 243g). Article 244 defines the important principles behind aid for structural adjustment. It is mostly up to the ACP states to analyze their own difficulties and to conceive a reform plan according to their own particular situation. They should take into consideration the fundamental objectives at the heart of the convention—that is, agricultural development, food supply, and environmental protection. Lastly, they should from the start plan

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measures aimed at reducing negative social effects of the structural adjustment project. If an ACP state asks for Community support, a joint assessment concerning the reforms undertaken should be reached. Theoretically, all ACP states are eligible for this support representing more than 10 percent of the ERDF (1,150 million ECU). Nevertheless, a great deal of indicators, similar to IMF, come into consideration, and states whose reforms had received aid from the Bretton Woods institution (although they are not particularly mentioned) are implicitly considered to have satisfied these conditions (Art. 246).

Conclusions Support accorded by the Community should be adapted to each situation. It can take many different forms (for example, technical assistance or aid to sectorial or general import programs). It can also call up various resources and donors. Besides the wish to raise the maximum amount of financial resources in favor of ACP states, the Community tries to ensure the greatest efficiency. The options taken in favor of structural adjustment have been clarified by the Lomé IV Convention. They do not exclude certain questions as to the Community's future capacities to reconcile short-term aid and longterm development projects, to realize a more socially oriented program of structural adjustment dealing with the IMF, and to avoid overstepping the conditions laid down by the entire financial cooperation.

Notes 1. The Courier, E C - A C P , N o . 120 ( O f f i c i a l Publications o f the E u r o p e a n C o m m u n i t y , March-April 1 9 9 0 ) . 2 . Official Journal of the European Community, N o . L 2 5 (January 30, 1976). 3. Official Journal of the European Community, N o . L 3 4 7 ( D e c e m b e r 22, 1980). 4. Official Journal of the European Community, N o . L 8 6 (March 31, 1986). 5. Official Journal of the European Community, N o . L 8 4 (March 30, 1990).

25 The EC's Mediterranean Policy Birol Ali Yeçilada

The Global Mediterranean Policy (GMP) has been the cornerstone of the Community's relations with the nonmember Mediterranean basin countries (NMBCs) since its adoption at the Paris summit of 1972. Resembling the EC's Lomé agreements with the African, Caribbean, and Pacific (ACP) countries, the GMP's primary purpose was to promote close trade and financial relations between the Community and the NMBCs. This was an important change from the Community's bilateral relations with each country of the region to multilateral relations in which the Mediterranean basin is treated as a single region. The GMP was launched at a time when the hegemony of the United States began to decline in world affairs. It seems that the EC officials saw the changing nature of the international system and consciously decided to promote the Community's status and competitive advantage in regions like the Mediterranean basin, ACP nations, and the European Free Trade Association (EFTA). During the past two decades, the GMP experienced significant changes that affected trade between the two regions. The membership of Greece, Portugal, and Spain in the EC further strained relations between the parties concerned as these Mediterranean countries obtained advantageous positions vis-à-vis other NMBCs. However, in recent years, two important developments forced the Community officials to reevaluate the E C ' s Mediterranean policy. The first factor was Project 1992 and how it might have a negative impact on the NMBCs' trade relations with the EC. The other issue was the competition between the EC and its global rivals, namely the United States and Japan, over investments in the Mediterranean basin. The concerns of the EC officials are reflected in the speech of the vicepresident of the Commission, Frans H.J.J. Andriessen, on April 25, 1990. In his speech, Andriessen acknowledged the growing Mediterranean character of the Community and explained that historical ties between the EC and the Mediterranean basin resulted in associational agreements with many countries of the region. Yet these agreements have lagged behind, in terms of the need

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to redefine specifics, over the past decade. Therefore, there is a need to readdress the GMP because "increasingly closer geopolitical rather than political links will be forged between the Mediterranean countries in the coming decades [and] the European Community will be involved in this process." 1 The importance of the Mediterranean basin to the EC is also reflected in the address of Commissioner Abel Matutes, member of the Commission with special responsibility for the Mediterranean policy, where it is explained that the NMBCs are the Community's third-largest customer and its fourth-largest supplier, providing 20 percent of its energy imports. 2 In light of these observations, this chapter evaluates the main tenets of the GMP and examines how EC officials are currently addressing the necessary reforms pertaining to this policy.

The Global Mediterranean Policy In 1971, the EC initiated the Generalized System of Preferences (GSP), which gave some satisfaction to the United Nations Committee for Trade and Development (UNCTAD) demand in trade between the north and south countries. The provisions set in this policy for trade in manufactures fell short of the ambitions of the Mediterranean basin countries that desired unconditional free entry to EC markets for their exports or, failing this, preferences over other less developed countries. Most of these countries depended heavily on the Community for their limited range of exports and a large number of them experienced large deficits in their trade with the EC. The Community responded to these demands by introducing the GMP, which provided for an overall balanced approach to its relations with the NMBCs. The agreements signed with each NMBC, with the exception of Albania and Libya, varied in their policy orientation but emphasized free entry to Community markets for all manufactured exports of the Mediterranean partners. There are two forms of association agreement signed between the Community and its Mediterranean partners. 3 The first type is an agreement that grants special relationship to certain nonmember countries with some of the member states. The second form of association includes those agreements that prepare the nonmembers for possible accession to full membership or the establishment of a customs union. Thus, this second form of association agreement could establish the preliminary stage for full membership in the EC. Agreements with Greece, Turkey, Malta, and Cyprus fell into this category, though in the case of Greece, references to accession to full membership were much stronger. Greece eventually entered the Community in 1981. Agreements with Israel and Portugal provided for free trade area where free trade would work both ways, and these countries would ultimately

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provide free entry to EC's industrial exports. Agreements with Cyprus, Malta, Spain, and Turkey also provided for some degree of reciprocity in trade concessions. All other countries received free entry into the Community markets for their industrial products without reciprocity. In his examination of the GMP, Roy Ginsberg explains that the ultimate purpose of the Community was to use its economic power to accomplish the following: 1. Promote regional stability, balance of economic power, and peaceful economic coexistence among the region's many political rivals 2. Project itself as a force for moderation in relations with the Mediterranean basin's many active and passive belligerents 3. Avoid disruptions of normal trade patterns 4. Secure and expand profitable market outlets and ensure fair market accessibility 5. Ensure that it remains an influential "civilian" actor in the region 6. Check Soviet expansionism in N A T O ' s exposed southern flank4 Nevertheless, despite the ambitious nature of the GMP, several factors presented problems for the successful completion of these policy goals: (1) lack of homogeneity among the NMBCs' economies, (2) the issue of migrant workers in EC markets, (3) persistent conflicts among some of the region's members (Greece-Turkey and Israel-Arab states), and (4) a low level of complementarity among the economies of the EC-NMBCs. Furthermore, it is questionable whether the EC promoted interdependence between its members and the NMBCs or further deepened the latter's dependence on Community markets. This is important because the EC had a selective approach to free trade from the beginning. First, the agricultural products were not part of the GMP. Second, because of the world market recessions of 1973-1975 and 1980-1983, the EC limited imports of various manufactures from the NMBCs. The crucial commodities covered by these limitations were textiles and clothing, shipping, steel, synthetic fibers, paper and paper products, machine tools, and cars. With the exception of textiles and clothing, synthetic fibers, and some paper products, these limitations did not affect NMBCs' exports. Yet, the existence of these restrictions, all in the form of nontariff trade barriers imposed unilaterally by the EC, caused a general doubt about free access to Community markets. The second enlargement of the EC (Greece) and the third (Portugal and Spain) further underlined these concerns. As Alfred Tovias explained, after its enlargement into the Mediterranean basin, the EC has become more "Mediterranean," with more characteristics that resemble the newly industrialized countries (like Israel) and with a very strong agricultural base. 5 It has been shown that these recent enlargement efforts of the EC, and the future establishment of a truly common market under Project

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1992, represent a major threat to the NMBCs' trade relations with the Community. 6 Most NMBCs face great difficulties in penetrating the EC markets because significant levels of trade similarities exist between these countries and the new members of the Community. As Richard Pomfret explained, "Economically one-sided preferential agreements, like those in the Community's Mediterranean Policy, are invariably subject to the priorities of the dominant partner." 7 If this is indeed the case, the nonmembers stand to lose more of their share of EC markets as the Community moves toward a common market. Yet, these markets are still crucial for the export earnings of the Mediterranean basin states even after the entry of Greece, Portugal, and Spain into the Community. The following observations can be drawn: 1. During 1974-1988, the EC remained a very significant trade partner of the NMBCs. One exception to this rule is Jordan's exports. 2. In 1974, the EC accounted for 20-40 percent of total imports of Egypt and Jordan; 41-60 percent of total imports of Cyprus, Israel, Morocco, Syria, and Turkey; and 61-74 percent of total imports of Algeria, Malta, and Tunisia. As for exports of the NMBCs, the importance of the EC markets were 21-40 percent of total exports of Egypt and Yugoslavia; 41-60 percent of total exports of Algeria, Cyprus, Israel, Morocco, Syria, and Turkey; and 61-81 percent of total exports of Malta and Tunisia. After the membership of Greece in 1983, these distributions changed: now the EC accounted for 2 5 40 percent of total imports of Jordan, Syria, Turkey, and Yugoslavia; 4 1 - 6 0 percent of total imports of Cyprus, Egypt, Israel, and Morocco; and 61-74 percent of total imports of Algeria, Malta, and Tunisia. As for exports of these NMBCs, the significance of the EC was 15 percent of total exports of Jordan; 21-40 percent of total exports of Cyprus, Syria, Turkey, and Yugoslavia; 41-60 percent of total exports of Algeria, Egypt, and Israel; and 61-77 percent of total exports of Malta, Morocco, and Tunisia. 3. The latest figures in 1988 also show that after the memberships of Portugal and Spain, the EC still continues to be the most important single trade partner of the NMBCs. In 1988, the EC accounted for 30-40 percent of total imports of Egypt, Jordan, and Syria; 4 1 - 6 0 percent of total imports of Cyprus, Israel, Morocco, Turkey, and Yugoslavia; and 61-75 percent of total imports of Malta and Tunisia. At the same time, the EC accounted for 3 percent of total exports of Jordan; 31 percent of total exports of Syria; 41-60 percent of total exports of Cyprus, Egypt, Israel, Malta, Turkey, and Yugoslavia; and 61-75 percent of total exports of Algeria, Morocco, and Tunisia. 8

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From these observations, it can be concluded that memberships of Greece, Portugal, and Spain did not reduce the significance of the EC as an important trade partner of the NMBCs in terms of these countries' exports and imports. Furthermore, most of the NMBCs continue to run serious deficits in their trade with the Community. To make matters worse, despite some of the NMBCs' comparative export performance in certain agricultural goods, clothing and textiles, leather products, and footwear, they have significant levels of export similarity indices with the new members of the EC. That is, these products are also produced and sold in EC markets by Greece, Portugal, and Spain. To make this issue even worse for the other Mediterranean basin countries, the commodities involved are in either low or medium demand in Community markets. 9 This means that the new Mediterranean members of the EC have the lion's share of the Community's market demand for these goods, and the likelihood of the other NMBCs' increasing their exports of the same commodities is rather low unless something is done to change the situation. The prospects of a single market at the end of 1992 makes this even more difficult for the NMBCs. Trade is not the only issue that has run into difficulties within the GMP. As Roy Ginsberg explained, "The EC has yet to formulate its own common migrant labor policy to regulate the movement and conditions of all Mediterranean migrant workers in the various member states." 10 This problem is important because in 1980, when the flow of workers reached its highest level in the EC, there were 6,016,000 guest workers in various member states. 11 It is crucial to note that this figure does not include the dependents of these guest workers. For example, the largest number of workers come from Turkey. In 1980, there were 714,000 Turkish guest workers in the EC; some 591,000 of them were working in West Germany. According to data obtained from the State Planning Organization of Turkey, we find that there are 1.5 million Turkish workers and their dependents living in Germany. At one time, these workers, and others from the remaining NMBCs, were welcomed in EC member countries. However, after two serious economic recessions in 1974-1975 and 1980-1983, the EC governments have adopted strict controls for the influx of guest workers. Furthermore, as a result of unemployment problems in the EC, member states have been providing attractive "leave packages" to guest workers who choose to return to their homes. One might ask why the EC offered leave packages instead of simply expelling the guest workers. Forcing these workers to leave would violate the standards of welfare and human rights of European society. However, providing them with incentives to leave, usually an attractive monetary package that provides them with capital to start new lives back home, is something else. Despite these concerns of the EC, the continued presence of guest workers is crucial for the NMBCs because it represents a major source of foreign exchange earnings in the form of workers' remittances. For example.

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during 1980-1986, Turkey obtained somewhere between $1.5-2.3 billion in worker remittances. The figures for Yugoslavia range between $4-4.5 billion for the same period. Other NMBCs that rely on such remittances are Algeria, Morocco, and Tunisia. The issue of guest workers is also an important political matter, this is particularly evident in the Turkish case. According to the Associational Agreement of 1964, Turkey was to attain a customs union and free movement of workers in the EC by 1986. However, because of political and economic problems between Turkey and the EC, these policy goals did not materialize. The main economic problem is the level of unemployment in the EC and Turkey. The Community officials fear that if Turkey is provided with free movement of labor, EC markets will be invaded by unemployed Turkish workers. The issue of the customs union, however, is hindered by export similarities between Turkey and the new members of the Community and the relative level of economic development in Turkey. As I have demonstrated in an earlier study, it is simply in the interest of Greece, Portugal, and Spain to oppose Turkey's membership in the EC and to oppose the granting of a customs union to this country. 12 On the political side, serious problems between Turkey and the Community can also be observed. Turkey is at odds with Greece over the Aegean airspace and territorial waters. The two countries are also locked in a conflict over Cyprus. In view of these issues, Greece is adamant about opposing any policy that will pave the way for Turkey's membership in the EC. Finally, other members of the Community, namely Belgium, Denmark, France, Ireland, Luxembourg, the Netherlands, Portugal, and Spain, in addition to Greece, oppose the extension of the customs union and free movement of labor to Turkey on the grounds that this country's political system still falls short of Western-style liberal democracy. 13 The issue of Turkey's membership in the EC also extends to other NMBCs what wish to become full members of the Community. Recently, two other countries from this region, Cyprus and Malta, applied for full membership in July 1990. Whereas it is highly unlikely that the EC will admit new members into the Community before the "deepening" of integration is completed after the completion of Project 1992 and monetary union, the applications of these countries are bound to cause some concern for the other noncandidate states. The cooperation agreements with the NMBCs also made provisions for financial aid from the EC budget and the European Investment Bank. The current 1987-1991 agreement with the Maghreb and Mashrek countries plus Israel allocates 1.6 billion ECU for aid. 14 This amount is considerably lower than the amount provided to Greece under the Integrated Mediterranean Program agreement after it became a member of the EC. The availability of assistance funds for the NMBCs has seriously declined, mainly because of the difficulties the EC faces in absorbing the economies of Greece, Portugal, and Spain, and also the economic recession the Community faced during the

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recession of 1980-1983. In addition, because of the economic problems the Community will face in absorbing East Germany, completing the monetary and economic union, and providing assistance to the new democracies of Eastern Europe, the NMBCs will probably receive even less EC assistance during the 1990s. When we sum up all of the preceding observations on the GMP, it becomes evident that the Global Mediterranean Policy of 1972 is now obsolete and that the Community needs to reevaluate its relations with the NMBCs and provide a more comprehensive and concrete policy package to improve relations between the two regions.

Policy Reorientation Toward the Mediterranean Basin It is clear that the EC needs to reformulate its Global Mediterranean Policy not only because its second enlargement had negative effects on the economies of the NMBCs but also because the Community needs stable trade partners in this region. Since their entry into the EC, Spain, Portugal, and Greece have been actively involved in shaping EC policies toward the Mediterranean basin. Italy and France have joined their efforts but this also resulted in confusion over the type of policy strategy that the Community ought to follow. According to Tovias, both Spain and Portugal will try to maximize trade diversion in wine, fruit, and vegetables by proposing modifications in the CAP, but not necessarily in the highly visible Mediterranean Policy. Both will strongly defend the principle of Community preference in agriculture, which can only mean more protectionism against other Mediterranean producers of fruit, vegetables, and olive oil. All this implies a further raising of fences between the Community and the Mediterranean Basin, a very dangerous strategy for the Community because of its energy dependence on the area as well as the importance of the basin's market for European goods and services. 1 5

This is indeed a dangerous option for the EC, because its dependence on the NMBCs is not simply in the area of energy but also in geopolitical considerations. The recent crisis in the Gulf proved how important cooperation between some of the frontline NMBCs and the EC, as well as the United States, is for the strategic interests of the West. Further alienation of the nonmembers in the region might prove damaging for the long-term interests of the EC. In this regard, Tovias argues that the Community might shift the trade burden further onto other Third World countries and provide some degree of preference for Mediterranean countries. 16 Nevertheless, this is easier said than done. Could the Community sacrifice its relations with the ACP countries just to promote better ties with the NMBCs? In an effort to sort out the confusion over the Mediterranean policy and

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to provide a clear strategy for the Community's future relations with the NMBCs, the Economic and Social Committee of the EC drafted an opinion on this matter on January 25, 1989. This document, entitled "Opinion on the Mediterranean Policy of the European Community," examined various issues pertaining to the problem: (1) why and how the Mediterranean policy needs to be changed, (2) general features of the new Mediterranean policy, (3) the development agreement, (4) financing, (5) institutional arrangements, (6) blueprint for the construction of an overall Mediterranean policy, and (7) spheres of action. 17 This report makes it very clear that the EC views relations with the NMBCs as part of the Community's global competition with the United States and Japan. The report specifically states that e v e n o n c e it is reinforced by establishment of a barrier-free internal market, the Community will not be able to withstand competition from the two main strategic areas of America and Asia unless it extends its e c o n o m i c area and market. T o create this strategic European area, the C o m m u n i t y will have to turn to its neighbors: European Free Trade A s s o c i a t i o n ( E F T A ) , Eastern Europe, and the Mediterranean. In this latter region, the Community must rapidly make up for lost time: the Mediterranean is now a focus of U S and Japanese trade, investment, e c o n o m i c aid, and above all, technological "colonisation." 1 8

In fact, the current technology needs of the NMBCs in many fields are now met by Japan and the United States, and to lesser extent by the Soviet Union. As part of its response to challenges from the United States and Japan, the Community abolished all customs duties and quotas on manufactures in separate agreements with individual EFTA countries, and some reciprocal concessions were made for agricultural goods. The Community's ties with the EFTA further improved with the start of talks between the two areas for the establishment of the European Economic Space (EES). Accordingly, both the EC and the EFTA would have autonomy in their own decisions but the former would listen to the views of EFTA countries, in a consultative framework, before making a decision of its own. 19 That is, a greater degree of cooperation in economic decisionmaking is envisioned by the EES. As to Eastern European states, the EC has made it clear that it is in favor of establishing some form of associational relationship with those countries that wish to have such ties to the Community. The Global Mediterranean Policy is simply another dimension of the EC officials' worldview. In addressing how the GMP needs to be changed, the Economic and Social Council suggested that the Community must review and refine its relations with this region in light of the relative significance of trade considerations, development cooperation, and the drive for "synergies with a view to economic integration." 20 The Council also points out that

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some of the blame for the failure of the GMP during the past two decades falls with the EC. It maintains that the protectionist trade policies of the Community prevented export expansion of the NMBCs and restrictions on migrant workers often violated the commitments laid down in the agreements concerning these people. Such obstacles need to be eliminated because development of the Mediterranean basin will provide the EC with an excellent opportunity to extend its internal market. As the Council explains, ' T h e Mediterranean should be a priority in terms of strategic expansion, representing a 'new frontier' for Europe." 21 In its proposals for specific policy orientation by the Community toward the Mediterranean basin, the opinion paper calls for the creation of a truly interdependent relationship by adopting a joint development strategy. The specifics of this strategy include the following steps: 1. Solving the competition problems that will be caused by the gradual opening up to NMBCs' agricultural and industrial exports 2. Reformulating EC policies on the CAP, industry, research and development, energy, transportation, and regional policy 3. The Community must iron out disparities between the south and the center-north of the EC, providing the southern members a strategic role as a bridge between the economically most advanced parts of the EC and the developing countries of the Mediterranean basin 4. To bring together the various parts of the Mediterranean by developing a proper transport and communication network 5. Achieve complementary relations between the various industries of the two areas by providing the NMBCs with access to innovation and advanced technologies and allowing them to tap into local environmental and cultural resources 6. Establish a truly global approach by disregarding pleas for special treatment from the NMBCs that claim to have closer ties with the Community for one reason or another 7. Harmonize the Community's GMP with individual member states' policies to these countries. In this regard, the Community should play a leadership role 8. Provide increased financial assistance to the NMBCs 22 For the implementation of these policy recommendations, the Council called for a four-stage program—a blueprint for the construction of the new Mediterranean policy. These steps are as follows: 1. The adoption of a Community paper setting out general guidelines for revitalizing the Mediterranean policy. The paper would be approved by the Council of Ministers, following a proposal from the Commission in cooperation with the European Parliament.

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Furthermore, this stage would involve the establishment of a Mediterranean Cooperation Council. 2. The establishment of a Mediterranean forum. This includes preparation of specific guidelines for sectoral policies, launching of major pilot development agreements, and coordination and support of member states' policies toward the region. 3. The establishment of a center or agency providing technical support for the development agreements. 4. Conclusion of the EC-NMBCs joint development convention with the creation of specific institutions for the aforementioned purposes. 23 The Council's opinion paper then goes on to identify initial sectors where this cooperation could begin between the EC and the Mediterranean basin countries. It emphasizes training and socioeconomic support to local economies by encouraging new enterprises (cooperatives and local employment initiatives), assistance for companies, trade unions, professional associations, and nongovernmental organizations. Furthermore, assistance for agricultural development is identified as important because the two regions need to develop a coordinated program for a radical reorganization of Mediterranean agriculture and food industry. This is probably the trickiest issue in the entire opinion paper because the CAP is a sacred cow among the issues found on EC agenda. The proposed agricultural cooperation program calls for the following: 1. The coordination of production on the basis of the developmental needs of the NMBCs and the product markets around the world. 2. The achievement of maximum compatibility among these countries and the EC by exploiting seasonal differences, specializing in particular local products, promoting consumption within and outside the EC, and cooperation in processing industries. 3. The radical reform of the CAP rules for Mediterranean produce by revising the current price-support mechanism. This involves distinguishing income support from support for restructuring or switches to other crops and adopting measures to protect Mediterranean products. 4. The establishment of a trade promotion agency, run jointly by the EC and NMBCs, that would market Mediterranean products in world markets. 24 Similar provisions are made for industries, particularly textiles and clothing. The Council believes that these products should have free access to Community markets provided that the exporters do not practice unfair policies such as dumping, export credit system, counterfeiting, and labor

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policies that violate conventions of the International Labor Organization (ILO). Finally, the opinion paper emphasizes cooperation in areas of energy dependence and tourism in the region. Taken as a whole, the opinion paper is a radical departure from the earlier practices of the EC officials in their relations with the NMBCs. The specific suggestions aim at establishing a degree of dependence between the NMBCs and the Community, where the economic future of the former is significantly affected by economic policy outcomes of the latter. Regardless of how much the Council views this cooperation as an important variation from the Community's relations with other regions of the world, the end result might very well be the serious dependence of the NMBCs on the EC. For instance, the Council maintains that unlike the Lomé Convention, the GMP would not be concerned with development cooperation but rather with the joint development of the EC and the NMBCs. The preceding review of the opinion paper also supports this view. However, the degree of dependence is the key point in this relationship. Furthermore, the reactions of the new members of the Community to the opinion paper has not been warm for reasons previously explained. In accordance with the conclusions of the Economic and Social Council, the Council of Ministers held policy debate on the GMP and reaffirmed the Community's desire to strengthen the special cooperation with the NMBCs and adjust it to new circumstances. At the end of this meeting, the Council of Ministers called upon the Commission to submit to it specific proposals, which would be implemented quickly. 25 The Commission responded by proposing the following six guidelines: 1. Supply technical support for economic, fiscal, and financial reforms and reduce the social cost of structural adjustment, particularly by improving the food supply. 2. Use the European Investment Bank or EC finance bodies to promote private investment by means of joint venture operations. 3. Choose top priority sectors where more investment is needed (environment, communications, and extension of the region's industrial network). 4. Continue access to the common market, particularly through traditional farm trading patterns, while improving access for industrial products. 5. Involve these countries more closely in the aims of the internal market by promoting and improving exchanges of information on standardization and technical harmonization, for instance. 6. Improve the economic dialogue already established with some countries in the fields of agriculture, energy, and taxation and extend the dialogue to regional organizations such as the Arab Maghreb Union or the Arab Cooperation Council. 26

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It seems that the EC has finally realized the failure of the original Mediterranean policy and is attempting to revitalize it by making some crucial policy reorientation and reformulation. Since the declaration of the preceding documents, EC officials have been busy attempting to launch a new regional cooperation in the Mediterranean. The most recent of these initiatives is the attempt of Mediterranean members, led by Italian foreign minister Gianni De Michelis, to establish a Conference on Security and Cooperation in the Mediterranean, 27 which is modeled after the Conference on Security and Cooperation in Europe. The Italian and Spanish officials fear that growing economic and demographic disparity between the members and the NMBCs would be damaging to the long-term interests of the EC. Although they argue that such conference should include all of the eastern Mediterranean states, even extending to the Gulf and Iran, the French maintain that the cooperation needs to start with a more narrow focus— namely the Maghreb. Nonetheless, the Mediterranean basin has once again become part of the important issues on EC agenda.

Conclusions The Mediterranean policy is currently being reassessed by the EC officials. In recognizing the Community's strategic interests in a global competition with the United States and Japan, EC officials realized that they need to improve their ties with the Mediterranean basin. Improvements along the lines suggested by the Economic and Social Council are quite comprehensive and would benefit both regions. Otherwise, the EC stands to lose ground to its competition from the United States and Asia in the NMBCs mainly because the original Mediterranean policy did not deliver what it promised to the nonmembers. Soon after the declaration of the G M P in 1972, the Community introduced import restrictions to sensitive industrial products. Furthermore, the memberships of Greece, Portugal, and Spain occurred at the expense of the other Mediterranean basin countries. Yet, the EC continues to be the most crucial trade partner of the NMBCs. Cooperation is in the interest of both sides. The NMBCs need to enter into EC markets to improve their terms of trade with the Community. They also need valuable technical and financial assistance from the EC. The Community, on the other hand, needs to expand its economic sphere of influence beyond Project 1992. As explained previously, this expansion is crucial for economic competitiveness of the Community. In a similar fashion, the Community is attempting to promote such ties with the EFTA and Eastern European economies. The policy proposals for the GMP are different than the agreements under the Lomé Convention. The G M P emphasizes joint development of the EC and NMBCs, and if successful, it

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promises to solidify historic ties between Europe and the Mediterranean basin. The initial step of recognizing the problems of the G M P has been taken. The Commission now needs to address the specifics of the policy reformulation package and submit it to the Council of Ministers for approval. Much work remains ahead.

Notes 1. Frans H.J.J. Andriessen, "Europe at the Crossroads," Presentation given at the tenth annua! Paul-Henri Spaak Lecture at Harvard University (April 25, 1990), pp. 11-12. 2. European Commission, "The Community's Mediterranean Policy: New Initiatives," Summary of an address given by Matutes to the symposium on human movements in the Western Mediterranean (Barcelona, November 9, 1989). 3. EC, European Unification: The Origins and Growth of the European Community (Luxembourg: Office for Official Publications of the Communities, 1987), pp. 61-62. 4. Roy Ginsberg, "The European Community and the Mediterranean," in Juliet Lodge, ed., Institutions and Policies of the European Community (New York: St. Martin's Press, 1983), pp. 161-162. 5. Alfred Tovias, Foreign Economic Relations of the European Community: The Impact of Spain and Portugal (Boulder, CO: Lynne Rienner, 1990), p. 2. 6. In a customs union, members abolish all import duties on their mutual trade in all goods (except the services of capital) and maintain a common tariff for imports from the rest of the world. A common market is basically a customs union plus free movement of all factors of production between the member states. For detailed discussion of issues surrounding the second enlargement and trade with the NMBCs see J. Dönges et al„ The Second Enlargement of the European Community (Tübingen: J.C.B. Mohr, 1982); Richard Pomfret, "The Impact of EEC Enlargement on Non-member Mediterranean Countries' Exports to the EC," The Economic Journal 91 (September 1981), pp. 726-729; George Yannopoulos, "Prospects for the Manufacturing Exports of the Non-Candidate Mediterranean Countries in a Community of Twelve," World Development 12 (December 1984), pp. 1087-1094; and Birol Ye$ilada, "The Impact of the European Community's Second Enlargement and Project 1992 on Relations with the Mediterranean Basin," Paper presented at the 1990 annual meeting of the Midwest Political Science Association (Chicago, April 5-7, 1990). 7. Pomfret, op. cit., p. 100. 8. These results are obtained from my earlier, more detailed analysis of trade relations between the EC and NMBCs. For details see Yesilada, op. cit. 9. Ibid., pp. 15-20. 10. Ginsberg, op. cit., p. 163. 11. E u r o p e a n C o m m u n i t i e s , The European Community and the Mediterranean (Luxembourg: Office for Official Publications of the Communities, 1984), p. 100. 12. Ye$ilada, op. cit., pp. 15-24. 13. John Redmond, 'Turkey and the European Community: Past Experiences and Future Prospects," Paper presented at the inaugural conference of the European

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Community Studies Association, George Mason University (Fairfax, VA, May 24-25, 1989), pp. 6 - 9 . 14. K. Featherstone, "The Mediterranean Challenge: Cohesion and External Preferences," in J. Lodge, ed., The European Community and the Challenge of the Future (New York: St. Martin's, 1989), pp. 196-197. 15. Tovias, op. cit., p. 108. 16. I b i d . 17. EC Economic and Social Council, "Opinion on the Mediterranean Policy of the European Community," Official Journal of the European Communities, No. C221/16 (January 25, 1989). 18. Ibid., par. 2.3. 19. David M. Wood and Birol A. Yeçilada, "Reassessment of Regional Integration Theory for Europe," Paper presented at the American Political Science Association Meeting, San Francisco (August 30-September 2, 1990), pp. 27-28. 20. EC Economic and Social Council, op. cit., pars. 21 and 2.8-2.11. 21. Ibid., par. 2.15 22. Ibid., pars. 3.1-5.7. 23. Ibid., par. 8. 24. Ibid., pars. 9.7-9.9. 25. Council of Ministers/General Affairs (June 11, 1990), non/AM/cmc, 4300/90 (Presse 9-G). 26. European Commission, "EEC/Mediterranean Countries: Refurbishing the Mediterranean Policy," External Relations, No. 1544 (November 29, 1989), p. 10. 27. Christian Science Monitor, "Europe, North Africa to Work for Greater Cooperation" (October 10, 1990).

26 The EC, GATT, and the Uruguay Round Finn

Laursen

EC Commercial Policy and GATT The European Community is first of all a customs union, which means that tariffs and quantitative restrictions have been abolished between the member states; in turn the member states have established a common external tariff (CET). This status came about in stages, from January 1958, when the European Economic Community started functioning, until 1968. In parallel, and largely as a consequence of the customs union, the EC has also developed a common commercial policy (CCP). Commercial policy is one of the areas where the EC is now supposed to have exclusive powers, although there are still some elements of national policy left, including national quotas, that affect trade with third countries. These national quotas, based on Article 115 of the Treaty of Rome, are supposed to disappear after January 1993, when the internal market is expected to be realized and border controls between the member states abolished. The most important forum for trade policy internationally is the General Agreement on Tariffs and Trade (GATT). All the member states of the EC are contracting parties to the GATT, but because the EC is now supposed to speak with one voice in international trade fora, it is the Commission of the EC—assisted by the member states—that represents the Community in trade negotiations in the GATT as well as bilaterally in trade negotiations with third countries, including major trading partners such as the United States, Japan, and the member states of the European Free Trade Association (EFTA). The Treaty of Rome set out the procedure for setting EC trade policy, including the establishment of a special committee that the Commission must consult during negotiations. Article 113, paragraph 3, stipulates, Where agreements with third countries need to be negotiated, the Commission shall make recommendations to the Council, which shall

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authorize the C o m m i s s i o n to open the necessary negotiations. The C o m m i s s i o n shall conduct these negotiations in consultation with a special c o m m i t t e e appointed by the Council to assist the C o m m i s s i o n in this task within the framework of such directives as the Council may issue to it.

