THE EU’S FOREIGN ECONOMIC POLICIES: LIMITS TO DELEGATION

Andreas Dür Department of Political Science and Sociology University of Salzburg [email protected]

Contribution to Jeremy Richardson (ed.) Constructing a policy-making state? Policy dynamics in the European Union (Oxford: Oxford University Press, 2011).

8.1

Introduction1

The scope of the European Union’s (EU) foreign economic policies has broadened significantly since the signing of the Rome Treaties in 1957.2 Over this half century, EU member states both formally and informally have delegated significant powers to carry out these policies to various European institutions. In trade policy, the European Commission now negotiates on behalf of the EU not only on tariff levels, but also on issues such as direct investments and intellectual property rights. The Commission has also become a major actor with respect to development policy, for example as distributor of foreign aid. With respect to the governance of monetary affairs, the European System of Central Banks has taken on many competencies from the members of the Euro area. Less visibly, the Commission has become a player in the external financial policy, for example with respect to negotiations on capital market rules and accounting standards. Finally, member states have entrusted the Commission with the task of negotiating international competition agreements. 1

I am grateful to Dirk De Bièvre, Manfred Elsig and Jeremy Richardson for helpful comments on an earlier

version of this chapter. 2

I use the term European Union throughout even when referring to the European Economic Community or the

European Community.

1

When analyzing these developments in the field of foreign economic policy-making, this chapter answers two questions that guide all contributions to this volume. First, through which process does Europeanization, that is, the transfer of policy-making power from the national to the European level, take place? Second, which factors facilitate and which ones impede the process of Europeanization? My main argument is that the Europeanization of the EU’s foreign economic policies has been driven by member states that mainly reacted to incentives emanating from a changing international political economy context. Moreover, I submit that increasing delegation has not undermined member states’ control over EU foreign economic policies. This is so because delegation has been accompanied by control mechanisms that make sure that the Commission’s and other agents’ scope for autonomous action is tightly circumscribed. This chapter’s argument differs from various earlier accounts of the same developments, which suggest that the initial delegation of competencies has caused member states to lose control over the process (see, for example, Vahl 1997; Meunier and Nicolaïdis 1999; Young 2002). The authors of these studies submit that the Europeanization of foreign economic policy (and especially trade policy) has been driven by the European Commission and the European Court of Justice (ECJ). Especially in the 1970s, a series of ECJ rulings partly ran counter to the stated positions of some member states. In the words of one author, these court interpretations shifted “authority for a wide range of issues from the member states to the EU” (Young 2002: 32). In parallel, the European Commission supposedly used its role as the EU’s representative in some international organizations to strengthen its position vis-à-vis member states, making it increasingly costly for member states to resist an expansion of the EU’s competencies. An example for this is the Commission’s role in the dispute settlement mechanism of the World Trade Organization (WTO), which according to Stijn Billiett (2006) induced member states to finally agree to extend exclusive Community competence in the field of trade policy. The Commission may also benefit from its ability to 2

decide on the venue for international trade negotiations (bilateral, plurilateral or multilateral in the framework of the WTO) to enhance its autonomy (Elsig 2007). Other studies cast doubt on this view. An analysis of the development of the EU’s trade policy from the late 1950s until the early 2000s, for example, suggested that member states have been in control throughout (De Bièvre and Dür 2005). For the 1990s, this conclusion of member state dominance has also been supported by observers that have seen member states seeking to “regain some of their lost sovereignty in the realm of trade” (Nicolaïdis and Meunier 2002: 173). Interestingly, Arne Niemann (2006) in a study of how the logic of spill-over has led to the expansion of EU competencies also came to the conclusion that the common commercial policy was an exception to this general process. Maurizio Carbone (2007) takes an intermediary position when concluding that the Commission had a substantial influence on the EU’s development policy only in cases in which it managed to act as unitary actor. Empirically, this chapter is broader than most of these previous studies by looking at trade policy, development policy, international competition negotiations, external monetary policy, and external financial policy. To examine the argument about member state dominance it traces the development of the Union’s competencies in these policy fields from the Rome Treaties (1957) to the Treaty of Lisbon (2007). In so doing, it discusses both formal treaty changes and changes in the degree of delegation that have arisen as a result of other developments such as ECJ rulings and informal and formal understandings among the Community institutions. Throughout, I loosely rely on principal-agent terminology, which I briefly introduce in the next section. 8.2

A Principal-Agent Approach to Delegation in the EU

The principal-agent approach can be applied to situations in which one or several principals (for example, EU member states) delegate tasks to one or several agents (for example, 3

directorates general in the European Commission or the European Central Bank).3 Principals may delegate tasks for a variety of reasons, among them benefitting from policy expertise that the agent possesses, reducing transaction costs, resolving disputes among principals, and signaling commitment to a specific decision (see, for example, Hawkins et al. 2006). Since an agent may have preferences that differ from those of the principal(s), however, delegation often comes with a cost. This cost can arise from the need to control the agent, the agent’s pursuit of its own preferences, and the agent’s failure to invest sufficient effort to pursue the preferences of the principals. Possible control mechanisms are selecting an agent with similar preferences to those of the principals, creating competing agents, drawing up a precise mandate for the agent, and monitoring and sanctioning the agent. Since all of these forms of control come with costs, however, control will never be perfect. In fact, perfect control would wipe out any benefits that principals may expect from delegation. The principal-agent approach is agnostic with respect to the extent to which principals control their agent(s) and the discretion that the agent possesses. It even seems plausible that the extent of discretion varies from case to case, not least because the motives for delegation vary. An agent that is created for the purpose of resolving disputes among principals (such as a constitutional court), for example, is likely to possess more autonomy than an agent that has the task of providing expertise. Several authors also suggest that under certain circumstances the agent may influence its contract with the principals, thus increasing its autonomy over time (for example, Hawkins and Jacoby 2006). With respect to the EU’s foreign economic policy, my argument is that EU member states as principals have remained in charge of their agents. Partly by trial and error, they have designed a system that is effective in balancing control and efficiency. This has allowed them 3

A large literature applies the principal-agent approach to the study of the EU (see, for example, Pollack 2003).

