EU TFEU: Directives against distortion in the internal market

The EU Treaty of Lisbon retains the stages of the procedures to eliminate distortions of the conditions of competition in the internal market. First, the Commission finds that there is a distortion in one or more member states. Second, the Commission negotiates with (consults) these member states.

Third, if the negotiations fail, directives can be issued to eliminate the distortion. While the existing EC Treaty allows the Council to enact the directive alone, by qualified majority, the Lisbon Treaty empowers the European Parliament to act as co-legislator, in accordance with the ordinary legislative procedure.


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Article 116 of the Treaty on the Functioning of the European Union (TFEU) is found in the consolidated version of the Treaty on European Union and the Treaty on the Functioning of the European Union, published in the Official Journal of the European Union, OJ 9.5.2008 C 115/95–96:

Part Three Union policies and internal actions

Title VII Common rules on competition, taxation and approximation of laws

Chapter 3 Approximation of laws

Article 116 TFEU
(ex Article 96 TEC)

Where the Commission finds that a difference between the provisions laid down by law, regulation or administrative action in Member States is distorting the conditions of competition in the internal market and that the resultant distortion needs to be eliminated, it shall consult the Member States concerned.

If such consultation does not result in an agreement eliminating the distortion in question, the European, Parliament and the Council, acting in accordance with the ordinary legislative procedure, shall issue the necessary directives. Any other appropriate measures provided for in the Treaties may be adopted.

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In Article 2, point 83 of the Treaty of Lisbon (ToL) the IGC 2007 amended Article 96 of the Treaty establishing the European Community (TEC) (OJ 17.12.2007 C 306/70):

83) In Article 96, second paragraph, first sentence, the words ‘, the Council shall, on a proposal from the Commission, acting by a qualified majority, issue’ shall be replaced by ‘, the European Parliament and the Council, acting in accordance with the ordinary legislative procedure, shall issue’. The second sentence shall be replaced by ‘Any other appropriate measures provided for in the Treaties may be adopted.’.

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The TFEU table of equivalences confirms that Article 96 TEC first became Article 96 TFEU (ToL) in the original Treaty of Lisbon, and it tells us that it was later renumbered Article 116 TFEU in the consolidated version (OJ 17.12.2007 C 306/211).

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The current Article 96 of the Treaty establishing the European Community (TEC) is found under Title VI ‘Common rules on competition, taxation and approximation of laws’, Chapter 3 ‘Approximation of laws’, in the latest consolidated version of the treaties in force (OJ 29.12.2006 C 321 E/81).

Here is the current Article 94 TEC:

Article 96 TEC

Where the Commission finds that a difference between the provisions laid down by law, regulation or administrative action in Member States is distorting the conditions of competition in the common market and that the resultant distortion needs to be eliminated, it shall consult the Member States concerned.

If such consultation does not result in an agreement eliminating the distortion in question, the Council shall, on a proposal from the Commission, acting by a qualified majority, issue the necessary directives. The Commission and the Council may take any other appropriate measures provided for in this Treaty.

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We have seen the differences between Article 96 TEC in force and Article 116 TFEU. The European Parliament and the ordinary legislative procedure (co-decision) are introduced in the second paragraph.

In addition to the specific amendments, one of the horizontal amendments apply, namely the term ‘common market’ is scrapped by the Treaty of Lisbon and replaced by the consistent use of ‘internal market’.

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For the sake of systematic comparison, we look at the Article during the intervening treaty reform stages.

First, we turn to the European Convention, the closest thing to a constituent assembly EU citizens have had. The Article in question is located in Part III ‘The policies and functioning of the Union’, Title III ‘Internal policies and action’, Chapter I ‘Internal market’, Section 7 ‘Approximation of legislation’.

Article III-66 of the draft Treaty establishing a Constitution for Europe continued the operation of mopping up the use of ‘common market’ in older provisions, by the consistent use of ‘internal market’. European framework laws, in substance directives based on co-decision, were introduced. See OJ 18.7.2003 C 169/39.

Article III-66 Draft Constitution

Where the Commission finds that a difference between the provisions laid down by law, regulation or administrative action in Member States is distorting the conditions of competition in the internal market and that the resultant distortion needs to be eliminated, it shall consult the Member States concerned.

If such consultation does not result in agreement, European framework laws shall eliminate the distortion in question. Any other appropriate measures provided for in the Constitution may be adopted.

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In the Treaty establishing a Constitution for Europe, ‘ratified’ by 18 member states, the provisions on approximation (harmonisation) were located in Part III ‘The policies and functioning of the Union’, Title III ‘Internal policies and action’, Chapter I ‘Internal market’, Section 7 ‘Common provisions’.

Article III-174 is found in OJ 16.12.2004 C 310/75:

Article III-174 Constitution

Where the Commission finds that a difference between the provisions laid down by law, regulation or administrative action in Member States is distorting the conditions of competition in the internal market and that the resultant distortion needs to be eliminated, it shall consult the Member States concerned.