GATT establishes an international regime for trade. It is based mainly on the principles of (1) most-favored-nation (MFN) treatment—trade concessions given to one contracting party to GATT must also be given to other contracting parties, and (2) national treatment—imports should receive the same treatment as domestic products, for instance in respect to taxation. These two principles are found in Articles I and III respectively in GATT. The only form of protection allowed by GATT is customs duties. Quantitative restrictions are prohibited (Article XI). Customs duties are supposed to be reduced gradually through tariff negotiations on a "reciprocal and mutually advantageous basis" (Article XXVIII bis). Thus, reciprocity can also be said to be a fundamental principle of GATT. 1 A further principle is that of transparency. There are exceptions to the general principles, including safeguard clauses, and developing countries have been given preferential treatment. Of great importance for the European Community is Article XXIV of GATT, which allows the creation of customs unions and free trade areas. However, "the purpose of a customs union or a free-trade area should be to facilitate trade between the constituent territories and not to raise barriers to the trade of other contracting parties with such territories."

The Internal Market and External Relations The EC is now busy establishing the internal market, i.e., realizing free movement of goods, services, capital, and persons from January 1, 1993. Will the post-1992 Community be an open, liberal Community or, at the other extreme, as some have feared, a "Fortress Europe"? The question is obviously very important for the Community's main trading partners, the EFTA countries, the United States, Japan, and many other countries, including the developing countries. But it is also very important for the Community itself. The postwar multilateral liberal trade regime has been the basis for today's prosperity. The Community, therefore, has an important self-interest at stake in these matters. This interest in a liberal trade regime is also very much linked up with the role of GATT and the ongoing Uruguay Round trade negotiations. The external dimension of 1992 was ignored during the Commission's early work on the internal market. This in itself contributed to much uncertainty. Finally, in the autumn of 1988, the Commission announced that Europe 1992 will be a "World Partner." 2 However, a number of actors are

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involved in policymaking in the Community. The final decisions about many issues, therefore, are not given a priori. Political outcomes are not always the most rational from an overall point of view. The Council of Ministers, which makes the final decisions, depends very much on the domestic politics of the member states. It is probably not an unrealistic prediction that there will continue to be pressures for protection in various policy areas in a number of member states, including some of those on the GATT agenda at the moment. Because of pressures for protection from specific industries in member countries, it is important that the European Council is also on record for saying that Europe 1992 will be a "World Partner." As it was stated at the Rhodes summit in December 1988, when the GATT Uruguay Round was reaching its halfway stage. The S i n g l e Market will be of benefit to Community and non-Community countries alike by ensuring continuing e c o n o m i c growth. The internal market will not close in o n itself. 1992 Europe will be a partner and not a "fortress Europe." The internal market will be a d e c i s i v e factor contributing to greater liberalization in international trade o n the basis o f the G A T T principles o f reciprocal and mutually a d v a n t a g e o u s arrangements. The C o m m u n i t y will continue to participate actively in the G A T T U r u g u a y R o u n d , c o m m i t t e d as it is to strengthen the multilateral trading system. It will also continue to pursue, with the U S , Japan a n d o t h e r O E C D Partners, p o l i c i e s d e s i g n e d to p r o m o t e sustainable non-inflationary growth in the world e c o n o m y . 3

The declaration from the Rhodes summit contains a rather clear statement of intention on issues of relevance to GATT. But can the Community deliver? Seen from the outside, the Community is not very liberal when it comes to agriculture, textiles, and steel, just to mention the most obvious examples. The Community's recent effort to increase the number of European TV programs (by limiting the number of US programs) has not improved its image as an open and liberal Community. The Japanese face special problems in respect to some electronic goods, and they face national quotas for cars in some member countries. What will happen to such quotas after 1992? Can we avoid Community quotas? How aggressively will antidumping policies be used? What will happen in respect to local content rules? These are just some of the questions the answers to which will determine how liberal the Community will be in the future.

The Uruguay Round GATT has tried, through a number of rounds of multilateral trade negotiations, to help increase international trade. The first round that took place after

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the formation of the EEC was the Dillon Round (1960-1962), where the EEC agreed to lower its CET by 20 percent. Then followed the Kennedy Round (1963-1967), which resulted in tariff reductions on an average of 35 percent. The Tokyo Round (1975-1979) led to further reductions, in average of one-third in manufactures. The Tokyo Round also looked at the problem of an increasing number of nontariff barriers (NTBs) to trade, such as administrative regulations and standards, and adopted codes on some of these and other issues of importance to international trade. 4 These included codes on government procurement, customs valuation, standards, import-licensing procedures, antidumping, and subsidies and countervailing duties. 5 To many observers, the results of the Tokyo Round were disappointing. Protection in the agricultural field continued to be high, not least because of the EC's common agricultural policy (CAP). Trade in textiles continued to be outside the general GATT rules because of the Multi-Fiber Arrangement (MFA). So-called voluntary export restraints (VERs) were becoming more common. 6 Partly because of the economic crisis that followed the energy crisis in the 1970s, domestic pressures for protection were high. Suggestions for a new round started to emerge soon after the end of the Tokyo Round. The United States proposed a new round at G A T T ' s ministerial meeting in 1982, but the Community and many other contracting parties were not ready. The ministers did agree to "reduce trade friction, overcome protectionist pressures, avoid using export subsidies inconsistent with . . . the GATT and promote the liberalization and expansion of trade." But the EC watered down the commitment by declaring that "the Community considers this undertaking to mean that its best efforts will be deployed to avoid taking or maintaining such measures." 7 It was only in March 1985 that the Council of Ministers of the EC adopted a statement on a new round. In order to assure the credibility of a new round, it was considered important that international commitments to halt protectionism (standstill) and to dismantle trade restrictions (rollback) were to be reaffirmed. It was also considered important to make parallel progress in the monetary and financial areas. The Council further saw a "pressing political necessity for Japan to bring [its] import propensity into line with that of [its] partners." In respect to agriculture, the Council stated its determination "that the fundamental objectives and mechanisms both internal and external of the CAP shall not be placed in question." In respect to new topics, the Council considered trade in services as suitable for inclusion. Problems of counterfeit goods and intellectual property rights also deserved consideration. The outcome of the negotiations should be a balanced package. The round should promote world economic recovery and growth. It should reinforce the multilateral structures and disciplines of GATT. On these conditions the Community was ready to participate in a new round. 8 The forty-first session of the GATT contracting parties, which took place in Geneva in November 1985, decided to establish a preparatory

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committee for a new round of multilateral negotiations. 9 This committee agreed in April 1986 that a ministerial meeting should be held in Punta del Este, Uruguay, in September 1986. 10 The Punta del Este ministerial conference, which had ninety-two states participating, decided in favor of launching a new round of multilateral trade negotiations, the Uruguay Round. During the conference the Community made the point that all measures affecting the agricultural sector, not just export subsidies, should be taken into consideration. 11 And Willy De Clercq, member of the Commission responsible for external relations, said, "The Community naturally intends to ensure that the negotiations do not place in question the fundamental aims and mechanisms of its own agricultural policy." 12 The inclusion of trade in services and intellectual property rights in the negotiations that the United States had wanted but that had been resisted by some developing countries was welcomed by the Community. Part I of the declaration adopted at Punta del Este was on trade in goods and Part II covered trade in services. The section on goods confirmed the commitment to standstill and rollback and listed a number of subjects for negotiations: 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13.

Tariffs Nontariff measures Tropical products Natural-resource-based products Textiles and clothing Agriculture GATT articles Safeguards Multilateral Trade Negotiation (MTN) agreements and arrangements Subsidies and countervailing measures Dispute settlement Trade-related aspects of intellectual property rights, including trade in counterfeit goods Trade-related investment measures

There was also a special point on the functioning of the GATT system. The part of the declaration covering services was much shorter. It called for "a multilateral framework of principles and rules for trade in services," the aim being progressive liberalization in this area, too. 13 In respect to textiles and clothing, the aim was said to be "to formulate modalities that would permit the eventual integration of this sector into GATT on the basis of strengthened GATT rales and disciplines," i.e., to phase out the Multi-Fiber Arrangement (MFA). The section on agriculture

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also discussed further liberalization, including (1) improving market access, (2) improving the competitive environment by increasing discipline on the use of all direct and indirect subsidies and other measures affecting directly or indirectly agricultural trade, including the phased reduction of their negative effects and dealing with their causes, and (3) minimizing the adverse effects of sanitary and phytosanitary regulations. Structure and plans for negotiation were agreed on in January 1987. The Trade Negotiations Committee (TNC) has overall responsibility. Under it are the Group of Negotiations on Goods (GNG) and the Group of Negotiations on Services (GNS). To get services on the agenda it had been necessary to accept the idea that there was no direct link between services and goods. The January agreement also included a surveillance body for standstill and rollback commitments, which also reports to the TNC. The GNG established fourteen negotiation groups, one for each of the subjects mentioned in the Punta del Este declaration plus one for the functioning of the GATT system. The GNS established a program for the initial phase of negotiations but did not establish separate negotiation groups. 14

The Midterm Review By the time of the midterm review in Montreal in December 1988, some agreements had been reached in eleven of the fifteen areas covered by the negotiations. The four areas where no agreement could be reached in Montreal were agriculture, textiles, protection of intellectual property rights, and reform of the safeguards system. It was decided therefore to extend the deadline for these four areas until April 1989 and ask the director-general of GATT, Arthur Dunkel, to hold high-level consultations on these in view of reaching agreements. 15 Agriculture was very much a conflict between the EC and the United States, although there were other players, including the Caims group of selfprofessed agricultural free traders led by Australia. In 1987 the United States called for the complete elimination of all trade-distorting measures within ten years. This was completely unacceptable to the EC, which could accept only some reduction. Through the efforts of Arthur Dunkel and bilateral meetings between, on the one side, EC commissioners Ray MacSharry, responsible for agriculture, and Frans Andriessen, responsible for external relations, and, on the other side, US trade representative Carla Hills and secretary of agriculture Clayton Yeutter, a compromise text was worked out. 16 The long-term objective was to be "a fair and market-oriented agricultural trading system." There should be "substantial progressive reductions in agricultural support and protection sustained over an agreed period of time." For the short term, the parties agreed to ensure that tariff and nontariff market access barriers in force would not be intensified; nor would support prices to producers be

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raised. 17 However, fundamental differences on what to do and how much to do remained. Textiles and clothing had been given a temporary derogation from GATT rules and disciplines through the Multi-Fiber Arrangement of 1973. The MFA was subsequently renewed a number of times, and the current MFA expires in 1991. In this area the EC was the first to make a proposal, which included the eventual return of textiles to GATT but on condition of strengthened rules and disciplines and improved market access. The United States did not make formal proposals before the midterm review. The US administration faces strong pressures in Congress for continued protection in this area. 18 The midterm text basically confirmed that "the integration of this sector into G A I T " should be negotiated. Modalities to be worked out should include "the phasing out of restrictions . . . not consistent with GATT rules and disciplines, the time-span for such a process of integration, and the progressive character of this process which should commence following the conclusion of the negotiations in 1990."19 Trade-related intellectual property rights—known as TRIPs in Geneva— was one of the new subjects put on the agenda of the Uruguay Round, especially through US efforts. But other developed countries would like to stop counterfeiting, too. Although copyright and patents are covered through some international conventions and organizations, such as the World Intellectual Property Organization (W1PO), these agreements lack adequate surveillance and enforcement. Some developing countries, however, argue that patent protection of pharmaceutical products, for instance, would be very costly for them. India and Brazil especially were against the inclusion of TRIPs in the Uruguay Round. 20 The developed countries say that investment in R & D as well as technology transfer to developing countries will be affected if no agreement is found. The midterm review did not agree on a text on intellectual property rights in Montreal because India linked the issue with agriculture. The April text established that negotiations were to continue to establish adequate standards and principles, effective and appropriate means for enforcement, and effective and expeditious procedures for the multilateral prevention and settlement of disputes. 21 The fourth area pushed over to April 1989 was that of safeguards, mainly in Article XIX of GATT, which allows governments to take action to prevent injury after prior consultation with trading partners, who may claim compensation if their producers suffer. This article has largely been ignored by governments in recent years. The many VERs, for instance, have resulted through bilateral talks that have excluded third parties that may be affected. This way VERs lack transparency and are discriminatory. The GATT contracting parties disagree on various issues in respect to safeguards. What should be the criteria for introducing safeguard measures? Can they be used selectively? On the latter point, for instance, the EC has

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insisted on selective use of safeguards, whereas the United States, Japan, and developing countries argue that the MFN principle must be applied. 22 The text agreed on in April 1989 confirmed the "aim to re-establish multilateral control over safeguards." It also said that "safeguard measures are by definition of limited duration." Beyond that it was mainly agreed that the chairman of the negotiating group should work out a draft text of a comprehensive agreement. 23 With these agreements the round could continue. Some midterm agreements were to be implemented immediately, namely improvements to the dispute settlement procedures, a trade policy review mechanism, and increased ministerial involvement in GATT. 24 But it was no secret that the major part of the substance of the negotiations still lay ahead. The final negotiations were to take place during a ministerial meeting in Brussels in the first week of December 1990. The dispute settlement mechanism agreed mid-term includes voluntary use of good offices, conciliation, and mediation. By mutual agreement of the parties it also includes arbitration. The establishment of panels will continue to be a part of the system, with clear deadlines now established for the different phases. Panel reports are submitted to the Council, where "the practice of adopting panel reports by consensus shall be continued" (emphasis mine). Clearly, there has not been a major breakthrough here toward anything resembling national law, or for that matter Community law with strong surveillance and enforcement. The new policy review mechanism may turn out to be a useful innovation, however. The trade policies of the United States, the EC, Japan, and Canada will be reviewed every two years; those of sixteen other countries every four years, and those of the remaining countries every six years. This kind of multilateral review may put some pressure on governments to remain free trade oriented. It establishes the principle that trade policy is not just a domestic matter, but it is also very much a concern of other countries. Tariffs were still a part of the negotiations, even if successive rounds from 1947 to the time of the Uruguay Round had reduced tariffs on industrial products from roughly 40 percent to between 5 and 6 percent in developed countries. The tariffs that have been negotiated are bound. The aim of the Uruguay Round was a further 30 percent reduction. Also, the developed countries put much emphasis on integrating the developing countries in this process, thereby lowering and binding their tariffs. A few developing countries such as Mexico and Chile have clearly joined this process. One of the problems in the tariff negotiations was one of approach. The United States favored a request-and-offer approach, whereas the EC and Japan favored a formula approach. Canada proposed a combination of the two approaches. 25 Another important item was trade in tropical products. This area was put on the fast track at Punta del Este, meaning that an agreement could be implemented immediately without waiting for the global package. Tropical

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products account for about 5 percent of international trade and include coffee, tea, cocoa, spices, cut flowers, certain oilseeds, tropical fruits, tropical wood, rubber, jute, and hard fibers. Liberalization of trade in these products is obviously in the interest of a number of developing countries. The EC was the first to put forward offers in this area in October 1987, despite internal and external problems. Internally, for instance, Germany and Denmark have high consumption taxes on tropical beverages, and reduction would result in loss of government revenue. In contrast, the Netherlands tried to keep cut flowers off the list. The Mediterranean countries objected to the inclusion of tropical fruits and bananas in the package. Externally the problems were with the associated African, Caribbean, and Pacific (ACP) states, which could lose market shares within the EC as a consequence of liberalization. The EC offer of October 1987 was conditional on similar offers from other countries. A package of liberalization measures was finally agreed on just prior to the midterm review. It was estimated that it included about $20 billion worth of trade. The EC claimed that its part amounted to $9 billion. 26 The services sector constitutes an increasingly important sector of international trade, estimated to represent about 30 percent of international trade. It includes financial services, insurance, transport, and tourism. Among the problems in the negotiations have been a definition of services, establishment of statistics, which principles to apply, and the whole area's connection with GATT. As mentioned earlier, the Punta del Este meeting adopted a dual-track approach according to which services are not formally a part of GATT. Formally it was not GATT's contracting parties that engaged in these negotiations, but sovereign governments outside GATT. The Montreal midterm review produced a four-page text on services. A definition should include "trade in services involving cross-border movement of services, cross-border movement of consumers, and cross-border movement of factors of production where such movement is essential to suppliers." No sector should be excluded a priori. For the elaboration of a multilateral framework for trade in services, a number of concepts, principles, and rules were considered relevant: (1) transparency, (2) progressive liberalization, (3) national treatment, (4) most favored nation/nondiscrimination, (5) market access, (6) increased participation of developing countries, and (7) safeguards and exceptions. It was recognized that governments regulate services in different ways. The right to introduce new regulations consistent with the new framework was recognized.27

Deadlock As the concluding ministerial session in Brussels in the first week of December 1990 approached, it became clear that agriculture was the issue that could make or break the package.

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In April 1990, the Financial Times wrote that the EC as the world's largest trading entity had responsibilities that it had not quite recognized. All major participants in the GATT negotiations would have to slaughter sacred cows. "For the EC the most sacred of all cows is the common agricultural policy." Referring to 1992 and plans for economic and monetary union, the newspaper continued, "The CAP is no longer a totem of European integration. It represents, instead, precisely the sort of backward-looking protectionism that the EC should reject." 28 This view, however, was not shared by important actors within the EC. What then did happen during the last part of the negotiations? In September 1990, as the December 1990 deadline was coming uncomfortably close, The Economist wrote, "For most of the past four years the negotiators have agreed on little more than an extremely ambitious list of subjects to be discussed." 29 Some progress on specifics was reported. But all specific agreements depended on the final package, with the possible exception of services, which was officially on its own track. In respect to services a General Agreement on Trade in Services (GATS) was taking shape. Some relatively optimistic reports emerged in spring 1990. 30 Later, however, it became clear that there were serious problems about the coverage of some areas. The United States had problems with maritime transport and civil aviation because of domestic lobbies. The Treasury Department did not want banking included. 31 The EC also had some problems with maritime transport, partly because of its accession to the UNCTAD Liner Code (which the United States has not accepted). But the EC in principle wanted all sectors included. 32 Difficult sectors could be given special treatment in annexes to the agreement. Textiles was more a problem for the United States than for the EC. The United States proposed global quotas for a ten-year period, which was unacceptable for the developing countries and the EC. 33 The EC in principle favored phasing out the MFA, although especially Portugal might have some adjustment problems. But agriculture was clearly the most difficult issue for the EC. The EC Commission had great problems getting the Council to accept its proposals, which were only agreed upon within the Commission itself after difficult internal negotiations, where it seems that Frans Andriessen, responsible for external relations, was willing to go further that Ray MacSharry, responsible for agriculture. 34 The Commission's proposal was finally adopted on October 3, 1990. It included a 30 percent reduction of Community support for agriculture before 1996, taking 1986 as base year. At this time in the negotiations the United States and the Cairns group called for a 90 percent reduction in export subsidies, which are especially detrimental to international trade, and a 75 percent reduction of other farm supports. The Commission proposal also included a corrective element for market

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fluctuations and rebalancing. The latter would allow the EC to introduce tariffs for products currently entering the Community freely, especially cereal substitutes ana oil seeds. In respect to export subsidies the Commission said that these should automatically come down as internal support is reduced. The October 3 proposal also promised that "export subsidies should not exceed the amount charged on import." 35 It took several meetings of the Agricultural Council to get the Commission proposal adopted. France and Germany especially have strong agricultural lobbies. The general elections in Germany on December 2 made Chancellor Kohl side with his agricultural minister, Ignaz Kiechle, who is seen as a champion of the small farmers. 36 The Uruguay Round thus became a real cliff-hanger. A number of needed concessions required top-level political leadership. Such leadership was not forthcoming. The Community's agricultural debacle remained an obstacle to overall GATT agreement. In October 1990 The Economist compared the situation with the Smoot-Hawley Act of 1930, which helped turn recession into depression: As the world slips into recession, Messrs Helmut Kohl and Ray MacSharry are vying to be Ihe Smoot and Hawley of 1990. By refusing to offer credible farm-support cuts to the world's trade negotiations in Geneva. Germany's chancellor and the European Community's farm commissioner are conspiring to launch the world's next round of tradeshrinking protectionism. Meanwhile in Congress, successors to Smoot and Hawley are eager to lend a hand. 37

Indeed, the ministerial session in December did founder on the agricultural issue. Although the EC made some additional offers—including the exclusion of soya from rebalancing, some market opening for products currently subject to levies, and some limitation of the scope of export refunds—it was too little, too late. Sweden's minister of agriculture. Mats Hellstrom, put forward a proposal that suggested a 30 percent reduction in farm supports from 1990 (and not 1986 as suggested by the EC) and did not refer to rebalancing. MacSharry's recommendation not to accept the Hellstram proposal was unanimously approved by the Agriculture/Trade Council on Friday, December 7. 3 8 This led to a suspension of the negotiations. The chairman of the meeting. Hector Gros Espiell of Uruguay, concluded that the participants needed "more time to reconsider and reconcile their positions in some key areas of the negotiations." GATT's directorgeneral, Arthur Dunkel, was asked to "pursue intensive consultations" from then "until the beginning of next year." 39 Will the round reopen? This is difficult to predict. There is news that the Commission is thinking of redirecting farm support away from big farmers to small farmers and switch from production subsidies to direct income support. But such CAP reform will take time. Will the United States, the Caims group, and others lower their expectations in the meantime? Can the

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U S Congress's fast-track deadline of March 1, 1991, be extended? 40 The future of international trade now depends on some difficult decisions in Brussels, Washington, DC, and elsewhere.

Notes 1. O l i v i e r L o n g , Law and Its Limitations in the GATT Multilateral Trade System ( L o n d o n : G r a h a m & T r o t m a n / M a r t i n u s N i j h o f f , 1987), p p . 8 - 1 1 . F o r the text of G A T T , see, for instance, the appendix in Kenneth W . Dam, The GATT: Law and the International Economic Organization ( C h i c a g o : U n i v e r s i t y of C h i c a g o Press, 1970). 2. " E u r o p e 1992: E u r o p e W o r l d P a r t n e r , " E u r o p e D o c u m e n t s N o . 1530 ( O c t o b e r 25, 1988). 3. Agence Europe ( D e c e m b e r 4, 1988), p. 4. 4 . S t e p h e n F r a n k O v e r t u r f , The Economic Principles of European Integration ( N e w Y o r k : Praeger, 1986), pp. 1 0 2 - 1 0 6 . 5. G i l b e r t R . W i n h a m , International Trade and the Tokyo Round Negotiation ( P r i n c e t o n , N J : Princeton U n i v e r s i t y Press, 1986). 6. A n n a M u r p h y , The European Community and the International Trading System. Vol. I: Completing the Uruguay Round of the GATT (Brussels: C e n t r e f o r E u r o p e a n P o l i c y S t u d i e s , 1990), p. 31. 7. Q u o t e d f r o m ibid., pp. 4 1 - 4 2 . 8 . B u l l . EC 3 - 1 9 8 5 , p o i n t 2 . 2 . 1 2 . 9. Bull. EC 1 1 - 1 9 8 5 , p o i n t 2 . 3 . 5 2 . 10. Bull. EC 4 1 9 8 6 , p o i n t 2.2.1. 11. " L a u n c h i n g of a N e w R o u n d of G A T T T r a d e N e g o t i a t i o n s in P u n t a del E s t e , " Bull. EC 9 - 1 9 8 6 , point 1.4.1. 12. S p e e c h d e l i v e r e d by Willy De C l e r c q on S e p t e m b e r 16, in ibid., p o i n t 1.4.2. 13. " M i n i s t e r i a l D e c l a r a t i o n o n the U r u g u a y R o u n d , " Bull. EC 9 - 1 9 8 6 , p o i n t 1.4.4; also in News of the Uruguay Round (October 1986). 14. Bull. EC 1 - 1 9 8 7 , p o i n t s 2 . 2 . 1 - 2 . 2 . 4 ; Focus: GATT Newsletter No. 43 ( J a n u a r y - F e b r u a r y 1987). 15. Focus: GATT Newsletter N o . 5 9 (January 1989). 16. M u r p h y , o p . cit.. Vol. I, p. 119. 17. News of the Uruguay Round (NUR) 0 2 6 (April 12, 1989). 18. M u r p h y , o p . cit., V o l . I, pp. 1 3 2 - 1 3 3 . 19. NUR 026, p. 2. 2 0 . M u r p h y , o p . cit.. V o l . I, pp. 9 7 - 9 8 . 2 1 . NUR 0 2 6 , p. 9. 2 2 . M u r p h y , o p . cit., p p . 8 8 - 9 1 . 2 3 . NUR 0 2 6 , p. 8. 2 4 . " M i d - t e r m R e v i e w : F i n a l A g r e e m e n t at G e n e v a , " Focus: GATT Newsletter N o . 6 1 ( M a y 1989). 2 5 . M u r p h y , o p . cit., p p . 1 0 7 - 1 0 9 . 26. Ibid., pp. 1 2 6 - 1 2 8 . 2 7 . GATT, Multilateral Trade Negotiations. The Uruguay Round, Doc. M T N . T N C / 7 ( M I N ) ( D e c e m b e r 9, 1988), pp. 4 ( M 3 . 28. " E C a n d t h e G a t t R o u n d , " Financial Times (April 10, 1990), p. 2 0 . 29. " J o u s t i n g f o r A d v a n t a g e , " The Economist ( S e p t e m b e r 22, 1990), S u r v e y s e c t i o n , p. 5.

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30. " E C a n d W a s h i n g t o n A g r e e How to L i b e r a l i z e T r a d e in S e r v i c e s , " Financial Times (April 3, 1990), p. 6. 31. " C e n t r e Stage for Services?" The Economist (May 5, 1990), pp. 8 0 - 8 1 ; " G A T T and Services: Faltering," The Economist (September 22, 1990), p. 75. 32. William Dullforce, "All Services Must Be Included in G A T T , E C Insists," Financial Times (June 19, 1990), p. 4; "US Raises Hurdle in Way of Pact on Services," Financial Times (July 18, 1990); " G A T T and Services: Closer, Closer," The Economist (July 14, 1990), p. 72. 33. "Third World Exporters Reject US Textiles Plan," Financial Times (May 23, 1990), p. 4 ; " E C R e b u f f s U S Plan to R e p l a c e M F A Curbs with Q u o t a s , " Financial Times (May 22, 1990), p. 4. 34. Agence Europe (September 21, 1990), p. 5; Tim Dickson, " C o m m i s s i o n Still to Endorse 3 0 % Farm Subsidy Cut," Financial Times (September 20, 1990). 3 5 . Agence Europe (October 5, 1990), pp. 7 - 8 ; and Tim Dickson, " E C C o m m i s s i o n Presents United Front on R e f o r m s , " Financial Times (October 5, 1990), p. 38. 36. William Dullforce et al., "World Trade Talks Near Collapse over Farm S u b s i d i e s R o w , " Financial Times (October 19, 1990); T i m D i c k s o n , " E C Ministers Fail Again to Agree on Farm R e f o r m , " Financial Times (October 2 0 21,1990). 37. " T r a d e Betrayed," The Economist (October 27, 1990), p. 16. 38. Agence Europe (December 8, 1990). 39. NUR 044 (December 12, 1990). 40. " U S C o n g r e s s M a y Hold Key to Saving U r u g u a y R o u n d , " Financial Times ( D e c e m b e r 13, 1990).

27 EC-US Political/Institutional Relations Roy H.

Ginsberg

The years 1989-1990 in retrospect were turning points in US-EC relations. Three epic developments catapulted the US-EC relationship onto a much higher political arena: (1) the collapse of communism and the E C ' s emergence as a pole of attraction for the democratizing states of Eastern Europe; (2) German reunification; and (3) the EC's quest to unify the internal market and to expand into the areas of economic, monetary, and political union. Long considered by many US administrations to be on the periphery of foreign policy priorities, the EC is now at the epicenter of a continent in the midst of revolutionary change and in need of a proven structure of peace and prosperity. The EC's meteoric rise in the post-Cold Wax international system coupled with revitalization and expansion of the EC economy made the old world look new and has prompted US policy responses the magnitude of which has not been seen since the Kennedy administration. 1 Agreement by the Bush and Delors administrations on the need to upgrade relations began to replace a decade of recriminations between Brussels and Washington. President Delors was one of the first to issue a plea of more political harmony in US-EC relations, an eloquent call for expanded cooperation that apparently caught the attention of the Bush administration. In his speech at Harvard University on September 22, 1989, President Delors stated that the United States can . . . expect the renewed vigor in our integration process to add new dimensions to its relationship with the EC. We are linked across the Atlantic by common values and ideals, and by a shared attachment to peace, fundamental freedoms, and democracy. We cannot allow these common bonds to be jeopardized by trade disputes. Rather we must reinforce them by working together to meet our wider international responsibilities. 2

Delors went on to outline four areas in which the United States and the EC 387

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should cooperate: multilateral world trade and the GATT round; aid to the developing states; the environment; and East-West relations. The US-EC relationship was influenced by European developments during 1989-1990 more than the US-EC relationship influenced European developments. Now that the overall quality of relations has improved in response to developments, the two sides are more politically disposed to working together to help shape post-Cold War Europe, although concord is not automatically assured. The collapse of Soviet power could boost or harm relations, depending on the extent to which both sides can agree on how to shape their future relationship. Relations could be boosted if a new security partnership is based on equality. Equality in a security partnership could come only if the EC states themselves can incoiporate defense into their emerging political union. Even then there is no guarantee that the EC states, once they have developed a defense alliance, will work with the United States in the pursuit of common interests globally. Instead of the EC developing into a strong reliable pillar of the Atlantic Alliance, as has always been US policy, it may develop into a defense union that would vastly diminish—or indeed rival— US influence. The collapse of the Soviet threat to Western Europe has eliminated the most divisive political issue in US-EC relations: how to deal with the Soviet bloc. The consensus that emerged in 1989-1990 in Brussels and Washington was to work together to help the process of democratization and the opening up of centrally planned economies to market economies. Yet how will the United States and the EC states fashion a relationship rooted not in the Cold War but in the 1990s? Many observers are asking what will bind the United States and the EC together in political terms now that the Soviet threat is gone. Transatlantic dialogue was dominated in 1989-1990 by the future of NATO, of the Conference on Security and Cooperation in Europe (CSCE), and of West European Union (WEU), and by the possible extension of the Treaty of Rome to defense issues. This dialogue left the future shape of US-EC political relations subject to change for some time. By mid-1989 (before the revolutions of Eastern Europe burst forth), the legislative and executive branches of the US government recognized that the E C ' s 1992 plan and the apparent reform in the Soviet empire would have major implications for US trade and for political and strategic interests. Congressional hearings were held to investigate the 1992 program in response to constituent fears of a "Fortress Europe." The executive branch undertook internal interagency studies of the strategic implications of the 1992 plan for US interests. Thus, even if the Soviet empire in Eastern Europe had not collapsed, the US policymaking and lawmaking bodies would have been fully engaged in review of US-EC relations first because of the EC's historic quest to achieve a fully

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unified market, and second because of the promise of change in Eastern Europe. Whereas in early 1989 the Bush administration did not know just how to handle the EC, by late in the year, the administration began to develop an "EC policy." By mid-1989, it was clear that the intersection of the 1992 program and active EC ostpolitik with the goals of perestroika, glasnost, new thinking in Soviet foreign policy, and the political reforms spreading across Eastern Europe would produce a powerful combination of factors that would upset four decades of US security interests in Europe. 3 The US government began to accept that the 1992 project was not an attempt at "Fortress Europe" and, by fall 1989, it began to reach out to the EC as a partner in dealing with the uncertain new European order that would emerge from the first breach of the Berlin Wall on November 9, 1989. Responsive to the democratic revolutions in East Germany, Poland, Hungary, Czechoslovakia, Romania, and Bulgaria and to how the collapse of Soviet power would affect NATO, the Bush administration made overtures to the EC to improve institutional and political relations. The new US "EC policy" would recognize the hard facts: if the United States were to have influence with the Europeans, it could not be seen to oppose further unification. Thus, it would be best for the United States to work with the EC to develop a relationship in which the responsibilities and burdens of managing global Western interests would be more evenly shared. The general state of the bilateral relationship in 1989-1990 was good when compared to the trade wars and acute foreign policy fallings-out of the 1980s and the monetary and oil crises of the 1970s. True, trade disputes continued to threaten to cast a dark shadow over political gains, particularly over the fractious round of multilateral trade negotiations at the GATT, but some of the more viciously contested commercial disputes of the past decade have been settled. 4 The total value of two-way trade and investment in 1989 neared a record $500 billion—testifying to the existence of profound European-US interdependence—which helped put remaining disputed trade items in broader perspective. The years 1989-1990 will not be remembered for disputes over EC states' subsidies to Airbus Industrie or the EC ban on imports of hormone-injected beef but for the uplifting of US-EC political relations at a time when the original political and military tenets of these relations were being thrown into question. The improved tenor of relations was in stark contrast to the war footing on which the Reagan administration had put US relations with the EC for most of the 1980s. The 88 percent drop in the US merchandise trade deficit with the EC in 1989 over the previous year helped ease bilateral frictions. The US trade deficit with the EC of just $1.5 billion in 1989 seemed minuscule when compared with the US deficits with Japan of $49 billion and with the newly industrialized countries of $31 billion. 5 Already by the first quarter of 1990, the United States enjoyed a trade surplus with the EC.