A significant number of studies also use this approach to cast light on the EU’s foreign economic policies (see, in particular, Elsig 2002 & 2007; De Bièvre and Dür 2005; Dür and Elsig 2011).

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to make use of the efficiency gains that stem from delegation, in particular the lower transaction costs that result when only one actor represents the EU’s member states in international negotiations.4 Such efficiency gains are important for economic interests in the EU that require agreements with third countries to pursue their interests. At the same time, member states faced strong incentives to maintain control over their agents. Tight control by the principals allowed member states to remain the target of interest group lobbying, and thus take advantage of the flow of resources (such as campaign contributions, information, and legitimacy) from societal interests to policy-makers that accompanies lobbying (De Bièvre and Dür 2005: 1279). Moreover, tight control by the principals enhances the EU’s bargaining power in international negotiations (in which the EU is closer to the status quo than foreign countries), by allowing the agent that represents the EU in the negotiations to credibly commit to not making further concessions (Meunier 2005). Bargaining power can be an objective for a variety of motives, among them to externalize costs and to extract benefits from foreign countries for societal actors in the EU, which should enhance governments’ electoral prospects.5 How do member state principals control their agents in the field of foreign economic policy? One of the main instruments that member states use is to distribute tasks among a variety of agents (De Bièvre and Dür 2005). For example, they give some competencies with respect to development cooperation to the European Commission and others to the

4

The transaction costs would even be lower if there were no need to arrive at a common position, that is, in the

absence of the EU. The decision to create a customs union (and later single market) is thus taken to be separate from the decision to delegate powers to an agent. 5

It might be argued that tight control undermines the electoral prospects of governments by making blame-

shifting (namely blaming the agent for policies that impose costs on societal actors) more difficult. Not even tight control is incompatible with blame shifting, however, because this strategy is mainly aimed at voters with a limited understanding of EU decision-making.

5

intergovernmental European Development Fund. Moreover, they carefully select the Commissioners with responsibility for the EU’s foreign economic policies (Wonka 2007). Since tight mandates are often impracticable for complex international negotiations in which the agent has to react quickly to moves from the other side, control is also ensured by the need for member state consent (or even ratification by national parliaments in the case of mixed agreements on issues that are not covered by the Union’s exclusive competence) at the end of the negotiations. Importantly, I do not actually expect principals to unstitch a package deal at the end of negotiations; rather, principals signal their red lines to the agent, who takes these signals into account to avoid losing a vote. Overall, the expectation is for principals both to be in charge of the process of delegating competencies to agents in the field of foreign economic policy-making and to control the exercise of these competencies by the agents. The implication of this is that even if over time the scope of the EU’s competencies has increased, this move has been driven by member state interests and accompanied by adequate measures of control. 8.3

The Initial Delegation of Competencies

In the treaties signed in Rome in March 1957, only the provisions on the Common Commercial Policy and the association of overseas countries and territories explicitly established EU competencies with respect to foreign economic policies. The inclusion of trade policy as an exclusive competence of the EU was logical in light of the aim of creating a customs union. Articles 110-116 of the Treaty establishing the European Economic Community thus set out the rules for a common commercial policy. These articles stipulated that the Commission had sole competence to make proposals for and to carry out negotiations with third countries in this area. The Council of Ministers (until 2009 the Council for General Affairs and External Relations, since then the Foreign Policy Council) was expected to take decisions on Commission proposals using qualified majority voting after a transition period of 6

eight years. The Commission then negotiates on behalf of the member states with third countries, with the member states controlling the agent through a committee of senior national civil servants, now known as the Trade Policy Committee (previous names were Article 111, Article 113, and Article 133 Committee). This committee has generally been seen as an effective tool to ensure that the Commission is aware of and takes account of member state interests in the negotiations (Johnson 1998). At the end of the negotiations, the Council has to consent to the international agreement reached. Given both the effective ex-ante control and an agent that tries to avoid seeing its proposal voted down by the principals, the nuclear option of the Council not consenting to an agreement reached has hardly been used in the trade field. Sophie Meunier (2005: 5-13) argues that – among other rationales, namely enhancing the efficiency of decision-making and gaining influence in international negotiations – insulating decision-makers was a major motivation for this delegation. If member states really were concerned with insulation, this would run counter the argument that I make in this chapter, because it would make them design an agent with large autonomy. In fact, however, for a variety of reasons insulation is not a plausible explanation for trade policy delegation in the Rome Treaty (Dür 2008). For one, the strong control features provided for in the treaty undermine the plausibility of the insulation rationale. Moreover, systematic evidence shows that in major trade negotiations the EU’s position has consistently been in line with the demands voiced by societal actors with a concentrated interest in trade (Dür 2008: 31-38). In short, in line with the theoretical argument made above, the initial delegation of trade policy competencies to the European Commission seems best explained as a result of principals trying to enhance collective decision making and possibly gaining influence in international negotiations. Importantly, in order to achieve these objectives, delegation had to be accompanied by strict control of the agent.