If such consultation does not result in agreement, European framework laws shall establish the measures necessary to eliminate the distortion in question. Any other appropriate measures provided for in the Constitution may be adopted.

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In the second paragraph, the words ‘establish the measures necessary to’ before eliminate did not alter the substance of Article III-174.

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What has been said about Article 116 TFEU?


United Kingdom

Professor Steve Peers covered the Treaty of Lisbon in a number of Statewatch Analyses. ‘EU Reform Treaty Analysis no. 3.3: Revised text of Part Three, Titles I to VI of the Treaty establishing the European Community (TEC): Internal Market and competition’ (Version 2, 23 October 2007) includes the current Title VI Common rules on competition, taxation and approximation of laws.

Peers highlighted the changes made to Article 96 TEC and TFEU (ToL), to be renumbered Article 116 TFEU in the consolidated version, and he added the following comment (page 31):

“The co-decision procedure has been extended to this Article.”
The analysis 3.3 and other useful Statewatch analyses are available through:

http://www.statewatch.org/euconstitution.htm


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The Foreign and Commonwealth Office (FCO) offers a convenient source of brief annotations on Lisbon Treaty amendments in ‘A comparative table of the current EC and EU treaties as amended by the Treaty of Lisbon’ (Command Paper 7311, published 21 January 2008). It offers the following comment on Article 116 TFEU, Article 96 TFEU (ToL) in the original Lisbon Treaty (page 12):

“Draws on Article 96 TEC. QMV already applies, decision-making moves to co-decision.”

The FCO comparative table is available at:

http://www.official-documents.gov.uk/document/cm73/7311/7311.asp

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The UK House of Commons Library Research Paper 07/86 ‘The Treaty of Lisbon: amendments to the Treaty establishing the European Community’ (published 6 December 2007) discussed the approximation of internal market laws on page 60 (under the heading ‘2. Taxation’).

The Research Paper commented briefly on the harmonisation of internal market laws, before moving on to tax harmonisation:

“Articles 94–97 (Constitution Articles III-172 – III-176) are on the approximation of internal market laws. The general aims are unchanged and the Council will adopt measures for the approximation of laws, regulations or administrative provisions of the Member States that directly affect the internal market. The out-dated term “common market” is removed and replaced with “internal market”.”

The Library Research Paper 07/86 is available at:

http://www.parliament.uk/commons/lib/research/rp2007/rp07-086.pdf

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The House of Lords European Union Committee report ‘The Treaty of Lisbon: an impact assessment, Volume I: Report’ (HL Paper 62-I, published 13 March 2008) is a valuable resource on the Treaty of Lisbon, but I found no reference to Article 116 TFEU (Article 96 TEC and TFEU ToL).

The report is accessible at:

http://www.publications.parliament.uk/pa/ld200708/ldselect/ldeucom/62/62.pdf


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Sweden

The consultation paper ’Lissabonfördraget’ is still valuable as a description of the Lisbon Treaty amendments, and it is available at:

http://www.regeringen.se/content/1/c6/09/49/81/107aa077.pdf

However, my standard reference is currently the Swedish government’s fresh draft ratification bill ‘Lagrådsremiss – Lissabonfördraget’, published 29 May 2008 and sent to the Council on Legislation (Lagrådet) for an expert opinion. The draft deals with the EU’s internal policy areas in Chapter 23 ‘Unionens interna åtgärder’, and section 23.1 presents the internal market (Inre marknaden), on pages 175 to 181.

The Swedish government presents a short background paragraph on the harmonisation of laws in the internal market (page 176):

”Artiklarna 94–97 i EG-fördraget återger möjligheten att harmonisera lagstiftningen på den inre marknaden. Det finns en stor volym sekundärrätt med utgångspunkt i artikel 95 i EG-fördraget samt en omfattande praxis på området. Möjligheten till harmonisering av medlemsstaternas lagar och författningar är en förutsättning för den inre marknadens bibehållande och fortsatta funktion.”

The government later remarks on the essentially unchanged nature of most internal market provisions (e.g. page 176). On page 181, the government remarks on the introduction of the ordinary legislative procedure with regard to distortions of competition, whereas the Council currently decides alone by qualified majority voting. The draft mentions the elimination of the words about the Commission and the Council in the last sentence in favour of a general referral to the adoption of any other appropriate measures:

”Även artikel 96 i EUF-fördraget ändras så att åtgärder för att eliminera snedvridning av konkurrensvillkor ska antas av Europaparlamentet och rådet enligt det ordinarie lagstiftningsförfarandet. Idag fattar rådet ensamt beslut med kvalificerad majoritet. Genom en ändring i artikel 96.2 i EUF-fördraget tas skrivningen om att kommissionen och rådet får vidta åtgärder bort och det anges enbart att alla övriga lämpliga åtgärder enligt fördragen får vidtas.”