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The EC's Response to Eastern Europe as a Factor in US-EC Relations Because of its geographic location, long-standing interest and activity in Eastern Europe, and economic and political strength, the EC is ideally suited to play a leading role on behalf of the Western states in assisting the Eastern Europeans as they undertake democratic and market reforms. The EC had always been there to encourage such trends. The EC has begun and will continue to engage the Eastern European states in European integration at different levels ranging from cooperation agreements, which enhance the flow of trade, to free trade agreements along the lines of those it has with EFTA, to association agreements, which provide for even closer economic and political ties (e.g., those with Turkey and Malta), and EC membership itself (sometime later in or beyond the 1990s). The level of engagement by the Eastern European states in the EC will depend on the scope of democratic and market reforms taking place in the individual states and on the success of the EC's own effort to deepen the internal market by the end of 1992. Beyond all of this, the EC itself, with its record of structured peace and reconciliation among ancient enemies, economic, political, and social reconstruction within fifteen years after the end of World War II, quality of life factors, and stable democratic institutions, offers Eastern European states a model of what can be achieved and a goal toward which to strive. The United States had historically opposed an independent EC ostpolitik, particularly when the Europeans rejected linkage between ostpolitik and the state of superpower détente. In 1989-1990, the US government threw its support behind the E C ' s leadership position on behalf of the democratic capitalist states in aiding the transformation process in Eastern Europe. Whether the US position was merely an acceptance of its own limitations rather than an affirmation of the EC's power to influence is less important to probe than the effect of the action on the EC's confidence and on US-EC relations. The elimination of the Soviet threat to the physical security of Western Europe also lifted from the shoulders of US-EC relations two decades of differences over how to deal with the Soviet bloc states. After the EC and the Council for Mutual Economic Assistance (COMECON) established diplomatic relations in 1988, the road was paved for the EC to sign new cooperation agreements to expand trade with Hungary, Czechoslovakia, Poland, East Germany, and the Soviet Union between 1988 and 1990. The EC views the cooperation agreements with the Eastern European states as the first step toward association accords that could develop as political and economic reforms take shape. Hungary has already announced its wish to join the EC by 1995. In 1990, the EC granted Hungary and Poland access to its Generalized System of Preferences (GSP) program. In 1990, the EC opened delegations in Warsaw and Budapest and on

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October 3 the two Germanies reunified, giving the EC an enlarged and even more powerful Federal Republic. In addition to bilateral aid to the East, the EC holds a 53.7 percent share in the newly established European Bank for Reconstruction and Development (EBRD), the purpose of which is to provide loans to encourage the development of the private sector in Eastern European states committed to political pluralism and market economics. The fact that the United States has accepted a minority share in the EBRD symbolizes the devolution of responsibility and power that has occurred in US-EC relations, the new US confidence in the EC, and the realization that the United States is limited by geography and its own debt from making larger, more direct contributions. During the 1989 Paris Economic Summit the EC was given and accepted the political task of coordinating the Group of 24's assistance to Poland and Hungary. The EC Commission in late September 1989 presented its plan, which set out the framework through which aid was to be delivered to Poland and Hungary. Aid would be used to help with economic restructuring, improved access to the markets of the Group of 24, and to promote investment in the two countries, vocational training, and efforts to improve the environmental situation. 6 At its December 1989 meeting in Brussels, the Group of 24 agreed to extend coordinated aid to Bulgaria, Czechoslovakia, East Germany, and Yugoslavia so long as these states carried out required political and economic reforms set down by the Group of 24. On February 16, 1990, at an Organization for Economic Cooperation and Development (OECD) meeting, the Group of 24 extended coordinated aid to Romania and in March 1990 the EC Commission sent a fact-finding mission to all five states to examine progress in economic and political reforms as a prerequisite for aid. About $11 billion in new credits, grants, food aid, and loan and investment guarantees have been committed by the Group of 24 states, so the job of the EC to coordinate such aid is awesome. As for aid to the Soviet Union, EC leaders agreed in principle in June 1990 to offer economic assistance to the Soviet Union but did not endorse the $15 billion aid package proposed by France and the FRG, largely at the insistence of the UK. Commitment to aid the Soviet economy was left to further study by the July 1990 Houston Economic Summit. T h e Bush administration fully supported the Houston Economic Summit's charge to the EC Commission to coordinate Western aid to Eastern Europe. The myriad of EC activities in Eastern Europe gives the EC states an important role to play on behalf of the wider group of advanced developed capitalist states. The significance is that the United States, which used to play the role of undisputed leader of the West, now concedes the EC's central role in Eastern Europe. This bodes well for a much more symmetric and effective relationship between the United States and the EC so long as both partners continue to agree to cooperate and coordinate mutual interests in post-Cold War Europe. President Delors stated that "it is above all in the

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area of East-West relations that partnership between the EC and the United States needs to be strengthened . . . [the July 1989 Paris Summit charge of the EC Commission to coordinate aid for Poland and Hungary]. . . provided tangible evidence of a new relationship between the EC and the United States. . . . The EC and the United States complement each other in their main concerns, their traditions, and their commitment to freedom, and the rights of the individual. They should act in concert." 7

The US Policy Response to the 1992 Plan and EC Policies Toward Eastern Europe In response to European changes, Bush administration officials talked of a new Atlanticism by which the instruments for Western cooperation might be adapted to design and put into effect a new European architecture, and the EC Commission responded in kind. Many credit President Delors with helping to reverse US fears of "Fortress Europe." During his April 1989 visit to Washington, President Delors stated, T h e c o m p l e t i o n of the internal market will increase the purchasing p o w e r o f the EC, p r o v i d i n g vast opportunities to our partners worldwide, and firstly to the United States. . . . It is time to reassess the [ U S - E C ] relationship. W e both have much to gain by working together on the basis of a true and friendly partnership. This . . . means m u c h more than g o o d trading relations, however, important they are. B o t h partners n o w have to think about a wider political dialogue, leading possibly to joint action over issues of mutual interest. 8

Delors also stated that "for the free world, it is a necessity to have a good understanding between the United States and the EC. This is more important than soybean and hormones . . . than the vanity of heads of states; it's the model for freedom, for liberty, for the future of the world." 9 On May 18, 1989, Assistant Secretary for Economic and Business Affairs Eugene J. McAllister stated, "The United States unequivocally supports [EC] economic integration . . . [and] we see the [1992 plan] as good for the United States and the world . . . [and that] a united Europe is a cornerstone of US foreign policy." 10 On May 21, 1989, President Bush stated that the United States was "ready to develop new mechanisms of consultation and cooperation with the EC . . . [and that] the United States is and will remain a European power." 11 On June 22, 1989, Deputy Secretary of State Lawrence S. Eagleburger noted, "We are looking to improve the channels of communication between the EC Commission and us on trade and investment questions . . . [and that] it is in the US interest to work together [with the EC] on pressing transnational problems." 12 On security issues, Eagleburger noted that "while

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we seek an expanded and deeper dialogue with the EC on foreign policy . . . we continue to see NATO as the appropriate forum for discussions affecting our security interests . . . and while Europe will be more forceful in asserting its own needs and ideas, the [US] President will remain the preeminent spokesman for the free world." 1 3 On September 11, 1989, US Trade Representative Carla Hills stated that the US administration strongly supports the EC 1992 process and believes that open and nondiscriminatory implementation of the program will benefit both the EC itself and the EC's major trading partners, including the United States. 14 On October 3, 1989, Assistant Secretary of State for European and Canadian Affairs Raymond Seitz stated that the plethora of nontrade US-EC consultations on such matters as monitoring the movement of terrorists, controlling narcotics trafficking and money laundering, and cleaning up the environment "will become increasingly important in the years ahead." 15 On December 12, 1989, Secretary of State James Baker announced that (1) the future development of the EC will play a central role in shaping the new Europe; (2) the United States seeks an EC open to cooperation with others; (3) Americans will profit from access to a single EC market; (4) as Europe moves toward its [market] goals . . . and as its institutions for political and security cooperation evolve, the link between the United States and the EC will become even more important. We want our transatlantic cooperation to keep pace with EC integration and institutional reform. 1 6

Secretary Baker went on to propose that "the United States and the EC work together to achieve, whether in treaty or some other form, a significantly strengthened set of institutional and consultative links. Working from shared ideals . . . we face a set of mutual challenges—in economics, foreign policy, the environment, science . . . and other fields. So it makes sense for us to seek to fashion our responses together as a matter of common course." 17 On July 11, 1990, the leaders of the seven industrialized countries and the EC stated, "We are determined to seize all opportunities to achieve a Europe whole and free and recognize the EC's contribution to that effort." 18

The EC's Response to the US Overtures At the annual ministerial meeting of the EC and the United States held in December 1989 in Brussels, the participants stated that "the EC Commission and the United States consider it opportune . . . to reaffirm the importance they attach to [bilateral] relations and to declare their intent to strengthen their relationship. . . . As Europe changes, the instruments for western cooperation must adapt; world stability is enhanced by a strong [bilateral] relationship." 19

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In February 1990, EC Commission president Delors and EC Council president Charles Haughey expressed the EC's appreciation concerning the Bush administration's positive attitude toward the EC and stated that the EC was ready to work out an improved framework for consultations with the United States. 2 0 Between February and April 1990, several EC commissioners proposed ways to cooperate with the United States in such areas as competition policy, the environment, research and development, and foreign policy coordination. In April 1990, German foreign minister Genscher called on the United States, Canada, and the EC to issue a joint declaration encompassing political, economic, technological, and cultural relations. 21 In April 1989, EC Commissioner for External Relations and Trade Frans Andriessen stated that "the EC will be one of the pillars in the building of a greater Europe. . . . This cannot be built without the direct participation of the United States. . . . The United States and Europe are inextricably linked together." 22 From a political economy perspective, US pressure on the EC to give full consideration to US concerns before enacting directives that are part of the 1992 program has resulted in a number of EC actions that have helped allay fears in the United States of a "Fortress Europe." For example, the EC made reforms in the Second Banking Directive, adopted in the end of 1989, that took into account the concern of the United States that US banks operating in Europe might face discriminatory action unless US banking laws were liberalized. Because banks in the United States are limited geographically and in terms of services they may offer, the US concern was valid. The process of consultation resulted in a more favorable outcome as far as US interests were concerned. Although US secretary of commerce Robert Mosbacher's statement in 1989 that the United States should have "a seat at the table" when the EC sets standards on products and in other areas was rather offensive (in that the EC is not brought into the decisionmaking process in the United States), the EC nonetheless has since attempted to make the process of establishing new product specifications open to US input. This move has helped to dampen worries in the United States that the EC's new product standards would be used as new nontariff barriers after 1992.

Specific Outcomes of US-EC Relations in 1989-1990 In 1989, Thomas M. T. Niles, a career foreign service officer and a former ambassador to Canada, was appointed by President Bush as the new US ambassador to the EC, signaling a serious commitment by the new US administration to professionally upgrade its relationship with the EC. Following the Niles appointment, President Delors appointed former Dutch prime minister Andreas van Agt as the EC Commission Head of Delegation

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to the United States, a move showing the wish of the EC to raise the level of EC-US relations from a purely commercial one to a more political one. At the February 27, 1990, meeting in Washington between President Bush and EC Council president Haughey, the two leaders agreed to changes in the frequency and level of meetings between the United States and the EC. The two agreed that there would be (1) meetings between the US and the EC Council presidencies at least once during each EC Council presidency—or twice yearly; (2) biannual meetings between the EC foreign ministers and the US secretary of state; (3) annual meetings between the US and the EC Commission presidents; and (4) biannual ministerial-level meetings between members of the US cabinet and the EC Commission (up from annual meetings in the recent past) to rotate in location between Washington and Brussels. The first of the new biannual consultations between EC commissioners (headed by President Delors) and the US cabinet (headed by Secretary of State Baker) was held in Washington on April 23-24, 1990, during which the two sides discussed economic and political developments in addition to cooperation on such issues as drug trafficking and drug money laundering, global climate change and depletion of the ozone layer, science, and technology. President Delors referred to making the US-EC partnership "a living reality." 23 In May 1990, the Bush administration, using as a model the EC's role of coordinating aid on behalf of the Group of 24 in Eastern Europe, suggested to the EC that a similar effort be undertaken in the Caribbean and Central America. The United States could play the role of coordinator of aid and the EC could provide aid. The idea, though again reflecting the US government's new attitude toward the EC as a foreign policy player, has not been placed by the EC high on the list of its priorities because of the already burdensome agenda on the home front (the 1992 project and the intergovernmental conferences on economic, monetary, and political union that began in Rome in December 1990) and on the Eastern front (German reunification and aiding Eastern European reforms). The logic behind the initiative is, according to a US official, to "counteract the EC's natural tendency to be insular. We want [the EC] to recognize its external responsibilities [in addition to Eastern Europe]." 24 At a June 7, 1990, meeting of the Coordinating Committee for Multilateral Export Controls (COCOM), the United States, under EC and Japanese pressure, agreed to relax some controls on strategic exports to Eastern Europe. Whereas the United States viewed COCOM export controls as vital to the security of the Western alliance, the EC states viewed the regime as much too tight. As part of the new biannual meetings between the EC Council and US presidents, on November 13, 1990, George Bush and Giulio Andreotti, accompanied by Jacques Delors, met in Washington to discuss signing the

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unprecedented Transatlantic Declaration, designed to reaffirm bilateral relations at a time of flux in East-West relations and to provide a framework to guide relations in the post-Cold War era. The declaration, which was finally signed by the two parties at the Paris CSCE Summit on November 20 (and was made public on November 23 in Rome, Washington, and Brussels), was devised in part as a follow-up to Secretary Baker's December 1989 call for a treaty (or some other way in which to strengthen institutional/consultative links). Jacques Delors had broached the idea of closer US-EC links in a February 1989 interview with the Wall Street JournalP The declaration committed the partners to regular, high-level consultations on matters of mutual interest and laid down the principles and the framework for bilateral consultation and cooperation in economic, scientific, educational, and cultural fields. It committed each side to work together on transnational problems such as combating and preventing terrorism, combating the illegal production, trafficking, and consumption of narcotics and related criminal activities such as money laundering, fighting against international crime, protecting the environment, and preventing nuclear proliferation. Finally, the declaration restated commitments to biannual consultations between the US president and the presidents of the European Council and the Commission, biannual consultations between the EC foreign ministers (with the Commission) and the US secretary of state, ad hoc consultations between the foreign minister of the EC member holding the presidency (or the troika) and the US secretary of state, and briefings by the EC Council presidency to the US representatives on ministerial-level European Politial Cooperation (EPC) meetings. 26 The declaration was more cosmetic than substantive. It placed the level, frequency, and functional content of meetings already agreed to under a single rubric. The signatories reaffirmed their common heritage and historical ties and stated their commitment to democratic values, consolidation of an undivided and democratic Europe, the principles and purposes of the North Atlantic Alliance, and bilateral relations based on equal partnership. To work more closely together, the signatories committed themselves to inform and consult each other on political and economic matters where common interests exist with a "view to bringing their positions as close as possible without prejudice to their respective independence."27 Despite the rhetoric of cooperation, the declaration may yet reflect a new phase in US-EC relations if the framework enables the two sides to work more closely together in new areas of policy cooperation, consultation, and indeed coordination. A problem with the declaration is that—with the swiftness of change in Europe and elsewhere—a commitment to increase the level, frequency, and functional coverage of bilateral meetings may not be enough to both nurture the idea of and provide the mechanism for nontraditional joint ventures.

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T h e declaration gave the United States part o f what it wanted: a statement solidifying bilateral ties at a time of uncertainty in Europe. A n y agreement or treaty that institutionally bound the United States and the E C together at this time would have been impossible for the E C member states to reach agreement on. First, the timing was o f f from the European perspective. T h e declaration was made just before the convening o f the intergovernmental conferences on political and monetary/economic union, and the E C was hardly in the position to make new political and institutional commitments before it knew more about the future shape of its own foreign policy. Second, France and some other member states were loathe to connect the E C to the United States in treaty form at a time when the E C was reaching new heights of independence, authority, prestige, institutional and economic growth, and confidence. A t a time when some of the E C leaders had been calling for a defense role for the EC, a treaty with the United States did not seem appropriate. Those skeptical of further institutional linkage with the United States felt that Europeans should not renew defense links with the country that has dominated Western European defense for over forty years. E C commissioner Karel van Miert in April 1990 stated, in response to Secretary Baker's December 1989 Berlin speech on institutionalization of U S - E C relations, " I don't believe in such formal arrangements with rigid procedures. T h i s could imply co-decision and . . . lead to obsessive patronizing. T h e seat at the table formula is not a good idea. What we need is a pragmatic partnership, open to all levels and providing for trip wires as soon as there are any signs of conflict and difficulties." 28 E C Commission president Delors stated before the European Parliament, T h e r e is something ambiguous about linking transatlantic partnership with European integration as M r . Baker did. S o m e member states might interpret it as a deliberate attempt to interfere in our affairs, something which would be unacceptable between two equal partners, the t w o pillars o f the Atlantic A l l i a n c e . But it is difficult not to rejoice at the new attitudes e m e r g i n g on both sides o f the Atlantic, the willingness to step up cooperation and prevent the deep relationship between the w o r l d ' s p r e m i e r p o w e r s descending to the l e v e l o f disputes about pasta and hormones. T h e bond between the E C and the United States merits better than that. 2 9

Concerns within the E C states about US interference in their internal affairs notwithstanding, Delors and Andreotti probably recognized that it was necessary to g i v e the United States something in return for renewed U S support o f the E C , especially at a time when the Bush administration had been pronouncing that it was N A T O (not the E C ) that institutionally linked the United States to Europe. From the U S perspective, it was more beneficial to have even a cosmetic commitment to renewed bilateral ties than to have none in advance o f the intergovernmental conference on political union should those deliberations

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steer the EC even farther away from the United States or should the E C eclipse N A T O in the 1990s. A product of concern over the development of political union based not on NATO but on an independent unit of European states, the declaration meant that half a loaf would be better than none and that it served its purpose of bringing into focus mutual interests in shaping the new international system. Some on the US side claimed that the suggestion of institutional links was in response to the E C ' s unilateralism in making decisions that affect the United States without consulting with the United States in advance. According to a US official, cited in The Economist, "European leaders, especially the French, should cease to have an inferiority complex and stop fearing that if America takes part it will dominate proceedings and try to slow European integration." 30

Conclusions By the end of 1990, wide differences over US and European positions on how far to cut farm subsidies as part of the December deadline for completion of the Uruguay Round threatened to disrupt what political gains had been made in bilateral relations during the past year. Trade disputes (which are as perennial as grass) notwithstanding, the two sides developed a more symmetric relationship with a much enhanced commitment on the part of the key elite actors to meet and talk at more frequent and higher levels. Yet when the history of twentieth-century US-EC relations is written, it will be noted that the chief issue before the United States and the EC in 1989-1990 was how to provide for the physical security of Western Europe under post-Cold War conditions. Indeed, for security to be a direct concern to US-EC relations is remarkable given the fact that the EC is not a military body—yet it is understandable given the collapse of the Warsaw Pact and the potential eclipse of NATO. The E C ' s dilemma is that it is a common market with an increasing need to figure out how to defend itself given the (1) potential eclipse of N A T O by the E C and possibly the CSCE and the greatly scaled-back US presence in Europe; (2) uncertainties of an unstable Soviet Union, of a postGorbachev government, and of a j u m p in ethnic violence in Eastern Europe; and (3) threats to European security posed by international crises. By virtue of necessity not design, the EC will likely develop into a security actor at some point in the foreseeable future. Several European leaders have come out with statements during 1990 calling for the incorporation of defense into the E C ' s emerging political union. Whether that will serve as a basis on which to work with the United States in such trouble spots as the Gulf is not known. Some in Europe who are more skeptical of US intentions, particularly French foreign minister Roland Dumas, would not welcome attempts to link

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Relations

399

future EC defense integration with the United States. They fear that such a move would give the United States unwelcome influence in the EC (reminiscent of Charles de Gaulle's view of the United States). 31 French intentions for a future security structure for the EC were revealed in the unique way in which Dumas handled the August 1990 Gulf-related meeting of the WEU in Paris. Dumas extended an unprecedented invitation to the members of the EC who are not members of the WEU to attend the Paris meeting as observers (Greece and Denmark accepted, neutral Ireland declined). The idea of absorbing the WEU into the EC framework had been introduced by Italian foreign minister Gianni de Michelis in 1990 during the Italian Council presidency but the EC members are split over the various implications of such an action. Under its constitution, the WEU will expire in 1998 unless provisions are made for its continuation. The Bush administration hopes that, whatever new security structure emerges in Europe in the 1990s, there will be an appropriate place for the United States and NATO. After all, it should not be so surprising that the Bush administration has been stressing that the existing institutional link between the United States and Europe is not the EC but NATO. Until there is an institutional link between the United States and the EC, the United States will want to retain its influence in Europe through NATO (that is, if NATO survives in any meaningful way). If NATO itself is not fundamentally reformed to give the Europeans equality within the organization and to expand its competence to areas outside the North Atlantic, and if the EC does not itself take on a security dimension, then the United States and the EC will have great difficulty in responding to threats to their mutual interests in various parts of the world. Without a base upon which to coordinate US and EC policies when threats to international peace and security occur, the United States and the EC will have an economic relationship that is unable to cope with threats to it. NATO may lose its chief role as the Warsaw Pact collapses, thus elevating the prime importance of the US-EC relationship. Unless the purview of NATO is vastly expanded, the US-EC link may prove more convenient to coordinate foreign policies should the EC further expand into this area. If the EC develops its own defense capability, then the US-EC relationship could take on much more importance. It would then be up to the Europeans to decide among themselves when and how, or indeed if, the EC and the United States could work together in pursuit of common security and foreign policy objectives. It is important to stress the strong current of support in the EC for a common European home that will require a weaker, indeed retreating, NATO (and thus US) role. Indeed, the question of how NATO can survive without the Warsaw Pact was left in doubt by the end of 1990. At the November 1990 meeting of the CSCE in Paris, the thirty-four participating states began the process of opening up the questions of how to shape Europe's future security architecture. The establishment of a small

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institutional structure for the CSCE sheds even more light on the growing role of this forum, which, unlike the EC and NATO, is open to all European states in the quest for a continental security arrangement. The growth of the CSCE process as a possible provider of a future security framework for Europe that would eliminate the influence of NATO was opposed by the United States. The United States preferred to proceed within the CSCE along the basis of commitment to values and principles, not to a new pan-European security structure that would minimize NATO. The EC members are caught between the US wish to retain NATO and the quest to construct a panEuropean structure that would exclude NATO (especially given the predicted imminent demise of the Warsaw Pact). In retrospect, the period 1989-1990 was a turning point in US-EC relations. A much more symmetric relationship emerged as the United States began to accept and support the EC as a partner and as the EC accepted and appreciated that recognition. The new tenor of relations was long overdue given the tensions and disputes that have increased since the early 1970s. But this flirtation may be short-lived if the two sides cannot come to terms with the appropriate mechanisms necessary to forge cooperation in areas of the world where joint responses may be needed to promote mutual interests. New institutional structures may be needed to bridge the post-Cold War Atlantic divide but are very difficult to construct in peacetime. However, if the will to work together by those in the highest levels of decisionmaking on both sides is carried out and sustained by their successors, informal modes of cooperation may work in lieu of new institutional structures.

Notes 1. For a historical analysis of US-EC relations see Roy H. Ginsberg, "USEC Relations," in Juliet Lodge, ed„ The European Community and the Challenge of the Future (New York: St. Martin's, 1989), pp. 256-278. 2. Jacques Delors, Europe 1992 and Its Meaning for America, Statement delivered at Harvard University (September 22, 1989), pp. 7-8. 3. Roy H. Ginsberg, The Political and Economic Implications of the European Community's 1992 Plan for United States-European Community Relations, Testimony submitted before the Committee on Science, Space, and Technology, US House of Representatives, May 16, 1989 (Washington, DC: Government Printing Office, 1989), No. 22. 4. Events up to December 1, 1990, are covered in this chapter. The US-EC dispute over agricultural subsidies continued to throw into question the successful completion of the Uruguay Round of GATT negotiations. During the late 1980s, the United States and the EC settled agricultural disputes over EC enlargement to include Spain and Portugal, Mediterranean tariff preferences, and pasta subsidies, to name a few. 5. Operation of the Trade Agreements Program, 41st Report (Washington, DC: US International Trade Commission, September 1990), USITC Publication 2317, p. 91.

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6. Alfred van Saden, Perestroika and the Response by Western Europe: The Role of the European Community, Paper delivered at the 1990 annual meeting of the American Science Association, San Francisco (September 2, 1990), pp. 1213. 7. Delors, op. cit., pp. 9 - 1 0 . 8. "Delors Proposes 'New Partnership' with US," Europe, No. 288 (July 1989), pp. 14-15. 9. I b i d . 10. Eugene J. McAllister, US Views on the EC Single Market Exercise, Address before the American Association of Exporters and Importers, May 18, 1989 (Washington, DC: Bureau of Public Affairs, US Department of State, August 1989), No. 1193, pp. 1-2. 11. George Bush, Commencement address, Boston University, Boston (May 21, 1989), p. 2. 12. Lawrence S. Eagleburger, The Challenge of the European Landscape of the 1990s, Statement before the Subcommittee on European Affairs of the Senate Foreign Relations Committee, June 22, 1989 (Washington, DC: Bureau of Public Affairs, US Department of State, August 1989), No. 1194, pp. 1-3. 13. Ibid. With regard to the growing clout of the EC that, according to some, may warrant a US reassessment of its role in Europe, Eagleburger went on to state that "regardless of how big the EC gets, or what issues European governments devolve to common decision-making, the need for a strong American voice in Western affairs will not be diminished. The EC is and will remain a group of separate and sovereign states deeply attached to the transatlantic community, each of which values and counts on the United States to help craft the Western agenda." 14. Carla A. Hills, Speech Before the Fondation du Futur, Paris (September 11, 1989). 15. Raymond G. F. Seitz, Europe: A Climate of Dramatic Change, Prepared statement for the Subcommittee on Europe and the Middle East of the House Foreign Affairs Committee, October 3, 1989 (Washington, DC: Bureau of Public Affairs, US Department of State, November 1989), No. 1220, p. 3. 16. James Baker, A New Europe, a New Atlanticism, Prepared address delivered in Berlin on December 12, 1989 (Washington, DC: Bureau of Public Affairs, US Department of State, December 1989), No. 1233, pp. 2-3. 17. I b i d . 18. The 1990 Houston Economic Summit: Support for Democracy and Development (Washington, DC: Bureau of Public Affairs, US Department of State, July 1990), No. 39, p. 2. 19. "European Community and United States Must Forge Closer Ties," European Community News, No. 45/89 (December 18, 1989). 20. Youri Devuyst, "European Community Integration and the United States: Toward a New Transatlantic Relationship?" Journal of European Integration 14, No. 1 (January 1990), pp. 15-16. 21. Ibid. 22. Frans Andriessen, "Speech at Harvard University, April 25, 1990," Europe, No. 298 (July 1990), p. 26. 23. Devuyst, op. cit., pp. 17-18. 24. "Baker and the Dozen," The Economist (June 9, 1990), p. 52. 25. "EC and US Reinforce Transatlantic Partnership," European Community News, No. 41/90 (November 27, 1990), p. 1. 26. Ibid. 27. Ibid., p. 3.

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28. Karel Van Miert, "The Relationship Between Europe and the US in the 1990s," Speech delivered at the Elsevier Seminars (Brussels, April 4, 1990), p. 9. 29. Ibid. 30. The Economist (June 9, 1990), p. 52. 3 1 . D e v u y s t , op. cit., p. 16. The French government's position kept the United States and the EC from working out major changes in the bilateral institutional structure.

28 European Political Cooperation Desmond

Dinari

The years 1989 and 1990 were banner years for European Political Cooperation (EPC), the Community's foreign policy coordinating process. Reform in the Soviet Union, revolution in Eastern Europe, and revanchism in the Gulf caused an enormous expansion in the range and pace of EPC. To a great extent, the member states fulfilled their "international obligation" 1 to consult on foreign policy questions and, where possible, to adopt common positions and take joint actions. Responding to the most dramatic international developments since the end of World War II, the Twelve exchanged a vast amount of information on the secure communications network that links their foreign ministries, held countless meetings at all levels of foreign ministry and government officials, dispatched an imposing number of troika (representatives of the last, current, and next EC presidency) missions to third countries, issued an endless stream of statements and declarations, and made frequent diplomatic demarches. The result was an impressive record of interaction on international issues among the member states, and a striking increase in the already large corpus of EPC documentation. For all the superficial success of foreign policy coordination during the past two years, however, the emergence of a new Europe, a new Arabia, and a new Atlanticism served also to highlight EPC's inherent weakness and shallowness. The member states' response to international events often seemed uninspiring and banal. The rhetoric of EPC is crammed with clichés: elections should always be "free and fair" (Statement on Nicaragua, February 28, 1990); political settlements and solutions should always be either "comprehensive, just and lasting" (Declaration on the Middle East, June 26, 1990) or "just, stable and lasting" (Declaration on Central America, June 26, 1989); and peace should always be based on "sovereignty, unity and territorial integrity" (Declarations on Cyprus and Lebanon, June 26, 1989). More important, by the end of 1990 the inadequacy of the foreign policy cooperation procedure, as well as the disjunction between the Community's external relations and EPC, had become more striking than ever before.

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Despite the Single European Act's urging that "the high contracting parties . . . ensure that common principles and objectives are gradually developed and defined," EPC never came close in 1989 and 1990 to a real Community foreign policy. Although the member states made the most of E P C ' s potential during that time, the Twelve's foreign policy coordinating process as currently constituted simply could not translate "into the [Community'si ability to act in a purposeful way, as a unitary state." 2 Well before the mandatory review of EPC in 1992, under the terms of the Single European Act (SEA), external developments convinced the member states that reform was urgently needed. Because it is primarily the presidency's preserve, EPC suffers more than other Community activities from the regular rotation of the Community presidency. Given the disparity in member states' political and diplomatic styles, foreign policy priorities and orientations, and civil service resources, six-month interruptions in continuity and consistency are a hallmark of EPC. The transition could have been jolting in January and July 1990, when Ireland took over the presidency from France and handed over the presidency to Italy. In the event, EPC's small secretariat in Brussels, containing five troika officials, did much to minimize the disruption, as did the Commission's full association "with the proceedings of EPC at all levels." 3 The Commission's greater involvement in EPC helped also to maintain consistency between the Community's external relations and the member states' foreign policies. Particularly in view of the EC's single market program and growing economic power, "the border between the external relations of the Community and EPC [became] more and more artificial and difficult to respect." 4 In a speech in London in July 1990, Commissioner Scrivener took as "a good illustration of this problem" the European Council's debate at the Dublin summit on providing economic assistance to the Soviet Union. 5 Following what Haughey called a "substantive and robust" discussion of the issue, the Community "launched itself into [possibly] its most ambitious and sensitive foreign policy initiative ever." 6 Even before the decision to investigate ways of supporting the Soviet Union financially, the EC's "need to act quickly in Eastern Europe forced a blurring of the traditional separation between economic policy, which is Community business, and the rest, which is supposed to be left to the members." 7 By the end of 1990, the supposed official gap between EC and EPC competencies had become more implausible than ever. In its 1989 General Report, for instance, the Commission devoted nearly eighty pages to the Community's external relations, and only ten pages to EPC. Yet EPC was relevant to almost all of the EC's external relations, either directly—as in the case of the Conference on Security and Cooperation in Europe (CSCE)—or indirectly—as in the case of trade relations with third countries. Because of the unsatisfactory official distinction between EC external relations and EPC, third countries became increasingly exasperated and confused in their dealings

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with the Community. Partly for that reason, the United States and Japan pressed separately in 1989 and 1990 for greater coordination of EC foreign economic and political relations. Such outside pressure strengthened the EC's own determination, expressed in the communiqué of the extraordinary summit in Dublin in April 1990, to achieve "unity and coherence in the Community's international action" as part of the proposed political union. In its debates and questions on international affairs during the past two years, the European Parliament made little distinction between Community competence in external relations and EPC. Nor did the relevant commissioners—Frans Andriessen (external relations), Manuel Marin (Lomé Convention), and Abel Matutes (Mediterranean and Latin America)— seriously attempt to do so in their comments and replies. As for the Parliament's role in EPC (supposedly strengthened by the SEA) frequent Parliamentary debates, question times, and resolutions on foreign policy issues failed to involve the EP further in the process. The problem of the EP's impotence in foreign policy cooperation is not peculiar to the EC but is common to legislatures in all liberal democratic systems. In the case of the EC, the difficulty of involving a large assembly in sometimes swift and secret foreign policy formulation is compounded by an inherent, institutionalized tension between the EP and the Council. Just as the EP seeks to increase the Community's supranational authority at the national governments' expense, so too is the Council unwilling to share power with Strasbourg. By the same token, because of its relative weakness as a legislature, the EP occasionally adopts exaggerated or irresponsible foreign policy resolutions, which in turn reinforce the Council's reluctance to involve the Parliament more in EPC. All of these tendencies were evident in 1989 and 1990. The intrinsic stress of the EP-Council relationship, doubtless exacerbated by personal considerations, led to some testy exchanges between members of the European Parliament (MEPs) and the presidency during that time. On one occasion, an irate MEP castigated the French president-in-office for "a disgraceful answer" to a question on the Western Sahara, to which the minister had replied that the "extremely sensitive" situation there made it impossible to elaborate on the Twelve's position. Another MEP adjured the minister "when members put questions to him . . . to deign to answer them, and what is more, specifically." The day ended with "a formal protest" at the way in which the minister handled the parliamentary question time. Even Gerard Collins, the amiable Irish foreign minister who prided himself on having a good rapport with the Parliament, could not avoid incurring the MEPs' wrath during Ireland's presidency. In a debate in January 1990, one MEP complained that "the Council has a duty to answer the question, and so far it has not done so . . . [the Minister] will not give an answer." A second MEP worried "that the Council never answers questions properly." 8 Much to the MEPs' chagrin, secrecy characterized foreign policy

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coordination in E P C (as in foreign policy formulation at the national level), regardless o f which country held the presidency. The plethora o f working groups

on

regional

and

thematic

issues,

the group o f

"European

correspondents" that monitors E P C ' s implementation, and the political committee o f foreign ministry political directors rarely revealed divergent national positions or the means by which consensus was reached. Only at the higher political levels did the cracks in national positions sometimes become apparent. Media scrutiny o f foreign ministers' meetings, and especially o f E C summits, was intense. In the past two years, government ministers have not been averse to revealing their national positions in advance o f E P C meetings, or leaking information about the course o f E P C consensus building, in the hope o f strengthening their countries positions.