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An aspect of the delegation that may be seen as running counter to my argument is that member states kept the key provision defining the scope of trade policy vague. The Treaty states that “the common commercial policy shall be based on uniform principles, particularly in regard to tariff amendments, the conclusion of tariff or trade agreements, the alignment of measures of liberalisation, export policy and protective commercial measures including measures to be taken in cases of dumping or subsidies” (emphasis added). The treaty thus only provided a possible list of trade policy instruments covered, without explicitly excluding other issues. This vagueness has been an important element in the debates about the Union’s competencies in the field of trade policy for the last fifty years. The evidence below, however, shows that this wording did not impede the principals to reign in the agent whenever needed. As regards the other aspects of foreign economic policy, only a small part of development policy was covered by the Treaty, namely assistance to the overseas territories of some of the original EU member countries (such as French Polynesia and Netherlands New Guinea). The treaty foresaw the abolition of import duties for these territories and particular conditions with respect to participation in tenders on investments financed by the Community. Moreover, the treaty envisaged the creation of a fund, called European Development Fund (EDF), which would grant assistance to these overseas territories (Carbone 2007). Of interest for the argument, ever since its creation the fund has been managed by a special committee outside of the Commission, and funding has not been granted from the EU’s budget but has been based on a separate key that divided contributions among member states. The decision to have two agents in the same policy field has allowed principals to exercise more control than if all funds were dispersed by the Commission. This member state control turned out to be of benefit mainly to firms in France that were awarded a large number of contracts funded through European development aid (Hewitt and Whiteman 2004). That despite several attempts the Commission has not gained control of the EDF is an illustration of the limits of delegation and agent activism. While the treaty contained detailed rules on competition policy 8

applicable within the Community (Articles 85-94), it did not enter into the issue of international competition negotiations (Damro 2007). 8.4

The EU’s Foreign Economic Policy in Practice

The Common Commercial Policy entered into force in February 1959 and was soon put to test by the international trade negotiations known as the Dillon Round (1960-62). Already in their first major international trade round, EU member states agreed to put the Commission in charge of negotiating, but throughout they maintained tight control through the Article 111 Committee (for a detailed discussion, see Alkema 1999). The Committee presented the Commission with very detailed instructions on the position it had to take on sensitive goods, for example tobacco and automobile parts. Delegation thus did not hinder the member states to defend their perceived economic interests. In part, this may have been a consequence of the need to approve the Dillon Round results by unanimity in the Council, a rule that was applicable for the first eight years of the creation of the EU. The 1966 Luxembourg compromise made sure that in practice unanimity also applied to the more far-reaching Kennedy (1964-67) and Tokyo Round (1973-79) negotiations. In fact, ever since the start of the Common Commercial Policy member states have sought consensus on major decisions relating to trade policy (Meunier and Nicolaïdis 1999: 480). While the formal provisions regulating the common commercial policy hardly changed until the Treaty of Amsterdam (1997), some authors argue that ECJ decisions informally delegated competencies to the EU in the field of trade policy (Young 2002). In a first major case, decided in 1970, the Court ruled that in all matters where internal rules exist, the Commission had to conduct external negotiations that may affect these internal rules.6 In Opinion 1/75, the Court then confirmed the EU’s exclusive competence with respect to trade

6

ECJ Case 22/70 (European Agreement on Road Transport).

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policy.7 In 1976, in a case called Rhine Navigation, the ECJ decided that in all issue areas where the Commission has the power to adopt internal rules (even if there are no internal measures at that time), it also has the power to conduct external negotiations.8 Two years later, in Opinion 1/78 it concluded that the Common Commercial Policy could not be restricted to the “traditional aspects of external trade.”9 It thus defended a dynamic interpretation of the Common Commercial Policy. While it is true that these Court interpretations ran counter to the declared positions of at least some member states, which could be seen as an indication of an increase in agent autonomy against the preferences of the principals (Young 2002: 32-35), it is difficult to argue that these judgments had a major impact on the broad lines of the EU’s trade policy. Only one year after the Court handed down its Opinion 1/78, several member states objected to the Commission being the sole signatory to some of the codes on non-tariff barriers decided upon in the Tokyo Round (Young 2002: 38-39). The main objective of the Tokyo Round was to reach agreements on a series of non-tariff barriers, including technical barriers to trade and government procurement rules.10 Member states did not object to the Commission representing the EU across all areas of the negotiations, which can be explained with recourse to the efficiency argument outlined above. Especially France and the United Kingdom, however, were adamant in controlling the negotiating agent by insisting on the codes on technical barriers to trade and civil aircraft being signed by both the Commission and the member states (see also, Hilf 1995: 3). That judicial interpretation could not resolve the issue of competencies is also evident from the debate about who would sign the Uruguay Round (1986-93) agreement. In 1986, at 7

ECJ Opinion 1/75 (Local Cost Standard).

8

ECJ Opinion 1/76 (Inland Waterway Vessels).

9

ECJ Opinion 1/78 (International Agreement on Natural Rubber).

10

On the Tokyo Round, see for example Dür 2010: Chapter 5.

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the start of the negotiations, the member states of the EU decided that for practical reasons the Commission should represent the Community on all questions debated in the Uruguay Round. This decision potentially had far-reaching consequences, as the round’s agenda foresaw negotiations not only on tariffs on goods, but also on a series of “new” trade policy issues such as services, trade-related aspects of intellectual property rights and trade-related investment measures. The minutes of the relevant meeting of the Council, however, stated that this decision should not “prejudge the question of the competence of the Community or the Member States on particular issues” (quoted in ECJ Opinion 1/94). The Court, after being called by the Commission to give its opinion on this issue, sided with the member states in stressing the limited nature of the delegation granted to the Commission (more on this below). An area where the agent received significant autonomy was the imposition of antidumping duties. The 1968 regulation setting down the procedures for antidumping cases delegated the task of making investigations and imposing temporary duties to the Commission. Control was only guaranteed by the need for the Council to approve of definite antidumping duties by qualified majority and by the establishment of an Antidumping Committee that monitors the Commission’s activities in this field (De Bièvre and Dür 2005: 1283). Later, member states increased the autonomy of their antidumping policy agent by lowering the Council decision threshold to a simple majority with abstentions counted in favour, while simultaneously controlling the agent by writing down more detailed rules on the conditions under which antidumping duties could be imposed. The decades following the signing of the Treaty of Rome also saw the emergence of a common development policy. In fact, the Lomé conventions that were signed by the EU with former colonies of member states in the 1970s and 1980s were only partly backed by the treaty (Eeckhout 2004: 106). The Lomé conventions included between 46 (Lomé I) and 71 (Lomé IV) African, Caribbean and Pacific countries, while the Treaty of Rome only referred to policies towards overseas territories. By signing the conventions as mixed agreements, and 11