The draft bill ‘Lagrådsremiss – Lissabonfördraget’ can be downloaded through:

http://www.regeringen.se/sb/d/5676/a/106277

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Finland

The Finnish ratification bill, ‘Hallituksen esitys Eduskunnalle Euroopan unionista tehdyn sopimuksen ja Euroopan yhteisön perustamissopimuksen muuttamisesta tehdyn Lissabonin sopimuksen hyväksymisestä ja laiksi sen lainsäädännön alaan kuuluvien määräysten voimaansaattamisesta’ (HE 23/2008 vp), is the most systematic analysis of the Lisbon Treaty I have encountered.

Under the heading Approximation of laws (Lainsäädännön lähentäminen), the bill offers a description of Article 96 TFEU (ToL), renumbered Article 116 TFEU. The government explains the procedures to eliminate a distortion of the conditions of competition in the internal market. If the negotiations between the Commission and the Member do not lead to results, the ordinary legislative procedure kicks in. The existing Article 96 TEC provides for directives issued by the Council on its own. The contents correspond to Article III-174 of the Constitutional Treaty (page 209):

”96 artiklassa (uusi 116 artikla) määrätään menettelystä, jota noudatetaan, jos komissio toteaa, että jäsenvaltioiden lakien, asetusten tai hallinnollisten määräysten välillä oleva eroavuus vääristää kilpailun edellytyksiä sisämarkkinoilla ja johtaa vääristymään, joka on poistettava. Jollei vääristymän poistamisesta päästä sopimukseen asiaa koskevien jäsenvaltioiden välillä, toteutettavien toimenpiteiden osalta siirrytään tavalliseen lainsäätämisjärjestykseen. SEY 96 artiklan nojalla neuvosto toteuttaa toimenpiteet yksin antamalla direktiivejä. Määräys vastaa sisällöltään perustuslakisopimuksen III-174 artiklaa.”

The Finnish ratification bill is available at:

http://www.finlex.fi/fi/esitykset/he/2008/20080023.pdf


The Swedish language version of the ratification bill ‘Regeringens proposition till Riksdagen med förslag om godkännande av Lissabonfördraget om ändring av fördraget om Europeiska unionen och fördraget om upprättandet av Europeiska gemenskapen och till lag om sättande i kraft av de bestämmelser i fördraget som hör till området för lagstiftningen’ (RP 23/2008 rd), makes the same remarks under ’Tillnärmning av lagstiftning’ on Article 96 TFEU (ToL), the future Article 116 TFEU, on page 212 :

”I artikel 96 (blivande artikel 116) bestäms om det förfarande som ska iakttas om kommissionen finner att en skillnad mellan bestämmelserna i medlemsstaternas lagar eller andra författningar framkallar en snedvridning av konkurrensvillkoren på den inre marknaden som behöver elimineras. Om man inte når något avtal mellan de berörda medlemsstaterna om eliminering av snedvridningen ska nödvändiga åtgärder föreskrivas i enlighet med det ordinarie lagstiftningsförfarandet. Med stöd av artikel 96 i EG-fördraget vidtar rådet åtgärderna ensamt genom att anta direktiv. Innehållet i bestämmelsen motsvarar artikel III-174 i det konstitutionella fördraget.”


The ratification bill in Swedish can be accessed at:

http://www.finlex.fi/sv/esitykset/he/2008/20080023.pdf

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Let me add a few thoughts, outside the scope of treaty reform stages.

By and large, people prefer fair competition to unfair practices and legitimate competitive advantages over distortive actions.

The words of Article 116 TFEU are value-laden enough to gain almost universal recognition. The devil is, of course, in the details.

The European Union (still the European Community, if we want to be more exact) offers a unique machinery to deal with and to resolve conflicts of interest. Member states tend to focus on their own perceived interests, but in the wider world they have to address problems relating to ‘unfair competition’ bilaterally or through less developed multilateral mechanisms such as the WTO.

Within the EU the members have the institutional framework in place for both continuing dialogue and binding decisions. Mere self-interest does not carry the day, in that decision-making in the Council requires a high rate of approval among the member states (qualified majority).

In the ‘Community pillar’ the Commission generally has the monopoly to make proposals, which means that the bones of contention are studied with the general European interest in mind (naturally with a dose of unavoidable organisational self-interest). In other words, a dissatisfied member state has to win the approval of the Commission.

The institutional setting forces the players to present their arguments and to address those of their partners. This inevitably leads to evolving arguments and sometimes to concrete decisions. In one instance, sufficient condemnation leads to the abolishment of unfair practices. In another matter, the envious partners realise that they had better upgrade their own practices to stay competitive.

None of this happens in a platonic ideal state, but with all its deficiency, the European Union is the world’s greatest learning organisation. In the end, European competitiveness gains, although the processes are often slow and laborious and the results fall short of ‘best practices’.

When the European Parliament becomes co-legislator at least part of the legislative procedure becomes more transparent, as it does when the Council deliberates in public on legislative proposals (although real debate and a clear ‘paper trail’ may by long in coming).

By today, as many member states have already fulfilled the essential requirements for ratification as reached by the Constitutional Treaty. Today, in the Irish referendum three million voters decide for 500 million Europeans between the Treaty of Nice and the modest but real gains of the Treaty of Lisbon.


Ralf Grahn