South Africa Public glimpses o f otherwise private diplomacy were particularly prevalent in the case o f Community policy toward South Africa. In 1 9 8 9 , the T w e l v e issued their usual statements expressing outrage at the perpetuation o f apartheid and condemning the repression o f opposition groups. When the situation in South Africa began to change dramatically in early 1 9 9 0 , the T w e l v e ' s consensus on maintaining sanctions began to crumble. Nelson M a n d e l a ' s release from prison on February 10 strengthened the British government's determination to press for abolition o f the T w e l v e ' s voluntary embargo on investment in South Africa and their ban on imports o f iron, steel, and Krugerrands. At a foreign ministers' meeting on February 2 0 , Britain chose to act by itself and encourage new investment in South Africa despite the Irish presidency's warning that such unilateralism would damage the credibility o f political cooperation. Predictably, the next day a j u n i o r foreign o f f i c e minister retorted in the House o f Commons that Ireland's withdrawal from EPC-inspired sanctions against Argentina in 1982 had set a precedent. 9 T h e following month, the Irish foreign minister had an opportunity to discuss the situation in South Africa with President Frederik W . de Klerk during the Namibia independence celebrations. In April, the Community sent its first ministerial troika to South Africa since 1985. T h e troika (in fact a gang o f four—Frans Andriessen also went along) returned impressed by the pace o f reform there but not convinced o f its irreversibility, the imprecise yardstick by which the T w e l v e tends to measure political and human rights progress. Under strong domestic pressure, the Irish presidency strove to keep the Community line on sanctions in the months before the Dublin summit. On June 1, the Irish Times reported that Ireland was becoming "increasingly isolated on the i s s u e , " with only Denmark likely to give wholehearted support. But M a n d e l a ' s European tour, and especially his address to the E P

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on June 13, greatly assisted Haughey's efforts to strengthen the member states' resolve on sanctions when the Irish prime minister embarked on his own visits to EC capitals. The European Council decided on June 25-26 to maintain sanctions until further clear evidence emerged of the dismantling of apartheid in South Africa. At the same time, the Community promised greater expenditure on "positive" measures, such as assistance to the victims of apartheid. Although Thatcher was disappointed that the other eleven had not followed her lead in encouraging de Klerk economically, at least she was pleased with the Community's olive branch to South Africa. The European Council promised that the Community would consider "a gradual relaxation of the [economic] pressure when there is clear evidence that the process of change already initiated continues."

Eastern Europe, the Conference on Security and Cooperation in Europe, and the Conference on Security and Cooperation in the Mediterranean Unlike reform in South Africa, revolution in Eastern Europe had passed the "irreversibility test" by late 1989. The Soviet Union and Eastern Europe had always been on the EPC agenda, notably in the context of the Conference on Security and Cooperation in Europe (CSCE). Even before the collapse of communism in Eastern Europe, the Twelve had responded to Gorbachev's espousal of a common European home by attempting to formulate a comprehensive ostpolitik, and by asserting the Community's international role at the December 1988 Rhodes summit. At a foreign ministers meeting in April 1989, the Twelve stressed the need to coordinate the foreign economic (EC) and political (EPC) aspects of the Community's rapidly evolving relationship with Eastern Europe. In view of the US proposal, made at the G7 summit the following month in Paris, that the Community spearhead Western economic assistance to Hungary and Poland, such coordination soon became essential. Within a year, what began as a program of economic assistance for Hungary and Poland embraced all the emerging democracies of Eastern Europe. At the "Dublin I" summit in April 1990, the European Council announced that, on the basis of a Commission communication, the Community would expand into association agreements the trade and economic cooperation agreements then being negotiated with the Eastern European countries. Explicitly merging Community and EPC competencies, the European Council emphasized that the new arrangements with Eastern Europe would include "an institutional framework for political dialogue." As a result, the already indistinct line between the economic and the political aspects of the Community's ostpolitik virtually disappeared. At the

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bureaucratic level, the work of the Committee of Permanent Representatives—with responsibility for meetings of the Council of Ministers—and the Political Committee—with responsibility for meetings of the foreign ministers in EPC—became virtually indistinguishable. At the policy level, the foreign ministers' response to events in Romania in June 1990 graphically illustrated the interrelationship between the economic and the political aspects of Community foreign policy toward the region. Immediately after the suppression of student demonstrations in Bucharest, the foreign ministers decided to postpone signing a trade and economic cooperation agreement with Romania and made a diplomatic demarche in the context of EPC. Apart from the economic, scientific, cultural, and human rights dimensions of developments in Eastern Europe, the security implications of the Soviet withdrawal convinced the Community of the need to respond in the framework of the CSCE. The Community was well disposed toward the CSCE, which had first provided an opportunity for the Nine, the Ten, and ultimately the Twelve "to emphasize specific European interests, reinforcing the perception of a West European identity, without creating major distortions in the Alliance front." 10 The Community played an active role in the CSCE follow-up meetings and specialized sessions, including the Vienna meeting that ended in January 1989 and the Bonn Economic Conference and Copenhagen "Human Dimension" Conference of 1990. So integral had participation in the CSCE process become to EPC that, as the French president -in-office told the EP in December 1989, "Today, the CSCE accounts for a significant part of European political cooperation. . . . it is certainly no coincidence that five of the main events agreed on by the 35 in Vienna last January are to be held in the Community." 11 At an informal meeting in Dublin in January 1990, the twelve foreign ministers strongly supported the idea of a CSCE summit before the end of the year. Five months later, the European Council proposed November 19 as the date for the CSCE summit to take place, assuming that the related negotiations to reduce conventional forces in Europe (CFE) ended successfully in the meantime. Earlier, at the extraordinary Dublin summit in April 1990, the European Council issued a lengthy declaration on the CSCE, including a detailed set of Community guidelines for its future. In their final communiqué, the Heads of State and Government stressed that "the Community and its Member-States will play a leading role in all proceedings and discussions within the CSCE process and in efforts to establish new political structures or agreements based on the principles of the Helsinki Final Act, while maintaining the existing security arrangements which Member-States have." In summer and fall 1990, various EPC working groups coordinated the member states' positions closely in preparation for the CSCE summit in Paris. With the CFE talks still at a critical stage, in early October 1990 the

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twelve foreign ministers, in New York for the United Nations General Assembly, began a two-day meeting to plan the Twelve's approach to the Paris summit. The foreign ministers resumed their intensive CSCE summit preparations at a meeting in Venice on October 6-7. As a result of these meetings, the Community set the following objectives for the Paris summit: a decision by the CSCE Heads of State and Government to hold a biennial CSCE summit, to authorize regular meetings of CSCE foreign ministers and senior officials, to establish a small CSCE secretariat, to launch a CSCE parliamentary assembly, to devise an election monitoring system, and to set up a conflict resolution center. On the issue of German unification itself, EPC played only a minor role. Nothing could demonstrate more strikingly than the Federal Republic's unilateral rush for unification how far EPC remains from being a common European foreign policy. Although Bonn kept the other member states informed of developments, West Germany set the pace of unification without much recourse to EPC. The Federal Republic's partners had little option but to react to events already well under way. The special Dublin summit of April 1990, originally convened to discuss unification in detail, instead heard a short report on the outcome of the recent East German elections before devoting most of its time to a debate on a putative political union of the Twelve. In an interview at the UN in early October, on the eve of German national unity day, Thatcher admitted her preference for a much slower German unification process. 12 Earlier, during an informal discussion with some of his senior officials, the West German foreign minister had observed that "if Germany had really pooled its foreign policy with the rest of the Community . . . it would never have achieved unification." 13 That revealing remark, indicative of Bonn's attitude throughout the year of unification, should have convinced Thatcher that the benefits of sharing sovereignty in a Community foreign policy greatly outweigh the costs. Another central European development in 1990 demonstrated to a much smaller degree the extent to which EPC participants continue to pursue independent foreign policies. Eager to assist Italy's neighbors to the north and east, Foreign Minister de Michelis energetically promoted the "Pentagonale," a regional association of Austria, Czechoslovakia, Hungary, Italy, and Yugoslavia, during his country's presidency. Launched in 1989, the Heads of Government of participating countries held their first meeting in June 1990. Although by no means incompatible with the Community's objectives in the area, the Pentagonale nonetheless caused some member states to be concerned about a possible dissipation of the EC's effort to assist development in the region. Similarly, Italy's advocacy of a permanent Conference on Security and Cooperation in the Mediterranean (CSCM), modeled on its European equivalent, appeared to some member states to be an extravagant replication of the EPC process. As an initial step on the road to establishing a CSCM,

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on October 10, 1990, the foreign ministers of Italy, France, Spain, and Portugal met their counterparts from five North African countries. The ministers worked on a declaration of intent, setting out the principles for collaboration across the Mediterranean on political, economic, environmental, and cultural issues. Coming in the midst of the Gulf crisis, the meeting at least afforded an opportunity for the EC states to explore with their North African counterparts the sources of conflict in the region.

The United States The Twelve's involvement in Eastern Europe and preparations for the CSCE summit raised the delicate question of the Community's political relations with the United States. Frequently in the 1970s and the 1980s, the United States had expressed irritation at the member states' tendency to reach joint positions at CSCE meetings independently of the NATO caucus. As recently as January 1990, US Secretary of State Baker had complained about the Twelve's decision to endorse the idea of a CSCE summit before the end of the year without consulting Washington. At the same time, the factors that had given rise to renewed interest in the CSCE process—revolution in Eastern Europe and the possibility of German unification—had prompted President Bush, in a speech in May 1989, to reevaluate political relations with the Community and to propose a "new mechanism of consultation and cooperation on political and global issues" between the EC and the United States. Hitherto, relations with the United States, a so-called West-West issue, "had never been developed as an EPC theme of discussion." The twice-yearly get-togethers of troika political directors and their State Department counterparts "are very casually prepared and usually are little more than a superficial diplomatic chat about current issues." 14 In his Berlin speech in December 1989, Secretary of State Baker "tried to kick-start a debate on the new Atlanticism, floating the idea of a treaty between the Community and A m e r i c a . " 1 5 Baker's challenge caught the Community by surprise and launched a lengthy debate about whether the Council or the Commission should take the lead in formulating a response. Although exasperating for the United States, the E C ' s inability to respond promptly reinforced Washington's conviction of the need for a more formal relationship with the Community. Baker's speech prompted Haughey to emphasize US-EC relations as a major issue of Ireland's presidency. Too impatient to wait until St. Patrick's Day, when the Irish prime minister usually hops across the Atlantic, Haughey came to Washington in late February 1990 to propose stronger USEC political links. Not to be outdone, Delors followed suit in April and received "a ready acceptance on the part of the Administration for the notion

European

Political

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that ever closer cooperation with the EC is an essential component of America's policy." 1 6 Emphasizing the newfound spirit of US-EC cooperation, the State Department even proposed that the EC assist in the economic development of the Caribbean and Central America, along the lines of the economic recovery program for Eastern Europe. At the Dublin summit in April 1990, the European Council praised the Irish presidency for promoting relations with the United States and promised "to make the fullest use of and further develop its close transatlantic relations based on regular contacts at the highest level." Despite Washington's eagerness to establish closer US-EC political relations, the Community made no imaginative response to the administration's overtures during the remainder of 1990. Bitter memories of Kissinger's "Year of Europe" caused the Twelve to be wary of an apparently overenthusiastic administration and to sense in Washington's emphasis on NATO's political role, together with its effort to associate closely with EPC, a plot to undermine the Community's increasing coherence and independence in international affairs. Of far greater relevance, a comprehensive Community initiative on relations with the United States had to await the outcome of the December intergovernmental conference (IGC) on political union. Yet Washington's unprecedented advocacy of closer relations with the Community, and corresponding frustration with the Twelve's tardiness in rising to the challenge, made the need to reform EPC at the Rome IGC more pressing than ever.

Central America The Community's increasing involvement in Eastern Europe, the CSCE, and relations with the United States did not distract the Twelve from other world regions that have long been a focus of EPC activity. Especially during the Spanish presidency in early 1989, the Twelve renewed their efforts to promote peace, democracy, and prosperity in Latin America. The dialogue between the Twelve and the Rio group, which represents over 80 percent of Latin America's population and most of its GNP, continued at a ministerial meeting in Granada in April 1989. A similar ministerial meeting dealing with Central America, the latest in a series of regular high-level meetings between the Twelve and the Contadora group, took place in San Pedro de Sula in February 1989. At the Madrid summit the following June, the European Council noted the results of the Granada and San Pedro de Sula meetings, expressed concern about the political situation in Central America, and called for greater technological, commercial, and financial cooperation between the Community and Latin America. The institutionalized political dialogue between the Twelve and the countries of Latin America continued during subsequent presidencies. A

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further meeting between ministers of the Twelve and of the Contadora group took place in Dublin in April 1990. Although this meeting did not "mark the beginning of a new era for Central America," as the Irish foreign minister had predicted it would, at least it continued the close contacts between the Community and the Contadora group. 17 The Irish presidency also hosted an informal ministerial meeting with the Rio group, at a time of optimism about the political future of Latin America following the restoration of democracy in Chile. The Community's involvement in Latin America was a further example of the interrelationship between external economic policy and EPC. Yet unlike the case of Eastern Europe, where economic development and closer political relations are proceeding apace, the Community's growing political involvement in Latin America came at a time of declining economic and trade relations. Moreover, whereas Community policy toward Eastern Europe had a positive effect on relations with the United States, Washington's sensitivity over EPC statements, declarations, and demarches on Latin America had traditionally caused problems for the Twelve and made consensus difficult to achieve. US and EC thinking on Latin America came far closer in the late 1980s than anyone thought possible a decade earlier, yet major differences inevitably remained. The US invasion of Panama in December 1989 illustrated the Twelve's dilemma. Although the member states were glad to see President Manuel Noriega toppled, they were troubled by the US's intervening militarily to do so. On December 22 the foreign ministers issued a limp declaration "expressing . . . concern about the situation [in Panama] and at the resultant loss of human life." In a vote at the United Nations, however, EPC consensus cracked, with Spain breaking ranks to condemn the invasion, and Ireland and Greece managing not to commit themselves.

Asia On the other side of the globe, the Community continued to develop close relations with the countries of Asia. In 1989 and 1990, the Twelve pursued a political dialogue with India and with the Association of South East Asian Nations (ASEAN). The possible return of the Khmer Rouge to power in Cambodia was one of the Community's main concerns in the region. On January 18, 1990, the Twelve issued an uncharacteristically strong statement on Cambodia, rejecting "the genocidal politics of the Pol Pot Khmer Rouge who were responsible for the extermination of hundreds of thousands of Cambodians. Their non-retum to power remains a central element of Twelve policy." It was China, however, that preoccupied the Twelve's Asia policy during 1989 and 1990. Within days of the massacre in Tienanmen in June 1989, near the end of the Spanish presidency, the Twelve issued a statement of

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condemnation. At the Madrid summit later that month, the Community made what the Financial Times of June 28 described as "the strongest Western response so far to the new state of official brutality in China." Expressing its "deep concern over the situation in China," the European Council assailed the Chinese government for its "repressive action against those who legitimately claim their democratic rights." Putting some teeth into these protestations, the European Council announced a number of punitive measures, including the suspension of bilateral ministerial and high-level contacts. Relations with China remained in a state of suspended animation throughout the French and Irish presidencies. As the Irish foreign minister modestly put it in January 1990, "It is well known that since the tragic events of Tienanmen Square last June, [the Community's] relations with China have not flourished as we would wish." Before relations could be restored with China, the Twelve insisted on "internal policies of economic and political reform . . . [and] respect for human rights."18 In view of these preconditions, and the continuing lack of political reform in China, it was surprising to hear the Italian foreign minister announce in New York on September 29, 1990, the Community's intention to resume ministerial contacts with China. Although de Michelis cited China's improving human rights record, he revealed that the real reason for the Community's decision was China's support of the Community during the Gulf crisis. 19

The Middle East The Community's reversal on China demonstrated the extent to which the Gulf crisis dominated all aspects of EPC at the end of 1990. Not only did it fuel the debate on European union and raise the contentious question of whether discussions of defense issues should be incorporated into EPC, but the Gulf crisis also became a touchstone by which the Twelve gauged their relations with third countries. Nowhere was this more evident than in the Twelve's dealings with the countries of the Middle East itself. At the Madrid summit in June 1989, the European Council issued its first formal declaration on the Middle East in nine years. Reiterating the 1980 Venice declaration, which recognized the right of the Palestinian people to self-determination, the European Council also officially called for Palestine Liberation Organization (PLO) participation in any international peace conference held under United Nations' auspices to resolve the Arab-Israeli conflict. Coming on top of a series of statements highly critical of Israel's handling of the Palestinian uprising in the occupied territories, the Madrid declaration inevitably drew a hostile response from Jerusalem. Within twenty-four hours, the Israeli government expressed disappointment "that Europe has not yet abandoned its past and unbalanced formulations, which

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until now have failed to contribute to the advancement of the peace process in the Middle East." 20 Despite what Frans Andriessen described, in a speech at Harvard University on April 25, 1990, as a special relationship between the Community and Israel, tensions increased markedly throughout the year. At a meeting in Dublin on February 20. the twelve foreign ministers "strongly condemned" Jewish settlement in the occupied territories. Three months later, the EC ambassadorial troika met PLO leader Yasser Arafat in Tunis following a massacre of eight Palestinians by an Israeli civilian in the occupied territories. During an EP debate in early June, in which the leftwing parties passed a resolution denouncing "the bloody suppression of Palestinian civilians by the State of Israel," Commissioner Matutes declared that if the situation in the West Bank worsened, "action will clearly be necessary," including the possibility of sanctions within the framework of EPC. 21 Matters came to a head at the Dublin summit in late June, not least because of the new and controversial right-wing coalition government in Israel. Using unusually strong language, the European Council remarked that "the lamentable position concerning the observance of human rights in the occupied territories has led the Community and its Member-States . . . repeatedly [to call] on Israel to adhere to its obligations towards the Palestinian people." The European Council "invited" the Commission "to appoint a representative to the occupied territories . . . at an early date" and announced that a ministerial troika would soon visit the area. As if to emphasize the different perception of the Community by the two sides, the PLO's welcome of the European Council's "serious and responsible" position, which represented "a qualitative and positive change" toward the region, contrasted sharply with Israel's denunciation of the Twelve's "partial and unbalanced" approach to the region.22 The troika visit to Israel on July 23 was acrimonious and inconclusive. Gerard Collins, the president-in-office, bluntly told the Israeli foreign minister that "the holding of prisoners without trial in dreadful conditions . . . by the South Lebanon Aimy, which you control, is an affront to human rights."23 Under the circumstances, the EC ministers made no progress in resolving their differences with Israel over events in the occupied territories and the stalled peace process. Yet the Israeli officials displayed uncommon anxiety about the Twelve's position, expressing particular concern over the possible imposition of economic sanctions, the Community's decision to increase sharply the level of direct aid to the Palestinians, and the impending dispatch of a Commission representative to the occupied territories. More important, Israel's apprehension may have been a result of the Twelve's close coordination of the troika visit with the State Department in Washington. At a time of strained US-Israeli relations, Israel reportedly suspected that "the EC Troika is acting as something of a stalking horse for Mr. Baker in

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probing how far Jerusalem is prepared to go to revive a stalled U.S.-backed formula for starting Israeli-Palestinian talks on the occupied territories." 24 In view of its poor relations with the EC and the United States, the Iraqi invasion of Kuwait on August 2, 1990, was a godsend for Israel. Suddenly the Palestinian uprising faded far into the background of Middle East politics. The value of Israeli assistance for the military buildup against Iraq, however quietly given, was not lost on the Twelve. On September 17, the same day on which the Twelve decided to expel Iraqi military attachés from the member states. Community foreign ministers met David Levy, the Israeli foreign minister. Calling for a new, closer relationship with the EC because of the Gulf crisis, Levy reminded his EC counterparts that Israel is "much nearer to Europe than [the EC's] non-European Mediterranean neighbors." 25 Although Levy's geography may have been wrong, the point was not lost on his interlocutors. If they were willing to open a new chapter in relations with China because of the Gulf crisis, the EC foreign ministers would surely look less critically on Israel's activities in the occupied territories. Similarly, the Gulf crisis caused a rapid improvement in the Community's dealings with Iran. Following Ayatollah Khomeini's death sentence against Salman Rushdie in early 1989, the Twelve suspended ministerial-level visits to Iran and temporarily withdrew their diplomats from the country (Britain, again acting unilaterally, severed diplomatic relations entirely). At the Madrid summit in June 1989, the European Council uttered the usual expressions of outrage against Iran, calling for a renewal of Iran's relations with the Community, "on the basis of freedom, tolerance and respect for international law." Despite occasional reports of Iran's desire to end this stalemate with the Community, there were no new developments until the Irish presidency in the first half of 1990. Desperate to secure the release of Irish hostage Brian Keenan, the Irish government worked hard within EPC to help Iran repair its relations with the West. A meeting between senior EC foreign ministry officials and an Iranian counterpart in Dublin on May 16 helped break the ice between both sides. News of Keenan's release following the Iraqi invasion of Kuwait prompted the Twelve to relax the ban on EC ministerial travel to Tehran, making it possible for the Irish agriculture minister to visit the city "to assist Ireland's efforts to promote beef sales to Iran." 26 By the end of September 1990 the Community appeared close to an exchange of letters with Tehran that would lead to a commutation of the Rushdie death sentence in return for an improvement in relations with the Twelve. On September 7 the EC foreign ministers agreed to attempt a rapprochement with Iran and Syria, in an effort to isolate Iraq economically as well as diplomatically. A meeting of the ministerial troika with the Iranian foreign minister in New York later that month, during the United Nations General Assembly, was a further step toward regularizing EC-Iran relations.

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The Twelve reacted to news of the Iraqi invasion of Kuwait with an immediate condemnation, followed on August 4 by a detailed statement outlining the Community's response. Expressing full support for the UN Security Council's sanctions against Iraq, the Twelve summed up what these sanctions meant in practical economic and diplomatic terms. There was no dispute in the Community about the enormity of Iraq's offense, or the need for a united EC response. Within EPC, France, a longtime strong supporter of Iraq, led the charge for further punitive Community measures. Their "cozy relationship [with Iraq] of some twenty years' standing" having ended abruptly, the French were as eager as any in the Community to assist the international effort to oust Saddam Hussein from Kuwait. 27 A month later, with US troops deployed in Saudi Arabia and a number of Community countries helping to enforce sanctions militarily, the twelve foreign ministers met in Rome to coordinate the member states' positions on the crisis. Deciding not to support the US buildup directly, the Twelve demonstrated "a certain originality" by offering to help Egypt, Jordan, and Turkey with approximately two billion dollars' worth of emergency aid. 28 Although not wishing to slight Washington, de Michelis nonetheless pointed out that "the military action of the U.S. was taken autonomously. Don't forget the principle of no taxation without representation." 29 When it came to allocating member state contributions to the Gulf assistance program, an unseemly row erupted. Those countries already involved militarily in the crisis argued that assistance in kind should be taken into account. Using language commonly found in EPC communiqués. Commission president Jacques Delors denounced as "deplorable" the Twelve's failure to agree on the size of their individual contributions. 30

Cyprus and Turkey Apart from the size of each country's contribution, the offer of financial assistance to Turkey caused serious concern in Greece. Throughout the 1980s, under George Papandreou's socialist government, Greece had "regularly refused to join the consensus of the . . . others, paralysing the action of EPC on important matters." 31 Greek obstructionism had become less pronounced during the last years of Papandreou's rule and ended completely when his party failed to form a government after the June 1989 general election. During the next year of political instability, when another general election in November 1989 again produced stalemate, Greece made a minor contribution to EPC. Only after the April 1990 general election did a strong Greek government reemerge to play a full role in the Community. The new Greek government, under the conservative prime minister Constantine Mitsotakis, immediately set about rehabilitating Greece's image in the Community. Greece became a model EPC participant, no longer

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preventing consensus or attaching explanatory footnotes to statements and declarations. At the same time, Mitsotakis sought to restore Community confidence in the ailing Greek economy. Heeding a warning by Jacques Delors in early 1990 that Greece's future in the Community would be jeopardized if Athens did not tackle its economic problems, Mitsotakis labored to bring the country's growing public sector deficit and soaring inflation under control. Acknowledging the prime minister's efforts, in June 1990 the European Council expressed "satisfaction with the initial measures adopted by the Greek government for the stabilization, modernization and development of the Greek economy." Perhaps as a reward for Greece's newfound responsiveness to the Community, the Twelve put Cyprus prominently on the EPC agenda in 1990. German unification, Eastern Europe, and Cyprus were the three issues mentioned in the Dublin 1 summit communiqué. At the Dublin II summit in July, although the European Council still spoke in hackneyed terms of the need to find "a just and viable solution" to the Cyprus problem, they voiced unusually strong support for Greece's position on the issue. It was no coincidence that Cyprus applied for Community membership on July 4, barely one week into the sympathetic Italian presidency. The Community's willingness to consider the Cyprus application, announced following a foreign minister's meeting on September 17, cheered Greece enormously. The Community's offer of financial assistance to Turkey, as well as its newfound tendency in EPC to judge third countries on the basis of their support for the Gulf effort, caused corresponding alarm in Greece. Ankara hoped and Athens feared that after the Gulf crisis a grateful EC would reconsider Turkey's membership application. Greece fretted that at the very least, notwithstanding the September 17 decision, recent progress on Cyprus would be an early victim of Turkey's support for the Community during the Gulf crisis. The option for Greece of returning to the obstructionism of the 1990s was too horrible for Mitsotakis to contemplate. Yet, given that "Greek relationships abroad are seen almost exclusively through the prism of the longstanding rivalry with Turkey," 3 2 a Greek foreign policy setback, especially at the hands of the Community, could have helped bring Papandreou's party back to power.

Political Union More important than its implications for Greece and Turkey, the Gulf crisis exposed "the limitations of political cooperation in the European Community . . . and the much-talked about enhanced political role of NATO." 3 3 EPC's inability to address the military aspects of security led to a further revitalization of the Western European Union (WEU). Greece and Denmark, two of the three EC member states not also in the WEU, attended

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as observers a special meeting of the WEU on August 21 to discuss the Gulf crisis. Ireland, the odd man out, declined to do so. At a second meeting of the WEU on the Gulf crisis, held in Paris on September 18, the member states agreed to coordinate their respective military efforts in the region. For Gianni de Michelis, Italy's flamboyant foreign minister, the Gulf crisis presented an ideal opportunity to push the Community in the direction of defense policy cooperation. In the period preceding the December 1990 IGC on political union, escalating tension in the Gulf gave urgency and immediacy to the otherwise languid discussion among member states about EPC's future. As de Michelis gleefully remarked in mid-September, the Gulf crisis allowed the Italian presidency "to do more to prepare for political union in six weeks than Delors has done for monetary union in two years." 34 De Michelis used the occasion of an informal foreign ministers' meeting in Venice, in early October 1990, to discuss the Community's possible involvement in defense cooperation. Renewed talk of political union had first surfaced in late 1989, in response to developments in Eastern Europe. It was Delors who, in a speech in Bruges in October 1989 just before the Berlin Wall came down, commented that "history is speeding up, and so must we." The prospect of German unification sharpened Delors's thinking about the need to relaunch the Community politically. In addition to the IGC on economic and monetary union, scheduled to begin in Rome in December 1990, Delors argued that a separate conference, or the same conference in two sessions, should consider the wider issue of constitutional reform. A joint letter in April 1990 from Chancellor Kohl and President Mitterrand to the Irish presidency bolstered Delors's idea. Kohl and Mitterrand proposed that the special EC summit due to take place in Dublin at the end of the month discuss German unification in the context of a putative European union. During his visits to EC capitals before the summit, Haughey found strong support for the Franco-German suggestion. Predictably, the fiercest opposition came from Thatcher, whose "undisguised skepticism and hostility" 35 to the surrender of more sovereignty marred the Dublin deliberations. At least Thatcher challenged her EC colleagues to think seriously about the meaning of European union, rather than mouth pious platitudes about its desirability. With some support from the Portuguese prime minister, Thatcher prevailed on the European Council to delay a decision about holding a separate IGC on political union. It was a hollow victory. The previous week, in any case, Delors had stated his own preference for a decision to be taken at the "ordinary" summit in June. In his postsummit press conference, Haughey remarked that regardless of when or where the proposed IGC would take place, "the whole process is now inevitable . . . it's like the Rhine." 36 Predictably, in their intensive discussions leading up to the second Dublin summit, officials and ministers of the Twelve scaled down the lofty

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talk of European union to more manageable proposals for a "Single European Act Mark II." European political union now came to mean closing the Community's democratic deficit, improving the Community's efficiency and effectiveness, and "assuring unity and coherence in the Community's international action." The third point was code for revamping EPC and merging into it the Community's external relations policy. The EP's Martin Report and a memorandum by the Belgian foreign minister pointed the way for reform of political cooperation. Both proposed widening the scope of foreign policy discussions among the Twelve to include the military aspects of security. At a meeting in Luxembourg on June 11, the foreign ministers adopted a "reflective document," prepared by their personal representatives, as the basis of discussions at the forthcoming Dublin summit. The "reflective document" merely asked questions about the scope, formulation, and implementation of a strengthened foreign policy procedure, which the European Council happily endorsed without seriously attempting to answer. The Heads of State and Government concurred that the Community needed to change into "a union of a political nature . . . [with] a common foreign and security policy." As expected, the Twelve agreed to launch the IGC to bring about such a union in Rome in December, to coincide with the IGC on economic and monetary union. To everybody's surprise, Thatcher gave in without a fight, reserving her energy for "the one good row in Dublin" on the issue of Community assistance for the Soviet Union. 37 Despite its enthusiasm for political union, the Irish presidency skirted the obvious question of how Ireland would reconcile neutrality with foreign policy coordination that included the military aspects of security. Earlier in the year, Haughey used the occasion of a visit to Dublin by the Swedish prime minister to reassure his compatriots that Ireland had never experienced "the slightest problem" in the Community with its policy of military neutrality. 38 Paradoxically, in a BBC World Service broadcast at about the same time. Garret FitzGerald, Haughey's predecessor, told his listeners that "in terms of Europe [Ireland] has a problem in that we are . . . militarily neutral." 39 Clearly, the Irish understanding of what constitutes a problem in the Community depends more on personal predilection and party affiliation than on objective reality. But because one objective reality was that Haughey's party was firmly in power, Ireland avoided coming to terms with the neutrality question until the intrusion of another objective reality in August 1990: Saddam Hussein's invasion of Kuwait. Earlier, the Irish foreign minister had argued that the end of the Cold War would not cause a reappraisal of Irish neutrality. In April 1990, the Irish Times quoted optimistic Irish officials "being of the view that . . . security issues in Europe are moving to a higher political plane than the simple nuts and bolts of military hardware." Iraq's action on August 2 quickly ended such flights of fancy. The Irish Press predicted on September 7

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that Irish neutrality would come under pressure at that day's meeting of foreign ministers in Rome. The impetuous de Michelis had already trumpeted that one consequence of the Gulf crisis was the discussion of defense and security issues in EPC, without any objections from Ireland. According to a defensive Irish foreign ministry spokesperson, all such discussions "were in the framework of the Community treaties. In so far as EPC is concerned, certain aspects of security have always been discussed. These, however, do not include the military aspects." 40 The peculiarity of Ireland's position could not be avoided at the Venice meeting of foreign ministers on October 6-7. Under the energetic and ambitious Italian presidency, the Twelve met to consider the Community's response to the Gulf crisis and to identify elements of a future common foreign policy, including security aspects. Although no accord emerged on either merging the EC and the WEU or launching a Community foreign and security policy, the ministers agreed on the need to revise the existing procedure during the forthcoming IGC on political union. Greece and Denmark, Ireland's usual supporters in blocking the Community's move into the military sphere, this time sided with the majority. Unusually, the UK emerged as a defender of Irish neutrality, in an effort to forestall a further loss of sovereignly. For the same reason, on a visit to Bern in September 1990, Thatcher had wooed the Swiss by saying that their neutrality would not be a barrier to full EC membership. 41

Conclusions For all of Haughey's evasiveness, Thatcher's obduracy, and Mitsotakis's difficulties, EPC in 1991 and 1992 will probably differ markedly from EPC in 1989 and 1990. Scenarios of a full-fledged Community foreign policy, formulated either by the European Commission or by majority voting in the European Council and implemented by an EC diplomatic service, are undoubtedly far-fetched. But the pressure of external events in 1989 and 1990 make it likely that the Twelve will undertake a fundamental revision of EPC. Only in that way, as Commissioner Leon Brittan remarked in March 1990, could the Community hope "to play a world political role commensurate with its economic strength" 42 and, to use the most hackneyed EPC phrase, could the Twelve finally "speak with one voice."