funding the policies through the European Development Fund, however, development policy remained largely intergovernmental. The policy field also is a nice illustration of how a principal with a stake in an issue can control an agent by selecting individuals with preferences that are close to their own for key positions in the agent. Between 1958 and 1984, all the Commissioners with responsibility for the overseas territories were French and all of them were close to the French position (Hewitt and Whiteman 2004: 134-35). These decades also saw the emergence of an external competition policy. The internationalization of business meant that both the Commission increasingly applied competition law extraterritorially and foreign competition authorities made rulings that affected European business. Responding to the resulting demand for international agreements, in 1991 the Commission signed its first international agreement in this field, the EU-US competition cooperation agreement (Damro 2007: 891). Importantly for the argument made here, the Council questioned the legality of the agreement and received support from the Court of Justice.11 Only in 1995 did the Council back the Commission negotiated agreement after sending a letter to the United States in which it gave its interpretation of some provisions. A series of further agreements on competition policy between the EU and the United States were negotiated with prior Council approval. Provisions on competition policy were also included in the Europe Agreements signed with Czechoslovakia, Hungary and Poland in December 1991 (Bourgeois 1993). The Commission also represented the Union in competition negotiations in the framework of the WTO; these negotiations have not been fruitful, however, with the topic of trade and competition policy being dropped from the agenda of WTO trade negotiations in 2004. As argued throughout this chapter, the member states maintained their ability to reign in the agent also with respect to foreign competition policy.

11

ECJ Case C-327/91 [1994] (France v Commission).

12

Little happened with respect to foreign monetary and exchange rate policy before the Maastricht Treaty (1992). In 1973, in the wake of a decision to move towards monetary union (as set out in the 1970 Werner Plan), member states created an agent in this area, the European Monetary Cooperation Fund, but they only endowed it with limited competencies (Eichengreen and Ghironi 1996: 20). The Fund was supposed to help members stabilize exchange rates, for example by assisting central banks in their efforts to concert their policies on reserves and by administering short-term monetary support between central banks. Equally very limited delegation happened with respect to the international governance of financial markets, where the 1988 Second Banking Directive foresaw some competencies for the Commission. The Commission was to undertake a reciprocity examination when banks from a third country applied to establish a subsidiary in the EU (Dür 2011). It could also engage in negotiations with such countries to ensure reciprocity for European banks. Again, however, the Commission’s discretion in this area was highly circumscribed. 8.5

A Period of Commission Activism

In the run-up to the two intergovernmental conferences (the one on economic and monetary and the other on political union) that produced the Maastricht Treaty, the Commission presented some bold proposals with respect to foreign economic policy. It asked member states to make “the Commission, and the Commission alone, responsible for representing the Union on the external scene, notably in dealings with international organizations” (Commission of the European Communities 1991: 28). It also stated that “The Union shall pursue a common policy on external economic relations covering…economic and commercial measures involving services, capital, intellectual property, investment, establishment and competition” (16). The Commission thus requested an extension of Article 113 to cover not only trade in goods but all topics touched upon in the Uruguay Round of international trade negotiations. Moreover, it consistently referred to an EU “external economic policy”, a 13

conception that clearly went beyond what was foreseen in the Treaty establishing the European Economic Community. Also for development cooperation, the Commission asked for Union competencies to cover “any ...instrument likely to encourage development, notably involving establishment and services, movement of capital, and movement of persons, and measures designed to encourage the promotion and protection of investments” (18). Finally, the Commission paper foresaw a partial disempowerment of the Article 113 Committee, which no longer should “assist” the Commission, but only play a consultative role. The following intergovernmental conference serves as a clear illustration of the limits to Commission activism. With respect to commercial policy, member states considered an extension of Community competence to cover services directly related to trade (in the draft prepared by the Irish Presidency), but in the end rejected even this limited proposal (Maresceau 1993: 11; Eeckhout 2004: 25). The final version of the treaty thus made few changes to the trade provisions of the Rome Treaty. Member states decided to delete Article 111 that had been concerned with the transition period before the implementation of the customs union. They only made technical amendments to Article 113, however. The Maastricht Treaty came closer to the preferences of the Commission in the field of development policy. Title XVII of the treaty established a “Community policy in the sphere of development co-operation”, which was to be “complementary” to the policies pursued by the member states. It allowed the Commission to engage in negotiations with third countries or international organizations with respect to development co-operation, if authorized by the Council of Ministers by a qualified majority. The treaty also expressly permitted the member states to sign their own international agreements in this field. The most significant delegation of power in the field of foreign economic policy that member states agreed upon in the Maastricht Treaty was the creation of the European System of Central Banks (ESCB), which comprises the European Central Bank (ECB) and the central banks of the member states participating in Economic and Monetary Union. By setting 14

interest rates, the ESCB has an influence on the exchange rate of the Euro. It also directly intervenes in foreign exchange markets. Nevertheless, while formally member states granted large independence to this agent in carrying out its tasks, in practice it only has a limited degree of discretion as it is strictly bound to pursue the aim of low inflation. Moreover, international agreements in this field are concluded by the Council acting either by unanimity or qualified majority (depending on the substance matter of the agreement concluded). The Council only has to “consult” the ECB before engaging in negotiations and inform it of any agreement (Article 109 Treaty on European Union). The same article, moreover, grants member states the right to “negotiate in international bodies.” As a result, the EU lacks a single representation in international institutions dealing with monetary policy such as the International Monetary Fund and the G7.12 The first major development in the EU’s foreign economic policy after the signing of the Maastricht Treaty was the controversy about the so-called Blair House pre-agreement on agriculture that the Commission negotiated with the United States in the framework of the Uruguay Round in November 1992. For France (which underwent a shift in government in March 1993, making it more protectionist in the field of agriculture than what had been anticipated by the agent), this pre-agreement went beyond the mandate that member states had given the Commission. As expected based on this chapter’s argument, mechanisms of control proved effective in bringing the result closer to the (now changed) preferences of the principals. Member states forced their agent to renegotiate the agreement before they agreed to a conclusion of the Uruguay Round. Even a study defending the Commission’s leadership role in international trade negotiations conceded that in this case the Commission’s margin of

12

I am referring to the G7 rather than the G8 here, as Russia is excluded from discussions on exchange rate and

financial policy.

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manoeuvre was “clearly affected by what the member states found acceptable” (Vahl 1997: 274). The conclusion of the Uruguay Round opened a new chapter in the competence struggle between the Council and the Commission. The Commission asked the Court of Justice for an opinion on who had the competence to sign the agreements reached in the Uruguay Round (which, among other things, foresaw the creation of the WTO). The interim compromise was for the Council Presidency, the Commissioner for External Trade, and each member state to sign the Final Act of the Uruguay Round (Meunier and Nicolaïdis 1999: 484). Before the Court, the Commission argued that all issues negotiated under the WTO formed part of the Common Commercial Policy. Most member states took an opposite stance. In fact, eight member states filed briefs to support the Council’s position (Billiet 2006: 902). In its Opinion 1/94, the ECJ largely sided with the member states in arguing that the Community had exclusive competence for trade in goods and for the cross-border provision of services (cross-border provision means that neither the deliverer nor the recipient may replace themselves in the provision of the service) (Bourgeois 1995; Hilf 1995; Eeckhout 2004). On all other issues, the Court concluded that the member states and the Community shared competences. While the ruling on the cross-border provision of services went slightly beyond what emerged as the least common denominator among member states in the Maastricht negotiations, in practice this “delegation” was of little importance. The cross-border provision of services is only one of four modes of services delivery (the other modes being consumption abroad, commercial presence, and presence of natural persons). Any serious services agreement would require unanimity in the Council and possibly even parliamentary ratification in some member states. The ECJ ruling thus has to be seen as demarcating the Commission’s competence. Even though the ECJ did not accept all arguments made by member states, those member states that were opposed to Commission autonomy could live well with the decision. In fact, the scholarly consensus is that the preferences of powerful 16

member countries influenced the Court’s interpretation (Meunier and Nicolaïdis 1999: 49192; Elsig 2002: 101). This episode thus again highlights the limits to delegation and the control that member states wield over the process of integration in the field of foreign economic policy. The Court opinion compelled the agent to agree to ad hoc codes of conduct for the post-Uruguay negotiations on services and investments (Young 2002). The code of conduct reached for the services negotiations foresaw that the Commission would remain the sole negotiator, but that representatives of the member states could attend all “substantive meetings and negotiations” on issues in which member states and the Community shared competences. The Council also obliged the Commission to keep it constantly informed about the results of informal meetings. That the Council was willing to have the Commission negotiate these issues, but only under tight oversight, confirms the view that delegation in this field is mainly a response to member states’ functional need of having a common representation in negotiations with third countries. For the 1996-1997 intergovernmental conference, the Commission again introduced a proposal for the redefinition of Article 113, which would have expanded the scope of EU competence to include all services trade and intellectual property rights. In its Commission Opinion “Reinforcing Political Union and Preparing for Enlargement”, it wrote: “The Treaty should be updated to take account of the radical changes in the structure of the world economy, in which services, intellectual property and direct foreign investment play an increasingly important role” (European Commission 1996). A few member states, prominently among them Belgium, but in contrast to a few years earlier also Germany and the Netherlands, supported the Commission’s demand for a new, wider formulation of Article 113 (Meunier and Nicolaïdis 1999: 495). Especially the idea of including foreign direct investments under Community competencies received significant backing. Resistance by a few member states, however, forced the reflection group that prepared the intergovernmental 17

conference to conclude that members continued to be divided on this issue (Reflection Group 1995). In fact, the intergovernmental conference did not decide on any new delegation of competencies in the trade field (Niemann 2006). The only change that it introduced to Article 113 (besides renaming it to Article 133) was a provision that allowed the Council by unanimous vote (and after consultation of the European Parliament) to include new trade issues under exclusive Community competence. This provision ensured that no other intergovernmental conference would be needed to delegate powers on this issue to the EU level. While this competence given to a Community institution to increase the Community’s competence was an interesting legal construction, it cannot be seen as an indication of member states losing control of the process. In fact, the intergovernmental conference’s result can best be explained with reference to the strong control that national trade officials exercised over this dossier (Niemann 2006: 137). No major changes were introduced to the provisions governing the other aspects of the EU’s foreign economic policy. The negotiations on the trade chapter in the 2000 intergovernmental conference were influenced by the parallel attempt to launch new negotiations in the framework of the WTO. This round (then known as Millennium Round, later called Doha Development Agenda) was expected to encompass a large number of issues, including competition policy, investments, and services. In view of this agenda, the Commission had a better basis to claim a need for revised competencies than a few years earlier. Moreover, by this stage member states were quite certain that the EU would soon grow to 25 member countries, creating a need for more efficient decision-making procedures. Nevertheless, the re-drafting of Article 133 proved highly contentious. The Commission’s position, which resembled the one it had already adopted in the 1991 intergovernmental conference, was supported by the Benelux countries, Finland, Italy, and Sweden. The outcome of the negotiations, however, again only slightly increased Community competencies in this area (Eeckhout 2004: 52-53). The new treaty 18