Notes 1. Daniel Murphy, "European Political Cooperation After the Single European Act: The Future of Foreign Affairs in the EC," in The Boston College International and Comparative Law Review (Summer 1989), pp. 335-355. 2. James Goodby, "Future Atlantic Cooperation and Cooperative

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Institutions: Meeting the Challenge," Atlantic Council of the United States Occasional Paper (February 1990), p. 24. 3. Jean de Ruyt, "European Political Cooperation: Towards a United European Foreign Policy," Atlantic Council of the United States Occasional Paper (October 1989), p. 21. 4. Ibid., p. 19. 5. Christiane Scrivener, "An EC Commission View of the Future of the Community," Speech at the Royal Institute for International Affairs, London (July 6, 1990), p. 7. 6. Financial Times (June 26, 1990), p. 2. 7. "A Survey of the European Community," in The Economist (July 7, 1990), p. 6. 8. Debates of the European Parliament, 3-3894/64-68 (December 12, 1989), and 3-385/61-63 (January 16, 1990). 9. Irish Times (February 22, 1990), p. 6. 10. de Ruyt, op. cit., p. 27. 11. Debates of the European Parliament, No. 3-384/69 (December 12, 1989). 12. Financial Times (October 2, 1990), p. 1. 13. Quoted in the Financial Times (September 19, 1990), p. 16. 14. de Ruyt, op. cit., pp. 20, 35. 15. The Economist (February 24, 1990), pp. 21-22. 16. Ibid. (April 28, 1990), p. 26. 17. Gerard Collins address to the European Parliament (January 20, 1990), p. 19. 18. Ibid., pp. 1 9 - 2 0 . 19. De Michelis interview on the BBC World Service (September 28, 1990). 20. Financial Times (June 28, 1989), p. 2. 21. Quoted in Agence Europe (June 15, 1990), p. 3 bis. 22. Agence Europe (June 29, 1990), p. 4. 23. Irish Times (August 25, 1990), p. 3. 24. Financial Times (July 23, 1990), p. 3. 25. Ibid. (September 18, 1990), p. 2. 26. Irish Times (August 24, 1990), p. 1. 27. Le Monde (August 23, 1990), p. 6. 28. Ibid. (September 9/10, 1990), p. 1. 29. New York Times (September 8, 1990), p. 5. 30. Financial Times (September 18, 1990), p. 2. 3 1 . d e Ruyt, op. cit., p. 14. 32. Financial Times (August 29, 1990), p. 4. 33. Peter Riddell, "A Not So Special Relationship," Financial Times (August 31, 1990), p. 17. 34. Financial Times (September 19, 1990), p. 4. 35. Manchester Guardian (May 6, 1990), p. 4. 36. Irish Times (April 30, 1990), p. 1. 37. The Economist (June 30, 1990), p. 48. 38. Irish Times (March 13, 1990), p. 1. 39. Reprinted in the LSE Magazine (July 1990), p. 16. 4 0 . Irish Times (September 8, 1990), p. 6. 4 1 . Financial Times (September 21, 1990), p. 10. 42. Leon Brittan, "Europe and America: An Old Partnership in a New Era," Speech to the American European Community Association, Washington, DC (March 22, 1990), p. 6.

29 Defense and Security Policy Issues Werner ]. Feld

When in the early 1980s the European Parliament was debating the European union draft treaty, some thought was given to whether security and defense should be included eventually among the competencies that should be transferred to the authority o f the European Community institutions. 1 Of course, the draft treaty was not approved by all the E C member states, but the intergovernmental conferences (December 1990) on economic and monetary union and on political union may arouse new interest in developing another draft of a European union treaty that would contain new initiatives in the European security and defense policy fields. In this connection various resolutions introduced into the EP by a number of M E P s in the last part of 1989 and the first half o f 1990 are significant. Twenty-one deputies o f center parties proposed on June 7, 1990, a resolution that included a demand that the bases of common E C security policies be elaborated; this would reflect the new quality o f the relations among the European states. In addition, a working group should be set up within the framework o f European Political Cooperation (EPC), which is to develop propositions for the "future architecture o f European security" with consideration o f the Conference on Security and Cooperation in Europe ( C S C E ) system. 2 These and other similar resolutions received majority support in the E P on June 16, 1990. Although these resolutions are indicators of how people may feel about what kind o f security system is most appealing in the face o f the extraordinary international changes that have taken place during the past few years, it will take much more than the E P to modify the current security and defense framework, which is primarily centered on the North Atlantic Treaty Organization ( N A T O ) , and construct a fundamentally different system. Certainly, the Commission, the Council o f Ministers, and all the member governments would have to participate in and fully support such a major and difficult task of a far-reaching metamorphosis. Yet the future may well hold such a change as new political and economic conditions have emerged in

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Europe and the world that may force the reconsideration of the existing structures and systems. The drafters of the Single European Act (SEA) may have demonstrated foresight when they said the following in Article 30, section 6: a. The High Contracting Parties consider that closer cooperation on questions of European Security would contribute in an essential way to the development of a European identity in exlemal policy matters. They are ready to coordinate their positions more closely on the political and economic aspects of security. b. The High Contracting Parties are determined to maintain the technological and industrial conditions necessary for their security. They shall work to that end both at the national level and, where appropriate, within the framework of the competent institutions and bodies. c. Nothing in this Title [III] shall impede closer cooperation in the field of security between certain High Contracting Parties within the framework of the Western European Union or the Atlantic Alliance. 3

An initial move toward transnational security and defense policy coordination among EC member states was made when the Franco-German Council on Defense and Security was established in 1988. It now meets every six months and sometimes involves participation by the French president and the West German chancellor. The preamble to the protocol setting up this council states that European unification will remain incomplete if it does not encompass security and defense. 4 The council's missions are to coordinate defense and disarmament policy, stimulate recurrent joint maneuvers, and promote cooperative weapons production. A secretariat in support of the council has been set up in Paris. A practical application of the council's activities can be seen in the organization of a joint brigade of French and German troops in 1988 that has a strength of 4,200 men, equally divided between the two countries, and whose headquarters is located near Stuttgart, in southwest Germany. It was commanded initially by a French brigadier general with a German colonel as deputy commander; these roles are expected to be reversed every two years.5

Security System Alternatives Whenever the SEA and individual members of the EP talk about European security, it is, of course, clear that some alternative security systems providing varying means of defense planning and coordination already exist. The most prominent and comprehensive of these systems is undoubtedly NATO, which encompasses sixteen member states; others are the West European Union (WEU), which has nine members, and the final act of the Conference on Security and Cooperation in Europe, whose signatories are all

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the European states plus the United States and Canada. First we need to examine and analyze the value and usefulness of these three organizations for European security. Then we need to discuss the possibility of constructing another system for this purpose within the EC framework that may be at least equal or perhaps superior to achieving European security and defense goals compared to the other three organizations and perhaps may have greater popular appeal than the other systems. The latter consideration requires a brief look at public opinion data available in the EC regarding security and defense issues. However, before doing this, a few observations must be made in order to clarify the relationship between the concepts of security policy and defense policy. Security policy, whether viewed from a national or regional perspective, is a broad concept, and it includes, in addition to the military dimension, diplomatic, economic, and social dimensions. According to Arnold Wolfers, "Security in an objective sense, measures the absence of threats to acquired values, in a subjective sense, the absence of fear that such values will be attacked." 6 Hence, the major objective of any security policy must be the creation of national and international political conditions favorable to the protection and extension of vital national and regional values against existing and potential adversaries. 7 The term "defense policy" is much narrower and focuses on the utilization of military activities and strategies to ensure the successful implementation of national or regional security goals. Hence, defense policy includes the formulation of particular national and regional policies to assure the attainment of pertinent security objectives, appropriate strategies to obtain these objectives, and the necessary military forces and doctrines for their employment. This is a broad order and requires an adequate organizational framework. It also needs to take into consideration the vagaries of domestic politics and, therefore, public opinion on this subject in the EC member states may furnish important insights. 8

EC Views on Security In 1987 and 1988, opinion surveys were taken in the EC member states to find out whether their populations were prepared to go further in the construction of Europe than a single common market and in which directions they would like the Community to move and which policy areas should become the responsibility of an evolving European government. The survey included questions on security and defense. It is interesting that among the respondents who wanted to see the EC move beyond the single market—a minority of 48 percent in the EC—a majority in all member states except Greece and Portugal felt that these activities should indeed be included in the functions of the EC institutions. In Ireland, which is neither a NATO nor a WEU member, 50 percent favored this option. Breaking down the overall EC data by sociopolitical factors shows that

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few differences exist in the support for shifting European security/defense policies to the management of the Community when analyzed on the basis of sex, age, education, income, opinion leadership, value orientation, and political self-placement. Older respondents favor this option more and those with higher education favor it somewhat less. As for value orientations, it appears that the "post-materialists" are least in favor of this option, although this may not suggest a stronger support of either NATO or WEU. With respect to political self-placement, it is the center that is most strongly in favor of European security and defense policy. Another survey conducted in 1989 sought to determine attitudes in the EC member states about (1) the current need for strong national defense patterns and the level of confidence in NATO decisions and (2) whether in the future the European Community should make decisions about the security of Western Europe or whether NATO should continue to be the most important forum for making such decisions. As for the need of the member states to have a strong national defense, opinions are split, but overall for the Community, 65 percent of the respondents consider such defense necessary. In Greece 90 percent feel this way; in Britain, 80 percent; in France, 73 percent; and in Ireland, 40 percent. In Belgium 54 percent consider national defense as unnecessary with only 43 percent taking the opposite position, whereas in the Netherlands the views are equally divided. Luxembourg, for understandable reasons, was not surveyed. With respect to NATO, it should first be stated that 54 percent of all interviewed in the EC have a favorable opinion. But there is considerable divergence between EC member states. Above the average are Great Britain (69 percent), Denmark (68 percent), the Netherlands (65 percent), Germany (61 percent), and Italy (56 percent). The least positive are the Spanish (33 percent), the Greeks (39 percent), the Portuguese (42 percent), and the French and Irish (45 percent each). 9 With respect to the question on confidence that decisions made by NATO will be in the best interest of the respective countries, a positive response was made by less than half of the EC public (46 percent). However, different EC member states vary in the reply of respondents to this question. The northern countries show more confidence: Great Britain, 61 percent; Denmark, 59 percent; Germany, 53 percent; and the Netherlands, 49 percent. The other countries are below the EC average, especially Greece with only 22 percent. It is not surprising that France is also below the EC average with 42 percent expressing confidence in NATO decisions, but it should be noted that 31 percent of the French respondents were unable to give any response. Indeed, one EC respondent out of five did not answer this question. The next question, dealing with the issue as to which organization should be making the decisions about the security of Western Europe in the future, obviously has crucial implications reaching far beyond the continent. Over one-third (36 percent) of the public in the member states want this

Defense and Security Policy

427

Issues

decision to be made by the European Community, whereas 30 percent want NATO to continue to be the forum for such decisions. The figures are the result of clear-cut EC preferences in Greece, Spain, France, Ireland, and Italy. Again, we note a North-South split, with large preferences for NATO shown in Denmark, Germany, and Great Britain. Also, in some countries there were high percentages of "no reply"; Portugal led this field with 4 0 percent, followed by smaller percentages in France and Ireland. 10 The total of "no reply" was 19 percent. It should also be mentioned that 5 percent of the responses went to the WEU, 8 percent to other organizations, and 7 percent of the respondents simply said, " W e should make our own decisions." 11

Security S y s t e m E v a l u a t i o n s A congenial public opinion favoring the construction of European security and defense policies is an important factor strengthening similar efforts in the EP, especially because public opinion data over the past decade appear to reflect a slight change away from NATO support as expressed in a 1982 survey taken in selected EC member states. 12 However, other factors must be taken into consideration to evaluate which security system would be most appropriate for the European Community in the years to come. The

North

Atlantic

Treaty

Organization

In terms of military assets including an array of nuclear weapons and in terms of organizational capability and experience, NATO may seem to be the most suitable system to continue to assure the security and defense of the European Community. Eleven members of the Community are also members o f NATO. The United States, the current leader in NATO, is anxious to retain an influential role in Europe; this would be assured if NATO were to remain the main security and defense framework for Europe. But the long-term prospects for NATO are uncertain. There are a number of reasons for this uncertainty. The sharp decline in threat perceptions of a Soviet attack, especially on the part of West Europeans but also as far as US citizens and Canadians are concerned, has reduced the need for defensive action by NATO forces and has diminished Europe's military dependency on NATO and the United States. As a consequence, NATO forces in West Germany may be viewed as unnecessary by federal and Länder authorities and asked to be withdrawn eventually; cries about the burden of US troops have been heard during the past few years by Germans who would like to see the full restoration of their sovereignty over the country. 13 There is no question that German chancellor Helmut Kohl is strongly committed to have a united Germany in NATO and that he feels comfortable about having the current warm relations with President Bush on this score, 1 4

428

External

Relations

but as time moves on, Kohl needs to show strong sensitivity to whatever demands may come from the German domestic political scene. Although the recent German proposal for multinational NATO forces—a fallback to the illfated European Defense Community (EDC)—may be acceptable for the continued stationing of non-German troops on German soil, in due time a united Germany may prefer complete freedom from either NATO or Soviet troops on its soil. There have been suggestions of giving NATO new missions such as ensuring and supervising the implementation of the arms control treaties that might be concluded (Conventional Forces in Europe [CFE] and Strategic Arms Reduction Talks [START]) or to move into economic planning or activities. Although the former idea may be feasible, for NATO to move into the economic field makes little sense considering the existence of the Organization for Economic Cooperation and Development (OECD) and of course the European Community. Perhaps Strobe Talbott is correct when he says, "The trouble is, N A T O is broken at least conceptually. Its reason for being was to deter the Soviet Union from launching an invasion through West Germany to the English Channel. With that danger diminished to the vanishing point, NATO is already undergoing its own deconstruction, more subtle, dignified and gradual than that of the Warsaw Pact, but in the long run just as relentless." 15 The Western

European

Union

(WEU)

The WEU has been in existence since the early 1950s and contains at present nine EC members—Great Britain, France, the Federal Republic of Germany, Italy, the Benelux countries, and more recently Spain and Portugal. Turkey has also applied for membership, and Greece and Norway are considering the submission of applications. As West Germany and East Germany join, a unified Germany will become a participant. The WEU has a modest institutional framework, consisting of a council, a consultative assembly (with various subordinate permanent committees), a secretariat, the Standing Armaments Committee, and the Agency for the Control of Armaments, which is concerned primarily with the supervision of German arms limitations beginning when Germany joined NATO in 1955 and now practically defunct after the "Two plus Four" negotiations have been completed. The council formulates policy and coordinates defense policy and equipment. It is chaired by the secretary general, at present Willem van Eekelen. The delegates of the member states to the assembly, eighty-nine at present but the number may be increased in the event of additional members, also consider defense policy issues and make recommendations to the council, the national parliaments, and interested international organizations. Although the WEU has been dealing with defense matters on a limited basis for some time, it would require a major expansion of operational and administrative

Defense

and

Security

Policy

Issues

429

missions to become the formulator and implementor of European security and defense policies. Although the WEU has become more energetic during the past few years, to carry out such a restructuring would be very costly and require additional membership. Nevertheless, as shown in the public opinion polls, some citizens of the EC states would like to see the WEU be given the main security and defense policy functions for the Community and thereby carry out security tasks specifically for the EC. The Conference on Security and Cooperation in Europe (CSCE) Based on the final act of Helsinki concluded in 1975, CSCE deals with security and cooperation in Europe; it includes most European states as well as the United States and Canada. However, CSCE does not have the structural framework of either NATO or the Warsaw Pact nor the integrated command structure of NATO. Nevertheless, CSCE has been for several years the basis of confidence-building measures among the member states, and it provided in 1986 that these states notify major military activities in Europe well in advance and subject them to observation. 16 In addition, agreement has been achieved to hold a foreign ministers meeting and a summit meeting before the end of 1990. A small secretariat was set up to deal with preparatory administrative work prior to these conferences. But whether CSCE could become a viable alternative to NATO in the future is far from sure. CSCE is an important, complex, unevenly institutionalized group of meetings of thirty-five member states that is little known in the United States, although President Bush and Secretary of State James Baker have talked about it a great deal in 1990 and Baker has called it "the new European security system." It has also been viewed as a system that is the closest yet to a peace treaty in Europe and has been regarded as a "very partial, imperfect, indeed minimal Concert of Europe and North America." 17 After the final act of C S C E was signed in Helsinki in August 1975, three very long review sessions (in Belgrade, Madrid, and Vienna) and a number of subsidiary experts' meetings have taken place, including the successful Conference on Confidence and Security-Building Measures in Stockholm. If CSCE comes close to matching the institutional characteristics of a concert system as developed in Europe in 1815, then it can be assumed that it would have the following characteristics: 1. Shared interests, including a desire to preserve the system 2. Openness within the system 3. Expectations of cooperative behavior by participating states and a feedback mechanism to encourage needed corrections 4 . Available means of validating intentions

430

External

Relations

5. A mechanism for restoring equilibrium in response to disturbances in the system 18 In contrast to the very limited knowledge of US citizens regarding CSCE, West Europeans know more about this organization, although it has not acquired important public constituencies in most countries. However, for the European Community and especially the European Council in Dublin in June 1990, the summit of the Heads of State and Government of the CSCE member states in Paris in November had exceptional importance. This summit defined the crucial role that the CSCE will play in the future architecture of Europe and in establishing a new set of relations between participating states, based on the Helsinki principles, to be further expanded by new commitments and involving a balanced development of the CSCE, encompassing notably the development of pluralist democracy. Furthermore, the summit took decisions on new mechanisms in the field of security and cooperation in Europe, including suitable means to avoid conflict and disputes. 19 The strong support given by the European Council to CSCE, which may find significant echoes in the public opinion of the member states, does not assure a fully capable role of that organization in safeguarding the security of Europe even after having been further substantially institutionalized. This may offer opportunities to the United States to play a significant political and perhaps military part in this expanding organization and through it in all of Europe. As Karsten Voigt, a West German and chair of the Defense and Security Committee of the North Atlantic Assembly points out, "The long-term goal is a European security treaty among all participant states in which the United States, Canada, and the Soviet Union will play important roles and act as guarantors by placing military forces at Europe's disposal." 20

Conclusion: The European Community Potential If the European Community as an individual unit were to carry out its own security and defense policy functions, the first step to be taken would have to be institutional expansion. The Commission would be required to add another directorate-general (DG), which would be organized similarly to DG I (external relations) or DG VIII, which deals with the EC relations to the Third World. The major tasks of the new DG would be the coordination of the existing armed forces and other military assets of the twelve member states, the alignment of their strategic and tactical doctrines, and the assurance of the highest degree of interoperability of weapons and ammunition. This is a large order when it comes to conventional forces but is likely to be even more complex when applied to the nuclear units of Great Britain and France.

Defense

and Security

Policy

Issues

431

Part of this has been done quite successfully in NATO and especially through the Eurogroup established in 1968 and the Independent European Program Group (IEPG) set up in 1976 and including France. 21 Just as the European defense ministers of the NATO countries met either every six or twelve months each year for coordination purposes, the same could take place under EC auspices. The hoped-for outcome of the cooperative efforts of the newly recruited staff in the Commission and the meetings of the EC defense ministers and their assistants would be the formulation of appropriate European security and defense policies followed by eventual implementation as necessary. It is difficult to judge at this point in time how strongly individual EC member governments would push toward the establishment of a European security and defense policy facility. Chancellor Kohl has repeatedly expressed his strong support for a united Germany to be in NATO and former prime minister Thatcher was clearly in favor of a continued British NATO membership. The attitudes of these two leaders are also matched by public opinion in their own countries. Much depends on the intergovernmental conference on political union in Rome, beginning on December 15, 1990, which was agreed upon during the European Council meeting in Dublin in June 1990. So far a definition of the concept of political union is lacking but the communiqué of the Dublin meeting emphasizes unity and coherence of the Community's international action and includes proposals for a common foreign and security policy that institutionally goes beyond political cooperation as it currently functions. Indeed, it stresses the definition of the security discussion and over time the transfer of necessary competencies to the Community institutions. 22 Whatever the outcome of the conference on political union, the march toward political integration will be enhanced by increased economic benefits for the EC people as a consequence of a successful "1992" enterprise that will produce an expanded GNP, increased wages, and new jobs. Equally important for moving European unification forward may be the gradual acquisition of military muscle by the prospective political union, as this may strengthen the commitment of the people in the EC to the new political system. Although these bases for EC security and defense policies exist and such a development is supported by part of the Community leadership, some more influential than others, it may well take several years before these efforts can come to fruition. At present, CSCE as an instrument for European security seems to be more appealing in the EC member states, as can be gleaned from reading carefully the Dublin June 1990 European Council communiqué. One reason may be the Soviet Union's membership in CSCE; another reason may be the possibility of close cooperation between CSCE and a new European Community security and defense system because of the overlapping membership in both organizations. US opposition against an EC security system will be strong. And

432

External

Relations

indeed, the desire of much of the EC public to have its own coordinated military defense system may be satified by expanded Eurogroup activities within N A T O , the possibility of a European general becoming supreme commander, forthcoming changes in NATO's nuclear strategies, the reduction and redeployment of US forces in Germany, and a possible new multinational character of N A T O ' s troops. On the other hand, if political union becomes a reality, perhaps at the end of the 1990s, the new European political system, whatever its governmental shape and perhaps further enlarged by n e w applicants, may want to play the leading military role in its own backyard.

Notes 1. For an overview of the European Union Treaty negoliations, see Juliet Lodge, "European Union and the First Elected European Parliament: The Spinelly Initiative," Journal of Common Market Studies 22, No. 4, pp. 377-402. 2. European Parliament, Session Documents (133-1167/90), June 7, 1990. One of the resolutions submitted on behalf of the "Rainbow" Group called for the phasing out of NATO and the Warsaw Pact (Document 133-1161/90). 3. Bulletin of the European Communities, Supplement 2/86, p. 18. 4. Europa Archiv 43, No. 5, p. D131. 5. For details, see Werner J. Feld, "International Implications of the Franco-German Brigade," Military Review (February 1990), pp. 2-11. During a briefing at SHAPE headquarters on June 19, 1990, Lt. General Wolfgang Malecha, Deputy Chief of Staff Operations (German Army), stated that the brigade was doing well, but every weekend the French and German troops return to their respective homes. 6. Arnold Wolfers, Discord and Collaboration (Baltimore: Johns Hopkins University Press, 1962), p. 150. 7. Frank N. Trager and Frank L. Simone, "An Introduction to the Study of National Security" in National Security and American Society: Theory, Process, and Policy, ed., Frank Trager and Philip S. Kranenberg (Lawrence: University of Kansas Press, 1973), p. 36. 8. See the discussion by Douglas T. Murray and Paul R. Viotti, "Defense Policy in Comparative Perspective: An Introduction," in Murray and Viotti, The Defense Policies of Nations, 2d ed. (Baltimore: John Hopkins University Press, 1989), pp. 3 - 9 . 9. Eurobarometer, No. 32 (December 1989), p. A40, Table A-25, question 2. 10. Ibid., question 3. 11. Ibid., p. 32. 12. See Werner J. Feld, "Divergent Perceptions in the United States and Western Europe About Solutions to Security Problems," in Feld, ed., New Directions in Economic and Security Policy (Boulder, CO: Westview, 1985), pp. 23-51, and p. 32, Table 4.6. 13. New York Times (April 6,1990). 14. See Kohl's interview in Time (June 25, 1990), p. 38. A strong GermanUS axis is an important strategy objective for the present Germany government. 15. Strobe Talbott, "Defusing the German Bomb," Time (July 2, 1990), p. 34.

Defense and Security Policy Issues

433

16. For details see John Borawski, "Developing the CSBM Regime in Accordance with Security Requirements," Paper delivered at the ISA Convention, 1990, Washington, DC. 17. William E. Griffith, in the foreword to John Maresca, To Helsinki, the Conference on Security and Cooperation in Europe 1973-1975 (Durham: Duke University Press, 1987). 18. James E. Goodby, CSCE: The Diplomacy of Europe Whole and Free (Washington, DC: The Atlantic Council of the U.S., 1990), p. 11. 19. European Community News, No. 26/90 (June 27, 1990), p. 6. 20. Karsten Voigt, Transitional Arrangements for Integrating a Unified German Federal State with Respect to Foreign and Security Policy (North Atlantic Assembly, International Secretariat, May 1990), p. 2. 21. See Western Defense: The European Role in NATO (Brussels: Independent European Program Group, 1988), pp. 5, 10, and 11. 22. European Community News, No. 26/90 (June 27, 1990), pp. 3, 8. 9, and 10.

Acronyms

ACP ANSI ASBs ASEAN BENELUX BRITE CAD CAE CAP CCBE CCP CEN CENELEC CEPT CET CFCs CFE CIM CMOs COCOM COMECON COMETT COREPER CSCE CSCM CSP DG DIN

African, Caribbean, Pacific American National Standards Institute Associated Standardization Bodies Association of South East Asian Nations Belgium, The Netherlands, Luxembourg Basic Research in Industrial Technologies for Europe Computer-Aided Design Computer-Aided Engineering Common Agricultural Policy Commission Consultative des Barreaux de la Communauté Européenne Common Commercial Policy European Committee for Standardization European Committee for Electrotechnical Standardization European Conference of Posts and Telecommunications Common External Tariff Chlorofluorocarbons Conventional Forces in Europe Computed-Integrated Manufacturing Common Market Organizations Coordinating Committee for Multilateral Export Controls Council for Mutual Economic Assistance Community Program for Education and Training in Technology Committee of Permanent Representatives Conference on Security and Cooperation in Europe Conference on Security and Cooperation in the Mediterranean Chartered Society of Physiotherapists Directorate-General Deutsches Institut für Normung

435

436 DM DRAMs EAGGF EAP EBRD EC ECISS ECOFIN ECSC ECTS ECU EDC EDF EEA EEB EEC EES EFTA EIB EMCF EMF EMS EMU EN EOTC EP EPA EPC EPROM EQs ERASMUS ERDF ESCB ESF ESPRIT ETSI EUA EURAM EURATOM FEANI FF FRG

Acronyms

Deutsche Marie Dynamic Random Access Memories European Agricultural Guidance and Guarantee Fund Environmental Action Program European Bank for Reconstruction and Development European Community European Committee on Iron and Steel Standardization (Council of Ministers for) Economic and Financial Affairs European Coal and Steel Community European Community Course Credit Transfer System European Currency Unit European Defense Community European Development Fund European Economic Area / European Environmental Agency European Environment Bureau European Economic Community European Economic Space European Free Trade Association European Investment Bank European Monetary Cooperation Fund European Monetary Fund European Monetary System European Monetary Union European Standard European Organization for Testing and Certification European Parliament Environmental Protection Agency European Political Cooperation Erasable Programmable Memory European Committee for the Assessment and Certification of Quality Assurance Systems European Community Action Scheme for the Mobility of University Students European Regional Development Fund European System of Central Banks European Social Fund European Strategic Program in Information Technology European Telecommunications Standards Institute European Unit of Account European Advanced Materials Program European Atomic Energy Community Fédération Européenne d'Associations Nationales d'Ingenieurs French Franc Federal Republic of Germany

Acronyms

GATS GATT GDP GDR GEMU GMP GNG GNP GNS GPA GSP HDTV HLSG IBC ICPs IEPG IGC IIA ILO IMPs IT JESSI LINGUA MAST MEP(s) MFA MFN MTN NARIC NATO NCI NEP NICs NMBCs NTBs OCA OECD OJ OSO PLO R&D RACE RSRE SEA

437 General Agreement on Trade in Services General Agreement on Tariffs and Trade Gross Domestic Product German Democratic Republic German Economic and Monetary Union Global Mediterranean Policy Group of Negotiations on Goods Gross National Product Group of Negotiations on Services Government Purchasing Agreement Generalized System of Preferences High-Density Television High Level Steering Group Integrated Broadband Networic Inter-University Cooperation Programs Independent European Program Group Inter-Governmental Conference Inter-Institutional Agreement International Labor Organization Integrated Mediterranean Programs Information Technology Joint European Submicron Silicon Initiative Language and Training Program Marine Science and Technology Member(s), European Parliament Multi-Fiber Arrangement Most Favored Nation Multilateral Trade Negotiation National Academic Recognition Information Center North Atlantic Treaty Association New Community Instrument National Environmental Plan Newly Industrialized Countries Non-Member Mediterranean Basin Countries Non-Tariff Barriere Optimum Currency Area Organization for Economic Cooperation and Development Official Journal of the European Community (British) Offshore Supplies Office Palestine Liberation Organization Research and Development R & D in Advanced Communications Technologies for Europe Royal Signals and Radar Establishment Single European Act

438 SEPLIS SLCP SMEs SOS SRAM STABEX SYSMIN TCs TNC TOEFL TRIPS UK UN UNCTAD US USSR VAT VERS WEU WIPO YES

Abbreviations

and

Acronyms

European Secretariat for the Liberal, Independent and Social Professions Standing Liaison Committee of Physiotherapists Small and Medium-Sized Enterprises Save Our Seas Static Random Access Memory Commodity Export Earnings Stabilization Scheme Mineral Accident Insurance System Technical Committees Trade Negotiations Committee Test of English as a Foreign Language Trade Related Intellectual Property Rights United Kingdom United Nations United Nations Committee for Trade and Development United States Union of Soviet Socialist Republics Value Added Tax Voluntary Export Restraints West European Union World Intellectual Property Organization Youth Exchange Scheme (for Europe)

Selected Bibliography

The Institutional Strategies Toward Political Union Adams, H.. Europa 1992: Strategie, Struktur, Ressourcen (Frankfurt, 1989). Bressand, A., "European Integration: From the System Paradigm to Network Analysis," The International Spectator (1989), 21-29. Burgess, M., Federalism and European Union: Political Ideas, Influences, and Strategies in the European Community, 1972-1987 (London: Routledge, 1989). Dehousse, R., "1992 and Beyond: The Institutional Dimension of the Internal Market Programme," Legal Issues of European Integration (1989), 109136. Ebers, M., "Die Europäischen Gemeinschaften, Ihre institutionelle Struktur, Verwaltungsorganisation, V e r w a l t u n g s v e r f a h r e n und Finanzen," Wirtschaftswissenschaftliches Studium 7 (1989), 357-370. Ehlermann, C.-D., "Die institutionelle Entwicklung der EG unter der Einheitlichen Europäischen Akte," Aussenpolitik (1990), 136-146. Moravcsik, A., "Negotiating the Single Act: National Interests and Conventional Statecraft in the EC," Harvard Center for EC Studies Paper No. 20 (1990). Papalos, T., "La route de l'acte unique européen," Hellenic Review of International Relations (1989), 4 3 3 ^ 4 0 . Pryce, R., ed., The Dynamics of the European Union (London: Trans European Policy Studies Association, 1987). Simon, D„ "De l'Acte Unique au Marché Unique," Journal du Droit International (1989), 265-304. Wessels W., and C. Engel, eds., The Institutions of the European Community After the Single European Act: The New Procedures and the Capacity to Act (Bonn, 1991).

The Council and the Commission After the Single European Act B l e c k m a n n , A., "Zur Verbindlichkeit von R e c h t s a u s k u n f t e n der EGKommission," 12 Recht der Internationalen Wirtschaft (1988), 9 6 3 967.