demanded an alignment between internal and external decision making rules on all questions. It extended EU competencies to all types of services and the trade-related aspects of intellectual property rights, but cultural and audiovisual, education, and human health services remained excluded. Member states also were not willing to extend Community competence to the topic of foreign direct investments. While Nice thus slightly expanded EU competence and the use of qualified majority voting in the trade field (in line with what has been described as a “general momentum to expand qualified majority voting”, Meunier 2005: 32), member states had no difficulty to constrain the Commission on the most sensitive issues. Piet Eeckhout (2004: 53) even concludes that given the small changes introduced with respect to trade policy, “the Treaty drafters could have spared themselves the trouble.” The treaty also made some changes to the provisions on development policy, by adding a title on “Economic, Financial and Technical Cooperation with Third Countries” that allowed the Commission to carry out cooperation measures with third countries (Eeckhout 2004: 117). Inclusion of this provision was in response to an ECJ judgment that had pointed out the limits of EU competence in this area.13 Interestingly, the Treaty of Lisbon made clear that this provision only applies to third countries other than developing countries. Independent of the Nice Treaty, in the early 2000s the Commission gained some additional competence in the area of international governance of financial markets by acting as representative of the EU in the EU-United States Financial Markets Regulatory Dialogue, which was established in 2002. Despite this delegation, however, the policy field continues to be characterized by a “limited delegation of competencies to supranational actors” (Mügge 2011). The only exception is the area of accounting standards, where the Commission has been negotiating with third countries about mutual recognition (Dür 2011; Mügge 2011). This agent discretion can largely be explained with reference to the homogeneity of preferences

13

ECJ Case C-268/94 (Portugal v. Council).

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among member states in this area, which made it easy for the agent to steer a course that is easily approved by the principals. The EU’s conduct of its international competition and monetary policies did not undergo any major changes in this period. Overall, the conclusion of this section is that Commission activism did not enhance its autonomy with respect to foreign economic policies in the 1990s and early 2000s. 8.6

Towards a European Foreign Economic Policy?

By the time the Constitutional Treaty was negotiated, the Doha Development Agenda (ongoing since 2001) had already started. Although the number of issues on the agenda of this international trade negotiation was cut in the wake of the failed WTO ministerial meeting in Cancún (2003), the negotiations showed that the EU had to be able to negotiate on many issues going beyond traditional commercial policy. The efficiency rationale thus at least partly explains that the draft for a European Constitution drawn up by the European Convention in 2003 listed trade policy, including all services trade, intellectual property rights, and investments, as exclusive EU competence (European Convention 2003). Unanimity would only remain for agreements in the fields of trade in services involving the movement of persons and the commercial aspects of intellectual property rights, as long as those agreements included provisions on which the EU decides by unanimity internally. Unanimity, moreover, was required for agreements on trade in cultural and audiovisual services, if the agreements’ provisions threatened the EU’s cultural and linguistic diversity. The inclusion of investments in the list of Community competencies made functional sense, as international services negotiations already cover foreign direct investments (the commercial presence mode of services provision). The extension to investments thus only really affected foreign direct investments in the manufacturing sector. While the Constitutional Treaty did not enter into force because Dutch and French voters rejected it in referendums in 2005, the main innovations foreseen for trade policy 20

survived in the Lisbon Treaty. The most significant change that the Lisbon Treaty brought to the EU’s foreign economic policy was the inclusion of foreign direct investments (at least some of them) under exclusive Community competence. One implication of this change is that future bilateral investment treaties (BITs) will most likely be negotiated by the Commission (together with the member states) rather than the member states themselves. At the time of the Lisbon Treaty’s entry into force in 2009, the EU’s 27 member countries were part of about 1300 BITs (Bungenberg 2010: 135). At least some of these agreements will have to be renegotiated as Union BITs. While the Commission was supportive of such an extension of its competencies, member state interests drove this delegation step. Member states felt that they had to react to the negotiation of free trade agreements including detailed investment provisions by third countries, particularly the United States.14 The 2007 United States-Republic of Korea free trade agreement, for example, includes 35 pages of provisions on foreign direct investments.15 The EU thus has been under pressure to sign free trade agreements with investment provisions, a task that is made much easier if this policy forms part of Community competencies. That member states agreed to this delegation of competencies also was a result of the declining importance of BITs for foreign investments. BITs only protect foreign direct investments, whereas many free trade agreements both protect and liberalize foreign direct investments. A further element to this story is that the narrow definition of foreign direct investments in EU law and the need to include provisions on investment protection in BITs mean that in practice the new EU investment treaties will have to be signed as mixed agreements that require full involvement by member states and unanimity in the Council (Tietje 2009: 17; Bungenberg 2010: 147). 14

For this competition in signing free trade agreements, see Dür 2010.

15

The text of the agreement can be found at: http://www.ustr.gov/trade-agreements/free-trade-agreements/korus-

fta/final-text.

21

The entry into force of the Lisbon Treaty has not undermined member states’ ability to closely control the Commission in the trade field. In fact, the breadth of modern trade agreements ensures that they will have to be negotiated as mixed agreements even under the new treaty provisions, for example because they include provisions on investment protection, cultural services, or tax policy. Each member state thus maintains an effective veto over broad trade agreements. This has been witnessed in the debate about the EU-Republic of Korea free trade agreement that took place in September 2010. The Italian government was unhappy about provisions for the automobile sector included in this agreement (which it thought would put into danger Fiat’s production of small cars) and threatened to veto the agreement. The issue could not be resolved before a meeting of the European Council, in which Italy managed both to delay the entry into force of the agreement and to include a provision that would allow the EU to reinstate tariffs if Korean products flooded the EU market (Asia Business, 16 September 2010). In the field of development cooperation, too, the Lisbon Treaty expanded the EU’s competencies. In particular, it added an article (Article 214) on humanitarian aid that allows the EU to provide ad hoc assistance to third countries. Importantly, it permits the Union to sign agreements with third countries and international organizations that facilitate the provision of humanitarian aid. The article clearly stipulates, however, that the humanitarian measures of the EU and member states should complement each other; that is, the provision of humanitarian aid is a shared competence. Of greater importance for the EU’s development policy was a policy statement, entitled European Consensus on Development, which was signed by the European Parliament, the Council, and the Commission in 2005 (European Parliament, Council, and Commission 2005). The Consensus, which was mainly advocated by the Commission, for the first time set out a list of objectives that should guide the development policies of both the Community and the member states. It stressed the “particular role and comparative advantages of the Community” and listed the areas in which 22

the Commission could “provide added value”. It also repeatedly stressed, however, that development cooperation is a shared competence and that Community development policy should “be complementary to the policies pursued by the Member States.” Member states’ continued tight control over their agents in the field of foreign economic policy is also illustrated by a failed Commission attempt to revise the antidumping instrument (for this, see De Bièvre and Eckhardt 2011). In 2006, the Commission declared its support for a reform of the EU’s antidumping instrument, which should give a greater role to the interests of importers and retailers and thus reduce the number of cases in which antidumping duties are imposed. A public consultation launched in December 2006, however, showed the strength of opposition to its proposal. A strong anti-reform group mobilized, effectively blocking the attempt at antidumping reform. This again is an indication of the limited ability of the agent to use its position to change the EU’s institutional set-up for foreign economic policy-making. 8.7

Conclusion

This chapter has highlighted the limits to delegation in the field of foreign economic policy. Clearly, the EU’s competencies in this field have expanded considerably since the Treaty establishing the European Economic Community. The EU has become a major player not only with respect to trade policy, which has been an exclusive community competence from the beginning, but also with respect to development co-operation and foreign competition policy. It has also gained some competencies in monetary and exchange policy and external financial policy. Much of the literature on European integration leads to the expectation that this relatively far-reaching Europeanization of foreign economic policy has shifted power from the member states to their agents. Contrary to this expectation, however, at any stage of the development of the EU’s competencies in the field of foreign economic policy, principals 23

(understood both as individual member states and as collective entity) have been in control of the process of delegation. Attempts by agents (in particular the Commission) to change their contracts in their favour – for example in intergovernmental conferences – have repeatedly failed. This has been most evident in the trade realm, where member states have ignored proposals by the Commission to expand its competencies in the Maastricht and Amsterdam treaties. Principals have not only maintained control of the process of delegation, but they have also used a series of mechanisms to ensure that policy outcomes in this field have remained in line with their preferences. Among the mechanisms they have employed are setting up competing agents (for example, in development policy), giving detailed instructions before and during negotiations (with initial mandates often being kept vague, but principals giving guidance throughout the negotiations, for example through the Trade Policy Committee), and threatening with a veto (for example, towards the end of the Uruguay Round or with respect to the EU-Korea free trade agreement). In short, the relatively far-reaching Europeanization of foreign economic policy has not undermined principals’ control of this policy field.

Bibliography Alkema, Y. (1999) ‘European-American Trade Policies, 1961-1963’, in D. Brinkley and R. T. Griffiths (eds) John F. Kennedy and Europe, Baton Rouge: Louisiana State University Press, pp. 212-34. Billiet, S. (2006) ‘From GATT to the WTO: The Internal Struggle for External Competences in the EU’, Journal of Common Market Studies 44(5): 899-919. Bourgeois, J. H. J. (1993) ‘Competition Policy and Commercial Policy’, in M. Maresceau (ed.) The European Community’s Commercial Policy after 1992: The Legal Dimension, Dordrecht: Kluwer Academic Publishers, pp. 113-33.

24

Bourgeois, J. H. J. (1995) ‘The EC in the WTO and Advisory Opinion 1/94: An Echternach Procession’, Common Market Law Review 32: 763-87. Bungenberg, M. (2010) ‘Going Global? The EU Common Commerical Policy after Lisbon’, in C. Herrmann and J. P. Terhechte (eds) European Yearbook of International Law 2010, Heidelberg: Springer, pp. 123-151. Carbone, M. (2007) The European Union and International Development: The Politics of Foreign Aid, London: Routledge. Commission of the European Communities (1991) ‘Initial Contributions by the Commission to the Intergovernmental Conference on Political Union (SEC(91) 500)’. Damro, C. (2007) ‘EU Delegation and Agency in International Trade Negotiations: A Cautionary Comparison’, Journal of Common Market Studies 45(4): 883-903. De Bièvre, D. and A. Dür (2005) ‘Constituency Interests and Delegation in European and American Trade Policy’, Comparative Political Studies 38(10): 1271-1296. De Bièvre, D. and J. Eckhardt (2011) ‘Interest Groups and the Failure of EU Antidumping Reform’, Journal of European Public Policy 18(3). Dür, A. (2008) ‘Bringing Economic Interests Back Into the Study of EU Trade PolicyMaking’, British Journal of Politics and International Relations 10(1): 27-45. Dür, A. (2010) Protection for Exporters: Power and Discrimination in Transatlantic Trade Relations, 1930-2010, Ithaca: Cornell University Press. Dür, A. (2011) ‘Fortress Europe or Open Door Europe? The External Impact of the EU’s Single Market in Financial Services’, Journal of European Public Policy 18(5). Dür, A. and M. Elsig (2011) ‘Principals, Agents, and the European Union’s Foreign Economic Policies’, Journal of European Public Policy 18(3). Eeckhout, P. (2004) External Relations of the European Union: Legal and Constitutional Foundations, Oxford: Oxford University Press.