439

440

Selected

Bibliography

Edwards, G., and C. Lord, "Der Ministerrat," in W. Weidenfeld and W. Wessels et al., Jahrbuch der Europäischen Integration, 1989-90 (Bonn: Europa Union Verlag, 1990). Foreign and Commonwealth Office, ' T h e Operation of the Single European Act," Second Report of the Foreign Affairs Committee (HMSO, 1990). Hoscheit, J., and W. Wessels, The European Council 1974-1986 (Maastricht: EIPA 1989). Kirchner, E., Decision-Making in the European Community: The Council Presidency and European Integration (Manchester: University of Manchester Press, 1991). Louis, J.-V., and D. Waelbroeck, La Commission au coeur du système institutionnel des Communautés européennes (Brussels, 1989). 0strom-M0ller, J., "The Single European Act: A Danish View," The World Today 44 (November 1988), 195-199. Reich, C., "Le Rôle de la Commission des Communautés Européennes dans la coopération politique européenne," Revue du Marché Commun (1989), 5 6 0 563. Sloot, T., and P. Verschuren, "Decision-Making Speed in the European Community," Journal of Common Market Studies 29 (September 1990), 7 5 85. Soldatos, P., Le Système institutionnel et politique des Communautés européennes dans un monde en mutation: Théorie et Pratique (Brussels: Emile Bruylant, 1989). Ungerer, W., "Die neuen Verfahren nach der Einheitlichen Europäischen Akte: Eine Bilanz aus der Ratsperspektive." Integration (1989), 9 5 -

106.

Wilke, M„ and H. Wallace, Subsidiarity: Approaches to Power-Sharing in the European Community (London: Royal Institute of International Affairs, 1990).

The European Parliament as an Institutional Actor Bas, J., "La montée en puissance du Parlement européen," Regards sur l'Actualité (1989), 16-19. Chauchat, M., Le contrôle politique du Parlement européen sur les exécutifs communataires (Paris, 1989). Corbett, R., "The Growing Influence of the European Parliament on EC Legislation," European Affairs (1989), 26-29. — , "Testing the New Procedures: The European Parliament's First Experiences with its New 'Single Act' Powers," Journal of Common Market Studies (1989), 359-372. Grabitz, E., et al., Direktwahl und Demokratisierung, Eine Funktionenbilanz des Europäischen Parlaments nach seiner ersten Wahlperiode (Bonn, 1988). Lodge, J., ed., The 1989 Election of the European Parliament (New York: St. Martin's, 1990). Louis, J.-V., and D. Waelbroek, eds., Le Parlement européen dans l'évolution institutionnelle (Brussels, 1988). Mackie, T., ed., European Parliamentary Election Results 1989 (Aldershot, UK: Dartmouth, 1990). Schmuck, O., and W. Wessels, eds.. Das Europäische Parlament im

Selected

Bibliography

441

Integrationprozess: Auf der Suche nach einem zeitgemässen Leitbild (Bonn, 1989). Van Hamme, A., ' T h e European Parliament and the New Cooperation Procedure," Studio Diplomatica (1989), 291-314.

The European Court of Justice: Recent Developments Cerexhe, E., Le Droit européen: Les Objectives et les Institutions (Beauvechain, 1989). Curtain, D., "Some Reflections on European Community Law in Ireland," Dublin University Law Journal (1989), 224-225. d'Intégration Easson, A., "Legal Approaches to European Integration," Revue Européenne (1989), 101-119. Ginderachter, E. van, "Le tribunal de première instance des Communautés européennes: Un nouveau-né prodige?" Cahiers de Droit Européen (1989), 63-105. Joliet, R., "Le Tribunal de première instance des Communautés européennes," Revue du Marché Commun (1989), 423-431. Kennedy, T., "The Essential Minimum: The Establishment of the Court of First Instance," European Law Review (1989), 7-29. Lens, C., "The Court of Justice of the European Communities," Legal Issues of European Integration 2 (1988), 1-14. Millett, T., "The New European Court of First Instance," International and Comparative Law Quarterly (1989), 811-833. Rasmussen, H„ The European Community Constitution: Summaries of Leading EC Court Cases (Copenhagan: Handelshojskolens Forlag, 1989). Stuart, M., "Die Rolle des Gerichtshofes in der R e c h t s o r d n u n g der Europäischen Gemeinschaft," Zeitschrift für Rechtsvergleichung (1988), 202-214. Waelbroeck, M., "Le Rôle de la Cour de justice dans la mise en ouevre de l'Acte unique européen," Cahiers de Droit Européen (1989), 41-62.

Budgetary Policy in Transition Commission of the European Community, The European Community Budget, European File (August-September 1989). Cot, J.-P., "De la procédure budgétaire communautaire considérée comme un des beaux-arts," L'Evénement Européen (1988), 205-215. Ehlermann, C.-D., "Aid for Poland and Hungary: First Assessment," European Affairs (1989), 23-27. Magiera, S., "Finanzkontrolle in der Europäischen Gemeinschaft," in H. Arnim, ed., Finanzkontrolle im Wandel (Baden-Baden: Nomos Verlagsgesellschaft, 1989), 2 2 1 - 2 4 1 . Nicoll, W., and J. Lentz, "Le budget 1990, le déroulement de la procédure budgétaire: Ses incidentes et son aboutissement," Revue du Marché Commun (1990), 2 6 9 - 2 8 2 . O'Hagan, M., ed., Guide to the General Budget of the Commission of the European Communities and the Other Community Institutions (Aldershot, UK: Gower, 1990).

442

Selected

Bibliography

Shackleton, M., The Community Budget: The Next Steps (London: Chatham House, 1990). , "The E C ' s Budget in the Move to a Single Market," Governance (1991). , Financing the European Community (Washington, D.C.: Council on Foreign Relations, 1990). Strasser, D „ Les Finances de l'Europe (Paris: Librarie générale de droit et de jurisprudence, 1990). Vignes, D., et al., "Le Budget 1989 et la naissance d'une nouvelle mécanique budgétaire," Revue du Marché Commun (1989), 208-242.

Beyond 1992: One Central Bank, One Currency Bishop, G., 1992 and Beyond: The Creation of an EC "Hard Money" Union (New York: Salomon Brothers, 1990). Carli, G., "Towards a European Central Bank," Contemporary European Affairs (1990). Cecco, M. de, and A. Giovannini, eds., A European Central Bank? Perspectives on Monetary Unification After Ten Years of the EMS (Cambridge, 1989). Dowd, K., "The Case Against a European Central Bank," The World Economy (1989), 3 6 1 - 3 7 2 . Franz, O., ed., European Currency in the Making (Liberias, 1989). Guimbretière, P., "The ECU Question," Contemporary European Affairs (1990). Harbrecht, W., "Wege zur Errichtung einer Europäischen Zentralbank: Zum Delors-Bericht," Integration (1989), 162-173. Development Hasse, R„ The European Central Bank: Perspectives for the Further of the EMS (Götesloh: Bertelsmann Stiftung, 1990). Kaufman, H., ' T h e European Monetary System: Embryo of a European Central Bank," II Politico (January-March 1990). Levich, R., and A. Sommariva, The ECU Market: Current Developments and Future Prospects of the ECU (Lexington: D. C. Heath, 1987). Mehnert, R., "The European Currency Unit," The George Washington Journal of International Law and Economics (1989). Riboud, J., The Case for a New ECU (London: Macmillan, 1989). Sunt, C„ Legal Aspects of the ECU (London: Butterworths, 1989). van Ypersele, J., and J. Koeune, Le Système Monetaire Européen (Perspectives Europeénnes, 1988).

The New Approach to Technical Harmonization and Standards Commission of the European Community, "Green Paper on the Development of European Standardization" (October 15, 1990). , "Technical Barriers in the EC: An Illustration by Six Industries" (Luxembourg: Official Publications of the EC, 1988). Langton, M., "Standards and the Single European Market," European Access (February 1990).

Selected

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443

Financial Services and the Internal Market Anderson, A., and Co., European Capital Markets: A Strategic Forecast (London: E c o n o m i s t Publications, 1989). C o m m i s s i o n of the European Community, " T h e Cost of Non-Europe in Financial Services" (Luxembourg: Official Publications of the EC, 1988). , " C r e a t i o n of a E u r o p e a n Financial Area," European Economy No. 36 ( L u x e m b o u r g : Official Publications of the EC, 1988). , " O n e Market, O n e M o n e y , " European Economy No. 44 ( L u x e m b o u r g : O f f i c i a l Publications of the EC, 1990). Dixon, R „ Banking in Europe: The Single Market (London: Routledge, 1991). E m e r s o n , M „ et al., The Economics of 1992: The EC Commission's Assessment of the Economic Effects of Completing the Internal Market (Oxford: O x f o r d University Press, 1988). Grilli, V., a n d R. H a m a u i , " T o w a r d E u r o p e a n Financial Integration: W o u l d Temporary Capital Controls Help?" De Pecunia (February 1990). of the European Financial H a w a w i n i , G., and E. Rajendra, The Transformation Services Industry: From Fragmentation to Integration ( N e w York: Salomon Brothers, 1990). O r g a n i z a t i o n for E c o n o m i c C o o p e r a t i o n a n d D e v e l o p m e n t , Competition in Banking (Paris: O E C D , 1989). Servais, D., The Single Financial Market (Luxembourg: Official Publications of the EC, 1988). Walter, I., European Financial Integration and Its Implications for the United States (New York: Salomon Brothers, 1990). Walter, I., and R. C. Smith, Investment Banking in Europe: Restructuring for the 1990s (London: Blackwell, 1990).

Public Procurement Bael, I., "Public Procurement and the Completion of the Internal Market: Law and Practice," Legal Issues of European Integration (1989), 2 1 - 4 8 . C o m m i s s i o n of the E u r o p e a n C o m m u n i t y , " T h e Cost of N o n - E u r o p e in Public Sector Procurement" (Luxembourg: Official Publications of the E C , 1988). , " A n EC P r o g r a m m e for Public Procurement in the C o m m u n i t y , " C O M (86) 375. , " G r e e n Paper on the Development of European Standardization" (October 15, 1990). , "Public Procurement: Regional and Social Aspects," C O M (89) 4 0 0 (July 27, 1989). von W i l m o w s k y , P., " S u b v e n t i o n e n , ö f f e n t l i c h e A u f t r ä g e und s t a a t l i c h e U n t e r n e h m e n in e i n e m g e m e i n s a m e n Markt," Zeitschrift für Vergleichende Rechtswissenschaft (1989), 3 2 3 - 3 5 1 .

The General Systems Directive and the Liberal Professions E u r o p e a n C o m m u n i t y , C o u n c i l of Ministers, Directive of D e c e m b e r 21, 1988, " G e n e r a l System for the Recognition of Higher-Education Diplomas A w a r d e d on Completion of Professional Studies and Training of at Least T h r e e Years'

444

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Duration," L 19/32 Official Journal of the European Community (January 24, 1989). Hurwitz, L., The Free Circulation of Physicians Within the European Community (Aldershot, UK: Avebury, 1990). Orzack, L., "EC Progress on Mutual Recognition of Diplomas," Europe (March 1989). , "Engineers in Europe: 1992 and Beyond," Technology Studies 7 (Spring 1989). Séché, J. C., Freedom of Movement in the Community: Entry and Residence (Brussels: Commission of the EC, 1988). , A Guide to Working in a Europe Without Frontiers (Brussels: Commission of the EC, 1988).

A Citizens' Europe: Personal, Political, and Cultural Rights Commission of the European Community, "A People's Europe," COM (88) 331 FINAL, Bulletin of the European Communities (February 1988). d'Exaerde, G., A Human Face for Europe (Luxembourg: Official Publications of the European Community, 1990). Etiennc, B., "The Question of European Citizenship," Contemporary European Affairs 3 (1989), 105-118. European Parliament, "Report Drawn Up on Behalf of the Committee on Institutional Affairs on the Declaration of Fundamental Rights and Freedoms," PE AZ-3/89 (Luxembourg: Official Publications of the European Community, 1989). Magiera, S., ed., Das Europa der Bürger in einer Gemeinschaft ohne Binnengrenzen (Baden-Baden: Nomos Verlagsgesellschaft, 1990). Philip, A„ European Border Controls: Who Needs Them (London: Royal Institute of International Affairs, 1989).

New Trends in the Common Agricultural Policy Baudin, P., "La fixation des prix agricoles pour 1989-90," Revue du Marché Commun (1989), 395^107. Bonanno, A., ed., Agrarian Policies and Agricultural Systems (Boulder, CO: Westview, 1990). Commission of the European Community, "The Cost of Non-Europe in the Foodstuffs Industry" (Luxembourg: Official Publications of the EC, 1988). Fallows, S., The Food Sector (London: Routledge, 1989). Michelman, H., et al., eds., The Political Economy of Agricultural Trade and Policy: Towards a New Order for Europe and North America (Boulder, CO: Westview, 1990). Moyer, W„ and T. Josling, Agricultural Policy Reform: Politics and Process in the EC and the USA (Ames: Iowa State, 1990). Potter, C., "Conservation Under a European Farm Survival Policy," Journal of Rural Studies (1990). Sheate, W., and R. Acrory, "Agriculture and EC Environmental Assessment Directives: Lessons for Community Policy-Makers," Journal of Common Market Studies (September 1989).

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445

S w i n b a n k , A., " T h e C o m m o n A g r i c u l t u r a l P o l i c y a n d t h e P o l i t i c s of E u r o p e a n D e c i s i o n - M a k i n g , Journal of Common Market Studies (1989), 3 0 3 - 3 2 2 . T a r d i t i , S., et a!., eds., Agricultural Trade Liberalization and the EC ( L o n d o n : Claredon, 1989). T r a c y , M „ Government and Agriculture in Western Europe: 1980-1988 (London: H a r v e s t e r , 1989).

Progress Within the European Monetary System C o l l i g n o n , S., " T h e I m p l i c a t i o n of G e r m a n M o n e t a r y I n t e g r a t i o n o n E u r o p e a n M o n e t a r y U n i o n , " De Pecunia (February 1990). Ferri, P., ed., Prospects for the European Monetary System ( L o n d o n : M a c m i l l a n , 1990). F o l k e r t s - L a n d a u , D „ a n d D. M a t h i e s o n , " T h e E u r o p e a n M o n e t a r y S y s t e m in the C o n t e x t of the Integration of E u r o p e a n Financial M a r k e t s , " O c c a s i o n a l P a p e r N o . 6 6 ( I n t e r n a t i o n a l M o n e t a r y F u n d , 1989). G i a v a z z i , F., et al., eds., The European Monetary System ( C a m b r i d g e : C a m b r i d g e U n i v e r s i t y P r e s s , 1989). G u i l l a u m o n t , P., a n d S. G u i l l a u m c n t , " T h e I m p l i c a t i o n s of E u r o p e a n M o n e t a r y U n i o n f o r A f r i c a n C o u n t r i e s , " Journal of Common Market Studies ( 1 9 8 9 ) , 139-153. H a r r o p , J., The Political Economy of Integration in the European Community ( L o n d o n : E d w a r d Elgar, 1989). K l o t e n , N „ " P e r s p e k t i v e n d e r e u r o p ä i s c h e n W ä h r u n g s i n t e g r a t i o n , " Jahrbücher für Nationalökonomie und Statistik ( 1 9 8 9 ) , 4 0 7 - 4 2 0 . L a r o s i è r e , J. d e , " M o n e t a r y P o l i c y in the C o m m u n i t y , " European Economic Review ( J u n e 1990), 7 2 1 - 7 3 3 . M a c D o n a l d , F., a n d G . Zis, " T h e E u r o p e a n M o n e t a r y S y s t e m : T o w a r d s 1992 a n d B e y o n d , " Journal of Common Market Studies (1989), 1 8 3 - 2 0 2 . M a i n d e B o i s s i è r e , J . - B . , " V e r s l ' u n i o n m o n é t a i r e , " Défense Nationale (1989), 95-107. Schinaze, G., " E u r o p e a n Integration, Exchange Rates, and Monetary R e f o r m , " World Economy ( D e c e m b e r 1989). S c h r ö d e r , W . , " W i l l C o n t i n u i n g Liberalisation in the E C L e a d to Instability in the E M S ? " Intereconomics (1989), 161-166. T h y g e s e n , N „ " T h e D e l o r s R e p o r t a n d E u r o p e a n E c o n o m i c and M o n e t a r y U n i o n , " International Affairs (1989), 6 3 7 - 6 5 2 .

Regional and Social Policy A n d r e , C., et al., " R e g i o n a l C o n s e q u e n c e s of the Internal M a r k e t , " Contempory European Affairs ( 1 9 8 9 ) . C o m m i s s i o n of t h e E u r o p e a n C o m m u n i t y , " C o m m u n i c a t i o n f r o m t h e C o m m i s s i o n C o n c e r n i n g I t s A c t i o n P r o g r a m m e R e l a t i n g to t h e I m p l e m e n t a t i o n of t h e C o m m u n i t y C h a r t e r of B a s i c S o c i a l R i g h t s f o r W o r k e r s , " C O M ( 8 9 ) 568 ( N o v e m b e r 29, 1989). , " T h e E c o n o m i c s of 1992," European Economy 35 ( 1 9 8 8 ) . , " E m p l o y m e n t in E u r o p e 1 9 8 9 , " C O M ( 8 9 ) 3 9 9 a n d " E m p l o y m e n t in E u r o p e 1 9 9 0 , " C O M (90) 2 9 0 F I N A L .

446

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, "The Future of Rural Society," COM (88) 501 (September 23, 1988). , "The Social Dimension of the Internal Market," Social Europe, Special Edition (1988). Copperthwaite, N„ and C. Mellors, Regional Policy (London: Routledge, 1989).

Social Protection Commission of the European Community, "Chartre communautaire des droits sociaux fondamentaux" (Luxembourg: Official Publications of the European Community, 1989). Euzeby, A., Financement de la protection sociale et vieillissement démographique: Evolutions et perspectives dans les pays de la CEE (Paris, 1988). Fox, J., ed., Health Inequalities in European Countries (Aldershot, UK: Gower, 1989). Grahl, J., and P. Teague, "European Community Social Policy: Present Scope and Future Direction," Journal of European Integration (1989). Jamieson, A., and R. Illsley, eds., Contrasting European Policies for the Care of Older People (Aldershot, UK: Gower, 1990). Prêchai, S., and N. Burrows, Gender Discrimination Law of the European Community (Aldershot, UK: Gower, 1990). Ramadier, P., and F. DeLavergne, "The Social Significance of the Single European Market," Contemporary European Affairs (1989). Scardigli, V., L'Europe des modes de vie (Paris: Centre National de la Recherche Scientifique, 1987). Venturini, P., Un Espace social européen à ihorizon 1992 (Luxembourg: Official Publications of the European Community, 1988).

Research and Technology Policy Beier, B., "ESPRIT-Modell staatmonopolistischer Forschungsförderung durch die EG," IPW-Berichte (1989), 43^15, 62. Franklin, M., The Community of Science in Europe (Aldershot, UK: Dartmouth, 1989). Hobday, M„ "The European Semiconductor Industry," Journal of Common Market Studies (September 1989). Holmes, B., "U.S. Reaction to EC Telecom Policy," Transnational Data and Communications Report (April 1990). Mantovani, A., "L'EUREKA e la Comunità technologica Europea," Affari Esteri 82 (1989), 350-362. Muller, J. W., "Policy Options for Government Funding of Advanced Technology: The Case of International Collaboration in the European Telecommunications Satellite Programme," Research Policy (1989), 33-50. Mytelka, L. K., "Les Alliances stratégiques au sein du programme européen ESPRIT," Economie Prospective Internationale (1989), 5-34. Paulin, P., "RACE: Un programme européen pour les télécommunication du future," Revue du Marché Commun (1989), 554-559. Steinberg, M., ed., The Technological Challenges and Opportunities of a United Europe (London: Pinter, 1990).

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447

Stevens, C „ "1992: The European Technology Challenge," Research Technology Management (January 1990). Williams, R„ ' T h e European Community's Technology Policy as an Engine for Integration," Government and Opposition (Spring 1989).

Environmental Policy Baram, M., and D. Partan, Corporate Disclosure of Environmental Risks: US and European Law (London: Butterworths, 1990). Bongaerts, J. C., "Die Entwicklung der europäischen Umweltpolitik," WSIMitteilungen (1989), 575-584. Enyedi, G., et al., eds., Environmental Policies in East and West (London: Taylor Graham, 1987). Estirado, F., "Necesidad de una politica europea de lucha contra la erosión," Revista de Estudios Agro-Sociales (1989), 61-78. Fanariotu, I., and E. Dimitrios, "Environmental Protection Under the E E C ' s Socio-Structural Agriculture Policy," Journal of Environmental Management (1989), 269-275. Haigh, N., EEC Environmental Policy and Britain (London: Longman, 1987). Institute for Environmental Studies, European Environmental Yearbook, 1987 (Milan, 1988). Jans, J., "Article 7 EEC and a Non-Discriminatory Transfrontier Environmental Policy," Legal Issues of European Integration (1988), 21-33. Johnson, S., and G. Corcelle, The Environmental Policy of the European Communities (London: Graham and Trotman, 1989). Rehbinder, E., and R. Stewart, Environmental Protection Policy: Legal Integration in the United Stales and the European Community (Amsterdam: de Gruyter, 1988). Scheuing, D., "Umweltschutz auf der Grundlage der Einheitlichen Europäischen Akte," Europarecht (1989), 152-192. Siebert, H., Europe '92: Environmental Policy in an Integrated Market (Ludwigshafen: Kiel, 1989).

Education and Training Policy Bettamio, G., Il Cittadino Europeo: Educazione all'Europa per il 1992 (Bologna, 1989). Blakely, G „ and S. House, Youth Policy (London: Routledge, 1989). de Witte, B., ed.. European Community Law of Education (Baden-Baden: Nomos Verlagsgesellschaft, 1989). Drijber, B., "Gelijke behandeling van Studenten uit de EEG: Zijn er nog grenzen?" Nederlands Juristenblad 44 (1988), 1635-1640. Harteley, T., "La Libre circulation des étudiants," Cahiers de Droit Européen (1989), 325-344. Hochbaum, I., "Das ERASMUS-Urteil," Mitteilungen des Hochschulverbandes (1989), 175-177. Müller-Bernhardt, U., "Anerkennung von Hochschuldiplomen im Gemeinschaftsrecht," Recht der Jugend (1989), 130-139.

448

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P i e p e n s c h n e i d e r , M . , " S p r a c h b i l d e r v o n J u g e n d l i c h e n zu E u r o p a , " in J. M i t t e l s t r a s s , ed., Wohin Gehl die Sprache? (Essen, 1989), 2 2 7 - 2 3 5 . S c h o l s e m , J . - C . , " A P r o p o s d e la c i r c u l a t i o n des é t u d i a n t s : vers un f é d é r a l i s m e f i n a n c i e r e u r o p é e n , " Cahiers de Droit Européen (1989), 3 0 6 - 3 2 4 .

Toward a Maritime Policy A u s s a n t , J . , " F r e e d o m to P r o v i d e S e r v i c e s in S h i p p i n g in the E u r o p e a n C o m m u n i t i e s , " European Transport Law 5 (1988), 5 5 6 - 5 6 1 . B r e d i m a - S a v o p o u l o u , A., a n d J. T z o a n n o s , The Common Shipping Policy of the EC ( A m s t e r d a m : Elsevier, 1990). C a f r u n y , A., Ruling the Waves: The Political Economy of International Shipping ( B e r k e l e y : U n i v e r s i t y of C a l i f o r n i a Press, 1987). C l o s e , G., " T h e D u m p i n g of S h i p p i n g S e r v i c e s : A N e w E E C A n t i - D u m p i n g I n s t r u m e n t , " II Diritto Marittimo (1989), 7 3 - 8 3 . , " A F u t u r e f o r the C o m m u n i t y S h i p p i n g Industry: M e a s u r e s to I m p r o v e the O p e r a t i n g C o n d i t i o n s of C o m m u n i t y S h i p p i n g , " C O M (89) 2 6 6 ( B r u s s e l s : E C C o m m i s s i o n , A u g u s t 3, 1989). E i s n e r , W . , " U n f a i r P r i c i n g Practices in Maritime T r a n s p o r t , " European Transport Law 5 ( 1 9 8 8 ) , 5 9 0 - 5 9 9 . E r d m e n g e r , J., " D e v e l o p m e n t and P r o s p e c t s of the M a r i t i m e Transport L a w of the E u r o p e a n C o m m u n i t i e s , " European Transport Law 5 ( 1 9 8 8 ) , 5 4 3 555. F o r n a s i e r , R., " E x t e r n a l C o m p e t e n c e of the C o m m u n i t y in M a r i t i m e T r a n s p o r t , " II Diritto Marittimo (1989), 3 1 - 3 7 . Green, N., "Competition and Maritime Trade: A Critical View," European Transport Law 5 (1988), 6 1 2 - 6 2 8 . Kreis, H., " M a r i t i m e T r a n s p o r t a n d E E C C o m p e t i t i o n R u l e s , " European Transport Law 5 ( 1 9 8 8 ) , 5 6 2 - 5 7 0 . P r i e s s , H . J., " Z u r E n t w i c k l u n g d e s E G - R e c h t s b e t r e f f e n d d i e S e e s c h i f f a h r t , " Europarecht (1989), 369-378. S t r a t h , B., The Politics of De-Industrialization: The Contraction of the West European Shipbuilding Industry ( L o n d o n : C r o o m H e l m , 1987). V e r m o t e n , L . , " T h e A p p l i c a t i o n of t h e U n i t e d N a t i o n s L i n e r C o d e W i t h i n t h e E u r o p e a n C o m m u n i t i e s , " European Transport Law 5 ( 1 9 8 9 ) , 571— 589. W h i t e l e g g , J., Transport Policy in the EEC ( L o n d o n : R o u t l e d g e , 1988).

The EC and Central and Eastern Europe B o l z , K . , " I m p l i c a t i o n s of t h e E C I n t e r n a l M a r k e t f o r R e l a t i o n s w i t h E a s t e r n E u r o p e , " Intereconomics ( J a n u a r y - F e b r u a r y 1990). B u s t i n , G . , " B r e a k i n g D o w n t h e E a s t - W e s t T r a d e W a l l , " International Financial Law (April 1990). d e M i c h e l i s , G . , " R e a c h i n g O u t to t h e E a s t , " Foreign Policy (Summer 1990). G i o l a , G . , " L ' O s t p o l i t i k d e la C o m m u n a u t é e u r o p é e n n e , " Cadmos 4 5 ( 1 9 8 9 ) , 2 6 44.

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449

Kostrzewa, W., and J. Schmieding, "EFTA Option for the Reform States of Eastern Europe," World Economy (December 1989). Maresceau, M„ ed., The Political and Legal Framework of Trade Relations Between the EC and Eastern Europe (Kluwer, 1989). Nello, S., "Some Recent Developments in EC-East European Economic Relations," Journal of World Trade (February 1990). Reville, S., "L'Assistance de la Communauté à la Pologne et la Hongrie," Revue du Marché Commun 33 (1990), 6-8. Wettig, G., West European Integration and Pan-Europeanism in Soviet Foreign Policy (Bundesinstitut für Ostwissenschaftliche u. Internationale Studien, 1990). Würzen, D., et al., "Ein Marshall-Plan fur Osteuropa?" Wirtschaftdienst 12 (1989), 587-595.

The EC and German Unification Brisov, S., et al., "Les Deux Allegmagnes 1984-1989," Notes et Etudes Documentaires (Paris, 1990). Buhner, S., and W. Peterson, "West Germany's Role in Europe: 'Man-Mountain' or 'Semi-Gulliver'?" Manchester Papers in Politics (April 1989). Collignon, S., "The Implications of German Monetary Integration on European Monetary Union," De Pecunia (February 1990). Commission of the European Community, "The Community and German Unification," COM (90) 400 (August 21, 1990). Eickhorn, G., "German Reunification and European Unity: Twelve Theses," The Federalist (1989), 35-46. European Parliament, "Europäisches Parlament und deutsche Einheit: Materialen und Dokumente (Bonn: October 1990). , "Final Report of the Temporary Committee to Consider the Impact of the Process of German Unification on the European Community," Document A30315/90 (Luxembourg: Official Publications of the EC, November 19, 1990). , "Interim Report on Behalf of the Temporary Committee to Consider the Impact of the Process of German Unification on the European Community," Document A3-183/90-Part B (July 9, 1990). Guérand, F., "L'Unification de l'Allegmagne," Problèmes Politiques et Sociaux (1990). Larrabee, S., ed., The Two German States and European Security (New York: St. Martin's, 1989). Le Gloannec, A.-M., La Nation orpheline: Les Allemands en Europe (Paris: Calmann-Levy, 1989). Lequesne, C., "La RDA et la communauté europénne," in H. Ménudier, ed., La RDA 1949-1990. Du Stalinisme à la liberté (Paris, 1990), pp. 233-241. Ménudier, H., et al., La République fédérale d'Allegmagne dans les relations internationales (Paris Editions Complexe, 1990). Wagner, W., "Die Dynamik der deutschen Wiedervereinigung: Suche nach einer Verträglichkeit für Europa," Europa Archiv (1990), 79-88. Wilms, D., "Die westeuropäische Integration und die deutsche Frage," Sonde (1989), 98-103.

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EC-EFTA Relations Bachmann, E., "Die neuen Kumulierungsregeln in Warenverkehr der Gemeinschaft mit den EFTA-Staaten," Zeitschrift für Zolle 8 (1989), 226-231. Church, C „ "1992 and the EFTA Countries," European Access (1989), 1416. , "The Politics of Change: EFTA and the Nordic Countries' Response to the EC in the Early 1990s," Journal of Common Market Studies (June 1990). Haarland, J., "Assessing the Effects of EFTA-EC Integration on EFTA Countries," Journal of Common Market Studies (June 1990). Horovitz, D., "Dealing with Dumping in the EEC-EFTA Free Trade Areas," European Competition Law Review (1989), 540-556. Inotai, A., "EG, EFTA und COMECON," Europäische Rundschau 2 (1989), 3 5 47. Laursen, F., "EFTA and EC: Implications of 1992" (Maastricht: European Institute of Public Administration, 1990). Nell, P., "EFTA in the 1990s: The Search for a New Identity," Journal of Common Market Studies (June 1990). Norman, V., "EFTA and the Internal European Market," Economic Policy (1989), 423-465. Pedersen, T., "The Wider Western Europe: EC Policies Towards the EFTA Countries" (London: Royal Institute of International Affairs, 1989). Schwok, R„ Horizon 1992: La Suisse et le Grand Marché Européen (Geneva, 1989). Wallace, H., and W. Wessels, "Towards a New Partnership: The EC and EFTA in the Wider Western Europe" (Geneva: EFTA Occasional Paper, 1989).

From Lomé III to Lomé IV: EC-ACP Relations Amin, S., "Europe and North-South Relations," Contemporary European Affairs (1989), 119-130. Brue, S„ "The EC Internal Market, Lomé IV, and the ACP Countries," lntereconomics (July-August 1990). Commission of the European Community, "Europe Information: Lomé IV, 19902 0 0 0 " ( L u x e m b o u r g : O f f i c i a l Publications of the E C , M a r c h 1990). Davenport, M„ "Imperial Preference Revisited: The European Community and Tropical Products," Development Policy Review (1989), 323-341. Dormoy, D„ "Lomé IV: Les négociations et l'accord," Revue Générale de Droit International Public (1990), 635-700. Klingebiel, S., "Keine substantiellen Verbesserungen: Lomé IV und die Perspektiven für die EG-AKP-Beziehungcn," Entwicklungspolitik 24 (1989), 15-18. Kuschel, H.-D., "Das neue Lomé Abkommen zwischen der EG und den AKPLändern," Europa Archiv 10 (1990), 333-340. Notzold, J., and K. von der Ropp, "Lomé IV: Chancen einer Ruckkehr S c h w a r z a f r i k a s in die Weltwirtschaft?" Aussenpolitik (1990), 182— 193. Revue du Marché Commun, Special Issue: "La Convention de Lomé III" (April 1986).

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451

The EC's Mediterranean Policy Akder, H., "The Impact of the EEC's Enlargement on the Exports of Mediterranean Countries," Yapi Kredi Economic Review (October 1986), 6 9 80. Cheysson, C., "Le Maghreb: une priorité pour l'Europe," Défense Nationale 46 (1990), 57-64. European Community, Economic and Social Committee, The European Community and the Mediterranean (Luxembourg O f f i c e of Official Publications of the EC, 1984). Featherstone, K., "The Mediterranean Challenge: Cohesion and External Preferences," in J. Lodge, ed.. The European Community and the Challenge of the Future (New York St. Martin's, 1989), 186-201. Gumbel, W., "Die Mittelmeerpolitik der EG, der Arabische Kooperationsrat und die Türkei," Südosteuropa Mitteilungen (1989), 197-204. Tovias, A„ Foreign Economic Relations of the European Community: The Impact of Spain and Portugal (Boulder, CO: Lynne Rienner, 1990). Ye§ilada, B„ "The Impact of the European Community's Second Enlargement and Project 1992 on Relations with the Mediterranean Basin," paper presented at the annual meeting of the Midwest Political Science Association (Chicago, April 1990).

The EC, GATT, and the Uruguay Round Blankart, F., "GATT und EG: Perspektiven der schweizerischen Aussenwirtschaftpolitik," Schweizer Monatshefte fur Politik, Wirtschaft, Kultur 7/8 (1989), 557-566. Hilf, M., F. Jacobs, and E. Petersmann, eds., The European Community and GATT (Kluwer, 1986). Hine, R. C., The Political Economy of European Trade: An Introduction to the Trade Policies of the EEC (London: Harvester, 1985). Laursen, F., ed., Europe 1992: World Partner? The Internal Market and the World Political Economy (Maastricht: European Institute of Public Administration, 1991). Long, O., Law and Its Limitations in the GATT Multilateral Trade System (Martinus Nijhoff, 1987). Murphy, A., The European Community and the International Trading System. Vol. I: Completing the Uruguay Round of the GATT; Vol. II: The European Community and the Uruguay Round (Brussels: Centre for European Policy Studies, 1990). Volker, E., ed., Protectionism and the European Community (Kluwer, 1987).

EC-US Political Institutional Relations Devuyst, Y., "European Community Integration and the United States: Toward a New Transatlantic Relationship?" Journal of European Integration (January 1991), 15-16. , " T h e United States and Europe," World Competition (September 1989).

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Selected

Bibliography

Gill, S„ ed., Atlantic Relations: Beyond the Reagan Era (New York: St. Martin's, 1989). Ginsberg, R., "US-EC Relations," in J. Lodge, ed., The European Community and the Challenge of the Future (New York: St. Martin's, 1989). Goodby, J., "Future Atlantic Cooperation and Cooperative Institutions: Meeting the Challenge," Atlantic Council of the United States Occasional Paper (February 1990). Grieco, J., Cooperation Among Nations: Europe, America, and Non-Tariff Barriers to Trade (Ithaca, NY: Cornell University Press, 1990). Hormats, R., "Redefining Europe and the Atlantic Link," Foreign Affairs (Fall 1989). Hufbauer, G., ed., Europe 1992: An American Perspective (Washington: Brookings, 1990). Thiel, E., West European Economic and Monetary Integration and the Atlantic Partnership (Washington, D.C.: The Wilson Center, 1990).

European Political Cooperation de Ruyt, J., "European Political Cooperation: Towards a United European Foreign Policy," Washington, D.C.: Atlantic Council of the United States Occasional Paper (Octobcr 1989). Ginsberg, R., Foreign Policy Actions of the European Community: The Politics of Scale (Boulder, CO: Lynne Rienner, 1989). Greilsamer, I., "European Political Cooperation: A European Foreign Policy?" Jerusalem Journal of International Relations (1989), 52-78. Kaetinge, P., "Europäische Politische Zusammenarbeit—die andere Seite der Integration," Integration (1989), 18-184. Murphy, D., "European Political Cooperation After the Single European Act: The Failure of Foreign Affairs in the EC," Boston College International and Comparative Law Review 12 (Summer 1989), 335-355. Pijpers, A„ et al., Die Europäische Politische Zusammenarbeit in den achtziger Jahren (Bonn, 1990). Späth, W., Die Arbeit des EPZ-Sekretariats: Eine Bilanz," Europa Archiv (1990), 213-220.

Defense and Security Policy Issues Kirchner, E., "Has the European Single Act Opened the Door for a European Security Policy?" Journal of European Integration (Winter 1989). Laird, R„ ed., Strangers and Friends: The Franco-German Security Relationship (New York: St. Martin's, 1989). Lomas, P., and H. Muller, Western Europe and the Future of the Nuclear NonProliferation Treaty (Brussels: Centre for European Policy Studies, 1989). Lucas, M., The Western Alliance After INF: Redefining US Policy Toward Europe and the Soviet Union (Boulder, CO: Lynne Rienner, 1990). Rogers, P., and M. Randle, Alternatives in European Security (Aldershot, UK: Dartmouth, 1990). Sharp, J., ed., Europe After American Withdrawal (Oxford, 1990).

Selected

Bibliography

453

Stein, G., Benelux Security Cooperation: A New European Defense Community? (Boulder, CO: Westview, 1990). Weisser, U., Toward a New Security Structure in and for Europe: A German Perspective (Rand, 1990).

Contributors

Alan W. CAFRUNY

Associate Professor of Government Hamilton College Clinton, NY, USA

Danièle

Maître de Conférences University of Rennes II Rennes, France

CHARLES-LE BIHAN David COOMBES Pedro CORONA-VIRON Desmond DINAN

Professor of European Studies University of Limerick Limerick, Ireland Cardiologist Broussais Hospital, University of Paris Paris, France Director, Center for European Community Studies George Mason University Fairfax, VA, USA

Werner J. FELD

Adjunct Professor of Political Science University of Colorado at Colorado Springs Colorado Springs, CO, USA

Lily Gardner FELDMAN

Research Director American Institute for Contemporary Germany Studies Washington, DC, USA

Catherine FLAESCH-MOUGIN

Maître de Conférences University of Rennes I Rennes, France

455

456

Contributors

Daniel GADBIN

Maître de Conférences University of Rennes II Rennes, France

Robin GASTER

Analyst, Office of Technology Assessment United States Congress Washington, DC, USA

Roy H. GINSBERG

Assistant Professor of Government Skidmore College Saratoga Springs, NY, USA

Paul HAGLAND

Ph.D. Candidate in Political Science University of Illinois Urbana, IL, USA

Leon HUR WITZ

Professor of Political Science Cleveland State University Cleveland, OH, USA

Hugo M. KAUFMANN

Professor of Economics City University of New York-Queens College New York, NY, USA

Françoise de LA S E R R E

Senior Research Fellow Centre d'Etudes et de Recherches Internationales Fondation Nationale des Sciences Politiques Paris, France

Finn LAURSEN

Professor of International Politics European Institute of Public Administration Maastricht, The Netherlands

Christian LEQUESNE

Research Fellow Centre d'Etudes et de Recherches Internationales Fondation Nationale des Sciences Politiques Paris, France

Siegfried MAGIERA

Professor of Public International and European Law Hochschule für Verwaltungswissenschaften Speyer Speyer, Germany

Ralph J. MEHNERT

Attomey-at-Law Oppenheimer Wolff and Donnelly Minneapolis, MN, USA

Louis H. ORZACK

Professor of Sociology Rutgers University New Brunswick, NJ, USA

457

Contributors

Stephen OVERTURF

Professor of Economics Whittier College Whittier, CA, USA

Jean RAUX

Professor University of Rennes I Rennes, France

Nicholas REES

Lecturer in European Studies and International Relations University of Limerick Limerick, Ireland

Glenda G. ROSENTHAL

Research Scholar, Institute on Western Europe Columbia University New York, NY, USA

Otto SCHMUCK

Research Fellow Gustav Stresemann Institut Bonn, Germany

Kristin SCHREIBER

Administrator, Directorate-General III Commission of the European Community Brussels, Belgium

René SCHWOK

Research Scholar Graduate Institute of International Studies Geneva, Switzerland

Michael SHACKLETON

Principal Administrator European Parliament Secretariat Luxembourg Ville, Luxembourg

Alain VAN HAMME

Legal Assistant to Judge D. Barrington Court of First Instance of the EC Luxembourg Ville, Luxembourg

Peter VIPOND

Senior Lecturer in Financial Services City of London Polytechnic London, United Kingdom

Helen WALLACE

Director, West European Program Royal Institute of International Affairs London, United Kingdom

Wolfgang WESSELS

Director Institut für Europäische Politik Bonn, Germany

458

Contributors

Stephen WOOLCOCK

Research Fellow Royal Institute of International Affairs London, United Kingdom

Birol Ali YESILADA

Associate Professor of Politicai Science University of Missouri Columbia, MO, USA

Index

Acid rain, 2 5 9 - 2 6 0 ACP. See African, Caribbean and Pacific nations Action for a Common Future, 269 Action Programme, 217, 218, 219, 221, 226 Active Implantable Electromedical Devices Directive, 107 Adjudication: cross-sectoral, 2 6 - 2 7 Administrative Commission for Social Security, 234, 236 AFNOR, 102, 103 African, Caribbean and Pacific (ACP) nations, 6, 269, 287, 357; cooperation with, 3 4 9 - 3 5 0 ; debt of, 355-356; development of, 353-355; and Lomé conventions, 343, 344-348; trade with, 3 5 0 - 3 5 3 , 381 Agrain Report, 255, 2 5 8 ( n l l ) Agricultural Council, 24, 26, 303 Agricultural sector, 36, 175, 210, 307, 320, 334, 337, 376; cooperation in, 353354; Council of Ministers votes on, 2 6 27; directives of, 172-173; financing, 23, 65; G A T T negotiations in, 3 8 1 384, 4 0 0 ( n l ) ; Lomé conventions and, 351, 356; market regulations and, 167175; in Mediterranean, 361, 368, 369; and price controls, 167-168; structural policy in, 175-180; and trade negotiations, 377, 378-379; and world market, 171-172 Agt, Andreas van, 394-395 Ahmed Saeed Flugreisen, Silver Line Reisebüro Gmbh Zentrale zur Bekämpfung unlauteren Wettbewerbs EV, 61 Aid, 23, 69, 70, 201, 202, 292, 308, 340; to agricultural sector, 178-179; to Eastern Europe, 391, 395; economic.

209-210, 306-307; to families, 236, 237; Mediterranean, 3 6 4 - 3 6 5 Air transport, 61-62 Albania, 360 Algeria, 362, 364 Allen, Geoffrey, 256 Allue and Coonan v. Université degli studi di Venezia, 54 American National Standards Instituto (ANSI), 110 Andreotti, Giulio, 395 Andriessen, Frans, 314, 323, 394, 406, 414; on Mediterranean, 359-360; on trade, 378, 382 ANSI. See American National Standards Institute Antitrust rules, 59, 60-61 Apartheid, 349, 407 Appropriations, 67. See also Finances Apsis, 247 Arab Cooperation Council, 369 Arab Maghreb Union, 369 Arab states, 361 Arafat, Yasser, 414 Arms control, 428 Arthur Anderson, 121 ASEAN. See Association of South East Asian Nations Asia, 412-413 Asjes judgment, 61 Association of South East Asian Nations (ASEAN), 412 Asylum: rights to, 15, 156, 241 Australia, 378 Austria, 4, 280, 317, 409; membership of, 329, 331-332, 336, 340-341(n2); on technical standards, 102, 2 5 8 ( n l ) Baker, James, 393, 395, 396, 397, 410, 429

459

460 Balladur, Edouard, 203-204 Banco Santander, 124 Bangemann, Martin, 314, 315 Bank for International Settlements, 117 Banking, 109, 124, 336, 394; directives for, 118-120 Bank of England, 116 Banks, 85, 94, 123, 124; national central, 89, 191, 195-196. See also European Central Bank; EuroFed Barber, Douglas, 56 Barber v. Royal Exchange Assurance Group, 56-57 Barclays, 124 Baron-Crespo, Enrique, 34 Basic Research in Industrial Technologies for Europe (BRITE), 246, 249, 253, 2 5 5 - 2 5 6 , 257 Basle-Nyborg agreement, 186 Beef, 347 Belasco v. Commission, 60 Belgium, 42, 60, 104, 160, 217, 218, 2 5 8 ( n l ) , 265, 270, 289, 316, 364, 426, 428; on border controls, 156-157; on family program, 236, 237; on monetary system, 85, 184 Berlin Wall, 3 1 4 - 3 1 5 Bettray v. Slaats-secrelaris voor Justitie, 54 Bilateral grid, 184-185 Birthrates, 111 Bonn Economic Conference, 408 Borders: control of, 155-157 Botswana, 347 Branche Maritime, 292, 296 Brazil, 379 Bretton Woods system, 183 BRITE. See Basic Research in Industrial Technologies for Europe British Gas Company, 53, 131 British Merchant Shipping Act, 52 British National Committee of International Engineering Affairs, 147 Brussels, 40, 41 Brussels Package, 287, 294 BSI, 102, 103 Budget, 5, 13, 23, 77, 321; aid provisions in, 7 3 - 7 4 ; debate about, 66^68; development of, 78-79; EP influence on, 35, 36, 37, 38; and GNP, 69-70; policy on, 6 5 - 6 6 ; reform of, 211-212 Bulgaria, 304, 305, 306, 389, 391 Bundesbank. See Deutsche Bundesbank Bundestreue, 51 Bureau of Statistics (EUROSTAT), 236 Bush, George, 28, 427, 429; relations with EC, 387, 389, 391, 392, 394, 395, 399, 410 Cabotage, 293, 294, 297

Index

Caims group, 167, 171, 378, 382 Cambodia, 412 Canada, 144, 380, 394, 425, 429 CAP. See Common agricultural policy Capital, 117, 124, 190, 336, 352; adequacy of, 119-120, 121; for financial services, 114, 115; movement of, 4. 118 Capital Movements Directive, 118 Cassis de Dijon case, 99, 173 CCBE. See Commission Consultative des Barreaux de la Communauté Européenne CCP. See Common commercial policy Cecchini report, 113, 114 CEN. See European Committee for Standardization CENELEC. See European Committee for Electrotechnical standardization Center Party (Norway), 332 Center Party (Sweden), 332 Central America, 411-412 Central Europe, 73, 303 CEPT. See European Conference of Posts and Telecommunications Cereals sector, 170 Certification, 108 CET. See Common external tariff CFCs. See Chlorofluorocarbons CFE. See Conventional Forces in Europe Chartered Society of Physiotherapists (CSP), 146 China, 4 1 2 - 4 1 3 Chlorofluorocarbons (CFCs), 266-267, 268, 269 Chemical products, 266 Chile, 380 Christian Democratic Group, 34 Christian People's Party (Norway), 332 "Citizens' Europe," 154, 157, 159, 160. See also People's Europe Citizenship: European, 14, 15, 16 Clercq, Willy De, 377 CMOs. See Common Market organizations Coal, 131, 268 Cockfield, Lord, 25 Cockfield White Paper, 20 COCOM. See Coordinating Committee for Multilateral Export Controls Collins, Gerard, 405, 414 Colombo, Emilio, 12 COMECON. See Council for Mutual Economic Assistance COMETT. See Community Program for Education and Training in Technology Commission. See European Commission Commision Consultative des Barreaux de la Communauté Européenne (CCBE), 148 Commission v. Greece, 51

Index

Committee for the Study of Economic and Monetary Union, 83, 86 Committee of Centra! Bank Governors, 83, 87 Committee of Cultural Consultants, 161 Committee of Permanent Representives (COREPER), 218 Commodity Export Earnings Stabilization Scheme (STABEX), 348, 351-352 Common agricultural policy (CAP), 2, 6, 171, 172, 175, 224, 263, 382, 320, 360, 376; objectives of, 178-179 Common commercial policy (CCP), 207, 373 "Common European House," 308, 311 Common external tariff (CET), 373, 376 Common Market, 59, 60-61 Common Market organizations (CMOs), 171; and agricultural policy, 167-170 Communications, 369. See also Telecommunications Communism, 387 Communist Party, 331, 332 Community Charter of Basic Social Rights for Workers, 221, 223, 226; acceptance of, 2 1 7 - 2 1 9 Community Program for Education and Training in Technology (COMETT), 219, 273, 282, 307; budget for, 2 8 0 281; goals of, 278-279 Companies, 97, 110, 118; ACP investment in, 354-355; financial services, 113114, 124-125; insurance, 122-123; multinational, 295-296; power of, 130-132; and technology transfer, 255-256 Competition, 192, 366; in agricultural sector, 174-175; economic, 233, 370; in financial services sector, 116, 120; policies on, 59-62; technological, 254, 255; with United States, 295-296 Competition Directorate (DG IV), 292, 297 "Completing the Internal Market," 2, 233 Computers: R & D in, 246, 250-252, 258(nn7, 10) Conference of Liberal Professionals, 150 Conference on Confidence and SecurityBuilding Measures, 429 Conference on Security and Cooperation in Europe (CSCE), 309, 311, 312, 325, 326, 388, 398, 404, 424-425, 431; and Eastern Europe, 407^409; role of, 318319, 429-430; security in, 321, 3 9 9 400 Conference on Security and Cooperation in the Mediterranean (CSCM), 370, 4 0 9 410 Conformity assessment, 106, 107-108 Conservative Party (Sweden), 332

461 Consumers, 14, 113 Contadora Group, 411, 412 Contracts, 132; awarding, 133, 134; supplies directives and, 129-130; utilities, 130-131 Conventional Forces in Europe (CFE), 428 "Convention Determining the State Responsible for Examining Applications for Asylum Lodged in One of the Member States of the European Communities," 156 Convention for the Protection of Human Rights, 50 Cooke, John D. , 148 Cooperation, 309, 369, 419; agricultural, 353-354; EC-ACP, 346-347, 348, 349-350; EC-US. , 387-388, 392-394, 396; pan-European, 311, 408 Cooperation agreements, 312(nl); with Eastern Europe, 304-306, 310, 390391 Coordinating Committee for Multilateral Export Controls (COCOM), 395 Copenhagen "Human Dimension" Conference, 408 COREPER. See Committee of Permanent Representatives Corporations. See Companies Cot, Jean-Pierre, 66 Council for Mutual Economic Assistance (COMECON), 303, 304, 390 Council for Professions Supplementary to Medicine (UK), 146 Council of Economic and Finance Ministers, 77, 88 Council of Europe, 336 Council of Ministers, 12-13, 26, 140, 142, 143, 178, 245, 249, 375, 376; on German unification, 316-317, 3 2 5 326; on higher education, 137-138, 139; Mediterranean policy of, 367-369; role of, 20, 24; sociostructural directives of, 175-176 Council of Ministers for Economic and Financial Affairs (ECOFIN), 24, 84 Council on the European Cinema and Television Year, 161 Court of First Instance, 45, 59; composition of, 46—47; jurisdiction of, 47-48; procedure of, 48-49 Court of Justice, 5, 37, 47; action for annulment by, 49-50; cases of, 50-62; function of, 45^46; procedure of, 4 8 49 Cowan, Ian W. , 51-52 Cowan v. Le Tresor public, 51—52 Credit Lyonnais, 124 Crimes, 156 Cruz Vila^a, José Luis da, 46

462 CSCE. See Conference on Security and Cooperation in Europe CSCM. See Conference on Security and Cooperation in the Mediterranean CSP. See Chartered Society of Physiotherapists Cultural exchange, 17 Culture, 219; protection of, 159-162 "Culture for the European Citizen of the Year 2000," 161 Cunencies, 196; in EMS, 185-186; German, 192-193, 198; single, 84-85, 90-93, 94, 189. See also European currency unit Cyprus, 360, 361, 362. 364, 4 1 6 - 4 1 7 Czechoslovakia, 305, 311, 317, 389, 409; aid to, 306, 391; cooperation agreement with, 310, 390 Danube Basin, 269 Dassonville-Cassis de Dijon judgment, 57 Davis, Stanley Clinton, 291 Debt: in ACP states, 355-356 Decisionmaking, 16, 43, 190, 347; ECEFTA, 338-339; process of, 25, 37-38 Declaration of Fundamental Rights and Freedoms, 159 Defense, 6, 397, 418, 428-429; opinion about, 426-427; policies for, 423, 425 Defrenne, Gabrielle, v. Sabena, 57 Delors, Jacques, 2, 3, 14, 83, 188, 189, 218, 263, 311, 323, 329, 416, 417, 418; on financial revisions, 70-71; on German self-determination, 314-315, 325; presidency of, 27-28; on U. S. relations, 3 8 7 - 3 8 8 , 391-392, 394, 395, 396, 397, 4 1 0 - 4 1 1 Delors Committee, 2 7 - 2 8 , recommendation of, 1 8 8 - 1 9 1 "Delors Package," 2, 23 Delors Report, 199, 200, 201, 203; recommendations in, 188-191 Democracy, 11, 157, 158-159, 308, 334, 364 Democratization: of Eastern Europe, 305, 310, 387, 389 Denmark, 85, 101, 102, 104, 128, 160, 218, 220, 2 5 8 ( n l ) , 265, 275, 364, 406, 417, 427; on family programs, 236, 237; on shipping, 289, 290, 297; on trade, 97, 287, 381 Deutsche Bundesbank, 124, 185, 187, 189, 191 Deutsches Institute für Normung (DIN),

102 Development, 209, 223; in ACP nations, 3 5 3 - 3 5 5 ; cooperational, 3 4 9 - 3 5 0 ; in Eastern Europe, 307-308; harmonious,

Index

207-208; and Lomé Convention, 3 4 8 349; regional, 215-216; rural, 212, 214, 216-217, 368 Dillon Round, 376 DIN. See Deutsches Institute für Normung Diplomas: recognition of, 5, 139, 240 Directives: approach, 103-107 Directorate-Generals (DGs), 29, 116-117, 220-221, 430 Discrimination, 51-52, 5 6 - 5 7 Dominican Republic, 344—345 Donnelly, Alan, 319 "Donnelly Report," 319 Dow Benelux case, 60 Dow Chemical v. Commission, 60 Draft Statute of the European System of Central Banks and the European Central Bank, 89 "Draft Treaty Establishing the European Union," 39 Draft Treaty on European Union, 19 Drug trafficking, 156 Dumas, Roland, 398-399 Dunkel, Art, 378 Dupont de Nemours case, 130 EAGGF. See European Agricultural Guidance and Guarantee Fund Eagleburger, Lawrence S. , 392-393, 401(nl3) EAPs. See Environmental Action Programs East Germany. See German Democratic Republic Eastern Europe, 10, 28, 119, 303, 344; agreements with, 304-306; aid to, 23, 73-74, 306-307; democratization of, 387, 389; development in, 307-308; and EPC, 4 0 7 ^ 1 0 ; loans to, 76-77; relations with, 323-324, 390-392; trade with, 29, 395 EBRD. See European Bank for Reconstruction and Development EC. See European Community "EC-COMECON Joint Declaration on the Setting Up of Official Relationships," 303 ECB. See European Central Bank ECISS. See European Committee on Iron and Steel Standardization ECOFIN. See Council of Ministers for Economic and Financial Affairs Economic and monetary union (EMU), 23, 27, 87-88, 315; conference on, 3 - 4 ; establishment of, 10, 81, 82-85; implementation of, 87, 90. See also German economic and monetary union "Economic and Monetary Union: The Economic Rationale and Design of the System," 191

Index

Economic and Social Committee, 38, 217, 232, 3 6 6 - 3 6 7 Economic shocks. 2 0 2 - 2 0 3 Economy, 3, 17, 20, 29, 77, 115, 161, 197, 211, 233, 320, 348, 407; cohesion of, 208-209, 230-231; and EMS, 186-188; integration of, 1 4 4 145; liberalization of, 309-310; restructuring, 77, 306-307; and social policy, 223, 229; and unemployment, 2 1 9 - 2 2 0 ; union of, 191-192 ECTS. See European Community Course Credit Transfer System ECU. See European currency unit Education, 17, 143, 149, 219, 226, 236, 349; and employment, 54—55; higher, 137-138; policies for, 6. 209, 273-282 EEA. See European Economic Area; European Environmental Agency EEB. See European Environment Bureau EEC Treaty, 97, 9 8 - 9 9 , 100-101 Eekelen, Willem van, 428 EES. See European Economic Space EFTA. See European Free Trade Association Egypt, 362 EIB. See European Investment Bank Elections, 157, 158, 318; European Parliament, 33, 4 0 - 4 2 , 154, 159, 2 6 0 261 Electromagnetic Compatibility Directive, 106-107 Electrotechnical sector, 102, 105 Embargos. See Sanctions EMCF. See European Monetary Cooperation Fund EMF. See European Monetary Fund Emissions: automobile, 268 Employees. See Workers Employers' Liaison Committee, 131-132 Employment, 53, 54, 209, 215, 220, 237, 240, 241; conditions of, 231-232; legislation and, 221-222; maintaining, 2 2 9 - 2 3 0 ; regulation of, 2 1 7 - 2 1 9 EMS. See European Monetary System EMU. See Economic and monetary union EN. See European standard Energy, 15, 128, 131, 369 Engineers, 1 4 7 - 1 4 8 Environment, 336; and agricultural structure, 179-180; degradation of, 259-260; in German Democratic Republic, 320-321; protection of, 354, 356 Environmental Action Programs (EAPs),

262

Environmental policy, 6, 15, 259, 261, 369; evolution of, 262-266; international cooperation on, 2 6 9 - 2 7 0 ; recommendations for, 2 6 6 - 2 6 9

463 Environment Council, 269 Environment Program for the Mediterranean, 269 EOTC. See European Organization for Testing EP. See European Parliament EPC. See European Political Cooperation EQS. See European Committee for the Assessment and Certification of Quality Assurance ERASMUS. See European Community Action Scheme for the Mobility of University Students ERDF. See European Regional Development Fund ERM. See Exchange rate mechanism ESCB. See European System of Central Banks ESF. See European Social Fund ESPRIT. See European Strategic Program in Information Technology ETSI. See European Telecommunications Standards Institute EUA. See European unit of account EURAM. See European Advanced Materials Program Euratom Treaty, 268 EUREKA, 243, 244, 253, 255, 256, 258(nnl, 2); approach of, 251-252; purpose of, 250-251 EuroFed, 10, 84, 94, 189; creation of, 87, 88-89 Eurogroup, 431 European Advanced Materials Program (EURAM), 249 European Agricultural Guidance and Guarantee Fund (EAGGF), 167-168, 169, 208, 210; and market policy, 176178; and structural funds, 179, 214 European Bank for Reconstruction and Development (EBRD), 23, 71, 307, 391 European Central Bank (ECB), 5, 10, 84, 85-86, 89, 90 "European City of Culture," 161 European Commission, 5, 15, 30, 37, 38, 117, 161, 212, 224, 243, 285, 2 9 4 295, 309, 356, 430; on contract compliance, 132-133; on Eastern Europe aid, 306, 391; and financial system, 6 6 - 7 0 , 72-78, 119, 120, 125, 215-216; function of, 19, 21-24; and German unification, 314-316, 3 2 1 325; and Mediterranean policy, 367, 371; on monetary union, 83, 84, 8 8 89; on professions, 139, 143; on purchasing directives, 129-130; on research and development, 245-246, 249; staff recruitment for, 28-29; on

464

Index

structural fund reform, 213-214; on trade policy, 373-374, 382-384; on utilities directives, 130-132 European Committee for Electro-technical Standardization (CENELEC), 100, 101, 102-103, 109, 110 European Committee for Standardization (CEN), 100, 101, 104, 109, 110; function of, 102-103, 106 European Committee for the Assessment and Certification of Quality Assurance (EQS), 109 European Committee on Iron and Steel

European Training Foundation European Free Trade Association (EFTA). 6, 29, 280, 311, 331, 344, 366, 370, 373, 374; decisionmaking by, 338-339; and EEA, 329-330, 335-337, 340; and ERASMUS, 277-278; on standards, 101, 102, 103, 109 European Institute for Water, 269 European Investment Bank (EIB), 71, 208, 227(n5), 232, 269, 369; and ACP nations, 354-355; aid from, 306, 307, 364-365; loans by, 7 6 - 7 7 European Monetary Cooperation Fund

Standardization (ECISS), 102 European Community Action Scheme for the Mobility of University Students (ERASMUS), 219, 234, 273, 282, 307; impacts of, 276-278; participation in, 275-276; support for, 2 7 4 - 2 7 5 European Community Course Credit Transfer System (ECTS), 275, 276 European Conference of Posts and Telecommunications (CEPT), 102 European Convention for the Protection of Human Rights and Fundmental Freedoms, 158 European Convention on Transfrontier Television, 160-161 European Council, 5, 10, 30, 37, 38, 86, 139, 154, 157, 217, 233, 285, 307, 309, 404, 407, 411; and agricultural sector, 176-177; on banking system, 89, 90, 189; decisionmaking by, 1112, 16, 25; and financial system, 66, 68, 70, 7 2 - 7 4 , 7 7 - 7 8 , 119, 212; function of, 21-24; and German unification, 3 1 6 - 3 1 7 , 325-326; intergovernmental mandate of, 14, 1617; on internal market, 212-213; on Middle East policy, 413-415; on monetary union, 82, 83, 84; negotiations within, 24—27; role of, 14, 16, 19; voting by, 15, 2 6 - 2 7 European Court of Auditors, 36 European Court of Justice, 122, 130, 141,

(EMCF), 82, 87, 184 European Monetary Fund (EMF), 82, 86 European Monetary System (EMS), 2, 6, 82, 83, 91, 183, 189, 203, 204(nl7), 207; development of, 185-186; and economic union, 191-192; and exchange rate mechanism, 184—185, 197-198; macroeconomic results of, 186-188; and optimal currency areas, 201-202; participation in, 194-196; recommendations for, 189-191; support for, 198-199 European Organization for Testing (EOTC), 109

155, 158, 160, 258(n9), 287, 347 European currency unit (ECU), 3, 82, 83, 87, 89, 90, 184, 185; and agricultural sector, 168, 169, 181(nl2); use of, 84, 85, 9 2 - 9 3 ; value of, 9 1 - 9 2 European Democratic Group, 34 European Economic Area (EEA), 329, 340; development of, 335, 339; scope of, 3 3 6 - 3 3 7 , 338 European Economic Space (EES), 366 European Environmental Agency (EEA), 266

European People's Party, 34 European Political Cooperation (EPC), 6, 27, 154, 311, 315, 416-417, 420; and Eastern Europe, 407-409; participation in, 332, 396; role of, 317, 338, 4 0 3 406, 419; and United States, 410^111 European Regional Development Fund (ERDF), 179, 208, 210, 214, 215, 344 European Secretariat for Liberal, Independent and Social Professions (SEPLIS), 150 European Social Fund (ESF), 179, 208, 210, 214, 222, 230 European standards (EN), 102-103

European Environment Bureau (EEB), 261 European Foundation for Training. See

European Parliament (EP), 1, 5, 11, 14, 15, 26, 43, 44(nl9), 86, 130, 212, 218, 339; on banking system, 90, 189; cooperation by, 9 - 1 0 ; elections to, 154, 260-261; and financial system, 66, 68, 70-71, 72-74, 77-78; on foreign policy, 405-406; functions of, 34-35, 38; on fundamental rights, 157, 159; on German unification, 317-318, 319-321, 324; Green parties in, 2 6 0 261; legislative role of, 20, 23-24, 4 9 50, 232; on Mediterranean policy, 3 6 7 368; membership in, 33-34; and national parliaments, 41-42-, policymaking by, 35-36; powers of, 37, 38-39; on security, 4 2 3 ^ 2 4 ; on social policy, 217, 224; on union, 1 2 13, 19; voting in, 4 0 ^ 2

Index

European Strategic Program in Information Technology (ESPRIT), 245, 246-247, 254, 256, 257 European System of Central Banks (ESCB), 83, 86-87, 89-90, 189 European Telecommunications Standards Institute (ETSI), 102 European Trade Union Confederation, 232 European Training Foundation, 278, 307 European unit of account (EUA), 91 Europrograms, 243, 258; evaluating, 252257; goals of, 244-245 Europrojects, 243 EUROS, 285, 291-292, 294, 297 Exchange rate mechanism (ERM), 184-185, 186, 189, 190, 193, 197 Exchange rates, 86, 92, 183, 184, 188, 191; EMS, 197-198; and international market, 194-195 "Experience Acquired in the Application of the ERASMUS Programme 1987-89," 276-277 Export earnings, 351-352 Exports, 286, 362; in Lomé convention, 347-348, 351; restrictions on, 305306, 395 Families; immigrant, 239-240; social protection of, 236-238 FEANI. See Fédération Européenne d'Associations Nationales d'Ingénieurs Federal Republic of Germany, 199, 236, 239, 261, 276, 317, 363, 391, 428; border controls of, 156-157; environmental policy of, 264, 269; and German Democratic Republic, 205(nl8), 409; on monetary system, 187, 192193, 197; on R&D funding, 250, 251252, 258(nl). See also Germany Fédération Européenne d'Associations Nationales d'Ingénieurs (FEANI), 147148 Federation of European Aerosol Association, 267 Federation of Swedish Farmers, 333 Finances, 2, 22, 23, 37, 65, 225, 266, 268, 277, 307; allocation of, 214-216, 232; revision of, 68-72; for R&D, 244, 245, 246, 247, 249, 250, 257-258; for social programs, 226-227. See also Structural funds Financial services, 5, 120, 337; in internal market, 123-125; products of, 114— 115; regulation in, 113-114, 116-117; sectoral review of, 118-123 Financial systems, 115-116, 124, 208, 369 Finland, 102, 258(nl), 280, 335 Firms. See Companies