25

Eichengreen, B. and F. Ghironi (1996) ‘European Monetary Unification and International Monetary Cooperation’, unpublished manuscript, University of California, Berkeley. Elsig, M. (2002) The EU’s Common Commercial Policy: Institutions, Interests and Ideas, Aldershot: Ashgate. Elsig, M. (2007) ‘The EU’s Choice of Regulatory Venues for Trade Negotiations: A Tale of Agency Power?’, Journal of Common Market Studies 45(4): 927-948. European Commission (1996) ‘Reinforcing Political Union and Preparing for Enlargement’, COM (96) 90 final, Brussels: European Communities. European Convention (2003) ‘Report from the Presidency of the Convention to the President of the European Council’, CONV 851/03. European Parliament, Council and Commission (2005) ‘The European Consensus’ (2006/C 46/01). Hawkins, D. and W. Jacoby (2006) ‘How Agents Matter’, in Darren Hawkins et al. (eds.) Delegation and Agency in International Organizations, Cambridge: Cambridge University Press, pp. 197-228. Hawkins, D., D. Lake, D. Nielson and M. Tierney (2006) ‘Delegation under Anarchy: States, International Organizations, and Principal-Agent Theory’, in D. Hawkins, D. Lake, D. Nielson and M. Tierney (eds) Delegation and Agency in International Organizations, Cambridge: Cambridge University Press. Hewitt, A. and K. Whiteman (2004) ‘The Commission and Development Policy: Bureaucratic Politics in EU Aid - From the Lomé Leap Forward to the Difficulties of Adapting to the Twenty-first Century’, in K. Arts and A. K. Dickson (eds) EU Development Cooperation: From Model to Symbol, Manchester: Manchester University Press, pp. 133-48. Hilf, M. (1995) ‘The ECJ’s Opinion 1/94 on the WTO – No Surprise, but Wise?’, European Journal of International Law 6(2): 1-15. 26

Johnson, M. (1998) European Community Trade Policy and the Article 113 Committee, London: Royal Institute of International Affairs. Maresceau, M. (1993) ‘The Concept “Common Commercial Policy” and the Difficult Road to Maastricht’, in M. Maresceau (ed.) The European Community's Commercial Policy after 1992: The Legal Dimension, Dordrecht: Kluwer Academic Publishers, pp. 3-19. Meunier, S. (2005) Trading Voices: The European Union in International Commercial Negotiations, Princeton: Princeton University Press. Meunier, S. and K. Nicolaïdis (1999) ‘Who Speaks for Europe? The Delegation of Trade Authority in the European Union’, Journal of Common Market Studies 37(3): 477501. Mügge, D. (2011) ‘The European Presence in Global Financial Governance: A PrincipalAgent Perspective’, Journal of European Public Policy 18(3). Nicolaïdis, K. and S. Meunier (2002) ‘Revisiting Trade Competence in the European Union: Amsterdam, Nice, and Beyond’, in M. Hosli, A. M. A. van Deemen, and M. Widgrén (eds) Institutional Challenges in the European Union, London: Routledge, pp. 173201. Niemann, A. (2006) Explaining Decisions in the European Union, Cambridge: Cambridge University Press. Pollack, M. (2003) The Engines of European Integration: Delegation, Agency, and Agenda Setting in the EU, Oxford: Oxford University Press. Tietje, C. (2009) ‘Die Außenwirtschaftsverfassung der EU nach dem Vertrag von Lissabon’, Beiträge zum Transnationalen Wirtschaftsrecht No. 83. Vahl, R. (1997) Leadership Disguise: The Role of the European Commission in EC DecisionMaking on Agriculture in the Uruguay Round, Aldershot: Ashgate.

27

Wonka, A. (2007) ‘Technocratic and Independent? The Appointment of European Commissioners and its Policy Implications’, Journal of European Public Policy 14(2): 169-89. Young, A. R. (2002) Extending European Cooperation: The European Union and the ‘New’ International Trade Agenda, Manchester: Manchester University Press.

Europeanization score: 8 (but with some variation across the various policy fields subsumed under the label “foreign economic policies”)

Appendix: Landmark Events Year

Event

1957

Treaty establishing the European Economic Community foresees the establishment of a Common Commercial Policy and the association of overseas territories

1959

Entry into force of the Common Commercial Policy

1960-62

First major international trade negotiations in which Common Commercial Policy is applied

1963

EEC signs first Yaoundé Convention

1966

Luxembourg compromise

1968

Antidumping regulation

1970

First major ECJ judgment on commercial policy established the doctrine of parallelism

1973

Creation of the European Monetary Cooperation Fund

1975

ECJ confirmation of exclusive Community competence in trade policy

1975

Lomé I Convention signed

1976

ECJ rules that Community has external powers even in the absence of internal measures

1978

ECJ adopts dynamic understanding of trade policy

28

1979

Debate about who should sign the Tokyo Round codes

1986

Council agrees to have Commission negotiate on all aspects of the Uruguay Round

1988

Second Banking Directive entrusts Commission with some external powers in the regulation of financial markets

1991

EU-US competition cooperation agreement

1992

Blair House accord

1993

Entry into force of the Maastricht Treaty that includes a chapter on development assistance and creates the European System of Central Banks

1994

Dispute over the signing of the Uruguay Round agreement

1994

ECJ Opinion 1/94 limits Community competence in trade policy

1997

Amsterdam Treaty makes only minor changes to the provisions for foreign economic policy

2000

Nice Treaty slightly expands Union competencies with respect to foreign economic policy-making

2002

EU-United States Financial Markets Regulatory Dialogue

2003

Convention draft for a Constitutional Treaty foresees extension of Community competence on trade policy

2005

European Consensus on Development establishes common objectives for development cooperation

2006

Commission launches failed attempt to reform the EU’s antidumping policy

2009

Entry into force of the Lisbon Treaty leads to further delegation of trade policy competences to the European level

29

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