465 First Action Program on the Environment, 262 Fiscal policy, 200-201 Fishing, 333, 348 FitzGerald, Garret, 419 Food sector, 173-174, 356, 368, 369 Foreign policy, 6, 15, 16, 29, 30, 310311; common, 11-12; coordination of, 403-406; toward South Africa, 406407; See also European Political Cooperation Forestry, 267 "Fortress Europe," 392 Foster e. a. v. British Gas p. I. c. , 53 Framework Programs, 243, 244, 252, 256, 258(nl); impacts of, 253-254; operation of, 245-246; R&D in, 2 5 4 255; types of, 246-249 France, 26, 27, 33, 97, 101, 104, 141, 168, 194, 214, 217, 218, 239, 261, 264, 270, 287, 318, 325, 364, 370, 397, 410, 416, 428; on aid schemes, 307, 391; on border controls, 156-157; on criminal law, 51-52; on education, 143, 275, 276; and EMS, 186, 187; on family programs, 236, 237; on financial services, 121, 124; on monetary union, 84, 85, 184, 190, 191. 197, 199; R&D in, 245, 247, 250; on security, 424, 426, 430; on service provision, 55-56; on shipping, 293, 297; on technical standards, 102, 103; on technological programs, 253-254, 255, 258(nl); and United States, 398-399; on utilities, 131, 134 Franco-German Council on Defense and Security, 424 Fratelli Costanzo v. City of Milan, 53 Freedom of movement, 155, 156, 162, 238, 240, 336; of labor, 219, 221, 230, 364 "Fresh Boost for Culture in the European Community, A," 161 Gas production, 131 GATS. See General Agreement on Trade in Services GATT. See General Agreement on Tariffs and Trade GDP. See Gross domestic product GDR. See German Democratic Republic GEMU. See German economic and monetary union Genera! Affairs Council, 16, 24 General Agreement on Tariffs and Trade (GATT), 29, 134, 135, 291, 297, 305, 373, 374, 389; agriculture, 167, 171172, 381-384, 400(nl); midterm review of, 378-381; negotiations for, 293, 351, 375-378; safeguards in, 379-380

466 General Agreement on Trade in Services (GATS), 293, 382 Generalized System of Preferences (GSP), 360, 390 General Systems Directive, 137, 138, 139; features of, 140-142; on professionals, 144, 145-148 Genscher, Hans-Dietrich, 394 German Democratic Republic (GDR), 27, 34, 2 0 5 ( n l 8 ) , 220, 303, 304, 313, 318, 320, 323, 389; aid to, 306, 319, 391; and Community law, 205(nl8), 322; cooperative agreements with, 305, 390; integration of, 7 5 - 7 6 , 314, 317, 326; in monetary union, 192-193; selfdetermination of, 314-315 German economic and monetary union (GEMU), 193, 316, 324-325 Germany, 14, 26, 42 , 61, 109, 124, 158, 168, 202, 213, 237, 248, 275, 344, 356; on capital, 118, 121; and European Parliament, 33, 40; on legislation, 321-322; membership of, 23, 3 1 6 317, 319; on monetary system, 85, 184, 188, 191, 192-194, 198-199, 324-325; on pollution, 270, 336; on public purchasing, 127, 128; on R&D, 257-258; on security, 424, 426, 4 2 7 428; on self-determination, 314-315; on shipping, 293, 290; on technical standards, 101, 102, 103, 105, 106; on trade, 97, 381; unification of, 4, 10, 23, 27, 7 5 - 7 6 , 220, 313-314, 326, 387, 391, 409, 418; on utilities, 131, 133, 134 Giscard d'Estaing, Valéry, 12, 183 "Global Approach to Certification and Testing-Quality Measures for Industrial Products, A," 108 Global Mediterranean Policy (GMP), 3 5 9 360; financial aid in, 364—365; reassessing, 370-371; reformulating, 365-370; trade in, 361-363; worker movement in, 3 6 3 - 3 6 4 Global warming, 260, 270 GMP. See Global Mediterranean Policy GNG. See Group of Negotiations on Goods GNP. See Gross national product GNS. See Group of Negotiations on Services, 378 Goods, 5 7 - 5 8 , 104, 109, 336 Gorbachev, Mikhail, 303, 308, 311, 318, 331 Government Purchasing Agreement (GPA), 134 GPA. See Government Purchasing Agreement Grants: mobility, 2 7 4 - 2 7 5 Great Britain. See United Kingdom

Index

Greece, 2, 51, 84, 124, 168, 190, 205(n27), 215, 216, 218, 237, 258(nl), 265, 277, 365; and Cyprus, 364, 416-417; membership of, 359, 361, 362, 363, 370; on monetary union, 85, 93; on security, 425, 426; on shipping, 293, 297; on trade, 287, 360 Greenhouse effect. See Global warming Green parties, 34, 260-261, 331, 332 Greenpeace International, 261, 265 "Green Plan" (France), 264 Groener v. The Minister for Education and the City of Dublin Vocational Educational Committee, 54—55 Gross domestic product (GDP), 115, 200, 213, 264 Gross national product (GNP), 66-67, 70, 73, 74, 144, 215 Group of Coordinators, 156 Group of Negotiations on Goods (GNG), 378 Group of Negotiations on Services (GNS), 378 Group of the European Democratic Alliance, 34 Group of the European Unitarian Left, 34 Group of 24, 277-278, 306, 312(n3), 391, 395 Grünen, Die. See Green parties GSP. See Generalized System of Preferences Gulf crisis, 4, 75, 76; impacts of, 413, 415, 416, 418, 419—420 Haiti, 344 Harmonization, 108, 122, 149, 172, 173, 230, 237; limitations of, 99-100; of social policy, 225, 227; of social security, 233, 234; of standards, 99, 336; technical, 97, 9 8 - 9 9 , 109, 369 Harmonized Documents, 103 Haughey, Charles, 394, 395, 404, 407, 410, 418 HD-MAC, 255 HDTV project, 251, 255 Health, 15, 17, 97, 99, 172, 209, 219, 226, 232, 336; protection of, 2 3 8 239 Helsinki process, 319 Hermannsson, Steingrimur, 333 High-Level Steering Group (HLSG), 3 2 9 330 Hills, Carla, 378, 393 HLSG. See High-Level Steering Group Hoechst v. Commission, 60 Housing, 209, 226 Houston Economic Summit, 391-392 Human rights, 50-51, 60-61, 159, 349

46 7

Index

Hungary, 311, 317, 389, 390, 409; aid to, 69, 71, 391; loans to, 76, 77; reform in, 3 0 4 - 3 0 5 , 306 Hurd, Douglas, 317 IBC. See Integrated broadband network Iceland, 102, 258(nl), 280, 333, 336, 337 ICPs. See Interuniversity cooperation programs IEC. See International Electrotechnical Commission IEPG. See Independent European Program Group IGC. See Intergovernmental conferences IIAs. See Interinstitutional agreements ILO. See International Labor Organization IMF. See International Monetary Fund Immigration, 15, 156; and worker and family rights, 239-241. See also Migration Imperialism: educational, 149 IMPs. See Integrated Mediterranean programs Income, 179, 210, 353 Independent European Program Group (IEPG), 431 India, 379 Industry, 97, 253, 264, 369; cooperation in, 354-355; and education, 278-279; and high technology, 246-247; restructuring, 2 5 6 - 2 5 7 Inflation, 168, 202; in European Monetary system, 184, 186; and exchange rate, 185, 188, 195; lowering, 197, 200; in monetary union, 198-199; rates of, 7 4 75, 187 Inflation tax, 199-200 Information technology (IT), 246, 253 Infrastructure, 17, 42 Inmos, 247 Insider Dealing Directive, 121 Insurance, 122-123 Integrated broadband network (IBC), 248 Integrated Mediterranean programs (IMPs), 216, 364 Intellectual property: rights to, 377, 378 Interest rates, 201 Intergovernmental conferences (IGC), 2, 11, 27; on foreign and security policy, 29-30; on political union, 14, 16-17, 19, 411, 419 Intergovernmental Panel on Climate Change, 269 Interinstitutional agreements (IIAs), 66, 71-72, 74, 75 Interlink model, 115 Internal Agro-Alimentary Market, 172

Internal market, 5 - 6 , 20, 21, 24-25, 27, 35, 58, 113, 162, 202, 336, 367; completion of, 159, 231, 374; single, 83, 104 Internal Market Council, 24, 26 International Electrotechnical Commission (IEC), 102 International Laoor Organization (ILO), 292, 369 International Monetary Fund (IMF), 306 International Organization for Standardization (ISO), 102, 103 Interuniversity cooperation programs (ICPs), 274, 275, 277 Intervention: structural, 2 1 0 - 2 1 1 Investment, 121, 215, 307, 379, 389, 406; of capital, 118, 352; industrial, 3 5 4 355; private sector, 353, 369; and trade, 196, 377 Investment Services Directive, 121 Iran, 370, 415 Iraq, 415, 416, 4 1 9 - ^ 2 0 Ireland, 84, 102, 143, 201, 214, 215, 218, 237, 258(nl), 289, 364, 406, 418; agricultural sector in, 26, 168, 181(nl2); employment requirements in, 54-55; on monetary union, 85, 93, 190; on security, 426, 427 ISO. See International Organization for Standardization Israel: free trade with, 360-361, 362; relations with, 413—415 IT. See Information technology Italy, 27, 33, 54, 85, 102, 104, 115, 168, 199, 205(n27), 215, 218, 245, 258(nl), 265, 317, 325, 336, 370, 427, 428; on education, 143, 275, 277; on foreign relations, 409-410; on monetary system, 184-185, 190, 197; on public purchasing, 127, 130; regional development in, 214, 216; on utilities, 131, 134 Ivory, 267 Jahrhundertvertrag, 131 Japan, 1, 3, 119, 133, 134, 243, 405; competition with, 254, 255, 258, 366, 370; trade with, 29, 286, 373, 374, 375, 380, 389 JESSI. See Joint European Submicron Silicon Initiative Joint European Submicron Silicon Initiative (JESSI), 251-252, 255 Jones Act, 293 Jordan, 362 Judicial system, 17, 47-48 Keenan, Brian, 415 Kennedy Round, 376

468 Kenya, 347 Khmer Rouge, 412 Khomeini, Ayatollah, 415 Klerk, Frederik W . de, 406, 407 Kohl, Helmut, 4, 10, 15-16, 314; on German unification, 316, 319, 418; on NATO, 427-428, 431 Kuwait, 415, 416, 419 Labor, 56, 219, 221, 225, 230, 368-369. See also Employment; Workers Labor Party (Norway, 332 Lalonde, Brice, 264 Land: set asides, 177 Language, 281-282; competency in, 141— 142 Language and Training Program (LINGUA), 29, 273, 2 8 1 - 2 8 2 , 307 Latin America, 4 1 1 - 4 1 2 Law, 56; Community, 5, 52-54, 155; and German unification, 321-322 Lawyers, 148 Lebanon, 76, 414 Left Socialist Party (Norway), 332 Left Unity, 34 Legal order, 45 Legislation, 21, 38, 157, 173, 227, 265, 336-337; and employment, 221-222; European Parliament, 20, 23-24, 37, 49; internal market, 97-98; on licensing, 1 4 2 - 1 4 3 Legitimacy, 14, 16, 89 Levy, David, 415 Liberal, Democratic and Reformist Group, 34 Liberal Party (Sweden), 333 Libya, 360 Licensing, 62, 130, 137; legislation on, 142-143; professionals, 138, 139-142 Liechtenstein, 280, 329, 336, 337 LINGUA. See Language and Training Program Liquipak, 62 Loans, 7 6 - 7 7 , 3 5 5 - 3 5 6 , 391 Lobbyists, 41 Lomé conventions, 29, 39, 269, 287 Lomé IV Convention: debt restructuring in, 355-357; development in, 353-355; length of agreement, 345-346; negotiations for, 343-344; partners in, 344-345; restructuring of, 346-348; trade in, 3 5 0 - 3 5 3 Low Voltage Directive, 105, 108 Lozère, 217 "Luns-Westerterp procedure," 37 Luxembourg, 46, 85, 104, 115, 237, 258(nl), 266, 364, 426, 428; on border controls, 156-157; and European Parliament, 33, 40

Index

Machinery Safety Directive, 105 McAllister, Eugene J. , 392 MacSharry, Ray, 378, 382 Madagascar, 347 Maghreb, 370 Maizena GmbH v. Council, 50 Maize sector, 171 Maiziere, Lothar de, 318 Major, John, 193 Malta, 360, 362, 364, 390 Mandela, Nelson, 406-407 Marin, Manuel, 405 Marine Science and Technology (MAST), 267 Maritime policy, 267, 293, 382; development of, 6, 285, 286-287, 2 9 6 297; and national interests, 294-295; statutes, 287-292 Market, 2, 65, 117, 127, 128, 149, 226, 286; access to, 132, 306-307, 3 5 0 351; agricultural, 167-175; capital, 115, 121; common, 361-362; and exchange rates, 194—195; financial services, 114-115, 120, 123-125; insurance, 122-123; securities, 120122; single, 188, 287-288, 344; technical barriers in, 97-98. See also Internal market Martin Report, 12, 13 MAST. See Marine Science and Technology Matutes, Abel, 360, 405 Meat sector, 171 Mediterranean, 6, 269, 400(nl); nonmember countries in, 359, 370; policy revision in, 365-370; trade with, 29, 360-365 Mediterranean Action Plan, 270 Mediterranean Cooperation Council, 368 Mediterranean Environmental Technical Assistance Program (METAP), 269 Megaproject, 251 Meiko, 247 Merck Fink, 124 METAP. See Mediterranean Environmental Technical Assistance Program Mexico, 380 Mezzogiomo, 130, 205(n27), 215 MFA. See Multi-Fiber Arrangement MFN. See Most-favored-nation status Michelis, Gianni de, 317, 370, 409, 413, 418, 420 Middle East: policy toward, 413^416 Miert, Karel van, 291, 397 Migration, 149; of professionals, 140142, 144. See also Immigration Milk sector, 62, 170, 171 Millan, Bruce, 215-216 Mineral Accident Insurance System (SYSMIN), 351

Index

Mining, 352 Ministry of the Environment (Denmark), 265 Mitsotakis, Constantine, 4 1 6 - 4 1 7 Mitterrand, François, 4, 218; on German unification, 316, 317, 318, 418; proposals by, 10, 15-16 Mogan Grenfell, 124 Monetary Committee, 83 Monetary Compensation Amounts, 168 Monetary system, 17, 119; cooperation in, 81-82; German, 192-193; and small countries, 190-191; union of, 83-85, 9 3 - 9 4 , 191-192, 195. See also Economic and monetary union; European Monetary System Montreal Protocol, 269, 270 Morocco, 362, 364 Mosbacher, Robert, 394 Most-favored-nation (MFN) status, 374, 380 MTN. See Multilateral Trade Negotiation Multi-Fiber Arrangement (MFA), 376, 377, 379, 382 Multilateral Trade Negotiation (MTN), 377 Mutual Information Directive, 100, 101 Mutual recognition, 119 Namibia, 344, 345, 347 NARIC. See National Academic Recognition Information Center Narrow margins arrangement, 183, 184— 185 National Academic Recognition Center (NARIC), 275 National Environmental Policy (NEP) (Netherlands), 265 Nationalism, 148 Nationality: discrimination against, 5 1 52 National Nederlanden, 123 NATO. See North Atlantic Treaty Organization NCI. See New Community Instrument NEP. See National Environmental Policy Netherlands, 42, 54, 85, 104, 115, 123, 168, 191, 213, 237, 250, 258(nl), 265, 270, 287, 316, 344, 364, 426, 428; on border controls, 156-157; on technological programs, 253-254, 257 Neutrality, 331, 332-333, 334 New Community Instrument, 208 Newly industrialized countries (NICs), 1, 119, 233 NGOs. See Nongovernmental organizations NICs. See Newly industrialized countries Niles, Thomas M. , 394 N M B Postbank, 123

469 Nongovernmental organizations (NGOs), 349 Nontariff barriers (NTBs), 376 North Africa, 410 North Atlantic Treaty Organization (NATO), 411, 423, 424—425, 426, 431, 432; future of, 388, 393, 397-398, 399, 400, 427-428 North Sea, 130, 131, 269, 270 Norway, 102, 258(nl), 269, 280, 332 NTBs. See Nontariff barriers Nuclear power, 131 OCAs. See Optimum currency areas OECD. See Organization for Economic Cooperation and Development Office National de 1'Immigration (ONI), 55 Offshore Supplies Office (OSO) (UK), 130131 Oil production, 131, 183 "One Market, One Money," 85 ONI. See Office National de l'lmmigration OPEC. See Organization of Petroleum Exporting Countries Optimum currency areas (OCAs), 193, 196197, 2 0 1 - 2 0 2 Organization for Economic Cooperation and Development (OECD), 115, 306, 391, 428 Organization of Petroleum Exporting Countries (OPEC), 183 Orkem v. Commission, 60 OSO. See Offshore Supplies Office Ospolitik, 309-310, 390 Ovine sector, 170 Own Funds Directive, 119 Paasio, Pertti, 335 Palestine Liberation Organization (PLO), 413, 414 Palestinians, 413 Palma de Mallorca, 156 Panama, 412 Papandreou, George, 416 Paris Economic Summit, 391, 396 Parliaments: national, 13-14, 40, 42. See also European Parliament Parliament v. Council, 50 Parti ecologiste "Les Verts" v. European Parliament, 50 Pensions, 5 6 - 5 7 "People's Europe," 139, 273. See also "Citizens' Europe" Personal Protective Equipment Directive, 107, 108 Peugeot, 264 PHARE. See Poland-Hungary Assistance for Economic Restructuring Pharmaceuticals, 2 3 8 - 2 3 9

470 Philips, 251, 254, 255 Physiotherapists, 146-147 Pisani, Edgard, 348 PLO. See Palestine Liberation Organization Poland, 76, 389, 390; aid to, 69, 71, 391; reform in, 304-305, 306 Poland-Hungary Assistance for Economic Restructuring (PHARE), 23, 69, 278, 304, 306, 307, 310 Political parties, 34, 4 1 - 4 2 Politics, 1, 109, 309, 334; and European Parliament, 35-36; and structural intervention, 2 1 0 - 2 1 1 Pollution, 260, 270, 320; reduction of, 266-267; and transport sector, 3 3 6 337 Pol Pot, 412 Portable Common Tools Environment, 254 Portugal, 2, 55, 84, 190, 202, 205(n27), 215, 237, 258(nl), 277, 344, 364, 382. 425, 428; on agricultural system, 168, 181(nl2), 400(nl); on aid, 73, 201; free trade with, 360-361; membership of, 359, 362, 363, 370; on monetary union, 85, 93 Power, 17; of European Parliament, 13, 37; regulatory, 116-117; of social policy, 219-223; transfer of national, 93-94 Presidential system, 15, 27, 28, 404, 405 Press, 41 Pressure vessels: simple, 103 Private sector, 245, 255, 258(n8), 353, 369, 391 Procurement: barriers to, 127-128; as trade issue, 134-135 Produce sector, 172 Production-distribution system, 229 Professionals, 174; and General Systems Directive, 145-148; health, 238-239; licensing, 139-142; movement of, 5, 137; protection of, 148-149; sectoral directives on, 138-139, 143-144; services of, 144-145 Progress Party (Norway), 332 Project 1992, 359, 361-362, 370 PROMETHEUS, 252, 255 Protectionism, 5 7 - 5 8 , 148-149, 288, 148-149, 376 Proximity policy, 311 Public sector, 235-236, 240 Punta del Este conference, 377, 3 8 0 381 Purchasing, 135; Commission directives on, 129-130; compliance with, 132133; public, 128-129; utilities, 130132, 134 Quality assurance, 107, 108, 109 Quotas: national, 373

Index

RACE. See R&D in Advanced Communications Technologies for Europe Radio, 336 Radioactivity, 268 Rainbow Group, 34 R&D. See Research and development RDP. See Regional development programs Recession, 127, 364-365 RECHAR, 268 Reciprocity, 119 Recruitment: of Commission staff, 2 8 - 2 9 Refugees, 156, 240 Regina v. Secretary of Slate for Transport, ex parte Factortame Limited and Others, 52 Regional development programs (RDP), 179 Register Commission, 147 Registries, 290; EUROS, 291-292 Regulations: financial services, 113-114. 116-123; structural funds, 213-214; technical, 97, 98, 101 Regulators: financial services, 116-117 Research and development (R&D), 6, 15, 243-244, 258(nn5, 7), 379; agricultural, 353-354; benefits of, 2 5 3 255; in environmental policy, 267, 269; in EUREKA, 250-252; in Framework Programs, 245-249; funding, 257-258; and technology transfer, 2 5 5 - 2 5 7 R&D in Advanced Communications Technologies for Europe (RACE), 246, 247-248, 253 Retirement, 56-57, 235 Rhodes summit, 375 Ridley, Nicholas, 139 Rights, 16, 349; civil, 157, 349; cultural, 159-162; fundamental, 158-159; personal, 6, 155-157, 163(nl0) Rinner Kühn v. FWW SpezialGebaüdereinigung GmbH & Co. KG, 56 Rio group, 411 Ripa di Meana, Carlo, 150, 263, 2 6 5 - 2 6 6 Romania, 304, 305, 306, 310, 389, 391, 408 Roquette Frères v. Council, 49 Royal Bank of Scotland, 124 Royal Signals and Radar Establishment (RSRE), 247 RSRE. See Royal Signals and Radar Establishment Rules of Procedure, 47, 48 Rural sector, 212, 214, 216-217, 353-354 Rushdie, Salman, 415 Rush Portuguesa, 55 Rush Portuguesa Limitada v. Office National d'Immigration (ONI), 55

Index

Safety, 97, 209, 232, 238, 336; standards of, 9 9 - 1 0 0 , 103 Sanctions, 4 0 6 - 4 0 7 Save Our Seas (SOS), 270 Schengen Agreement, 156-157, 331 Schmidt, Helmut, 183 Scotland, 217 Scoullos, Michael, 270 Scrivener, Commissioner, 404 SEA. See Single European Act Second Banking Coordination Directive (2BCD), 134 Second Banking Directive, 118-119, 120, 394 Secretariat of Political Cooperation, 309 Securities: regulating, 120-122 Securities & Investment Board (UK), 116 Security, 6, 12; alternatives, 424-425; European, 317, 318-319, 321, 333. 395, 3 9 9 - 4 0 0 , 4 1 6 - 4 1 7 , 423; opinions about, 4 2 6 - 4 2 7 ; policy for, 15-16, 30; United States, 388, 389, 431-432 Seigniorage, 1 9 9 - 2 0 0 Seitz, Raymond, 393 Self determination: German, 314-315, 317, 413 SEM. See Single European market SEPLIS. See European Secretariat for Liberal, Independent and Social Professions Services sector, 29, 351; employment, 219, 221; free circulation in, 336-337; professional, 138, 144-145; provision in, 55-56; trade in, 377, 381; utilities and, 132, 134-135 SGS, 251 Shipowners, 290, 2 9 1 - 2 9 2 , 297 Shipping, 285, 297; policies for, 286-287, 295; statutes for, 2 8 9 - 2 9 3 Siemens, 251 Single European Act (SEA), 2, 9, 11, 12, 19, 27, 46, 65, 84, 154, 157, 167, 207, 208, 218, 232, 233, 238, 292, 404, 424; and agricultural sector, 176, 178— 179; and environmental policy, 261, 262, 263; and European Parliament power, 38-39; impacts of, 20-22, 2 3 24, 30, 82-83, 224; as reform, 212, 214; and single market, 188, 295-296; social and economic cohesion in, 2 3 0 231 "Single European Act Mark II," 419 Single European market (SEM), 188 SLCP. See Standing Liaison Committee of Physiotherapists Small and medium-sized enterprises (SMEs), 244, 245, 249, 252

471 SMEs. See Small and medium-sized enterprises Snake system. See Narrow margins arrangement Social Affairs Council, 279 Social Charter. See Community Charter of Basic Social Rights for Workers; European Charter of Fundamental Social Rights Socialist Group, 34 Social policy, 15, 209, 238, 320; cohesion of, 230-231; and Community powers, 224-225; and economy, 223, 233-234; for employees, 231-236; family and, 236-238; goals of, 229-230; limitations on, 226-227; scope of, 217-223 Social security, 56, 209, 226, 233, 240; conditions for, 234—236 Solvay v. Commission, 60 Solvency Ratio Directive, 119 SOS. See Save Our Seas South Africa, 406-407 Sovereignty, 9 3 - 9 4 Soviet Union (USSR), 28, 29, 304, 308, 309, 366, 388, 431; aid to, 391, 404; on Austrian membership, 331-332; cooperative agreements with, 305, 390 Spain, 2, 73, 84, 115, 128, 133, 205(n27), 215, 218, 258(nl), 277, 344, 364, 427, 428; on agricultural sector, 168, 181(nl2), 400(nl); on environmental policy, 265, 266; on Mediterranean policy, 365, 410; membership of, 359, 361, 362, 363, 370; on monetary system, 85, 93, 184, 190, 197 STABEX. See Commodity Export Earnings Stabilization Scheme Standard of living, 229-230, 354 Standards, 22, 99, 108, l l l ( n l 3 ) , 128, 130, 143, 148, 149, 237, 248; adoption of, 97, 102-103; application of, 105106; U. S. reaction to, 109-110; utilities, 131-132 Standing Liaison Committee of Physiotherapists (SLCP), 146 START. See Strategic Arms Reduction Talks Strasbourg, 40 Strategic Arms Reduction Talks (START), 428 STRIDE, 268 Structural adjustment, 356-357, 369 Structural funds, 223, 225, 226, 227(nn4, 5), 232; and German unification, 3 2 2 323; reform of, 212-213; regulations for, 2 1 3 - 2 1 4 Students: and industry, 278-279; mobility of, 274-276; social security of, 2 3 4 235

472

Index

Suominen, Ilkka, 335 Supernode project, 2 4 6 - 2 4 7 , 254 Suppliers, 128-129, 132-133 Swaziland, 347 Sweden, 2 5 8 ( n l ) , 280, 332-333 Switzerland, 258(nl), 280, 331; membership of, 333-334, 336, 337, 341(n9) Syria, 362 SYSMIN. See Mineral Accident Insurance System

384; with ACP states, 350-353; cross-, 287-288; with Eastern Europe, 23, 390; financial services, 115, 119; free, 5 7 58; international, 194, 373, 375-376; intra-Community, 59-60, 197; and Lomé Convention, 344, 347; with Mediterranean, 359, 360-365, 3 6 8 369; and procurement, 134-135; safeguards in, 379-380; and shipping, 286-287; and technical barriers, 9 7 - 9 8 Trade and cooperation agreements, 3 0 7 308, 315

Tariffs, 171, 377, 380. See also Common external tariff Taxation, 58, 124, 236, 369; coresponsibility in, 169, 170; by seigniorage, 1 9 9 - 2 0 0 Technical Group of the European Right, 34 Technology, 161, 172, 267; benefits of, 2 5 3 - 2 5 5 ; integration of, 256-257; programs for, 246-247, 257-258; R&D in, 128, 2 4 4 - 2 5 5 ; transfer of, 249, 2 5 5 - 2 5 6 , 353, 379 Telecommunication sector, 102, 247-248, 258(nn8, 9) Television, 160, 336, 375 "Television Without Frontiers," 160 Telmat, 247 Temporary Committee, 318, 319 TEMPUS. See Trans-European Mobility Scheme for University Students 'Ten-Point Program for Overcoming the Division of Germany and Europe," 319 Terrorism, 156 Test of English as a Foreign Language (TOEFL), 141 Tetra Pak, 62 Tetra-Pak v. Commission, 59, 62 Textiles, 376, 377, 379, 382 Thatcher, Margaret, 193, 317, 407, 431; on German unification, 316, 318; on social charter, 2 1 7 - 2 1 8 ; on union, 418, 419 Third World, 287, 290, 297 Thomson, 251 Thom-EMI, 247 Tienanmen massacre, 4 1 2 - 4 1 3 Timetables, 22 Tindeman, Leo, 154

Trade Negotiations Committee (TNC), 378 Trade Policy Committee, 293 Trade-related intellectual properties (TRIPs), 379 Trade Union Confederation (Sweden), 333 Training, 6, 222, 232, 273, 277, 279, 307; language, 281-282; programs for, 2 8 0 281 Transatlantic Declaration, 396-397 Trans-European Mobility Scheme for University Students (TEMPUS), 29, 278, 307 Transport sector, 286, 288, 336-337. See also Shipping Treaties, 2, 11, 37, 39, 51, 153-154, 397. See also by name Treaty of Rome, 81, 82, 83, 88, 141, 233, 261, 282, 304, 310, 315, 388; social policy in, 230, 234, 238; trade policy in, 286, 287, 297, 3 7 3 - 3 7 4 TRIPS. See Trade-related intellectual properties Tropical products, 377, 380-381 Tunisia, 362, 364 Turkey, 258(nl), 416, 417, 428; guest workers from, 363, 364; trade with, 360, 361, 362, 390 2BCD. See Second Banking Coordination Directive

TNC. See Trade Negotiations Committee, 378 TOEFL. See Test of English as a Foreign Language Tokyo Round, 376 Torfaen Borough Council v. B&Q. pic, 58 Tourism, 369 Toys, 103-104 Tractor Safety Directive, 105 Trade, 29, 105, 121, 144, 196, 293, 304, 310, 321, 389; agricultural sector, 3 8 1 -

UK. See United Kingdom UNCTAD. See United Nations Committee for Trade and Development Unemployment, 211, 2 1 9 - 2 2 0 , 223, 225, 363 UNI, 102 Union, 153-154, 266; conferences on, 14, 16-17, 411; as goal, 28, 325, 4 1 7 420; political, 17-18, 19, 431; target date for, 2 2 - 2 3 Unions, 130, 290, 349; customs, 230, 364, 371(n6), 373 United Kingdom, 3, 14, 26, 33, 109, 146, 168, 191, 213, 215, 237, 239, 260, 261, 265, 270, 325, 344, 356, 406, 428; on capital, 118, 121; on education, 143, 275, 276; ERM participation by,

473

Index

193-194; on financial system, 115, 116, 119, 124; on internal market, 20, 25; on monetary union, 83, 84, 85, 93, 185, 199; on national vs. Community law, 52-53; on NATO, 399-400, 431; on public purchasing, 127, 128, 130; on R&D, 245, 247, 250, 257; on security, 426, 427, 430; on shipping, 290, 297; on Social Charter, 217-219; on technical standards, 101, 102, 103, 2 5 8 ( n l ) ; on trade, 97, 287; on utilities contráete, 130-131, 133, 134 United Nations Committee for Trade and Development (UNCTAD), 360; Code of Conduct, 286-287, 293, 294 United States, 3, 119, 141, 144, 233, 243, 257, 293, 390, 425, 429; on agricultural sector, 26, 27, 167, 171, 4 0 0 ( n l ) ; competition with, 295-296, 366, 370; and EPC, 410-411; and France, 398-399; relations with, 297, 3 8 7 - 3 8 9 . 391-398, 4 0 1 ( n l 2 ) , 405, 412; on security, 431—432; and standardization, 109-110; on technological competition, 254, 255, 258; on trade, 29, 134-135, 286, 373, 374, 375, 376, 378, 380, 382 Universities, 245, 255, 274, 275 University of Edinburgh, 254 University of Grenoble, 247 University of Southampton, 247 Urban sector, 2 6 8 - 2 6 9 Uruguay Round, 6, 27, 28, 234, 235, 295, 297, 398; agricultural regulations in, 167, 4 0 0 ( n l ) ; negotiations in, 293, 374, 379, 380; process of, 377-378 USSR. See Soviet Union Utilities, 128; directives on, 130-133; service purchasing by, 129, 134—135

Valle d'Aosta, 216 Value-added tax (VAT), 58, 77 VAT. See Value-added tax VERs. See Voluntary export restraints

Verts, Les. See Green parlies Vetos, 22 Visas, 15, 156 Voigt, Karsten, 430 Voluntary export restraints (VERs), 376, 379 Voting, 102, 106; by European Council, 25, 26-27; by European Parliament, 40-42; majority, 9, 15, 20, 22 Wages, 56-57, 236 Waste management, 267, 269 Water, 267, 269 Werner Report, 82, 183 West European Union (WEU), 388, 399, 417-418, 420, 424; and defense, 4 2 8 429 West Germany. See Federal Republic of Germany WEU. See West European Union "White Paper on the Completion of the Internal Market," 167 WIPO. See World Intellectual Property Organization Women, 239 Wood pulp, 59 Workers, 137; free movement of, 54—55; guest, 361, 363-364; immigrant, 2 3 9 240; public sector, 235-236; rights of, 231-232; social protection of, 2 3 3 234; wage laws for, 56-57 World Bank, 269, 306 World Intellectual Property Organization (WIPO), 379 "World Partner," 374, 375 Yes. See Youth Exchange Scheme for Europe Yeutter, Clayton, 378 Youth Exchange Scheme (Yes) for Europe, 273, 2 8 0 - 2 8 1 Yugoslavia, 51, 306, 317, 362, 364, 391, 409 Zimbabwe, 347

About the Book

The State of the European Community, a project of the European Community Studies Association, is a collection of original essays on contemporary developments within the EC. A multidisciplinary group of US and European experts address EC institutions and laws, the internal market, key policy issues, and external relations. The book is the first of a biennial series.

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